Davisons Solicitors (a firm) v Nationwide Building Society

On 12th December 2008 the claimant Nationwide Building Society (“Nationwide”) offered to Kalpesh Kumar Hasmukh Patel (“Mr Patel”) a loan of £187,500 to enable him to buy 61 Avery Road, Sutton Coldfield, West Midlands, B73 6QD (“the Property”) for £249,995. The freehold of the Property was registered in the name of Shamsun Naher Begum. It was subject to a registered charge in favour of G.E.Money Home Lending Ltd. The offer specified the defendant (“Davisons”) as the solicitors and the conditions required them to be instructed on the basis of the Council of Mortgage Lenders Handbook current at that time (“the CML Handbook”). I shall refer to relevant parts of the CML Handbook later; for the present it is sufficient to note that paragraph 10.3.4 required Davisons to hold any loan money released to them on trust for Nationwide until completion. Davisons were duly instructed by both Mr Patel and Nationwide to act in respect of his purchase and mortgage loan; the individual within the firm responsible for the work was Mr Darryl Wilkes.

On 30th January 2009 Rothschild, a firm of solicitors based in Corporation Street, Birmingham wrote to Davisons from an office in Coventry Road, Small Heath. The letter, signed by Mr Bipin Kumar Gill and headed “61 Avery Road”, suggested that Rothschild were acting for Shamsun Naher Begum as the seller. Rothschild indicated that they held a deposit paid to them by Mr Patel of £62,995 and that their client would pay the stamp duty by way of gift to Mr Patel. This information was passed by Davisons to Nationwide which reduced the amount of the mortgage loan to £185,620 and £995 for fees. Because Mr Wilkes had not previously dealt with Rothschild or Mr Gill he checked their existence and office at Small Heath, as recommended in paragraph A3.2 of the CML Handbook and the Law Society’s Green Card, by going to the websites maintained by the Law Society and the Solicitors Regulation Authority. The websites confirmed that Mr B.K.Gill was a duly qualified solicitor and sole practitioner and the existence of the Rothschild practice with branches in Birmingham and Small Heath.

The matter proceeded, apparently normally, as I shall describe in detail later. Rothschild confirmed to Davisons on 24th February 2009 that they would have sufficient funds on completion with which to discharge the existing mortgage. On 5th March 2009 Davisons sent Rothschild a transfer form for their approval and asked for replies to the standard protocol requisitions TA13. On the same day Rothschild replied enclosing a copy of the transfer signed by their client and completed requisitions on title but on the OYEZ form not TA13 as requested. I shall refer to those answers in due course in greater detail, for present purposes it is sufficient to record that in requisition 4(A) Rothschild confirmed that the charge in favour of G. E. Money Home Lending Ltd would be discharged and in requisition 7(D) Rothschild agreed to comply with the Law Society’s Code for completion by post (1998 Edition). Paragraph 9(ii) of that code provides that when completing the seller’s solicitor undertakes to redeem or obtain discharges for existing charges.

On 9th March 2009 Nationwide released £185,620 to Davisons. On 12th March 2009 contracts were signed and exchanged by telephone under the Law Society’s Formula B, the charge in favour of Nationwide was executed by Mr Patel and the purchase price was remitted by CHAPS by Davisons to Rothschild. Thereafter Mr Patel was duly registered as the proprietor of the freehold of the Property but the charge in favour of G.E.Money Home Lending Ltd was not discharged and that in favour of Nationwide was not registered.

Subsequent investigation has revealed that although Mr B.K.Gill is indeed a solicitor practising in the name of Rothschild from premises in Birmingham he has never practised from premises in Small Heath. The notification of that business address to the Law Society and the Solicitors Regulation Authority was given by an impostor. Although Mr Gill became aware of such notification in December 2008 and promptly notified the Law Society and the Solicitors Regulation Authority no steps were taken by them to remove that address from their websites until after the events to which I have referred. It appears that even now the vendor remains in occupation of The Property and the instalments due to G.E.Money Home Lending Ltd under their charge continue to be paid.

These proceedings were commenced by Nationwide against Davisons on 6th March 2011. They seek damages, not for breach of any duty of care, but for breach of the retainer and repayment of the money transferred by Nationwide to Davisons or equitable compensation for breach of the trust arising under paragraph 10.3.4 of the CML Handbook. In its defence Davisons denied liability and, in the alternative, sought relief under s.61 Trustee Act 1925 on the ground that it had acted honestly and reasonably and ought fairly to be excused for any breach of trust for which it might be liable. The action was heard by Ms Catherine Newman QC, sitting as a deputy High Court judge of the Queen’s Bench Division on 18th to 20th January 2012. For the reasons given in her judgment handed down on 24th April 2012 she rejected Davisons defence and gave judgment in favour of Nationwide in the sum of £213,490 and costs. She refused permission to appeal, the requisite permission being given by Sir Scott Baker.

By a letter dated 12th November 2012 the Law Society sought permission to intervene. It submitted written submissions but did not seek to appear by counsel at the hearing. The application was opposed by Davisons but not by Nationwide. We invited oral argument from their respective counsel at the commencement of the hearing of the appeal. Having heard that argument we decided to reject the application of the Law Society and indicated that we would give our reasons later. I will give my reasons after I have dealt with this appeal. Accordingly the issues for our determination are whether the judge was right to conclude that:

The Council of Mortgage Lenders is a trade association for the residential mortgage lending industry. The CML Handbook is issued by the Council to provide the basis on which solicitors may be instructed by mortgage lenders. It contains 17 sections. The first section is entitled Instructions and Guidance. It makes clear in paragraph 1.3 that it does not affect the responsibilities of a solicitor under the general law or any practice rule or guidance issued by a relevant professional body. It is addressed by the lender to the solicitor (paragraph 1.2). Paragraph 1.4 prescribes the standard of care expected of the solicitor to be that of “a reasonably competent solicitor…acting on behalf of a mortgagee”.

Paragraph 3 is entitled Safeguards. Part A relates to solicitors and those working in practices regulated by the Solicitors Regulation Authority. Paragraph A3.2 provides:

“If you are not familiar with the seller’s solicitors…, you must verify that they appear in a legal directory or they are currently on record with the Law Society…as practising at the address shown on their note paper.”

The judge recorded in paragraph 8 of her judgment that:

“Mr Wilkes had not dealt with the firm of Rothschild before…He therefore sought to confirm the identity of the practice and the Small Heath Office with the Law Society and the SRA by checking the website. He checked both the branch office and Mr Gill. His investigations confirmed Mr Gill to be a solicitor and a sole practitioner and the existence of the Rothschild practice and the branch office.”

Paragraph 5 of the CML Handbook deals with Title. Paragraph 5.2 relates to searches. Paragraph 5.2.1 requires the solicitor to ensure that all usual and necessary searches and enquiries have been carried out. Paragraph 5.2.7 provides that:

“You must be satisfied that you will be able to certify that the title is good and marketable.”

This requirement is amplified in paragraph 5.4.1 providing that:

“The title to the property must be good and marketable free of any…charges or encumbrances which, at the time of completion, might reasonably be expected to materially adversely affect the value of the property…”

Paragraph 5.8 headed “First Legal Charge” provides that:

“On completion, we require a fully enforceable first charge by way of legal mortgage over the property executed by all owners of the legal estate. All existing charges must be redeemed on or before completion, unless we agree that an existing charge may be postponed…”

Paragraph 10 deals with the Loan and Certificate of Title. Paragraph 10.3.4 provides that:

“You must hold the loan on trust for us until completion. If completion is delayed, you must return it to us when and how we tell you.”

Paragraph 14 is headed “After Completion”. Paragraph 14.1, headed “Registration”, provides in paragraph 14.1.1.1:

“You must register our mortgage as a first legal charge at the Land Registry.”

As I have already recorded, the terms and conditions subject to which the mortgage loan was offered by Nationwide to Mr Patel stipulated that Mr Patel’s solicitor should be instructed by him on the basis of the CML Handbook. With the initial letter from Rothschild to Davisons was enclosed a draft contract for the sale of the Property from their client to Mr Patel. Mr Wilkes responded on 4th February 2009 asking for official copies of Register entries. He also communicated to Nationwide the fact and size of the deposit already paid by Mr Patel and the term as to payment of the stamp duty. In consequence the revised offer issued by Nationwide on 11th February 2009 was for a loan of £185,260 and £995 for fees. On 12th February 2009 Mr Wilkes wrote to Rothschild again asking for Official Copies of Register Entries and other documents to which his letter of 4th February had also referred. Rothschild complied with that request on the same day. The Official Copy Register Entries as at 19th February 2009 showed that Shamsun Naher Begum was the registered proprietor, having been registered with title absolute on 18th March 2008, subject to a charge dated 10th March 2006 in favour of G.E Money Home Lending Ltd. On 24th February 2009 Rothschild replied to Mr Wilkes letter dated 20th February. The writer confirmed:

“…that we will have sufficient funds to discharge the mortgage on the property from the proceeds of sale upon completion.”

On 4th March 2009 Mr Wilkes submitted a certificate of title to Nationwide. The following day he confirmed that transmission of the mortgage loan by Nationwide to the account of Davisons on 9th March was acceptable. Also on 5th March he sent to Rothschild a draft transfer deed. In addition he asked for “replies to standard protocol requisitions TA13”. The same day Rothschild responded with a copy of the transfer signed by their client and details of their account to which the purchase money was to be transmitted. They enclosed what was described as a completed Requisition on Title. The latter document was in the Oyez form, not TA13, and was not signed. The relevant requisitions are 4 and 7. They are as follows:

…

The corresponding requisitions in form TA 13 are requisitions 4.2 and 6.2 and 6.3. They are in the following form:

“WARNING: a reply to requisition 4.2 is treated as an undertaking. Great care must be taken when answering this requisition.

4.2

If we wish to complete through the post, please confirm that:

(a)

You undertake to adopt the Law Society’s Code for Completion by Post; and

(b)

The mortgages and charges listed in reply to 6.1 are those specified for the purpose of paragraph 3 of the Code.

…

6.2

Do you undertake to redeem or discharge the mortgages and charges listed in reply to 6.1 on completion, and to send to us Form DS1, DS3 and the receipted charge(s) or confirmation that notice of release or discharge in electronic form has been given to the Land Registry as soon as you receive them?

6.3

If you agree to adopt the current Law Society’s Code for Completion by Post, please confirm that you are the duly authorised agent of the proprietor of every mortgage or charge on the property which you have undertaken, in reply to 6.2 to redeem or discharge.”

Accordingly, by its answer to requisition 7(D) Rothschild agreed that the Law Society’s Code for Completion by Post should apply. So far as relevant that Code provides that:

“2.

On completion, the seller’s solicitor acts as the buyer’s solicitor’s agent without any fee or disbursements.

3.

The seller’s solicitor will specify in writing to the buyer’s solicitor before completion the mortgages or charges secured on the property which, on or before completion, will be redeemed or discharged to the extent that they relate to the property.

…

9.

When completing, the seller’s solicitor undertakes:

(i)…

(ii)

to redeem or obtain discharges for every mortgage or charge so far as it relates to the property specified under paragraph 3 which has not already been redeemed or discharged.

…

11.

The rights and obligations of the parties, under the contract or otherwise, are not affected by this code.”

The notes to the Code record, in note 3, that the Code embodies professional undertakings and, in note 7, that the reply to a requisition identifying charges to be redeemed on completion may amount to an undertaking.

The amount of the mortgage loan was duly transferred by Nationwide to the account of Davisons on 9th March. On 12th March 2009 Mr Patel signed his copy of the contract and it was exchanged with that signed by the seller by telephone under the Law Society’s Formula B. The transfer, already signed by the seller, was completed by Mr Patel. Mr Patel also executed a first legal charge over the property being bought in favour of Nationwide. The purchase money was transmitted from Davisons to Rothschild by CHAPS. Mr Wilkes confirmed completion of the purchase to Mr Patel. He also wrote to Rothschild confirming the credit to the account of the latter and asking for the

“charge certificate and all deeds and documents of title together with the appropriate discharge deed in respect of the mortgage or your undertaking to provide the same.”

The aftermath was recorded by the judge in paragraph 16 of her judgment in these terms:

“Nothing more was heard from Rothschild Small Heath. Mr Patel was registered as the proprietor at the Land Registry but the GE Money mortgage has not been discharged and no mortgage has been registered in favour of the Nationwide. I was told during the trial that Mr Patel remained so registered, and that the GE Money mortgage continued to be paid. Nationwide has only the protection of a unilateral Notice ranking behind GE Money’s first charge.”

The judge set out the facts in paragraphs 2 to 16. She summarised the cases for the parties in paragraphs 17 to 22 and the evidence of those witnesses who gave oral evidence before her in paragraphs 23 to 27. In paragraphs 28 to 40 she discussed the authorities to which she had been referred, in particular the decision of the Court of Appeal in Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 AER 884. I can summarise her conclusions relatively shortly.

First, the judge concluded that she could not find that the registration of Mr Patel as the proprietor of 61 Avery Road was a nullity. As she explained [41]:

“Several years have passed between the transaction and this trial and I was not told that any proceedings have been taken to rectify the register. As I have said, the GE Money mortgage apparently continues to be paid. No one made any allegations about the vendor, and none would have been relevant to the issues which I have to decide, but equally no one could say for certain that the vendor was not involved in the scam. The vendor may well have been, and be, content for Mr Patel to have the registered title. The scam may be limited to lying to the Law Society (about Rothschild Small Heath being a real branch of Rothschild) and relieving Nationwide of its money.”

Second, she concluded that Davisons were in breach of their retainer. She considered that the obligation set out in paragraph 5.8 of the CML Handbook (see paragraph 11 above) constituted a mandatory requirement that Nationwide were to have a fully enforceable first legal charge on completion for which purpose the pre-existing charge had to be redeemed. She concluded [44]:

“In the present case, Nationwide did not obtain a registered first legal charge or any charge on the Avery Road property, and did not get what they bargained for when they retained Davisons. Davisons were in breach of the terms of their retainer.”

Third, the judge then considered the claim based on breach of trust. She said [44]:

“…the question is whether Davisons had Nationwide’s authority to part with the loan money or acted in breach of trust? This turns on the answer to the question of whether the events of 12^th March 2009 amounted to completion of the purchase and of the grant of charge such that Davisons can say that they were authorised to release the advance moneys to Rothschild Small Heath. Prior to completion Davisons needed not only clear information about which pre-existing charge was to be redeemed at completion, but also an undertaking from a solicitor that he had GE Money’s authority to receive the sum intended to repay it (Guidance: Law Society’s Code for completion by post paragraph 4(ii)) and an undertaking from a solicitor to redeem or obtain a discharge for that GE Money charge insofar as that had not been done prior to completion (ibid para 9 (ii)). Davisons did not have such undertakings, not least because even the most impeccably worded undertaking from Rothschild Small Heath would not be that of a solicitor. This point is now amply covered by appellate authority. I find that Davisons were therefore in breach of their contract of retainer and acted in breach of trust in parting with the advance.”

Fourth, and finally, she considered the application of Davisons for relief under s.61 Trustee Act 1925. That section, so far as material, provides that:

“If it appears to the court that a trustee,…, is or may be personally liable for any breach of trust,…, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust…, then the court may relieve him either wholly or partly from personal liability for the same.”

The judge recorded that it was accepted, in her judgment, rightly, that Mr Wilkes had behaved honestly throughout. She then considered the respects in which Nationwide contended that Mr Wilkes had not acted reasonably. She rejected the first ten of them.

The eleventh was to the effect that Davisons parted with the loan money notwithstanding that (i) they did not have anything capable of being construed as a solicitor’s undertaking to discharge the existing first charge, (ii) the replies to the requisitions on title were unsigned and (iii) such replies contained nothing capable of being construed as a solicitor’s undertaking to discharge the existing first charge. The judge rejected (ii) but accepted (i) and (iii). I should set out her reasoning in full. She said [47(xi)]:

“Neither the requisitions, nor any other document, contained anything capable of being construed as a solicitor’s undertaking to discharge the first charge on completion. Mr Wilkes’ evidence was that he knew that the word ‘undertaking’ does not have to be used in order for one to be given, and he felt ‘in no doubt’ that the vendor’s solicitors were giving an undertaking in their Replies to the Requisitions. He gave evidence that his conviction in this respect was reinforced by the fact that Rothschild had confirmed that they would follow the Law Society’s Code for Completion by Post which itself provides, by a combination of Paragraphs 3 and 9 that when completing the seller’s solicitor undertakes to redeem or obtain discharges for all undischarged mortgages or charges which have been previously specified to the buyer’s solicitor as being those which will be discharged on or before completion. Rothschild had specified that the GE Money mortgage would be discharged on or before completion and it was obliged to give an undertaking that it would do so. Mr Wilkes put up a vigorous defence of his conduct in cross-examination. I accept that he believed that he had done enough, but in my judgment he had not done what he should have done. He had not got an undertaking in the Law Society’s recommended form, he had not got the replies to Requisitions in the form he had himself requested, that is to say in form TA 13 which also uses the express language of undertaking and draws attention specifically to the fact that undertakings are being given to redeem or discharge the identified charges or mortgages and send the buyer’s solicitor the Form DS1 or other evidence of redemption such as a receipted charge. He could not simply rely on a proposal to adopt the Law Society’s Code for completion by post as being the giving of the undertakings themselves, because the language of the Code does not say that it is. The notes to the Code, especially Note 7, say that information about charges to be redeemed can be given in replies to Requisitions on Title and such replies may themselves be undertakings. Had the Law Society intended that mere adoption of the Code should supplant the need for undertakings to be given separately and clearly, it would have said so in the Code itself, and expressly incorporated the forms of such undertaking. Moreover, the first question of Section 4 of the Requisitions asks for information, not for an undertaking. The answer to that question lists the mortgages which are to be paid off on completion. There might be mortgages or charges which are not being discharged on completion. Simply saying that the mortgage thus specified will be discharged on completion is not an undertaking to make it happen. Assuming that Mr Wilkes knew that the mortgage was not going to be paid off before completion, the answers given to the rest of section 4 of the Requisitions were odd and should have led to Mr Wilkes insisting on clarification of what was to happen on completion; they gave him no information about whether he was going to get a consent to dealing from GE Money on completion, a DS1 or simply an undertaking to hand over a discharge or vacating receipt later, and if so in what terms. This was information which a reasonable and sensible client would expect a reasonably careful solicitor to insist on having, and following through to the giving of the standard form or appropriately varied undertaking itself, before parting with money which he held on trust for his client. It was insufficient for Mr Wilkes to proceed, as in my judgment he did, without clearly worded undertakings on these matters, and assume, as he did, that because the Code for completion by post meant that undertakings had to be given, he had them already. His instructions obliged him to be satisfied that prior to or contemporaneously with the transfer of the property to Mr Patel, the GE Money mortgage would be discharged. In my judgment a reasonable solicitor acting carefully in the interest of his lender client would not be so satisfied on the information which Mr Wilkes had, and he parted with the money.”

In paragraph 48 she concluded that the answers to requisitions 4(A) and (B) were unsatisfactory and Mr Wilkes wrote as he did on 12th March (paragraph 17 above) because he recognised that he did not have the undertaking he needed. She concluded [50] that:

“In the present case I do not attach blame to Mr Wilkes for believing that what he had, he had from a solicitor, but in my judgment he was too ready to act as if he had the necessary authority to part with the money. I therefore refuse to grant relief under section 61 Trustee Act 1925.”

In this case the Bank was the mortgage lender and the defendants the solicitors. The solicitors were instructed by the Bank on the basis of the CML Handbook in connection with a loan on mortgage to Victor Davies to enable him to buy a property in Hadleywood. Repayment of the loan was to be secured by a first legal mortgage on the property in Hadleywood. The vendors were said to be Mr and Mrs Green and their solicitors a firm called Deen (“the Solicitors”). Mr and Mrs Green had not agreed to sell their property and knew nothing of what occurred. Though there was a reputable firm called Deen the individual purporting to be their employee was an impostor and the regional office from which the correspondence appeared to emanate non-existent. The transaction proceeded apparently normally. Completion information and requisitions on title were raised and answered on form TA13. The prior mortgage on the Hadleywood property was duly identified in response to paragraph 6.1, the undertaking sought in paragraph 6.2 duly given and, in response to paragraph 6.3 the parties agreed to adopt the Code for Completion by Post. At completion in accordance with the Code the Solicitors paid the purchase money to the impostor and he disappeared. The Bank sued the Solicitors for breach of contract or retainer, breach of trust and negligence. The Solicitors admitted the trust but sought relief under s.61 Trustee Act 1925. A trial of preliminary issues arising from that admission was then directed. The judge concluded that the Solicitors were liable for breach of trust but were not entitled to relief under s.61. The Solicitors appealed from the judge’s conclusion on the first point but not the second.

Plainly there are similarities between that case and this. But there are differences too. First, the Court of Appeal concluded [50] that the contract for sale of the Hadleywood property was a nullity. In the instant case the judge did not so conclude [41] and there is no appeal against that conclusion. Second, the question of breach of retainer though pleaded was not the subject matter of any preliminary issue before the judge or the Court of Appeal. Third, though there was no appeal against the judge’s refusal to grant relief, the grounds on which it was refused included a failure to check the existence of the branch office of Deen. By contrast, in this case, Mr Wilkes carried out the precautions laid down by paragraph A3.2 CML Handbook in order to verify the branch office of Rothschild. Nevertheless the decision of the Court of Appeal established propositions relevant to this appeal and binding on us.

The first is the meaning of ‘completion’ in paragraph 10.3.4 CML Handbook. In paragraph 46 Rimer LJ, with whom Mummery LJ and Sir Mark Potter agreed said:

“In my view, therefore, the judge was right to hold that 'completion' in clause 10.3.4 did not refer to the successive moments when the transfer and charge were respectively registered. It referred to the prior date when conventional completion occurred. [The Solicitors] were authorised by [the Bank] to release the loan money to enable such completion to take place. The trust was only destined to subsist until such time as it did.”

‘Conventional completion’ is a reference back to [39] where Rimer LJ said:

“'Completion' in a typical domestic sale and purchase transaction of a property with a registered title conventionally refers to the ceremony, or the agreed postal equivalent, at which the vendor and purchaser (or their respective agents) perform the prior contract. Putting it generally, the purchaser pays money to the vendor, which the vendor applies in redeeming the prior charges and satisfying the unpaid balance of the purchase money. The vendor, in exchange, gives vacant possession of the property to the purchaser and delivers to him the transfer and certificates of discharge of the prior charges. It is this exchange of money and documents that is normally referred to as completion.”

Rimer LJ concluded that there had been no completion in that case. He said [50]:

“The purported contract was a nullity, since the Greens had not agreed to sell their property to Mr Davies, nor had they authorised anyone to sell it to him in their name; and the purported completion of that nullity by way of the exchange of purchase money for forged documents could not in my view have amounted to completion. Nothing, said Lear, will come of nothing, and so it was here. Completion in the present context must mean the completion of a genuine contract by way of an exchange of real money in payment of the balance of the purchase price for real documents that will give the purchaser the means of registering the transfer of title to the property that he has agreed to buy and to charge. An exchange of real money for worthless forgeries in purported performance of a purported contract that was a nullity is not completion at all. Had that happened in this case, the parting with the loan money would have been a breach of trust.”

Rimer LJ went on to consider the position of solicitors duped by frauds such as occurred in that case. He pointed out [53] that the undertaking given in that case was not that of a solicitor and continued [54]:

“The result was that [the Solicitors] parted with the loan money in exchange for undertakings that were not of the nature they thought they were. They were themselves direct victims of the fraud and the relevant events of 4 September were in law a nullity, just as would have been an exchange of money for forged documents. Such a nullity also cannot be characterised as the completion of either the purchase or of the charge that [the Bank] instructed [the Solicitors] to obtain. It follows in my view that, as the events of 4 September did not amount to completion, [the Solicitors] had no authority from [the Bank] to release the loan money to [the impostor]. They paid it away in breach of trust for which, subject to obtaining relief under section 61, they were accountable to [the Bank].”

The Court of Appeal also considered the question whether the loss to the Bank in that case had been caused by the Solicitors’ breach of trust or by the Bank’s failure to exercise reasonable care in considering the loan application made by Victor Davies. Rimer LJ considered [58] that it would amount to a rewriting of paragraph 10.3.4 of the CML Handbook to conclude that the loss was caused by the Bank. He continued [60]:

“…it may at first blush be thought that [the Solicitors] did suffer a degree of unfairness. That, however, is to ignore that they failed to obtain relief under section 61; and that was because the judge found that, although they had acted honestly in relation to the transaction, they had not acted reasonably in it and so were not deserving of the merciful exercise by the court of its exculpatory discretion. Their material failings were (i) to establish that Deen actually had an office in Holland Park, which constituted a breach of clause A3.2 of Section 3 (Safeguards) of the Handbook; and (ii) to part for a second time with the money in late September when they knew that [the impostor] had breached their earlier undertakings. Whilst it is impossible not to have sympathy for [the Solicitors] in becoming enmeshed in the fraud, the judge's conclusion was that, by these two shortcomings, they brought their misfortune upon themselves. If they had instead performed their role as solicitors with exemplary professional care and efficiency, but had still parted with the loan money in circumstances that were objectively reasonable, the decision on the section 61 application might have been different.”

Rimer LJ concluded that it was the discretionary power under s.61 that provided the key to the claimed unfairness of holding a solicitor liable for breach of trust in circumstances such as that which prevailed in that case.

Counsel for Davisons pointed out that there has not apparently been any proper investigation of the extent of the fraud in this case. Thus, as the judge concluded, there was no evidence that the transfer had not been executed by Shamsun Naher Begum. There had been no evidence from Mr Gill. There had been no investigation of how or why the Small Heath office of Rothschild appeared in the registers maintained by the SRA and the Law Society in the first place, nor why it had not been removed when told in December 2008 of its wrongful inclusion. Why, in those circumstances, counsel for Davisons asked rhetorically should the whole of the loss fall on Davisons?

In relation to the three issues I have referred to in paragraph 7 above his submissions may be summarised as follows:

Counsel for Nationwide disputed each of them. In relation to the first he submitted that the relevant trust is to be found in paragraph 10.3.4 of the CML Handbook. He contended that we are bound by the decision of the Court of Appeal in Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 AER 884 to conclude that there had been no completion of the mortgage so as to discharge Davisons from that trust. In addition Davisons had no authority from Nationwide to pay the purchase money to Rothschild otherwise that on completion and observance of the precautions suggested by paragraph A3.2 of the CML Handbook did not confer it.

In relation to the second submission counsel for Nationwide supported the judge’s conclusions and her reasons. He pointed out, as she had done in paragraph 48 of her judgment, that the answer to paragraph 4B of the requisitions was ambiguous and confusing and should have been pursued. He relied on the facts, as he submitted, that Mr Wilkes had failed to obtain any express undertaking to discharge the G.E.Money charge or to obtain evidence of discharge after the event. He relied on the conclusion of the judge that Mr Wilkes did not fail to ask for an express undertaking to discharge because he thought that he had one already. He pointed out that the requirements Mr Wilkes sought to impose in his letter to Rothschild dated 12th March were, in any event, too late as the money had already been remitted by Davisons to Rothschild.

In relation to the third proposition, counsel for Nationwide pointed out that it did not arise unless we rejected his submissions in relation to both the first and second. He relied on the terms of paragraph 5.8 of the CML Handbook. He submitted that the terms of that paragraph, particularly when compared with others, were mandatory and inconsistent with any concept of care to which the standard indicated in paragraph 1.4 could apply. He relied on paragraphs in the judgment of Mr Randall QC, sitting as a deputy judge of the Chancery Division, in Mortgage Express v Iqbal Hafeez Solicitors [2011] EWHC (Ch) 3037 and the decision of the Court of Appeal in Platform Funding Ltd v Bank of Scotland plc [2009] QB 426.

In his reply counsel for Davisons accepted the propositions summarised by Rix LJ in paragraph 48 of the latter case with which Sir Anthony Clarke MR [69] expressly agreed. He said:

“I see no reason to give any of these cases, all of them in this court, any prominence over any other. They all turn on their own particular facts. They nevertheless allow the following conclusions: (1) that the default obligation is one limited to the taking and exercise of reasonable care; (2) that it requires special facts or clear language to impose an obligation stricter than that of reasonable care; (3) that a professional man will not readily be supposed to undertake to achieve a guaranteed result; and (4) that if he is undertaking with care that which he was retained or instructed to do, he will not readily be found to have nevertheless warranted to be responsible for a misfortune caused by the fraud of another. It follows from the jurisprudence and from these conclusions to be derived from them, however, that it is not possible to support a blanket approach whereby, even in the absence of an express warranty, a professional's responsibility is nevertheless always limited to the taking of reasonable care.”

The proposition for which counsel for Davisons contends was not the subject of any argument or conclusion of the Court of Appeal in Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 AER 884. On the facts of that case the point could not have arisen. Nor does it seem to have attracted the attention of the judge in this case. The submission, as I understood it, was to the effect that even accepting that completion had not taken place so that the trust imposed by paragraph 10.3.4 was thereby discharged, Davisons were authorised by Nationwide to pay the purchase price to Rothschild. The authority relied on is said to be derived from the CML Handbook as a whole and the actions of Davisons in carrying out the verification specified in paragraph A3.2.

Paragraph A3.2 appears in the CML Handbook under the heading ‘Safeguards’. It follows a requirement in paragraphs A3.1.1 and A3.1.2 that the solicitor follows the guidance of the Law Society laid down in its Green and Pink Cards and in relation to money laundering. No doubt, if the solicitor fails to do so certain legal consequences will ensue; but there is nothing in the general law or the terms of the CML Handbook to indicate what consequences follow compliance with that guidance. If the CML Handbook does not express any consequences then none can be implied save those which satisfy the usual tests for the implication of terms. If the sale and purchase is duly completed no such authority is needed; but, if it is not, then, in my view, it cannot be implied from the terms of paragraph A3.2 and the fact of carrying out the verification they indicate. Not only would it not be required to give commercial efficacy to this part of the contract but it would undermine its fundamental purpose to ensure that the lender’s money is only paid in exchange for a charge securing its repayment and that of a purchaser only in exchange for documents of title.

In my view it is impossible to give the weight to paragraph A3.2 counsel for Davisons seeks to put on it. The trust imposed on the loan moneys in the hands of Davisons by paragraph 10.3.4 of the CML Handbook could only be discharged by completion of the purchase or the return of the money to Nationwide. As shown by Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 AER 884 no such completion ever took place and the money was not returned.

I have set out the terms of the section in paragraph 23 above. It is not disputed that it imposes three conditions, honesty, reasonableness and the exercise of the Court’s discretion. It is not disputed that Mr Wilkes acted honestly throughout. The judge concluded that he did not act reasonably for the extended reasons she gave in paragraph 47(xi), quoted in full in paragraph 24 above. There is no clear indication in her judgment that she ever addressed the issue of discretion. She did not need to do so and the passages I have quoted in paragraphs 24 and 25 above suggest that she based her decision on reasonableness alone. Accordingly, the two questions for this court are whether the judge was right on reasonableness and, if not, whether and if so how the discretion conferred by s.61 should be exercised by this court.

The gravamen of the judge’s conclusion on reasonableness is to be found in the ante-penultimate sentence in paragraph 47(xi) of her judgment that:

“It was insufficient for Mr Wilkes to proceed, as in my judgment he did, without clearly worded undertakings on these matters, and assume, as he did, that because the Code for completion by post meant that undertakings had to be given, he had them already.”

The undertakings in question were that the prior charge would be redeemed on completion and that evidence of its discharge would be provided after completion.

I have set out the terms of the various requisitions, codes and correspondence in paragraphs 14 to 17 above. It is true, as the judge recorded, that the requisitions were not answered, as requested, on form TA13. If they had been then the answer to question 6.2 would have been in the affirmative. The judge appears to have thought that, if that form had been used and so completed it would have constituted a sufficient undertaking. I agree; but then she goes on to hold that the answers to questions 4(A) and 7(D) on the Oyez form and paragraph 9(ii) of the Law Society’s Code for Completion by Post did not. I do not understand why not. Paragraph 9(ii) of the Code clearly states the terms of the undertaking which is given when and as a consequence of the seller’s solicitor completion by post in accordance with the Code. Rothschild had agreed so to complete in its answer on the Oyez form to question 7(D). Though unsigned, the latter form was sent under cover of the letter dated 5th March 2009. There was no such undertaking in fact because the writer of the letter was not a solicitor. Mr Wilkes did not know that but he had taken the designated steps to check.

The judge refers to Note 7 to the Code. The relevant part of the note states: “such a reply [to a requisition on title] may also amount to an undertaking”. She goes on to suggest that had it been intended that the mere adoption of the Code would supplant the need for undertakings the Code would have said so. If, as the judge appears to have considered, an answer to question 6.2 on form TA13 was capable of being a sufficient undertaking I do not understand why the terms of paragraph 9(ii) of the Code when coupled with the agreement to adopt the Code in answer to question 7(D) on the Oyez form was not enough. The terms of paragraph 9(ii) of the one are as explicit and clear as the answer to question 6.2 of the other.

I agree with the judge that question 4(A) of the Oyez form only asks for information, not an undertaking; but so too does requisition 4.2 of form TA 13. Likewise I agree with the judge that the answers to question 4(B) of the Oyez form are odd, but they did not undermine the clear acceptance of the Code by the answer to question 7(D) and thereby constituting the undertaking provided for by paragraph 9(ii) of the Code.

In my view, Mr Wilkes had obtained the benefit of an undertaking to redeem the prior charge from the person he reasonably believed to be the seller’s solicitor. It is clear from his evidence, described by the judge in the opening sentences of paragraph 47(xi) of her judgment, that that is what he believed. It seems likely that he became confused by the questions asked in cross-examination as to which form contained which provision. In my view that cannot detract from the fact that he had the benefit of the undertaking that he thought that he had.

It is true that Mr Wilkes did not obtain the undertaking to submit evidence of the discharge of the mortgage which would have been given had Rothschild used form TA13. In addition his letter dated 12th March, quoted in paragraph 17, recognised that deficiency. But no such documents could be provided in advance of completion by which time Davisons would have parted with the purchase money anyway.

The section only requires Mr Wilkes to have acted reasonably. That does not, in my view, predicate that he has necessarily complied with best practice in all respects. The relevant action must at least be connected with the loss for which relief is sought and the requisite standard is that of reasonableness not of perfection. It is seldom helpful to compare conduct found to be reasonable or not in one case with that of another; but the factual similarity of this appeal with that in Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 AER 884 justifies pointing out that the conduct of the solicitors in that case described in [60] quoted in paragraph 31 above was quite different from that relied on in this case. In my view, Mr Wilkes did, in all the circumstances, act reasonably.

It was suggested by counsel for Nationwide that if we reached this conclusion we should remit the matter to a judge of the Queen’s Bench Division to exercise the discretion conferred by s.61. I do not agree. We are entitled to exercise it because this court is entitled to exercise all the powers of the court below, CPR Rule 52.10(1). The grounds on which Nationwide contended that Davisons should not be granted relief were fully pleaded in paragraph 2 of its reply. Each of them was considered by the judge in paragraph 47(i) to (xi). No party suggested that any further evidence is required. In those circumstances it seems to me that the overriding objective requires us to exercise the statutory discretion, CPR r.1.4(2)(i).

Little argument was directed to the exercise of the discretion if we found that Davisons had acted honestly and reasonably. This is not surprising. The loss sustained by Nationwide was caused by the fraud of an unconnected third party. Even if Davisons had insisted on answers to requisitions on form TA13 and on separate written undertakings it is probable that the impostor would have complied, the matter would have proceeded to apparent completion by post and the impostor would have disappeared with the balance of the purchase money. The lapse from best practice, if any, did not cause the loss to Nationwide. Given that Mr Wilkes acted both honestly and reasonably I can see no ground on which Davisons should be denied relief from all liability. I would so order.

If the other members of the court agree with my conclusions in relation to relief under s.61 then the question whether Davisons were in breach of their retainer becomes a live one. The argument on this issue was referred to by the judge in paragraph 31 of her judgment. It appears from paragraph 42 of her judgment that she accepted it. In that paragraph she said:

“What were Davisons obliged to achieve? In the present case, the Claimant argued that an unqualified obligation is one which, in the manner in which it is expressed, does not depend on the exercise of care and skill by the solicitor. A detailed perusal of the CML Lenders’ Handbook (which I need not repeat) shows that some duties are expressed in mandatory terms and others in terms which are not. There was a clear mandatory requirement at Paragraph 5.8 of the CML Lenders’ Handbook and incorporated in to the retainer that Nationwide were to have a fully enforceable first legal charge on completion and the pre-existing charge had to be redeemed.”

In paragraph 44 the judge found that Davisons were in breach of that mandatory requirement. She said:

“In the present case, Nationwide did not obtain a registered first legal charge or any charge on the Avery Road property, and did not get what they bargained for when they retained Davisons. Davisons were in breach of the terms of their retainer.”

Counsel for Davisons submits that the judge failed to deal with the argument she had summarised in paragraph 31 of her judgment to the effect that even apparently unconditional obligations may on their proper construction amount to no more than an obligation to exercise reasonable skill and care. He submits that the effect of the authorities was accurately summarised by the passage in the judgment of Rix LJ in Platform Funding Ltd v Bank of Scotland plc [2009] QB 426,[48] I have quoted in paragraph 37 above. He referred us to Barclays Bank plc v Weeks Legg & Dean [1999] QB 309; Midland Bank plc v Cox McQueen [1999] Ll.Rep PN 223; Patel v Daybells [2001] Ll.Rep PN 738. Thus, in Barclays Bank plc v Weeks Legg & Dean the undertaking of a firm of solicitors that the money received from their client would be applied solely for acquiring a good marketable title to specific property was not broken by the mere failure to acquire such a title. At page 327 Millett LJ said:

“In my judgment the question turns on what it is that the Solicitors undertake to obtain in exchange for the money. Is it, as the Bank submits, "what is in fact a good marketable title"? Or is it, as the Solicitors submit, "what reasonably appears to be a good marketable title?" The actual words of the undertaking are obviously capable of either construction.

I was at first disposed to think that the undertaking should be construed literally, and that the construction for which the Solicitors were contending required too much to be implied to be accepted. On further reflection, however, I have changed my mind, though I would substitute the formulation "what a reasonably competent solicitor acting with proper skill and care would accept as a good marketable title."

In Midland Bank plc v Cox McQueen the solicitors were instructed by the bank to obtain the signature of a specified individual to various security documents. They failed to do so and were sued by the bank for, amongst other causes of action, non-performance of their retainer. That contention was rejected by the Court of Appeal. At page 226 Lord Woolf MR said:

“Obligations of this nature are not likely to be of an absolute nature. They are better suited to a requirement to exercise a reasonable standard of care. The words do not compel the conclusion for which the bank contends.”

At page 230 Mummery LJ added:

“The letter was a retainer by the bank of a firm of solicitors to perform professional services of an advisory and ministerial kind for the bank. Professional services provided by the solicitors would not normally involve the guaranteeing of a result by them, such as verifying the identity of Mrs Dukes, let alone providing the bank with what would amount to an insurance policy against the risk of fraud occurring in a transaction entered into by the bank with its customer Mr Dukes; a transaction about which the solicitors were told little by the bank and in which they had no input or influence.”

In Patel v Daybells Robert Walker LJ pointed out [62] that the system reflected in the CML Handbook places the responsibility for discharging any existing charge at or prior to completion on the vendor’s solicitor.

As I have already noted, counsel for Nationwide relies on the terms of paragraph 5.8 of the CML Handbook which I have quoted in paragraph 11 above. He submits that the wording is such as to impose an absolute obligation on Davisons to procure, on completion, the redemption of all existing charges and a fully enforceable first charge by way of legal mortgage over the Property. He relies on the authorities to which I have referred in paragraph 36 above. In Mortgage Express v Iqbal Hafeez Solicitors the claimant relied on the failure of the solicitors (1) to carry out the safeguards indicated in the CML Handbook at paragraph A3.2, (2) to comply with paragraph 5.9 by asking the purchaser how the purchase price was being provided and (3) to report to the lender as required by paragraph 6.3.3 of the CML Handbook that they did not have control over all the purchase money. The deputy judge found each of those claims to be made out, but there was no argument that those provisions should not be applied in accordance with their terms.

In Platform Funding Ltd v Bank of Scotland plc a valuer instructed to value a property for mortgage purposes valued the wrong property. The loan was made and lost. The lender sued the valuer. The obligation to value the right property was held to be absolute. In [30] Moore-Bick LJ said:

“Whether a professional person has undertaken an unqualified obligation of any kind in any given case will depend on the terms of the contract under which he has agreed to provide his services. However, cases such as Greaves & Co. (Contractors) Ltd v Baynham Meikle & Partners and Midland Bank v Cox McQueen demonstrate that the very nature of the obligation on which the client relies may itself make it more or less likely that it was intended to be qualified or unqualified, as the case may be. I am not sure that it is helpful in a case such as the present to ask whether the professional person gave a promise to answer for the fraud of a third party (where that is the origin of the eventual loss), since in most cases neither party will have had that particular risk in mind. In my view it is better to ask whether, having regard to the facts and matters known to both parties when the instructions were accepted, the professional person assumed an unqualified obligation in relation to the particular matter in question. It does not follow, as was suggested in Midland Bank v Cox McQueen that, because the solicitors could not have assumed an absolute obligation to obtain Mrs. Dukes's signature in all eventualities, their duty was simply to exercise reasonable skill and care. They could still have undertaken an unqualified obligation to ensure that the person to whom they explained the significance of the documents and whose signature they obtained (if they obtained one at all) was the real Mrs. Dukes, as the solicitors in Zwebner v The Mortgage Corporation in effect did. Finally, I think these authorities support the conclusion that, although the court should be cautious about holding that a professional person has undertaken an unqualified obligation in the absence of clear words to that effect, there is no reason not to give effect to the language of the contract where it is clear.”

I have already referred to the summary of the authorities made by Rix LJ in [48].

Ultimately the issue is, as Moore-Bick LJ pointed out, a question of construction of paragraph 5.8 in the context of the CML Handbook and the overall retainer of Davisons by Nationwide. The relevant transaction was a loan on mortgage by Nationwide to Mr Patel. The retainer of Davisons was one for services in connection with that transaction. A “fully enforceable first charge by way of legal mortgage” over the Property was not comparable to a pre-packed commodity to be supplied to a customer’s order. It involved issues of title and the exercise of professional skill. Similarly the requirement that all existing charges “must be redeemed” necessarily involved reliance on the acts and omissions of the vendor’s solicitors. Each of those ingredients is inconsistent with an absolute obligation, see Barclays Bank plc v Weeks Legg & Dean and Patel v Daybells.

The effect of the absolute undertaking for which counsel for Nationwide contended would be to impose on Davisons the equivalent of a guarantee that all existing charges would be redeemed and Nationwide would obtain a fully enforceable first charge by way of legal mortgage over The Property. If that was the intention of the parties almost all the rest of the CML Handbook would be redundant. In these circumstances I would hold that the obligation imposed by paragraph 5.8 goes no further than an obligation to exercise reasonable skill and care in seeking to procure the outcome it refers to, namely the redemption of all existing charges and obtaining a fully enforceable first charge by way of legal mortgage. In my view the judge was wrong to have concluded otherwise.

The claim made by Nationwide for breach of the retainer was based on an absolute obligation. There was no alternative claim for any failure to exercise reasonable skill and care. If there had been then it appears that Davisons would have relied on its allegations of contributory negligence. In these circumstances the appeal must be allowed.

For all these reasons I conclude that:

The application was made in a letter from the Law Society to the Civil Appeals Office dated 12th November 2012, some 8 days before the appeal was fixed for hearing. The letter stated the reason for the application to be:

“…to ensure that the Court of Appeal has at its disposal an adequate appraisal of practices recommended by the Law Society aimed at achieving satisfactory completion and the safe transfer of funds held on behalf of lenders. It is also keen to help the court to gain an understanding of the practical implications of a ruling either to uphold or overturn the High Court’s decision.”

Later the writer explained that:

“It is on the question of what constitutes an appropriate undertaking that the Law Society asks for the Court’s permission to intervene.”

The form of intervention is a submission by a solicitor and senior legal adviser of the Law Society. He sets out certain terms from the Code for Completion by Post and form TA13 and expresses his view as to their meaning and effect and what the Law Society thereby intended to achieve.

I considered that the intervention should be refused for the following reasons:

I confess to some surprise that the application to intervene was ever made. I hope that our comments will be conveyed to the President and other appropriate officers of the Law Society.

I agree.

I also agree.