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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Santander UK Plc v R.A. Legal Solicitors [2014] EWCA Civ 183 (24 February 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/183.html Cite as: [2014] EWCA Civ 183, [2014] PNLR 420

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT, QUEEN'S BENCH DIVISION
Mr Justice Smith
HQ12X01827

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/02/2014

Lord Justice Briggs :

Introduction

1. In May 2009 Santander UK PLC (formerly Abbey National) ("Abbey") agreed to lend £150,000 plus fees to a Mr. Srinivas Vadika for the ostensible purpose of assisting him in the purchase of a residential property known as 8 Opal Close, London E16 ("the Property"). Mr. Vadika and Abbey instructed R.A. Legal Solicitors to act for them in connection both with the purchase and the obtaining of first mortgage security for Abbey. The purchase price for the Property was £200,000 and Mr. Vadika was to contribute the balance of £50,000 from his own resources.
2. R.A. Legal were advised that the owner and vendor of the Property was a Ms. Emma Slater, and that her solicitors were Sovereign Chambers LLP ("Sovereign").
3. From the perspective of those dealing with the matter at R.A. Legal, the matter proceeded as an entirely ordinary and unremarkable residential conveyancing transaction. Having been put in funds by Abbey and Mr. Vadika, R.A. Legal transferred £200,000 to Sovereign's client account on 28^th July 2009, and the transaction apparently completed on the following day, simultaneous exchange of contracts and completion being confirmed by a telephone conversation between the two firms on 29^th July, in the early afternoon.
4. Unfortunately for Abbey and R.A. Legal, and possibly for Mr. Vadika, the transaction did not complete on 29^th July, or at all. Although Ms. Slater was indeed the registered proprietor of the Property, and apparently seeking to sell it, she had never retained Sovereign for that purpose, never agreed to sell it to Mr. Vadika, and was until early November 2009 entirely unaware that it had been purportedly sold on her behalf by Sovereign.
5. Although a firm of solicitors in good standing with the Law Society, Sovereign was in fact a fraudster. No part of the purchase money was used either to pay Ms. Slater or to discharge the mortgage which she had granted over the Property. It disappeared from the Sovereign client account on 13^th August 2009 and has not been traced or recovered. The result was that Abbey received nothing of substance by way of security for its advance of £150,000 to Mr. Vadika. On the face of it, he lost his own contribution of £50,000 for nothing in return, and incurred a personal liability to repay Abbey £150,000, again for nothing in return. The dispute and litigation which has led to this appeal is however only between Abbey and R.A. Legal. The trial judge Andrew Smith J. made no findings one way or the other whether Mr. Vadika had been a genuine purchaser or a party to Sovereign's fraud, it being common ground that the answer to this question was irrelevant to the matters which he had to decide.
6. The standard form terms upon which Abbey instructed R.A. Legal required the firm to hold Abbey's £150,000 on trust until completion. Since R.A. Legal released Abbey's advance to Sovereign without completion ever taking place, Abbey sued R.A. Legal for breach of that trust. It also claimed in negligence, but this was not pursued at trial.
7. In a careful and detailed reserved judgment, the judge concluded, following decisions of this court in Davisons (Solicitors) v Nationwide [2012] EWCA Civ 1626 and AIB Group (UK) PLC v Mark Redler & Co [2013] EWCA Civ 45, that R.A. Legal had indeed been in breach of trust in releasing Abbey's money on 29^th July, albeit in the genuine belief that completion was taking place on that day. Nonetheless he concluded that R.A. Legal should be wholly relieved from liability under section 61 of the Trustee Act 1925. After detailed analysis of the pleaded criticisms of R.A. Legal's conduct of the transaction, he found that none of the conduct criticised was sufficiently connected with Abbey's loss and that, even if it had been, it did not amount to fault on the part of R.A. Legal that was sufficiently serious, or involved such a departure from ordinary and proper standards, as to cut them off from the court's discretion to relieve them of liability: (judgment paragraph 70). He concluded that R.A. Legal ought fairly to be excused from liability because Abbey's loss was in substance caused by the fraud of Sovereign, an unconnected third party, for which R.A. Legal could not fairly be treated as responsible: (judgment paragraphs 71-72). The result was therefore that Abbey's claim failed.
8. Abbey appealed to this court on two broad grounds. First, it says that the judge failed to recognise as a separate and distinct breach of trust R.A. Legal's transfer of the purchase monies (including Abbey's advance) to Sovereign's client account on the day before exchange and completion. Secondly, it says that all or at least some of the respects in which R.A. Legal departed from standard or best practice were sufficiently connected with its loss, and that the judge's conclusion that the defaults were insufficiently serious arose from an inappropriate attempt to construe section 61 by reference to the jurisprudence about the similarly worded relieving provision in section 727(1) of the Companies Act 1985.
9. For its part, R.A. Legal asserts by Respondent's Notice that the judge was wrong to find that there had been any breach of trust. Nonetheless R.A. Legal accepted at trial that, if it was in breach of trust as found by the judge then, subject to relief under s.61, it was liable to make good the amount of the loan advance to Abbey. R.A. Legal did not resile from that admission on appeal.

Breach of trust

10. It is convenient to take R.A. Legal's Respondent's Notice first. Mr. Michael Pooles QC, who appeared for R.A. Legal on appeal (but not below) readily acknowledged that this court is bound by the Davisons case, and by the decision, on similar facts, of this court in Lloyds TSB PLC v Markandan & Uddin [2012] EWCA Civ 65, to conclude that solicitors who hold a loan advance on trust until completion necessarily commit a breach of trust if they part with the advance otherwise than upon completion. As Rimer LJ said in the Markandan case, at paragraph 50, on comparable facts:

"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."

In face of that volume of binding authority, Mr. Pooles readily acknowledged that he could do no more than preserve for argument in the Supreme Court the submission that there had been no breach of trust at all.

11. The more difficult question is whether the judge should have found that a breach of trust occurred on 28^th July when the money was transferred to Sovereign's client account, as well as on 29^th July when it was released by R.A. Legal on what appeared to that firm to be completion. The judge considered but did not decide this question, it being sufficient for his analysis that a breach of trust occurred on the following day, when R.A. Legal released the money on apparent completion (by which he meant released Sovereign from any obligation to continue to hold the money to the order of R.A. Legal).
12. Mr. Thomas Grant QC for Abbey (who, like Mr. Pooles, did not appear below) advanced one short and one longer argument in support of a conclusion that the transfer on 28^th July was a breach of trust. The short one was that R.A. Legal had no authority under the terms of the trust upon which they held Abbey's money to release it to Sovereign, even on terms that Sovereign was to hold it to R.A. Legal's order, because Sovereign was not acting for the owner and supposed vendor of the Property, and was neither able nor intending to complete the transaction. Sovereign was, of course, a firm of solicitors, and the money was transferred into Sovereign's client account. But, said Mr. Grant, Abbey appointed R.A. Legal, and no-one else nor any other solicitor, as its trustee for the custody of the money pending completion. It had no authority to transfer custody to another person, even another solicitor, any more than a trustee of another's money or property can simply delegate custody to anyone of its choosing.
13. My reading of paragraph 62 of the judgment suggests that, if he had needed to do so, the judge would have rejected this argument. He said:

"After all (as I suggested in argument) it was not said and could not have been said that R.A. Legal had to keep the funds in cash: they were paid into a bank account and the trust property was by way of a chose in action against R.A. Legal's bank. Abbey transferred the funds into R.A. Legal's account with Barclays but I cannot accept that they would have been in breach of trust if they had transferred the funds to another client account at another bank. I see no principled reason to distinguish that position from them transferring the funds to Sovereign, who appeared to be a reliable creditor who were to hold the funds to their use."

14. Mr. Pooles submitted, in addition, that the critical distinction between this case and the Davisons and Markandan cases was that there the payees were not solicitors at all but impostors whereas, here, Sovereign was indeed a firm of solicitors and the money was paid into Sovereign's client account.
15. In my judgment Mr. Grant's short submission is correct. Where an intending lender transfers the loan money to an intending purchaser's solicitors on terms that they hold the money on trust until completion, I accept of course that the purchaser's solicitors have authority to deposit it in a bank of their choosing, in client account, and if necessary to move it to a client account of theirs in some other respectable bank than the bank to which the lender originally transferred the money. I also accept that the purchaser's solicitors have the lender's implied authority to transfer the money to the client account of solicitors acting for the vendor prior to completion, to hold to the purchaser's solicitors' order pending completion. That is an ordinary incident of residential conveyancing in the modern world with which institutional lenders may be taken to be familiar.
16. But it by no means follows that the purchaser's solicitors have the lender's implied authority to transfer the trust money pending completion to the client account of any other solicitor than the firm which is in fact acting for the owner and intending vendor of the Property upon which the lender is to obtain a charge on completion. In the present case, Sovereign did not fit that description. It was not acting for the owner of the Property, had no instructions either to contract for or complete its sale to Mr. Vadika, and had not the slightest intention of using any part of the money transferred to its client account for the purpose of discharging the existing first mortgage on the Property. For that simple reason I consider that the transfer of the money to Sovereign's client account on 28^th July was a breach of trust.
17. Mr. Grant's second and longer submission was that the transfer on 28^th July was made without R.A. Legal first taking the usual steps, or any other effective steps, to ensure that, once transferred, the money was held by Sovereign to its order pending completion. In short, he submitted that on the judge's findings of fact, R.A. Legal neither obtained a written (or even oral) undertaking to do so, when transferring the money, nor obtained confirmation from Sovereign that it would abide by the Law Society's Code for Completion by Post, ("the Completion Code") paragraph 6 of which imposes such an obligation in express terms. More generally he submitted that R.A. Legal should not have transferred the money at all prior to exchange of contracts, or some other step which placed the transfer within a regime which properly protected Abbey from the risk of loss.
18. Again, the judge did not find it necessary to deal with this question as part of his breach of trust analysis, but he did address it directly, under section 61, when considering Abbey's pleaded criticism that this was unreasonable conduct by R.A. Legal. At paragraph 41, he said:

"But it was to my mind clear that, when R.A. Legal sent Sovereign funds to effect under form B exchange of contracts and completion, Sovereign held them to R.A. Legal's order unless and until the transaction was completed."

I have not found it necessary to resolve this question at the breach of trust stage of the analysis. It requires an intensive review of the facts and, like the judge, I shall deal with it as a central part of my analysis of the section 61 issue. It is unnecessary to decide whether this amounted to a breach of trust, since I have already concluded that the transfer of funds on 28^th July was indeed a breach of trust.

Section 61

19. Section 61 of the Trustee Act 1925 has become the principal mechanism by which the law tempers the rigour of a trustee's otherwise strict (i.e. not fault based) liability where a fraudulent intervention in a conveyancing transaction of which the purchaser's solicitor is entirely unaware causes an unauthorised disposal of the lender's advance in breach of trust. It is precisely because of the strictness of the solicitor's trust liability that lenders which are the victims of such fraud prefer to base their claims for recovery upon breach of trust rather than breach of contract or negligence, because both of those causes of action generally require the lender to prove that the solicitor has been guilty of a breach of a duty of care. The formulation now in section 61 dates back at least to the nineteenth century (see section 3 of the Judicial Trustees Act 1896) and applies to all kinds of trustees, lay and professional, in the following terms:

"If it appears to the court that a trustee… is or may be personally liable for a 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."

20. Invocation of section 61 involves at least two main stages. First, the trustee must show (the onus being on him) that he has acted both honestly and reasonably. In the context of mortgage fraud, institutional lenders have tended to focus upon the second of those requirements, and to dispute it in individual cases by citing a litany of examples, large and small, of aspects of the handling of the transaction where the solicitor trustee departed from standard or best practice. The present case is no exception, and Abbey's criticisms included matters happening well before and well after the transfer and loss of its advance, with apparent disregard of the question whether those alleged departures from best practice had anything at all to do with its loss.
21. In the context of mortgage fraud, this court has interpreted section 61 as requiring the trustee to prove that he acted reasonably only in relation to those aspects of his conduct which are connected with the beneficiary lender's loss. This is best expressed by Sir Andrew Morritt C. in the Davisons case at paragraph 48:

"The section only requires Mr. Wilkes (the trustee) 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."

22. There was considerable debate on this appeal as to precisely what type of 'connection' this judicial interpretation of section 61 requires. Mr. Pooles submitted that the relevant conduct had to be causative of the loss. Mr. Grant submitted that this imposed too narrow a range of relevant conduct, and that the concept of connection should be liberally applied on a case by case basis, rather than by reference to a rigid formula.
23. There are, I think, competing policy issues which affect this question. On the one hand, the court should be slow to gloss the general words of a statute, all the more so where it confers a broad discretion. On the other hand, mortgage fraud of this kind occurs in a business context in which those advising the lender and the solicitors, and their respective insurers, need to have reasonable clarity as to the application of section 61, so as to avoid every case having to be taken all the way to trial, with a full investigation of all potentially relevant circumstances, so as to obtain a particular trial judge's discretionary decision.
24. It is in my view clear that a strict causation test casts the net too narrowly for the purpose of identifying relevant conduct. In most mortgage fraud cases, the effective, primary or predominant cause of the loss is the third party's fraud rather than the conduct of the solicitor trustee.
25. Furthermore, it is also too restrictive to apply a 'but for' test which disregards conduct, however unreasonable, on the basis that even if the solicitor had acted reasonably in that respect, the fraud, and therefore the loss, would still have occurred. The current best practice for conveyancing solicitors has evolved over many years, in the light of developing experience, for the purpose (among others) of providing reasonable, albeit not cast-iron, protection from fraud, both to lenders and purchasers. In my judgment it would not be appropriate to exclude as irrelevant conduct which consisted of a departure from best or reasonable practice which increased the risk of loss caused by fraud, even if the court concludes that the fraudster would nonetheless have achieved his goal if the solicitor had acted reasonably.
26. In this respect the Markandan case provides a useful example. There, the fraudster was an imposter who pretended to be operating a branch office of a well-known firm of solicitors. The purchaser's solicitors failed to check whether that branch office existed: see per Rimer LJ at paragraph 60. Plainly, that omission increased the risk that the fraudster would succeed in his plan.
27. On the other hand, it would in my view extend the net too wide if it accommodated every aspect and detail of the solicitor trustee's conduct which occurred, or played any part in, the process which began with the transfer of the loan money by the lender to the solicitor trustee and ended with its theft by the fraudster. As would appear, the criticisms of R.A. Legal's conduct in the present case appear to have been pleaded on that broad assumption.
28. Between those extremes, it seems to me that some element of causative connection will usually have to be shown, and that conduct (even if unreasonable) which is completely irrelevant or immaterial to the loss will usually fall outside the court's purview under section 61. This is, again, well illustrated by a careful comparison between the Markandan and Davisons cases. In the former, the Court of Appeal refused relief under section 61 because of two aspects of the solicitor trustee's conduct. The first, which I have already described, plainly increased the risk of the already-planned fraud succeeding. The second was a failure by the trustee solicitor to have regard to an earlier breach of undertaking by the fraudster when parting with the money for a second time. Again, the relevance or materiality of that conduct to the loss is clear. By contrast, although departures from best practice were identified both by the trial judge and by the Court of Appeal in the Davisons case, they had no causative significance at all. At paragraph 50, the Chancellor concluded that even if Davisons had in all respects acted in accordance with best practice, the impostor would have complied with the requisitions, supplied written undertakings, and still disappeared with the balance of the purchase money. He concluded:

"the lapse from best practice, if any, did not cause the loss to Nationwide."

It may be said that this part of the Chancellor's analysis was concerned with the second question, namely whether the solicitor trustee ought fairly to be excused. Nonetheless the presence in the first case and absence in the second case of some causative element between the conduct complained of and the lender's loss cannot sensibly be ignored.

29. I would, finally, caution against an over-mechanistic application of the requirement to show the necessary connection between the conduct complained of and the lender's loss. There may be highly unreasonable conduct which lies at the fringe of materiality in terms of causation, and only slightly unreasonable conduct which goes to the heart of a causation analysis. It would be wrong in my view to allow this purely mechanistic application of a causation-based test for the identification of relevant conduct to exclude the former from any consideration under section 61.
30. An important issue in the present case relates to the standard to be applied to conduct connected with the loss. I have referred to the former Chancellor's summary in the Davisons case, at paragraph 48, as that of reasonableness not of perfection. It is well-established that the standard is likely to be higher for a paid than for an unpaid trustee: see Lewin on Trusts (18^th ed.) at paragraph 39-145.
31. In the present case the judge sought to derive assistance from the jurisprudence about the similarly-worded provisions of section 727(1) of the Companies Act 1985, (now section 1157(1) of the Companies Act 2006) which provides that:

"If in any proceedings for negligence, default, breach of duty or breach of trust against an officer of a company or a person employed by a company as auditor (whether he is or is not an officer of the company) it appears to the court hearing the case that that officer or person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or partly, from his liability on such terms as it thinks fit."

He referred to Barings PLC v Cooper & Lybrand [2003] EWHC 1319 (Ch) and Re D'Jan of London Ltd [1993] BCC 646, and also to Maelor-Jones v Heywood-Smith (1989) 54 SASR 285, as suggesting that something approaching "pervasive and compelling" negligence must be shown before a trustee is cut off from relief under section 61.

32. The difficulty with equating section 61 with section 727(1), at least for the purpose of interpreting section 61, is that section 727(1) appears to contemplate that a company officer or auditor may have acted honestly and reasonably, even though negligent, whereas section 61 contemplates no such thing in relation to trustees. It would in my judgment be wrong, by any process akin to reverse engineering, to interpret section 61 by reference to the historically more recent and undoubtedly more difficult provisions now to be found in section 727 of the Companies Act 1985. Generally, negligence requires a finding of unreasonable conduct, in the sense that the defendant must be found to have failed to apply reasonable care and skill to the task in hand. In the D'Jan of London case, Hoffman LJ said of section 727 that:

"It may seem odd that a person found to have been guilty of negligence, which involves failing to take reasonable care, can ever satisfy a court that he acted reasonably. Nevertheless, the section clearly contemplates that he may do so."

No such oddity appears in section 61, and in my view the judge was wrong to equate the two relieving provisions. I consider that the test of reasonableness rather than perfection identified in the Davisons case is amply sufficient for comparable cases under section 61, and calls for no further elaboration.

33. The second main stage of the section 61 analysis, usually described as discretionary, consists of deciding whether the trustee ought fairly to be excused for the breach of trust. This requires that regard be had to the effect of the grant of relief not only upon the trustee, but also upon the beneficiaries: see Marsden v Regan [1954] 1 WLR 423, per Evershed MR at 434; and Bartlett v Barclays Trust Co. (No.1) [1980] Ch 515, per Brightman J. at 538A. Furthermore, section 61 makes it clear that even if the trustee ought fairly to be excused, the court still retains the discretionary power to grant relief from liability, in whole or in part, or to refuse it. In the context of relief sought by solicitor trustees from liability for breach of trust in connection with mortgage fraud, much may depend at this discretionary stage upon the consequences for the beneficiary. An institutional lender may well be insured (or effectively self-insured) for the consequences of third party fraud. But an innocent purchaser may have contributed his life's savings to the purchase and have no recourse at all other than against his insured solicitor, where for example the fraudster is a pure interloper, rather than a dishonest solicitor in respect of whose fraud the losers may have recourse against the Solicitors' Compensation Fund.
34. Relief under section 61 is often described as an exercise of mercy by the court. In my judgment the requirement to balance fairness to the trustee with a proper appreciation of the consequences of the exercise of the discretion for the beneficiaries means that this old-fashioned description of the nature of the section 61 jurisdiction should be abandoned. In this context mercy lies not in the free gift of the court. It comes at a price.

The Facts

35. Paragraphs 8 to 36 of the judgment contain an admirable and detailed description of the relevant facts which are, save in one small respect, unchallenged on this appeal. It will be necessary to look at one part of the factual history in detail, but sufficient to summarise the rest.
36. Abbey's instructions to R.A. Legal were sent on the 20^th May 2009, the same day as it sent its mortgage offer to Mr. Vadika. This was before R.A. Legal had any face-to-face contact with Mr. Vadika, which occurred only on 9^th June, after a client care letter was sent to him on 27^th May.
37. Abbey's instructions required R.A. Legal to investigate title and then complete a Certificate of Title. On 13^th July R.A. Legal sent a Certificate of Title to Abbey, requesting funds in time for an anticipated completion on 17^th July. It was an unqualified certificate (without which Abbey would not have provided the funds) but, contrary to what the Certificate stated (or rather what is stated in the Annex to Rule 3 of the Solicitor's Code of Conduct 2007, incorporated in the Certificate by reference) R.A. Legal had not at that stage completed its investigation of title. There was outstanding its inspection of a transfer of the Property dated 7^th February 1986 (the "1986 transfer"), which the office copy entries suggested contained provision about boundary structures and some restrictive covenants. This was no accidental error by R.A. Legal. They were aware that this aspect of the investigation of title remained outstanding, but gave an unqualified certificate to speed up the process of obtaining Abbey's advance, on the tacit basis that if (which they thought very unlikely) the 1986 transfer disclosed a defect in title, this could be addressed at a later stage.
38. On 13^th July R.A. Legal sent Requisitions on Title and a draft transfer in form TR1 to Sovereign. I shall describe the form of the Requisitions in detail when dealing with their return by Sovereign on 21^st July. Abbey transferred the advance of £150,000-odd to R.A. Legal on 15^th July. Neither exchange of contracts nor completion occurred on 17^th July. Abbey's instructions to R.A. Legal required any postponement of completion to be notified, and instructions to be obtained as to the return of the advance. No such steps were taken by R.A. Legal, but the judge was satisfied that, if they had been, Abbey would have authorised R.A. Legal to continue to hold the advance, pending delayed completion.
39. On 21^st July Sovereign returned (by post and by fax) replies to the Requisitions, a copy of the 1986 transfer and a TR1 purportedly signed by Ms. Slater but not, of course, dated. Her signature was in fact a forgery. The 1986 transfer disclosed no defect in title. Sovereign's covering letter requested completion on the following day.
40. Mr. Grant challenged the finding that R.A. Legal received a signed but undated TR1 on 21^st July, submitting that the evidence showed that it was only received in August. I am wholly unpersuaded by that challenge, which seemed to be based upon the misapprehension that the TR1 sent on 21^st July was only a draft. On the contrary, it purported to be, and was understood by R.A. Legal to be, a transfer in escrow, which only awaited completion before it could be dated by R.A. Legal and sent to HM Land Registry.
41. The Requisitions on Title, and replies thereto, call for full description and close analysis. Under paragraph 4, headed Mortgages, sub-paragraph (A) stated:

"Please specify those mortgages or charges which will be discharged on or before completion."

The reply, in manuscript, was "MORTGAGE EXPRESS", a reference to the registered first charge.

42. Sub-paragraph (B) asked:

"In respect of each subsisting mortgage or charge:

(i) will a vacating receipt, discharge or registered charge or consent to dealing, entitling the Buyer to take the property freed from it, be handed over on completion?

(ii) If not, will the seller's solicitors give a written undertaking on completion to hand one over later?

(iii) If an undertaking is proposed, what are the suggested terms on it?"

The reply, again in manuscript, and apparently addressed to the whole of sub-paragraph (B), was "CONFIRMED".

43. Paragraph 5 asked and confirmed that vacant possession would be given on completion. Paragraph 7, headed Completion Arrangements asked as follows:

"Please answer any of the following requisitions against which X has been placed in the box."

There followed four requisitions, (A) to (D), each with a box before it, none of which included an X. The questions were as follows:

"(A) Where will the completion take place?

(B) We should like to remit the completion monies direct to your bank account. If you agree, please give the name and the branch of your account, and its sort code, and the title and number of the account to be credited.

(C) In whose favour and for what amounts will the bankers' drafts be required on completion?

(D) Please confirm that you will comply with the Law Society's Code for the completion by Post (1998 edition)."

44. The replies were as follows. Against question (A) Sovereign wrote "FORMULA B". Against question (B) Sovereign provided the requested details of their client account. Neither question (C) or (D) was answered at all.
45. It was, and had always been, common ground that exchange of contracts and completion would take place simultaneously. The reply to question (A) "FORMULA B" is meaningless in relation to completion. Rather it is a reference to a standard method for exchange of contracts.
46. Completion did not take place on 22^nd July as Sovereign had requested. On that day R.A. Legal obtained Mr. Vadika's contribution to the purchase price, but attempts to contact Sovereign on that day failed.
47. On 27^th July Sovereign wrote to R.A. Legal that their client would like to complete that day "or at your earliest". On the same day R.A. Legal made the appropriate check with the Law Society as to Sovereign's standing as a solicitor's firm. It was not suggested that anything in R.A. Legal's dealings with Sovereign, or enquiries as to standing, either did or ought to have made R.A. Legal aware or suspect that Sovereign was in the process of perpetrating a fraud. But in fact, Sovereign had had no dealings at all with Ms. Slater, and had forged her signature on the TR1.
48. On 28^th July R.A. Legal arranged a bank-to-bank transfer of the £200,000 purchase monies to Sovereign's client account. On 29^th July R.A. Legal participated in what they believed to be a genuine exchange and completion with Sovereign, confirmed by a telephone call between the two firms. R.A.Legal then posted confirmation to Sovereign that completion had taken place at 2.20 pm, enclosing Mr. Vadika's signed contract. R.A. Legal informed Mr. Vadika that it was in order for him to collect the keys to the Property from Ms. Slater. It is not suggested that, at the end of the day on 29^th July, anything had happened which did or ought to have caused R.A. Legal to suspect that there had been anything other than a valid and satisfactory exchange and completion on that day.
49. Later (it is not clear precisely when) R.A. Legal received by post from Sovereign a contract purportedly signed by Ms. Slater (but again, a forgery), but no other document. No executed discharge of the Mortgage Express charge was included, as the reply to Requisition 4 (B) suggested that it should have been.
50. On 4^th August 2009 Mr. Vadika telephoned R.A. Legal to say that he had not received the keys from the vendor, and that "his solicitor" (sic) said that he had not received the sale money. This led to a bizarre exchange of correspondence between R.A. Legal and Sovereign between 5^th and 13^th August. The gist of Sovereign's letters was that they were having problems with their bankers, which were resolved by 13^th August so that:

"the matter is now completed."

R.A. Legal's letters suggest an inability in the mind of those dealing with the matter to decide whether the transaction had or had not been completed on 29^th July. Thus in its letter of 5^th August, R.A. Legal stated both that the sale had been completed, and threatened service of a notice to complete, a threat later implemented on 10^th August. Apart from Sovereign's bare assertion on 13^th August, quoted above, nothing was received by R.A. Legal to suggest, still less to prove, that the Mortgage Express charge had in fact been discharged.

51. Be that as it may, R.A. Legal appeared to have assumed that all problems had been resolved on 13^th August, until receipt of a Land Registry requisition on 2^nd September to the effect that the Mortgage Express charge over the Property had not been discharged. As is now known, the completion money in Sovereign's client account, part of which ought to have been used for the discharge of that charge, had in fact been misappropriated on 13^th August. Not even the Land Registry requisition caused R.A. Legal any concern. It wrote to Sovereign on 4^th and 14^th September chasing evidence of the discharge of the prior charge, but received no reply. On 17^th September the Solicitors Regulatory Authority intervened into Sovereign's practice, although it does not appear that this came to the attention of R.A. Legal at that time. Desultory correspondence seeking evidence of discharge continued until the end of September but, on 1^st October 2009, R.A. Legal ceased to practise, having failed to obtain an affordable quotation for professional indemnity insurance.
52. R.A. Legal did nothing to inform Abbey of the difficulties being encountered until 23^rd October 2009 when, in response to a standard form enquiry, they informed Abbey of the unhappy news that there continued to be no evidence of a discharge, that the seller's solicitors had been subjected to a Law Society intervention and that R.A. Legal had ceased to practice.
53. It only dawned upon R.A. Legal that there might have been a fraud when another firm of solicitors requested R.A. Legal to remove its priority search in favour of Abbey, to enable a sale of the property by Ms. Slater to another buyer. Thereafter R.A. Legal consulted its own insurers, which caused a further delay before anything was done to put Abbey in the picture, until 19^th November. The judge was nonetheless satisfied, on evidence which is not challenged, that no earlier communication by R.A. Legal to Abbey of a concern about the propriety of the transaction would have caused Abbey to do anything to prevent the loss of its money. That conclusion was based, in part, upon evidence about the substantial further time which elapsed before Abbey did anything about the notification received from R.A. Legal on 19^th November.

Analysis

54. There was no suggestion, at trial or on appeal, that R.A. Legal acted otherwise than honestly in relation to any aspect of their conduct connected with Abbey's loss. Nonetheless the oral opening of counsel for Abbey at the trial included a multitude of criticisms of the reasonableness of R.A. Legal's conduct of the transaction, only some of which had been pleaded: see paragraph 37 of the judgment. The judge therefore required Abbey to produce a written statement of the matters of conduct relied upon as unreasonable for the purposes of section 61, before any evidence was heard, and this was duly provided by counsel, in the form of a seven-paragraph critique, adopted with slight linguistic alterations by the judge in paragraph 37 of the judgment, but with no significant alteration in substance. Paragraphs 38 to 43 then set out the judge's careful and lucid reasons for his conclusion at paragraph 44, that:

"the loss suffered by Abbey had no connection with any of their criticisms of how R.A. Legal conducted the transaction."

55. Before addressing the judge's detailed analysis, which goes to the heart of this appeal, I must express slight reservations about the appropriateness of dealing with the section 61 issue in this way. Faced with a plethora of oral criticisms at the opening of the trial, it was plainly a commendable exercise in good case management to require the issue as to the reasonableness of R.A. Legal's conduct for the purposes of section 61 to be brought into sharper focus, and that is what the written critique supplied pursuant to the judge's order undoubtedly did. But it may have obscured the fact that on this issue, the burden of proof lay squarely on R.A. Legal rather than on Abbey, in sharp contrast with the ordinary burden in a professional negligence action, which lies squarely on the client alleging a breach of the duty of care. Abbey's written critique looked like, and was thereafter treated as, particulars of negligence, none of which, in the judge's view, Abbey succeeded in making good during the rest of the trial. It became, for the purposes of the section 61 analysis, tantamount to a professional negligence action which failed.
56. In the context of a routine conveyancing transaction, the incidence of the burden of proof may frequently be crucial to the outcome. This is because such transactions are, in the working life of those involved, so routine and so frequent that a specific recollection of any part of one of them, not precisely recorded in contemporaneous correspondence, documents or attendance notes, will rapidly fade. Thus, if the reasonableness of the solicitor's conduct depends on anything not so recorded, the solicitor may simply be unable to discharge the burden of proof on that aspect of the matter, due to a perfectly understandable inability to recollect the detail. In such circumstances, the benefit of the doubt (or the burden of proof) is not to be given to the solicitor if the relevant question is as to the reasonableness, rather than the honesty, of his conduct. It is therefore likely that, in order to discharge the burden of proving that he acted reasonably under section 61, the solicitor will need to be able to provide a paper-trail demonstrating that the whole of his or his firm's conduct sufficiently connected with the loss satisfied the reasonableness test.
57. The present appeal is a case in point. Although, a little less than four months later, the transaction acquired the wholly exceptional badge of fraud in the minds of those involved at R.A. Legal, neither the partner Mr. Rahman or the assistant solicitor who conducted the detail of the transaction under his supervision had any sufficient recollection of key aspects of the transaction, such as whether Mr. Rahman read Sovereign's replies to the Requisitions on Title or, if he did, what he made of them, or anything about the telephone conversation on 29 July between his assistant Ms. Sharma and Sovereign which recorded completion taking place. Indeed, Ms. Sharma did not give evidence at the trial and although Mr. Rahman was found to have been an honest and impressive witness, he was unable to assist the court with his recollection about a key aspect of the transaction. The result was that the quality or otherwise of R.A. Legal's conduct of the transaction depended essentially upon the paper-trail of surviving documents, correspondence and attendance notes from R.A. Legal's files. An additional consequence is that, on the issues as to the reasonableness or otherwise of R.A. Legal's relevant conduct, this court is almost as well placed as was the trial judge to form a reliable conclusion.
58. I turn now to address the specific matters of criticism set out in Abbey's written critique. The first was that R.A. Legal provided its Certificate of Title certifying that they had investigated title when that investigation was incomplete. This was factually correct since, as I have said, R.A. Legal had yet to inspect the 1986 transfer, and Mr. Rahman accepted in evidence that the Certificate of Title should not have been given in unqualified terms until his firm had been satisfied that nothing in the 1986 transaction materially affected the title to, or the description of, the Property. But the judge described this as an understandable error, since (although Ms. Sharma gave no evidence) he concluded that she was entitled to think it improbable that the contents of the 1986 transfer would give rise to any difficulties, as her subsequent inspection later confirmed. Since the judge regarded none of the matters criticised as serious (judgment paragraph 70) I infer that he took the same view of this first item. More importantly, the judge concluded that the sending of a premature unqualified certificate was unconnected with Abbey's loss.
59. In this court Mr. Pooles sought to explain away this aspect of his client's conduct on the basis that it was commonly done by conveyancing solicitors in order to minimise the delays which would otherwise be caused by waiting until investigation of title was complete, bearing in mind the general experience of the profession that the time typically taken by institutional lenders in releasing loan money frequently caused delays in completion. He said (and I have no reason to doubt) that institutional lenders will never release the monies against a qualified Certificate of Title and that the only risk taken by solicitors in sending an unqualified certificate before being in a position to do so was a subsequent failure to halt the transaction if a defect in title subsequently occurred. I make it clear that Mr. Pooles did not thereby suggest that this court should endorse or approve that practice.
60. I do not share the judge's view that this admitted misconduct of R.A. Legal was anything other than serious. Lenders are, individually or collectively, entitled to choose when they will release loan monies ahead of completion. If as appears currently to be the case they prefer not to do so in advance of an unqualified Certificate of Title, then the appropriate way of dealing with any consequential delays in completion is to persuade lenders either to move faster thereafter in remitting the loan monies, or to remit the loan monies to be held to their order by the purchaser's solicitors in advance of an unqualified certificate. To my mind the pretence that the investigation of title has been completed when it has not is a method of dealing with that difficulty which borders on dishonesty. It is nothing to the point that, if subsequently revealed defects are properly addressed, it causes the lender no loss. On the contrary, Mr. Pooles' submission that unqualified certificates are frequently given prematurely involves the implicit admission that this is done deliberately, rather than by accident. If so, it simply makes the misconduct all the more serious.
61. Nonetheless I readily accept the judge's conclusion that the premature Certificate of Title was irrelevant to Abbey's loss. Ms. Slater had a perfectly good title to the Property and R.A. Legal in fact completed its investigation of title in ample time to have obtained drawdown of Abbey's money after delivery of a proper unqualified certificate at that later date, before transmitting the funds to Sovereign on 28^th July. The only sense in which the premature certificate had any connection with Abbey's loss is that it was the mechanism which procured the initial transfer of its money from its own custody to that of R.A. Legal. For reasons already given that is in my view an insufficient type of connection, being purely historical and entirely irrelevant to the risk of a subsequent fraud.
62. The second and third complaints, taken together, were that when the transaction did not complete on the originally projected date of 17^th July, R.A. Legal neither returned the money to Abbey nor sought Abbey's specific instructions in that regard, as required to do by Abbey's standard form instructions. The judge found that there was nothing in the allegation that the money should have been returned, but that the failure to inform Abbey of the delay in completion, and seek its instructions as to the loan money, was indeed a breach of R.A. Legal's obligations. His finding that, if R.A. Legal had done this, Abbey would have instructed the firm to retain the money pending delayed completion conclusively shows that this aspect of the firm's conduct was unconnected with Abbey's loss. Indeed, Mr. Grant did not pursue that item in Abbey's critique with any vigour.
63. Central to this appeal however are the fourth and fifth criticisms, which read as follows:

"4. In releasing the funds to Sovereign, the Defendant relied solely on the Replies to the Requisition on Title dated 13/7/09… those replies did not provide for the situation where there was no subsequent exchange of contract or completion.

5. The defendant released the claimant's funds to Sovereign prior to exchange of contracts. There was no letter notifying Sovereign that the money had been released or any requirement that the funds were to be held to the order of the Defendant."

64. The judge regarded these criticisms, again, as unconnected with Abbey's loss. It is worth setting out his succinct reasoning in full, from paragraph 41 of the judgment:

"I also take the fourth and fifth complaints together. Sovereign's answers to the Requisitions did not provide for how Sovereign were to deal with moneys that were paid to Sovereign and completion did not take place, and RA Legal did not seek and Sovereign did not provide an undertaking about this. I cannot accept the fourth complaint: as Mr Rahman pointed out, the answers to the Requisition of Title are not the vehicle in which Sovereign would be expected to deal with the position if completion did not take place. But it was to my mind clear that, when RA Legal sent Sovereign funds to effect under formula B exchange of contracts and completion, Sovereign held them to RA Legal's order unless and until the transaction was completed. Mr Rahman told me that in his experience of cases in which there was no completion of a sale the seller's solicitor (unsurprisingly, indeed all but inevitably) has always recognised that he has to return the funds. In any case, since the fraud was effected by Sovereign pretending to complete, these complaints too are inconsequential."

65. Mr. Grant submitted that this analysis was both wrong and incomplete, for the following reasons. First, he said that the judge was wrong to conclude that, in fact or at law, Sovereign held Abbey's loan money to R.A. Legal's order pending completion on the following day. Secondly, he said that even if it did, there was no clear and incontrovertible evidence in R.A. Legal's hands (such as the giving of the requisite undertaking or the imposition of that obligation in a letter or email) sufficient to have enabled R.A. Legal to enforce an order for the return of the money by a summary application invoking the court's jurisdiction over solicitors if, as in fact happened, completion did not take place. Thirdly, he submitted that the replies to the Requisitions were also defective in failing to set out clear arrangements, or provide the requisite undertakings, in relation to the discharge of the prior mortgage by Sovereign on or after completion, a matter not addressed by the judge at all. Finally, he submitted that the inadequacy of the making of, and reply to, the Requisitions was connected with Abbey's loss, first because R.A. Legal should not have advanced the money to Sovereign until these matters were in order and secondly because it left R.A. Legal hamstrung when, to its knowledge shortly after 29^th July, possession had not been delivered to its client, and the prior mortgage had not been redeemed. These serious defects in a supposed completion on 29^th July came to R.A. Legal's attention, at the latest, by 5^th August, and Abbey's money was not misappropriated from Sovereign's client account until eight days later.
66. There is no shortcut to the resolution of these issues. They call for a detailed examination of the standard practice for completion by post, a precise understanding of the purpose, meaning and effect of the standard form Requisitions on Title, and Sovereign's non-standard replies. It is no answer to say that if R.A. Legal's conduct of this aspect of the transaction had been in every respect in accordance with best practice, the fraud would still have occurred, because the connection test is not, for reasons already given, that restrictive.
67. The starting point is a proper understanding of the purpose and function of the Requisitions. Paragraph 4 (recited above) is designed to address two questions. The first (in sub-paragraph (A)) seeks to establish which prior charges are to be discharged on or before completion. Discharge of prior charges is, to lenders and purchasers, of fundamental importance. The purchaser's solicitor will have inspected the office copy entries so as to ascertain which are the prior charges, and have obtained priority protection against the creation of any others before completion and subsequent registration of the transaction.
68. Sub-paragraph (B) is designed to enable the purchaser's solicitors to understand precisely how prior charges are to be discharged on completion. It contemplates two main methods. First, an immediate discharge by the handing over of a document binding the prior chargee, and enabling the purchaser's solicitors, without more, to obtain discharge at the Land Registry. Secondly a slower process in which the purchaser and his lender are protected by the vendor's solicitor's undertakings (i) that they have the prior chargees' authority to receive the monies necessary for discharge and (ii) to obtain a discharge document in due course. The second is to be by way of written undertaking provided on completion, and meets the difficulty that some prior chargees will not execute, or authorise the vendor's solicitor to execute, a discharge prior to actual receipt of the requisite part of the purchase money where, as is usually the case, the vendor has no separate funds with which to do so before completion. Some prior chargees will authorise the vendor's solicitors to hand over an executed discharge on completion, against that solicitor's undertaking to remit the requisite part of the purchase monies.
69. Both those standard methods contemplate a document (executed discharge or written solicitor's undertaking) being "handed over" upon completion. This does not, as was suggested during argument, mean that these methods are used only at an old-style completion round the table, attended by solicitors for the parties, and representatives of any relevant chargees or lenders. It is equally applicable to postal completion, which has been commonplace since at least the late 1970s: see Patel v Daybells [2001] EWCA Civ 1229, at paragraph 58. We were told, and I have no reason to doubt, that old style face-to-face completion is now most unusual, at least in ordinary residential conveyancing. Furthermore, the standard form Requisitions on Title (adapted for use by R.A. Legal), use the paragraph 4 questionnaire about prior charges for all types of completion. In the context of postal completion, 'handing over' means that instead of physically delivering a document to the purchaser's solicitor face-to-face, it is from the moment of completion held by the vendor's solicitor to the purchaser's solicitor's order, and then posted to him thereafter: see paragraphs 5(iv) and 10 of the Completion Code.
70. In the present case, it was common ground between R.A. Legal and Sovereign that (subject of course to Sovereign's intended fraud) completion would be postal rather than face-to-face. This is clear, for example, from Sovereign's reply to question 7(B) by providing its client account details to enable R.A. Legal to lodge the completion monies in its client account. The parties were plainly contemplating postal rather than face-to-face completion, at which the completion money is normally handed over by bankers' drafts: see question 7(C), to which Sovereign provided no answer.
71. Staying with question 4, what (objectively speaking) was a reasonable solicitor in R.A. Legal's position to make of Sovereign's reply to paragraph 4(B): "CONFIRMED"? Close inspection of the document shows that the manuscript reply appears opposite paragraph 4(B)(i), suggesting that a discharge document, rather than a written undertaking, was to be handed over on completion. The absence of any reply to question 4(B)(iii) as to the terms of any suggested undertaking strongly suggests to a careful reader that the undertaking route was not being proposed as an alternative to the immediate provision on completion of a discharge document. Thus, as it seems to me, the effect of Sovereign's terse reply to Requisition 4(B) should have left a reasonable solicitor in R.A. Legal's position to expect that an immediately effective discharge of the Mortgage Express prior charge would be 'handed over' as part of the process of postal completion on the following day.
72. Turning to paragraph 7 (again, quoted above), it serves three main purposes. First it enables the purchaser's solicitor to specify its preferred method of complying with the purchaser's main obligation on completion, that is paying the purchase price. By putting a cross in box (B) the purchaser's solicitor specifies payment in advance to the vendor's solicitor's client account. By putting a cross in box (C), the purchaser's solicitor expresses a preference for payment by banker's draft.
73. Secondly, it enables the vendor's solicitor to specify its preferred place of completion. In the context of postal completion, this is invariably the vendor's solicitor's office, where the vendor's solicitor acts also as agent for the purchaser's solicitor: see paragraph 2 of the Completion Code, and the explanation at note 4.
74. Thirdly, paragraph 7 enables the purchaser's solicitor to obtain an assurance that postal completion will take place in accordance with the practice set out in the Completion Code, and that the rights of both the purchaser and any lender will be protected by the giving by the vendor's solicitor of the requisite undertakings. By "requisite" I mean those undertakings which sufficiently replace the protection traditionally afforded by a face-to-face completion: see generally the analysis by the Court of Appeal in the Daybells case. Those undertakings provide sufficient protection because, in the rare cases where they are not complied with, the purchaser's solicitor has the ability to enforce them by summary application to the court: see the submission in the Daybells case at paragraph 53, and its acceptance at paragraph 62, in which this court pointed also to the protection afforded by the solicitor's professional indemnity insurance and the Compensation Fund.
75. Specifically, paragraph 4 of the Completion Code provides the seller's solicitor's undertaking to have the seller's authority to receive the purchase money on completion, together with the authority of any prior chargee to receive the amount necessary to discharge the charge. Paragraph 6 requires the seller's solicitors to hold completion monies to the buyer's solicitor's order pending completion. Paragraph 10 provides the seller's solicitor's undertaking to hold documents to be handed over on completion to the buyer's solicitor's order, and to post them as soon as possible after completion, and in any event on the same day, by first class post or DX.
76. The Completion Code does not however apply automatically in every case of completion by post between solicitors. Its preamble provides that:

"The code provides a procedure for postal completion which practising solicitors may adopt by reference."

It was an important aspect of this court's conclusion that the purchaser's solicitors had acted reasonably in the Davisons case that they had sought and obtained, by paragraph 7(D) of the standard form Requisitions, the vendor's solicitor's agreement to adopt the Completion Code: see paragraph 43.

77. In the present case, R.A. Legal neither sought (by crossing box (D)), nor obtained, Sovereign's agreement to adopt the Completion Code. The completion money was transferred to Sovereign's client account on 28^th July without R.A. Legal imposing any written obligation on Sovereign to hold it to its order, and without receiving Sovereign's written undertaking to do so, either by the adoption of the Completion Code or in any other written form. This was the main point made, albeit unsuccessfully, at trial by paragraphs 4 and 5 of Abbey's written critique. It failed because the judge regarded the money as held to R.A. Legal's order from the moment of its arrival in Sovereign's client account, regardless of the absence of any written requirement or undertaking to do so. In his view it was the inevitable legal consequence of the payment of money by a purchaser's solicitor to a solicitor holding himself out (even if fraudulently) as acting for the vendor, in advance of a requested and anticipated completion shortly thereafter.
78. In his closing speech at trial, counsel for Abbey did not seriously challenge the judge's expression of a provisional view to that effect. Counsel's point was that it was unreasonable for R.A. Legal to fail to obtain any written confirmation to that effect before transferring the completion money to Sovereign's client account. On appeal Mr. Grant challenged both the judge's legal conclusion, and pursued his predecessor's submission that transferring the completion money to Sovereign without written instruction or confirmation to that effect was a serious aspect of unreasonable conduct connected with Abbey's loss.
79. I agree with the judge's conclusion that, regardless of the absence of written direction or written undertaking, Sovereign did in law hold the completion money to R.A. Legal's order from the moment of its receipt on 28^th July until formally released by R.A. Legal at the moment of pretended completion on the following day. Notwithstanding Mr. Grant's submissions, I consider that to be an inevitable consequence of the fact of the payment, against the background that it was made by a purchaser's solicitor to Sovereign holding itself out as the vendor's solicitor in anticipation of completion, which Sovereign had requested by letter on the previous day.
80. I do not however accept the remainder of the judge's reasoning for his conclusion that the departure from best practice constituted by making inadequate requisitions and accepting inadequate replies to them before transferring the completion money was neither serious nor consequential. The reasons why in my view that failure was both serious and (in the relevant sense) consequential depend upon a closer analysis of what occurred at the purported completion, and during the fortnight which followed, before the completion money was misappropriated from Sovereign's client account. It is an analysis which does not appear to have been regarded as significant either by the judge or indeed by the counsel at the trial, but which has been explored in greater depth on appeal.
81. Pretended completion took place, as I have said, over the telephone early in the afternoon on 29^th July. There is no record of what passed between the solicitors concerned, save the record in R.A. Legal's letter as to the timing of it. In the light of Sovereign's answer to Requisition 4(B)(i) Sovereign should from the moment of completion have held to R.A. Legal's order not only a contract signed by the vendor (since exchange was simultaneous) but also a completed discharge document in relation to the Mortgage Express charge. That document should, with the contract, have been posted immediately to R.A. Legal. In fact, all that R.A. Legal received was a contract bearing a forgery of Ms. Slater's signature. Sovereign had not promised to provide a written undertaking to discharge that prior charge. Even if R.A. Legal had read Sovereign's one-word answer to Requisition 4(B) as meaning that either a certificated discharge or a written undertaking would be provided, neither was in fact included within the envelope posted by Sovereign after completion. The absence of either type of document at completion might have been ascertained during the telephone conversation at completion, and completion therefore refused by R.A. Legal until it became available, but no note of the conversation was made, and no recollection by the participant at R.A. Legal was available to fill the evidential gap. The clear inference is that R.A. Legal made no such enquiry on 29^th July, either on the telephone or at all.
82. When it is borne in mind that R.A. Legal already had a transfer document purportedly signed by Ms. Slater, which they needed only to date after completion to make it apparently effective, the result was that they received nothing at all from Sovereign in the post by way of documents to be "handed over" on completion. It was not a failure which could be explained by postal delay, since the letter containing the forged contract duly arrived on time. Sovereign's omission to provide either an executed discharge of the prior charge or a written undertaking to do so was, of itself, a sufficient warning to a reasonably careful purchaser's solicitor that completion had not taken place in the way that it should have. Yet R.A. Legal did nothing about this. Later, when provided with a second warning, that Mr. Vadika had not been given vacant possession on completion, it would have been manifest to a reasonably careful solicitor that completion had not in any real sense taken place at all. The purchase money had been released, but nothing in writing received in return.
83. By that stage R.A. Legal had neither a written (or any other) undertaking from Sovereign to obtain a discharge of the Mortgage Express charge, nor written evidence of any obligation of Sovereign to return the completion money on demand. R.A. Legal were bereft of any means of summary enforcement of either of those obligations. Instead, the firm sent confusing letters to Sovereign, asserting on the one hand that completion had taken place, while on the other hand threatening, and later serving, a notice to complete. It is clear from paragraph 66 of the judgment of this court in the Daybells case that, once a purchaser's solicitor becomes aware of an apparent breach of undertaking by the vendor's solicitor in relation to completion, he should ordinarily take prompt steps to have that undertaking summarily enforced.
84. In the present case, the judge rejected Abbey's complaint about the inadequacy of the Requisitions because he accepted Mr. Rahman's evidence that those Requisitions did not deal with a situation where completion did not take place. In the judge's view, the fact that a pretended completion took place on 29^th July made any theoretical inadequacy in the Requisition process irrelevant.
85. I disagree. First, Requisition 7(D), if asked and answered affirmatively, provides in paragraph 6 of the Completion Code the precise obligation of the vendor's solicitor to hold the completion monies to the purchaser's solicitor's order that needs to be enforced if completion does not take place. This is just as important where it becomes reasonably apparent that a pretended completion has not taken place in substance, as it is where completion has been delayed or abandoned. R.A. Legal should not have transferred the completion money to Sovereign until Requisition 7(D) had been asked and answered affirmatively. The transfer of the money on 28^th July was, for that reason, unreasonable conduct. Since it was that transfer which put Abbey's money into the hands of the fraudster, it is hardly attractive to suggest that it was unconnected with Abbey's loss. It was also a breach of trust, for the reasons already given.
86. Secondly, the apparent failure to appreciate that the answer to Requisition 4(B) had been falsified by Sovereign's failure to provide either an executed discharge or an undertaking to discharge the Mortgage Express charge was directly relevant to R.A. Legal's failure to appreciate that something serious had gone wrong until long after the completion money had been misappropriated. In my view the judge interpreted Abbey's fourth complaint as being directed only to a situation where completion had not been attempted, rather than to the situation where a pretended completion ought to have been understood to have been inadequate or invalid as soon as R.A. Legal received the letter from Sovereign containing only the forged contract.
87. Thirdly, it was also wrong for the judge to reject the submission that the absence of any written commitment by Sovereign to hold the completion money to R.A. Legal's order was neither serious nor consequential. In my view the absence of written evidence of that obligation was, or would have been, seriously detrimental to the prospects of any summary enforcement of any Sovereign's obligation to return the money to R.A. Legal prior to 13^th August when it was misappropriated. It is no answer that R.A. Legal made no attempt to do so. Failure to obtain evidence of Sovereign's obligation to hold the completion money to R.A. Legal's order was a serious omission, and the transfer of the completion money on 28^th July without first obtaining that written evidence was itself, for the reason given above, another serious omission which was plainly connected with Abbey's loss. Mr Pooles submitted that since the money remained in Sovereign's client account until released during the pretended completion on the following day, the real cause of the loss was the release on 29^th July rather than the transfer of the money on 28^th July. I disagree. It was the transfer rather than just the release of the money which put it in the effective control of the fraudster.
88. It is unfortunate that the implications of Sovereign's answer to Requisition 4(B), the inadequacy of the contents of Sovereign's letter following completion, and the absence of any attempt at summary enforcement by R.A. Legal thereafter were not matters of express criticism, or therefore investigation, at trial. The only criticism of R.A. Legal after completion was their failure to notify Abbey of the delay to the transaction or of their inability to register Abbey's charge. Understandably, the judge rejected that complaint as inconsequential although, again, I would regard it as serious.
89. Mr. Pooles submitted that this shortfall in Abbey's pleading was fatal to any case based upon the inadequacy of the Requisitions, other than the case actually pursued about the failure to obtain a written undertaking to hold the completion monies to R.A. Legal's order pending completion, before releasing the funds. How, asked Mr. Pooles, could it be fair to find R.A. Legal seriously at fault, let alone consequentially so, in relation to a criticism which had not been put to Mr. Rahman in cross-examination?
90. I have been considerably troubled by this submission. A similar situation arose in the Daybells case, in which the solicitors' apparent failure to take prompt steps summarily to enforce the vendor's solicitor's undertaking to discharge a prior mortgage arose for the first time in the Court of Appeal, having not been pleaded or pursued at trial: see again paragraph 66. The result was that it could not be allowed to prevail. But that was a professional negligence claim against the solicitors, in which the claimant's obligation was both to plead and prove causative negligence. In the present case liability is established by breach of trust, and the burden was on R.A. Legal to satisfy the court that, in all respects material to Abbey's loss, it acted both honestly and reasonably.
91. In response to Abbey's sixth criticism, about the delay in informing Abbey about the difficulties following completion, the judge acquitted Mr. Rahman of any blame for the fact that no bells rang in his mind, and he had no suspicion of fraud, until long after 13^th August, when the completion money was misappropriated. Mr. Rahman was indeed cross-examined about why no bells rang, as the judge notes at paragraph 25 of his judgment.
92. Mr. Rahman's evidence about the Requisitions was that he had no recollection whether he saw them at the time: see paragraph 21 of his witness statement. He theorised that, if he had considered the replies, they amounted to:

"an enforceable undertaking that, on completion, Sovereign would provide us with confirmation that the registered charge had indeed been discharged".

If that is what Mr. Rahman thought, then the absence of any such written confirmation in the post-completion envelope from Sovereign ought to have set alarm bells ringing. Yet in paragraph 32 of his witness statement he said that:

"At no point during the transaction did I suspect anything unusual or untoward about the transaction. Ms. Sharma also did not raise any concerns about the transaction to me."

That was the evidence upon which R.A. Legal sought, for the purposes of section 61, to discharge the burden of showing that it acted reasonably in all respects concerned with Abbey's loss.

93. After anxious consideration, my view is that it would not be in any respect unfair or unjust to R.A. Legal for this court to assess the question of law raised by the first stage of the section 61 analysis by reference to that evidence of Mr. Rahman, and to conclude that, for the reasons which I have given above, his firm did not act reasonably, in particular when failing to appreciate that completion had not taken place as required by the terms of the Requisitions, when no confirmation of prior mortgage discharge was received in the post-completion envelope.
94. Mr. Rahman's own evidence in chief suggests that he did not regard the answer to requisition 4(B) as providing an undertaking to obtain discharge at some time after completion. Nor in my view was it an undertaking even to provide confirmation of discharge on completion, as he thought. It was merely confirmation that this was what was planned: see by analogy this court's analysis of Requisition 4(A) in the Davison case, at paragraph 45. Where Requisition 4 seeks undertakings, it says so in terms and requests a draft. The Completion Code provides the requisite undertaking, when expressly adopted. Plainly, no such written undertaking was given.
95. The result, in my judgment, is that R.A. Legal were disabled from seeking by any summary means of enforcement to protect Abbey from the loss of its money, because they had neither an undertaking to discharge the prior charge on or after completion, nor written confirmation that, until completion had properly occurred (which it plainly had not) they could demand the immediate return of the completion money. Those disabilities arose, respectively, from a failure to appreciate the implications of Sovereign's answer to Requisition 4(B) and from a failure to ask for or obtain Sovereign's commitment to the adoption of the Completion Code before transferring the completion money. In respect of the former, R.A. Legal has simply failed to discharge their burden of proof that the firm acted reasonably in that respect. In respect of the latter, the point was fairly pleaded by Abbey, and made good by the evidence.
96. I can briefly deal with the remainder of Abbey's pleaded complaints. The sixth, as I have said, was about the inconsequential failure to notify Abbey of the difficulties following completion. I am satisfied that a mere failure to notify Abbey was indeed inconsequential, for reasons already given. The final complaint was that R.A. Legal released the completion money to Sovereign before obtaining Mr. Vadika's signature on his legal charge. For the reasons given by the judge, there was nothing in that complaint, and it was not pursued by Mr. Grant on appeal.

Conclusions

97. The question whether a trustee has acted reasonably in respect of matters connected with the beneficiary's loss is not in my judgment to be resolved purely by considering each specific complaint separately. The question is whether the trustee's relevant conduct was reasonable, taken as a whole. Looking at the matter in the round, I have been driven to the conclusion that the judge took an altogether too lenient view of the seriousness of R.A. Legal's numerous departures from best practice, during the whole of the period from its request for the funds from Abbey, until they were misappropriated from Sovereign's client account on 13^th August. The Certificate of Title contained a deliberate misrepresentation that investigation of title had been concluded. There was a failure to seek Abbey's instructions arising from the delay in completion. There was a failure, before transferring the completion money, to obtain written confirmation (by adoption of the Completion Code or in any other way) of Sovereign's obligation to hold the completion money to R.A. Legal's order pending completion, or to return it if for any reason completion did not properly take place. There was a failure to give proper consideration to the implications of Sovereign's answer to Requisition 4(B), when no executed discharge of the prior mortgage arrived with the post-completion letter alongside the forged contract. R.A. Legal failed to appreciate that this omission meant that completion had not taken place as it should have, and the added fact that possession had not been handed over either, and that the prior charge had definitely not been discharged, all of which R.A. Legal knew eight days before the misappropriation of the money, led neither to an appreciation that something serious had gone wrong, or to the taking of any remedial action. Thereafter the correspondence between R.A. Legal and Sovereign appears to me to have demonstrated a lamentable state of muddle in the minds of those dealing with the matter at R.A. Legal, and I can only regard the failure to give Abbey any warning that its money was at risk until late November as wholly unreasonable.
98. Nonetheless, it is only a part of that unhappy picture which ought properly to be regarded as connected with Abbey's loss, namely that part which began with the making of inadequate Requisitions, the receipt of inadequate replies, the failure to obtain Sovereign's written commitment to follow the Completion Code before transferring the completion money to Sovereign, and the failure to appreciate that completion had gone seriously wrong when no confirmation that the mortgage had been discharged was received in the post.
99. This was (unlike Daybells) a case of pre-planned fraud. In the wholly exceptional circumstance that the fraudster was a solicitor, rather than a mere imposter, I am prepared to assume that the fraud would probably have been successfully achieved even if R.A. Legal had acted reasonably in all those specific respects. A properly formulated Requisition 7, with a refusal to accept a reply which did not include a commitment to adopt the Completion Code would, probably, simply have led to Sovereign fraudulently providing that assurance. Proper insistence on the provision of an executed mortgage discharge might have been met with a forgery, or with the provision of an undertaking by Sovereign with which it had not the slightest intention to comply. The commencement of urgent proceedings for summary enforcement of the undertakings which would by then have been in place would probably have been met by an earlier misappropriation of the completion monies than in fact occurred. In the absence of any suspicion of fraud, there would have been no basis for the obtaining of a freezing order against the bank account of a firm of solicitors in good standing.
100. A conclusion that, but for those aspects where R.A. Legal's conduct fell seriously and unreasonably short of best practice, the fraud would probably have succeeded by no means leads to the result that those parts of R.A. Legal's conduct are unconnected with the loss. They all represent departures from a sophisticated regime, worked out over many years, whereby risks of loss to lenders and lay clients are minimised, even if not wholly eradicated. Where solicitors fail, in serious respects, to play their part in that structure, and at the same time are swindled into transferring and then releasing trust money to a fraudster without authority, they cannot expect to persuade the court that it is fair to excuse them from liability, upon the basis that they have demonstrated that they have in all respects connected with that loss, acted reasonably.
101. I mean thereby to cast no doubt upon, or to depart from, this court's decision in the Davisons case. There the solicitors did indeed obtain an apparent commitment by the person whom they reasonably believed to be the vendor's solicitor to adopt the Completion Code, so that the regime of protective undertakings was, as far as they could tell, in fact put in place. The departures from best practice in that case were far less serious and of no consequence in achieving for the lender the protection against risks of loss which the Completion Code is intended to provide.
102. In the present case I have come to the clear conclusion that the particular failures which I have described, beginning with the inadequate making of Requisitions on Title, transferring the completion money without the adoption of the Completion Code by Sovereign, and then failing to deal with the absence of a prior mortgage discharge on the pretended completion, were indeed unreasonable, and sufficiently connected with Abbey's loss. In any event, those failings of R.A. Legal formed part of a larger picture of the shoddy performance of a conveyancing transaction from start to finish, which leaves me in no doubt that it would not be fair to excuse the firm from liability, in whole or in part.
103. The discretion is of course conferred upon the judge, and falls to be exercised by this court only if the judge has made an error of law, failed to take (and take only) the appropriate matters into account, or otherwise reached an irrational decision. I consider that the judge erred in law in adopting an over-lenient view about the requirement to show reasonable conduct, attributable to an incorrect attempt to construe section 61 by reference to the similar, but by no means identical, provisions in the Companies Act. His conclusion that the failure to obtain from Sovereign its commitment to the Completion Code in advance of the transfer of the completion money was inconsequential was, in my view, an error about a matter of legal analysis. The result is that his exercise of discretion cannot stand. Since R.A. Legal have not shown that they acted reasonably in all respects connected with Abbey's loss, the discretion does not, strictly, arise at all. But even if it had done, and fell to be undertaken afresh by this court, I would have not have regarded it as fair to grant R.A. Legal any relief from liability for breach of trust, for the reasons given in the previous paragraph. I would therefore allow the appeal.

Mrs Justice Proudman

104. I agree with both judgments.

The Chancellor

105. I am grateful to Briggs LJ for his comprehensive judgment, with which I agree. I add a few words of my own since we are disagreeing with the clear and careful judgment of the trial judge.
106. I agree with Briggs LJ, for the reasons he gives, that R.A. Legal committed breaches of trust on 28 and 29 July 2009.
107. There are two stages in the application of section 61 of the Trustee Act 1925. The first is for the trustee to satisfy the court that he or she has acted honestly and reasonably. If the court is so satisfied, but only if the court is so satisfied, then, secondly, the court has to decide whether the trustee ought fairly to be excused, and whether to exercise its power to relieve the trustee wholly or partly from personal liability for the breach of trust.
108. With regard to the reasonableness of the trustee's conduct, at the first stage of the section 61 analysis, the starting point is the approach of Sir Andrew Morritt C in Nationwide Building Society v Davisons [2012] EWCA Civ 1626, [2013] PNLR 188, with whose judgment the other members of the Court of Appeal agreed. He said at [48] that section 61 does not predicate that the trustee (in that case a solicitor acting on a conveyancing transaction) has 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.
109. The present case raises the issue as to what is a sufficient connection between unreasonable conduct of the trustee and the loss suffered to preclude exercise of the court's power under section 61. In answering that question, it is important to bear in mind that section 61 is only relevant if the trustee has been or may be found personally liable for breach of trust and to make good the loss to the extent and in the manner required in equity. Furthermore, section 61 must be interpreted consistently with equity's high expectation of a trustee discharging fiduciary obligations.
110. It seems clear, against that background, that the object of section 61 is not to introduce a particular causation test which is distinct from and negates the normal rules for fixing liability for personal liability for breach of trust. It is not a statutory gloss intended to introduce familiar causation concepts, such as a "but for test" or an "effective cause" test. It is an exceptional statutory jurisdiction to relieve a trustee from liability despite equity's stringent duties imposed on trustees. I agree with Briggs LJ, therefore, that the test is not one of strict causation. On the other hand, it seems equally clear that the court's jurisdiction to grant relief under section 61 is not precluded by conduct of the trustee which, although unreasonable, played absolutely no part in the occasioning of the loss. A good example in the present case is the provision by R.A. Legal of their unqualified certificate of title before completing their investigation of title. That was unreasonable conduct but it is irrelevant because R.A. Legal in fact completed their investigation of title before funds were transmitted to Sovereign on 28 July 2009.
111. Other cases where the trustee contends that the loss would have occurred in any event may not be so clear cut. In every case, however, it is for the trustee to satisfy the court that, despite his or her unreasonable conduct, none of that conduct played any material part in the occasioning of the loss. For the reasons I have given, the test is not one resting on a balance of probabilities. It will be sufficient to preclude relief under section 61 if, for example, the trustee fails to satisfy the court that his or her unreasonable conduct did not materially contribute to the opportunity for the loss or did not materially increase the risk of such loss. If the court is left in doubt on those matters, the conditions at stage one of the section 61 analysis are not satisfied.
112. Where the trustee invokes section 61 the onus is on the trustee to place before the court a full account of his or her conduct leading to the breach of trust. As Briggs LJ has pointedly observed, it is wrong in principle to cast on the beneficiary the onus of identifying the trustee's unreasonable conduct and of satisfying the court of its causal connection to the loss suffered. The beneficiary may not be in a position to know all that occurred in the chain of events leading to the breach of trust. The present case is a good example. Abbey is simply not in a position to know what took place in the offices of R.A. Legal and Sovereign when completion purportedly took place on the telephone on 29 July 2009.
113. In the light of those principles, it is clear that R.A. Legal cannot successfully invoke section 61 in the present case. Briggs LJ has analysed the facts in close detail. It is sufficient for me to say the following.
114. R.A. Legal parted with the funds to Sovereign on 28 July 2009 when (a) they did not have an express undertaking from Sovereign as to how the money would be applied, (b) they did not have, or at best it is doubtful whether they had, an express undertaking from Sovereign as to how discharge of the Mortgage Express mortgage would be dealt with at completion, and (c) they had not received any indication from Sovereign as to whether or not Sovereign would comply with the Law Society's Code for completion by post.
115. R.A. Legal contend that the reply "Confirmed" to Requisition 4(B) amounted to an express undertaking by Sovereign that "it would hand over a notice of discharge on completion". There are two difficulties with that submission. In the first place, it is not entirely clear that the word "Confirmed" was intended to be a response to Requisition 4(B)(i) since there is no express statement that Requisition 4(B)(ii) and (iii) were inapplicable. That should have been clarified. Secondly, in the absence of any indication in the replies to the Requisitions that Sovereign would be complying with the Law Society's Code for completion by post, the conclusion that the reply to Requisition 4(B)(i) was an express undertaking, as opposed to merely a statement of information, would appear to be inconsistent with the analysis of Sir Andrew Morritt C in Davisons at [45]. At best, the position as to whether an express undertaking had been given as to what was to take place at and after completion regarding the discharge of the existing mortgage on the Property was unclear. The importance of an undertaking is, of course, that it can be enforced by the speedy and summary procedure applicable to solicitors' undertakings: Udall v Capri Lighting Ltd [1988] 1QB 906.
116. Further, no one gave evidence for R.A. Legal as to precisely what took place during the telephone completion on 29 July 2009. In particular, there was no evidence as to whether or not R.A. Legal received (a) an assurance that Sovereign was then in possession of an executed Land Registry form DS1 or other suitable document evidencing discharge of the Mortgage Express mortgage and (b) an undertaking from Sovereign that they would immediately put that document in the post to R.A. Legal. If Sovereign had said that it was not then in possession of such a document because, for example, Sovereign was not on Mortgage Express's panel of approved solicitors or because Mortgage Express was unwilling to provide an executed DS1 until it had received the sums due on the mortgage, it would have been necessary for R.A. Legal to obtain other appropriate undertakings. There is no evidence that it did so.
117. In the light of those facts and matters, it is not possible for R.A. Legal to satisfy the burden on them of showing that their conduct was reasonable or, insofar as it was unreasonable, it played no material part in the occasioning of the loss suffered by Abbey.