PI premium rise concerns

Lawyers fear professional indemnity premiums could be driven up following a much-anticipated decision on residential conveyancing fraud by the Court of Appeal.

Santander v RA Legal [2014] EWCA Civ 183 concerned a fraud in which the solicitors, Sovereign, which purported to act for the vendor of a property did not in fact act for the vendor. Although the owner was seeking to sell, she was completely unaware that her property had been “sold” on her behalf.

The defendant firm of solicitors, RA Legal, was entirely deceived by the fraud, but the transaction did not complete because the buyer paid £200,000 (£150,000 of which was a mortgage) without receiving genuine documents in return.

Mr Justice Smith held that RA Legal acted in breach of trust by releasing its client’s money but had nevertheless acted reasonably for the purposes of s 61 of the Trustee Act 1925 because its departures from best practice were not sufficiently connected with the buyer’s loss.

Therefore, the firm was not liable.

Overturning this, however, the Court of Appeal clarified that, for the purposes of s 61, sufficient connection with a beneficiary’s loss may be established if there is “some element of causative connection”. The connection falls short of “but for” causation, and simply requires that there be an element of the trustee’s behaviour which materially contributes to the beneficiary’s loss. Therefore, RA Legal was liable for the buyer’s loss as a result of minor errors it made.

According to a statement by Hailsham Chambers, whose Michael Pooles QC and Imran Benson acted for the respondent firm of solicitors, the ruling “draws residential conveyancing solicitors closer than ever before into the position of effectively guaranteeing their clients against the possibility of fraud by third parties. While this may be comforting for purchasers, the anticipated rise in professional indemnity premiums is likely to push up conveyancing fees”.