I. Introduction
The duties imposed on trustees are diverse, exacting and, whether imposed by the trust instrument, statute or equity, strictly enforced against an errant trustee.Footnote 1 The ingrained response is that it matters nought that a trustee in breach has acted in an honest, well intentioned and unselfish manner. As Maugham observed, “Honesty, zeal, intelligence, care, prudence, have all alike been unable to preserve him from loss in cases where the law or the facts have rendered human error possible”.Footnote 2 The concept of no-fault liability, however, sits uncomfortably within a developed jurisdiction where such draconian tendencies tend to be dismissed as unjust, unreasonable and pernicious.Footnote 3 The prevailing sentiment has long been that fairness demands that there should be some protection afforded to the trustee who has acted honestly and reasonably.Footnote 4 This notion adopted statutory form with the enactment of the Judicial Trustees Act 1896, s. 3(1), which despite its nomenclature, was not limited to judicial trustees and was, moreover, retrospective in reach. Described somewhat blandly as, “not a good example of clear and careful legislation”,Footnote 5 this provision is the progenitor of the extant Trustee Act 1925, s. 61.Footnote 6 Unfortunately, the wording of both is unhelpful and apt to defy ready understanding.
As attempts to safeguard trustees had previously been undertaken on a piecemeal and ad hoc basis,Footnote 7 s. 3 was remarkable for being the first statutory provision specifically crafted to address the mischief of trustees’ no-fault liability. In both its contemporary and historic forms, this jurisdiction affords the court an extensive discretion to shield a trusteeFootnote 8 (but no other fiduciaryFootnote 9 ) who, “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach”.Footnote 10 In these circumstances, the court is empowered to relieve the trustee either in whole or in part from personal liability for the breach of trust.Footnote 11 This reformative step was not intended to impact on the ordinary law concerning trustees’ duties. As Maugham pointed out, “A breach of trust before the Act remains a breach of trust after it”.Footnote 12 Instead, it was a palliative measure, designed, “to introduce a new, lower, standard of breaches of trust which could be excused”.Footnote 13
While originally viewed as a necessary yet radical advance, the practical utility of this jurisdiction has lessened considerably in modern times, long having “languished in a legal backwater”Footnote 14 and perceived as, “a little used but still useful house of last resort”.Footnote 15 The uncertain, expensive and time-consuming nature of relief proceedings coupled with the growth of the trustee indemnity insurance market has contributed majorly to this decline.Footnote 16 The voguish and enveloping nature of exclusion clauses served also to erase the statutory jurisdiction from the legal foreground.Footnote 17 Somewhat abruptly, however, this period of quietude has ended with a series of recent cases invoking the statutory machinery. This litigation has primarily concerned conveyancers who have become unwittingly embroiled in mortgage fraud. Most frequently, the cases have involved panel solicitors who, while acting for mortgage lenders, have paid away purchase monies before the genuine completion of the transaction. This premature release of the purchase monies amounts to a breach of trust and requires the trustee to reconstitute the fund, with interest.Footnote 18 As the solicitor's retainer can never contain an exclusion clause,Footnote 19 the only available avenue for relief against a breach of trust claim is via s. 61, which in this context was aptly described by Lord Toulson as “a deus ex machina”.Footnote 20
The aim of the present article is to survey the origins, design and purpose of this recently revitalised jurisdiction. It will appraise historical and contemporary policy and practice, identify defects with the present jurisdiction and investigate the threshold concepts of honesty and reasonableness upon which the discretion is anchored. Emphasis will be placed on the comparatively uncharted direction that the trustee “ought fairly to be excused for the breach of trust”. This wording adds an ethical dimension to the statutory formula,Footnote 21 which enables the court to advance broad based value judgments as to the type of trustee that should be deemed a suitable recipient of the court's benefaction and the contextual setting within which relief should be available. While in principle the scope of the jurisdiction currently embraces both professional and lay trustees alike,Footnote 22 it is to be acknowledged that the relief of paid trustees runs contrary to the founding policy of the legislation. Accordingly, the jurisdiction now performs a different function from that which was originally intended. This is, however, understandable in light of the unforeseen and radical changes in the nature of trusteeship over the subsequent years, coupled with the open ended definition of “trustee” employed within the Trustee Act 1925.Footnote 23 Nevertheless, the marked dissimilarities between paid and lay trustees cannot be overlooked and must necessarily influence how the court gauges issues of reasonableness, fairness and merit.Footnote 24 There is, unsurprisingly, an innate judicial resistance to the granting of relief to the professional trustee and this fault line is particularly exposed in the possible application of the exculpatory provision to the ephemeral trust relationship that arises between lender and solicitor. Unlike what Lord Toulson labelled the “traditional trust’,Footnote 25 this type of trust is merely, “one incident of a commercial transaction involving agency”.Footnote 26 It is a mere device that facilitates the lender's business objective, dissipates once genuine completion has occurred and, as Lord Toulson advised, “it would be artificial and unreal to look at the trust in isolation from the obligations for which it was brought into being”.Footnote 27 This re-sighting of the discretionary jurisdiction is, admittedly, without direct authority. Nevertheless, deductive judicial reasoningFootnote 28 and a preparedness to proceed by analogy strongly leads to the conclusion that the will-o'-the-wisp trust that exists between lender and solicitor should, as a matter of policy, commonsense and fairness, fall beyond the benevolent reach of s. 61.
II. Mischief and Machination
It is impossible to understand the design and intent of the s. 61 jurisdiction without an appreciation of the socio-legal background from which it emerged. The vantage point for this analysis is the Victorian era, which witnessed a profound transformation in the employment of the trust mechanism and its emergence as, “a powerful and essential tool in family provision”.Footnote 29 The changing landscape was characterised by industrialisation and the associated increase in production, trade and investment opportunities. The trust transitioned from a mechanism geared primarily to custodianship and passive estate management to a model that embraced the active generation and distribution of income.Footnote 30 This evolutionary process entailed that the demands upon the trustee correspondingly increased: the expectations of beneficiaries changed, the obligations imposed became more onerous and the workload expanded in volume and complexity.Footnote 31 It was, as Stebbings observed, “now twice as hard to administer a trust”.Footnote 32
There were major causes of grievance amongst those who were prepared to act as a trustee and such complaints keenly demonstrated the inadequacy of the law surrounding trust administration. Nineteenth century trusteeship was primarily a personal and gratuitous role and offered, “a striking example of altruistic virtue and disinterested devotion to duty”.Footnote 33 The concept of the remunerated trustee was, moreover, distasteful and, “altogether repugnant to our habits and feelings”.Footnote 34 The professional trustee was trialled in the context of the Bankruptcy Act 1869, but later denounced as a character, “who ruined its workings, plundered estates and brought discredit upon our whole system of bankruptcy law and administration”.Footnote 35 This catastrophic failure served only to reinforce the notion that maintaining the amateur status of trustees was overwhelmingly in the public interest and minimised any risk of conflict between duty and personal interest. This deep-seated antagonism inevitably had negative consequences as lay trustees were usually ill-equipped and untutored to deal with novel and increasingly sophisticated responsibilities.Footnote 36 The lack of specialist skill was most pronounced in relation to the investment of trust funds, which now required a much higher degree of insight and commercial acumen. Trustees and beneficiaries alike were, as Polden observed, “bedazzled by well advertised alternatives in local authority, colonial and utility stocks, railway shares and equities, in addition to mortgages secured on building estates and commercial ventures”.Footnote 37 Nevertheless, when making and revising investment decisions and exercising dispositive powers, the amateur trustee still fell to be judged by the yardstick of a prudent man of business.Footnote 38 Admittedly, the trustee could apply to the Chancery Court for directions, say, as to the appropriateness of a proposed investment, but this was still a disproportionately expensive and singularly unattractive option. Indeed, Lord Lifford described this possibility as, “subjecting trust property to … the legal robbery of that court”.Footnote 39 It is, therefore, highly ironic that, in return for this protection, “the Courts of Chancery apply a more rigorous standard to the conduct of trustees than to the case of other bailees”.Footnote 40 An ever-widening gap between skills acquired and standards demanded exposed the trustee to the grave risk of personal liability.
The ancient and restrictive principle of delegatus non potest delegare exacerbated the difficulties for trustees. As the traditional emphasis was upon the trustee's personal performance of duties, the general rule was that a delegate could not delegate, even to a co-trustee.Footnote 41 To do otherwise would amount to, “a betrayal of the settlor's wishes”.Footnote 42 Although this principle did not operate as an absolute bar,Footnote 43 it did ensure that, without express authority in the trust instrument, a trustee could not delegate dispositive duties and fiduciary discretions.Footnote 44 The use of specialist agents, such as stockbrokers and solicitors, to carry out purely ministerial functions was throughout permissible.Footnote 45 Nevertheless, an agent could not be appointed to undertake duties which a trustee could perform himself or which involved a purely personal decision.Footnote 46 The trustee, moreover, remained potentially liable for the acts of his agents.Footnote 47 Personal liability remained a real threat for the trustee who exercised his dispositive functions and powers on the erroneous advice of an agent.Footnote 48 This gave rise to a keen sense of unfairness such that, in the Trustee Bill 1888, there was an abortive attempt to introduce a general power to delegate. It was a further 38 years before such powers to appoint agentsFootnote 49 and to delegateFootnote 50 materialised and fuller protection was afforded to the trustee for the acts of his agents.Footnote 51
The accentuated need for specialist skills, a difficulty in attracting lay trustees and the lack of professional trustees gave rise to the solicitor-trustee.Footnote 52 This development introduced a degree of expertise to the role. It was also to hasten a refashioning of the trust instrument to widen powers and to minimise the risk of inadvertent breach. Absent a charging clause, neither the solicitor-trustee nor his firm could directly claim remuneration for acting as trustee.Footnote 53 Nevertheless, payment could be received for advice and other legal services provided to the trust.Footnote 54 There was also the opportunity to generate further income from ancillary work stemming from the association with the trust and access to its funds. The solicitor-trustee soon became a figure of notoriety, having greatly “excited public animadversion”Footnote 55 and becoming, “the bane of the affluent classes”.Footnote 56 Lord Brougham went so far as to claim that, “no less than one-twentieth part of the trust funds in this country were embezzled”.Footnote 57 Many solicitors were struck off the roll for misappropriating the moneys of their clientsFootnote 58 and tougher sanctions for dishonest trustees were eventually introduced.Footnote 59
The absence of an office of public trustee further compounded the problems experienced by the Victorian trustee. The possibility of such a voluntary appointment, whether the function was to be carried out by a state officer or public company, had dominated the reform agenda throughout the latter half of the nineteenth century.Footnote 60 The public trustee would, it was thought, minimise the perpetration of fraud, particularly upon widows and orphans as well as the friendless and the helpless.Footnote 61 Unsurprisingly, this alternative mode of trusteeship was vehemently resisted by the Incorporated Law Society and other representatives of the solicitors’ profession and did not curry political favour with the Conservatives.Footnote 62 It was contended that the misuse of trust funds was overstated and did not justify the innovation of such an expensive and cumbersome office. Cost and circumlocution were the obstacles to its establishment.Footnote 63 Notwithstanding that such objections were dismissed by the Select Committee on Trusts Administration, no such functionary came into being until the Public Trustee Act 1906. Even then, it was a somewhat fortuitous and unexpected event.Footnote 64 Undoubtedly, this lengthy preoccupation with the beneficiary centric concept of the public trustee, served as a major distraction from the issue of trustee relief.
Against a backcloth of high standards, unrealistic expectations and no-fault liability, there emerged a serious trustee recruitment problem. In the words of Polden, “Between these millstones, the trustee was likely to be ground exceedingly small”.Footnote 65 The Select Committee on Trusts Administration warned that the difficulty was very real and increasingFootnote 66 with Lord Jessel M.R. identifying, “a danger of trusts falling into the hands of unscrupulous persons who might undertake them for the sake of getting something by them”.Footnote 67 The difficulty was how best to attract competent, honest and willing volunteers at a time when private trusteeship was a singularly unattractive venture.Footnote 68 The cause was a popular one and it was widely accepted that, “an overwhelming case has been made out for placing a trustee in a less irksome and hazardous position than is now his”.Footnote 69 From the range of options considered to counteract this “trustee chill”,Footnote 70 the Select Committee on Trusts Administration favoured a jurisdiction to afford relief where the court deemed it fair and reasonable to do so. This seismic shift in the legal landscape occurred, surprisingly with scant parliamentary debate, via the Judicial Trustees Act 1896 and the innovation of a pioneering jurisdiction that focused upon the ethically sensitive issue of when it is reasonable to break the law.Footnote 71 The broad and uncharted discretion to condone a breach of trust was primed to operate “under special circumstances”Footnote 72 and only as regards those hard cases where lay trustees had, “failed to live up to unattainable ideals”.Footnote 73 This redemptive provision, therefore, focused upon the personal aspect of trusteeship and sought to ensure that the amateur trustee was, “no longer dealt with in the merciless fashion of a century ago”.Footnote 74 It is hardly surprising that many of the earlier cases, in which relief was sought, concerned the making of unauthorised investments or authorised investments imprudently made.Footnote 75 It has, however, been suggested that the jurisdiction actually encouraged trustees to commit breaches of trust, when it was in the best interests of the trust, in the belief that they would in all likelihood be granted relief.Footnote 76
It was never envisaged that s. 3 would shield professional trustees. Instead, the reform was designed to slow the march to professionalism by making lay trusteeship more appealing. It was, however, a product of its time, designed to tackle the urgent problems and novel tensions then associated with lay trusteeship. It was also a response to the fact that many breaches of trust were committed in compliance with the wishes of the same beneficiaries who would subsequently assert a claim for breach of trust.Footnote 77 There can be no denying that the jurisprudential setting in which the discretion was originally fashioned has long since vanished and bears no resemblance to that of modern times. Hence, the gradual and reflexive extension of the jurisdiction to embrace paid trustees. Indeed, the major legal developments concerning the administration of trusts, coupled with the exponential growth of the professional trustee market, raise legitimate questions as to whether there remains any need for this exculpatory jurisdiction. It does not sit well within the modern context of private trusteeship and particularly so when its utilisation has nothing to do with root concepts of fairness, justice and the protection of the deserving and vulnerable. Instead, what was designed as “a fair and useful provision”Footnote 78 has been hijacked opportunistically by solicitor-trustees, with varying degrees of success, as a means of loss allocation between financial and legal organisations (and their respective insurers). This is, most certainly, far removed from the mischief at which s. 3 and its successor was intended to redress.
III. The Limits of Forbearance
Absent legislative guidance, the judiciary have throughout grappled with the meaning, import and scope of this inelegantly drafted, relieving provision. As Kekewich J. acknowledged, “The difficulty arises from the fact that the Legislature in a few words, intended no doubt to be perfectly clear and expressive, has thought fit to interfere with well-established doctrines”.Footnote 79 Farwell J. echoed this sentiment, admitting that this dispensing provision is not, “applied on a thoroughly intelligible principle” and emphasising that, “the exercise of such a jurisdiction is beset with great difficulty and requires great caution”.Footnote 80 Maugham felt that the jurisdiction allowed the court to, “exercise a dubious prerogative of mercy (at the expense, be it added, of a third party) in cases which are left undefined”.Footnote 81 Although the modern judiciary find this allusion to mercy distasteful,Footnote 82 it remains a highly intuitive jurisdiction, which operates as a loss distribution mechanism between the trustee in default and the innocent beneficiary. As Farwell J. further explained, “the real difficulty is to say what is fair and right as between the beneficiary who entrusts his money to the trustee and the trustee who acts gratuitously on his behalf”.Footnote 83 Usually, the outcome will also determine which of the parties is to be burdened with the inevitable costs of that litigation.Footnote 84
A. Duty, Breach and Liability
Before the jurisdiction can arise, there must be an existing breach of trust (whether by commission or omissionFootnote 85 ) for which the trustee “is or may be personally liable”. Out of kilter with modern expectations of disclosure, the trustee need not plead relief in advanceFootnote 86 and the defence can be invoked suddenly and surprisingly once proceedings are underway.Footnote 87 It is important to note that the jurisdiction cannot be utilised to exonerate future liabilityFootnote 88 for as Kekewich J. acknowledged, “If the Legislature intends to confer that power on the Court, it must do so in express and unambiguous terms”.Footnote 89 The use of the words “may be” was viewed by Sheridan as enabling the court to grant relief even where it was unclear that a breach of trust had actually occurred.Footnote 90 There is no doubt that the terminology is potentially problematic and the use of these particular words, as Lindley M.R. acknowledged, “point to doubtful questions of construction”.Footnote 91 Sheridan's argument appears strengthened by the follow on reference to “the transaction alleged to be a breach of trust”. Nevertheless, it is not to be overlooked that these words are sited in an awkward proviso emphasising that the provision is of retrospective effect. Sheridan's reasoning arguably confuses the grant of relief, which cannot be made unless there is a proven breach of duty,Footnote 92 with the application for relief which can be made by a trustee before any finding as to a breach.Footnote 93 He might, moreover, have been misdirected by the willingness of some judges to engage in obiter speculation as to whether relief would have been granted if a breach of duty had been proven.Footnote 94 There is simply no scope for evidential uncertainty as to whether or not there is a breach of trust.Footnote 95
The wording of s. 61 appears emphatic in that it is expressed to cover “any breach of trust”, which (it might be expected) would not usually give rise to conceptual and jurisprudential difficulties. This is not the case, however, in the context of mortgage fraud and the bare commercial trust that arises in that transactional context. The existence of a trust, as regards the lender's solicitor, is expressly imposed by Clause 10.7 of the Council of Mortgage Lenders’ Handbook for England & Wales and, in relation to the vendor's solicitor, by the 1998 version of the Law Society Code for Completion by Post (the “Postal Code”).Footnote 96 The 2011 edition of the Postal Code, however, employs a change of wording which, it has been held, no longer imposes a trust of the vendor's representative.Footnote 97 The revamped Postal Code instead envisages that the receipt of the money and completion will be simultaneous and with no period existing during which the money can be held on trust. The seller's solicitor is, moreover, not now required to investigate or take responsibility for any breach of the seller's contractual obligations. Of course, this still leaves the vendor's solicitor susceptible to a breach of trust claim in transactions that are based on the previous version of the Postal Code.
It has, furthermore, been suggested that the flouting of the so-called “self-dealing rule” (purchase by the trustee of trust property) or the “fair dealing rule” (purchase by the trustee of the beneficiary's interest) would fall beyond the reach of s. 61.Footnote 98 This assertion hinges on the conclusion of Megarry V.C. that, while personal liability will arise, these rules only impose a disability and do not amount to a breach of trust.Footnote 99 It is to be appreciated, however, that Megarry V.C. was not considering the application of s. 61 when he volunteered this distinction.Footnote 100 It is, therefore, arguable that the exculpatory reach is not diminished in such circumstances.Footnote 101 As Judge Reid put it, “The section refers to relief from liability. Liability to account is just as much liability as liability to pay damages”.Footnote 102 Nevertheless, to allow a trustee to benefit by breach of fiduciary duty would seemingly run counter to the orthodox strictures of equity, namely the no-profit and no conflict rules.Footnote 103 As it is established that s. 61 cannot be employed to entitle a trustee to unauthorised remuneration,Footnote 104 it should follow that, as regards personal profits made from a transaction that also benefits the trust, s. 61 cannot be invoked.Footnote 105 The court should, instead, rely on its inherent jurisdiction to award an equitable allowance for work done where the trustee has acted in good faith and in the best interests of the beneficiaries.Footnote 106 Accordingly, and even if in principle the discretion extends to breaches of fiduciary duty, it should not be exercised in such circumstances.
It is also instructive to consider the position of so-called strangers to the trust, that is, those who intermeddle or receive trust property in breach of trust. The Trustee Act 1925, s. 68(1)(17), defines a trustee (‘unless the context otherwise requires’) as including a constructive trustee. The dishonest assistant must, of course, always fall beyond the reach of exculpatory relief. In Williams v Central Bank of Nigeria, moreover, it was held that, in the context of the Limitation Act 1980, s. 21(1)(a), dishonest assistants and knowing recipients were not “true” or de facto trustees.Footnote 107 While still liable to account as “constructive trustees”, these third parties are exposed to equitable remedies merely by virtue of their participation in the unlawful misapplication of trust assets. They never assume the position of a trustee and liability arises due to their involvement in an unlawful transaction which is impugned by the claimant. Such participants are, as Millett L.J. observed, “persons whose trusteeship is merely a formula for giving restitutionary relief”.Footnote 108 The same approach must necessarily permeate the definition of “trustee” for the purposes of s. 61.Footnote 109 In contrast, however, an intermeddler who lawfully assumes fiduciary obligations in relation to trust property without formal appointment (a trustee de son tort) would properly be categorised as a true or de facto trustee.Footnote 110 Hence, that trustee might seek statutory protection for a breach of trust in circumstances where a recipient accessory with knowledge cannot.
The reference within s. 61 to a failure to obtain the directions of the court seemingly serves only to add further uncertainty. This oft ignored aspect of s. 61 and its interaction (if any) with a breach of duty by the trustee is somewhat perplexing. Tellingly, the equivalent provision located in the Trusts (Scotland) Act 1921, s. 32(1), omits any such reference and no such allusion is to be found in the Charities Act 2011, s. 191(1). Adopting a pragmatic stance, Kekewich J. explained, “if the Court comes to the conclusion that a trustee has acted reasonably, I cannot see how it can usefully proceed to consider, as an independent matter, the question whether he has or has not omitted to obtain the directions of the Court”.Footnote 111 The ability to obtain directions was after all devised as a means of avoiding a breach of trust.Footnote 112 Kekewich J. added that, “The fact that a trustee has omitted to obtain the directions of the Court has never been held to be a ground for holding him personally liable”.Footnote 113 Accordingly, if the failure is disassociated from a breach of duty there can be no personal liability from which relief can be granted.Footnote 114 Unsurprisingly, Kekewich J. dismissed the reference to directions as being “difficult to follow” and having, “crept into the statute without due regard being had to the meaning of the context”.Footnote 115 Absent a convenient disregard of the statutory wording,Footnote 116 it must be that the provision signposts only that a trustee can be granted relief even though he failed to obtain such potentially expensive directions.Footnote 117 The focus then rests sensibly upon the reasonableness of the trustee's actions and the fairness of granting relief and not upon whether he was in breach of trust.Footnote 118 The failure to seek directions is merely one factor that the court can take into account and, unarguably, this obscure reference should be excised from the statutory wording.
B. The Threshold Conditions
For the jurisdiction to be exercised, there must be a coalescence of three factors, namely “honesty”, “reasonableness” and “fairness” and much judicial attention has been devoted to attributing meaning to these terms. Earlier authorities offer guidance by, “showing the general judicial temper” and serve to illustrate, “the type of circumstances in which relief has been granted or refused”.Footnote 119 Nevertheless, the courts have long been wary about setting precedents and throughout have emphasised that each case turns upon its own facts.Footnote 120 This judicial reticence might usually be appropriate as regards the highly fact sensitive determination of what is reasonable, but the mortgage fraud cases often share such factual similarity that one case can almost certainly be a sound guide to another.Footnote 121 As to the making of a distinction between honesty and dishonesty, the courts have long been active in laying down rules and general principles in the spheres of, for example, criminal law and accessory liability. There can be no logical justification for a refusal to do so in the context of s. 61. With regard to the “ought fairly to be excused” aspect of the statutory provision, the door was opened for the court to be proactive and, guided by policy factors and contemporary wisdom, shape the development of this discretionary jurisdiction. A failure to provide guidance as to the role of fairness has undoubtedly impeded the development and refinement of this jurisdiction. This is especially evident in the commercial context where those advising the parties 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”.Footnote 122 Lawyers are presently ill-equipped to advise in advance what will be the result of a potentially expensive and time-consuming application for exculpatory relief.Footnote 123
1. The Honest Trustee
As the statutory jurisdiction is not a last refuge for scoundrels, the absence of dishonesty is an understandable prerequisite of relief.Footnote 124 When the trustee has not acted honestly, he simply fails at the first hurdle.Footnote 125 If it were otherwise, “the inference would be that … cases exist where it is reasonable to act dishonestly”.Footnote 126 Although in principle the burden of proof lies with the trustee,Footnote 127 the absence of evidence to the contrary allows the court to assume that he has acted honestly.Footnote 128 Fraud and conscious impropriety are, however, much less likely to be encountered than negligence arising from inadvertent conduct.Footnote 129 The concept of honesty, as Kekewich J. admitted, “is not the grit of the section. The grit is in the words ‘reasonably, and ought fairly to be excused for the breach of trust’”.Footnote 130
There has never been a universally accepted definition of “honesty” for these purposes.Footnote 131 In the context of s. 61, it should not be overlooked that acting dishonestly is a bar to relief rather than an active element in the finding of personal liability. This distinction is crucial in that it bypasses the well trodden and, admittedly, conflicting authorities concerning accessories and the imposition of personal liability for dishonest assistance. Unlike with strangers, where the test for dishonesty is primarily objective in nature,Footnote 132 a predominantly subjective approach is to be adopted when disallowing the effect of s. 61.Footnote 133 This requires the court to consider what the defendant actually knew, believed or suspected at the time of the breach.Footnote 134 Honesty, as Sheridan rightly points out, “seems to denote being motivated by the interests of the trust”Footnote 135 and, hence, intended outcomes offer a crucial indicator.Footnote 136 The trustee cannot be deemed dishonest simply for failing to obtain the directions of the courtFootnote 137 for as Kekewich J. pithily observed, “A trustee is honest if he has not done anything dishonest”.Footnote 138 Unless the mens rea of the offence involves dishonesty, a trustee can act honestly even though he has committed a crime in the course of his trusteeship.Footnote 139
Although objective evaluations are central to the assessment of the reasonableness of the trustee's actions,Footnote 140 they also have a residual role to play in the determination of dishonesty. A lack of honesty cannot, therefore, be limited solely to knowledge that the action taken is detrimental to the beneficiaries and it must also embrace reckless indifference as to the outcome.Footnote 141 In this sense, it is akin to the notion of “wilful default”.Footnote 142 Although negligence is not to be equated with dishonesty,Footnote 143 reckless and imprudent conduct can, as Lord Nicholls acknowledged, “be a tell-tale sign of dishonesty”.Footnote 144 Such was demonstrated in LSC Finance Limited v Abensons Law Limited Footnote 145 where a trustee solicitor acted negligently and in breach of undertaking. He offered grossly unreliable, inadequate and contradictory evidence as to why he acted in the way that he did and was said by the High Court not to have acted honestly (or, indeed, reasonably) for the purposes of s. 61.
If the trustee's honesty is challenged, questions of credibility and reliability assume centre stage. As it has been authoritatively pronounced that, “Secrecy is the badge of fraud”,Footnote 146 it must follow that, “the converse is true: transparency is the hallmark of honesty”.Footnote 147 The cogency of the evidence required to establish dishonesty and fraud is, understandably, heightened due to the seriousness of the allegation.Footnote 148 While it is not essential that the trustee intended to profit personally from the breach,Footnote 149 personal gain, albeit perhaps trivial, remains a relevant factor in the determination of whether statutory relief is appropriate.Footnote 150 The court is permitted to consider all the circumstances known to the trustee, take on board the personal attributes of the trustee (such as status, intelligence and experience) and to evaluate the apparent motivations underlying the trustee's actions.Footnote 151
2. The Reasonable Trustee
Having acted honestly is not enough to be granted reliefFootnote 152 as the trustee must also affirmatively demonstrate that he has acted as a reasonable trustee.Footnote 153 Although the alternative descriptor of “a prudent man of business” is sometimes still employed,Footnote 154 this throwback reference potentially imports a lower standard than that expected of a reasonable trustee.Footnote 155 It misleadingly equates the standard expected of both professional and lay trustees,Footnote 156 is inflexible in that it disregards the abilities and skills of a particular trusteeFootnote 157 and predates the statutory duty of care as established in the Trustee Act 2000, s. 1, which combines subjective and objective elements in establishing a trustee's duty of care. Hence, a professional trustee must surely be judged against the standard associated with that professionFootnote 158 or, if higher, by any specialist skills claimed.Footnote 159 Accordingly, the conveyancer qua bare trustee must act “with exemplary professional care and efficiency” and be, “careful, conscientious and thorough”.Footnote 160 Unsurprisingly, the survey of the trustee's conduct in mortgage fraud cases tends to be particularly technical and detailed in nature. The court is necessarily reliant on prescribed codes of professional conduct and guidance published by the Law Society and the Council of Mortgage Lenders and the customer due diligence obligations and checks imposed by the Money Laundering Regulations 2007.
Evidence must be adduced by the trustee that establishes the reasonableness of the his actions and, if no such material is available, there is simply no possibility of relief.Footnote 161 The solicitor/trustee, for example, is expected to provide a paper-trail demonstrating that his conduct was reasonable.Footnote 162 The beneficiary cannot, of course, sensibly be expected to identify the trustee's unreasonable conduct.Footnote 163 Much judicial attention has been devoted to this fact sensitive issue and, unlike honesty, the burden of proof must be discharged by the trustee in all cases. The court will normally take a overview of the trustee's entire conduct before making its finding.Footnote 164 While it is to be accepted that, “each case must depend upon its own circumstances”Footnote 165 the unswerving rule should surely be that, if the trustee's actions amount to negligence, that trustee will have acted unreasonably for the purposes of s. 61.Footnote 166 The provision, as Byrne J. observed, “was never meant to be used as a sort of general indemnity clause for honest men who neglect their duty”.Footnote 167 Lamentably, the contrary conclusion was drawn by Gross J. who glibly accepted that, “It may seem odd, but there it is”.Footnote 168 He cannot sensibly be right as it would, in the view of Deputy Judge Richard Spearman, “involve saying that trustees who have acted as no reasonable trustees could have done may nevertheless be said to have acted ‘reasonably’ for purposes of section 61”.Footnote 169 Although trustees are not expected to achieve a standard of perfection,Footnote 170 they are likely to be denied relief when there is discernible carelessness in their conduct.Footnote 171 This is particularly so when the trustee is, say, a qualified lawyerFootnote 172 or chartered accountant.Footnote 173 The terms of the trust deed and the clarity of its wording,Footnote 174 the size of the estate,Footnote 175 the competing claims of the beneficiaries,Footnote 176 the state of the relationship between the beneficiaries,Footnote 177 the particular loss,Footnote 178 overall lossFootnote 179 or risk incurredFootnote 180 and the nature of the duty breachedFootnote 181 may assume obvious importance in determining where the threshold of reasonableness lies. Similarly, trustees will be expected, when appropriate, to obtain professional advice from a suitable adviser,Footnote 182 provide proper instructions to that adviser in a timely manner and to act on that advice.Footnote 183 Although this is not always a passport to relief,Footnote 184 it will usually suffice to establish reasonableness.Footnote 185 Even if the adviser turns out to be fraudulent this may not impugn the reasonableness of the trustee's actions, but it does not necessarily follow that the trustee then “ought fairly to be relieved”.Footnote 186
An issue which has generated some confusion, however, is causation. Although it is accepted that conduct which is totally immaterial to the loss will be disregarded in this assessment of reasonableness,Footnote 187 it will become apparent that recent authorities have not spoken in one voice as to what causation entails in this context and how it is to be measured. The danger lies with a mechanistic application of the “but for” test of causation rather than focusing on the respective blameworthiness of the participants’ actions.Footnote 188 It is also regrettable that, in Ikbal v Sterling Law,Footnote 189 non-causative conduct was disregarded in its entirety with the court declining to factor such conduct into its core assessment of fairness.Footnote 190 As a result, a solicitor who conducted his business in a neglectful and unreasonable manner was still afforded relief. Such a woeful neglect of professional standards should necessarily be of central relevance to the determination of whether the trustee ought to be granted discretionary relief.
3. A Deserved Outcome?
The concept of fairness lies at the heart of the statutory jurisdiction and is the most malleable of the threshold conditions. It requires the court to make an ethical judgment as to whether the demands of justice require the trustee to be relieved and, if so, to what extent.Footnote 191 Even if the trustee is honest and has acted reasonably, relief can still be denied on this basis.Footnote 192 As Sir Ford North explained, “Unless both are proved the Court cannot help the trustees; but if both are made out, there is then a case for the Court to consider whether the trustee ought fairly to be excused for the breach, looking at all the circumstances”.Footnote 193 The court must, however, be aware of the example that it is setting and, “the possibility of the case being a precedent for evil”.Footnote 194
The overarching nature of fairness, therefore, invites the court to evaluate the trustee's conduct from a holistic perspective.Footnote 195 There appears to be no limitation on the range of possible considerations which may be considered, except perhaps that the inability of the trustee to pay such liability is to be disregarded.Footnote 196 Understandably, the state of mind of the trustee may assume additional relevance under this heading. There is an ethical difference between a breach committed by a trustee reasonably, but with eyes open and one which occurs from a perfectly innocent mistake.Footnote 197 The fact that a trustee has profited personally from the breach of trustFootnote 198 or retained part of the trust estateFootnote 199 would weigh heavily against him. Account may also be taken of any prior breaches of trust committed by that trustee.Footnote 200 Similarly, a finding that the trustee should have, but did not, seek the directions of the court might colour the court's perception of fairness as well as invoke issues of reasonableness.Footnote 201 If the court would have authorised the trustee's actions then relief, it should follow, would be fair. If the court would have directed otherwise, relief may well be withheld independently of the reasonableness or otherwise of the trustee's actions.Footnote 202 Post-breach acts and omissions may also have a significant impact upon whether relief is thought to be a fair outcome.Footnote 203 Furthermore, when there is a mixture of lay and remunerated trustees the court might think it more appropriate for the lay trustee to seek indemnity from his professional counterpart rather than to invoke the s. 61 jurisdiction.Footnote 204 The dynamic of fairness also enables the court to take into account such extraneous factors as, for example, the nature and complexity of the trust,Footnote 205 the localised impact (both negative and positive) on the interests of the beneficiariesFootnote 206 and prevailing economic and financial conditions.Footnote 207
Significantly, there are two types of limitation that this overriding notion of fairness might engineer. The first, concerns the type of trustee that should be shielded. Although professional trustees fall within the catchment of s. 61 (admittedly more by happenstance than legislative design), any determination of fairness must legitimately involve consideration of whether the trustee is remunerated and should carry insurance.Footnote 208 As in National Trustees Company of Australasia v General Finance Company of Australasia,Footnote 209 relief might be denied to a trustee on the basis that it is a trust company that had received payment for its services.Footnote 210 While the Privy Council fell short of advising that relief should never be extended to a professional trustee, Sir Ford North emphasised that the position of such trustees was, “widely different from that of a private person acting as gratuitous trustee”.Footnote 211 A similar theme was pursued in Martin v Triggs Turner Bartons, where Floyd J. concluded that, “This is not a case where the executors were lay people who acted on independent legal advice. In the absence of some factor such as this, I think the liability should lie where it falls”.Footnote 212 The Law Commission also acknowledged that, “The contrast between the professional and the lay trustee is stark” and noted that, “Very different considerations apply where professional trustees are concerned”.Footnote 213 Such trustees ultimately justify their existence and charges levied by virtue of a self-claimed competence, specialism and circumspection. Commonsense and notions of fairness, therefore, must surely dictate that these trustees should look elsewhere to tackle the risk of liability. The widespread reliance upon exclusion clauses and liability insurance would persuade many that remunerated trustees are already receiving sufficient protection against their exposure to liability.Footnote 214 Although it is a matter for Parliament as to whether to exclude remunerated trustees altogether from the scope of s. 61, the concept of fairness might properly rein in the exercise of discretion in favour of such trustees to cases where the circumstances are exceptional.
Secondly, the transactional nature of the trust relationship should also assume relevance in any evaluation of fairness. It is now established that different types of trust might justifiably be treated in divergent waysFootnote 215 and that, “certain detailed rules applicable to one form of trust (a traditional trust) do not necessarily have to be applied to other forms of trust (a commercial trust) if the rationale does not sensibly apply to the latter”.Footnote 216 A marked variance in scope and purpose, therefore, might legitimately, “have a bearing on the appropriate relief in the event of a breach”.Footnote 217 Although the core principles of equity are undoubtedly of universal application, the s. 61 discretion is most certainly not of that fundamental character. If it were otherwise, it would apply to all fiduciaries and all trustees. There is scant merit in the granting of relief to solicitors acting on behalf of mortgage lenders in circumstances where the ensuing trust is nothing more than a commercial construct designed to give effect to the solicitor's status as the custodian of the client's fund. Such trustees should, instead, look to their insurers and factor the premiums payable into the fees levied for the professional services supplied.
IV. A Hostage to a Modern Misfortune?
Mortgage fraud is an endemic problem within contemporary society.Footnote 218 Unsurprisingly, the Law Society has highlighted the warning signs of mortgage fraud for its members, suggesting how they can best protect themselves and how the risk of fraud can be minimised.Footnote 219 The classic scenario concerns solicitors paying over mortgage funds to the vendor's solicitor without lawful completion having taken place. Other variations have included a solicitors’ firm paying over clients’ deposits to a fraudulent property developer without a compliant guarantee in place,Footnote 220 a fraudster posing as solicitor and making off with proceeds of a conveyancing transaction,Footnote 221 a breach of a solicitors’ undertaking to obtain a validly executed charge before payment away of the mortgage funds to an imposter,Footnote 222 the payment over of the purchase price by the vendor's solicitor to a fraudster who was not the registered proprietorFootnote 223 and the extraordinary act of dishonesty of the mortgagor's solicitor misappropriating mortgage monies.Footnote 224
The relationship between solicitor and client gives rise to a contractual agency and carries with it legal obligations as dictated by the terms of the solicitor's retainer and the general law.Footnote 225 Hence, the solicitor owes a concurrent contractual and tortious duty to exercise the requisite degree of skill and care in advising and representing the lender.Footnote 226 Traditionally, however, the solicitor's retainer is narrowly framed so as to minimise the scope of potential liability.Footnote 227 If the retainer requires the solicitor only to ensure that the transaction is effected, there usually is no expectation that he go beyond the instructions so given.Footnote 228 As regards the relationship with the mortgage lender, however, the instructions are more detailed and supplemented by the comprehensive provisions of the Council of Mortgage Lenders’ Handbook.Footnote 229 The Handbook regulates many aspects of a conveyancing transaction that concern the lender's security, for example, as to the identity checks that a solicitor should perform, the minimum term of lease that is acceptable, the correctness of the valuation report, whether the borrower given misleading information or altered his financial circumstances and the insurance coverage that needs to be obtained. If a lender can show that the specified steps have not been taken (e.g. by failing to report matters which may affect the lender's securityFootnote 230 ) then liability in contract and/or tort may ensue.Footnote 231
There are, however, various legal obstacles placed in the way of a successful common law action and these are particularly evident in the context of mortgage fraud. As regards an action in either contract or negligence, the claimant positively has to establish that there is either a breach of a term of the contract or a lack of reasonable care and skill on the part of the conveyancer.Footnote 232 The precise scope of the adviser's liability, therefore, turns upon the construction of the terms and limits of the retainerFootnote 233 and the degree to which the client appears to need advice.Footnote 234 The common law does not imply any warranty that the solicitor will achieve the desired resultFootnote 235 and, significantly, does not generally impose liability on a solicitor for fraud perpetrated by a third party.Footnote 236 Technical issues of causation can, moreover, undermine a common law claim.Footnote 237 As it is necessary for the lender to establish that the adviser's actions caused it to enter into the transaction, this necessarily involves an evaluation of what action the claimant would have taken had it been furnished with the correct information.Footnote 238 In Godiva Mortgages Ltd. v Khan,Footnote 239 for example, the lender was able to establish both negligence and a breach of contract, but could not show that it had suffered any loss thereby. Hence, the claim in negligence failed entirely and the claim in contract, because it was only a technical breach, succeeded only to the extent of nominal damages. It is also possible that, in a negligence (but not a breach of contract) claim, the lender could have its damages reduced because of its own contributory negligence.Footnote 240 This could occur where, for instance, the lender has employed an unrealistic loan to value ratio in a period where house prices are falling or failed to follow its own lending criteria.Footnote 241
From the mortgagee's perspective, the action for breach of trust against the solicitor/trustee holds much allure and this is, of course, particularly so when it will be difficult to establish a contractual breach or lack of reasonable care. The solicitor, moreover, is not as well placed as he would be at common law. The bare trust imposed on the conveyancer is concerned simply with the release of the mortgage money on the completion of the transactionFootnote 242 and the taking of a corresponding security over the purchased property.Footnote 243 Whether there is fraud or not, a breach of trust occurs automatically if the money is released in other circumstances or the charge is not forthcoming.Footnote 244 Section 61, therefore, assumes importance in a breach of trust claim as it allows the court to take on board exculpating reasons based on a lack of fault. Unlike the alternative common law claims, moreover, there is no need to establish a breach of duty of care,Footnote 245 engage with matters of foreseeability of lossFootnote 246 or consider contributory negligenceFootnote 247 and mitigation of loss.Footnote 248 Equitable compensation is, instead, designed to negate the breach of trust and is restorative in nature. As Sir Andrew Morritt put it, “the trust imposed on the loan moneys … could only be discharged by completion of the purchase or return of the money”.Footnote 249 Consequently, extraneous matters such as falls in property values or initial overvaluations of the security are of no relevance.Footnote 250 A breach of trust action may also be attractive in that it facilitates a potential claim against a third party for dishonest assistance or knowing receipt.Footnote 251
As regards relief for breach of trust by the solicitor/trustee, the Practice Note on Mortgage Fraud emphasises that the courts will assume a high level of competency and the exercise of due diligence on the part of the conveyancer. Understandably, the courts are heavily reliant upon the published guidance of the professional bodies, as well as the steps required by the Money Laundering Regulations 2007, and this is particularly relevant to the determination of reasonableness. Best practice and client due diligence have become the prevailing watchwords. There is, however, scant consideration of fairness in the modern authorities.Footnote 252
The starting point for contemporary analysis is Lloyds TSB Bank plc v Markandan & Uddin.Footnote 253 There the Court of Appeal had to consider the application of s. 61 in circumstances where a firm of solicitors was retained by a mortgage lender to act in a conveyancing transaction. Unfortunately, both its main client (the purchaser) and the vendor's solicitor were fraudsters. The property was not in fact for sale and the actual owners were unaware of the purported sale. The mortgage monies were paid over to the bogus solicitors without the firm obtaining the documentation required under the Postal Code or, at least, taking an undertaking to provide such documents. Valid completion never took place,Footnote 254 the lender received no legal charge over the property and the faux solicitors disappeared with the mortgage advance. In paying away the monies there was an undeniable breach of trust by the firm. Although the firm was the innocent victim of the fraudsters, its application for relief under s. 61 was rejected. In reaching this conclusion, emphasis was placed upon the best practice guidance prescribed in the Council of Mortgage Lenders’ Handbook. It was found that there was a failure to check the veracity of the vendor's solicitor's address and to obtain key documentation and appropriate undertakings. Hence, the firm had acted unreasonably and was, “not deserving of the merciful exercise by the court of its exculpatory discretion”.Footnote 255
By way of contrast, in Nationwide Building Society v Davisons Solicitors Footnote 256 the fraudster used the name of a genuine solicitor, but offered a fictitious business address. The scam was designed so that, when the firm checked the address (as it did), it would appear as a genuine place of business. The Court of Appeal concluded that the duped firm had acted reasonably in accepting the apparently genuine replies to its requisitions and taking an appropriate undertaking from the person it reasonably believed to be the seller's solicitor to redeem a prior mortgage. It was felt that the solicitor's conduct complied with the Handbook as well as the Law Society's Postal Code. The issue of causation was raised by the appellate court, which took the view that any lapse from best practice was minor, did not cause or facilitate the loss and was, therefore, irrelevant.
Much was made of the causation point by the High Court in Ikbal v Sterling Law.Footnote 257 This case concerned mortgage fraud by a bogus vendor, who was this time represented by a genuine firm of solicitors. During his judgment, it was suggested by Deputy Judge Nicholas Davidson Q.C. that s. 61, “will afford relief to many solicitors who work conscientiously but themselves fall victim to the fraudsters”.Footnote 258 The firm, however, had not acted reasonably in that it had cut corners, adopted a casual attitude to its role and failed to address a problem concerning missing documentation. Nevertheless, seizing on the lead in Davisons case, the judge felt that there was an insufficient causal link between the solicitor's inept conduct and the loss incurred. As the loss would have occurred anyway, by virtue of the “but for test” the conduct fell to be totally discounted for the purposes of s. 61 reasonableness. The Deputy Judge clearly fell into error. It is not possible to ignore departures from best practice that increase the risk of loss, “even if the court concludes that the fraudster would nonetheless have achieved his goal if the solicitor had acted reasonably”.Footnote 259 The disregard of unreasonable conduct from the assessment of fairness and the exercise of discretion also lacks legitimacy.Footnote 260 Admittedly, the Deputy Judge fleetingly considered whether relief could be denied on the basis of fairness, coupled with the fact that the solicitor was insured, but in the absence of direct authority he felt unable to venture so far. In giving the firm full relief from liability for breach of trust, the decision in Ikbal is clearly unsustainable. The Deputy Judge misconceived the role of causation within the framework of s. 61 and, in doing so, promoted an ignominious outcome.
Santander UK plc v R A Legal Solicitors Footnote 261 marked the next instalment in this series of the s. 61 authorities. The firm was instructed by the purchaser and Santander in connection with the purchase of a residential property. Sovereign Chambers LL.P. claimed to be instructed by the vendor, but the vendor knew nothing about any prospective sale. Sovereign Chambers was in fact a fraudster. Following the supply of forged documents to the firm, the funds were paid to the fraudster and promptly disappeared from its client account. Completion, of course, could not take place. The claimants sued the defendant firm, alleging breach of trust. The firm accepted that it was in breach of trust, but sought s. 61 relief. Unlike in the Davisons case, RA Legal had clearly not acted reasonably as there were numerous departures from best practice, including making inadequate requisitions, accepting inadequate replies before transferring the completion money and failing to deal with the absence of a prior mortgage discharge on the pretended completion.
Briggs L.J. returned to the theme of causation in the context of the reasonableness of the trustee's conduct. While accepting that there must be some causal connection between conduct and loss, he took the view that, “a strict causation test casts the net too narrowly for the purpose of identifying relevant conduct”.Footnote 262 This is because, in most mortgage fraud cases, the loss is inflicted by the third-party fraudster rather than the conduct of the solicitor-trustee. Briggs L.J. also cautioned against the over-mechanistic application of the requirement to show the necessary connection between the conduct complained of and the lender's loss. He rejected any test that would catch slightly unreasonable conduct which went to the heart of a causation analysis and yet ignore highly unreasonable conduct which lay at the fringes of materiality in terms of causation.
In Purrunsing v A'Court & Co.,Footnote 263 Mr. Purrunsing brought a claim against both his own solicitor and the vendor's solicitor (A'Court & Co.) arising from the purported sale to him by a fraudster, who claimed to be, but was not, the registered proprietor of the property. Under the 1998 version of the Postal Code this amounted to a breach of trust by both defendants.Footnote 264 Both unsuccessfully applied for s. 61 relief. Neither defendant had acted like reasonable solicitors in the conveyancing process. Each of them was under an obligation to apply “customer due diligence” when carrying out the transaction and both had failed to do so. They ought reasonably to have concluded that there was nothing in A'Court & Co.’s possession to link the fraudster to the property.
Most recently, in P&P Property Limited v Owen White & Catlin LLP Footnote 265 the vendor was a fraudster who, having impersonated the true owner, disappeared with the completion monies. The purchaser brought an action against the vendor's solicitors, alleging a variety of wrongdoing, including a breach of trust. Although the High Court concluded that there was no trust arising on the facts, Deputy Judge Dicker was prepared to consider whether he would have granted relief under s. 61. Invoking the notion of client due diligence and considering the obligation to make anti-money laundering checks, he considered that the solicitor's actions were not reasonable. He felt it significant that the property was of a type which the Law Society's Practice Note on Mortgage Fraud had identified as being particularly vulnerable to fraud. It was of relatively high value, without a legal charge, unoccupied and marketed by someone living overseas. The transaction was also packaged as urgent with completion intended to take place within a short timeframe. The solicitor, moreover, had no overseas correspondence address for the client and the results of an anti-money laundering search were unsatisfactory. Bank statements produced by the client were inconsistent with the claim that the client lived and worked abroad. Considering this catalogue of oversight and error, the conveyancer had fallen well short of the professional standards expected.
The mortgage fraud authorities mark a departure from the traditional application of s. 61. Unlike with conventional trusts and trustee malfeasance, the courts are weighed down by a painstaking analysis of the lender-solicitor retainer, which in inevitably arcane form dictates whether a trust is in existence and, if so, whether there has been a breach of that trust. It is remarkable that, in relation to the vendor's solicitor, the existence of a trust will now hinge upon which version of the Postal Code is incorporated into the retainer. The courts have also found it difficult to apply established notions of causation in cases where the loss was directly caused by the dishonesty of a third party, but facilitated by the action or inaction of an innocent solicitor. It is also noteworthy that the court's conception of reasonableness in the highly-stylised world of conveyancing is fuelled by a formulaic application of the guidelines as to best practice and due diligence set out in the Council of Mortgage Lenders’ Handbook and Law Society Practice Notes. While this external guidance is of obvious value in determining whether the conveyancer has acted reasonably, it should not result in the court abdicating its discretion, particularly as to the overarching issue of fairness. The current application of the s. 61 in such instances is overly technical, seemingly, without any element of fairness or merit and fraught with difficulty. As Mitting J. commented in Schubert Murphy v Law Society, “it is at least unsatisfactory that a purchaser in those circumstances should be put at risk of the exercise of a discretion in a manner unfavourable to him in circumstances in which he cannot reasonably have expected to have been put at risk of any loss whatsoever”.Footnote 266
V. Conclusion
This article highlights defects in the wording, structure and operation of s. 61 of the Trustee Act 1925. The changing nature of trusteeship, the availability of liability insurance and the widespread deployment of exclusion clauses might suggest that the discretion is no longer necessary or desirable. The major inhibitor to this abandonment is the lay trustee, who will not usually carry insurance and will not have the protective shield of an exoneration provision. Parliament and the reform agencies should reconsider the continuing need for this jurisdiction and determine whether its scope should be limited to the non-remunerated trustee.Footnote 267 This narrowing of range has already been championed in the context of exclusion clauses,Footnote 268 but has yet to be seriously considered in the context of discretionary relief.Footnote 269 If the s. 61 discretion is to survive, it will need major overhaul. Such amendments should clarify the trusts over which the jurisdiction extends, identify the breaches of trust that fall outside its catchment, jettison the unhelpful reference to seeking directions of the court and remove the opaque and misleading reference to a trustee who “may be personally liable”.
Until any legislative change is forthcoming, it is for the court to make sense of its jurisdiction. It is rightly uncomfortable exercising it in favour of the conveyancer/trustee and justifies not doing so by the need to exact a high standard of care from such professionals.Footnote 270 This tendency suggests the potential redundancy of s. 61 in mortgage fraud cases and embodies the sentiment that such trustees are already receiving sufficient protection and compensation against exposure to full liability.Footnote 271 The judiciary are required by s. 61 to assess issues of fairness and this is particularly necessary when the trustee has acted honestly and reasonably. Context is, therefore, paramount. The marked dissimilarities between and traditional and transient trusts and the differing nature of the trusteeship involved points clearly towards the conclusion that the conveyancer/trustee ought not fairly to be excused for the breach of trust under s. 61. The operation of s. 61 in these conveyancing cases not only highlights the potential futility of such commercial arrangements,Footnote 272 but also fulfils a 19th century prophecy that, “Such topsy-turvy legislation may well lead to anomalies”.Footnote 273
