Paying away money subject to a charging order can be a breach of trust

A solicitor who receives money from their principal which belongs at law or in equity to a third party is not accountable as a constructive trustee to that third party unless they are guilty of some wrongful act in relation to the money. The court has considered this issue, dismissing an appeal in Dattani and another v Messrs Ferns Solicitors [2024] EWHC 2980 (Ch). Ferns were acting as conveyancing solicitors to Mr and Mrs Rasheed, in the sale of their property in Croydon. The Rasheeds were no longer married but were joint legal owners of the property. Acting on instructions from Mr Rasheed, Ferns transferred the net proceeds of sale following discharge of registered charges, to Mrs Rasheed. The claimants argued they should not have done this because they were on notice, by a restriction on the title register, that there was an interim charging order over Mr Rasheed’s beneficial interest in the property. The claimants argued that Ferns had dishonestly assisted Mr Rasheed to deal with monies over which he had no right of free disposal, thereby frustrating the intended effect of the court order; and that equity would hold Ferns to account as the conscience of the solicitor dealing ought to have been affected by notice of the claimant’s equitable interest. On Ferns’ application the master struck out both claims. The claimants appealed. A solicitor or other agent who receives money which belongs at law or in equity to a third party is only accountable to that third party as a constructive trustee if they are guilty of some wrongful act in relation to the money. They must either (i) knowingly participate in a breach of trust by the principal; (ii) intermeddle with the trust property otherwise than as an agent; (iii) receive or deal with the money knowing that the principal has no right to pay it over, instruct them or deal with it; or (iv) act dishonestly in relation to the money Carl Zeiss Stiftung v Herbert Smith & Co [1969] 2 (Ch) 276. The appeal court dismissed the appeal against the constructive trust strikeout order but allowed the appeal against the dishonest assistance strikeout order. That claim should go to trial. Ferns would only be liable for breach of constructive trust if it could be shown they had committed a wrongful act within the Carl Zeiss principles. This meant dishonesty as the only wrongful act pleaded related to the dishonest assistance claim. As Ferns no longer held any monies considerations of a constructive trust added nothing to the dishonest assistance claim. Louise Clark is a property law consultant and mediator