The Judgment of the late Judge Feeney in Kieran Wallace -v- Padraic Rowley (2009 No. 510 COS] serves as a cautionary tale to conveyancers where deposits are being paid where the vendor has not yet executed contracts.
In 2008, Padraic Rowley entered into negotiations with Protim Abrasives Limited (“Protim”) to purchase a development site in Castleknock, Co. Dublin. In the usual way a draft contract was sent to the purchaser’s solicitor. The purchaser’s solicitor returned the contract with amendments and signed by the purchaser together with a deposit of €267,500. The deposit was lodged to the vendor’s solicitor’s client account. Unknown to the purchaser the vendor apparently signed the contract and sent the signed contract to the auctioneer. Three months later the purchaser advised that he did not want to proceed with the purchase and sought the return of the deposit.
The vendor’s solicitor initially argued that there was a contract and as such the monies were forfeited.
The vendor company went into liquidation. The liquidator then argued that there was in fact no binding contract. The liquidator claimed that the deposit monies were not subject to the Law Society Contract General Conditions for sale because there was no binding contract. In those circumstances the liquidator argued that the vendor’s solicitor was at all times acting ‘as agent’ for his client. As such the deposit monies were now the property of the vendor once the vendor demanded the deposit monies from his solicitor.
STAKEHOLDER OR AGENT
In conveyancing practice where two parties are each represented by their own solicitor it is assumed that each solicitor is acting ‘as agent’ for their respective clients. As agents, once the money is transferred from the purchaser’s solicitor to the vendor’s solicitor the money immediately becomes the property of the vendor, on the vendor’s demand.
In contrast where the vendor’s solicitor is directed by the purchaser’s solicitor and agrees to act ‘as stakeholder’ in respect of the deposit monies then the vendor’s solicitor must return the deposit monies to the purchaser if no binding contract is concluded.
The Law Society Conditions general Conditions of Sale provide that unless expressly stated otherwise the vendor’s solicitor acts as agent for his client in respect of deposit monies.
HIGH COURT DECISION:
The liquidator of the vendor company effectively stated a case to the High Court to clarify if a contract deposit formed the liquidatable assets of the vendor company, for distribution.
Feeney J rejected the submission on behalf of the Plaintiff that Condition 5(c) of the Law Society General Conditions of Sale could be relied upon notwithstanding that there was no binding contract between the parties, as the General Conditions were the “rubric” upon which the parties were dealing with each other and no other terms of contract other than the General Conditions was contemplated by either party. General Condition 5 (c) states that:-
“Any moneys paid by way of deposit by or on behalf of the Purchaser prior to the Date of Sale to the Vendor’s Solicitor or any such other person as aforesaid shall, up the Date of Sale, be held by the recipient thereof as trustee for the Purchaser”.
Date of Sale is defined as “…the date upon which the contract for the Sale shall have become binding on the Vendor and the Purchaser”.
The Court found that in order to accept the above, it would be necessary to find that there was a concluded agreement, which it was accepted that there was not.
The Court concluded that there was no agreement, express or implied, between the parties, as to the capacity in which the Vendor’s Solicitor was to receive the monies. Accordingly, the common law position applies and the Vendor’s Solicitor received the monies ‘as agent’ for the Vendor and must be treated as if paid to the Vendor itself. Accordingly, the Liquidator was entitled to transfer the monies into the liquidation account and apply the money in the winding up.
The decision was appealed by the purchaser to the Supreme Court. The case has been listed as a priority matter however no Hearing date has as of yet been assigned.
LAW SOCIETY PRACTICE DIRECTION
Given that Feeney J’s decision was news to many conveyancing practitioners the Law Society’s Conveyancing Committee saw fit to publish advice to purchaser’s solicitors in the Law Society Gazette: – “The cheque for the deposit attached is sent subject to the following pre-condition, namely that it will be held by you (or your firm) in trust for the purchaser until contracts are exchanged in a manner acceptable to both vendor and purchaser from which time the money can be held as stakeholder under the terms of the contract. If you are not willing to accept payment of the deposit subject to this condition please return it immediately”.
A new standard has been firmly established for the prudent solicitor practicing conveyancing. Now that the Law Society has issued a practice direction on foot of the Feeney decision there is no excuse for conveyancers acting for purchasers who do not seek agreement from a vendor’s solicitor to receive the deposit monies ‘as stakeholder’. Otherwise if the contract does not complete and the vendor seeks to take advantage then the purchaser’s solicitor will be liable to their client for loss of deposit monies. Insurers have taken note.
Contact Larry Fenelon for more information.
This publication is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Ogier Leman for any action taken or not taken in reliance on the information set out in this publication. Professional or legal advice should be obtained before taking or refraining from any action as a result of the contents of this publication. Any and all information is subject to change.