Mortgage fraud: Proceeds of saleClaimant creating and using forged powers of attorney to obtain mortgages to purchase properties - claimant retaining solicitors to sell properties - claimant pleading guilty to charges of obtaining mortgages by deception - whether claimant entitled to require solicitors to account for proceeds of sales on ground that solicitors retained by him and receiving proceeds - judge allowing claim - appeal dismissedMacdonald v Myerson and another: Court of Appeal:Aldous LJ, Mance LJ, Charles J:26 January 2001The claimant, using fictitious names, successfully applied for two mortgages to purchase properties at 1 Churchill Street and 56 Barclay Street, Leicester (the Leicester properties).

The claimant instructed the defendants, the partners of a firm of solicitors, in connection with the sale of the houses in early 1988.However, by mid 1988 a criminal investigation into the claimant's activities was under way, and in September 1988 the police obtained an interlocutory injunction to restrain the claimant from dealing with assets which were the subject of the indictment.

Although the defendants were aware of the injunctive proceedings and the allegation that the claimant had purchased the properties under false names, they acted for the claimant in relation to the sale of the Leicester properties.

The sales were completed in August and December 1988, and the proceeds were paid into the defendants' client account.After deduction of the sums due to discharge the mortgages, the net proceeds of sale of the two houses were approximately 13,200 and 8,700.

In January 1990 the claimant pleaded guilty to 37 charges relating to obtaining mortgages by deception, including charges over the Leicester properties, and was sentenced to 18 months imprisonment.

No confiscation order was made by the criminal court.In due course, the claimant issued proceedings against the defendants for the sale proceeds, which remained in their client account.

He asserted that he had acquired the freehold of the Leicester properties and that he was the person entitled to the proceeds of sale thereof after the sums due under the mortgages had been discharged.The judge ordered the defendants to account to the claimant for the proceeds.

The defendants appealed, contending that the claim should not have succeeded since it was essential for the claimant, in order to found his cause of action, to rely upon his own unlawful acts and upon the retainer, which was itself made with a corrupt and unlawful purpose.Held: The appeal was dismissed.

1.

If, in the analogous case of Halifax Building Society v Thomas [1996] Ch 217, the property had been sold on the instructions of Mr Thomas as an attorney (or on his own behalf after acknowledging the fraudulent misrepresentation as to his identity and the name in which the property was bought and mortgaged), and the surplus had been held by his solicitors, the result would have been that Mr Thomas had title to the surplus.Accordingly, the case was an authority for the proposition that the claimant was the owner of the Leicester properties and was, therefore, beneficially entitled to the net proceeds of sale of the houses after the mortgage debt had been discharged.

Tinsley v Milligan [1994] 1 AC 340 followed.2.

The defendants' argument that to succeed the claimant had to enforce executory provisions of the retainers based on the powers of attorney and thus of an illegal contract, or otherwise rely on his illegal acts, was not correct.

The claimant could rely on his proprietary interest in the proceeds of sale and did not have to rely on: (i) any part of the conveyancing transactions relating to the purchases or sales of the houses, all of which had been completed or; (ii) the background thereto.It was not for the court to seek or provide solutions through judicial creativity, but for Parliament to determine and, if it thought appropriate, to strengthen the statutory provisions for civil confiscation.Accordingly, the claimant was entitled to hold the defendants to account in respect of the proceeds of the sales.Augustus Ullstein QC and Stuart Hornet (instructed by Philip Ross & Co, London) appeared for the claimant; Iain Hughes QC and Geraldine Chapman (instructed by Browne Jacobson, Nottingham) appeared for the defendants.