Pre Contract deposit should be stated to be paid to stakeholder or on trust

Conveyancing 21/03/2024

The Conveyancing Committee wishes to remind practitioners of the 2013 High Court case, In the Matter of Protim Abrasives Limited (In Liquidation) and In the Matter of the Companies Acts 1963 – 2009 [2009 No 510 COS].

In this case, Feeney J held that monies paid by a purchaser to a vendor’s solicitor by way of a pre-contract deposit, in the absence of a contrary agreement, is paid to the vendor’s solicitor as agent of the vendor, and not as stakeholder and those monies were deemed in effect to have been paid to the vendor.

The Committee wishes to alert practitioners to its previous note on the case.

The Committee continues to keep the matter under review following the lodgement of the Law Society’s law reform submission to the Department of Justice in 2016. 

The Committee reminds practitioners that it continues to recommend that the communication to the Vendor’s solicitor sending the draft contracts signed by the Purchaser should include wording along the following lines:

‘The monies for the proposed deposit [have been] [will be] sent subject to the following pre-condition, namely that it will be held by your firm in trust for and to the order of the purchaser until the [enclosed][attached] contracts are counter-signed by the vendor and exchanged in a manner acceptable to both the vendor and the purchaser at which time the said money will be held by your firm as stakeholder under the terms of the proposed contract. If you are not willing to accept payment of these monies subject to this condition please confirm [and return any monies paid for the proposed deposit to us].’

The committee further reminds practitioners that if is preferable that these matters are agreed in advance of transmitting funds.