On 15 May 2018 the Court of Appeal (“CAPP”) delivered its hotly anticipated findings in the joint appeals of Dreamvar (UK) Limited v Mischon De Reya and Mary Monson Solicitors and P&P Property Limited v Owen White & Caitlin LLP and Crownvent Limited. The first instance decisions in both cases caused considerable alarm in the legal world concerning the scope of a solicitor’s liability in cases involving identify theft and fraud.
So what was the fraud?
Each case involved a person posing fraudulently as the owner of mortgage free homes in London in which the real owners did not reside at the properties, the purported seller had connections abroad and a quick sale at reduced market price was sought. In both cases, quite importantly, inadequate Anti-Money Laundering and identity checks (“AML checks”) were carried out by the seller’s solicitors resulting in the fraudster’s impersonation of the true owners going undiscovered until after the sale, at which point the fraudster and money had disappeared.
A high level summary of the facts and findings of the court in each case is as follows:
P & P Property Limited v Owen White & Caitlin LLP
Dreamvar (UK) Limited (“Dreamvar”) v Mischon De Reya (“Mischon”) and Mary Monson Solicitors
The findings in both cases caused understandable unease in the conveyancing world, particularly for solicitors acting for buyers where it is not usual practice to carry out identity checks on the seller with whom they have no access and where the seller’s solicitor should be carrying out their own identity checks.
So what happened at appeal?
The CAPP found that in both cases the seller’s solicitors were liable for breach of trust, therefore making both sets of solicitors jointly liable. In short, the reason relied on by the CAPP was the fact that the solicitors parted with the purchase monies in transactions where the true owner was not selling the property.
In both instances the CAPP followed the Law Society’s Code for Completion by Post (2011 edition), which provides that:
As this was not the position in either case, both solicitors had therefore breached their duty of trust. No liability was found in relation to any of the other grounds of liability examined by the CAPP.
This means that Mischon, who acted for the buyer in the Dreamvar case, remained liable albeit they were held to share liability with the seller’s solicitors for their own failings. It is not clear how this liability will be divided between each solicitor, but given that it was the seller’s solicitor who failed to check the identity of their client it is possible that this will be reflected in the respective firms’ contributions.
So what now?
What is interesting from the appeal is that there may now be a court based insurance policy in place to protect innocent buyers who fall victim to fraud. At the point of registration of a sale, HM Land Registry’s statutory insurance bites but until then, and in the absence of a buyer taking out independent insurance during the conveyancing process, it could be the solicitors’ insurance paying out to cover these types of losses. That is not really an ideal solution going forward.
With fraudsters becoming ever more sophisticated in their dealings, it has never been more important to ensure that adequate measures are in place to navigate around the risks associated with such frauds. Undertaking proper due diligence and obtaining appropriate legal advice is a ‘must’.
This article has not examined in detail all findings of the courts at both stages and has not commented on the actions of the estate agents in these cases.
Article by Maran Dean