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Identity Fraud and Property Transactions: Another Twist

andrew-koffman

Last July we wrote this article about three recent cases of identity fraud in property sales. In each case a fraudster impersonated the vendor and then absconded with the proceeds paid by the would-be purchasers, leaving the latter to try and sue either their solicitors or the ones acting for the fraudster.

There were various factors in these cases that arguably should have put the solicitors acting for the “vendors” on additional alert, regarding both the transactions themselves (generally there was a “need for speed”) and the results of their identity checks on their clients.

The three cases had different outcomes at first instance:-

    1. Purrunsing: the purchaser sued both his lawyers (for negligence, breach of contract and breach of trust) and the imposter’s lawyers (for breach of trust as trustees of the purchase money). Both firms were ordered to pay 50% of the loss.

    2. P&P: the purchaser did not sue its own solicitors. It sued the imposter’s solicitors on various bases but was unsuccessful on each. The judge decided that the solicitors would have fallen short of their obligations as trustees (though they were not negligent) but the completion was carried out on the basis of the Law Society’s Code for completions, which stated that the solicitors held the funds as agents and not trustees. The purchaser also sued the estate agents for breach of warranty and/or negligence, but again without success.

    3. Dreamvar: The facts were fairly similar to those in 2 above but the purchaser sued its own solicitors and the imposter’s solicitors. The claims against the imposter’s solicitors failed – for the same reason as in case 2 in the case of the breach of trust claim. However the purchaser’s claim against its own solicitors succeeded. They were found not to be negligent, yet they were held liable for breach of trust. The judge implied a term that the solicitors would only release the purchase money on a genuine completion. The solicitors had indemnity insurance and the outcome was probably aimed at mitigating the disastrous consequences for the claimant.

Cases 2 and 3 went to the Court of Appeal. Judgments have now been given. However the purchaser’s solicitors in case 3 (MdR) did not contest their liability for breach of trust – though they sought relief under section 61 of the Trustee Act 1925 on the basis that they had acted honestly and reasonably and ought fairly to be excused from liability on the ground that the vendor’s solicitors (who failed to take all the steps they should have prudently taken) should be liable.

In case 2 the purchaser’s appeal failed on negligence and breach of warranty of authority. This time, however, the purchaser succeeded against the imposter’s solicitors on its breach of trust and breach of undertaking claims. The solicitors also argued for relief under section 61 but were unsuccessful. The estate agents again successfully defended the appeal.

In case 3 there was also no change on negligence; the imposter’s solicitors did not owe a duty of care to the buyer. However the buyer succeeded this time against the imposter’s solicitors on breach of trust and breach of undertaking. Neither firm of solicitors succeeded in obtaining relief under section 61 (one of the appeal judges found in MdR’s favour but she was in a minority). The court will determine the level of the two firms’ ultimate contributions to the claim by way of subsequent contribution proceedings.

So what had seemed to be a particularly harsh consequence of MdR’s breach of trust has been mitigated, though not reversed, by the findings against the imposters’ solicitors in each case.

Reactions to the latest judgment have been mixed. It is good news for innocent purchasers who have been defrauded. For non-negligent solicitors who have acted for them, it is hardly good news although it “could have been worse”. This issue may yet be resolved in the Supreme Court, whether in these or other cases. It also remains to be seen whether there will now be any changes to the Law Society’s Code for completion of transactions which applied to both these cases.

As we said in the earlier article, vigilance on the part of a vendor’s solicitors and agents is of paramount importance – although purchasers’ solicitors also need to be on their guard as far as they can be.

There may well be more rigorous negotiations at the outset of transactions as to who bears any risk, including in many transactions where everything ultimately proves to be above board.

If there is anything arising from this article that you would like to discuss please contact Andrew Koffman.

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Purrunsing v A’Court & Co
P&P Property Limited v Owen White & Catlin LLP
Dreamvar (UK) Limited v Mishcon de Reya
(all High Court, 2016; last two cases Court of Appeal, 2018)

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