The Dreamvar Appeal- Strict Liability for identity imposter fraud cases?
The long and much awaited Court of Appeal decision in Dreamvar (UK) Ltd v Mishcon de Reya and the linked claim in P & P Property Ltd v Owen White and Catlin LLP, has now landed, and for the conveyancing industry, landed with a big bump.
In both cases a fraudster posed as the legal owner of the property. Each buyer instructed solicitors to act in the purchase and each transaction completed. The sale proceeds were unwittingly released to the fraudsters and the fraud was only discovered after the money was completely out of reach. The buyers were left high and dry and took action against their advisers.
In Dreamvar, the purchaser sued the solicitors acting on the purchase as well as the selling solicitors and selling agent. Even though the judge at first instance had no issues with the purchaser’s solicitors conduct of the transaction they were found liable.
On appeal the Court of Appeal has attempted (and in many areas failed) to provide clarity on the following issues, and unfortunately the news for conveyancers and their insurers is not good.
Breach of warranty
The Court of Appeal found that as the selling conveyancers signed the contract in P&P there was a warranty that the selling solicitor’s client, that is the imposter, possessed the authority to transfer the title, and that as the buyer placed reliance on that warranty the selling solicitors remain liable for the losses.
It’s not clear what the position would be had the imposter signed the contract and not the seller’s solicitors. What is clear is that if the seller had included in the special conditions within the contract a clause to the effect no warranty as to the true identity of the seller is given, and that any reliance on any a warranty to this effect is unjustified, the decision might have been different.
In practice this could give rise to a stand off between the seller and the buyer and it is clear urgent guidance from insurers, the Law Society and the CLC is required. The late intervention of the Law Society in this appeal represented a lost opportunity to make a marked impact on the decision and as always it is the practitioner which has been left with uncertainty and unnecessary risk.
Breach of Duty
Some good news! As anticipated the Court held a seller’s conveyancer does not owe a duty of care to a buyer.
Breach of Undertaking
The Court held that the undertaking that forms part of the Code for Completion covers the situation where the funds are received from a buyer in a situation where as in these cases the seller is not the legal owner of the property. Therefore, by releasing the funds to the imposter, the seller’s conveyancer had breached the undertaking. This gives rise to not only professional difficulties, but a sellers conveyancer could also find themselves on the end of enforcement action under summary jurisdiction.
I would suggest there is a need for seller’s conveyancers to look to modify the Code and make it clear that the authority to receive is on the understanding that all reasonable efforts to identify the seller as the owner have been made, and that as no warranty to that effect can be given, the undertaking should be viewed as amended in these terms.
Again, guidance from the insurance industry and the professional bodies is needed sooner rather than later.
Breach of Trust
Further bad news for the conveyancer.
The questions addressed were:
Should the buying conveyancer be excused from their liability for breach of trust under section 61 of the Trustee Act 1925 when they had acted properly, and whether the seller’s conveyancer is liable for breach of trust at all when they innocently release the money to the fraudster.
As for the seller’s conveyancer it was held there was a breach of trust as there was not a genuine completion – it goes without saying that completing the transaction on behalf of the fraudster and not the true owner is not a true completion.
Unfortunately, little if any guidance on what would constitute grounds for establishing a successful s61 defence was given. If these cases go onto the Supreme Court, which is probable, then hopefully some useful guidance for the industry may be given.
Clearly, carrying out good AML checks and having regard to what are now well-established red flags (vacant property, no charge, large sale price) would be a good start. Making sure in these cases that there is evidence tying the client to the property should now be a routine check. However, given the exemplary conduct of the buyer’s solicitors was not found to be sufficient to justify a S61 defence, it is questionable whether a S61 will still be an option, irrespective of the steps a conveyancer takes. This is bad news on all fronts as it could lead to a sizable increase in PII premiums.
It also gives rise to the possibility of the seller’s conveyancers saying to the buyer’s conveyancer that they may wish to perform their own checks on the seller before proceeding. The buyer’s conveyancer may in turn advise their client whether they wish to proceed with a transaction where there is no warranty given as to the identity of the seller. In other words, putting the risk at the door of the buyer. In Dreamvar the first purchaser pulled out for this very reason.
It seems we are close to seeing a strict liability era for conveyancers who unwittingly find themselves on the wrong end of imposter fraud of this type. How the insurance industry reacts to this remains to be seen.
David Pett – Property Law Solicitor
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