Identity Fraud In Property Transaction – Solicitors Deemed Liable For Buyer’s Loss

Good news for clients who are victims of identity fraud in a property transaction.

On 15th May 2018, the Court of Appeal handed down its judgment in the much anticipated Dreamvar appeal where they deemed that solicitors acting for fraudsters posing as property owners should share in the responsibility for a genuine buyer’s loss.

Case Overview

The Court of Appeal heard two appeals (P&P Property Ltd v Owen White & Catlin LLP and Crownvent Limited and Dreamvar (UK) Ltd v Mishcon de Reya & Mary Monson Solicitors Ltd) addressing the liability of solicitors where their clients were fraudsters, who held themselves out as being the owners of registered property in London. In both cases, the identity fraud was discovered between completion and registration, at which stage, the fraudsters and the purchase monies paid by the buyers had disappeared.

Both buyers brought proceedings. P&P Property pursued the fraudster’s solicitors and sales agent. Dreamvar pursued their own solicitors and the fraudster’s solicitors. The claims largely centred on the steps (or lack of them) taken by the fraudsters’ solicitors to investigate their clients’ identity.

With regards to P&P Property, it should have been clear to the fraudster’s solicitors that their client was living or working abroad. At a face to face meeting, the fraudster provided partial information and Owen White & Catlin LLP’s anti-money laundering search came back as “Referred” but no further attempts were made to verify the identity, despite ongoing warning signs, such as the signatures on documents not matching the signature on the passport, which had been provided.

In Dreamvar, Mary Monson Solicitors accepted, as proof of identity, copies of a fake driving licence and TV licence, which had been verified by a third party solicitor. No further steps were taken to verify the fraudster’s identity and no-one from Mary Monson Solicitors ever met him.

At first instance in P&P Property, the claims against Owen White & Catlin LLP were dismissed.

At first instance in Dreamvar, Mishcon de Reya were found to be liable for breach of trust for releasing the purchase monies, and the Court held that even though they had acted fairly and reasonably (not negligently) that could not excuse the breach, which had been catastrophic for Dreamvar.  All the claims against Mary Monson Solicitors were dismissed. This would have meant that even if a seller’s solicitor was grossly negligent they would have no liability to the buyer, whereas the seller’s/fraudster’s solicitor, who had acted reasonably competently and fairly, would be liable for the whole loss.

This apparent contradiction was remedied by the Court of Appeal, which held that the fraudsters’ solicitors were liable to the buyers for breach of trust and breach of undertaking. Lord Justice Patten made it clear that in his view the sellers’ solicitors were best placed to do due diligence on the seller and if those checks were not done, or were done negligently, then they could be liable to a buyer.

Comment

What does this mean for buyers?

Buyers can now look to pursue claims against solicitors who have acted for fraudsters in property transactions where the solicitors have not undertaken adequate identity checks. Solicitors acting for buyers should make it clear in every transaction that they are relying on the seller’s solicitor to conduct adequate checks.

identity fraud in property transactionHow Nelsons Can Help

Cathryn Selby is a Partner in Nelsons’ Professional Negligence team.

If you would like further advice in relation to this subject, please contact one of our Professional Negligence team on 0800 024 1976 or contact us via the online form.