Two cases were jointly brought to the court where property purchasers were defrauded out of at least £1m each by scam sellers. In the first case, P&P Property lost £1m to a fraudulent seller who claimed to live in Dubai and was represented by Owen White and Caitlin LLP. The solicitors were sued for breach of trust for having failed to spot and avoid the fraud.
The second case saw Dreamvar, a real estate buyer, file claims against its own solicitor, Mishcon de Reya, after falling victim to a £1.1m property fraud. The solicitors for the seller admitted they had not performed the proper checks on the client.
Both frauds were discovered when the purchases were registered with the Land Registry.
The Court of Appeal found against Mishcon de Reya, despite acknowledging that the firm had not been negligent in its duties, while Owen White and Caitlin LLP were also found to have been liable as solicitors for the fraudulent seller.
Vendor solicitor liability
Law firm Healys, which acted for Dreamvar, said the ruling was good news for buyers who are victims of identity fraud.
“The Court of Appeal has confirmed that the vendor’s solicitor is in the best position to carry out reasonable due diligence investigations to verify the vendor’s identity; and that for practical and legal reasons, the purchaser’s solicitor is not in a position to carry out such checks,” it said.
“The ruling makes it clear that if the vendor’s solicitor does not carry out such checks at all, or carries them out negligently, it faces potential liabilities to the purchaser.”
Jonathan Sachs, partner at legal firm Irwin Mitchell, said that while the judgement will provide greater protection to buyers, it will “shake up” the conveyancing industry with a much greater risk of liability, suggesting professional negligence insurance premiums are likely to rise as a result.
He continued: “The court has thus chosen to allocate the costly risk of identity fraud on the professional advisers in a property transaction. While it is true in the cases above that the advisors are in a better position to afford that loss, that is not necessarily always the case in conveyancing deals.
“For now, property buyers can rejoice, and professional advisers should start penning new policies and put in place rigorous systems to prevent fraud in property transactions.”