Last month, a court dismissed a claim against an estate agent accused of breach of warranty of authority and negligence following the agent's role in the sale of a £1m residential property in London by a client who turned out to be a fraudster.

Understandably the true owner was somewhat aggrieved to find contractors in his property carrying out major work, but as a result of the fraud he was able to recover the property. That, of course, left the property investment company who thought it had purchased the property seriously out of pocket and with the fraudster long gone, it looked to sue the solicitors and the estate agent that had both acted on the fraudster's behalf.

In a Judgment handed down in the case of P&P Property Limited v Owen White & Catlin LLP and Crownvent Limited t/a Winkworth [2016] EWHC 2276 (Ch), the estate agent escaped liability on the basis that they should not be taken to have warranted that they had authority to act on behalf of the true owner, absent an express promise to so warrant. That was even the case where the agent had introduced the opportunity to acquire the property, which had not been openly marketed to the public, to the property investment company. In the court's view, positive proof of matters of title were legal issues for the purchaser's solicitors. Further, even if wrong, there could have been no reliance of the kind required as the assumption actually made by the purchaser was limited to a belief that the agent had done its own client due diligence (and not that the agent was expressly warranting the outcome of that exercise).

It was also alleged that the agent had owed a duty of care at common law to the property investment company to exercise reasonable care to verify their client's identity, and that such person was the true owner of the property in issue. It was not claimed to be a general principle, but rather to have resulted from the particular facts of the case; namely the agent's direct approach to the property investment company and a previous course of dealings with it giving rise to a close relationship. Whilst it was conceded that the agent had negligently failed to implement the necessary client due diligence and anti-money laundering checks, liability was avoided as the court felt that it would not be fair, just and reasonable for the law to impose a duty between the agent (of the vendor – or perceived vendor) and prospective purchasers.

This was based on facts specific to the case and, in particular, that nothing was said or done by Winkworth which conveyed to the purchaser that it had taken care when carrying out the required client due diligence and anti-money laundering checks. Importantly, however, the door has been left wide open for a different case to reach a different outcome, depending precisely on what information about 'their client' they may proffer to prospective purchasers during the inspection and sales negotiation process.

For that reason we think that this serves as an important reminder to all estate agents of the need to not only have in place appropriate client due diligence and anti-money laundering processes, but also to ensure that everyone in the team is fully conversant with them and that they are implemented in every case with a transparent record being maintained on each file. Further, that no literature makes any claims at all regarding the 'client' and expressly provides the contrary comment. Moreover, the importance of ensuring that all team members appreciate that such checks are infallible and not a guarantee that all risk has been eliminated is equally important, so make sure that in their dealings they never suggest otherwise to prospective purchasers.

In our experience these types of situation are far from rare and we recommend that due diligence / anti-money laundering procedures and processes are reviewed, and staff training refreshed, to stress the importance of awareness, systems, transparency and ultimately taking proportionate steps to minimise the risks.