How should the courts allocate the risk of – and the losses flowing from – frauds practised on innocent parties?Lawyers are first exposed to these questions as students but there is currently a growing need to address them afresh in the professional liability context with the increased prominence of “imposter fraud” in property transactions.Does it make a difference where some of the innocent people duped by the fraudster are professionals with insurance and some are not?

The High Court has just delivered the latest decision in one of these cases in P&P Properties v OWC and Crownvent[1]. The fraudster impersonated the true owner of a valuable investment property in west London (a Mr Harper) and instructed solicitors (D1) and reputable estate agents (D2) to sell it for him within a very short time period to allow him to invest in another opportunity elsewhere.

He was a sophisticated fraudster who managed to dupe them both as he had got hold of utility bills for the property and he provided a forged passport to identify himself. He asked for the sale proceeds to be sent to his bank in Dubai, from where it was never recovered.Both defendants had made some errors in their anti-money laundering checks relating to their client.The true owner discovered the fraud before registration at HMLR when he walked past the property one day and was alarmed to see builders (appointed by the purchaser) ripping out the fixtures and placing them in the front garden.

The innocent purchaser, who lost over a million pounds, alleged breach of warranty of authority and negligence against both defendants and also breach of trust against the solicitors.The judgment, by Mr Robin Dicker QC sitting as a Deputy High Court Judge in the Chancery Division, contains a detailed review of the law in these areas.

The previously decided cases on breach of warranty of authority (eg Penn v Bristol & West, Platform Funding v BoS and Excel Securities v Masood) do not speak with one voice.The central question here was whether the defendants, in claiming to act “for the seller” or “for Mr Harper”, warranted that their client was in fact the true/registered owner of the property or whether he was merely someone who claimed to be entitled to sell.The Judge decided that the warranty was the more limited one and the cause of action failed.

The claim against estate agents was perhaps novel and ambitious, but there are real ramifications for thousands of conveyancing solicitors undertaking transactions every week – and, of course, for their insurers.The Judge commented that if the Claimant’s argument (for the wider warranty) were to prevail, then “solicitors engaged in conveyancing transactions would effectively be guaranteeing that their client was the registered title holder, and would be strictly liable if this was not the case”.

The claim in negligence was always going to be difficult for the Claimant, since it would be unusual for the advisors to one party to a transaction to owe a duty of care to the counter party: see eg Gran Gelato from 1992.That is why buyers retain their own solicitors.The Judge here resisted the invitation to overturn the existing law or to find “special circumstances” giving rise to a duty on either the solicitors or the estate agents.

The knottiest part of the judgment relates to the breach of trust claim and, if necessary, the solicitors’ plea for relief under s 61 of the Trustee Act 1925.This has recently become a very fashionable new way of putting and defending professional negligence claims against solicitors involving conveyancing transactions – particularly with the case of Purrunsing v A’Court & Co earlier this year, which sent some significant ripples through the sector.One simplified way of putting the question is whether the seller’s solicitor is automatically acting in breach of trust by releasing the purchase moneys other than to the registered owner who will simultaneously pass good title to the buyer.

Here the Judge found no breach of trust, since the trust argued for by the Claimant was inconsistent with the express terms of the Law Society’s 2011 Code for Completion by Post which applied.This will be treated as a very significant finding for those involved in these claims as they are currently being considered.(However, if there had been a breach of trust, the Judge here also held that relief would not have been granted.)

This decision is likely to be pored over by lawyers on both sides of these claims.However, it is important not to forget the facts of each case: imposter frauds often contain interesting, and sometimes new wrinkles, and to work out which side of the line any claim will fall is the real task for us all – just as it always was in the student essay question.