Dreamvar v Mischon De Reya & another [2016] EWHC 3316 (Ch)

The High Court has just handed down another judgment dealing with solicitors’ liability in the context of property fraud. Following Purrunsing v A’Court & Co and HOC, and P&P Property Ltd v Owen White & Catlin LLP last year, Dreamvar v Mischon De Reya is another case in which the claimant sought financial redress from the professionals as a result of suffering a fraud. Dreamvar paid over money to purchase a property. The individual purporting to be the seller was a fraudster with no right to transfer the legal title. Thus Dreamvar lost almost £1.1m.

Dreamvar sued its solicitors, Mischon De Reya (MdR) in negligence. Dreamvar alleged that MdR should have alerted it to a risk of fraud (of which it was unaware), and secondly, should have sought an undertaking from the seller’s solicitors, Mary Mondon Solicitors Ltd (MMS) that it had established the seller’s identity.

The claim against MdR in negligence failed. Mr Railton QC gave judgment.

The Court accepted MdR’s case that there was nothing unusual in the transaction which could have put MdR on enquiry about risk of fraud. Further, the Court accepted MdR’s case that it was entitled to assume that MMS had made standard due diligence enquiries of its client and to have proceeded on that basis.

The Court did not need to make a finding on causation but commented anyway. The findings are highly fact sensitive and depend on the evidence of the solicitor at MdR and Dreamvar’s director. The Court found that if MdR had perceived a risk of fraud, the likelihood was that the solicitor would have advised Dreamvar not to proceed. The solicitor’s evidence, which the Court accepted, was that other proposed steps to establish identity were not viable. The Court concluded that Dreamvar would have accepted MdR’s advice and would have aborted the transaction.

As a consequence of this finding, it might be arguable that the reasonable thing for a buyer’s solicitor to do, where there is a perceived risk of fraud, is to positively advise their client against proceeding.

The Court also had to determine a breach of trust claim against MdR by Dreamvar. The Court referred to established authority Target Holdings v Redfern, (also relied on in Purrunsing), to establish that MdR held the money paid to its client account by Dreamvar on trust for the purpose of completion. Completion having not occurred as a result the fraud, MdR were in breach of trust in paying the purchase money to MMS. The Court held it was an implied term of the retainer between Dreamvar and MdR that the purchase money was only to be paid out for the purpose of valid completion. MdR sought relief from its strict duty to reconstitute the trust under section 61 of the Trustee Act 1925.

There was no question that MdR had acted honestly. The issue for the court in connection with s.61 was whether its conduct was reasonable, and if so, whether in fairness it ought to be excused from liability. The Court found that MdR had acted reasonably, but that, in fairness, MdR ought not to be relieved. Mr Railton QC reasoned that MdR had professional indemnity insurance to cover the loss, whereas Dreamvar’s loss was uninsured, thus making it unfair for MdR to be relieved.

In the circumstances, the Court ordered MdR to reconstitute the trust fund of the purchase money, plus interest awarded at 4.5%.

Leave to appeal was granted.

In my next blog I will discuss Dreamvar’s case against MMS, which was unsuccessful.