A recent report by the UK Fraud Costs Measurement Committee suggests that mortgage fraud is on the increase, with estimated losses of at least £1.3 billion this year alone. Consequently, claims faced by professionals who act – albeit innocently – in fraudulent transactions have been all too common, particularly when it is alleged that they acted in breach of warranty of authority or in breach of trust. Such claims are attractive to Claimants particularly because of their strict liability basis.

Encouragingly, therefore, in its recent judgment in P&P Property Ltd v (1) Owen White Catlin (2) Crownvent Ltd (t/a Winkworth) (2016), the High Court has declined to impose liability on two professional defendants caught up in identity fraud. The decision should give some comfort to conveyancing practitioners, estate agents and their insurers alike.

The Facts

In late 2013, Mr Harper (an imposter) represented to the two defendants Owen White ("the Solicitors") and Winkworth ("the Estate Agents") that he was the owner of a residential property in Hammersmith, London ("the Property"). It was, in fact, owned by a different Mr Harper.

The imposter, Mr Harper, explained that he was based in Dubai and wanted to arrange a quick sale, in order to purchase another property abroad. A cash purchaser – P&P, a property development company ("the Claimant") – agreed a purchase price of £1,030,000. It was agreed that the transaction would proceed to exchange and completion within a short time. The Solicitors were instructed to act on the sale and carried out money laundering checks, and met with Mr Harper (the imposter) to verify his passport photograph. The Claimant instructed its own solicitors. The transaction apparently completed and the purchase price was paid to the imposter Mr Harper through the Solicitors' client account.

The fraud came to light shortly afterwards when the real Mr Harper returned to his property and was surprised to see major building work taking place. The fraudster could not be traced and the Land Registry refused to register P&P as the owner. The amount lost by P&P was in excess of £1 million.

The Claim

Even though neither of the defendants was retained by the Claimant, it was alleged that they were liable for the Claimant's losses because they had warranted that they acted for the real Mr Harper. The Solicitors had signed the contract and the Estate Agents had marketed the Property and conducted viewings.

It was also alleged that the defendants had assumed a duty of care in negligence, since both were alleged to have made representations upon which the Claimant relied. Finally, in relation to the Solicitors alone, it was said that they had allowed purchase monies to be paid away in breach of trust and breach of undertaking.

The Judgment

HHJ Dicker QC rejected each of the Claimant's allegations and dismissed the claim. In so doing, he provided a helpful summary of the evolution of the case law (particularly in relation to breach of warranty of authority and breach of trust).

Breach of warranty of authority

Crucially, the Court found that in the absence of clear evidence to the contrary, the Solicitors had not given any warranty that they acted for anybody other than the client who had instructed them. They did not give a warranty about the "attributes" of that individual. They had simply warranted that they acted for a client who claimed to be Mr Harper. The Court observed that for a solicitor to give a warranty as to the actual characteristics of a client (to include whether they were the true owner of a property) would have been unusual based on standard conveyancing practice and understanding, and would result in the solicitor assuming the entirety of the risk of identity fraud of the kind here. That would be a liability that any solicitor would be very reluctant to take on. Similarly, it was held that nor had the Estate Agents breached their warranty of authority.

Common law negligence

The Court dismissed the argument that either defendant had assumed a special duty to a party (ie. the Claimant) for whom they did not act and followed the general principle that one party to a conveyancing transaction does not owe a duty to the other, absent special facts.

Breach of Trust

Finally, the Court considered the Claimant's claims (which the Court held were interrelated) for breach of trust and breach of undertaking against the Solicitors.

The nub of the breach of trust claim was that the balance of the purchase monies was held on trust for the Claimant in the Solicitors' client account but was paid away in a transaction which was void, and therefore in breach of trust. In making these allegations the Claimant relied on case law in which it had been held that mortgage funds held by solicitors were paid away in breach of trust when no actual completion took place because the transaction was a fraud.

This allegation, too, was dismissed. The Court held that the basis on which money is held by a solicitor needs to be construed carefully in light of the particular terms of their relevant obligations. Here, the Solicitors' obligations, as agents for the purported seller, in respect of the balance of the purchase monies, fell to be ascertained by reference to the 2011 edition of the Law Society Code for Completion by Post ("the Code"). The Court considered the Code and held that it did not impose a situation where completion monies were received and held on trust. The Court distinguished the position (as considered in previous cases) of a solicitor acting for a lender client pursuant to an express undertaking to hold monies on trust, or for a seller where a different edition of the Code was in force.

The Court also went on to consider whether, if there had been a breach of trust, the Solicitors would have been entitled to relief from liability for that breach of trust under section 61 of the Trustee Act 1925. The Court said that, on the facts, the Solicitors would not have been granted relief because they had failed to consider with sufficient care the warning signs of potential fraud (of which there were several) including anomalies in relation to the fraudster's links with the Property


Overall, this is a helpful decision for professionals. The Court has considered and distinguished case law relating to mortgage funds and other differently worded sets of obligations, and such case law has often been cited by Claimants on a broad brush basis in an attempt to impose liability.

Whilst each claim must be analysed carefully on its own facts (and there may be occasions where a professional does warrant too much or agrees more onerous terms), this decision sets the bar high for Claimants in relation to establishing, against vendors' solicitors, breach of warranty of authority, breach of trust or breach of undertaking in cases of identity fraud.

The Court may have been influenced by policy considerations. The imposition of liability would have led to professionals effectively underwriting the risk on property transactions, regardless of whether they have acted with reasonable skill and care. Inevitably, if that was the case, many firms might have to review and overhaul their business models (and increase costs) as a result.

However, finally, a word of caution: permission has been granted to appeal. We will be watching with interest whether the matter proceeds to the Court of Appeal and, if so, what approach that Court takes to these highly topical issues.