On 14 April 2016 the High Court has declared conveyancing solicitors liable for a half a million pound property fraud perpetrated by a client. The house in Merton Hall Gardens, Wimbledon, was targeted by a fraudster network based in Dubai. The owner’s identity was stolen and the fraudster posed as the seller in a sale to the claimant. The fraud was discovered only after the claimant’s life savings had been paid away and he was left empty handed.
After a 3 year legal battle, the claimant today succeeded in his claims for breach of trust against the seller’s solicitors, and breach of trust and negligence against his own licensed conveyancer.
Both firms admitted liability for breach of trust over the purchase money. The trial was about whether they had acted reasonably to be entitled to relief under section 61 Trustee Act 1925. The case follows the leading 2014 Santander v R A Legal Court of Appeal decision on this evolving topic.
This decision stands out as the first authority defining obligations owed by a seller’s solicitor to a purchaser. For the first time, the court had to test the reasonableness of a seller’s solicitor where there was no allegation that that solicitor had been dishonest or involved in the fraud.
Author of Solicitors’ Negligence and Liability, William Flenley QC, acted for the seller’s solicitors A’Court & Co. He argued that seller’s solicitors should not be held liable to the same extent as the purchaser’s own conveyancer. He relied on the fact that there is no contractual relationship between the purchaser and the seller’s solicitors. He claimed that the test of reasonableness should be relaxed when applied to the seller’s solicitor. Mr Flenley’s argument was rejected by HHJ Pelling. The Court held that an equal standard of trustee duties applied to sellers’ and purchasers’ solicitors where there has been no completion of the transaction.
In this judgment HHJ Pelling helpfully encapsulates, in one place for the first time, the factors that apply to the threshold test of reasonableness explored in the earlier authorities.
HHJ Pelling found that A’Court & Co made no serious attempt to comply with anti-money laundering regulations to prevent the fraud, and critically obtained no documentation linking the seller to the property. A’Court & Co were held liable to reconstitute the trust of the purchase money.
The claimant’s own solicitor did not escape liability, despite not having met the fraudster. This judgment places an important check on purchaser’s solicitors who fail to pass on information to their client. HereH, the claimant’s solicitors asked A’Court to verify that the seller was the real owner of the property. A’Court did not give a satisfactory reply, but the claimant’s conveyancer did not warn the claimant so he had no idea of the risk he was running. The Court held that both firms were liable to the claimant and ordered an equal contribution between them.
This case is set to be a landmark in the evolving area of solicitors’ negligence in property fraud cases. Beth Holden was the solicitor who acted for the claimant throughout the case and says: “There is no doubt that this decision will resonate in the profession and probably the wider public. Property fraud is on the increase. More and more people have un-mortgaged properties which are highly attractive to fraudsters. The public are entitled look to the professionals to protect against fraud, even the estate agents who market the property. In this case we see the court saying that conveyancers on opposite sides of the transaction have joint responsibility to protect the purchaser’s money, no matter who their client is. Old doctrines of buyer-beware and solicitors’ warrantees of identity, are not substitutes for compliance with strict requirements of anti-money laundering regulations and the duty to actively protect the transaction from fraud.”