Solicitors who failed to make proper checks on their client’s identity were not liable to a buyer who was defrauded of his money.

In 2014, a fraudster sold a house in London to a company for £1.1m. The fraud was discovered before the company was registered as the owner of the property, by which time the fraudster had absconded with the money. The financial impact on the company was disastrous and, in Dreamvar (UK) Ltd v Mischon de Reya [2016] EWHC 3316 (Ch), the company sought to recoup its losses from the solicitors on both sides of the transaction. This Practice Point considers the fate of the company’s claims against Mary Monson Solicitors Ltd, who acted for and were also duped by the fraudster, for breach of warranty of authority, for breach of undertaking, and for breach of trust. The most promising claim by the company appeared to be its claim for breach of trust. The judge accepted that a seller’s solicitor is as much a trustee of the purchase money while it is in his possession, pending completion of a sale and purchase, as is a buyer’s solicitor, even if the parties do not expressly agree this between themselves. Even so, the judge rejected the allegation that there had been a breach of trust because the purchase money had been used to complete a transaction that was not genuine. The parties had completed in accordance with the Law Society’s Code for Completion by Post (2011). This obliges the seller’s solicitor to act as the buyer’s solicitor’s agent, but expressly states that this obligation does not require the seller’s solicitor to investigate or take responsibility for any breach of the seller’s contractual obligations. The judge ruled that it would fly in the face of that paragraph if sellers’ solicitors were to be liable for transfers that are not genuine. The claim that the fraudster’s solicitors had breached undertakings given in the Code for Completion by Post failed too. The judge ruled that clear words are needed before a solicitor assumes responsibility for fraud by his client and that the language used in the Code was insufficiently clear to impose an obligation on seller’s solicitor to have the authority of the registered proprietor to receive the purchase money on completion and to provide a TR1 executed by the registered proprietor. It was almost inconceivable that a solicitor would guarantee to a third party that he has a principal who is the person named on the property register and the seller’s solicitors’ obligation is to provide a TR1 executed by the seller, ie by their client. The company’s claim for breach of warranty of authority – that the fraudster’s solicitors had warranted that they were acting for the registered proprietor, or that they were acting for a person claiming to be him and that they had exercised reasonable care and skill in establishing his identity as such – fared no better. The facts of a particular case may indicate that an agent has assumed some wider responsibility, but the starting point is the basic warranty: that the agent has a client, for whom it is acting.  An agent does not, simply by acting as such, make any representation about his principal’s attributes or characteristics, and the buyer’s solicitor had not asked the fraudster’s solicitors for an undertaking confirming that their client was the registered proprietor of the property. Click here to read linked Practice Point. Allyson Colby is a property law consultant