Conveyancers have been waiting with bated breath for the outcome of the combined appeals in P&P Property Ltd v Owen White & Catlin LLP and in Dreamvar (UK) Ltd v Mischon de Reya [2018] EWCA Civ 1082. This Practice Point deals with the outcome of the appeal in Dreamvar, which caused considerable disquiet because it was widely felt that solicitors who were not negligent, dishonest or unreasonable had been unfairly saddled with liability for a fraud committed by an imposter represented by another law firm.
The company had bought a house from a fraudster who posed as the owner and absconded with £1.1m of the company’s money, forcing the company to seek damages from both sets of solicitors involved in the transaction. The seller’s solicitors admitted that their identification checks had fallen short and that they had never met their client. But the judge at first instance absolved them from liability for the company’s loss, holding that the company’s solicitors were liable instead. The judge ruled that the law firm held the company’s money on trust to complete a genuine transaction and refused to excuse the firm from liability for breach of trust. Consequently, the law firm was liable to replace the money lost from the trust fund itself.
Did the company have a claim against the seller’s solicitors in negligence? The Court of Appeal noted that the money laundering legislation enacted by Parliament is for the benefit of society at large and not for those who might lose out because they have dealt with an imposter. Furthermore, solicitors in conveyancing transactions do not normally owe a duty of care to anyone but their own clients and it would not be fair and reasonable to treat the seller’s solicitors as having assumed responsibility to the company for their due diligence in relation to their client’s identity.
Had the seller’s solicitors acted in breach of a trust in favour of the company when they released the purchase monies to their client? The answer to this question depended on the interpretation of the Law Society’s Code for Completion by Post (2011), which sets out the terms on which the seller’s solicitor receives and holds the purchase money. The Code states that the seller’s solicitor is not required to investigate or take responsibility for any breach of the seller’s contractual obligations. But the court ruled that this did not exonerate the fraudsters’ solicitors. The Code did not authorise the seller’s solicitors to release the purchase monies to anyone other than the true owner of the property on a genuine completion of the sale.
Should the company’s solicitors be relieved from their own liability for breach of trust under section of 61 of the Trustee Act 1925, now that it had been established that the seller’s solicitors had acted in breach of trust too? The Court of Appeal’s majority decision on this point does not absolve the company’s solicitors completely. The majority noted that the company’s solicitors were professional trustees and were concerned about the impact of the fraud on the company. In their view, the fact that the seller’s solicitors were liable for breach of trust gave the company another means of recovering its money without providing a reason to relieve the company’s solicitors from liability. But at least they will now be entitled to ask the seller’s solicitors to contribute to the damages payable to the company.
Allyson Colby is a property law consultant
