Disagreement between Judges on Dreamvar –v- Mishcon de Reya and Others

Following ongoing legal proceedings and concern among conveyancers, the conclusion of the case has been long awaited by the industry, who have been in search of clarity over which party should bear liability where fraud is present in a transaction.

It is worth noting that within the judgement there was disagreement amongst the judges on the conclusion of the Dreamvar appeal regarding the relief sought by MdR under s.61 of the Trustee Act 1925.

As per the judgement, under point 124, Lady Justice Gloster, Vice-President of the Court of Appeal (Civil Division), states.

“124. Subject to one point I agree with the judgment and conclusions of Patten LJ. The issue on which I disagree arises in the Dreamvar appeal and concerns the relief sought by MdR under s.61 of the Trustee Act 1925. In circumstances where, as this Court has now held, MMS was in breach of trust, I consider that MdR should be relieved from liability under s.61.”

Her conclusions differed to those of Lord Patten  who summarised…

122.

(2) Dreamvar:
(i) I would allow the appeals of MdR and Dreamvar against the judge’s decision that there was no breach of trust by MMS;
(ii) I would refuse to grant relief to MdR under s.61;
(iii) I would allow the appeals of MdR and Dreamvar against the judge’s dismissal of their claims based on a breach of the paragraph 7(i) undertaking;
(iv) I would dismiss Dreamvar’s application for permission to amend to plead a claim in negligence against MMS.

Lord Justice Floyd agreed with Patten LJ’s conclusions.

Lady Justice Gloster’s resons for differing on the views expressed by Patten LJ are as follows:-

125.

i) MdR did not act dishonestly and, as we have held, it did indeed obtain the requisite undertaking from the vendor’s solicitor under para 7(i) of the Code. The judge himself held that MdR had discharged the onus of showing that it had acted reasonably; see paragraph 183.
ii) On the facts, primary responsibility for not adequately checking the true identity of the fraudster lay with the latter’s solicitors, namely MMS.iii) The judge himself, having heard the evidence, clearly considered that MMS, and not MdR, should bear primary responsibility for Dreamvar’s loss in circumstances where MMS were liable to Dreamvar; see paragraph 188. I see no reason to go behind the judge’s contingent conclusion as to how he would have exercised his discretion, had the correct analysis been as we have indeed found it to be; namely that MMS were in breach of trust and were liable for breach of their undertaking.

iv) I do not consider that the fact that MdR is insured should in the circumstances of this case lead to the conclusion that MdR should bear financial responsibility for Dreamvar’s loss. Dreamvar was entering into what was for it a relatively substantial property development as a business transaction. I do not consider that the Court’s sympathy should be with one commercial party (in reality with its loan creditors, given its insolvency) rather than another, simply because one, and not the other, has insurance. It is irrelevant, in my view, that Dreamvar was a newly formed company or that its beneficial owner was a young man.
v) There was no suggestion that MMS’ insurance would not be adequate to cover the loss.
vi) I see no reason why these proceedings should be prolonged by yet further contribution proceedings as between MMS and MdR.
vii) Accordingly, I consider that MdR ought fairly to be excused for breach of trust and that the Court should exercise its discretion in its favour.

126.

For the above reasons, I would have allowed MdR’s appeal against the refusal of the judge to have granted relief under s.61 and I would have exercised the relevant discretion in its favour. But since Patten LJ and Floyd LJ disagree with me, Patten LJ’ s proposed order will stand.

Despite Gloster LJ’s opinion, due to both Patten LJ and Floyd LJ diagreeing with her the proposed order stood.

The above excerpts are taken from from the Approved Judgement ‘Dreamvar –v- Mishcon de Reya and Others’. The full judgement can be found here.

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