Dreamvar Barrister’s Comments – David Halpern QC and Ben Patten QC give comments on recent appeal ruling

The following is comment from David Halpern QC and Ben Patten QC who appeared for Dreamvar (UK) Ltd.

David Halpern QC

“The Court of Appeal’s judgment handed down on 15th May 2018 in the cases of Dreamvar Ltd v. Mishcon de Reya and P&P Ltd v. Owen White & Catlin will have far-reaching effects for buyers of property, conveyancers and their insurers.  It is very good news for buyers who are the victims of identity fraud.  The court had previously held that the buyer’s solicitor receives the purchase money from the buyer as trustee, to be applied solely for the purpose of a genuine completion.  It has now held that the seller’s solicitor also receives the money as trustee for the same purpose.  This means that both firms of solicitors will automatically be in breach of trust if the money is paid to an impostor, even where neither firm has been negligent.

The court has power to relieve either or both firms from this strict liability, but Dreamvar says that it is not enough for them to show that they acted honestly and reasonably.  A solicitor seeking to be relieved must also satisfy the court that that it is fair to do so, bearing in mind that relief granted to the solicitor will be at the buyer’s expense.  The courts are likely to use the law of contribution to ensure that, as between the two firms, the one which is negligent will bear the liability.  Mishcon de Reya, who was Dreamvar’s solicitor, was not relieved from liability to Dreamvar, despite having acted honestly and reasonably, but will be indemnified by the seller’s solicitor, who had failed to carry out due diligence on its own client.

The Court of Appeal has also restated the law on breach of warranty of authority.  A solicitor acting for a seller is deemed to warrant that his client is the true owner.  Liability for breach of warranty is strict and does not depend on negligence.  In many cases this will enable the buyer to sue the seller’s solicitor if the seller turns out to be an impostor.

I imagine that the Law Society will take this opportunity to make much-needed changes to conveyancing practice.  One solution would be for the seller’s solicitor to avoid strictly liability by disclaiming any warranty of authority but instead undertake an express assumption of responsibility to the buyer to exercise reasonable care in checking the seller’s identity.  This would impose liability on the seller’s solicitor where the firm has failed to carry out due diligence (as in Dreamvar) whilst avoiding liability in more sophisticated frauds which even a reasonably careful solicitor might have failed to detect.”

Ben Patten QC

“The Court of Appeal’s decision in Dreamvar v Mishcon de Reya and Mary Monson Solicitors Ltd is important to conveyancing solicitors and their insurers. The case concerned the operation of the Law Society’s Code for Completion by Post and specifically who should bear the loss where a fraudster impersonates the owner of property: should it be (1) the purchaser (2) the purchaser’s solicitor or (3) the solicitor who unwittingly acted for the fraudster. The Court allowed the appeals of the purchasers. The solicitor for the purchaser will always be liable to his client for breach of trust even though he may not have been negligent. He may be able to obtain relief from sanctions, although he may not do so if his client is of modest means. However the vendor’s solicitor will also be liable. He will have acted in breach of trust and (more importantly) in breach of undertaking. Depending on how he described his client, he may also be liable for breach of warranty of authority. The purchaser’s solicitor will usually be able to obtain a contribution, possibly amounting to an indemnity, from the vendor’s solicitor. The decision thus shifts the risk of such frauds onto the shoulders of the solicitor who acts for the fraudster. The Law Society had intervened in the appeal and had sought an outcome which allocated liability according to fault. It is unclear whether it will now take steps to amend the Code.”

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