Dreamvar v Mishcon de Reya – Industry Predictions

The decision from the Court of Appeal on the Dreamvar (UK) Limited v Mishcon de Reya and P&P Property Limited v Owen White & Catlin LLP cases are expected to be handed down this week.

Centring on the liability of the buyer’s solicitor where the seller was not who they purported to be, the outcome of the Dreamvar case is anticipated to answer numerous questions in regard to fraud, particularly those where neither party is at fault.

The case involved a property transaction; Dreamvar had set out to purchase a £1.1 million property from the supposed seller. However, when it emerged that the vendor was in fact a fraudster, the buyers subsequently filed claims against both firm Mishcon de Reya – its own solicitor – and Mary Monson Solicitors, who were acting for the ‘seller’.

For Mishcon, this was for negligence in breach of contract and tort, with the buyers claiming that there had been a failure to advise on, or notice risks. This claim was also on the basis that the firm had not sought an undertaking from Mary Monson.

The judge ruled that whilst Mishcon had not been negligent, it was in the best position to absorb the cost, and although Mary Monson accepted that it had not acted competently on performing due diligence checks on its own client, it did not owe a duty to the buyer.

Mary Monson was also sued for breach of warranty of authority and breach of undertaking.

Claims for breaches of trust were also made against both firms.

Where Mary Monson was concerned, this was made on the basis that the monies it had received from Mishcon were only to be released on genuine completion. However, as the court the declined to confer the need for this to be genuine, it did not find a breach.

For Mishcon, however, the court held that there was a breach. It was found that releasing completion monies only on genuine completion was an implied term of Mishcon’s retainer with the buyer. Whilst the firm did try and seek relief under s.61 of the Trustee Act 1925, the court declined to exercise its discretion to grant relief.

The case provoked concern among professionals, largely because, despite a lack of negligence on the part of the purchaser’s solicitor, the court ruled they were better placed to bear the cost.

As such, the judgment from the Court of Appeal – and what it could mean for conveyancers – has been long awaited.

Sharing his prediction on the outcome was Peter Ambrose. The Managing Director at The Partnership also touched on the need for firms to adapt to change and implement techniques to minimise risk, stating: “It does depend on whether Pavel v Freddy’s Ltd & Others (2017) is taken into account, which contradicted the Dreamvar ruling.  If they take this into account, then we believe that it may affect the outcome of the appeal and might result in it being overturned.  However, given that there doesn’t appear to have been any material new information, then we believe that it is unlikely to be overturned.

“If the ruling stands, we believe this sends a clear message to the legal industry that they must learn to adapt to a changing world.  It is less about title issues and more about regulatory and checking activities.  When combined with the impact of GDPR changes, those firms with poor risk management, process and inadequate IT systems may well succumb to an inevitable (and possibly overdue) demise.”

Also sharing her thoughts was Beth Rudolf. The Director of Delivery at the Conveyancing Association said:

“This is one I don’t think we can call – the decision only made sense in the first place from a restitution perspective.  It would appear that Mischon had done no wrong; it was only that the relief could not be given due to the loss to the injured party because there would not be an insurance policy to claim against. Overall, if the decision stands then potentially we will see more enquiries around whether the seller’s identity has been verified as that of the owner of the property.  This is nigh-on impossible to prove, given the current data sets which would confirm this are not accessible to conveyancers.

“If you think of the Penny Hastings case the ‘seller’ was a tenant who had changed their name by deed poll to the seller’s name and therefore had ID in that name. There are datasets which can show if more than one person with the same name is registered and crucially their ages but currently we are unaware of any product that uses them. Long-term we would like to see biometric data attached to Land Registry, for example, if the official picture of the registered proprietor – taken from DVLA or Border control – was annexed to the title, a conveyancer could easily see if they were dealing with the right person. ID verification is one on the issues which the MHCLG Technology Working Groups are looking at so we hope that this sort of initiative will solve the problem overall.”

David Bridge, Managing Director at BPL Solicitors Ltd, also weighed in on the potential result of the case, stating:

“My prediction is that the result will be overturned as it seems bad law and wrong to not allow a buyers solicitor that has done nothing wrong, relief from breach of trust.

“I think, however, that whichever way the result goes it will have a massive impact on all conveyancers and there are downsides to either verdict or indeed the worst of all worlds in that the court decides on one point only and does not clarify the others as they don’t have to. The impact on the code for completion by post will be fundamental I think – more so than people realise.”

Lloyd Davies, Managing Director at Convey Law said:

“It cannot be reasonable to hold any purchasing Conveyancer to be liable where all appropriate steps have been taken to acquire a property on behalf of their client, who has been deceived by a fraudulent seller, particularly where neither legal representative was found to be negligent.

“If the case is not overturned, I can see PII premiums rising and smaller conveyancing practices potentially going out of business as they will be unable to absorb these increased costs, which will obviously impact on the consumer as they will have less choice available when deciding upon their conveyancer.”

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