Dreamvar Ruling – Mitigating the risk
Last week, the Court of Appeal delivered their verdict on Dreamvar v Mishcon de Reya – a case which has put conveyancers on high alert.
Successful in part, the judgment follows ongoing legal proceedings, with the industry eagerly awaiting clarity over a key issue: which party should bear liability where fraud is present in a transaction?
The case centred on firm Mishcon de Reya, who was found liable for breach of trust when its client was tricked into purchasing a London property from a fraudster masquerading as the owner.
Whilst the initial High Court judgment found that Mishcon were liable for breach of trust, the appeal concluded that solicitors acting for the ‘vendor’ also bear responsibility for carrying out sufficient checks. It means that where checks are not carried out, the solicitors acting for the buyer cannot be held solely responsible should money be lost.
Summarising what this means for professionals acting for the seller was Jerome O’Sullivan. The partner at law firm Healys, who acted for Dreamvar throughout the case said:
“The Court of Appeal has confirmed that the vendor’s solicitor is in the best position to carry out reasonable due diligence in investigating to verify the vendor’s identity and ownership of the property for sale.”
“The Court of Appeal has made it clear that, if the vendor’s solicitor does not carry out such checks at all, or carries them out negligently, it will have potential liabilities to the purchaser as breaches of warranty of authority; trust or undertaking.”
It’s worth noting that whilst Mishcon de Reya had not been negligent, the Court upheld that the firm was liable for breach of trust – something which Ben Patten QC, one of the Barrister’s who acted on behalf of Dreamvar said would always be the case for the purchaser’s solicitors.
‘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.’
He then went on to highlight how the decision shifts the responsibility for fraud going forward, stating, in relation to cases where the supposed seller is a criminal: ‘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.’
Whilst cases such as the above have clearly raised awareness of fraud among professionals, the fact that large firms are having to pay out significant sums indicate that no one is safe from being targeted.
Now, more than ever, the need for firms to ensure that sufficient checks are carried out is vital.
It’s not a question of if you’ll get targeted – it’s when.
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