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| HH Judge Pelling QC |
In Purrunsing v A’Court & Co & Anor [2016] EWHC 789 (Ch) conveyancers for both the seller and buyer were held liable for the actions of a rogue seller who committed a £470,000 property fraud.
In this article I examine the findings and provide some thoughts on how conveyancers may wish in the light of the decision to adapt certain parts of their processes.
Facts
London based conveyancers Home
Owners Conveyancing Limited (HOC) (the second defendant) acted for the purchaser
(the claimant) of a property which was sold by a rogue seller who was
purporting to be the registered owner of a £470,000 property. The fraudster who claimed to be but was not
the registered owner ‘Mr Dawson’ was represented by the Windsor based
conveyancers A’Court & Co (ACC) (the first defendant).
By the time the fraud was
discovered, the claimant has transferred the purchase monies to his conveyancer
(HOC), and these monies had in turn been sent on to the fraudsters solicitors (ACC).
Following completion of the transaction ACC then transferred funds to the
fraudster to an account held in Dubai.
The issues
ACC the solicitors acting for the
purported seller were initially found to have made the payments to the
fraudster in breach of the duty of trust it owed to the claimant.
The issues before HH Judge
Pelling QC in this case were as follows:
Having acted in
breach of trust should ACC be granted relief under s61 of the Trustees Act
1925? S61 provides:
"If it appears to the court that a
trustee, whether appointed by the court or otherwise, is or may be personally
liable for any breach of trust, … but has acted honestly and reasonably and
ought fairly to be excused for the breach of the trust … then the court may relieve
him either wholly or partly from personal liability for the same."
Should the claimant’s
conveyancers (HOC) be liable to the Claimant for breach of contract or
negligence?
In the event
both firms of conveyancers should be held liable to the claimant how the
liability should be apportioned between the two firms?
The findings – the claim
against ACC (the ‘seller’s’ solicitors)
HH Judge Pelling found that ACC
had not acted reasonably and were not entitled to relief under S61.
He based this on the following
findings:
Upon considering the Money Laundering
Regulations 2007 and the Proceeds of Crime Act 2002 he concluded:
‘……..that is that the solicitor concerned is required to look
at all of the information available and assess whether it is consistent with
the transaction that the client wishes to carry out being a lawful one. That
much is obvious from ss.327-329 and s.340 of POCA. As the Note makes clear,
that exercise "… may include considering whether the
client is actually the owner of the property they want to sell"’.
He added:
‘As I have
explained already, that will not be necessary or appropriate in every case in
which a solicitor is retained to act for the vendor of residential property. In
each case a judgment will be required based on the risk posed by the
transaction in question. That is the effect of the part of the Handbook [Conveyancing
Handbook set out above, which emphasises the need for a risk-based approach to
be taken’.
In short, the Judge stated that a
reasonable solicitor carrying out due diligence required by the MLR and
adopting as per the Conveyancing Handbook a risk based due diligence approach ought to have
considered whether Mr Dawson was the owner of the property he was purporting to
sell in order to assess whether the transaction was a lawful one. I will deal with the practical implications
of this shortly.
The findings – the claim
against HOC (the buyer’s solicitors)
The finding that HOC has
acted in breach of contract and or duty of care was based on the following general
principle applicable when considering the extent of the duty of care owed by a
conveyancer to a client:
‘That in general a solicitor or licensed conveyancer is
not obliged to undertake investigations that are not expressly or impliedly
requested by the client but that if in fact a solicitor or licenced
conveyancer acquires information that may be of importance to a client,
then it is the duty of the solicitor to bring that information to the attention
of the client.'
In this case HOC had raised an
enquiry with ACC in the following terms:
"Please confirm you are familiar with the sellers and will verify
they are the sellers and check ID to support same"
In reply ACC had responded:
‘2) As explained to you over the telephone, prior to being approached
to act on the sale we have no personal knowledge of Mr Dawson, but we confirm
that we have met him in person and have seen his passport (and retain a copy of
the photo page) together with utility bills etc showing his UK address as
notified to us’.
There was a failure on the part
of HOC to inform the claimant that this question had been raised and also to
make the claimant aware of the significance of the reply even though it was
found that the claimant had failed to read the replies sent to him.
The Judge found:
‘HOC was in breach of contract and/or duty to the claimant in failing
to inform him that (a) Additional Enquiry (2) had been raised, (b) that the
purpose of that additional enquiry was to attempt to establish a link between
the property and the apparent vendor, and (c) the answers received showed that
(i) ACC had no documents whatsoever relating to this property, save for those
already received (and thus for example they did not have the Deed of Gift of
which Mr Beach had made enquiries by the earlier letter from him to Mr A'Court
of 16 October 2012); (ii) ACC had no personal knowledge of Mr Dawson, and (iii)
ACC had not verified, and could not confirm from the information available to
them, or at least had not confirmed from the information available to them, a
link between the vendor and the property, and (d) in consequence, there was a
risk in proceeding with the purchase.’
The findings – Contribution
The judge found both firms of
conveyancers equally to blame having regard to ‘…relative causal potency as
well as comparative blameworthiness by reference to the facts and matters…’
The Practical Implications
when acting for the seller
It is clear that when acting for
any client there is a need to carry out a risk assessment not only on the client
but the transaction itself. In carrying
this out one needs to keep in mind the MLR, POCA and Conveyancing Handbook
requirements and guidance.
The case assists in identifying
certain risk indicators that any responsible conveyancer would be foolish to
ignore.
In this case the solicitors acting
for the rouge seller chose to reply blindly on routine money laundering checks
ignoring the following warning signs:
They knew that the property was
unoccupied
They knew that it was not subject
to a charge
They knew that Mr Dawson had
given an address that was not either the address for the property or the
alternative service address that appeared in the proprietorship register for
the property.
It is abundantly clear that faced
with these facts that a reasonable solicitor should obtain from a seller documentation
of any sort that could establish a link between that individual and the
property. In this case there were two
addresses shown for the registered proprietor none of which matched the address
given by the rouge seller to ACC.
It should be kept in mind that
ACC knew that that a previous attempt to sell the property on behalf of the
rouge seller fell through after the then prospective buyer
pulled out when the rouge seller failed to provide evidence of employment in
Dubai.
So where a seller produces
evidence of identity and of an address which is not that shown on the land
Registry title it would be prudent to insist that the seller produces documents
or other evidence which shows a connection between the seller and that of the property
to be sold.
I also suggest that it may in
some circumstances be wise to ask for details of the solicitor who acted on the
purchase of the property so that appropriate checks can be made with that
solicitor over identity etc
The Practical Implications
when acting for the Buyer
It seems to me that the buyer’s
solicitor in this case fell foul due to raising a question which probably they did not need to raise. Remember the
Judge in this case found for the claimant because of a failure on the part of
the conveyancer to ‘…ensure that the
claimant proceeded at all times on an informed basis.’
Therefore one may be best advised
not to raise questions that go behind the Land Registry evidence of title since
once raised there is then a professional obligation to make sure the client is
made aware of any question and to ensure that when the reply comes in that
advice is given on the reply and that any ambiguity and or uncertainty is fully
addressed.
The rouge seller’s first attempt
to sale failed however after the buyer solicitor was asked for evidence of the
seller’s employment in Dubai.
It may in the light of this be
prudent to raise as standard enquiries the following questions:
Is the seller based in the
UK?
If not please provide evidence of
the seller’s employment based abroad.
A fraudster could still get
around this and provide fake evidence but with reference to the S61 defence and
the findings in this case it would at the very least show some attempt of trying
to protect the buyer’s money.
You may also wish to ask whether
there have been any previous attempts to sell the property and if there were
why these did not proceed.
Remember however that if you
raise the questions do make sure that you receive full and complete replies.
Other implications
It is clear that when receiving
replies to enquiries there is an obligation on a conveyancer to ensure the
client sees the replies as well as raising with the client any issue within
those replies which could influence the client’s decision to proceed with the transaction. Sending the replies out to the client and
asking the client to simply read and digest is not sufficient.
Conclusion
There is nothing remarkable about
this decision other than the fact it should act as a reminder to all
conveyancers of the need to keep the risk of fraud in mind at every juncture of
the transaction and if acting for a buyer not to assume in every case that the
seller has carried out full risk based due diligence.
David Pett - Solicitor
David Pett - Solicitor
MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com
