Fraud in conveyancing - who takes the hit?
Posted: February 16th, 2017, 9:30 pm
The recent posts regarding money laundering reminded me of a recent case that has sent some shockwaves through the conveyancing profession.
The full judgment is here, but at 58 pages it’s only for the dedicated or the terminally bored - https://www.lawgazette.co.uk/download?ac=22465
Basically what happened was that a young Turk (a mere 23 years old) with a wealthy Dad decided to get into buying and tarting up London property. He set up a company called Dreamvar (UK) Ltd.
He then found a property he wanted to buy, an empty and rather rundown house at 8 Old Manor Yard, in Earl’s Court - http://www.rightmove.co.uk/house-prices ... ry=england. You obviously don’t get much for your money in that area, and he agreed a price of £1.1m.
He appointed a well known London firm of solicitors, Mishcon de Reya, to act for him as he had instructed them on previous attempted purchases.
The property was owned by a Mr David Haeems, who appointed a firm of solicitors in Manchester, Mary Monson & Co. It was a bit of a rush job, and it all went through in less than 3 weeks. Mishcons paid the purchase price to MM.
They in turn paid it (at the direction of Mr Haeems) to a firm of solicitors called Dennings (highly dodgy and an insult to the name of the late, great Lord Denning but presumably not known to MMS to be dodgy at the time). They in turn paid it to a Chinese bank account as directed by Mr H.
So far so good.
But when Mishcons tried to register the transfer at the Land Registry they hit a snag. LR had for some reason been a bit suspicious, and contacted Mr Haeems for various verifications.
And as readers will no doubt have guessed Mr Haeems knew absolutely nothing about it. The person who had sold the house had been impersonating him.
Understandably, LR refused to register the transfer, leaving Dreamvar £1.1m out of pocket. Equally understandably they sued both firms of solicitors, basically on the principle that one of them must have been at fault.
MMS admitted that they had not made proper ID checks against their client. They had been supplied only with a copy driving licence and a copy TV licence, both copies certified by a solicitor. However, the court basically said that a seller's solicitor had no obligation to guarantee the seller's identity to the buyer's solicitor, and that they were therefore not liable.
The reason it's sent shockwaves is that although the Court found that Mishcons had done everything properly, and in accordance with all good practice they said they were nevertheless liable, not in negligence, but in breach of trust.
In other words, Dreamvar had given them the £1.1m on trust to use it for the sole purpose of acquiring good title to the property. The money had been paid to a fraudster so no title to the property was obtained, hence the breach of trust.
The court does have discretion to `let off'' a trustee who's acted in breach of trust but in good faith, and as Mishcons had done nothing wrong they were probably expecting this. However, the judge seems to have taken the view that Mishcons were insured and Dreamvar wasn't, so on that ground alone he found Mishcons liable. They (or in practice their insurers) therefore had to pay Dreamvar £1.1m.
It's easy to see the simplistic `justice' of the decision. Neither Mishcons nor Dreamvar had done anything wrong, but the loss would hurt Dreamvar a lot harder than it would Mishcons.
But it's an incredibly harsh result for Mishcons, and every solicitor in the country who's read this case will have felt his blood run cold. Whilst Mishcons are a very large firm and can take the hit, if this happened to a small firm such a claim would probably kill them, as their insurers would either refuse renewal or quote a premium that would be completely unaffordable.
Mishcons have leave to appeal, but it's hard to see the decision being overturned, if only because of the devastating effect on an innocent buyer that absolving Mishcons of any liability would produce.
In practical terms it's really difficult to devise a solution to this situation. I've put myself in Mishcons' shoes (rather more expensive than mine!) and I really don't see that I'd have done anything different.
Interesting times.
The full judgment is here, but at 58 pages it’s only for the dedicated or the terminally bored - https://www.lawgazette.co.uk/download?ac=22465
Basically what happened was that a young Turk (a mere 23 years old) with a wealthy Dad decided to get into buying and tarting up London property. He set up a company called Dreamvar (UK) Ltd.
He then found a property he wanted to buy, an empty and rather rundown house at 8 Old Manor Yard, in Earl’s Court - http://www.rightmove.co.uk/house-prices ... ry=england. You obviously don’t get much for your money in that area, and he agreed a price of £1.1m.
He appointed a well known London firm of solicitors, Mishcon de Reya, to act for him as he had instructed them on previous attempted purchases.
The property was owned by a Mr David Haeems, who appointed a firm of solicitors in Manchester, Mary Monson & Co. It was a bit of a rush job, and it all went through in less than 3 weeks. Mishcons paid the purchase price to MM.
They in turn paid it (at the direction of Mr Haeems) to a firm of solicitors called Dennings (highly dodgy and an insult to the name of the late, great Lord Denning but presumably not known to MMS to be dodgy at the time). They in turn paid it to a Chinese bank account as directed by Mr H.
So far so good.
But when Mishcons tried to register the transfer at the Land Registry they hit a snag. LR had for some reason been a bit suspicious, and contacted Mr Haeems for various verifications.
And as readers will no doubt have guessed Mr Haeems knew absolutely nothing about it. The person who had sold the house had been impersonating him.
Understandably, LR refused to register the transfer, leaving Dreamvar £1.1m out of pocket. Equally understandably they sued both firms of solicitors, basically on the principle that one of them must have been at fault.
MMS admitted that they had not made proper ID checks against their client. They had been supplied only with a copy driving licence and a copy TV licence, both copies certified by a solicitor. However, the court basically said that a seller's solicitor had no obligation to guarantee the seller's identity to the buyer's solicitor, and that they were therefore not liable.
The reason it's sent shockwaves is that although the Court found that Mishcons had done everything properly, and in accordance with all good practice they said they were nevertheless liable, not in negligence, but in breach of trust.
In other words, Dreamvar had given them the £1.1m on trust to use it for the sole purpose of acquiring good title to the property. The money had been paid to a fraudster so no title to the property was obtained, hence the breach of trust.
The court does have discretion to `let off'' a trustee who's acted in breach of trust but in good faith, and as Mishcons had done nothing wrong they were probably expecting this. However, the judge seems to have taken the view that Mishcons were insured and Dreamvar wasn't, so on that ground alone he found Mishcons liable. They (or in practice their insurers) therefore had to pay Dreamvar £1.1m.
It's easy to see the simplistic `justice' of the decision. Neither Mishcons nor Dreamvar had done anything wrong, but the loss would hurt Dreamvar a lot harder than it would Mishcons.
But it's an incredibly harsh result for Mishcons, and every solicitor in the country who's read this case will have felt his blood run cold. Whilst Mishcons are a very large firm and can take the hit, if this happened to a small firm such a claim would probably kill them, as their insurers would either refuse renewal or quote a premium that would be completely unaffordable.
Mishcons have leave to appeal, but it's hard to see the decision being overturned, if only because of the devastating effect on an innocent buyer that absolving Mishcons of any liability would produce.
In practical terms it's really difficult to devise a solution to this situation. I've put myself in Mishcons' shoes (rather more expensive than mine!) and I really don't see that I'd have done anything different.
Interesting times.