Two recent high-profile fraud cases have brought into sharp focus the responsibilities of conveyancers and estate agents when it comes to checking the credentials of buyers and sellers during the moving process.
Both reached the Court of Appeal – the second highest court in the UK – where the initial controversial fraud decisions were overturned.
Here, we take a closer look at the cases in question and what home movers need to be aware of when it comes to fraudulent activity.
Dreamvar v Mishcon de Reya
This long-running case – which headed to the Court of Appeal after a controversial High Court ruling in 2016 – received special attention as it essentially asked the question of who bears responsibility where fraud is present in a property transaction.
In the case, a client of law firm Mishcon de Reya – Dreamvar – had purchased a house in London. However, after handing over payment it emerged that a fraudulent seller had been renting the house and had illegally pretended to be its owner.
In a surprise judgement, Mishcon de Reya was held liable for the £1.1 million loss allegedly suffered by Dreamvar, even though the fraudulent seller’s conveyancers were also sued by Dreamvar and deemed not at fault.
Mischon de Reya challenged the High Court’s ruling that they should be held solely responsible and that decision has now been overturned.
The conveyancing industry had followed this case with interest, eager for further clarity over who is liable when fraud occurs. Simon Blandy, director of regulatory standards at the Council for Licensed Conveyancers
, said it was an extremely important ruling that raises a lot of questions without answering them all.
“As a regulator we will have to scrutinise it closely before deciding what action, if any, we need to take,” he commented. “But the case emphasises the importance of taking a risk-based approach when accepting instructions and managing transactions.”
Beth Rudolf, director of delivery at The Conveyancing Association, believes the government now need to look more closely at a centralised identification process with biometrics built in to make sure that the cases of seller ID fraud are eradicated.
“Because there is currently no certain method of establishing that the person you have identified is truly the owner of the property these frauds can happen,” she argued. “By linking an official photograph of the registered proprietor to the title, as you would with your passport or driver’s licence, these frauds would be virtually impossible.”
Others in the industry said it was an 'eminently sensible' or 'ground-breaking' decision, but also left things open to interpretation over who is liable for losses in a property hijack case.
The court ordered both solicitors’ involved, Mishcon and national firm Mary Monson Solicitors (who acted on behalf of the seller), to make financial contributions towards the losses, representing a step-change in how such cases are judged. Put simply, the court ruled that responsibility should now be shared between those representing the deceived buyer and those representing the fraudulent seller.
A similar case
The Court of Appeal overturned another earlier ruling, also involving a purchase of a £1 million plus home in London.
In the case of P&P Property Limited v Owen White & Catlin LLP
, the seller’s solicitors were also held answerable for their fraudulent client and ordered to reimburse the money buyers had paid.
A supposed seller approached estate agency Winkworth and conveyancers Owen White & Catlin, instructing them to sell his property.
Only after the sale – for just over £1 million - was the seller discovered to be a fraud. The buyer, P&P Property, then decided to sue Winkworth and the conveyancing firm in question. While Winkworth was cleared of liability first time around, the conveyancing firm was held liable in the original ruling. However, the Court of Appeal has now overturned that decision.
Winkworth received full costs, but as happened in the other case, the Court of Appeal ruled that the solicitors – Owen White & Catlin LLP - must make contributions to repay the duped buyers.
What does this mean for home movers?
Both cases showed up the importance of identity checks in property transactions. In both, solicitors were instructed and the transactions conducted in a fairly rapid fashion – and it was only after payment was handed to the sellers by their solicitors that the fraudulent activity came to light.
As a result, calls for solicitors acting on behalf of sellers – and buyers – to carry out proper, rigorous identity checks have been loud.
The rulings outlined above effectively means that conveyancers representing sellers – purported or otherwise - bear responsibility for carrying out sufficient checks on their clients. If such checks are not carried out, the buyer’s representatives cannot be held solely responsible for any losses made.
For conveyancers acting on behalf of purchasers, then, a huge sigh of relief that they won’t be held solely responsible – as Mishcon de Reya was in the original ruling – for repaying the full purchase price even though they haven't been negligent.
Identity checks on property buyers and sellers are now likely to be stricter, but that seems like no bad thing if the cases of fraudulent activity can be lessened or eliminated entirely. It certainly shouldn’t be beyond the solicitors of both buyers and sellers to carry out reasonable due diligence in verifying their identity before any payments are handed over.
As stated above by the Conveyancing Association
, a centralised identification process – modern, efficient, advanced and utilising the best technology available – would make it much harder for fraudulent sellers to slip through the net.