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Conveyancing fraud: who bears the blame?

Should a firm of solicitors who have done nothing wrong be liable to pay compensation to a client who has been the victim of conveyancing fraud? The surprising answer was ‘yes’ when the Court of Appeal gave judgment in Dreamvar  (UK) Limited v  Mishcon de Reya earlier this year.

Dreamvar had bought a property from someone fraudulently claiming to be the true owner.  Their solicitors, Mishcon de Reya, took all reasonable steps to check that the transaction was genuine and the court was satisfied that they were not negligent.

Nonetheless, because Dreamvar’s solicitors had, in effect, promised to ensure that Dreamvar’s money would be used for a genuine transaction, the court decided that Mischon were in breach of trust.  On the face of it, that meant that Mischon were obliged to compensate their client for the money that had been stolen by the fraudster.

However, Mischon had one more card to play: trust law allows a trustee (in this case, Mischon, as Dreamvar’s solicitors) to be excused from a breach of trust if they acted reasonably and honestly, and “ought fairly to be excused.”  They had acted honestly, so the court had to consider whether they acted reasonably and should be excused.

The Court of Appeal decided they should not be excused.  The reason given by the judge who first heard the case was approved by the Court of Appeal:  that Mischon were better placed to bear the financial consequences of the fraud – because they had insurance –  than their client, who had no insurance and no prospect of recovering the money from the fraudster.

Many think this decision unfair.  Just because  Mischon were insured seems a somewhat arbitrary basis for ordering it to reimburse its client.  And it is costly for a solicitor to claim against professional indemnity insurance.

However, in spite of the concerns within the profession, the long-term consequences may be beneficial.  The professionals involved in conveyancing transactions – including solicitors acting for both parties and estate agents – are now paying even greater attention to the risk of fraud and, in practice, that could lead to a reduction in the number of fraudulent transactions.  The availability of insurance for buyers and sellers alike could also help spread the risk.

Jonathan Calverley is a litigation partner and specialises in professional negligence claims. For more information on conveyancing fraud or any of the issues raised in this article, please contact Jonathan by emailing jcalverley@lyonsdavidson.co.uk or calling 0117 904 6466.

Posted on Oct 5th, 2018 by Lyons Davidson

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