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The case of Dreamvar (UK) Limited v Mishcon De Reya has attracted significant coverage following the court’s ruling that the law firm Mishcon de Reya was liable for the financial consequences of a property fraud committed on their client, despite it being accepted that Mischon had acted reasonably, honestly and not negligently.

The claim arose out of a property purchase in which Mishcon were instructed on behalf of the buyer, Dreamvar.  The purchase price was £1.1 million. The vendor represented that he owned the property. Post-completion, it emerged that the vendor was, in fact, a fraudster but by this stage he had disappeared with the purchase money.

Dreamvar issued proceedings against Mishcon for the way in which they had completed the conveyancing. At trial, the judge concluded that Mishcon were not negligent in failing to identify the risk of fraud or to instruct Dreamvar that they should withdraw from the purchase.

However, the judge was of the opinion that Mishcon acted in breach of an “implied” term of the contract between itself and Dreamvar that Mishcon would only pay the completion money to the vendor’s solicitors in connection with a genuine transaction, and had therefore acted in breach of trust.

Mishcon argued that they should be excused from liability because, as trustee, they had acted honestly and reasonably. The judge agreed that Mishcon had indeed acted honestly and reasonably but nonetheless decided that the law firm should still bear the financial loss.  In coming to this view, the court placed great significance on the fact that Dreamvar did not have insurance to protect against its loss but Mishcon did.

The decision has been interpreted as one designed to safeguard public confidence in instructing solicitors to undertake conveyancing. Unsurprisingly, on the basis that it was accepted that Mishcon had not been negligent, permission has been given to appeal this judgment and the outcome of the appeal is awaited. This is expected in the early part of 2018.

If you would like more information on property fraud or any of the other issues raised in this article or on contract disputes in general,  please contact Michael Hickey in the Civil Litigation team on 0117 904 7006 or by emailing at [email protected].