A question of trust?

The recent case of Purrunsing v (1) A’Court & Co (a firm) (2) House Owners Conveyancers Ltd [2016] EWHC 789 (Ch) illustrates how necessary it is for conveyancers to carry out risk-based due diligence to save themselves and their insurers from expensive claims arising out of fraudulent conveyancing transactions.

The case involved an identity fraudster (F) who purported to be the owner of a house in Wimbledon. He did not in fact own it. He instructed a firm of solicitors, A’ Court & Co (ACC), to deal with the sale of the house. He told ACC the property was vacant and he lived in Maidenhead. He said the property had no mortgage as it had been gifted to him by his father and he wanted the sale to complete within seven days as he needed the money.

The official copies for the property revealed the registered proprietor’s address to be the property address and also an address in Cambridge. However, ACC only undertook identity checks on the Maidenhead address given to them by F. F also gave ACC inconsistent information about building work at the property and pulled out of a sale when the prospective buyer asked whether F worked abroad.

Fraudulent transaction

A sale was then agreed to Mr Purrunsing (P). P instructed House Owners Conveyancers Ltd (HOC) as his conveyancers. HOC raised an enquiry of ACC about the link between F and the property to which ACC gave an ambiguous answer. This was accepted by HOC. The sale completed at £470,000 and the whole of the purchase price was transferred from HOC to ACC and then on to a bank account in Dubai at the instruction of F.

It was then discovered that F was not the registered proprietor. The money was not recovered, and P sued both ACC and HOC for breach of trust and also sued HOC for breach of contract and negligence. Both firms admitted breach of trust in paying away the purchase monies before legal completion had taken place but they sought to rely on section 61 of the Trustee Act 1925 to excuse their breach on the basis that they had acted reasonably. HOC denied breach of contract and negligence.The court decided that the same standard of reasonableness applied to ACC and HOC. Neither firm had acted reasonably in investigating the transaction and so neither firm was entitled to the protection of section 61.

ACC had ignored the red flags of the transaction:

• A vacant, unmortgaged, and high-value property;

• A seller (F) pressing for speedy completion;

• No documentation to link F with the property; and

• A previous sale had fallen through when F had failed to provide relatively innocuous information at a buyer’s request.

Acting reasonably

The court took the view that acting reasonably meant complying with good conveyancing practice (as set out in the Money Laundering Regulations 2007 and the Council of Mortgage Lenders’ Handbook) and ACC had not done so.

As for HOC, it had raised an enquiry to which it had not received an adequate answer and which went to the heart of the transaction (i.e. whether the seller was who he claimed to be). Its failure to report the inadequate answer to P was unreasonable and was also in breach of duty.

Ironically, had HOC not raised the additional enquiry (which it was not obliged to do), it is likely the court would have held it had not acted unreasonably or in breach of duty.

The case is a useful reminder that solicitors acting for both seller and buyer in a conveyancing transaction can be vulnerable to claims arising from identity fraud. It also illustrates that it is important that conveyancers should resolve doubts about the nature of a transaction by asking questions and making sure they are satisfied with the answers before proceeding further.

James Robins, pictured, is a partner and Ivan Roots an associate at Bond Dickinson. They are professional indemnity insurance experts specialising in defending claims against professionals

@Bond_Dickinson

www.bonddickinson.com