Solicitors liable for half-million-pound property fraud

The High Court has declared a firm of conveyancing solicitors liable for a half-a-million-pound property fraud perpetrated by a client.

The case concerned a house in Merton Hall Gardens, Wimbledon, which was targeted by a fraudster network based in Dubai. The owner's identity was stolen and the fraudster posed as the seller in a sale to the claimant.

The fraud was discovered only after the claimant's life savings had been paid away and he was left empty-handed.

After a three-year legal battle, the claimant succeeded in his claims for breach of trust against the seller's solicitors, A'Court & Co, and breach of trust and negligence against his own licensed conveyancer, House Owners Conveyancers Limited.

Both firms admitted liability for breach of trust over the purchase money. The trial sought to ascertain whether the firms had acted reasonably to be entitled to relief under section 61 Trustee Act 1925.

The case follows the leading Court of Appeal from 2014 Santander v R A Legal.

This decision stands out as the first authority defining obligations owed by a seller's solicitor to a purchaser. For the first time, the court had to test the reasonableness of a seller's solicitor where there was no allegation that that solicitor had been dishonest or involved in the fraud.

Author of Solicitors' Negligence and Liability, William Flenley QC of Hailsham Chambers, acted for A'Court & Co. He argued that the seller's solicitors should not be held liable to the same extent as the purchaser's own conveyancer, relying on the fact that there was no contractual relationship between the purchaser and seller firms.

Flenley also claimed that the test of reasonableness should be relaxed when applied to the seller's solicitor.

However, the silk's argument was rejected by His Honour Judge Mark Pelling QC. Instead, the court held that an equal standard of trustee duties applied to sellers' and purchasers' solicitors where there has been no completion of the transaction.

In his judgment, HHJ Pelling found that A'Court & Co made no serious attempt to comply with anti-money laundering regulations to prevent the fraud, and critically obtained no documentation linking the seller to the property.

A'Court & Co were held liable to reconstitute the trust of the purchase money.

The claimant's own solicitor did not escape liability, despite not having met the fraudster. The judgment places an important check on purchaser's solicitors who fail to pass on information to their client.

Here, the claimant's solicitors asked A'Court to verify that the seller was the real owner of the property. A'Court did not give a satisfactory reply, but the claimant's conveyancer did not warn the claimant so he had no idea of the risk he was running.

The court held that both firms were liable to the claimant and ordered an equal contribution between them.

Beth Holden, a solicitor at Anthony Gold who acted for the claimant, said: 'There is no doubt that this decision will resonate in the profession and probably the wider public. Property fraud is on the increase. More and more people have un-mortgaged properties, which are highly attractive to fraudsters.

'The public are entitled to look to the professionals to protect against fraud, even the estate agents who market the property. In this case we see the court saying that conveyancers on opposite sides of the transaction have joint responsibility to protect the purchaser's money, no matter who their client is.

'Old doctrines of buyer-beware and solicitors' warrantees of identity are not substitutes for compliance with strict requirements of anti-money laundering regulations and the duty to actively protect the transaction from fraud.'