Who Pays For Property Fraud?

The Court of Appeal has ruled on two important high profile cases involving fraudsters (imposters) selling residential property.

The outcome is a success for the buyers, both of whom will receive substantial compensation for their losses.

The defendant lawyers concerned (or their insurers) will no doubt see it differently because they are left to pick up the tab although also innocent victims of fraud.

The combined appeal decision is reported in P&P Property Limited v Owen White & Catlin LLP and another; Dreamvar (UK) Limited v Mischon de Reya and another [2018] EWCA Civ 1082.

Our reports on the first instance decisions appear in the Summer 2016 and Autumn 2017 editions of our Real Estate Bulletin.

The headline points are:

If a sale is not genuine the solicitors acting for both vendor and purchaser are likely to be in breach of trust Even if a solicitor acts honestly and reasonably it may not be exonerated from liability for breach under section 61 of the Trustee Act 1925 Depending on the circumstances, a vendor's solicitors may also be warranting to the purchaser (and any lender) that their clients are the true owners of the property, even if in reality they are not because they are fraudulent imposters There is no in principle change to the law on liability in negligence to a third party Background

In both cases a person (imposter) masquerading as the owner of the property instructed solicitors to deal with the sale. The fraud did not come to light until after completion and, in the P&P case, after the purchaser had started to make substantial alterations to the property.

In the Dreamvar proceedings, the purchaser sued their own solicitors (Mischcon de Reya - "MdR") and the vendor's lawyers (Mary Monson Solicitors Limited - "MMS"), claiming damages in excess of £1 million. MdR, in turn, claimed against MMS.

At first instance, the court held that MdR were in breach of trust but dismissed all claims against MMS leaving MdR to pay substantial compensation to the disappointed purchaser.

The buyer in the P&P proceedings sued the vendor's solicitors (Owen White & Catlin LLP - "Owen White") and estate agents (Winkworth) but not, apparently, their own solicitors. All of the claims were dismissed by the High Court, leaving P&P with a potential loss exceeding £1 million.

Not surprisingly, both cases were appealed and they were heard by the Court of Appeal together.

Court of Appeal

The Court of Appeal was asked to consider questions relating to...