Solicitors held liable after conveyancing fraud

8 February, 2017
by: Cripps Pemberton Greenish

The recent case of  Dreamvar (UK) Limited v (1) Mishcon de Reya (a firm) and (2) Mary Monson Solicitors Limited [2016] EWHC 3316 (Ch) will doubtless be of concern to firms of solicitors and their insurers alike.

The case was brought by a company (Dreamvar) which had attempted to purchase a property, but fell victim to a fraudster posing as the owner/seller, who subsequently disappeared with the sale proceeds of over £1m, leaving the purchaser to later discover that there had in fact been no genuine sale and ultimately without a property.

Dreamvar pursued various claims against it’s own solicitors, Mishcon de Reya (Mishcon), and the solicitors acting for the fraudulent seller, Mary Monson Solicitors. 

The solicitors acting for the seller were held not to be liable.  As for Mishcon, the court held that they had not acted dishonestly and had not been negligent.  However, the claimant succeeded on the basis that there was a breach of trust (the purchase money having ultimately been paid away to fraudsters).  Despite Mishcon being found to have acted reasonably and honestly, relief under s61 Trustee Act 1925 (which would excuse them of the loss caused by the breach in certain circumstances) was not granted. 

The main consideration in the exercise of the court’s discretion was that the impact of the loss would be disastrous for the uninsured claimant to suffer, but it was far easier for the (insured) firm of solicitors to absorb.  Importantly there did not appear to be any other potential avenue open to Dreamvar to recover the funds.

It is understood that Mishcon are appealing the decision.  This is undoubtedly a difficult and developing area of law, which is all the more important in light of increasingly sophisticated frauds being perpetrated.  Courts are in the unenviable position of deciding between firms which have done little wrong (at least in the context of generally accepted practice) and clients who fall victim to fraud, where the consequences are devastating if there is no potential remedy for them.