Dreamvar: a nightmare for conveyancers?

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Conveyancing is competitive, and it is difficult. It has always attracted significant risk of claims, notwithstanding the low cost which firms can charge. Unfortunately, life for the average conveyancer has just been made much harder following The Court of Appeal’s long-awaited judgment in linked appeals.

Conveyancing is competitive, and it is difficult. It has always attracted significant risk of claims, notwithstanding the low cost which firms can charge. Unfortunately, life for the average conveyancer has just been made much harder following the Court of Appeal’s long-awaited judgment in the linked appeals of Dreamvar (UK) Ltd v Mishcon de Reya and P & P Property Ltd v Owen White and Catlin LLP which was handed down this morning. Mills & Reeve acted for the successful estate agents in this case.

The cases had to consider the growing volume of claims involving identity theft during the sale of property. In cases where an imposter poses as the true owner of a property and seeks to sell it, who is liable to the buyer after the fraud is identified and the buyer realises that they have not obtained title to the property they planned to buy? They will have lost the purchase money and the question which the court had to consider was whether they have any basis to recover that from their solicitor, the imposter’s solicitor or the imposter’s estate agent.

This diagram will help explain how these frauds take place:

dreamvar-diagram-1.jpg

The court was being asked to reach a difficult decision. Who, amongst a number of innocent victims of the imposter’s fraud, should bear the loss? Should it be the buyer, who has probably never met the imposter and could not realistically do anything to prevent themselves being a victim of the fraud? Should it be the buyer’s solicitor, who has no contact with the imposter and has no means of identifying that a transaction is fraudulent? Or should it be the imposter’s solicitor and estate agent, who are the ones who have contact with the imposter, but are almost certainly entirely innocent victims of a sophisticated fraud where the imposter is able to produce convincing evidence of their identity?

The Court of Appeal has decided that the solicitors should bear the brunt of the liabilities. The effect of the decision risks making solicitors effective guarantors that a transaction is genuine. A summary of the duties which each solicitor might owe can be seen in the table below;

dreamvar-diagram-2.jpg

It is disappointing, given the wide potential effect of the decision, that the court did not give any real guidance about what solicitors can do to avoid their liability, and that the court was unwilling to excuse a breach of trust under section 61 of the Trustee Act 1925 when the solicitor in question had performed their role perfectly.

The decision will have potentially significant effects on solicitors’ own insurance arrangements and it will inevitably lead to practical difficulties during the course of conveyances as buyers’ and sellers’ solicitors each try to pass liability onto the other.

It can only be hoped that, pending any appeal, the Law Society and the Council for Licensed Conveyancers provide urgent guidance about how conveyancers should proceed in light of the decision. However, it may be that the real solution is for the insurance market to develop identity theft cover for transactions which can sit aside other policies such as defective title indemnity policies.

For a more in-depth analysis of the decision please click here to read our detailed legal briefing.

If you would like to talk in more detail to one of our team, please do contact us.

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