18th May 2018

Court of Appeal rules on landmark property fraud cases

In the two main cases fraudsters posed as the owners of property, and solicitors and agents were duly instructed as to the bogus transactions. The purchasers also instructed their own solicitors, and contracts were exchanged and completed. The fraudsters and the purchase money disappeared. The Court of Appeal was asked to determine if the sellers' solicitors and the agents had any liability.

In the two main cases fraudsters posed as the owners of property, and solicitors and agents were duly instructed as to the bogus transactions. The purchasers also instructed their own solicitors, and contracts were exchanged and completed. The fraudsters and the purchase money disappeared. The Court of Appeal was asked to determine if the sellers' solicitors and the agents had any liability.

In the case of property investment company P&P Property Limited, the ‘seller’ produced a business card, his passport, and one utility bill to his solicitors, together with a partially-completed ID verification form. The solicitors carried out anti-money laundering (AML) checks but it was not possible to link the seller to his address, or verify his date of birth. The solicitor made no further attempts to verify the seller's identity, and carried out work for this client. Agents were also instructed but relied on the solicitors to carry out the necessary AML checks instead of carrying out their own checks. The seller instructed the agents to obtain a rapid sale with a discount of 25%. P&P made an offer of £1,030,000, which was accepted. The majority of the money was transferred to the seller by the solicitors, who by then had confirmed he was living in Dubai. The fraud was then discovered when P&P applied to register its title.

In the case of residential development company Dreamvar, the solicitors never met their client, and relied on unsuitable ID verification documents. The seller received the proceeds of sale and disappeared. The fraud came to light when the Land Registry contacted the real owner.

The Court of Appeal considered whether the solicitors and agents acting for the fraudulent sellers owed any duty of care in negligence to the innocent purchasers. In these cases the alleged negligence were a series of omissions in properly carrying out identity checks. The court observed that the purchasers did not seek any undertakings from the sellers' solicitors that all necessary checks had been carried out, and that Money Laundering Regulations (MLR) did not create a statutory duty. The court found there was no liability in negligence.

However, the Court of Appeal concluded that the sellers’ solicitors were in breach of trust, and were therefore liable to the purchasers. As the fraudulent sellers were unable to give title due to not being the legitimate owners of the properties, there were no genuine completions of the sales. When the solicitors released the sale proceeds to their fraudulent clients, they acted in breach of trust, as the transaction was not a genuine sale.

In summary, innocent purchasers may be entitled to recover financial contributions from the sellers’ solicitors in circumstances where properties are "sold" that are not owned by the parties purporting to complete the transactions.

For further commentary on this case, or for help and advice on dispute resolution issues, please contact David Patterson in Thrings’ Disputes team.


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