Peter Robinson discusses English law on property fraud

  • November 28, 2018
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The process of buying and selling a property is, in essence a simple one. It seems not unreasonable that a client engaging a solicitor to acquire legal title to a property should expect, at the conclusion of the transaction, to hold an undisputed title to the property. It may, therefore, surprise the wider public that it should have taken nearly five years, for two High Court decisions and a Court of Appeal hearing to establish the liability of a solicitor for failing to do so.

Ultimately the Court of Appeal in P&P Property and Dreamvar established, for the ‘disappointed purchaser’ at least, English Law on fraud is fit for purpose. The rogue sellers may well have successfully (and profitably) committed the fraud but the legal system has established that the loss of the client lays with the solicitors involved.

Whilst the solicitors profession might understandably prefer Lady Justice Gloster’s dissenting judgement as a more palatable view of the law, it is difficult to fault the logic of the judgement of L.J.Patten in the P&P and Dreamvar appeal. His analysis of Breach of Trust (Paragraphs 83 to 102) and Section 61 of the Trustee Act 1925 (Paragraphs 103 to 111), in particular, are a forensic representation of the fiduciary responsibilities of a buyer’s and a seller’s solicitor in respect of the purchase monies in what, in practice, is generally an alarmingly short period of time. These surely reinforce a basic tenet of English Law on fraud that the protection of a person’s money when placed in the hands of another is paramount. Thus

On the Buyer’s solicitor receiving the purchase monies from his client (and his mortgagee and paying it over to the Seller’s solicitor

The entitlement of the solicitor to part with the money is governed by the instructions he receives from his client. It is not suggested that those instructions permitted the purchaser’s own solicitors to release the monies except on completion of a genuine sale and purchase of the property…’ [Paragraph 86]

On a Solicitor receiving and completing the transaction and releasing the purchase monies

At the point when the purchase money is released by the vendor’s solicitors to his client the solicitor has the authority of the purchaser to make the payment even if the transaction is not a genuine sale. If the vendor’s solicitor does not have the purchaser’s authority to make that payment then, subject to any question of relief under s.61, he acts in breach of trust.’ [Paragraph 85]

As established by Lloyds TSB Bank v Markandan [2012] EWCA Civ 65 and Santander UK plc v RA Legal Solicitors [2014] EWCA Civ 183 , no genuine completion occurs where the ‘seller’ is an imposter. The ‘exercise of mercy by the court’ represented by the grant of relief under S.61 of the Trustee Act 1925 therefore affords no defence in such circumstances. As L.J.Briggs said in the Santander UK case

…an innocent purchaser may have contributed his life’s savings to the purchase and have no recourse at all other than against his insured solicitor, ..’.

Whilst property lawyers (and their insurers) may feel, as regards the application of our clients’ money, that a ‘Rylands v Fletcher’ strict liability is now imposed on them, at least we know where we stand.

Disappointingly, some of our colleagues when acting for buyers on house purchases have defaulted to raising enquiries aimed at establishing either an assumption of liability by a seller’s solicitor to a buyer or seeking some form of representation,or worse, undertaking that the person instructing on a sale is the ‘real’ owner. Some examples provided by colleagues at my firm are :-

  1. Please confirm that you have undertaken all relevant AML and Proof of Identity verification checks against your client and that you undertake that you are 100% satisfied that your clients are, who they purport to be and that they are, indeed, the true owners of the property’
  2. Please confirm that you have undertaken sufficient due diligence on the identities of the Sellers and that you are satisfied as to their identity”;
  3. We expect you to be able to confirm that you have identified your client in accordance with the requirements of the Money Laundering Regulations 2007 and Solicitors Code of Conduct 2011, please therefore confirm the same” ;
  4. One of my colleagues also received a letter with a paragraph in the initial letter that stated:

If we do not receive a response to the contrary, we will assume that you are satisfied with your client’s identity and that they are the owner of the property.”

  1. One firm wanted our client (we were selling) to visit their offices with their ID.  Their office was 70 miles away from my client’s house.  They were not happy with my colleague’s stock response stating that we have satisfied our internal requirements with regard to our client’s ID.
  2. And finally, a recent enquiry from a bridging finance company:

Please obtain confirmation from that solicitor as to how long they have acted for the Seller and if the solicitor is not located within 25 miles of the Seller’s residential address then an explanation as to why the Seller has chosen that solicitor

Occasionally, however, we encounter sensible and simple suggestions to counter imposters such as asking a seller to provide copy utility bills addressed to the seller at the property for a period of years prior to the proposed sale. Unfortunately the former examples of practice seem to be more prevalent that the latter.

There have also been some attempts to create insurance products for the protection of buyers but examination of the small print tends to identify requirements of any solicitor buying such a policy which amount almost to underwriting such policies.

So, as I say, we property lawyers are where we are.  There seems to be a heightened sense of the dangers that fraud poses, particularly to the property sector and a willingness to combat those dangers. Finding the tools to do so effectively and therefore moving towards an industry-wide fitness for purpose, however, remains challenging.

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