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Dreamvar and identity fraud in conveyancing transactions

17 May 2018. Published by Paul Castellani, Partner and Graham Reid, Legal Director, Professional Regulation

The issue at stake in the combined appeals of Dreamvar (UK) Ltd v Mishcon de Reya and P&P Property Ltd v Owen Catlin LLP was a fairly fundamental one, namely: “Who ought to bear the risk of loss when a fraudster pretends to sell a property?”

The Court of Appeal’s answer, in a nutshell, is that the loss should be shared across the solicitors for the buyer and seller. Of course, any answer that fits inside in a nutshell is insuffcient to do justice to the complexities of this important decision. It is a case that is likely to have profound implications for the mechanics of conveyancing and solicitors’ professional indemnity insurance.

The Facts 

To understand those implications, one must start with the facts. These can be simplified for current purposes as follows: in both cases fraudsters pretended to be the sellers of properties, their fake identities deceived their respective solicitors, the buyers paid over the purchase monies and the ‘sellers’ and the monies vanished, never to be seen again. Unsurprisingly, the buyers then cast around for an insured professional to sue. The targets of the litigation were the buyer’s solicitors, the seller’s solicitors and the estate agent.

Why the litigation?
 
Before getting on to the legal analysis it is worth considering why these cases ended up being disputed at all rather than settled. 
 
There appear to be two root causes:
  • The first concerned the information asymmetry present in conveyancing. A buyer naturally expects his or her solicitor to be able to provide reassurance that the seller is the genuine owner of the property; however, the buyer’s solicitor is not usually in a position to check the identity of the seller (who is, after all, not his client...). Meanwhile, the seller’s solicitor is in a position to undertake identity checks on his client, and indeed is compelled to do so under anti-money laundering legislation (here, the Money Laundering Regulations 2007, now replaced by Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017), but the seller’s solicitor may be unwilling to share those checks with the buyer or warrant that they are accurate.
  • The second root cause of the dispute concerned lingering uncertainty over the precise meaning of aspects of the contractual machinery governing the purchase of property. That machinery has evolved over the years so as to allocate in a reasonably predictable manner the various risks arising in conveyancing. It is perhaps surprising that it should still be capable of differing interpretation when it comes to something as commonplace as identity fraud.
     

Download the full PDF to find out more about the case.