The case of Purrunsing v A'Court & Co and House Owners Conveyancers creates some difficult issues for all those involved in the conveyancing process.
Mr Purrunsing agreed to purchase 35 Merton Hall Gardens, Wimbledon, at the price of £470,000. A'Court & Co (ACC) acted for the seller; House Owners Conveyancers (HOC) acted for Mr Purrunsing. The property was registered at the Land Registry in the name of Mr Dawson. Acc's client was a fraudster but initial due diligence checks did not reveal this.
After completion, the Land Registry uncovered the fraud when they wrote to the real Mr Dawson and he refused to register the transfer. The purchase money was long gone by then and Mr Purrunsing had to sue HOC and ACC for its return. There was no suggestion that either firm acted dishonestly. Nonetheless, Judge Pelling QC found that both firms were equally liable for the loss.
Legal practitioners are obliged to carry out due diligence checks on their clients before a metter in accordance with the Law Society's Anti-Money Laundering Practice Note and to be on the lookout for signs of fraud and money laundering as it continues. ACC met its client face to face and took copies of a utility bill as a proof of address and his passport as proof of identity, which later turned out to be a forgery.
As the matter progressed, the signs of fraud began to mount but ACC simply ignored them. For example, Mr Dawson gave a house in Maidenhead as his correspondence address, whereas the Land Registry listed an address in Cambridge. ACC overlooked this.
Conversely, HOC initiatiated enquiries with ACC about Mr Dawson's credentials, although this is not part of the normal conveyancing process; its error was that it did not follow up on the "ambiguous" response given by ACC.
What lessons can be learnt?
The Law Society practice notes stress the need for ongoing monitoring as it progresses, but there is a worry that practitioners switch off once the initial due diligence hurdles are clear.
It is not usual in a property transaction for one practitioner to ask another of they have carried out full due diligence on their clients. In light of this case, should they now routinely enquire? Or would they be better served not to raise the question at all?
Practitioners are quick to claim their client could never be a fraudster and complain about the intrusive nature of the due diligence process. This case is a graphic reminder of the perils of taking things at face value and the need to stay alert at all times.
This article was first published in Property Week on 17 June 2016.
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