UK: The Importance Of Being Diligent

Last Updated: 15 August 2016
Article by Keith Conway

Paperless conveyancing has led to a sharp increase in fraud- conveyancers acting for both the sellers and buyers of a fraudulent property purchase held to have breached their duty of trust to the buyer.

Some readers will recall that Max Hastings recently wrote about how his wife (who was the sole owner of a valuable un-mortgaged property in West London) was almost the victim of an awful fraud. In fact, the Land Registry spotted an inconsistency and thwarted the fraudsters. However, unfortunately since paper Land and Charge Certificates were abandoned in favour of an electronic register, there have been a number of successful frauds where conmen pose as the true owner of a property and by the time the fraud is discovered the funds have been sent out of the jurisdiction and become untraceable. A number of cases have been commenced in the courts seeking redress from the professionals involved and from their insurers.

Purrunsing v (1) A'Court & Co and (2) House Owners Conveyancers Limited [2016] EWHC 789 (Ch) is yet another example of this. The proceedings concerned the obligations owed to a buyer by both its conveyancers, House Owners Conveyancers Limited, and the seller's solicitors, A'Court & Co. The seller had fraudulently held himself out to be the registered proprietor of the property. No genuine completion of the transaction took place, but the purchase price in the region of GBP 470,000, was paid by ACC to the fraudster's bank account in Dubai. The Claimant buyer therefore sued the seller's solicitors for breach of trust and its own conveyancers for breach of trust and also breach of contract and duty.

The Claim

Both Defendants claimed relief under Section 61 of the Trustee Act 1925. Section 61 states that where there has been a breach of trust but the trustee has acted "honestly and reasonably, and ought fairly to be excused for the breach of trust" then "the court may relieve him either wholly or partly from personal liability".

The issues to be determined at trial by Judge Pelling QC in the High Court of the Chancery Division were:

(i) whether either defendant should be granted relief under Section 61

(ii) whether the buyer's conveyancers were liable to the Claimant either for breach of contract or negligence and

(iii) whether and if so what contribution should each party be ordered to bear in respect of any liability that they might have to the Claimant

Of particular importance was the argument made by the seller's solicitors that a lesser standard of reasonableness should be applied to a seller's solicitor than to a buyer's conveyancer in relation to Section 61 relief.

Held

The Judge held that a solicitor concerned with a transaction of this kind was required to look at all of the available information and assess whether there was consistency with the transaction that the client wished to carry out. The Judge held that the seller's solicitors, in reality, made no serious attempt to carry out proper risk-based due diligence. The seller's solicitors knew the property was unoccupied and knew it was not subject to a mortgage. It should therefore have been of considerable concern to them that the utility bills provided by the seller were not in relation to the address of the property or the alternative service address that appeared on the Proprietorship Register. The Judge held that had the seller's solicitors sought instructions to contact the seller at the alternative service address the fraud would have been unveiled.

The seller's solicitors were held to have been negligent in their inability to note the inconsistencies between the seller's responses to enquiries about the property and what became known to them. The seller had stated that no building work had taken place at the property, but a local authority search conducted by the first purchaser's solicitors showed building work had been carried out. Further, the seller's solicitors should have been particularly concerned as the seller was unable to provide a Certificate of Lawfulness or a Building Control Certificate in relation to the works.

The first purchaser's solicitors also specifically requested that the seller's solicitors confirm that the identity of the seller had been verified to meet the requirements of the Money Laundering Regulations 2007. In the same request, the solicitor's asked a simple question in relation to the seller's employment abroad. As a result of this request, the seller terminated the transaction. The seller's solicitors should have noted that it was exclusively a request for a simple piece of information which had caused the seller to terminate the transaction.

The seller's solicitors were therefore held to have breached their duty of trust. The Judge stated that "the reality is that Mr A'Court [of ACC] simply did not know of the terms of the rules and guidance to which he was subject". The Judge rejected the argument that a lesser standard of reasonableness should be applied to a seller's solicitor in relation to Section 61 relief. The Judge deemed that the purchase monies were held on trust by the seller's solicitors, from when they received the funds until completion, for the buyer as a beneficiary. Once it was found that the seller's solicitors had parted with the purchase money in breach of trust, there was deemed to be no obvious justification for interpreting Section 61 more leniently in respect of such a breach of trust by a seller's solicitor than would be the case in relation to such a breach by a buyer's conveyancer. The seller's solicitors therefore failed to discharge the burden resting on them to establish that they had acted reasonably in the circumstances and thus were not entitled to Section 61 relief.

The buyer's conveyancers were regulated by the Council of Licenced Conveyancers, the Code of Conduct of which particularly required the buyer's conveyancers to provide their clients with the information required to make informed decisions. The buyer's conveyancers were in breach of contract and/or duty to the Claimant in failing to inform the Claimant that the seller's solicitors had given an ambiguous response to additional enquiries made by the buyer's conveyancers in relation to the seller's identity. The purpose of the additional enquires was to establish a link between the property and the seller, a link that had never been established. The ambiguous answer showed that the seller's solicitor had no documents relating to the property and had no personal knowledge of the seller. The buyer's conveyancers had a duty to inform their client that the seller's solicitors had not verified a link between the seller and the property and that there was a risk in proceeding with the transaction.

The Judge dismissed the argument that there was in fact no duty on the buyer's conveyancers to make any additional enquiries into the identity of the seller. The Judge held that although there was no requirement to make additional enquiries, once the buyer's conveyancers were aware of the ambiguous response there was a duty upon them to convey the information to their client. The buyer's conveyancers therefore failed to discharge the burden of proving that they had acted reasonably and were not entitled to relief under Section 61.

In relation to each party's contribution, the Judge concluded that on the principles of equal trusteeship, each party must bear equal liability.

Commentary

This decision highlights the importance that solicitors, on both sides of a transaction, adhere to client due diligence regulations and rigorously look to minimise risk. The courts will not take a forgiving approach when the indicators of a fraud should have been apparent to the solicitors on either side of the transaction. Solicitors acting for sellers should be conscious of the duty they owe to a buyer as trustee and should be aware that the courts will not condone a lower standard of reasonableness if they do breach their duty of trust. Solicitors acting for the buyer are reminded of the obligation to properly convey all important information to their clients.

The police and the Land Registry are well aware of these international crime rings, however where fraudulent transactions are completed, the professionals involved and their insurers are the principal target for recoveries and they need to be able to demonstrate strict compliance with all regulations and standards.

The Importance Of Being Diligent

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.