To quote from the Nazi dentist
played by Laurence Olivier in the movie Marathon Man; "Is it
safe?"; well for a buyer's solicitor it may not be if
there is a fake seller.
The judgment in Dreamvar (UK)
Limited v. Mishcon de Reya is controversial, and will almost
certainly be appealed, but it tells us many things about the risks
of a conveyancing identity fraud, and gives pointers as to steps to
mitigate them, in conveyancing transactions.
In summary; a house owned by the
real Mr H was vacant. The fake Mr H obtained (real) identity
documents and these satisfied MMS solicitors who accepted him as a
client, as did an estate agent, for the sale of the house. Mr
V's offer for it was accepted and he instructed his solicitors
Mishcon de Reya to act on a quick purchase by his company Dreamvar,
with apparently few if any of the usual searches.
The completion money was paid by
Mishcon de Reya to MMS, who paid it on as instructed by the fake Mr
H to another firm, and then it went to China. Much credit goes
to the Land Registry for (unlike the two firms of solicitors)
becoming suspicious; it could not correlate the fake Mr H's
address with the real Mr H of the registered title. The real Mr H,
it turned out, had been a victim of identity theft. The
transaction was fraudulent and Mr V had lost his money.
His claim had several strands, but
the one that succeeded was against his own solicitors Mishcon de
Reya, for breach of trust, in that they had in breach of an implied
term of their retainer released monies on a not genuine completion.
Mishcon de Reya were neither dishonest nor negligent, and this
claim against them was admitted on the balance of relative unfair
consequences; Mishcon de Reya had insurance and Mr V did not and
recovery from his solicitors was his only avenue for restitution of
his lost money. The consequence for Mishcon de Reya though is a
real cost to their excess and possibly their claims record.
It was admitted that MMS did not
comply with "know your client" due diligence obligations
adequately, but even so they were not liable for negligence, or
breach of trust or of undertaking.
Whatever the outcome of an appeal;
Section 61 of the Trustee Act gives a defence if a trustee
"has acted honestly and reasonably and ought fairly to be
excused for the breach of trust", conveyancing practitioners
and reporting officers should take away some lessons from this
case. Antenna should always twitch whenever a conveyancing
transaction is unusual, such as here, with a vacant property and a
tight timetable pushed for by a seller.
The buyer's solicitors should
(we are seeing this become common practice already) seek express
confirmation from the seller's solicitors that they have
satisfied required KYC checks on their client, which will put the
onus back to the seller's solicitors so that if they have
failed in this there might be reliance on that representation by
the purchaser victim and his solicitor.
Of course those seller KYC
requirements must be scrupulously complied with, whatever the
purported inconvenience. Expediency or aggressive insistence
on speed cannot be an excuse for inadequacy in this, and indeed the
more pushy the prospective client, the bigger the red flag.
Finally, although it was held that
there is no general duty to warn a client of the potential risk of
identity fraud, the raising of awareness of the possibility, and
this judgment has done us all a service in that respect, can only
be for the good.
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.
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