The Law Society has confirmed it is seeking permission to intervene in the case of Dreamvar (UK) Ltd v Mishcon de Reya (a firm). In 2017, the High Court ruled that Mishcon de Reya should be responsible for the costs of a client who bought a property from an individual who was posing as the owner. The court found the firm was liable for breach of trust. The Law Society president said the body was intervening due to the potentially substantial implications for property solicitors.
In the previous judgment, the Chancery Division dismissed claims of negligence brought by the claimant purchaser of property against Mishcon de Reya (MdR) which had acted on its behalf in respect of the purchase of property, and against the firm which had acted on behalf of the purported seller. The purported seller had, in fact, been a fraudster.
The court, however, allowed the claimant's claim for breach of trust against MdR and held the claimant was entitled to the amount of the purchase price paid, £1.1m, less the commission charged by the estate agents.
The court held that MdR had been in breach of trust by paying away the purchase money to the vendor's solicitors, in circumstances where there had not been, nor could there have been, a genuine completion of the contract of sale, which was in any event a nullity.
MdR was found in breach of trust even though it was unaware of the fraud and the vendor’s solicitors admitted that they had been negligent in investigating the identity of their client.
The court ordered MdR to pay around £1.1m in compensation to the purchaser. It declined to give MdR relief as, even though they had acted reasonably, they ought not to be excused from the breach due to the comparative financial consequences for the purchaser and MdR. The purchaser's dire financial position and the MdR's indemnity insurance were relevant factors in this.
Speaking to the Law Society Gazette, Law Society president Joe Egan said the body believed lawyers acting on behalf of fraudsters would be more likely to detect issues, and therefore it would be preferable for loss to lie with them: ‘Fraud may occur, regrettably, even where solicitors on both sides have been scrupulous in complying with all due diligence requirements and best practice. Where a solicitor has carried out his or her duties in full compliance with those requirements, we do not believe they should bear the loss on behalf of a defrauded purchaser,’ he said.
The appeal is due to be heard in the Court of Appeal on 26 or 27 February 2018.
First published in LNB News 31/01/2018 157
