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Beware the fake seller

View profile for Mark Kendrick
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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.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.