Appeal ruling adds to English solicitors' property fraud risk

Solicitors in England & Wales have been put at increased risk of liability from fraudulent property transactions, following a decision of the Court of Appeal.

Lady Justice Gloster, Lord Justice Patten and Lord Justice Floyd found in Dreamvar Ltd v Mishcon de Reya both the buyer's and the seller's solicitors liable to buyers in two transactions for losses suffered when it was discovered after completion that the purported sellers were fraudsters with no title to the property.

A High Court ruling that the buyer's solicitors were liable in breach of trust in paying over the purchase price in relation to a fraudulent sale was not challenged, but the appeal judges held in addition that the sellers' solicitors, in signing and exchanging contracts in the name of the true owner, had given a warranty that they were authorised so to act by that owner.

However the court rejected a further claim in negligence, on the basis that it would not be fair and reasonable to treat the solicitors as having assumed responsibility to the buyers for the adequacy of the due diligence performed in relation to their client's identity.

By a majority (Lady Justice Gloster dissenting) the court also rejected a claim by the buyer's solicitors for relief under s 61 of the Trustee Act 1925. Part of the reasoning of the majority was that the solicitors were insured and therefore better able to meet or absorb the loss than the buyer.

The Law Society of England & Wales intervened in the case, which it has been predicted is likely to be appealed to the UK Supreme Court.

It is also predicted that professional indemnity insurance premiums for firms south of the border are likely to rise as a result.

Click here to view the judgments.