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News | Fri 6th May, 2016
Purrunsing v A’Court & Co and House Owners Conveyancers  EWHC 789 (Ch) is the latest case concerning conveyancing solicitors’ liabilities towards innocent victims of property fraud. It considers the question of the purported seller’s potential liability to an innocent purchaser and how the nature and extent of the test for relief under Section 61 of the Trustee Act 1925 interacts with the fact that the seller’s solicitor does not ordinarily owe the buyer a duty of care.
C attempted to buy a property in Wimbledon. He instructed D2. The purported seller instructed D1. Contracts were exchanged, and C duly paid the purchase price (£470,000) to his solicitors, D2, who passed the monies on to D1. D1 paid the monies into a bank account abroad, on the purported seller’s instructions.
Before C was registered as proprietor, the fraud was discovered. The purported seller could not be found and none of the purchase monies have been recovered.
All parties accepted that there had been no genuine completion of the transaction. This meant that both solicitors were liable to C for breach of trust for paying away the purchase monies without completion. However, D1 and D2 both sought relief under Section 61 of the Trustee Act 1925, contending they acted honestly and reasonably and ought fairly be excused for the breach of trust. C also sued D2 for breach of contract and negligence, which D2 denied.
D1 argued that, because it acted for the purported seller and not for C, and did not owe C a duty of care, the “reasonableness” test should be applied more favourably to D1, as D1’s liability in equity should not exceed its liability in common law.
Judge Pelling rejected this argument, on the basis that D1 was as much a trustee of the purchase monies as D2, questions of duties of care were not relevant, and there was no justification for treating D1 more favourably than D2 in this regard. However, what D1 and D2 had to do to meet the reasonableness test might be different, given their different roles.
The criticism of C’s solicitor, D2, was that it had raised Additional Enquiries of the seller to establish whether there was a link between the seller and the property. These had not been answered satisfactorily. However, D2 had failed to inform C either that these questions had been asked, or that the answers were not satisfactory. Accordingly, C was unaware of the risk of proceeding with the purchase.
The judge held that this was a breach of duty and that, by reason of it, D2 should not be granted relief under Section 61.
D1 also failed to establish entitlement to relief under Section 61:-
D1, on the judge’s findings, had not complied with the Money Laundering Regulations. D1 ought to have undertaken enhanced due diligence. It was irrelevant that these regulations did not form part of a duty owed by D1 to C.
D1 knew a number of factors which ought to have caused D1 to question whether the seller was the true owner of the property. These included:
The property was unoccupied
The property was unencumbered
The property was of comparatively high value
The Office Copy Entries contained an address for service in Cambridge which was not the address the seller provided
The seller had not provided any documents linking him to the property
There was an unexplained inconsistency between the seller’s responses in the Home Use Form about building works and information coming to light on a local authority search
A previous sale was brought to an end by the seller when he was asked questions about his employer in circumstances when these could have been expected to be easy and quick to answer and should not cause any delay on completion.
If D1 was to avoid liability, it would have to show that any departure from best or reasonable practice did not increase the risk of loss by fraud. D1 failed to carry out its money laundering obligations in accordance with reasonable practice and this contributed to the fraud.
It was irrelevant that this was not a case of money laundering. D1 was required to undertake the money laundering checks. It did not comply with reasonable practice in this regard and this increased the risk of the fraud which took place.
The judge found that D1 and D2 should bear equal liability for the loss.