Conveyancer held liable for loss suffered in fraudulent transaction
That’s correct. Last week the High Court gave its judgment in Purrunsing v A'Court & Co (a firm) & Anor  EWHC 789 (Ch) (14 April 2016).…
60 Seconds with Russell Behn
I understand that the High Court has recently held a conveyancer, who was retained by the seller, liable for loss suffered by the buyer in relation to what transpired to be a fraudulent transaction. Can you tell me more?
That’s correct. Last week the High Court gave its judgment in Purrunsing v A'Court & Co (a firm) & Anor  EWHC 789 (Ch) (14 April 2016). It held the conveyancers on both sides of a fraudulent property transaction liable for loss suffered by the buyer.
In short, the case concerned the purported sale of a property in Wimbledon by a fraudster who claimed to be, but was not, its registered owner. By the time the fraud was discovered, the purchase money had been paid to an account in Dubai and was never recovered.
The claimant (purchaser) sought damages from the registered conveyancer retained by him to act on his purchase, House Owners Conveyancers Limited (HOC) and the solicitors’ firm that unwittingly acted for the fraudster, A’Court & Co (ACC).
Both HOC and ACC admitted that the purchase money had been paid away in breach of trust. The point of interest (so far as ACC were concerned) was whether they should be granted relief under section 61 of Trustee Act 1925. The court found that ACC had failed to perform its anti-money laundering obligations in accordance with reasonable practice in the circumstances and that failure had increased the loss by fraud. In the circumstances, ACC had not acted reasonably and were not entitled to the benefit of s.61.
The judgment seems a little bit harsh. I understand that ACC did make enquiries regarding the identity of the seller and that there was no suggestion that they acted dishonestly?
At first glance one might have some sympathy with ACC. They did obtain from the seller recent utility bills; bank statements; and they inspected what they believed to be his original British Passport (it turned out to be a forgery).
However, there were other warning signs:
- The property was unoccupied;
- The property was unencumbered;
- The property was of comparatively high value;
- The seller was pressing for an expedited sale;
- The seller had not supplied any evidence to ACC that showed a link between him and the property; and
- The address given by the seller was not either of the addresses for service that appeared on the proprietorship register.
The court clearly took the view that those factors were sufficient to warrant further enquires including, in particular, whether the seller was actually the owner of the property that he was purporting to sell and that ACC’s failure to make those enquiries was enough to attract a liability.
The judgment sounds fairly significant?
It is a significant judgment because it is the first authority to consider the liability of a seller’s solicitor in this context. Moreover, it establishes grounds for a potential exposure in circumstances where it is well established that a seller’s solicitor does not owe a duty of care to a purchaser. This will no doubt resonate across the profession in particular for conveyancing practitioners who are already seeing increased levels of fraudulent activity in their practice area.
So what lessons can be learned from this?
- Check and satisfy yourself that your client take-on procedures are robust and effective.
- Ensure your fee earners receive proper training to recognise red flag risks.
- Consider the transaction in the round. Think about what is really going on. This particular transaction exhibited a number of warning signs which ought to have put the conveyancer on notice that things were not as they seemed.
- Make appropriate enquiries according to the individual risks – don’t treat due diligence as a tick box exercise.
The Compli team can advise you on all your Fraud and AML concerns including client take-on, Due Diligence and Source of funds. Contact us today for a free no obligation discussion about how our specially designed conveyancing audit can help you identify the gaps in knowledge and procedures which can lead to claims such as the Purrunsing case. Your insurers will love you for doing so!