Solicitors’ checks are designed to reduce the risk of fraud in property transactions, but cannot reasonably be thought to eliminate it. FILE PIC

RECENTLY, a colleague emailed me a fascinating case — known as P&P Property Limited vs Owen White and Catlin LLP (OWC) and Crownvent Limited t/a Winkworth (2016) EWHC 2276 (Ch).

A fraudster, who claimed to be a “Mr Harper” (a property owner in Hammersmith, the United Kingdom), asked estate agents Winkworth to find a buyer for his property, and appointed solicitors OWC to act for him.

He was living in Dubai, the United Arab Emirates, and was looking forward for a “speedy sale” of his property there.

OWC met Harper and carried out the usual checks to verify his identity. In due course, an agreement was reached between Harper and the purchaser (P&P Property Limited) for the sale of the property, which was unoccupied and free of any encumbrance, at £1,030,000 (RM5.8 million). 

Documents were signed and the customary deposit (amounting to 10 per cent of the purchase price at £103,000) was paid.

Completion of purchase took place on Dec 12, 2013, when the balance of the price (£927,000) was handed over to OWC.

The money was then transferred to Harper’s bank account in Dubai on the same day. 

Acting as the new owner, P&P Property began stripping out works on the building. But it stopped in January 2014 when the true Mr Harper turned up at the property. By that time, the imposter/fraudster and money were long gone.

The purchaser then filed its claims against both the estate agent (Winkworth) and the solicitors (OWC) for breach of warranty of authority and breach of a duty of care.

As they had handed over the purchase money to the fraudster, the purchaser also filed a claim for breach of trust against OWC.

The claim against the solicitors for breach of warranty of authority was on the basis that the solicitors had represented to the purchaser that they were representing not just someone who said that he was “Mr Harper”, but that he was, in fact, the true Mr Harper, and hence, the true owner of the property.

Trial Judge Robin Dicker (QC) held that the solicitors’ checks were designed to reduce the risk of fraud, but could not reasonably be thought to eliminate it.

If a warranty was given that the client was the registered proprietor, solicitors would effectively be guaranteeing that their client was the registered title holder and would be strictly liable if they were not. 

This was not the position as generally understood among conveyancing solicitors. Such an implication is also difficult to reconcile with the detailed rights and obligations in the Law Society Code for Completion by Post (2011) (“The Code”). 

The judge said the court had to be cautious about holding a professional person to have undertaken an unqualified obligation in the absence of special facts or clear words to that effect.

Considering the state of the law, the judge was satisfied that any warranty given by the solicitors went no further than that they had authority to act on behalf of their client.

With regards to the estate agent (Winkworths), the judge held they were not in breach of warranty of authority, but commented that there was nothing in principle to prevent such a claim.

The purchaser argued that since it had relied on the representations of the seller’s solicitors, the latter owed them a duty of care to ascertain the true identity of the vendor.

This argument was rejected by the court on the basis that there were no special circumstances resulting in the solicitors having accepted such responsibility to ascertain the identity of “Mr Harper”, or to ensure that he was the true owner. The judge also found that the estate agent owed no such duty to the purchaser.

The purchaser also argued that the solicitors held the purchase monies they received from P&P Property on trust and that they were paid away in breach of that trust.

The judge noted that the courts took a conservative approach to treating the unauthorised release of monies by solicitors as a breach of trust. 

He agreed with OWC that the effect of Paragraph 10 of the Code was that completion occurred with receipt of the money, and that as soon as the seller’s solicitor became aware of the receipt of funds, OWC was not required to hold the money on trust to the order of the buyer’s solicitor, but was instead, permitted to use them for the purposes of completion in accordance with the rights and obligations in the Code.

The judge concluded that under paragraph 3 of the Code, a seller’s solicitor was not required to investigate or take responsibility for any breach of the seller’s contractual obligations.

That being so, if a seller’s solicitor was liable for breach of trust because no genuine completion occurred, it would involve the seller’s solicitor effectively taking responsibility for what paragraph 3 of the Code said he was not.

The judge found that it would be wrong to construe the Code as requiring seller’s solicitors to give an effective guarantee of title. Accordingly, the purchasers’ claim in breach of trust also failed.

Readers might not be too happy with the way this case ended, especially when there were so many “red flags”, which the trial judge himself had alluded to in the course of his judgment.

The judge said these “red flags” should have alerted the seller’s solicitors to raise further questions with the seller (usually referred to as “due diligence”).

These red flags included an unoccupied property, seller living abroad, no encumbrance, relatively high value, impatient client, discrepancies between signatures, and failure of electronic identity check.

The judge observed: “The fraud was plainly a sophisticated one, which appears to have been carried out with some expertise.

“However, in my view, it is plainly possible that, despite the obvious sophistication of the fraud, further questions would have revealed the true position or discouraged ‘Mr Harper’ from proceeding further, and even if they did not, they would have increased the prospect of that occurring.”

My colleague had asked what advice should he give to a purchaser’s solicitors if they came across such a case in the future.

I told him the purchaser’s solicitors should ask for express warranties from the seller’s solicitors that they were representing the true owner of the property.

What if the seller’s solicitors were not prepared to give such warranties?

Then, forget the deal.

The writer, Salleh Buang formerly served the Attorney-General’s Chambers before he left for practice, the corporate sector, and then, the academia. He can be reached via sallehbuang@hotmail.com

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