the professional negligence blog

A collaboration between Rebmark Legal Solutions and 1 Chancery Lane

Property fraud - liability of seller's solicitor to innocent buyer

Purrunsing v A’Court & Co and House Owners Conveyancers [2016] 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.       

Professionals, allegations of fraud, and witness credibility

The headline outcome from Mansion Estates Ltd v Hayre & Co (A Firm) (2016) is HHJ Saffmann considering that it is no less “inherently improbable” that a solicitor would set out to mislead the court than any other person, and going on to find that the Defendant’s documents were “materially compromised”. This was not a case where the judge could find one party had “misremembered” or made an innocent error: he had to decide which witness to prefer, with the corollary that, essentially, the other witness was dishonest.   The judgment sets out a very helpful summary of the ways in which a judge may decide who to believe, and the factors that are likely to be important:-   a) Inherent probability, while extremely important, should not be considered in a vacuum: it would be quite wrong to assume in all cases that serious conduct is unlikely to have occurred Re B (Children) [2008] UKHL 35.   b) The judge referred to the tests summarised, extra-judicially, by Lord Bingham, namely:- The consistency of the witness’s evidence with what is agreed or clearly shown by other evidence, to have occurred; The internal consistency of the witness’s evidence; Consistency with what the witness has said or deposed on other occasions; The credit of the witness in relation to matters not germane to the litigation; The demeanour of the witness.  c) The considerations noted by Gillen J in factors Thornton v NIHE [2010] NIQB 4: The inherent probability or improbability of representations of fact; The presence of independent evidence tending to corroborate or undermine any given statement of fact; The presence of contemporaneous records; The demeanour of witnesses; The frailty of the population at large in accurately recollecting and describing events in the distant past; Does the witness take refuge in wild speculation or uncorroborated allegations of fabrication? Does the witness have a motive for misleading the court?  d) Following Mumtaz Properties v Ahmed [2011] EWCA 610, over and above “demeanour” the judge should consider what other independent evidence was available to support the witness. Contemporaneous written documentation was of the greatest importance in assessing credibility and could be significant not only where it was present and oral evidence could be checked against it, but also where it might be conspicuous by its absence and inferences drawn.

Law Society: Mortgage Fraud Practice Note Update

On 31 July 2014 the Law Society issued an updated practice note on mortgage fraud. There are no changes to the guidance.   The changes reflect updates to the law and publications. As of October 2013 the Serious Organised Crime Agency was replaced by the National Crime Agency. The Economic Crime Command is tasked with fighting economic crime including fraud and identity crime.

Fraud, forgery and conspiracy: Inferring Dishonesty

“The Bank was just able to put salt upon his tail - and only just.” So says a prison warder in Dickens’ David Copperfield of how Uriah Heep came to be convicted and sentenced to transportation for life for “fraud, forgery and conspiracy” in a “deep plot for a large sum” against the Bank of England. The Uriah Heeps of our times have practised mortgage fraud and their epilogues are pronounced by the Court of Appeal Criminal Division. In R v Kimani [2012] EWCA Crim 2881 the prosecution’s case was that Mrs Kimani’s signature appeared on a mortgage application form for a purchase from a “Mr Kibiku”; that “Mr Kibiku” was in fact Mrs Kimani’s husband; and that the purchase was a sham to release equity from a property already owned by the family. Mrs Kimani appealed her conviction, claiming be a woman dragged down by a mountain of evidence against her co-accused (her husband and a dishonest mortgage broker). She acknowledged that the application form had contained falsehoods, including as to her nationality and employment, but argued that there was no evidence that she knew that the application contained false information. So what was the salt upon Mrs Kimani’s tail? As Davis L.J. said, “The evidence against the appellant was essentially circumstantial, but it was none the worse for that”. There were a number of strands to the evidence: ·         A sum corresponding to the balance due on completion had appeared in her joint account on the day of the purchase ·         She was named as the landlord in a Council document prior to the purchase ·         A Council document completed by a tenant described her as the wife of “Mr Kibiku” These factors were specific to Mr Kimani but the Crown Court judge had also considered that the “generalities of the situation, her own knowledge of her own means” and the fact “that ordinarily an applicant would know of the content of an application form they signed” were matters from which the jury could be invited to infer dishonesty. I leave you with words of the penitent Uriah Heep which you may think have some resonance to our own banking troubles: “Before I come here, I was given to follies; but now I am sensible of my follies.”