Much has been written about the Dreamvar case – Dreamvar (UK) v Mishcon de Reya and others – because it concerns who bears liability in a fraudulent property transaction.
Rosalind Cullis is senior associate in the real estate team at Kingsley Napley
Such frauds are, sadly, an increasingly common occurrence. The background to the case is that Mishcon’s client, Dreamvar, agreed to purchase a house in London where the purported vendor was in fact a fraudster who had obtained the driving licence and TV licence of the true owner. The fraudster’s solicitors Mary Monson Solicitors (MMS) failed to pick up on discrepancies in the documentation and the transaction completed with funds already having been transferred before a problem was spotted by the Land Registry at the registration stage of the purchase.
In order to seek recourse for its £1.1m loss, Dreamvar litigated against both Mishcon and MMS, alleging negligence and breach of trust by its own solicitors, and that MMS was in breach of warranty of authority. In turn, Mishcon claimed against MMS. Surprisingly, MMS managed to avoid any liability in the first-instance decision in the High Court, and Mishcon was found to be in breach of trust and accountable for its client’s loss as it had professional indemnity insurance that could cover it.
The latest Court of Appeal decision overturned the findings in relation to MMS. It held that a vendor’s solicitor does warrant that they act on behalf of the genuine owner of the property and that releasing funds to a fraudster amounted to a breach of trust. The finding against Mishcon was clarified, not overturned.
The upshot of this decision results in a far more balanced spread of risk between vendor and purchaser solicitors in fraudulent property transactions. It is now clear that solicitors acting for vendors must be far more diligent about the checks they undertake to satisfy themselves as to the identity of their client and be able to demonstrate the steps undertaken. This is crucial in the fight against property fraud.
Property owners wanting to avoid a Dreamvar situation of their own are well advised to sign up to the Land Registry’s free property alert service. This ensures owners are notified whenever a search or an application is lodged against a protected property. If it relates to a purported sale or a mortgage that the owner is not aware of, the Land Registry can be contacted immediately to protect the owner’s interest. This is certainly a lot simpler than resorting to litigation down the line.