There has been an interesting case before the courts recently (Purrunsing v A’Court & Co and House Owners Conveyancers) which looked at liabilities towards innocent victims of property fraud. In particular the court considered whether the seller’s solicitors owed the buyer a duty of care.

The facts of the case were as follows: the claimant was buying a property in Wimbledon. The “seller” instructed solicitors who exchanged contacts on his behalf. The purchase funds of £470,000 were then paid by the buyer’s solicitors to the seller’s solicitors who transferred them to an off-shore bank account (on the seller’s instructions). Before the buyer could be registered as the owner of the property the fraud was uncovered but the seller and the purchase funds were long gone.

It was accepted that the transaction could not have genuinely been completed and on this basis both sets of solicitors were on the face of it liable for breach of trust (resulting for the transfer of the monies in the absence of completion). They both claimed that they had acted honestly and reasonably, which they argued was a sufficient defence to the breach of trust claim. The seller’s solicitors claimed that the reasonableness test should be applied more favourably to them as they did not owe the buyer a duty of care.

The judge rejected this argument and said that the duty of care point was irrelevant to a breach of trust case. He went on to find both sets of solicitors liable on the following basis:

Buyer’s solicitors: The solicitors had raised additional enquiries to establish the link between the seller and the property. These had not been answered properly but the solicitors did not inform the buyer of this (or indeed that the enquiries had been raised in the first place). This meant that the buyer was unaware of any risk associated with proceeding.

Seller’s solicitors:  The solicitors had not complied with the money laundering regulations. They ought to have undertaken enhanced due diligence into the seller and failed to do so. There were a number of factors that should have made the solicitors question whether the seller actually owned the property including:

The property was unoccupied and was not mortgaged

It was of comparatively high value

The land registry title contained an address which wasn’t 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 Property Information Form about building works and information contained in the 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.

The judge found that both sets of solicitor should bear equal liability for the loss.

This will be a frightening decision for many professional advisers, especially given that we do not usually owe a duty of care to those who are not our clients and this decision has rather changed the playing field. It will be welcome news to victims of property fraud however to know that all those involved in the transaction are required to be diligent and look out for suspicious circumstances.