P&P Property Ltd v (1) Owen White & Catlin (2) Crownvent Ltd t/a Winkworth 
It’s a challenge for the law to keep pace with the ever changing landscape of fraud. Earlier this year the court considered where the liability falls for the professionals involved when a fraudster impersonates the seller in a house sale and disappears with the sale proceeds before the scam is revealed. In Purrunsing v A’Court & Co and House Owners Conveyancers Ltd, somewhat controversially, both the buyer’s and the seller's solicitors were found equally liable in breach of trust to a buyer who was the victim of a property fraud. In the judgment handed down recently in P&P v (1) Owen White & Catlin (2) Crownvent t/a Winkworth Robin Dicker QC sitting as a deputy High Court Judge came to a wholly different conclusion at least so far as the seller’s solicitor was concerned and considered for the first time the liability of the estate agent to the buyer.
An imposter posing as Mr Harper, the owner of a residential property in Hammersmith, instructed estate agents Winkworth to market the property for sale and solicitors Owen White & Catlin (OWC) to act for him as seller. He said that he was living in Dubai and he needed a speedy sale to complete the purchase of a property in Dubai. OWC met Mr Harper and carried out the usual checks required to check his identity. A deal was agreed between Mr Harper and P&P Property for the sale of the property, which was unoccupied and free of any charges, at £1,030,000.
Contracts were exchanged with a deposit paid of £103,000. The purchase was completed on 12 December with the balance of £927,000 being transferred to OWC. The net sale proceeds were then transferred to Mr Harper’s account in Dubai the same day. P&P, believing it was the owner of the property started stripping out works which came to an abrupt halt in mid-January 2014 when the true Mr Harper turned up at the property. By then both Mr Harper and all the money were long gone.
P&P pursued claims against OWC and Winkworth for breach of warranty of authority and breach of a duty of care. As they paid the money away to Mr Harper a claim was also pursued against OWC in breach of trust.
Breach of warranty of authority
The claim against OWC for breach of warranty of authority was on the basis that it had represented to P&P that they were instructed for, not just someone who said that they were Mr Harper, but that it was in fact the true Mr Harper and that he was the true seller.
Robin Dicker QC found that solicitors’ checks are designed to reduce the risk of fraud and cannot reasonably be thought to eliminate it. It would be wrong to construe a reference in the contract to Mr Harper to the true Mr Harper when determining the scope of implied warranty. The basic representation is only that the solicitor as agent has authority to act for another. The agent does not simply by acting as agent make any other representation about the principal’s attributes or characteristics.
If a warranty was given that the client is the registered proprietor, solicitors in conveyancing 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 amongst 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 court has 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. Having considered the exact sequence of events and discussed the authorities the Judge was satisfied that any warranty given by OWC extended no further than that OWC had authority to act on behalf of its client.
The Judge also found that Winkworths were not in breach of warranty of authority, but commented that there was nothing in principle to prevent such a claim.
Breach of a duty of care
Of course OWC were acting for the seller – P&P as buyer was not their client. Nevertheless P&P contended that because it had relied on the representations and actions of OWC, a duty of care to take reasonable care to ascertain the true identity of Mr Harper should be imposed. This was rejected by the Judge on the basis that there were no special circumstances resulting in OWC having accepted responsibility to take reasonable care to ascertain the identity of Mr Harper or to ensure that he was the true owner. The solicitors that owed P&P a duty to take reasonable care and skill were those instructed in the purchase not OWC.
Winkworth was similarly acting for the seller and not for P&P. On the evidence he did not consider that objectively Winkworth had “crossed the line” such that a responsibility to P&P, who was not its client, had been assumed.
Breach of trust
Having failed in those claims P&P finally sought to persuade the court that OWC held the purchase monies that it received from P&P on trust and that they were paid away in breach of that trust.
The Judge noted that the courts take 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 occurs simultaneous with receipt of the money and that as soon as the seller’s solicitor becomes aware of the receipt of funds, he is not required to hold the money on trust to the order of the buyer’s solicitor, but is instead permitted to use them for the purposes of completion in accordance with the rights and obligations in the Code.
The Judge also found that under paragraph 3 of the Code, a seller’s solicitor is not required to investigate or take responsibility for any breach of the seller’s contractual obligations. This being so, if a seller’s solicitor was liable for breach of trust because no genuine completion occurs, it would involve the seller’s solicitor effectively taking responsibility for what paragraph 3 of the Code says he is not. In the light of the guidance in the authorities, the Judge found that it would be wrong to construe the Code as giving right to a breach of trust if as a result it required seller’s solicitors to give an effective guarantee of title.
Accordingly the claim in breach of trust failed.
Purrunsing (which had found the seller’s solicitors in breach of trust) had been concerned with an earlier version of the Code (1998 edition) with different wording and the Judge did not consider that the case gave any assistance with regard to the 2011 edition of the Code.
What this means for you
By the very nature of the work that professionals and in particular solicitors do, they can find themselves embroiled in the mechanics of a fraud and despite careful checks as to the identity of the client, can be taken in by fraudsters whose methods are increasingly sophisticated. This judgment will be welcomed by those involved in the defence of these claims in that it sets a reasonable limit to the extent of the solicitor’s liabilities particularly where the unfortunate victim is not the solicitor’s own client. It’s of note that here no claim in this action was pursued against P&Ps own solicitors.
In the light of this judgment, solicitors for buyers might seek to protect their clients by carrying out enquiries about the right of the seller to sell. The Judge noted that in P&P, it was open to the buyer’s solicitors to have sought undertakings that the seller’s solicitor would only release monies to their client on confirmation that they had carried out due diligence, but did not do so.
The checks that are routinely carried out by solicitors on the identity of the client are designed to reduce the risk of fraud – it’s not possible to eliminate it entirely. Those checks should be carried out scrupulously as the consequences can be severe. And perhaps it would be a brave seller’s solicitor who gave any sort of undertaking concerning his client due diligence in the light of that.
Whilst there must be sympathy for the position that P&P finds itself in, to have found for it in its claim against OWC would have been to put a vendor’s solicitor in the position of effectively guaranteeing their client was the true owner and that he had title – that just can’t be right.
Jason Nash and Anne Eady of BLM acted for the successful solicitor defendants Owen White & Catlin.
A case report is also available on the Lexis Nexis PSL website here.