In our latest bulletin we explore the recent Dreamvar (UK) Limited v Mishcon de Reya case. This judgment caused shockwaves in both the property and insurance markets. We would strongly advise all solicitors who act for purchasers of residential properties to read the judgment in order to understand the court’s approach to the conveyancing protocol and code for completion by post- documentation.
We and all those directly affected by this case await the outcome of the appeal with interest. Reynolds Porter Chamberlain LLP (RPC) offers some useful mitigation steps in light of the judgment and we would encourage firms to give serious thought and necessary review of their risk assessment procedures surrounding conveyancing transactions.
We would like to thank Paul Castellani, Partner at RPC and Graham Reid, Legal Director at RPC who have kindly produced this latest bulletin for us.
The “real” Mr Haeems owned an empty house in Old Manor Yard, London (the House). An imposter purporting to be the “real” Mr Haeems had obtained a driving licence and TV licence in the name of Mr Haeems. He had these documents certified as true copies by a solicitor, Mr Zoi. The certified documents recorded the address of Mr Haeems (really the imposter) as Broadfield Road, Catford. The imposter then provided these certified copy documents to different solicitors, Mary Monson Solicitors (MMS) and instructed MMS to act in the sale of the House.
Reputable selling agents were instructed to market the House – their instructions being that a quick sale was needed as Mr Haeems (the imposter) was about to be divorced.
The principal of Dreamvar, Mr Vardar, viewed the House and made an offer which was accepted. Dreamvar was content to move quickly and forego usual pre contract searches. Mishcon was instructed to act on the purchase – Dreamvar was a repeat client. Contracts were exchanged and completion occurred at speed. Completion monies of £1.1 million were paid by Mishcon to MMS and the registration formalities commenced.
But, prior to registration, alarm bells rang at HMLR. It wished to undertake a check of the identity documents obtained by MMS before registration would be completed. HMLR’s bristling antennae spotted the discrepancy between the address of the House and the Catford address. It could not link the “real” Mr Haeems to Catford at all. Contact appears then to have been made with the “real” Mr Haeems, who disclaimed all knowledge of the transaction. By this stage the completion monies had been paid by MMS to Denning Solicitors, and dissipated to accounts in China.
Dreamvar paid £1.1 million and received nothing in return. Mishcon had relied upon MMS conducting adequate Client Due Diligence (CDD) and money laundering checks on its client. MMS had conducted those checks negligently. Who, if anyone, was responsible for Dreamvar’s loss?
Against those stark facts, how has Mishcon’s insurer ended up liable to pay £1.1 million plus interest to Dreamvar (and, presumably, the costs of all parties)?
- Dreamvar’s case asserted various causes of action against Mishcon and MMS, and Mishcon claimed a contribution from MMS in the event it was found liable:
- Dreamvar asserted that Mishcon was negligent in failing to advise as to the risk of identity fraud, given certain unusual features in the transaction, such as the fact the property was empty and the speed required (the “failure to warn” allegation);
- Dreamvar asserted that Mishcon was negligent in failing to obtain an undertaking from MMS that it had taken reasonable steps to confirm the identity of Mr Haeems (the “identity undertaking” allegation);
- Dreamvar asserted that Mishcon was in breach of trust by paying the purchase monies away to someone other than a representative of the “real” Mr Haeems (the “breach of trust” allegation);
- Dreamvar and Mishcon asserted that MMS was negligent in its verification procedures – in failing to spot that the imposter was not the “real” Mr Haeems (the “negligent CDD” allegation);
- Dreamvar and Mishcon asserted that MMS was in breach of trust in paying the completion monies away to someone other than the “real” Mr Haeems (the “MMS breach of trust” allegation) Mishcon asserted a breach of undertaking by MMS – that MMS undertook to receive the completion monies on the part of the “true” Mr Haeems (the “MMS breach of undertaking” allegation);
- Dreamvar asserted that MMS was in breach of a warranty of authority given to the effect that MMS was acting on behalf of the “real” Mr Haeems (the “warranty of authority” allegation).
The issues were very similar to those in a recent case of P&P Property Limited v Owen White. Many of them turned on whether a solicitor acting for a seller warrants that they act on behalf of the “real” seller – i.e. the natural person who actually owns the property concerned – or just a person who represents that they are the “real” seller and who, in fact, may be an imposter.
Read the full bulletin by clicking on the link below to read more on the court’s findings on these issues and how solicitors acting for purchasers can avoid the risk of identity fraud.
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For further information, please contact Martin Ellis, Head of UK Professions and Legal Practices Group on +44 20 7528 4704 or email firstname.lastname@example.org