The buyer was genuine and instructed solicitors to purchase a residential property. A fraudster purported to be the genuine owner/seller and instructed solicitors to handle the sale. At completion, the buyer’s solicitors transferred the completion monies to the seller’s solicitors who forwarded those monies to the fraudster seller and the fraudster disappeared with the monies and could not be traced.
The Court of Appeal’s decision in brief is that the loss should be shared between the solicitors for the buyer and seller. It is a case that is likely to have profound implications for conveyancing and solicitors’ professional indemnity insurance. It may ultimately lead to a change in the conveyancing market and no doubt will be the subject of much consultation and debate which necessitates a change in the Law Society Code for Completion by Post.
When reaching their decision, the Court of Appeal stressed the importance of considering the facts of each transaction before reaching a conclusion on the legal position, with the following to be considered on each case:
The decision is something of a mixed bag for conveyancers and their insurers. On the one hand, the Court found that the normal machinery of conveyancing involves the seller’s solicitors in effect giving a promise to the buyer that they acted for the genuine seller. Given that the seller’s solicitors are in the best position to check the identity of their client this seems both a logical outcome. It places the risk on the person best placed to shoulder and mitigate it. On the other hand, the imposition of strict trust obligations, and the lack of relief from breach of trust, for buyer’s solicitors, is more problematic. It seems unusual that s. 61 relief should be affected by the existence of insurance cover. It means that an insured professional acting as trustee may rarely, if ever, be able to take advantage of s. 61, unless he or she can show that the beneficiary-client is insured as well.
Conveyancing solicitors will need to tighten up their client due diligence processes and ensure that they properly follow the Money Laundering/Law Society guidance when identifying clients. Conveyancers are now likely to seek to include express words in the retainer to ensure there is no implication that the buyer’s monies are held on trust for payment in respect of a genuine sale. Consideration should also be given to the Undertakings and contractual promises given during the conveyancing transaction. The decision may lead to indemnity providers seeking to offer insurance products to mitigate the risk, or enhanced identity verification services being offered as a comfort to parties involved. The success of the former will ultimately depend on the premiums offered for such products and whether they become the normal part of the conveyancing process going forward.