When a villain impersonates a property owner and runs off with the purchase money, which honest party should be liable for the loss: the true owner of the property, the seller's solicitor, the estate agent, the buyer's solicitor or the buyer?

This was the question for the Court of Appeal in the long-awaited decision of Dreamvar (UK) Limited v. (1) Mishcon de Reya and (2) Mary Monson solicitors and P&P Properties Limited v. Owen White and Caitlin.

The answer is, in short, that solicitors acting for both the buyer and the seller may be liable, but not the true owner, the buyer or the estate agent. While the outcome of the judgment may be straightforward to understand, the fallout arising from it may prove to be more problematic.


Both cases involved innocent parties who thought they had purchased properties in circumstances where a solicitor purported to act for the genuine owner. However, after the contractual completion date, but before registration of the transfer at the Land Registry, it transpired that the sellers were fraudsters who had disappeared with the money. Cumulatively, the purchasers, both small family companies, lost in excess of £2 million and unfortunately received no asset in return.

First instance

In the first claim, Dreamvar, the buyer issued claims against:

  • the seller's solicitor, Mary Monson, for breach of trust, breach of undertaking (as stipulated by the Law Society's Code for Completion by Post (the Code)), breach of warranty of authority and also negligence (which Dreamvar sought to be added on appeal); and
  • its own solicitor, Mishcon, for negligence and breach of trust.

All the claims against the seller's solicitor failed. Mishcon were held not to be negligent, but were held in breach of trust. Despite Mishcon having acted honestly and reasonably, the High Court refused to grant relief from its breach (under section 61 of the Trustee Act 1925) on the basis that it was in a better position to absorb the loss as it had insurance.

In the second claim, P&P, the buyer issued claims against:

  • the seller's solicitor, Owen White, for breach of warranty of authority, negligence, breach of trust and breach of undertaking; and
  • the estate agent, Winkworth, for breach of warranty of authority and negligence.

All claims against both defendants failed.

Court of Appeal

Dreamvar appealed the finding that Mishcon was not negligent and Mishcon appealed the section 61 finding.

P&P appealed the judgment on all the issues. Winkworth, the estate agent, successfully resisted the appeal for reasons which are beyond the scope of this article.

The key elements of the decision are as follows:

Buyer's solicitor

The Court of Appeal reaffirmed what is now well-established law which is that the buyer's solicitor hold purchase monies on trust for the buyer until there is a genuine completion. In a fraudulent purchase transaction there is no genuine completion because the contract is a nullity. Therefore, the buyer's solicitor are in breach of trust when purchase monies are paid away to the fraudster.

Unsurprisingly in Dreamvar, Mishcon, which was arguably as much an innocent victim of the fraud as its client, applied for section 61 relief. Section 61 states that where a trustee "has acted honestly and reasonably and ought fairly to be excused for the breach of trust...then the Court may relieve him either wholly or partly from personal liability of the same".

Mishcon, however, was not granted relief, even though it was found to have acted honestly and reasonably. The following factors were taken into account by the High Court and Court of Appeal in making this decision:

  • with or without insurance, Mishcon was in a better position to absorb the loss;
  • Dreamvar is a small company;
  • Dreamvar lost over £1 million;
  • Dreamvar had no insurance against fraud;
  • Dreamvar was left with creditors in respect of the purchase monies; and
  • Mishcon was in a better position to give Dreamvar protection from fraud, even though it was not negligent in not doing so.

Gloster LJ dissented on the basis that the primary responsibility for failing to identify the fraud should have rested with the seller's solicitor, Mary Monson, who were also in breach of trust, rather than the buyer's solicitor. This was also the view of the judge, Mr David Railton QC, in the first instance decision, but he had not found that the seller's solicitor, Mary Monson, were in breach of trust.

However, the majority also found that the distribution of liability should be determined by contribution proceedings. It may be that Mishcon obtains a substantial contribution from the seller's solicitor, given the latter's failures to comply with its anti-money laundering obligations. The outcome of that claim is awaited with interest.

As to the issue of negligence, the Court of Appeal decided that there is no general duty on the buyer's solicitor to advise clients on the potential risk of identity fraud. Such a duty would only arise if there are red flag factors putting the buyer's solicitor on notice of an enhanced risk, of which there were none in Dreamvar. Further, there is no duty on the buyer's solicitor to obtain an undertaking from the seller's solicitor that they act for the true owner of the property. The buyer's solicitor are entitled to assume that the seller's solicitor have competently undertaken the money laundering checks, even though in Dreamvar, for example, the seller's solicitor had not carried out sufficient due diligence. The buyer's solicitor would not have been aware of this. The buyer's solicitor should, however, bear in mind that, following the earlier first instance decision in Purrunsing, if they do ask for evidence of identity they should give careful consideration to the actual answer given to ascertain whether it is sufficient.

Seller's solicitor

The judgment contains three important adverse changes to the position of the seller's solicitor.

First, breach of trust. It was previously determined in both P&P and Dreamvar that the seller's solicitor were not in breach of trust. This is because, under paragraph 3 of the Code, the seller's solicitor do not take responsibility for any breach of the actual seller's contractual obligations. Any assertion that the seller's solicitor are in breach of trust if there is not a genuine completion because the seller is not the true owner would be inconsistent with paragraph 3. However, the Court of Appeal disagreed, finding that the seller's solicitor hold the purchase monies on a bare trust for the buyer pending a genuine completion. Accordingly, it is now possible for a claim to be made against the seller's solicitor for breach of trust. In Dreamvar, Mary Monson did not make an application for section 61 relief, which is unsurprising given that the High Court had already determined that Mary Monson had acted unreasonably in failing to undertake satisfactory due diligence on their client.

Second, breach of undertaking. Paragraph 7(i) of the Code states: "The seller's solicitor undertakes: (i) to have the seller's authority to receive the purchase money on completion...". In the first instance decisions it was held that the seller's solicitor undertake that they represent someone identifying themselves as the true owner of the property, not necessarily the actual registered proprietor. The Court of Appeal disagreed and found that the seller's solicitor do, in fact, undertake that they represent the true owner of the property as they identify their client in the contract as the real owner.

Third, breach of warranty of authority. It was held that the seller's solicitor also warrant that they act for the genuine owner. But, on the facts of both P&P and Dreamvar the claims for breach of warranty of authority failed because it was found that there was no material reliance by the buyers on that warranty by the buyer's solicitor.

As to negligence, one unsurprising aspect of the judgment was to affirm that the seller's solicitor do not owe duties to the buyer to carry out proper due diligence on their client; there is no voluntary assumption of responsibility. Further, there were no aspects in the transactions which created a relevant assumption of responsibility and/or which made it reasonable for the buyers to rely on the seller's solicitor acting reasonably when carrying out the due diligence. Therefore, no claim in negligence against the seller's solicitor can be brought by a buyer.


Overall, the position of the seller's solicitor is now materially worse than had been previously. In these circumstances, the seller's solicitor will likely face a claim for breach of trust and, given that something must naturally have gone wrong with the client due diligence process, since the client is an imposter, section 61 relief may be difficult to obtain.

Moreover, there is now a claim for breach of the seller's solicitor's undertaking under paragraph 7(i) of the Code. And since this is a breach of an undertaking, it is likely that such claims may be disposed of on a summary determination.

Consequently, this judgment has been greeted with some consternation by conveyancers. We expect to see letters from buyers stating that they are relying on the seller's solicitor's warranty that the seller is genuine. There are also likely to be attempts by the seller's solicitor to remove paragraph 7(i) of the Code in any future transaction. In any event, the Law Society is also undertaking a review of the Code given the implications of this decision. Further, there are a number of new insurance products on the market to cover against imposter fraud (although practitioners should scrutinise the policy terms carefully).

Put simply, all of this trouble can be avoided, of course, if the seller's solicitor do not act for imposters in the first place. In both Dreamvar and P&P, the seller's solicitor were found not to have undertaken satisfactory client due diligence.

Will there be an appeal? The initial reaction was that an appeal would be inevitable, but this may not be the case. The obvious appeal would be by Mishcon on the section 61 relief point – the argument being that section 61 has been emasculated to the point of irrelevance. But Mishcon was given the benefit of a contribution claim against Mary Monson and any appeal on section 61 would more than likely result in a cross-appeal on the other aspects of the judgment which, if held against the solicitor, would likely create more problems for insurers than is currently the case. So it may be that this case will remain the ultimate authority on liability for imposter fraud for years to come – that is until another suitable case comes along.

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