Fraud in conveyancing - who takes the hit?

[Clitheroekid]

The recent posts regarding money laundering reminded me of a recent case that has sent some shockwaves through the conveyancing profession.

The full judgment is here, but at 58 pages it’s only for the dedicated or the terminally bored - https://www.lawgazette.co.uk/download?ac=22465

Basically what happened was that a young Turk (a mere 23 years old) with a wealthy Dad decided to get into buying and tarting up London property. He set up a company called Dreamvar (UK) Ltd.

He then found a property he wanted to buy, an empty and rather rundown house at 8 Old Manor Yard, in Earl’s Court - http://www.rightmove.co.uk/house-prices ... ry=england. You obviously don’t get much for your money in that area, and he agreed a price of £1.1m.

He appointed a well known London firm of solicitors, Mishcon de Reya, to act for him as he had instructed them on previous attempted purchases.

The property was owned by a Mr David Haeems, who appointed a firm of solicitors in Manchester, Mary Monson & Co. It was a bit of a rush job, and it all went through in less than 3 weeks. Mishcons paid the purchase price to MM.

They in turn paid it (at the direction of Mr Haeems) to a firm of solicitors called Dennings (highly dodgy and an insult to the name of the late, great Lord Denning but presumably not known to MMS to be dodgy at the time). They in turn paid it to a Chinese bank account as directed by Mr H.

So far so good.

But when Mishcons tried to register the transfer at the Land Registry they hit a snag. LR had for some reason been a bit suspicious, and contacted Mr Haeems for various verifications.

And as readers will no doubt have guessed Mr Haeems knew absolutely nothing about it. The person who had sold the house had been impersonating him.

Understandably, LR refused to register the transfer, leaving Dreamvar £1.1m out of pocket. Equally understandably they sued both firms of solicitors, basically on the principle that one of them must have been at fault.

MMS admitted that they had not made proper ID checks against their client. They had been supplied only with a copy driving licence and a copy TV licence, both copies certified by a solicitor. However, the court basically said that a seller's solicitor had no obligation to guarantee the seller's identity to the buyer's solicitor, and that they were therefore not liable.

The reason it's sent shockwaves is that although the Court found that Mishcons had done everything properly, and in accordance with all good practice they said they were nevertheless liable, not in negligence, but in breach of trust.

In other words, Dreamvar had given them the £1.1m on trust to use it for the sole purpose of acquiring good title to the property. The money had been paid to a fraudster so no title to the property was obtained, hence the breach of trust.

The court does have discretion to `let off'' a trustee who's acted in breach of trust but in good faith, and as Mishcons had done nothing wrong they were probably expecting this. However, the judge seems to have taken the view that Mishcons were insured and Dreamvar wasn't, so on that ground alone he found Mishcons liable. They (or in practice their insurers) therefore had to pay Dreamvar £1.1m.

It's easy to see the simplistic `justice' of the decision. Neither Mishcons nor Dreamvar had done anything wrong, but the loss would hurt Dreamvar a lot harder than it would Mishcons.

But it's an incredibly harsh result for Mishcons, and every solicitor in the country who's read this case will have felt his blood run cold. Whilst Mishcons are a very large firm and can take the hit, if this happened to a small firm such a claim would probably kill them, as their insurers would either refuse renewal or quote a premium that would be completely unaffordable.

Mishcons have leave to appeal, but it's hard to see the decision being overturned, if only because of the devastating effect on an innocent buyer that absolving Mishcons of any liability would produce.

In practical terms it's really difficult to devise a solution to this situation. I've put myself in Mishcons' shoes (rather more expensive than mine!) and I really don't see that I'd have done anything different.

Interesting times.

[supremetwo]

MMS admitted that they had not made proper ID checks against their client. They had been supplied only with a copy driving licence and a copy TV licence, both copies certified by a solicitor.

However, the court basically said that a seller's solicitor had no obligation to guarantee the seller's identity to the buyer's solicitor, and that they were therefore not liable.

I find this astonishing.

Money-laundering regulations stricter than that?
http://www.sra.org.uk/risk/resources/ri ... ering.page

How do you ID new clients?

[UncleEbenezer]

Land registry successfully contacted the (real) owner. So why couldn't (or didn't) either solicitor?

Unless perhaps the owner was also the fraudster. How would you verify that in the circumstances?

[chas49]

Land registry successfully contacted the (real) owner. So why couldn't (or didn't) either solicitor?

Because they thought they were dealing with the real owner and had already seen (copy) (fake?) ID.

Unless perhaps the owner was also the fraudster. How would you verify that in the circumstances?

Not sure how the owner could *be* the fraudster. If he was genuinely selling the property then he wouldn't be defrauding anyone.

[UncleEbenezer]

Not sure how the owner could *be* the fraudster. If he was genuinely selling the property then he wouldn't be defrauding anyone.

That would be going through the motions of selling the property (giving all those instructions to his solicitors having used deniable ID or an accomplice to introduce himself), then denying all knowledge of it to the Land Registry.

I should think that's less likely than a third party, given how much he has at stake within UK jurisdiction, but perfectly feasible.

[redsturgeon]

They in turn paid it (at the direction of Mr Haeems) to a firm of solicitors called Dennings (highly dodgy and an insult to the name of the late, great Lord Denning but presumably not known to MMS to be dodgy at the time). They in turn paid it to a Chinese bank account as directed by Mr H.

Isn't this the bit where it breaks down. If a client of yours asked to to pay the money to a third party rather than into their own bank account, wouldn't you smell something slightly fishy and carry out some more checks? Or is this sort of thing reasonably commnplace?

John

[Clitheroekid]

Isn't this the bit where it breaks down. If a client of yours asked to to pay the money to a third party rather than into their own bank account, wouldn't you smell something slightly fishy and carry out some more checks? Or is this sort of thing reasonably commonplace?

It's certainly not uncommon, and a fraudster would obviously have fed you a convincing explanation long before the transfer request was made, for example that he was opening a new business in a foreign country.

In any case, the fundamental point is that it's your client's money and you have to obey your client's instructions. By the time that stage is reached you've already satisfied yourself that your client is who he claims to be, and there would therefore be no justification for disobeying an express instruction.

The most alarming part of it is that high quality fake ID is so easily available, as I pointed out in a post the other day - viewtopic.php?f=2&t=3211&p=31045&hilit=fake+identity#p31045. So although the ID checks carried out by MMS were clearly inadequate I'm sure he could have easily produced sufficiently convincing documents if they had done their job properly. After all, if the prize is £1.1m a few hundred quid spent on top quality fake documents is neither here nor there.

As I said in that other post, there should be some system of voluntarily establishing one's identity once and for all. But since posting it and having considered the ramifications of this case I'm beginning to wonder whether the introduction of a compulsory identification card might be justified after all. The easy availability of high quality fake ID is a new factor that hadn't been present when the national debate took place last time, and perhaps it's now time to reconsider.

[Alaric]

But since posting it and having considered the ramifications of this case I'm beginning to wonder whether the introduction of a compulsory identification card might be justified after all.

In the case you quote at the start of the thread, the victim was Turkish.

There were many objections to compulsory identity cards, not least that it creates almost just for the sake of it, a whole range of offences.

[RedSnapper]

LR had for some reason been a bit suspicious, and contacted Mr Haeems for various verifications.

Would be interesting to know what someone at LR picked up on that neither set of solicitors did.

[PinkDalek]

LR had for some reason been a bit suspicious, and contacted Mr Haeems for various verifications.

Would be interesting to know what someone at LR picked up on that neither set of solicitors did.

It would but the Approved Judgment merely says:

"... Land Registry informed both MMS and MdR that it was unable to link Mr Haeems to the address given on his driving licence, and given the high value of the Property, it wished to make contact with him as a precautionary measure. It is unclear how that contact was made, but on 20 November 2014 solicitors acting for the real Mr Haeems contacted MdR, and the nature of the fraud became apparent ..."

That address being "... the Broadfield Road address appearing in the draft contract ...".

[redsturgeon]

Out of interest, would the outcome have been different if the LR had transferred title?

Would Dreamvar then own the property?

Good scam though and difficult to see what is in place to stop it being repeated. It would be even easier if A "Dreamvar" type company was set up deliberately to create this scam.

1. Find a suitable property with an absentee owner.

2. Set up the identity fraud required to put the property up for sale

3. Appoint solicitors on both sides of the deal to complete transaction

4. Get money transferred out of the reach of the authorities

5. Enjoy the cash


John

[genou]

It would be even easier if A "Dreamvar" type company was set up deliberately to create this scam.

4. Get money transferred out of the reach of the authorities

5. Enjoy the cash


John

Where did the money come from?

[redsturgeon]

It would be even easier if A "Dreamvar" type company was set up deliberately to create this scam.

4. Get money transferred out of the reach of the authorities

5. Enjoy the cash


John

Where did the money come from?

The same place as in the case quoted.

Dreamvar pays out the million

It gets paid to solicitor A who transfers it to solicitor B and thence to solicitor C who transfers it abroad.

Solicitor A then has to pay the million back to Dreamvar via insurance.

Dreamvar now has 2 million, insurance company is minus one million.

John

[Clitheroekid]

Out of interest, would the outcome have been different if the LR had transferred title?

Yes, as the Land Registry effectively guarantees title - which is why they pay out millions of pounds a year from their indemnity fund.

[redsturgeon]

Out of interest, would the outcome have been different if the LR had transferred title?

Yes, as the Land Registry effectively guarantees title - which is why they pay out millions of pounds a year from their indemnity fund.

Wow!

John