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“Dreamvar”: Mishcon de Reya appeal allowed in key property fraud liability case

On Tuesday 15 May, the Court of Appeal handed down judgment in the ground-breaking identity fraud case of Dreamvar (UK) Ltd v Mishcon de Reya [2018] EWCA Civ 1082 (heard in February/March together with the appeal in P&P Property Ltd v Owen White & Catlin LLP).

At first instance, Mishcon de Reya (which had acted for the defrauded buyer) was held to have behaved reasonably and not to have been negligent. However, it was deprived of a remedy against its co-defendant, Mary Monson Solicitors Ltd (which had failed properly to verify the identity of its client, the purported seller), as a result of the court’s interpretation of paragraphs 3 and 7(i) of the Law Society’s Code for Completion by Post.

The Court of Appeal (which also received written submissions from the Law Society) held that the trial judge had been wrong to dismiss Mishcon de Reya’s claim for an indemnity against Mary Monson: see paragraphs [112] and [122(iii)] in the leading judgment of Lord Justice Patten. He considered that, correctly interpreted, the undertaking in paragraph 7(i) of the Code amounts to an undertaking that a seller’s solicitors have the authority of the person who would be genuinely entitled to complete the sale (and not merely the authority of whoever happens to be their client). Moreover, paragraph 3 of the Code does not operate to absolve from liability for breach of trust seller’s solicitors who receive the purchase money and then dissipate it to a fraudster with no genuine completion having taken place.

The Court of Appeal also dismissed an appeal by the defrauded buyer, Dreamvar (UK) Ltd, against the first instance finding that Mishcon de Reya, its own solicitors, had not been negligent in not seeking from Mary Monson a non-standard undertaking over and above the express undertaking in paragraph 7(i) of the Code.

Whilst this did not affect its entitlement to an indemnity against Mary Monson, the only narrow issue on which Mishcon de Reya’s appeal did not succeed concerned the exercise of the court’s discretion under section 61 of the Trustee Act 1925. At first instance, the trial judge had refused relief to Mishcon de Reya (despite the fact that it had acted honestly and reasonably) on the basis that it was better able to bear the loss than its client. By a majority, the Court of Appeal also declined to grant relief, the Vice-President of the Court of Appeal (Lady Justice Gloster) dissenting. The narrowness of this decision and the fact that the exercise of the section 61 discretion will always be case-sensitive (including as to the means of the parties) suggest that this outcome in the Court of Appeal may well not put an end to disputes concerning section 61.

In short, the consequence of the decision of the Court of Appeal is that the Code represents solid protection for purchasers and their solicitors when dealing with other solicitors.

Jeremy Cousins KC and Peter Dodge appeared for the First Defendant, Mishcon de Reya.

Jeremy and Peter were instructed by DWF LLP.

A copy of the judgment is available here.