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Ally Tow
Ally Tow,
SENIOR ASSOCIATE - CHARTERED LEGAL EXECUTIVE
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Can estate agents be liable when instructed by a fraudster? UPDATE
13 July 2018

As we reported in our article earlier in the year, no said the High Court when it considered the question in the case of P&P Property Ltd V Owen White & Catlin LLP & Crownvent Ltd t/a Winkworth [2016] (“P&P”) back in September 2016. See here.  The case has now been appealed and the matter has now been heard by the Court of Appeal together with a co-joined case of Dreamvar (UK) Ltd V Mischcon de Reya & Ors [2016] looking at the question of whether solicitors acting for the parties in a bogus property transaction were liable for breach of trust.  In this article we focus on the appeal decision insofar as it relates to the agents.

Review of the facts

In P&P, in early November 2013 a man purporting to be Mr Clifford Harper, the registered owner of a property at 52 Brackenbury Road, London (“the Property”) instructed Owen White & Catlin LLP (“OWC”) to act for them in connection with the purchase of the Property. He also contacted Crownvent Ltd (“Winkworth”) with a view to instructing them to market the Property for sale. Mr Harper’s instructions to Winkworth were that prospective purchasers must be cash buyers as he required the sale to be exchanged and completed in ten days in order to be able to complete on a property purchase in Dubai, Mr Harper working and residing in Dubai.

Winkworth arranged for P&P Property Ltd (“P&P Property”) to view the Property. Having done so, it indicated a willingness to purchase it. Contracts were exchanged with completion scheduled for 11 December 2013, just 9 days after Winkworth had first been instructed, although in the end completion did not take place until shortly after this date.

On 17 January 2014, after P&P Property had instructed builders to commence stripping out works at the Property, the true Mr Harper turned up at the Property and asked what the builders were doing. The police were called and it soon became clear that a fraud had occurred.

The claims

P&P brought proceedings against OWC and Winkworth alleging that both had held themselves out as having the authority of the true owner to conclude the sale of the Property, were negligent in not carrying out adequate checks (in accordance with the Anti-Money Laundering Regulations) to establish the identity of their client and (in the case of OWC) had no authority to distribute the purchase monies to their client other than on completion of a genuine sale. On appeal, P&P Property sought to challenge the Court’s decision in relation to both OWC and Winkworth. However, as indicated, this article is only concerned with the decision insofar as it relates to Winkworth.

The Court of Appeal decision

Winkworth had sent a memorandum of sale to the director at P&P Property in which Clifford Harper was named as the vendor of the Property and was referred to in a covering letter from Winkworth as “our client”.  P&P Property maintained that the representation made in these documents was that Winkworth had authority to act on behalf of the true owner of the Property and not merely the person who gave them instructions. This, said P&P Property, was consistent with the obligation placed on the agents under the Money Laundering Regulations 2007 (“the Regulations) (as they were at the time) to verify the identity of their client. Whilst Winkworth accepted that they had obligations imposed on them under the Regulations, they denied that this made them guarantors of the vendor’s identity.

The court considered that the memorandum of sale, which recorded that Winkworth acted for a vendor called Clifford Harper with an address in Dubai was prepared based on the particulars which the purported seller had given to them. The court reiterated that Winkworth should have carried out proper checks in accordance with the Regulations but found that this did not provide a sufficient basis for imposing any liability on Winkworth based on a guarantee of their client’s identity. The memorandum could not be regarded as a statement or warranty by Winkworth that they had been given those instructions by the real Clifford Harper.

So far as the negligence claim was concerned, the Court found that the Regulations did not create a statutory duty which, if breached, could give rise to any cause of action for damages against Winkworth – Parliament had not intended that a breach of the Regulations would create a private law cause of action.

Furthermore, Winkworth, said the court, had not voluntarily assumed responsibility to P&P Property for the adequacy of any due diligence carried out by them. They were not asked to give undertakings or assurances that they had properly carried out their duties under the Regulations nor was there anything in the way in which the transactions were conducted which could be taken as being reasonable to assume that the relevant checks under the Regulations had been completed and that Winkworth should be legally accountable to P&P Property for the consequences.

Taking all these factors into account, the court held that it would not be just and reasonable to treat Winkworth as having assumed responsibility to P&P Property for the adequacy of the due diligence performed in relation to their client’s identity. The court therefore upheld the decision made at first instance to dismiss the claim for negligence against Winkworth.

Conclusion

Whilst these claims were dismissed against the agents the position may well be different if the court found that the transaction was one where agents had assumed responsibility to purchasers for the adequacy of the due diligence undertaken in respect of their client’s identity. It is difficult to say at the moment what circumstances might give rise to such a finding by the court but to avoid falling foul of this possibility agents would be well advised to ensure that they do adequately carry out and document checks in relation to their client’s identity in accordance with the Regulations.

To discuss this issue or any other property dispute please get in touch with our Dispute resolution team at [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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