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Ally Tow
Ally Tow,
SENIOR ASSOCIATE - CHARTERED LEGAL EXECUTIVE
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Can Estate Agents be liable for breach of warranty of authority and negligence when instructed by a fraudster?
10 November 2016

This was the question the High Court recently considered in the case of P&P Property Ltd V Owen White & Catlin LLP & Crownvent Ltd t/a Winkworth [2016]. The Court also considered whether solicitors, instructed by the seller in relation to a sale of a property which subsequently proved to be a sale by a fraudster, were liable for breach of warranty of authority, negligence, breach of trust and breach of undertaking. This article focuses on the Court’s findings in relation to the agents.

Background

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”) telephoned the first defendant solicitors, Owen White & Catlin LLP (“Owen White”) to seek their agreement to act for him in connection with a refinancing agreement in relation to the Property.  Initial steps were taken by the solicitors as regards their file opening procedures but before any significant work could be undertaken Mr Harper, who was living and working in Dubai, changed his instructions and indicated an intention to sell the Property, whereupon he contacted the second defendant, 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.

By this stage, Owen White had met Mr Harper and obtained documents purporting to verify his identity in accordance with their anti-money laundering obligations. Winkworth had not complied with its own money laundering regulations, its evidence to the court being that a request was made of Mr Harper to provide the documents together with a further request for copy certified documents from Owen White. The latter was denied by Owen White and they did not provide copies of any identity documents. Mr Harper also did not provide any money laundering documents to Winkworth.

In the meantime, Winkworth commenced work on finding an appropriate buyer. It had been agreed with Mr Harper that no property details were to be prepared and so it was necessary for Winkworth to find a buyer from its own existing contacts. The claimant, P&P Property Ltd (“P&P”) was registered with Winkworth as being property developers interested in buying property in the area in which the Property was situated and so Winkworth contacted them. Having viewed the Property, P&P indicated a willingness to purchase it. Contracts were then exchanged with completion scheduled for 11 December 2013, just 9 days after Winkworth had first been instructed.

Completion did not in fact take place until shortly after 11 December 2013. Following completion, P&P, believing it was now the owner of the Property, instructed builders to commence stripping out works.

On 17 January 2014 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 real Mr Harper filed a restriction at the Land Registry against the Property and subsequently P&P received notice that their application to change the ownership register of the title had been cancelled. Later P&P issued proceedings claiming, so far as the agents were concerned, breach of warranty of authority and breach of a duty of care in tort.

The warranty claim

P&P alleged that through words and conduct Winkworth represented that they had authority to act for the owner of the Property and in particular, that they were properly instructed by the true Clifford Harper, when they were not. P&P claimed, in reliance on such warranties of authority, it agreed to purchase the Property and arranged funding to do so.

The court held that where a person, by word or conduct, represents that he has authority to act on behalf of another as a result of which a third party is induced to act in a way in which he would not otherwise have acted, the representor is deemed to warrant that the representation is true and is liable for any loss caused to the third party by a breach of that warranty. Liability is strict – the agent is, in effect, a guarantor of his authority. If the representor gives such a warranty he is liable even if he acted in good faith and with reasonable care.

One central justification for the doctrine is that, if the agent does not have the authority which he claims, the third party may have no claim against the supposed principal. Treating the agent as having impliedly warranted his authority, gives the third party a claim against the agent, where otherwise he may have no claim at all.

In the present case, however, this was not the case as P&P would have had a claim against the fraudster, albeit this was someone whose true identity was unknown and who could not be traced. The issue for the court was whether the circumstances were such that a warranty of authority should be treated as having been given that is more extensive in effect.

Having considered the facts of the case, the court did not consider that by merely informing P&P that the name of the person selling the Property was Clifford Harper meant that Winkworth were warranting that they had authority to act for the true owner. The question of title was primarily a matter for the solicitors instructed in relation to the purchase and sale, not an estate agent. The court also considered that no such representation was made by Winkworth when it completed the memorandum of sale which, although naming Mr Harper gave his address as Villa 87, Frond M, Palm Jumeirah in the UAE, an address which had nothing to do with the true Mr Harper.

The court also found the fact estate agents are required to carry out anti-money laundering checks did not mean they are, as a result, to be treated as having impliedly represented that their client is who he says he is or that he is the true owner – such checks can never be expected to be infallible.

The court also did not accept that, assuming such representations had been made, P&P had relied upon them. Accordingly, the court dismissed P&P’s claim for breach of warranty of authority.

Negligence

As to P&P’s claim in negligence, P&P contended that Winkworth owed it a duty of care that they would act with the skill, care and diligence of a reasonably competent estate agent and that they had acted negligently. Essentially, P&P’s claim was that Winkworth had failed to take reasonable care to verify the identity of Mr Harper and to ensure that he was the true owner the Property.

The court found Winkworth was not liable to P&P for negligent misrepresentation. The difficulty with the formulation of P&P’s claim concerned the nature of the information provided to it. Winkworth’s employee, Mr Hunt, said during the course of his evidence that his relationship with Mr Polycarpou (a director of P&P) was that he trusted Mr Hunt’s judgment that the house was one he would be interested in. However, in the court’s view this was indicative of no more than the “advice” that all estate agents provide and could not be construed as involving the provision of advice in a sense indicative of an objective assumption of responsibility. It was not concerned with the identity or reliability of the owner but whether P&P were likely to regard the Property as a good investment. What little Mr Hunt appeared to have said about Mr Harper was in the context of making it clear that if P&P were interested in the Property they would need to move quickly – Mr Polycarpou did not ask Mr Hunt for any information about the vendor.

The court also considered that the alleged reliance by P&P on Winkworth’s client due diligence and anti-money laundering checks was not sufficient to establish a duty of care on the part of Winkworth. Nothing was said by Winkworth to P&P about the steps taken in relation to these obligations. In the court’s view it would be unjust to hold that Winkworth owed a duty of care to P&P to take reasonable care when conducting their client due diligence and anti-money laundering obligations to identify Mr Harper and to establish that he was the true owner of the Property – the general contract position was that Winkworth was acting for the vendor, the other party to the transaction, and not P&P. The purchaser would normally be expected to instruct a solicitor to act for them in relation to the purchase. The task of ensuring that P&P acquired good title to the Property was primarily a legal matter.

Lastly, the court considered whether Winkworth were negligent for failing to suspect that their client was impersonating the true Mr Harper. The court found that although the true Mr Harper was a memorable individual his specific dealings with Winkworth had been somewhat sparse and had occurred some time ago. As a result, the court found that it was not surprising if Mr Hunt only had a vague recollection of his name and did not immediately recall him from amongst the various clients passing through Winkworth’s offices. The court found that the extent of Mr Hunt’s former knowledge of the true Mr Harper was not such that he should have been expected to draw a connection between him and the fraudster or suspect that the latter was impersonating the former. As a result the court dismissed P&P’s claim for breach of a duty of care against Winkworth.

Conclusion

Whilst in this case the claims against the agents were dismissed, the court was critical of Winkworth’s failure to properly execute its client due diligence and anti-money laundering obligations. With different facts, the lack of compliance could have resulted in a different outcome for the agents. It should also be noted that this case may well be subject to appeal.

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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