Business fraud

By Trevor Hellawell 



It seems unclear.


Purrunsing, earlier in the year, held that professional representatives for both a buyer and a seller were jointly liable for failing to undertake due diligence in respect of a fraudulent seller of vacant property who had a (dubious) job in Dubai.


Now we have P&P v Owen White and Catlin. This case also concerned the fraudulent sale of a vacant property in London on behalf of a seller with a (dubious) job in Dubai.


In OWC though, there was no liability to the purchaser who was duped into remitting over £1million to the fraudster, primarily on the basis of different wording in the 2011 Law Society’s Code for completion by post. The 2011 edition contained wording that provided that completion take place immediately upon receipt of the funds sent by the buyer, and thus those funds were never held “on trust” by the seller’s solicitors.  The claim, on that and other bases, thus failed.


In the earlier case, the 1998 edition of the Code was used that contained (unexplained) differences in wording that did require that the funds be held on trust pending satisfactory completion, thus opening up the lawyers to the successful claim by Mr Purrunsing.


That OWC succeeded where Mr Purrunsing’s lawyers failed is due to the accident of the wording of the Law Society Codes, and lawyers will no doubt be reviewing that aspect of their completion arrangements as we speak. Attempts to seek undertakings to the buyers will be resisted by the seller’s lawyers as they seek to hide behind the protection of the judgement, which says that sophisticated frauds can still occur notwithstanding our attempts to avoid them.


It is however to that aspect that I want to turn. What steps should we be taking to avoid falling into the trap of paying money over to a fraudster?


In both cases, the seller was a fraudster who produced an apparently genuine passport (which had been fraudulently obtained) and gave an address for correspondence. In both cases there was pressure for a swift completion, the property was vacant and the client had un-interrogated interests in Dubai. In the one case, he failed to appreciate the reason for recent works on the property and gave an un-investigated reason for how he came to own it. In the later case, details on his passport would have indicated that he would have been only 23 when he bought the property and would have been much older than he appeared when the solicitor met him in person. Also, the e-AML search was returned as referred, the solicitor assumed because he was working in Dubai. Further, the solicitor failed to ask him questions that should have been asked – for fearing of annoying him.


So in both cases, the possibility of relief under s61 would have failed.


To my mind, the critical question is – were all the questions asked that should have been? The answer appears to be no.


So there is all the more reason to apply the strictures of the MLR 2007 fully – ID and ongoing monitoring – and if anything crops up ASK ABOUT IT.  A failure to do so would have meant a potential liability to the client.


As for the estate agents, the court was scathing in its comments about their abject failure to undertake any duties of their own, instead trusting the solicitors to do all the work.  That is where most work needs to be done in order for us to stand some chance of evading the fraudsters.


That said, we can take comfort from the fact that we are not expected to be perfect in our duties, only reasonable, honest and competent.








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