P&P Property Ltd v Owen White & Catlin LLP

A seller’s solicitor who signs a land-sale contract for the named seller warrants authority from that person, although liability for breach of warranty requires reliance. Under the Law Society Code for Completion by Post, the seller’s solicitor holds the purchase money for the purchaser until a genuine completion and undertakes to have the authority of the seller named in the contract.

Releasing money where the purported seller has no title is therefore a breach of trust and of the undertaking. A seller’s solicitor or estate agent does not ordinarily assume a tortious duty to the purchaser to perform anti-money-laundering identity checks competently. Those statutory checks protect society generally and do not create a private cause of action for purchasers.

Fraudsters impersonated the registered owners of two London properties. They instructed solicitors and estate agents, exchanged contracts with genuine purchasers and received the purchase money before the frauds were discovered.

In P&P, the High Court dismissed the purchaser’s claims against the seller’s solicitors, OWC, and the estate agent: [2016] EWHC 2276 (Ch). In Dreamvar, the High Court held the purchaser’s own solicitors, MdR, liable for breach of trust but dismissed the claims against the purported seller’s solicitors, MMS: [2016] EWHC 3316 (Ch).

The combined appeals concerned warranty of authority, negligence, breach of trust, the paragraph 7(i) undertaking in the Law Society Code for Completion by Post 2011, and relief under section 61 of the Trustee Act 1925.

1. Appeals allowed in part. OWC and MMS acted in breach of trust by releasing the purchase money where no genuine sale was completed. The money remained the purchasers’ property and was held subject to their solicitors’ instructions. “Completion” under the Code meant completion of a genuine contract through an exchange of money for documents capable of transferring title. Paragraph 3 did not exclude personal liability or authorise release after a merely purported completion.

2. The paragraph 7(i) undertaking referred to the seller named in the contract, who was assumed to be the true owner. By adopting the Code, OWC and MMS undertook that they had that person’s authority to receive the purchase money. Both firms breached the undertaking.

3. OWC’s signature of the contract on behalf of the defined seller warranted authority from the actual registered owner. The warranty was objectively construed in its documentary context. The estate agent’s memorandum merely recorded information supplied by its client and gave no equivalent warranty. OWC was nevertheless not liable because the trial judge was entitled to find that P&P relied on the supposed completion of due diligence rather than on the warranty itself.

4. The negligence claims against the seller-side solicitors and estate agent failed. Their anti-money-laundering duties were imposed for the benefit of society generally, chiefly to deter money laundering and terrorist financing. They did not create a private cause of action for purchasers. In arm’s-length conveyancing, without an undertaking, assurance or other exceptional assumption of responsibility, it was not fair and reasonable to impose a duty to purchasers concerning the adequacy of identity checks.

5. OWC was refused relief under section 61 of the Trustee Act 1925 because its identity checks were not reasonable. By a majority, MdR was also refused relief. Its liability should not be removed merely because MMS was concurrently liable; allocation between them was a matter for contribution proceedings. Gloster LJ dissented on this issue and would have relieved MdR because it had acted reasonably, obtained the undertaking and MMS bore primary responsibility.

6. Winkworth’s costs cross-appeal was allowed. The first-instance reduction reflected a mistaken view that its failure to undertake independent identity checks had been conceded only at a late stage.

1. Court of Appeal: In [2018] EWCA Civ 1082, allowed the purchasers’ appeals concerning breach of trust and the paragraph 7(i) undertaking, but dismissed the warranty and negligence grounds. It refused relief under section 61 of the Trustee Act 1925 and allowed Winkworth’s costs cross-appeal.
2. High Court, P&P: In [2016] EWHC 2276 (Ch), dismissed all claims against OWC and Winkworth.
3. High Court, Dreamvar: In [2016] EWHC 3316 (Ch), dismissed the negligence claim against MdR but held it liable for breach of trust and refused section 61 relief. It dismissed the claims against MMS.