Conveyancing has always been one of the highest risk areas of practice, from a Professional Indemnity insurer's perspective. The decision of the High Court in a recent case involving Mishcon de Reya, will do nothing to alter this. If the decision stands, we are concerned that some insurers, already wary of residential conveyancing firms, may seek to remove such firms from their books or increase premium rates on conveyancing work.
The biggest concern for solicitors is that the court found against Mishcon de Reya, notwithstanding a finding that the firm had not been negligent. This opens up significant risk exposure for firms. Pending the results of an appeal, we highlight some practical risk management action points that may help minimise this risk.
The (pertinent) Facts of the Case
Mishcon de Reya ('Mishcon') acted for Dreamvar (UK) in the purchase of a property in London. The purchase proceeded as normal, but after Dreamvar had paid the purchase price (of over £1m) it transpired that the seller was a fraudster who did not have ownership of the property in question.
Dreamvar's claim was made on the basis that Mishcon had been, in their view, negligent in failing to obtain an undertaking from the seller's solicitors regarding the seller's identity and title to the property. This element of the claim failed however, David Railton QC found Mischcon in breach of trust and considered that recourse to the firm's Professional Indemnity insurance was the 'only practical remedy'.
Conveyancing Risk Mitigations
- Ensure your client vetting procedures are robust – and properly implemented. For high risk transactions, electronic identity checks should be used as standard. Ensure you keep a record of your process/findings on the file.
- Refer any high risk transactions to a Senior Partner Risk and Compliance Partner (e.g. back to back transaction or where there is a disparity between the address being used for correspondence and the property address).
- If you are acting for the purchaser ask for confirmation as to how and what processes were used to verify the seller's identity. You may wish to request formal evidence of the seller's ownership of the property (request a document that only the real owner is likely to be able to produce).
- Advise your (purchaser) client of any requests for information to which you have not received a satisfactory response