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In a case not dissimilar to that of Nationwide v Davisons Solicitors (2012), RA Legal was acting for the buyer of a residential property in London, whose bank, Santander UK PLC, had agreed to provide a mortgage of £150,000 for the purchase. Santander released the funds to RA Legal, who then paid them out to the vendor’s solicitors, London-based Sovereign Chambers LLP*, in the belief that it was completing the sale.

It turned out that Sovereign had fraudulently presented itself as acting for the vendor, who was apparently unaware of the situation, and had no intention of selling the property. After receiving the full purchase price of £200,000, Sovereign promptly disappeared, and the money has never been seen since.

Santander immediately issued proceedings against RA Legal. The solicitor firm denied any wrongdoing, and the Court of Appeal reinforced the ruling from the Davisons case whereby none of the criticisms regarding the way RA Legal had acted could be connected to the lender’s loss. The Court excused RA Legal of any fault on the grounds that they were deemed to have acted honestly and reasonably, and had no knowledge of the fraud.

No happy ending

While the outcome may be seen as positive for RA Legal, the ruling came too late to prevent them from going out of business, due to being unable to obtain professional indemnity insurance with both the claim and the court case hanging over them. And with the solicitors absolved of any blame, Santander was left unable to claim back the loss from the solicitors’ Professional Indemnity insurer, and lost the £150,000 mortgage advance.

Undetectable

What should cause concern for solicitors, conveyancers and lenders in general is that there was no way that the fraud could have been detected. There was no indication or obvious warning signs that the seller’s supposed solicitors were about to commit fraud. Sovereign had been registered with the Solicitors Regulation Authority for over three years, and their standing was verified by the Law Society when RA Legal contacted them to check. So what more could have been done?

Protection is available

There have been a number of initiatives introduced across the industry to combat fraud. In terms of insurance, Countrywide offers a policy that provides protection against unforeseen or unknown conveyancing risks in circumstances such as the one highlighted. It’s called SCIP (Secure Conveyancing Insurance Policy), and it’s designed to cover losses arising from property fraud, as well as a host of other title defects that can prove difficult or impossible to detect.

As the case here shows, even when all the usual checks are made as part of the conveyancing process, there is always the chance that once a transaction completes, an unforeseen issue such as fraud may come to light. By offering protection against the unexpected, SCIP provides additional peace of mind to everyone; the buyer, the lender and the solicitor.

To find out more about SCIP, contact us on 01603 617617 or email enquiries@cli.co.uk.

* Sovereign Chambers LLP, which was dissolved in July 2010, has no connection to any other law firm by a similar name.