Conveyancer’s liability in transactions involving fraud – primary responsibility rests with the fraudster (where it belongs)20 January 2020 | Lawyers' Negligence
A sister defrauded her two brothers of their interest in the family home that was bequeathed to all three in equal shares upon the parents’ deaths. An innocent yet negligent conveyancer was drawn into the fray as she did not take sufficient steps to conclusively verify that her instructions were coming from the brothers and the sister.
- Whether the brothers could frame their case in a way so as to avoid the operation of the proportionate liability regime.
- If the claim against the conveyancer was apportionable:
- with what percentage of the brothers’ loss and damage should the conveyancer be fixed; and
- should apportionment be undertaken on the brothers’ total loss, or should it only be undertaken on the 50% of their loss that had not been quarantined for recovery through freezing orders.
The conveyancer was engaged by one (sister) of three siblings who represented that she had authority to act on behalf of herself and her two brothers to sell land to a third party. The sister was not so authorised and the brothers were unaware of the transaction. The conveyancer failed to verify the identity of the brothers and signed the transfer of land on their behalves. The brothers later discovered their sister’s fraud and sued their sister, their sister’s company (which was the recipient of the proceeds of sale) and the conveyancer for their two thirds interest in the proceeds of sale. Approximately 50% of those proceeds were dissipated before the brothers discovered their sister’s fraud.
The Decision at Trial
The Court followed the dicta in Dartberg and found that as the claim against the defendants was, in substance, an apportionable claim (that is, a claim for a failure to take reasonable care), the brothers could not obviate the operation of the proportionate liability regime by pleading against the conveyancer non-apportionable provisions of the Australian Consumer Law (which the Court found did not apply to the conveyancer’s actions in any event).
As to the apportionment of liability, the Court:
- followed decisions in the line of Pedulla and held that the conveyancer was 15% liable for the brothers’ loss and damage; and
- found that apportionment must be undertaken on the basis of the brothers’ total loss and not on the quantum of the proceeds of sale that had not been effectively recovered through freezing orders. The Court held that the latter approach effectively requires the Court to read into the relevant provisions of the Wrongs Act 1958 (Vic), words which do not form a part of the legislation.
Implications for you
There was a risk that the Court would find that the effect of the introduction of the verification of identity requirements would have had the effect of rendering conveyancers 'gatekeepers' who were best placed to prevent fraud of this kind, particularly in the age of PEXA, and therefore apportion a greater share of liability to conveyancers. Instead, it has followed an established line of authority to the effect that where one party has caused a plaintiff’s loss by acting negligently, and the other has caused that same loss by acting fraudulently, the latter should bear a greater share of liability than the former.
Whilst this is not carte blanche for conveyancers to ignore the importance of their verification of identity obligations, it is a welcome decision to the effect that it ensures that a fraudster is not effectively able to transfer to a negligent yet innocent party the burden of their dishonest enterprise.