Smaller firms could be priced out of conveyancing if a controversial ruling over a fraudulent property purchase is allowed to stand, the Court of Appeal heard last week.

Mishcon de Reya challenged a High Court order in Dreamvar that it should pay over £1m after its client was deceived into buying a property from a fake vendor.

The hearing saw parties dispute whether Mishcon failed to secure an undertaking from the purported seller’s solicitors that it had taken reasonable steps to establish its client’s identity. No legal representative was found to be negligent.

Intervening, the Law Society highlighted the ramifications of rejecting Mishcon’s appeal – or indeed finding the solicitors of the fraudulent vendor liable for losses.

In written submissions, David Holland QC of Landmark Chambers said: ‘If either [solicitors] are held liable in circumstances where neither has been at fault, then there is a possibility that the insurance premiums of those conducting conveyancing business, and thus the cost to the public of residential conveyancing, will rise.

‘While larger firms may be able to absorb such costs and/or adapt to continue to do business in an economic way, the Law Society fears that this may drive smaller firms out of the market, thus reducing choice.’

Rejecting the appeal, the Society submitted, could also bring changes to conveyancing. Solicitors acting for purchasers may alter their retainers, which could fall foul of any provision in the Consumer Rights Act 2015.

Purchasers’ solicitors, meanwhile, might start asking vendors’ solicitors for express warranties.

The Society insisted that if either solicitor firm is held liable where a property is fraudulently sold, it should be the vendor representative. But this scenario would still create problems, not least that solicitors who complied with their professional obligations are still found in breach.