Articles | Buying stolen property – some cautionary tales

A recent purchase of a used car from a seller who had no right to sell it has re-ignited the debate concerning good faith, stolen goods, and title, as Afolabi Tayo explains.

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Afolabi Tayo

Afolabi Tayo

Imagine

You wake up. You go online shopping. You find an item. You buy it. Sound familiar?

This, I imagine, is exactly what happened to Graham Murray, a former policeman, who bought a used Mercedes on eBay in early 2017 (costing nearly £20,000). He had been asked by the seller to pay in cash on collection, rather than via eBay (using PayPal). This raised suspicions.

It is worth noting that Mr Murray was quite cautious in his shopping. In fact, he had done a HPI (Hire Purchase Investigation) vehicle test and checked the unique serial number of the car, and these raised no alarm bells. Much to his dismay, Mr Murray later discovered the vehicle's details had been altered, and the police confirmed he had in fact bought a stolen car.

The stolen vehicle had been given the identity of a similar, legitimate car – including licence plates, chassis numbers and accompanying documentation.

On the face of it, Mr Murray purchased the car in good faith, went the extra mile to obtain a HPI check, and genuinely had no knowledge it had been stolen. Surely this granted him some sort of right over the car?

Unfortunately, it is not that simple. The car was seized by the police and returned to the actual owner; meaning Mr Murray lost both his money and Mercedes. Mr Murray could not acquire “good title” to the car, as the person who sold it did not legally own it.

To appreciate the rationale behind this, it is worth taking a brief look at the civil approach to the passing of title when dealing with stolen goods.

Does title pass in stolen goods?

In the case of Rowland v Divall (1923), the claimant, a car dealer, bought a car from the defendant. He then painted the car, placed it in his showroom, and later sold it to a customer for a higher price. It later transpired the car was stolen, and it was impounded by the police, then returned to the original owner. In this scenario, both the claimant and defendant had no idea the car had been stolen. The car dealer returned the customer’s money, and brought a claim against the defendant.

The court held the defendant did not have the “right” to sell the goods as he did not obtain “good title” from the thief, therefore ownership remained with the original owner (who the police had subsequently returned the car to).

This logic appeared to be reflected in section 12(1) of the Sale of Goods Act 1979 (SGA), which provided that “….there is an implied term on the part of the seller that in the case of a sale he has a right to sell the goods…” Though this immediately seems to require a seller to have the appropriate power to confer title to a buyer, some commentators have suggested it only affords the right to sell the goods – which is somewhat problematic as the “power” to confer title and the “right” to sell goods, may not always go together. The law needed some clarification.

Believe it or not, as recent as the early 1990s the law actually allowed title to pass in the sale of stolen goods under a concept known as “marché ouvert” (translating into market overt). Under “marché ouvert”, provided goods were openly sold in designated markets between sunrise and sunset, anyone who bought goods immediately obtained legal title to the item, whatever its provenance. Effectively, a buyer automatically acquired good title to such stolen goods, provided they bought them in good faith, and without notice of any defect or want of title on the part of the seller. This acted as a haven for fine art crooks, who flourished by reason of this obscure medieval loophole. This loophole was abolished by later legislation in the mid-1990s.

Meanwhile, the decision in Rowland appeared to hold good. The Court of Appeal in Costello v Chief Constable of Derbyshire Constabulary (2001) was faced with a claimant who was suspected of being in possession of a stolen car, which was then seized by the police. However, when the statutory period for the police to retain the car had passed, it was held that the claimant was entitled to the possession of the car and was able to sue in conversion when it was not returned. Costello appeared to suggest that provided a statutory time limit has elapsed and no claim by the rightful owner of the goods has been made, the person it was initially seized from can acquire “good title”.

Current position

So what exactly is the legal position for individuals like Mr Murray in 2017? Can you acquire the legal right to goods that pass to you from someone who didn’t have the right to pass it to you? Has the law succeeded in preventing title from passing when dealing with stolen goods?

The general rule is that legal title, or ownership (though not necessarily physical) of an item, can only be passed from one who has the right to do so. This is reflected in Section 21 of the SGA, and stems from the maxim “nemo dat quod non habet” (“no one gives what (s)he doesn't have").

Not to be mistaken for the lovable orange Disney animated fish, the “Nemo” rule states that the purchase of goods from someone who has no ownership right to those goods, automatically denies the purchaser any ownership title to those goods.

The rule works to protect the true owner, but offers no real solace to the (usually) innocent third party purchaser (and potentially any further sub-purchaser); leaving them without redress.

Goods such as cars are movable and transportable, and perhaps easier to forge ownership of. So how does the law deal with passing of property that is less mobile, and a lot harder to “steal”, such as houses or flats?

The common law principle of caveat emptor ("let the buyer beware”) places the onus on the buyer to find out everything it wants or needs to know about the property before buying it, or becoming committed to buy it. The principle works as a warning to buyers, but does have exemptions such as: the duty of the seller to disclose latent defects in title, scenarios where the contract is induced by fraud, and certain considerations arising from consumer protection regulations on conveyancing practice.

There have been recent cases where the courts have been faced with a property being sold, by someone who did not have the right to do so.

In Dreamvar (UK) Ltd v (1) Mishcon de Reya (a Firm) (2) Mary Monson Solcitors Ltd (2016), a fraudster obtained a driving licence and television licence in the name of a London property owner, and lured a company into a quick sale and completion of his property. By the time the Land Registry raised queries about the fraudster’s ownership, completion monies in excess of £1m had been sent to various untraceable Chinese accounts.

The unfortunate buyer went on to sue both their and the seller’s legal advisers for negligence, breach of trust, breach of warranty of authority and breach of undertaking. The High Court found that neither legal adviser had acted negligently, but still held the buyer’s solicitors, Mischon de Reya, liable as the firm had professional indemnity insurance that would meet the claim (otherwise, the claimant would have unfairly been left with nothing).

Some will see Dreamvar (UK) Ltd as a welcome interpretation and application of the nemo dat and caveat emptor rules, as it ensures the innocent purchaser of property they cannot legally obtain, is not unfairly punished. It does however, also serve as a stark warning to professional advisers and their insurers, to be vigilant with their identity checks and due diligence (though even this may not be enough) when dealing with clients, sales and purchases. There may be some comfort for professionals however, as the court in Patel v Freddy’s Ltd and others (2017) which also included a fraudulent property sale as in Dreamvar (UK) Ltd, suggested that in a normal conveyancing transaction, it was not the job of a buyer’s solicitor to check the seller’s identity (nor to check that the seller’s solicitor has done so).

The High Court has granted Mischon de Reya leave to appeal the Dreamvar (UK) Ltd ruling, and it is likely that this will be heard at end of 2017.

Conclusion

The law on title, possession (and everything in between) is tricky. And when you include stolen goods or fraudulent transactions, it’s even trickier.

Consumers (i.e individuals, not businesses) have the benefit of the Consumer Rights Act 2015, which provides certain protections, though, broadly speaking, only certain business to consumer contracts are covered. The Consumer Rights Act 2015 does not apply to business-to-business contracts, consumer-to-consumer contracts, or consumer-to-business contracts. Furthermore, the Land Registry has a free Property Alert Service which homeowners, especially absent landlords, can sign up to, to receive free notifications if certain activity occurs on a registered property.

The lesson to be learnt in all of this is, be careful. Be cautious of sellers of expensive items that request payment in cash (even in part), as it could make the seller impossible to trace. Fraudsters will sometimes ask for part-payment by banker's draft and part in cash; but while this might look reassuring, it may just mean they are happy with the profit they make solely from the cash. If you are unsure, it is always safe to ask the seller for proof they actually own what it is they are trying to sell. And, as usual, remember that if a deal looks too good to be true, then it probably is. Like Gareth Gates said – it could happen to any one of us.


Please note that this article is provided for general information only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by Field Seymour Parkes LLP.