Conveyancing Fraud ‘A Canker on Society’

by | Mar 21, 2019 | Blog Posts

Our case before the Supreme Court

Levi Solicitors LLP has obtained the permission of the Supreme Court to appeal against an order of the Court of Appeal dated 13 September 2018.

Hearings in the Supreme Court in civil cases are relatively rare. Last year 85 appeals were heard.  Only cases of the greatest public importance are considered.

We look forward to progressing this case at the Supreme Court and helping to clarify the law.

Maria Grondona v Stoffel & Co

Our case relates to a particularly thorny area of law and legal practice. It relates to how the courts deal with conveyancing cases (property sales and purchases), where there has been a deliberate fraud on the lender. Levi Solicitors represents the defendant, Stoffel & Co, and their professional indemnity insurers.

In our case, Birmingham Midshires Building Society was duped into granting a mortgage and lending money to its customer, Maria Grondona.  All parties in the proceedings accept that Ms Grondona was participating in a fraud. This was only discovered after she fell into substantial arrears and the lender launched possession proceedings.

The Central London County Court and, on appeal, the Court of Appeal both found in favour of Ms Grondona. She was awarded damages of up to £95,000.00 plus costs against her solicitors (Stoffel & Co, a firm that has since ceased trading).  The solicitors had made a mistake in failing to register the transfer deed in favour of Ms Grondona at the Land Registry.

The lower courts found (broadly) that the solicitors at Stoffel & Co had not acted dishonestly in any way and it was Ms Grondona who was dishonest. However, because the solicitors were insured, they should pay Ms Grondona compensation.

Central London County Court

In the County Court, Her Honour Judge Walden-Smith decided that Ms Grondona had participated in mortgage fraud. However she concluded that the case did not meet the test of whether the illegality was closely connected, or “inextricably linked”, with the claim against the law firm.  The Judge said that it was only as a result of the breach of contract and/or negligence by her solicitors that Ms Grondona’s title had not been registered.  Accordingly, the Judge found that Ms Grondona was not relying upon the illegal mortgage and agreement to support her claim, and was entitled to damages in full for her losses.

Court of Appeal

In the Court of Appeal judgment, Lady Justice Gloster said “…Mortgage fraud is, of course, a canker on society and it is extremely important that dishonest applicants for mortgages should not be empowered by the law to abuse the system….”. However, she went on to say:

“…I see no public interest in allowing negligent conveyancing solicitors (or, in financial terms, their insurers) who are not a party to, and know nothing about, the illegality, to avoid their professional obligations simply because of the happenstance that two of the clients for whom they act are involved in making misrepresentations to the mortgagee financier…”.

Supreme Court

Our clients’ appeal to the Supreme Court, however argues that the law has been misapplied.  We submit that the fundamental legal doctrine of “ex turpi causa” should be upheld. This is Latin, meaning, “from a dishonorable cause an action does not arise”.  This provides that a wrong doer should not be entitled to use the court to profit from their illegal act. This principle is especially relevant in the law of contract, tort (negligence and breach of duty) and trusts.

Our appeal asks the Supreme Court to look at how the recent leading case of Patel v Mirza and its guidelines should be applied to this case, and other similar cases.

Our clients’ appeal

Arguments we have put to the Supreme Court on behalf of Stoffel & Co and its professional indemnity insurers include:

  • Mortgage fraud should be deterred. It was not a “happenstance” that Ms Grondona was involved in making misrepresentations to her building society.  The very purpose of the retainer with the solicitors and the instructions she gave to Stoffel & Co to register the land transfer were to facilitate the fraud.
  • It is agreed that Stoffel & Co made a mistake. They were unaware of Ms Grondona’s fraud. There was no allegation that the solicitor was dishonest or involved in the fraud.
  • The formal instructions, the agreement of the solicitors to act (the formal “retainer”) was not “legitimate or lawful”. Rather, it was engineered by Ms Grondona, misleading the building society and the solicitors for the purposes of enabling her fraud.
  • Underlying the fraud which Ms Grondona willingly entered into was the prospect of recovering 50% of the profits on the sale of the property.
  • Ms Grondona was evidently seeking to profit from the mortgage fraud (as she was entitled to 50% of all profits). There should be no difference in principle to making a profit or avoiding a loss, each of which would have been caused by her involvement in the mortgage fraud.
  • There were no “potential irregularities” which could have put the solicitors on notice of a fraud. The arrangement of a “sham” purchase could take place without a solicitor picking up any hint of a fraud.
  • Ms Grondona’s illegal conduct was central to the contract of retainer between her and the solicitors. The sale transaction (and other sale transactions which she constructed with her co-conspirators) were a sham.
  • It was necessary to retain solicitors in order to maintain the pretence that she was borrowing to purchase. The retainer was not “otherwise proper and legitimate”.  The whole purpose of the exercise was dishonestly to extract a loan secured by a mortgage.

We also maintain the four principal tests outlined by Lord Toulson in Mirza should support our clients’ appeal;

“Seriousness”: Ms Grondona’s conduct amounted to a crime;

“Centrality”: the purpose of the retainer with the solicitors was to further Ms Grondona’s fraud;

“Intentionality”: there can be no doubt that Ms Grondona’s actions were intentional and deliberate; and

“Relative culpability”: Ms Grondona was an active participant in a mortgage fraud from which she stood to benefit significantly.


Arguably, there was, and is, a significant risk that if it stands, this decision would undermine:

    • the integrity of the system of conveyancing in this country and
    • the integrity of the justice system. (MacLachlin J in the Canadian Supreme Court decision of Hall v Herbert)

The outcome of this case will be of interest not just to solicitors, insurers and lenders, but to the public generally and specifically anyone with a property to buy or sell.

For further information regarding professional negligence claims and property disputes, contact our Head of Litigation, Paul Sykes.

Call us today on 0800 988 7756 for a FREE initial consultation.

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