Appeal court rejects dishonesty finding against solicitors

Topics: Property commercial

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The Court of Appeal has dismissed allegations of dishonesty against two solicitors after finding that a High Court judge had ignored their defence in a case concerning mortgage fraud.

The solicitors, named in the judgment as Mr Murphy and Mr Denslow, were found by the High Court to have been guilty in 2013 of dishonest assistance in a breach of trust.

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The case, brought by Clydesdale Bank, involved an alleged mortgage fraud which resulted in a borrowing company obtaining the proceeds of a sale of large parts of a mortgaged property in fraud of the lender.

The bank had claimed Murphy and Denslow, who worked for now-defunct national firm Cobbetts before moving to Shoosmiths, were part of a ‘sophisticated conspiracy’ hatched after it was realised the bank’s charge had not been registered, with the solicitors ‘in it from the start’.

The pair had said they concluded that they should act in accordance with their instructions from the company that borrowed the money, with the end result that two transfers of plots of land were completed.

In December 2013, His Honour Judge Pelling QC, sitting in the High Court, heard that Murphy and Denslow had become dishonest ‘almost overnight’. The judge ruled that the solicitors could have taken several steps to check on the position, and that they were responsible for 65% of the bank’s losses.

But following a two-day hearing in the Court of Appeal last month, Lord Justice Lewison concluded that the attempt to prove dishonesty had failed and could not be retried.

In Clydesdale Bank v John Workman & Ors, Lewison pointed out that even if it was reckless to allow the entirety of the sale without further enquiries, he was ‘not convinced that recklessness is equivalent to dishonesty’.

Lewison said the attempt to prove dishonesty had failed. ‘A finding of dishonesty, especially against a solicitor, should not be made without the most careful consideration of what the solicitor says in his own defence,’ he said. ‘In my judgment the judge simply failed to deal with what was, at least potentially, a good defence.’

Readers' comments (6)

  • When you read the judgment it is difficult to imagine how the judge at first instance came to a decision that the solicitors had been dishonest. One fears that it was yet another case of a judge thinking "Oh look, there is a solicitor involved, he must be to blame".
    The simple fact is that the bank's charge was not registered. Its charge therefore only operated in equity, and the solicitors acting for the company/borrower could only be liable if they knew that the funds were being dishonestly funnelled elsewhere to defeat the bank's equitable claim.
    One wonders what the result would have been if, instead of paying the proceeds of sale to another (bogus) lender, whose charge was registered at the Land Registry, there had been no other charge, and they had paid the proceeds of sale to their client company who had said it would deal with the bank itself.
    Sadly the solicitor who failed to register the banks charge had no answer to the claim against him, and his insurers are in the soup. Those insurers have even made matters worse by running this ill conceived third party claim.

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  • Having read both judgments, it appears that Judge Pelling had formed a dim view of the professional competence of Murphy and Denslow, and by the time it came to the last sequence of events which caused the loss, he considered that their incompetence had become dishonest assistance. Lewison LJ's careful analysis observes that it is hard to believe that both men went from honest to dishonest overnight, and their final error - not checking what was due on the prior charge - was at worst reckless, not dishonest.

    It is very much a case on its facts - and the bank's claim does come through as somewhat desperate - and the main lesson is that solicitors should not be too trusting of clients, even longstanding clients, and suspend their critical faculties simply because the client is long known. It should also be noted that the material events took place in the aftershock of Lehman Brothers' collapse, and fraud always becomes more tempting when markets dip unexpectedly, and profit expectations take a hammering.

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  • I agree with Simon (any relation to Herman, who taught me property law 50 odd years ago?). It's necessary to read the appeal first if you're to follow the facts. The judgment at first instance becomes very muddled - and as I read it the judge misdirected himself on the standard of proof in the solicitors' favour.

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  • Richard - Hermon (correct spelling) was my uncle. In my youth CC Registrars would ask politely if I was Nephew Tom ...

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  • What a relief to see that someone somewhere rejects the presumption of guilt until innocence is proven in the case of solicitors

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  • Simon, sorry about the sp. He was a superb teacher and a very nice man.

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