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.

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.’

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