A City firm has successfully defended a multi-million-pound claim relating to the release of client funds.

His Honour Judge Hodge dismissed breach of duty allegations brought against Mishcon de Reya by two former clients concerning payments made in 2007.

The claimants, a company based in Alabama and a UK firm, had alleged that Mishcons released almost £2.5m in total on the instructions of a client named as Mick Shephard.

They alleged that Mishcons breached its fiduciary duties as a recipient of the moneys, that a Mishcon partner acted dishonestly and that the partner and Shephard were conspiring together to defraud them.

The Mishcon de Reya partner involved in the transfer was Kevin Steele, who was jailed in 2011 in relation to a wholly separate fraud dating from 2008.

Hodge said all parties involved in the breach of duty claim accepted there was no proper basis for inferring that Steele must have committed fraud against the claimant because of his conviction in a separate matter.

Instead, the key issue was whether Mishcon could be rendered vicariously liable for Steel’s actions in releasing moneys on the authority of, and with directions from, Shephard.

In the High Court, the judge concluded there was no ‘conspiracy’ between Steele and Shephard, and that Steele was oblivious to any misapplication of the moneys which had been paid into Mishcon's client account. He added that the retainer letter prepared by Steele was not a ‘sham’ and he had provided no dishonest assistance.

In addition, any payment out of Mishcon’s client account over £10,000 had to be approved by another partner in addition to Steele, a procedure adhered to in relation to each payment out of the client account of which a complaint was made.

Steele had even flagged up a query about the transation to one of the firm’s compliance officers, a move which Hodge said if he had been a knowing party to fraud made him ‘either incredibly naïve or ridiculously stupid’.

Hodge added: ‘Whether or not Mr Shephard did defraud the claimants, and whatever sympathy one has for [them]… Mishcons were not to blame for their misfortune.’

A spokesperson for Mishcon de Reya said it did not want to comment on the case.