Judge’s finding that partner was ‘actively dishonest’ set aside by Court of Appeal

The Court of Appeal has backed a law firm partner's appeal against a judge’s ruling that he had been ‘actively dishonest’, finding the judge erred in her approach. In in Grosvenor Property Developers Limited (in liquidation) v Portner Law Limited three judges set aside the judge’s decision against London firm’s Portner Law Limited, but said nothing in their judgment ‘should be taken to condone lax behaviour, whether by conveyancing solicitors or any other professionals’.

In lead judgment, Lady Justice Falk, with whom Lord Justice Nugee and Lord Justice Phillips agreed, said: ‘There is a critical distinction between negligent behaviour, even in its grossest form where it is known that standards are not being met or are being ignored, and dishonesty. In this case the findings were consistent with negligence.’

Last year, Portner Law was found to be vicariously liable to the actions of Daniel Broughton who was found to have shown a ‘complete disregard for his professional obligations’ to check the source of funds assisting the misappropriation of £2,399,000.

Broughton, admitted in 2006 and a partner at Portner Law, worked on a number of London property transactions for Sanjiv Varma and his son. Grosvenor Property Developers, established to convert a former hotel in Bristol into student accommodation, raised funds from investors but went into liquidation without taking any steps to acquire or convert the building. Its sole statutory director, Jonathan England and its de facto director, Sanjiv Varma, have since been found liable in other proceedings for the misappropriation of approximately £7m. Varma has also been found in contempt of court and has left the country.

The firm appealed, arguing the judge had failed to making proper findings as to Broughton’s beliefs in respect of each transaction, failed to apply the correct test for dishonesty, and wrongly concluded that the firm was liable in dishonest assistance.

Lady Justice Falk said: ‘There are good reasons for the two-stage process rather than the test as posed by the judge. A single test of asking whether a person acts as an honest person would is not a particularly helpful tool for determining dishonesty.’

She added: ‘There is no finding anywhere in that judgment that Mr Broughton made a conscious decision not to ask further questions for fear of what he might find out. Mr Broughton was knowingly cutting corners with clients generally. But a failure to take steps that he knew that a diligent solicitor would take cannot support a conclusion of dishonesty without a targeted suspicion and a choice not to enquire for fear of confirming it.’

On the basis of the judge’s findings of fact, the CoA said ‘the only proper conclusion’ was that the allegation of Broughton’s dishonesty in relation to the transactions was not made out.