CA upholds ruling that solicitor did not condone partner’s £16m fraud

Taymouth Castle: £6m liability

The Court of Appeal has dismissed the latest bid by the insurer of London law firm Jirehouse – whose founder is in jail for fraud – to exclude liability for the multi-million-pound loss suffered by a client.

The court upheld the decision last year of Mr Justice Robin Knowles in rejecting Axis Specialty Europe’s argument that partner Vieoence Prentice had condoned the actions of Stephen Jones, triggering an exception to its cover.

In 2022, Mr Jones was jailed for 12 years for fraud by abuse of a position of trust following a private prosecution brought by his former client. The civil claim has been going on for some years.

The Jirehouse entities – the term used for three connected law firms – acted for Discovery Land Company, an American property developer, on its planned acquisition of historic Taymouth Castle, where Queen Victoria and Prince Albert stayed on their honeymoon.

Mr Jones misused two payments into the firm’s client account of $14m from the client in 2018 (£10.5 at the average exchange rate that year) and £5m in early 2019 from a loan dishonestly obtained by Mr Jones using the castle as security. The money has not been recovered.

Axis provided the primary layer of Jirehouse’s cover (£3m per claim, less a £250,000 excess), under which it would have to pay out unless it could show that Mr Prentice, as the firm’s other partner, condoned Mr Jones’s actions, in which case the liability would fall on the SRA Compensation Fund. There was no suggestion that he was involved in the fraud.

He resigned in 2019 after a decade at the firm, and insisted to the court that, until then, he “had not seen anything which would indicate Mr Jones was behaving as anything other than an experienced, honest and reliable solicitor”.

Axis argued that Mr Prentice was aware of Jirehouse’s financial problems and, as a result, the temptation or need for Mr Jones “to help himself to client funds”. But it submitted that he turned a blind eye.

Despite finding that Mr Prentice had lied to Jamie Smith KC – who interviewed the solicitor in 2019 at the request of Axis – and on oath, Knowles J held that his motivation was “to try to distance himself from facts and circumstances that by then he realised presented or appeared to present personal risk to him”.

He concluded: “In my judgment the true story of this case is that Mr Prentice’s standards fell well below those required in his profession. Indeed there are episodes that show he was untrustworthy and prepared to behave dishonestly.

“But these episodes were not such as to justify a conclusion that he in any way appreciated that Mr Jones could be embarked on multi-million pound fraud, extracting client monies in connection with the commercial entities with which he was involved.”

Axis founded its appeal on the adverse findings made about Mr Prentice’s honesty. Lady Justice Andrews, giving the unanimous decision of the Court of Appeal, acknowledged that in places other judges would have also given less “benign” interpretations of the solicitor’s actions.

Knowles J had nonetheless been “highly critical” of Mr Prentice but “for the reasons which he gave in the course of a lengthy, nuanced judgment which addressed the evidence in painstaking detail, the judge found that Mr Prentice’s evidence contained a mixture of truth and untruth”.

The judge expressly addressed Mr Prentice’s motive for lying and Andrews LJ found it “a rational evaluation”. She added: “We were shown no material that would begin to support a finding that the judge was not entitled to take that view.”

She concluded: “Ultimately, the judge was entitled to reject Axis’s case on condonation for the reasons which he gave. His findings about Mr Prentice’s state of mind and the reasons why he failed to make proper enquiries, and why he lied to Mr Smith KC and to the court, were not ‘rationally unsupportable’.

“His decision that there was no condonation by Mr Prentice of Mr Jones’s wrongdoing was not ‘plainly wrong’.”

The court similarly rejected Axis’s appeal against Knowles J’s decision that the two elements of the fraud should not be aggregated and treated as one claim.

Although the same property was involved and the victims of the frauds were clients who were closely related entities, “those factors are insufficient to provide the necessary link between the two transactions”, Andrews LJ said.

“As the judge also observed, the fact that the purchase of the castle provided the opportunity for Mr Jones to steal the money on both occasions does not answer the question whether the transactions fitted together.”

He reached a conclusion “which was not only open to him on a holistic assessment, but in my view plainly correct”.

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