Findings of dishonesty, especially against solicitors, should not be made without “the most careful consideration” of what they say in their defence, appeal judges have warned.
The Court of Appeal overturned a High Court decision that two solicitors were guilty of “dishonest assistance in a breach of trust”, in this case a mortgage fraud.
Lord Justice Lewison said the trial judge, Judge Pelling QC, “failed to deal with what was, at least potentially, a good defence”.
Lewison LJ said that what was missing from the judge’s analysis was “any consideration of why” the solicitors acted as they did.
“It is true that the judge found that they followed the instructions given to them by their client, but that in my judgment is to stop the inquiry too soon.
“Why did they take the view that they had to follow their client’s instructions?”
The court heard in Clydesdale Bank plc v John Workman and others  EWCA Civ 73 , that the two solicitors were partner Simon Denslow and associate John Murphy, both working at the time at commercial firm Cobbetts, which no longer exists, and then at Shoosmiths.
Lewison LJ said the “critical issue” was the solicitors’ belief “about the status and extent” of a first charge over development land in Stourbridge, which was registered by a solicitor from another firm at HM Land Registry, but not also, “as it should have been”, at Companies House.
The lord justice said that, having discussed the issue, the solicitors – who were acting for the seller – concluded that the first charge “trumped” a further charge in favour of Yorkshire Bank, a trading name of Clydesdale Bank, which was registered at Companies House but not at the Land Registry.
“If they had simply decided that they had to follow their client’s instructions willy-nilly that might be sufficient to found a conclusion that they were reckless,” Lewison LJ said.
“But their evidence was not that their client’s instructions trumped the bank’s charge: it was that the Hayward charge [the first charge] trumped the bank’s charge.
“I certainly do not say that the judge was bound to accept their evidence that they believed that the Hayward charge secured more than the proceeds of sale.
“But in my judgment he ought to have confronted that defence head on. Unless he was able to conclude that he did not believe it (which he did not say), I do not consider that he was entitled to find that they were guilty of dishonesty.
“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.”
Lewison LJ went on: “The case against Messrs Murphy and Denslow, as put to the judge, was one of participation in a sophisticated conspiracy hatched as soon as the company realised that the bank’s charge had not been registered, and that Messrs Murphy and Denslow were in on it from the start.
“That case failed; and what the judge ultimately decided was far removed from the case that had been advanced.”
Lord Justice Lewison allowed the appeal by Shoosmiths. Lord Justice Kitchin agreed.
Describing a finding of dishonesty by a solicitor as an “extremely serious matter”, Lord Justice Longmore said: “In a case in which a judge has failed to address expressly the solicitors’ evidence that they thought the Hayward charge amounted to more than the proceeds of sale and failed to say that he disbelieved them, a finding of dishonesty is, in my view, insufficiently secure, especially when no motive for such dishonesty has ever been suggested.”
Agreeing with the leading judgment, Longmore LJ said there was no reversal of the burden of proof, and it was “merely a case of ‘not proven’, but for the reasons given by my Lord it is not appropriate to order a retrial”.
A spokeswoman for Shoosmiths said Mr Denslow and Mr Murphy had not worked at the firm for some time. Otherwise the firm did not wish to comment on the ruling.