"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".
The Court of Appeal has overturned a High Court decision that two solicitors were guilty of dishonest assistance in a breach of trust (Clydesdale Bank plc v John Workman & Ors).
The case involved a mortgage fraud on a bank which had a charge over development land. The charge had only been registered at Companies House, and not HM Land Registry, so it was an equitable rather than legal charge.
The two solicitors in question knew about the equitable charge, but decided that it was "trumped" by a legal charge, (this time registered at HM Land Registry) in favour of a third party. Having made that decision, they then acted on their client's instructions to pay over the sale proceeds of the development land to the third party. That third party turned out to be a bogus lender.
The trial judge was distinctly unimpressed with the legal knowledge and commercial awareness of the two solicitors, and concluded that an honest solicitor with their knowledge would not have proceeded as they did.
This judgment was criticised by the Court of Appeal for failing to consider why the two solicitors acted on their client's instructions. Their evidence was that they did so in the (correct) belief that the third party charge trumped the bank's charge, and so they paid the proceeds of sale to someone who was entitled to them. The judge did not have to accept that evidence, but he needed to address it and deal with what was potentially a good defence.
"In a case in which a judge has failed to address expressly the solicitors' evidence….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."
The Court of Appeal judges accepted that they should generally be reluctant to reverse the findings of fact of a trial judge who has heard the evidence first hand, but did so in this case because the judge had failed to address a critical point in the evidence.
This case demonstrates the seriousness of a finding of dishonesty against a solicitor, and the need for judges to address all the evidence, including motive, before making such a finding. It is also a salutary lesson for solicitors that they should not accept their client's instructions without question.