Clydesdale Bank Plc v John Workman & Ors

Dishonest assistance must be assessed by reference to all the circumstances known to the alleged assistant, including the facts which that person genuinely believed, personal attributes and the reasons for acting. Recklessness may evidence dishonesty, but it is not equivalent to dishonesty.

A court cannot find a solicitor dishonest without carefully addressing a potentially exculpatory account of the solicitor’s state of mind. Where solicitors believed that a prior registered charge exhausted the sale proceeds, payment to that chargee was consistent with the legal priorities and could not, without rejection of that belief, establish dishonesty.

An appellate court may intervene despite its usual restraint over factual findings where the trial judge omitted a necessary building block of the conclusion.

A lender held an unregistered charge over registered development land. A later charge in favour of another person was registered and therefore appeared to have priority. Solicitors acting for the borrower subsequently completed sales of three plots and paid the proceeds to or for the registered chargee.

The lender alleged that the solicitors had dishonestly assisted a mortgage fraud. His Honour Judge Pelling QC held that they acted dishonestly in relation to two plots: [2013] EWHC B38 (Ch), [2014] PNLR 18. Shoosmiths appealed, contending that the judge had failed to decide whether the solicitors genuinely believed the registered charge secured more than the proceeds. The respondents cross-appealed concerning the commencement date for interest.

The central issue was whether the findings made at trial were sufficient to establish dishonest assistance.

1. Appeal allowed. The trial judge’s finding of dishonesty was insufficiently secure because he had not addressed a potentially decisive issue: whether the solicitors genuinely believed that the registered Hayward charge secured more than the aggregate sale proceeds. Longmore and Kitchin LJJ agreed with Lewison LJ.
2. The lender’s unregistered charge operated only in equity under sections 27(1) and 27(2) of the Land Registration Act 2002. The later registered charge had priority under sections 29(1) and 48. The lender’s legitimate interest in the proceeds was therefore limited to any balance remaining after satisfaction of the registered charge.
3. If the solicitors believed that the registered charge exceeded the sale proceeds, the registered chargee was entitled to those proceeds. Paying them to his solicitors would then have complied with the legal priorities and would not have been dishonest. The trial judge neither rejected that evidence nor found that the solicitors knew the charge was a sham, knew it secured less than the proceeds, or deliberately avoided discovering its amount.
4. Recklessness is not equivalent to dishonesty, although it can be evidence of dishonesty. The assessment must consider all the circumstances known to the alleged assistant, personal attributes such as experience and intelligence, and the reason for acting. The trial judge stopped the inquiry too soon by noting that the solicitors followed their client’s instructions without deciding why they believed those instructions had to be followed.
5. An appellate court should be reluctant to interfere with a trial judge’s factual findings. Intervention was nevertheless justified because the judge had omitted a necessary building block of his conclusion rather than merely making a factual assessment with which the appellate court disagreed. Longmore LJ added that the case did not involve the kind of appellate reversal criticised in Twinsectra: the Court of Appeal was not finding the solicitors honest, but holding dishonesty unproved.
6. A retrial was refused. The advanced conspiracy case had failed, the events were old, and the omission had been drawn to the trial judge’s attention without producing the necessary finding. The interest cross-appeal consequently did not arise.

1. Court of Appeal (Civil Division): Allowed Shoosmiths’ appeal from the finding of dishonest assistance in [2013] EWHC B38 (Ch). It refused a retrial. The respondents’ cross-appeal concerning interest did not arise.
2. High Court, Chancery Division: His Honour Judge Pelling QC held the solicitors dishonest in relation to the sales of plots 3 and 4: [2013] EWHC B38 (Ch), [2014] PNLR 18.