Clydesdale Bank Plc v Workman and Others and Another
| Jurisdiction | England & Wales |
| Judge | HHJ Pelling QC |
| Judgment Date | 12 December 2013 |
| Neutral Citation | [2013] EWHC B38 Ch |
| Court | Chancery Division |
| Docket Number | Case No: HC12C00082 |
| Date | 12 December 2013 |
[2013] EWHC B38 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
7 Rolls Building
Fetter Lane
London
EC4A 1NL
His Honour Judge Pelling QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: HC12C00082
Mr Roger Stewart QC and Scott Allen appeared on behalf of the Defendant
Mr Michael Pooles QC and Jamie Smith appeared on behalf of the Third Party
This is the trial of a claim by the Defendants (who I refer to hereafter as "BPE") against the Third Party for equitable compensation or damages for alleged knowing assistance in a breach of trust. The breach of trust was the paying away of monies representing the proceeds of sale of a property that had been charged by its registered owner to the Claimant in these proceedings, Clydesdale Bank Plc trading as Yorkshire Bank. I refer to it hereafter as "the bank". The charge in favour of the bank had been executed by the registered owner, Lord Edward Developments (Beechwood) Limited, which I refer to hereafter as "the company", and had been registered by the Registrar of Companies. BPE, acting by Mr Billings, had acted for the bank in relation to the mortgage of the property but had failed to register the charge with HM Land Registry.
It is common ground that the legal charge was binding in equity on the company even though not registered at HM Land Registry and that on sale of the property charged its effect was to create a trust interest in the proceeds of sale in favour of the bank. The company took advantage of the failure of BPE to effect registration and caused another charge to be registered after being informed by the Third Party, acting by a partner at the time, Mr Denslow, and an associate at the time called Mr Murphy, of the non-registration charge. It is common ground that this was a fraudulent scheme by which the promoters of the company were able to obtain virtually all the proceeds of sale, less sums due to the vendor of the property to the company and the Third Party's costs. Once the scheme and its effect came to light the bank made a claim against BPE, which was settled. The total sum claimed by the bank exceeded £2 million, but its claim against BPE was settled for a sum totalling £1,423,039.05. As part of the settlement, the bank assigned to BPE all its rights against the Third Party.
The proceedings that I am now concerned with are brought by BPE against the Third Party, both as assignee of the bank's causes of action and in their own right under the Civil Liability (Contribution) Act 1978. There are alternative ways in which the claim is put, but from the outset BPE have made it clear that their primary case is that the Third Party, acting by Mr Denslow and Mr Murphy, were dishonest in the sense required for liability to attach for knowing assistance in a breach of trust.
It will be necessary for me to set out in much more detail the facts of this case, but I note at the outset that the Third Party accepts that:
a. The company received the proceeds of sale of the property on trust with the bank;
b. The payment away of the proceeds of sale other than to the bank was a breach of trust, and:
c. acting by Mr Denslow and Mr Murphy they assisted the breach of trust by the company.
That being so, it is agreed that the principal issue that I have to determine is whether Mr Denslow or Mr Murphy have been proved to be dishonest in the sense required for liability for knowing assistance to be established. As to that, it was common ground that the principles to be applied are those identified in the well-known trilogy of authorities of Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, Twinsectra Ltd v Yardley [2002] UKHL 12 [2002] 2 AC 164 and Barlow Clowes International v Eurotrust International Limited [2005] UKPC 37 [2006] 1 WLR 1476.
In summary, the applicable principles are:
a. The test of dishonesty is partly subjective and partly objective;
b. The subjective element involved finding what the Defendant actually knew and understood and, if timing is relevant, when he or she knew it; and
c. The objective element involves the court deciding whether or not the actions of the Defendant were dishonest given his or her actual knowledge and understanding at the time of those actions, but applying normally acceptable standards of honest conduct.
It is also common ground that the person against whom an allegation of knowing assistance is made cannot avoid a finding of dishonesty on the basis that he was not aware of the matters which if known would render his conduct dishonest if that ignorance is due to that person deliberately closing his or her eyes and ears or deliberately not asking questions lest he or she will learn something that he or she would rather not know.
I remind myself that the legal burden rests on BPE to prove each element of its case to the civil standard, that is on the balance of probabilities. Given the nature of the allegations made, I also remind myself of Lord Nicholls well-known dictum in Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] Appeal Cases 563 and 586, where he said:
'The balance of probabilities standard means that a court is satisfied that an event occurred if a court considers that on the evidence the occurrence of the event was more likely than not. In assessing the probabilities, the court will have in mind as a factor to whatever extent it is appropriate in the particular case that the more serious the allegation the less likely it is that the event occurred and hence the stronger should be the evidence before court concludes that the allegation is established on the balance of probabilities. Fraud is usually less likely than negligence…Built into the preponderance of probabilities standard is a generous degree of flexibility in respect of the seriousness of the allegation.'
The trial took place between 3 rd and 6 th December 2013. I heard oral evidence from Mr Billings, Mr Denslow and Mr Murphy. I also heard evidence from Mr Burke and Mr Boss, two senior partners in the Third Party firm. Their evidence went to what occurred following the discovery of the fraud carried out in the name of the company. Mr Boss was charged with investigating the conduct of Mr Denslow and Mr Murphy. Mr Burke chaired the disciplinary hearing that followed. This resulted in the dismissal of Mr Murphy and the departure of Mr Denslow on terms that were agreed. Both Mr Boss and Mr Burke were at pains to point out that they each were satisfied that neither Mr Denslow nor Mr Murphy had acted dishonestly. In my judgment, that evidence is inadmissible and unhelpful. Neither had exposure to all the material that is now available to me and the question whether either Mr Denslow or Mr Murphy was dishonest is the ultimate question that I have to resolve. I make clear, therefore, that I have left that material out of account in arriving at the conclusions that I have arrived at in this case.
There are two final points that I should make at this stage. Some reliance was placed by BPE on the response from both Mr Denslow and Mr Murphy following the discovery of the fraud on the bank that is said to be inconsistent with the position now adopted. Such material can assist in determining where the truth lies, but I remind myself that people lie for a variety of different reasons, including attempting wrongly to bolster a true case that the person concerned perceives to be weak. Thus while a possible inference from an untruthful response is that the witness concerned ought not to be believed, there are dangers in adopting this approach in too mechanistic a manner.
Finally, I mention at the outset one critical point concerning the technical knowledge of both Mr Murphy and Mr Denslow. According to Mr Denslow's witness statement, his main areas of work were ' …commercial property, although I also specialise in residential conveyancing, wills, probate and social housing charity law…'. Immediately prior to becoming a salaried partner at the Third Party, Mr Denslow had been a salaried partner at another Midlands law firm called Cobbetts. Mr Murphy was part of Mr Denslow's team at Cobbetts, as he was at the Third Party. Both moved to the Third Party when the social housing team moved from Cobbetts to the Third Party. Mr Murphy said that his main areas of work were commercial property and from 2006 social housing work.
For reasons that will become apparent, it is common ground that throughout the transaction with which I am concerned both Mr Denslow and Mr Murphy displayed what on any view were poor technical legal skills. It was accepted by Mr Pooles QC for the Third Party that both had consistently fallen significantly below the standard to be expected of reasonably competent solicitors. This caused me to ask myself whether in truth either or both of them appreciated the effect in law of an unregistered legal charge. If they did not, it might explain much of what Mr Stewart QC on behalf of BPE maintains can be explained only on the basis that both Mr Denslow and Mr Murphy were, and particularly Mr Murphy was, dishonest. Both were cross-examined on the point and both readily agreed that they understood the true legal principles. As far as I can see, neither asserted the contrary in the disciplinary proceedings.
Whilst I have doubts about this issue, particularly in relation to Mr Murphy and particularly in the light of the exchange recorded at transcript page 73, line 17, on balance I have concluded that each understood the effect of a legal charge that had not been registered against the title of a property charged at all material times, not least because their assertion that they had such knowledge was clearly an assertion that it was against their interests to make. It...
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Clydesdale Bank Plc (Claimant) John Workman and Others (Formerly Trading as Bpe Solicitors, (A Firm)) (Respondents) Shoosmiths (A Firm)(Appellants)
...obtaining all the proceeds of sale of large parts of the mortgaged property in fraud of the lender. The judge's judgment is at [2013] EWHC B38 (Ch), [2014] PNLR 18. First it is necessary to set out the background facts. 2 Lord Edward Developments (Beechwood) Ltd ("the company") is a devel......