Grosvenor Property Developers Ltd v Portner Law Ltd

The solicitors accepted that the firm was vicariously liable for Mr Broughton’s actions. It also accepted that, if Mr Broughton had a dishonest state of mind, the steps taken in providing the legal services it had provided amounted to dishonestly assisting the directors’ breaches of the fiduciary duty. The solicitors’ defence to the claim rested primarily on the assertion that Mr Broughton had not acted dishonestly. The defendant also raised an issue as to quantum, arguing that the claimant had failed to give credit for sums already recovered in the liquidation.

The test for dishonesty in assisting in a breach of fiduciary duty is set out in Royal Brunei Airlines v Tan, in which Lord Nicholls defined it as “simply not acting as an honest person would in the circumstances.” Importantly, he also stated “This is an objective standard.”

The approach of the court must be, first, to ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts, but it is not a requirement that his belief must be reasonable: the question is whether it is genuinely held. Second, once the individual’s actual knowledge or belief as to the facts has been established, the question whether his/her conduct was honest or dishonest falls to be determined by applying the (objective) standards of ordinary decent people. “There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest” (Lord Hughes in Ivey v Genting Casinos). 

The decision in Gruppo Torras v Al-Sabah figured significantly in the judge’s reasoning. It was apposite as it dealt with the actions of a Spanish lawyer who had engaged in conduct which assisted a conspiracy to carry out fraud. The judge at first instance found that the lawyer had not been a party to the conspiracy but had been guilty of “blind eye” dishonesty in failing to ask questions which an honest lawyer would have asked. The Court of Appeal upheld the first instance decision. The case before Saira Salimi, sitting as a deputy High Court judge, was similar in that there was no suggestion that Mr Broughton had actual knowledge of the underlying fraudulent misappropriation of money belonging to the company. The question was precisely whether he had been culpable of “blind eye” or “Nelsonian” dishonesty in that he had a suspicion that the transactions in relation to which he had been engaged might not have been wholly proper yet deliberately failed to take steps to verify the position.

The deputy judge found, on the evidence, that (among other things):

(1) In relation to one transaction, Mr Broughton had failed to distinguish adequately between his client, his client’s father and a company wholly owned by his client’s father, who “any solicitor should have recognised were three separate persons whose interests might not be identical.” Mr Broughton accepted in cross-examination that his conduct had been “sloppy,” but the judge held that it went further: “it showed complete disregard for his professional obligations. In the words of the Court of Appeal in Gruppo Torras, Mr Broughton failed to ask questions and that failure was dishonest because any honest lawyer would have done so. Any honest conveyancing solicitor of Mr Broughton’s experience would have carried out basic checks to ensure that he or she was not facilitating money laundering, given the number of parties participating in the transaction.”

(2) He had too readily accepted that his client and his family were wealthy and that funds for one transaction were a gift, even though he knew that he would need to see bank account details or similar evidencing this. He expressly said so to the clients but turned a blind eye to the absence of that evidence.

(3) He failed to have regard to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and their precursor regulations, the Law Society Anti-Money Laundering Practice Note 2013, and his  own firm’s policies on client care and money laundering.

(4) This was especially surprising since he had been the firm’s deputy anti-money-laundering officer, responsible for providing advice to other staff in the absence of the anti-money-laundering officer. He had qualified as a solicitor in 2006 and had worked for the firm ever since as a residential conveyancer.

The deputy judge concluded:

“Taken together, as I have set out this sorry history, Mr Broughton’s interactions with the Varmas show a pattern of disregard for his obligations as a solicitor, and repeated turning of a blind eye to obvious causes for concern. I have also found that in certain matters he was actively dishonest and made false representations concerning matters that were within his knowledge, notably in his certificate to the mortgage lender in relation to Hallam Street.”

She found that there were no extenuating circumstances. She disregarded an argument on motive (accepted by counsel for the defendant as forming no part of the test for dishonesty: Mr Broughton had profited from the transactions only to the extent that his firm had received fees for the work it had done. But:

“[G]iven Mr Broughton’s answers in cross-examination, it is clear that there was a pattern of behaviour that amounted to not looking too closely at clients’ finances, notwithstanding his seniority and awareness of the risks of solicitors’ client accounts being used to facilitate money laundering. It was his evidence that the period when he first met the Varmas was a busy and stressful time at work and he was under pressure. It was also his evidence that he never wrote client attendance notes, and that although he ticked the box to say that anti money laundering checks had been carried out he did not do so. I find, therefore, that he was knowingly cutting corners in the carrying out of essential checks.”

The quantum issue was deferred.

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1. 

   • Frances Coulson

   • Partner
   • Insolvency & Restructuring

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   • Daniel Moore

   • Partner
   • Real Estate Investment

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