England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		7 Rolls Building Fetter Lane London EC4A 1NL
		12th December 2013

HHJ PELLING QC:

1. 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.
2. 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.
3. 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.
4. 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.

5. 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.

6. 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.'

7. 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.
8. 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.
9. 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.
10. 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.
11. 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 is against that knowledge that what happened must at least in part be judged. I also note that whilst each asserted that critical factual matters slipped in and out of their recollection at various stages, this was not alleged to be so in relation to the technical issue that I am now considering.
12. Before turning to the facts, I record a submission made by Mr Pooles to the effect that in a case of this sort it was important to maintain a strictly chronological approach because it was only if that approach was adopted throughout that the dangers of testing honesty by reference to knowledge that had not been obtained until a later date than that being considered could be avoided. I agree with this approach. Accordingly, the methodology of this judgment involves considering the facts in detail before reaching final conclusions as to the honesty of Mr Murphy and Mr Denslow.
13. I now turn to the facts of this case. Cobbetts acted as solicitors to the company from 2004. The company was one of a number of special project vehicle companies controlled ultimately by Mr Tibbetts. Mr Tibbetts was known well to both Mr Billings and Mr Denslow, each of whom had acted for him and various companies controlled by him for some years. Mr Billings trusted Mr Tibbetts and so did Mr Denslow. On the evidence, there is nothing to suggest that he was anything but trustworthy prior to the events of 2007-2008 which give rise to this case.
14. Mr Denslow's and Mr Billings' relationship prior to the events with which I am concerned was one that was longstanding and relatively close. Mr Denslow had been Mr Billings' trainee and both had worked in law firms in and around Birmingham for many years and for various parties in the same transactions. Both had acted either for companies controlled by Mr Tibbetts or other parties to transactions in which Mr Tibbetts' companies were concerned. The dynamic of this relationship was described by Mr Billings in paragraphs eight to nine of his witness statement in these terms:

'Whilst at BPE I did a lot of work for a longstanding client and friend called Tibbetts. Originally, I acted for Tibbett's father in or around 1980, met Tibbetts himself at a West Bromwich Albion shareholders meeting. We liaised about WBA tickets and Tibbetts referred work to me from his chartered accountant practice in Halesowen and hence we met regularly. Tibbetts left the accounting practice and I acted on the dissolution and later Tibbetts then became involved in property development, which I believe he later pursued full time. I acted for his companies on several occasions.

In the late 1980s, I introduced Tibbetts to Denslow. They became good friends and regularly met each other socially and went shooting together. Their relationship was such that Tibbetts subsequently gave most of his work to Denslow, although he also gave some work to another firm, MJ Darby & Co, as Mike Darby was a longstanding friend of Tibbetts. I seemed only to be instructed in relation to the more complicated work.'

I accept this summary as accurate. One of the persons who worked closely with Mr Tibbetts was Mr Stapleton.

15. Cobbetts first became involved in the acquisition of the company by Beechwood in 2004. The transaction was one for which at all times Mr Denslow was the supervising partner and generator of the work. Two assistants assisted him at that stage, Miss Yousef until 8^th September 2005 and thereafter Mr O'Byrne. The acquisition was ultimately completed in May 2006 and Mr O'Byrne left Cobbetts in September 2006. I mention each of these assistants as being concerned only because it will make comprehensible references that I make hereafter to correspondence and other documents. I emphasise that no allegations of any sort have been made against either of these solicitors.
16. BPE acted for the bank in relation to the transaction. The delay that occurred between exchange and completion was due to funding issues. Aside from what happened following completion, the detail of what happened during the period is immaterial save for one issue. In paragraph 16 of his witness statement, Mr Denslow said:

'On or about 5^th December 2007, John Murphy brought to my attention the Yorkshire's legal charges had not been registered over the property. I told John Murphy that I could not recall anything about a mortgage by Yorkshire over the property. Indeed, I am not sure I ever knew how this matter was being funded.'

17. This section of Mr Denslow's witness statement, and in particular the last sentence of this section, was subject to sustained cross-examination by Mr Stewart QC by reference to the documentation from the trial bundles. The main documents by reference to which this cross-examination was carried are summarised in paragraph 47.2 of the Claimant's closing written submissions and I need not repeat them here. The outcome of this cross-examination led Mr Stewart to submit at paragraph 48 of his written closing submissions

'There is accordingly no doubt that in May 2006 Mr Denslow was aware that the company was to receive funding from the bank to acquire the property. His assertion at paragraph 16 of his witness statement that 'I am not sure I ever knew how this matter was being funded' was wrong and he accepted that it could be rewritten to read 'I accept that I was kept fully informed of the Yorkshire Bank financing and at the point of completion knew that a loan had been made to my client'. His failure, until he had no choice, to accept matters which were obviously true, despite every opportunity to do so, demonstrates a complete refusal to grapple with the consequences of his own knowledge.

Mr Pooles accepted that this analysis was in substance accurate – see paragraph 28 of his closing submissions. Indeed, Mr Denslow accepted it in his cross-examination – see transcript day 2, page 71, lines 11 to 18. This is one of those concessions that I regard as impacting adversely on Mr Denslow's credibility as a witness. That is so not because he asserted in his statement that he was not sure if he ever knew about how the transaction was being funded but because he did not accept much sooner that the position was as he ultimately was driven to accept it was. Thus I treat with caution the uncorroborated oral evidence of Mr Denslow, save where it is corroborated by contemporaneous documents in respect of which there is no challenge or by evidence from another witness whose evidence is accepted or his oral evidence is against interest.

18. In fact, on 12^th May 2006, the bank advanced £1.35 million to the company, which entered into a legal mortgage in favour of the bank that day. The mortgage was granted as security for a facility of £1.99 million in order to finance the purchase of the property and the execution of phase one of the development of the property. As I have said, Mr Billings acted for the bank. He caused the charge to be registered at Companies House and then sent a letter dated 7^th June 2006 to Cobbetts for the attention of Mr O'Byrne and it was in these terms:

'Dear Sirs,

Barnsley Road, Birmingham actually Beechwood, Ounty John Lane, Stourbridge

We now have the Certificate of Registration of the Yorkshire Bank Charge at Companies House. Are you going to deal with the registration of the Charge at HM Land Registry on our behalf? If so, we will forward the Charge and Certificate to you on this basis.'

There was a point taken about the caption of this letter. Barnsley Road was another project being undertaken by a company controlled by Mr Tibbetts. The error originated in a mis-caption by Mr O'Byrne in the letter that he had sent to Mr Billings dated 4^th April 2006. However, the reference to Barnsley Road in the caption of this letter was a source of difficulty as this dispute has developed, as I will show in the course of this judgment. This letter was the source of all that followed.

19. Mr O'Bryne did not act on the letter. The Defendants maintain very strongly that the letter was never received at Cobbetts. At the start of the trial and as the result of an application by the Claimants, a search was undertaken of Cobbetts file relating to the Barnsley Road development that had been released to the Third Party. The result of that search was that the letter was not found on that file either. I conclude therefore, on the balance of probabilities, that this letter was not received at Cobbetts.
20. Mr Billings' explanation for writing the letter was that it would have been easy for Cobbetts to register the charge as they would be registering the company's title in any event. I am bound to say that I regard that explanation as odd given that the whole point of the bank retaining Mr Billings was so that he could protect the bank's interests. I consider it even odder that Mr Billings' file should have been filed away by an experienced legal secretary when no response had apparently been received to the letter to which I have referred and even odder still that no attempt was made to follow up the letter following Mr Billings' return from holiday. However, it is not suggested by the Defendants that the letter was not sent and in those circumstances I accept at face value the evidence of Mr Billings that the letter was sent and was not followed up as the result of administrative error and oversight. In the result, however, the charge was not registered.
21. At the end of September 2006, Mr O'Bryne left Cobbetts, as I have said. The only continuing issue in relation to Beechwood was the negotiation of a drainage easement. The file relating to that issue was transferred to Mr Murphy. That was his first involvement with Beechwood. The other file that was apparently active at that stage was described in Mr O'Byrne's handover note as relating to the sale of four freehold plots at Beechwood. The value was described as being approximately £1.2 million for the three plots and approximately £800,000 for Beechwood House itself. The combined value of these plots and the property was thus about £2 million. The file was not one that Mr O'Byrne understood would be transferred to Mr Murphy, as is clear from his handover notes. In fact, however, this file was handed to Mr Murphy.
22. By 9^th May 2007, Cobbetts had been instructed to act in the sale of plot three at Beechwood to an arm's length Third Party, Mr Davies, for a price of £1,275,000, split as to £525,000 for the plot and £750,000, which as I understand it was for assignment of the JCT contract under which the property was to be developed. It was agreed that Mr Murphy was to undertake the work under the supervision of Mr Denslow – see the letter to Mr Stapleton dated 9^th May 2007.
23. On 18^th May 2007, Mr Stapleton emailed Mr Murphy in these terms:

'…

Subject: Sale of Plot 3 to Mr. Brian Davies

Dear John,

I am under some considerable pressure to have contracts exchanged on same. I would be grateful if you could let me know what day next week I could expect a draft contract for consideration.

Apparently, Mr Davies is anxious to proceed and is with his solicitors next week to sort out his end of things, i.e. sale of other properties to us.

Other developers are on the prowl and I do not want to lose this.'

On 23^rd May 2007, Mr Murphy sent Mr Stapleton and Challinors, the solicitors acting for Mr Davies, a draft contract for comment – see the emails of that date, file 16, pages 3126-7.

24. The next event of central significance is that on 24^th May 2007 Mr Murphy wrote to the bank in these terms:

'Dear Chris,

Our Client: Beechwood Properties (Pedmore) Limited

Sale of Plot 3 Beechwood, Ounty John Lane, Pedmore

I confirm that contracts relating to the sale of this unit to B Davies at £525,000 for the land (in addition to £750,000 for the JCT contract) were dispatched to his solicitors yesterday and I am informed that the buyer is anxious to exchange within 2 weeks.'

It was put to Mr Murphy that the fact that he had written this letter demonstrated that he knew that funds had been lent to the company by the bank by no later than the date of this letter. Mr Murphy accepted that this might be so but also that it might relate to a general bank facility. In my judgment, when the letter is read in context, the letter is not consistent with Mr Murphy being aware of an outstanding charge over the property or of funding which was meant to be the subject of such a secured charge. Given that he was under pressure to reach exchange and completion, had he been aware of the charge but not aware that it was unregistered he would have been much more specific as to what was required. If he was aware of the charge and that it was not registered, he would either have not written the letter at all or, if competent and honest and having knowledge of the effect of an unregistered charge, would have written to the client with advice as to the position and thus, assuming that instructions to do so had been obtained, he would have written to the bank explaining the position and seeking to reach agreement as to how to proceed. Mr Pooles suggests that the most likely explanation is that Mr Stapleton had instructed Mr Murphy to write a letter in order to give comfort to the bank that there would be a reduction of indebtedness generally but shortly. Whilst I can see that there is a rational commercial justification for such a view, there is no evidence that this is so. Thus to reach a conclusion to that effect is speculation without evidential foundation. However, if this is the correct analysis then it shows that Mr Murphy knew that the company was in a financially distressed position as at that date.

25. Shortly thereafter, Miss Jo Davies of the Credit Control Department at Cobbetts sent an email to Mr Denslow and Mr Murphy, amongst others in the firm, in the following terms:

'Please note that we are issuing proceedings against the above client for the recovery of our costs. You have all open matters for this client. Could you please ensure no further work is carried out and further instructions are taken.

If you have any WIP or unbilled disbursements, could you please arrange for this to be billed or written off? If it is to be billed, can you let me know as soon as possible, please, so this can be included?'

The subject of the email was described in the caption box as being 'Lord Edward Developments'.

26. On 19^th June 2007, Mr Denslow responded by an email copied to Mr Murphy which was in these terms so far as is material:

'…s/o Barnsley Road - 27^th Jan 2006 - £7,267.

I was assured by Paul Tibbetts that this would be paid on 12^th May 2006. I am chasing him.

Matter 14 - p/o Beechwood - 27^th September 2006 - £2,658.09.

Matter 29 - drainage matter at Beechwood - 30^th April 2007 - £2,365.28.

First, we are holding in client account £100,000 out of which we can pay our costs for the drainage easement once it has been concluded. I understand from John Murphy this is imminent but you might like to check. Secondly We are acting in connection with the sale of the first plot, plot 3. This should be exchanged & completed within the next 6 weeks & we should be able to pay the O/S bills plus fees for acting on the plot sale, £2,500-£3,000 out of the sales proceeds. Accordingly, we are well covered on this matter.

…

Finally, you will be pleased to know that I have turned down the opportunity to do a new transaction for this client. I want to continue with the sale of plot 3 as it will release funds & unlock the £100,000 so our bills can be paid…'

27. The sale of plot three continued in an apparently conventional manner. On 15^th June 2007, Challinors raised various requests for different deeds, transfers and conveyances and on 28^th June 2007 Mr Murphy wrote to Mr Stapleton explaining the calculation of a small sum held by Cobbetts on its client account. The figures quoted were justified by references to copies of ledgers maintained by Cobbetts, including that for the purchase by the company of Beechwood. The copy enclosed included the record of the receipt of £1.35 million from the bank acting by BPE, as I referred to earlier.
28. On 3^rd July 2007, Mr Murphy responded to Challinors' letter. In his oral evidence, Mr Murphy maintained that he would have obtained copies of the document from the file of original title 'Documents'. Finally, in this particular part of the chronology comes a letter from Mr Murphy to Mr Stapleton dated 4^th July 2007. That is the day after his response to Challinors. This letter required not merely that Mr Murphy should obtain a copy of the purchase ledger for Beechwood but that he should mark up two entries on it. His letter was to the following effect:

'Dear Tony,

Purchase of Beechwood…

Further to your telephone call I enclose a further copy of the client account from this file. There are two relevant entries with regard to the purchase of the site. I have highlighted both of these. The first is the payment of 10% deposit of £87,500 on 12^th June 2005, the date of exchange of Contracts. The second is the payment of the balance of the purchase money of £1,562,500 on the completion date, 12^th May 2006. The latter figure is made up as follows:

purchase price, £1.75 million

less

deposit paid, £ 87,500

retention of the drainage £100,000.

…

Total £1,562,500…'

The ledger copy attached highlighted an entry on 3^rd June 2005, which was the payment by the company of the deposit on the purchase of £87,500 and the payment on 12^th May 2006 of the balance on completion of £1,562,500. The entry immediately preceding the completion date is the receipt entry from the bank via BPE that I have referred to earlier.

29. Mr Pooles submits that on the run of material that I have just referred to it cannot be inferred that Mr Murphy knew about the charge or the bank funding that was supposedly secured on Beechwood. As to this, I do not accept that Mr Murphy was unaware, at any rate at that date, that funds had been advanced by the bank, which enabled the purchase to take place. In my judgment, it is probable that in order to highlight the true figures that I have referred to on the purchase ledger in order to be able to write the letter of 4^th July 2007 Mr Murphy would have had to work through the ledger in order to identify the completion payment and this exercise would almost certainly have involved him reading, even if reading quickly, the ledger entries that preceded the ones that he wanted. The entry referring to the receipt of £1.35 million is not obscurely expressed. It says 'Client receipts TT BPE solicitors – Yorkshire Ban. funds -£1,350,000'. It is inconceivable that an experienced property lawyer such as Mr Murphy would not have understood what this entry was a reference to, however negligent, technically inept or commercially naïve he might otherwise be. Mr Pooles submits, however, that a conclusion to this effect does not assist in relation to Mr Murphy's knowledge of the charge. I agree with this point. However, that was not what was suggested. Mr Stewart's submission was that the material shows that Mr Murphy had seen at this date, very clear evidence that the bank had provided funding to facilitate the purchase of the property. I agree and accept this submission, subject to the qualification that it is reflective of the knowledge that Mr Murphy had at the time he wrote the letter.
30. Between July and October 2007, correspondence continued between Mr Murphy, Mr Stapleton and the solicitors acting for Mr Davies. Nothing turns on this material save to say that it demonstrates that the sale continued to be an active part of Mr Murphy's portfolio of cases during this period.
31. The next event of central significance was that on 2^nd October 2007 the bank wrote to Cobbetts in these terms:

'Dear Sirs,

Re: Beechwood Properties (Pedmore) Limited

Security: Beechwood, Ounty John Lane, Pedmore, Stourbridge

We refer to previous correspondence and shall be obliged if you will kindly confirm whether or not you are now in a position to forward all documents relating to the above to ourselves.

If you need to retain the documents, or if they are not yet available from the Land Registry, we would appreciate your advice as to when it is anticipated that they will be available, in order that we may update our records accordingly…'

That letter was received in Cobbetts on 4^th October 2007 according to the date stamp that appears on the copy in the bundle. Mr Murphy was then away on holiday and did not return to the office until 10^th October 2007. This letter went unanswered and unacknowledged. The letter was an odd one to have been written to Cobbetts because, as I have explained, Cobbetts had not acted for the bank on the purchase of Beechwood. The bank had attempted to instruct Cobbetts but as a result of discussions at the time, to which Mr Murphy was not a party, BPE had been instructed to act on behalf of the bank. This letter should have therefore been sent to BPE. Why Cobbetts did not respond to the letter is unclear.

32. A chasing letter in broadly similar terms was sent to Cobbetts by the bank, dated 30^th November 2007. Cobbetts received it on 5^th December 2007. Mr Murphy's evidence is that he received the second of the two letters and made contact with Mr Ellis of the bank. He says that the second letter came to his attention at the same time as the first one. I regard that as unlikely. What is significant is that the second of the two letters came to him on 5^th December 2007. That is the day that it was received by Cobbetts. It had no Cobbetts reference on it. This enables me to conclude that it is more probable than not that the first letter, which was in materially the same terms, was received by Mr Denslow on the same day that it was received at Cobbetts because Mr Denslow was responsible for seeing incoming mail and Mr Murphy was on holiday. I suspect, but there is no evidence that helps one way or the other, that this letter was simply filed. It was then not noticed or ignored by Mr Murphy on his return from holiday.
33. Mr Murphy kept an attendance note of his conversation with Mr Ellis. Insofar as is material, it is to this effect:

'JM phoning RE regarding the Bank's letters of 2^nd October and 30^th November to say that although JM was dealing with two sales of part of this site, he wasn't familiar with the acquisition and not only was there no mortgage on the registered title but JM had no information about it. It emerged that the letters had been intended for BPE, rather than Cobbetts, who had acted on the original charge on acquisition of the site.'

It was these events that Mr Denslow was referring to in paragraph 16 of his witness statement referred to earlier in this judgment when he referred to Mr Murphy having brought to his attention that the bank's charge had not been registered. Mr Denslow says that he told Mr Murphy that he could not recall anything about a mortgage. It is in my view likely that this is what Mr Murphy is referring to when he records in the attendance note that he said that he had no information. It will be recalled that Mr Murphy was not involved in the acquisition of the property.

34. Mr Stewart suggests that the reference to being instructed on two sales must be a reference to Mr Murphy being instructed in both the sale of plot three to Mr Davies and of all plots or all other plots to Mr Tibbetts. It was the sale to Mr Tibbetts, to which I will come in detail later in this judgment that was the means by which the fraud against the bank was carried into effect. However, the first mention in the documentation of such a transaction came in a letter in February 2008. There is no material at all that suggests that a sale to Mr Tibbetts was being considered on 5^th December 2007. No contact had been made with Mr Stapleton or Mr Tibbetts at that stage about the absence of a registered charge, and the charge in favour of Mr Hayward (that is the charge that was part of the mechanism by which the fraud was carried into effect) had not even been registered at that stage. I consider it likely therefore that the reference to two sales was a typographical error.
35. Mr Stewart describes the reference in the attendance note to Mr Murphy not having any information about the mortgage as 'dishonest'. As I have explained already, it is probable that Mr Murphy was aware that the bank had funded the acquisition of Beachwood. However, that does not necessarily lead to the conclusion that he is or even ought to be aware of the existence of a charge or for that matter that he could not honestly say that he had no information without looking for it. Furthermore, I do not see what information Mr Murphy could have been expected to get from the file that he had not been supplied with by Mr Denslow. It is not suggested by anyone that Cobbetts ever had a copy of the legal mortgage. Mr Billings' letter of 7^th June 2006 had not enclosed the charge. What that letter had said was that the charge would be forwarded to Cobbetts if they agreed to register it on behalf of BPE. Most importantly of all on the material before me, if the dishonest conspiracy had started by the date that I am now considering, I do not see why Mr Murphy would be informing the bank that the charge had not been registered. The failure of the bank to register was the lacuna that enabled the fraud to take place. That much would have been obvious if a fraud had been in contemplation at that stage. That being so, informing the bank that it had not got a charge registered would achieve nothing except to defeat the fraud that on BPE's hypothesis Mr Murphy was dishonestly assisting at this stage.
36. Finally, if and to the extent that Mr Murphy could be criticised for not making enquiries before contacting the bank, the evidence of Mr Denslow is that they had a conversation in which Mr Murphy and asked if he was aware of the charge and Mr Denslow had said that he was not – see transcript, day 2, 114 at line 326. The most that could be said at this time was that Mr Murphy and Mr Denslow became aware by 5^th December 2007 that the bank was asserting that it had a charge in its favour and that, by reference to the ledgers on the purchase file, £1.35 million had apparently been advanced by BPE to Cobbetts on behalf of the bank that had been used to finance the purchase. There is nothing that suggests that either Mr Denslow or Mr Murphy knew or had any grounds for suspecting that the company would act fraudulently towards the bank at this stage. Mr Tibbetts was the man behind the company and Mr Denslow trusted Mr Tibbetts, as indeed did Mr Billings.
37. After this conversation with Mr Ellis, Mr Murphy then wrote to Mr Stapleton reporting that conversation. He had not contacted Mr Stapleton for instructions before the conversation, as perhaps he ought to have done. Mr Murphy's letter to the client was in these terms:

'Dear Tony

Beechwood, Ounty John Lane, Pedmore.

I have received a letter from Yorkshire Bank asking for the deeds of this property.

I cannot see that there has been any previous correspondence by Cobbetts with Yorkshire Bank and when I phoned them it emerged that the letter should have been addressed to BPE who they said acted in respect of the mortgage on the title. There is no mortgage registered against the title.

Yours sincerely.'

38. At the same time, Mr Murphy emailed a copy of his letter to Mr Stapleton to Mr Billings. The email to Mr Billings identified the subject matter as being 'Beechwood' and the picture of the attached email showed it to be a copy of a letter sent to Mr Stapleton. The text in the main body of the email said 'Copy letter to mutual client'. Mr Stewart submits that this was plainly 'tipping off' by Mr Murphy of BPE and the company of the failure of BPE or the bank to register a charge securing its lending against Beechwood. This submission presupposes that Mr Denslow or Mr Murphy either knew or suspected that the company, Mr Stapleton or Mr Tibbetts would seek dishonestly to take advantage of this situation. There is, as I have said, no evidence that supports such an inference. To the contrary, the evidence is that all concerned regarded Mr Tibbetts as trustworthy at this time. The point that was made by Mr Stewart was that the final sentence of the letter to Mr Stapleton is a bizarre one to include. Either the letter was simply reporting receipt of the letters from the bank and the response, in which case a reference to there being no mortgage registered against the property was gratuitous and on BPE's case clear evidence of the start of Mr Murphy dishonestly assisting the company and its promoters to defeat the equitable interests of the bank. Alternatively, if the point being made was an innocent one then an honest solicitor would couple the information supplied with a summary of the legal position for the purpose of alerting the client as to its position. I reject that submission for the following reasons.
39. I regard this letter as no more than Mr Murphy doing what he thought that he should be doing, that is reporting to his client a conversation that he had with a third party relating to that client's affairs. Having seen Mr Murphy give evidence for several hours, I formed the clear impression that he was neither a sophisticated legal thinker or lawyer, nor someone who thought much if at all beyond the next step that had to be taken in the transaction with which he was concerned. I do not think that he was seeking to tip off Mr Stapleton as to the existence of an opportunity dishonestly to take advantage of the position the bank found itself in. In truth, I conclude that Mr Murphy simply did not give the point any thought at all. In my judgment, the strongest possible indicator that this was so was that he sent a copy of the letter that he had sent to Mr Stapleton to Mr Billings at or about the same time that he sent the letter to Mr Stapleton. I cannot see why, if Mr Murphy was intending to alert his client to a dishonest opportunity to defeat the bank's equitable interest, he would send a copy of the letter containing the alleged tip off to the solicitor acting for the bank or who had acted for the bank in relation to the transaction.
40. Mr Billings said in his witness statement that he could not recall opening the email. That may be so but it is immaterial. Mr Murphy could not know whether Mr Billings would open the email or not. By sending it, he was working on the basis that Mr Billings would open it. In his oral evidence, Mr Billings accepted that if he had read the document that had been sent to him, he would have realised that he had not registered the bank's mortgage – see transcript day 1, page 107, lines 6 to 18. He said also that he could not criticise the method by which Mr Murphy had communicated with him – see transcript day 1, page 108, lines 4 to 11. In my judgment, there was sufficient information on the face of the email to alert Mr Billings to the fact that the email contained or attached a letter to Mr Stapleton relating to Beechwood, a property in respect of which Mr Billings either knew or ought to have known that he had been instructed to act in on behalf of the bank.
41. Mr Stewart sought to avoid this point by saying in effect that Mr Murphy's dishonesty was to be inferred from the fact that he wrote to both Mr Stapleton and Mr Billings. I do not agree. Mr Murphy was at least arguably under a duty to report the substance of the conversation that he had with Mr Ellis to his client. It was arguably wrong for Mr Murphy to have made contact with Mr Billings without getting the authority of his client to do so. The key point, however, is that a dishonest assister in a breach of trust or a dishonest tipster would not alert the solicitors whose duty it was to protect the victim of the proposed fraud at the same time as alerting his principal as to the existence of a dishonest opportunity. Thus while I conclude that the letter was plainly inadequate to alert the client to its position in the light of non-registration, it is not a permissible inference to infer that Mr Murphy was providing implicit encouragement to his client to breach the bank's trust.
42. On 11^th December 2007, a first charge was executed against the title of the property in favour of a Mr Hayward. The charge was registered at HM Land Registry on 15^th December 2007 but was not registered with the Registrar of Companies. It is this charge that formed the foundation of the fraud. It is not suggested that Mr Murphy or Mr Denslow became aware of the execution or registration of the charge at this stage.
43. On 23^rd January 2008, Mr Murphy wrote to both the solicitors acting for Mr Davies in the purchase of plot three and to Mr Stapleton. The letter to Mr Davies' solicitors identified six points that remained outstanding. The letter to Mr Stapleton reproduced these points in identical terms, but added a seventh – 'the correspondence from Yorkshire Bank'. It is submitted on behalf of BPE that this material shows that Mr Murphy's assertion that he gave no further thought to the bank's charge is untrue. It was submitted that it was at this point that it dawned on Mr Murphy that the unregistered mortgage in favour of Yorkshire Bank could not be overreached and it was for that reason that this item was included in the letter to Mr Stapleton as an outstanding point. BPE consider this to be clear evidence that Mr Murphy was aware both in December, when he spoke to the bank, but in any event by 23^rd January 2008 that the bank was interested in the property or its proceeds.
44. There is no mention of this material in Mr Murphy's witness statement and when cross-examined he said that he did not think that he had been supplied with the material by the Third Party's solicitors in this litigation, had no independent recollection of it and thus did not mention it in his statement. Mr Stewart maintained that this was a lie and that it was not mentioned because there was no good explanation for it. He maintained that if this explanation was true, Mr Pooles would have confirmed it on instructions from his professional clients, Berrymans. I reject this as the correct analysis. The correct analysis is that if Mr Murphy had said something to the knowledge of Berrymans that was untrue then the only proper course would have been for Berrymans, by Mr Pooles, to have informed the court that such was the case. The inference to be drawn from the absence of any such comment is that Berrymans accept that what Mr Murphy said on this point is, or probably is true, and I proceed on that basis. I accept the point, however, that the reference in the letter to Mr Stapleton could only be to the correspondence that Mr Murphy had dealt with with Mr Ellis on 5^th December 2007.
45. The critical question remains, however, as to whether Mr Murphy was informed by Mr Stapleton at the meeting that followed, on 29^th January 2008, that there was a charge over the property that should have been but was not registered. BPE point to the fact that the item is not mentioned at all in the attendance note of that meeting. When cross-examined in relation to this issue Mr Murphy accepted that there would have been a discussion about the issue but he could not recall its terms or offer any explanation as to why there was not a summary of what was discussed in the attendance note. Mr Pooles submits that the probability is that this is when the discussion took place that Mr Murphy refers to in an email dated 17^th April 2008, to which I will come in more detail in a moment, in which he maintains that he was informed by Mr Stapleton that no funds were advanced by the bank that were to be charged against the property. Mr Pooles accepts that this is supposition because Mr Murphy could not remember. I agree that the meeting on 29^th January is the only point identifiable in the papers as to when such a conversation could have taken place. It is undoubtedly the case that Mr Murphy could have been informed of the position at that stage. He could, however, equally have been informed in the terms that he refers to in his email of 17^th April. In those circumstances, I prefer to reserve final judgment on that point until a later stage in this judgment.
46. What is apparent is that the fraudulent scheme had not been devised at this stage or, at any rate, the attendance note is consistent only with the sale of Plot 3 proceeding, as had always been intended. That is apparent from items one through six of the attendance note of 29^th January 2008, but also from pages 3068 to 3073 within file 16, the conveyancing file relating to the sale of plot 3. Most particularly, in an email from Mr Murphy to Mr Denslow of 18^th February 2008 and in relation to an internal enquiry concerning the payment of a bill, Mr Murphy said that the sale of plot was ongoing and was likely to complete before the end of March. Mr Pooles submits that it is a big leap to suggest that Mr Murphy knew that his client was going to exploit the non-registration of the charge on the basis of the contents of the letter and attendance note of 29^th January 2008. I agree, but that is not what BPE's case was. BPE's case is that it was to be inferred that Mr Murphy became aware of the banks' interest by no later than that stage. Whether that is so depends on what Mr Murphy was told on 29^th January 2008. If he was told that no funds had been advanced by the bank which was to be secured against Beechwood, and if he believed that to be so, then unless it could be said that he recklessly closed his eyes to the true position that would be his state of knowledge at that stage.
47. Mr Stewart's point is that by then Mr. Murphy knew of the charge and that funds of £1.35 million had been received from the bank by BPE, who had failed to register the charge. As I have said on a number of occasions already, this point depends upon me accepting that Mr Murphy would have recalled what he would have seen fleetingly when examining the ledger entry, which he reviewed on 4^th July 2007, some five months previously. I will return to that issue later in this judgment.
48. On 13^th February 2008, Cobbetts received a letter from Darby & Co., a firm of solicitors who had so far not featured in the transaction being conducted by Mr. Murphy. That letter was in the following terms:

'Dear Mr Murphy,

Re: sale of land at Ounty John Lane

Your client: Beechwood Properties (Pedmore) Limited.

I understand that you are instructed in the sale of three plots, numbers two, three and four of the development by Beechwood Properties (Pedmore) Limited and I confirm that I am to act for the purchaser.

Would you care to let me have contract documents at this stage with appropriate Land Registry-approved scale plan so that I can carry out searches?'

Mr Murphy did not apparently respond to this letter, but on 18^th February 2008 in an internal email of that date that I referred to earlier he said of this letter:

'In addition to plot three, we have just received a letter from a buyer of another three plots.'

Mr Murphy sought instructions from Mr Stapleton by email concerning this development. This suggests to me that he was not expecting Darby & Co's letter.

49. There was obviously some form of conversation between Mr Denslow and Mr Tibbetts at that stage because there is reference to such a discussion in the email from Mr Denslow to Mr Tibbetts of 19^th February 2008. That email is timed at 14.51. Mr Murphy's email to Mr Stapleton at 16.28 on 19^th February 2008 was to this effect:

'With regard to plot 3, I am obliged to notify the other solicitors'.

At 17.10 on the same day, Mr Murphy emailed the solicitors acting for Mr Davies saying:

'I have just been instructed to send copy title papers to another solicitor'.

There then followed emails on 20^th February between Mr Murphy and Mr Davies's solicitor in the following terms. Firstly, at 09.29 on 20^th February, Mr Davies's solicitor said this:

'Please clarify are you saying that your client is issuing another contract and thus a contract race?'

At 09.43, Mr Murphy responded saying:

'I have merely been instructed to send copy title papers so far, not a contract. I am unable to comment further - I suggest that your client speaks to mine direct.'

At 16.01 on 20^th February 2008, Mr Murphy received an email from Mr Tibbetts to this effect:

'John, in answer to your questions below:-

MJ Darby are acting for the buyer of plot two.

1) The reference to plot three is correct.

2) The sale price for plot two, £550,000, and plots three and four, £475,000 each. I am the buyer.

3) I would confirm that I will be dealing with the JCT myself.

4) No other agreed terms.'

50. Mr Murphy then emailed Mr Davies' solicitors in these terms. Firstly, at 10.41 on 21^st February, he said this:

'I am now instructed to send draft contracts out to another solicitor'.

At 16.18, he sent a further email to Mr Davies' solicitors saying:

'I have no instructions that there is now a contract race. I suggest that your client speaks to mine direct.'

This was followed by an email from Mr Murphy to Mr Tibbetts attaching the run of emails to which I have referred between him and Mr Davies' solicitor and saying this:

'Paul

copy emails from Mr Davies' solicitor attached. I am not sure what I am authorised to tell him.'

51. The significant point that arises from this run of email correspondence is the information from Mr Tibbetts on 20^th February 2008 that plot three was to be sold to him for £475,000, when previously it was to be sold to Mr Davies for in excess of £1 million and that all three plots were to be sold for £1.5 million. This information itself differed from the information supplied in an email of 19^th February. That email had, however, identified the purchaser as Mr Tibbetts. Thus Mr Murphy became aware as a result of this material that in place of the sale of one plot to a Third Party for in excess of £1 million there was now to be a sale to a connected party of three plots at a heavily discounted price. Mr Murphy was not yet aware of the charge in favour of Mr Hayward.
52. It was obvious that this change required an explanation. Ostensibly, the explanation was provided in the course of a telephone conversation between Mr Murphy and Mr Stapleton on 22^nd February 2008 which is summarised in the attendance notes in these terms:

'TS … confirmed that the transfer of the three plots to Paul Tibbetts was merely connected with financing and that in due course the deal with Mr Davies regarding plot 3 would still go ahead, although obviously in the name of Paul Tibbetts. He wasn't sure which solicitor would be dealing with the sale although he thought it was likely to be MJ Darby. He did confirm that the funds would be changing hands on the sale to Paul Tibbetts. He confirmed that he had spoken to Mr Davies direct…

JM reporting the above to Baldev Kang at Challinors.'

Mr Kang was of course the solicitor acting for Mr Davies.

53. Whilst it is possible for dishonest conduct to be disguised by inserting self-serving material into files for the purpose of evading allegations of dishonesty should that conduct come to light, having seen Mr Murphy give evidence I am entirely satisfied that he has neither the skills nor sophistication to create such material. In my judgment, the fact that he passed on information that was supplied to him by Mr Stapleton to Mr Davies' solicitor suggests that he accepted what he was told at face value. That he passed on what he was told in the terms that he was told it is demonstrated by the email from Mr Davies' solicitor of 25^th February 2008. This was not in any sense wilful disregard. It is simply that Mr. Murphy did not have the skills or experience to question what he was being told as being anything other than reflective of the true position. I fully accept that a competent solicitor is likely to have been much more sceptical about what he was being told. The cross-examination of Mr Murphy about that issue served only to demonstrate that he was regrettably incompetent outside the very narrow confines of the areas with which he was familiar – that is bona fide conveyancing transactions. He was not a sophisticated legal thinker, as I have said, and his experience in recent years had been in a social housing context where whilst the conveyancing was commercial in nature, fraudulent misconduct was unlikely to be encountered. Mr Murphy was simply incapable of grasping the conflict between the interests of his client, the company, and Mr Tibbetts – see transcript day 3, page 66 passim, where when the point was put to him he said with what struck me as genuine sense of puzzlement:

'A), was there a conflict between the limited company?' [Pause] 'I do not follow. We were not acting for Paul Tibbetts on the transaction.'

It was this point that he returned to on at least two further occasions – see transcript day 3 page 67-68, line 16. I was satisfied that however technically wrong this lack of comprehension was, it was nonetheless genuine.

54. The thrust of the cross-examination in relation to this stage in the chronology was all premised on the assumption that Mr Murphy knew that there was an unregistered charge that secured bank lending of £1.35 million. That, however, is the critical issue. Aside from what might have been said in the conversation of 29^th January 2008, there is no evidence that Mr Murphy was aware that there was an unregistered charge to secure such lending at that time. The assertion by Mr Stewart in cross-examination at transcript day 3, page 63, lines 23 to 24 that the relevant documentation was sitting in Cobbetts file is quite simply wrong. The charge was never sent to Cobbetts by BPE and the evidence does not establish that BPE's letter of 7^th June 2007 as ever received. The fraud that is relevant is not a fraud on creditors or the company but on the bank. Knowledge that funds were received from the bank does not lead necessarily to the conclusion that they were necessarily to be charged against a particular property, much less this particular property. The company was one of a number of single venture vehicles controlled by Mr. Tibbetts and lending could be secured against any one of a number of different titles or companies by negotiation with the bank. Cobbetts at no stage acted for the bank and Mr. Murphy had not been involved at the time when the original loan had been advanced. Although Mr Stewart maintained that any other alternative was inconceivable, it is, I note, precisely the position in relation to the Barnsley Road property, where it appears to have been the position that no charge was ever secured against that property.
55. By 25^th February 2008, Mr Murphy was being told to proceed with the sale to Mr Tibbetts 'with all speed'. The move from Cobbetts to the Third Party took place on 3^rd March 2008. On 14^th March 2008, Mr Darby wrote to Mr Murphy concerning the transaction with Mr Tibbetts. As I have made clear, there is nothing in the material before me that suggests that Mr Murphy had become aware of the Hayward charge prior to this date. That charge had purportedly charged Beechwood with the repayment of £600,000, but Mr Murphy had never had sight of the charge and thus was not aware of the terms in which it was drafted.
56. Mr Murphy maintains that it was only following receipt of Mr Darby's letter of 14^th March 2008 that he became aware of the existence of the Hayward charge. Insofar as is material, that letter was with the following effect:

'…My instructions are that Mr Tibbetts is taking Transfers of the three plots in part settlement of debts owed by the Seller under the terms of the Registered Charge.

I understand that Russell Hayward, the mortgagee, is acting in a representative capacity on behalf of Mr Tibbetts so that part of the consideration on completion will be satisfied by the reduction of the balance outstanding on the Registered Charge.

I am asking for clarification of the figures but I should be grateful if you will confirm please that you have similar instructions and in which case both the Contract and the Transfer will need to be amended to reflect these circumstances.

…

At the present time it appears that the consideration in respect of Plots 3 and 4 is subject to the proviso that part of the consideration is in settlement of the debt due to Mr Tibbetts, but I am told that the purchase of Plot 2 is to proceed on an arms length basis, so subject to the comments on the Transfer indicated above, I believe we can proceed on that matter sooner rather than later.

Can you therefore let me have a draft Transfer in respect of Plot 2 on the assumption that this is a straightforward purchase at the price of £525,000 and I can then submit my Report on Title to my Building Society

…

6. You will appreciate from the body of this letter that the Contracts and the Transfer documents in respect of Plots 3 and 4 need to reflect the fact that the Transfers arise as a result of the default of the Seller in discharging the payments due under the Registered Charge and that the Transfers are accordingly in settlement in each case of part of that liability…'

57. Mr Stewart described this letter in his closing submissions as the one that ought to have triggered a klaxon in the mind of Mr Murphy. The result of this letter was that:

a. Mr Murphy was aware that a charge had been registered against the title of the property;

b. The chargee was a nominee for Mr Tibbetts, the intended purchaser, which meant in turn that any money received from Mr Tibbetts would go back to Mr Tibbetts; and

c. No money was to change hands in respect of plots 3 and 4.

Mr Stewart submits that Mr Murphy ought also to have known or, in any event, impermissibly shut his eyes to the fact that the charge was a mechanism by which the bank's unregistered charge had been overreached. This of course depends upon Mr Murphy knowing of the existence of the bank's unregistered charge and that money had been advanced that was to be secured by it. Mr Stewart submits that the absence of any information as to what sum was secured by the Hayward charge in the letter and the absence of any request by Mr Murphy for that information is synonymous with dishonesty on Mr Murphy's part. That was so it was submitted because any solicitor acting for the vendor in a transaction such as this was bound to satisfy him or herself as to the sum due under the charge that had been registered.

58. Mr Murphy responded to the letter that I quoted from a moment ago on 20^th March 2008. In that letter, he said:

'I was not aware of any mortgage having been granted to Mr Hayward. I do not see that this needs to be referred to in the Transfer of Plot 2 and even in respect of Plots 3 and 4 presumably it is merely a question of agreeing the sum to be paid over in discharge of the loan.'

In my judgment, there is nothing within this response that suggests that Mr Murphy is dishonestly assisting in fraudulent activity. Had he been, he would have been informed of the charge. That he was not is suggestive of a company and those behind it seeking to mislead and disguise what was afoot.

59. In my judgment, some support for the fact that Mr Murphy did not know of the charge is obtained from the fact that his reaction to this information was to carry out a Land Registry search – see paragraph 18 of his witness statement. The search which he obtained shows the following entry:

'…

5. (24-12-2007) Registered charge dated 11^th December 2007.

6. (24-12-2007) Proprietor, Russell Jeremy Hayward of 107 Kent Road, Halesowen, West Midlands…

7. (17-01-2008) The land is subject to the rights granted by a deed of grant dated 11^th January 2008…

The said deed also contains a restrictive covenant by the grantor.'

60. As Mr Stewart points out, that information did not tell Mr Murphy how much was secured by the charge. It did, however, tell Mr Murphy (had he considered the point) that the charge was dated only five days after his letter to Mr Stapleton of 6^th December 2007. Mr Stewart submits that, firstly, this timing ought to have alerted Mr Murphy to the fact that there was in train a dishonest scheme to defeat the bank's equitable interest in Beechwood and that the failure of Mr Murphy to ask either for a copy of the charge or for a statement of what was secured shows him to have been turning a blind eye to what was going on. The difficulty that I have with that is that in essence that is what Mr Murphy was reaching towards in paragraph one of his letter of 20^th March 2008.
61. On 27^th March 2008, Mr Darby (who it should be remembered was acting both for the purchaser, Mr Tibbetts, and the chargee, who is in fact Mr Tibbetts acting by his nominee, Mr Hayward) wrote to Mr Murphy informing him that

a. The contract for the sale of plots 3 and 4 must reflect that the properties were being transferred each in part-satisfaction of the debt due to Mr Hayward as nominee for Mr Tibbetts; and

b. No funds were to be paid to the company for those plots in consequence. This letter has on it an illegible date stamp.

However, Mr Murphy was on leave from 26^th March to 4^th April 2008, as is apparent from the letter of 1^st April 2008 to Martineau Johnson.

62. Thereafter, two tracks were maintained in the correspondence: one for plot 2 and one for plots 3 and 4. By his letter of 27^th March 2008, Mr Darby had said that the sale of plot 2 was to proceed as an 'ordinary' sale for the purchase price of £550,000. The second letter of that date was the one that I referred to earlier that related to plots 3 and 4 and suggested that they were to be transferred in discharge of what was due under the Hayward charge. In relation to plot 2, that was ostensibly still the understanding of Mr Stapleton on 2^nd April 2008, as is apparent from his email to Mr Murphy concerning plot 2 sent on that date.
63. On 14^th April 2008, Mr Murphy wrote to Mr Hayward concerning the sale of plot 2. Under that sale, £550,000 was due to the company. However, if completion was to take place, the Hayward charge required at least partial release. Mr Darby had said in his letter of 27^th March that if plot two completed before plots three and four then '…I am sure that Mr Hayward will provide evidence of discharge sufficient to enable registration'.
64. That being so, on 14^th April 2008, Mr Murphy wrote to Mr Hayward in these terms:

'Sale of Plot 2 Beechwood

We act for the registered proprietor of the above property, Beechwood Properties (Pedmore) Limited in its proposed sale to Mr P Tibbetts. We note that you have a Charge over the property and understand that you have agreed to release it in respect of Plot 2 without any payment.

We enclose the form which releases the Charge from Plot 2. If this is agreed please arrange to execute this in the presence of an independent witness who should insert his or her name, address and occupation where also indicated. The [sic] please return it to us.'

65. Mr Hayward responded on the same day in these terms:

'Dear Mr Murphy,

Re: Plot 2 Beechwood.

As you know, I have a legal charge over the above property as part of a charge on the entire site.

I understand that the plot has now been sold for a sum of money less than that of the indebtedness.

I am prepared to release the charge on plot 2 to enable its completion. Please remit the entire proceeds (less your agreed charges) to MJ Darby & Co Client Account…

I will then negotiate with the directors of Beechwood about the amounts of monies I am prepared to release back to them.'

66. This was a significant change to what had been planned up until then and was obviously prejudicial to the interests of the company. It would have been impossible for Mr Murphy to agree to such a proposal without the consent of his clients, not least because he had no idea as to the sum secured by the Hayward charge. Mr Stewart submits that no-one could possibly deal with other people's money in the way that was contemplated and that it was the duty of any honest solicitor involved in such a transaction to check what sums were due. In fact, Mr Murphy sought and obtained instructions to pay the proceeds to Mr Hayward, confirmed those instructions by email on 15^th April 2008 and received a confirming email in response from Mr Stapleton.
67. I am not concerned with whether Mr Murphy could be held liable for negligence at the suit of the company for acting in this manner, but whether I can infer that he was dishonestly assisting a fraudulent scheme from this material. Whilst payment without obtaining instructions would have supported such an allegation, seeking, obtaining and then acting on instructions does not support such a conclusion unless there is a deliberate closing of the eyes and ears to something in the instructions or surrounding circumstances which should have suggested that there was something that ought to have alerted the solicitor concerned to a dishonest scheme in the making.
68. Meanwhile and unknown to Mr Murphy, there had been correspondence passing between the bank and BPE. This culminated in a letter from Mr Billings to the bank dated 15^th April 2008 that was in these terms:

'Dear Sirs

Lord Edward Developments (Beechwood) Limited, Ounty John Land, Pedmore, West Midlands

Thank you for your letters of 26^th February 2008 and we apologise for delay in replying but you actually forwarded the letter to our old address, together with your letter of 11^th April 2008.

We enclose a certified copy of the Registration of the Mortgage or Charge at Companies House and the Charge itself - Cobbetts who acted on the purchase were dealing with the registration at HM Registry and we are trying to ascertain exactly the position from them. We wrote to them some time ago, not had a response and have written again.'

69. This was, in my judgment, a significantly less than full and frank report to the bank of the position. Had Mr Billings acted earlier, it is entirely possible that what followed could have been prevented by court action. Even on 15^th April 2008, speedy action may well have prevented some or all of the losses suffered by the bank. Indeed, had he acted on Mr Murphy's email, sent to him on 6^th December 2007, it would probably have been so.
70. On the same day, Mr Billings wrote to Cobbetts, presumably because he was not aware of the move of the social housing group from Cobbetts to the Third Party, in these terms:

'We refer to our letter of 7^th June 2006 (copy herewith) rather embarrassingly – for both of us – we have received no reply. Can we please hear from you by return?'

Cobbetts received that letter on 16^th April 2008. Mr Murphy maintains that he received this letter no earlier by 17^th April 2008. This was challenged by BPE, who maintain that it would have been received on the same day as part of the administrative arrangements between Cobbetts and the Third Party for the transfer of post relevant to the social housing group. It is submitted on behalf of BPE that Mr Murphy received the letter on 16^th April, realised that it created a serious problem for the company or those who stood behind the company and therefore he pushed through everything on 16^th April and lied about when the letter was received.

71. This is a serious allegation. It is not an allegation that was made in the pleadings nor was it trailed in BPE's written opening submissions, as it might have been. Whilst I accept that of course a distinction is to be drawn between facts and matters relied on and the evidence relied on in proving those facts and matters, given the assertion in paragraph 17(f) of the amended Third Party particulars of claim, it is plain that if the letter of 15^th April was to be relied upon, the date on which it was asserted that it had come to the attention of Mr Murphy and Mr Denslow ought to have been pleaded as well. The Third Party pleaded their case as to the receipt of the letter from the outset in paragraph 31.1 of their defence. Although the date on the transfer has clearly been changed, the date in the body of the contract is clearly 16^th April. It was submitted by BPE that this backdating theory is supported by the terms of the email from Mr Murphy to Mr Stapleton stating 'contracts have been exchanged on plot 2, with completion today' which it is asserted that this is inconsistent with what actually happened, namely a simultaneous exchange and completion In my view there is nothing in this point. However infelicitous the language is, it does not assist at all on the point I am now considering. The other point made is that no adequate arrangement had been made to discharge the Hayward charge. As to this, Mr Murphy had said in his letter to Mr Darby of 16^th April 2008:

'…

I confirm that on completion I will undertake transfer to you of £550,000 less £60,000 and less £4600 plus VAT, but to be held to my order until I have a certified copy of the executed DS3 for plot 2. Obviously, I cannot give an undertaking in respect of the DS3 in favour of Mr Hayward unless I have it. I have already sent Mr Hayward a DS3 for execution…'

It is fair to say that there was nothing further, as far as I can see, said on this issue in correspondence before completion occurred. However, ultimately a DS3 was received and it was dated 16^th April 2008. Whether this issue or the way that it was dealt with was symptomatic of the chaos then prevailing on the part of Mr Murphy or was something more sinister must be judged by what followed shortly thereafter. I am satisfied, however, that the sale of plot 2 was completed on 16^th April 2008.

72. On 17^th April 2008, Mr Murphy emailed Mr Stapleton following receipt of the letter from Mr Billings dated 15^th April, to which I have already referred. It was in these terms:

'Tony,

You may recall that I had a letter from Yorkshire Bank about a charge last year which was referred to BPE. You told me that there was no money outstanding on it.

BPE have just written to me with a copy letter of 7^th June 2006 stating that they had registered a charge in favour of the bank at Companies house & asking whether Cobbetts would be dealing with registration on their behalf.

Clearly if a charge is registered then releases will need to be obtained through each and every sale and furthermore the charge to Mr Hayward will need to be postponed.

If you have not drawn down any funds I suggest that you instruct BPE to notify the bank that you are not to proceed with the charge at all.

Please let me know what is happening as soon as possible as this will need to be sorted out before any further sales are effected.'

73. As I have said, correspondence, emails and attendance notes can be generated for the purposes of disguising fraudulent activity. However, as I have also said, I simply do not accept that Mr Murphy is sufficiently sophisticated, competent or sufficiently farsighted to carry out such an exercise. This email strikes me as the natural response of someone learning the facts to which he referred to for the first time. Had it been intended to produce a document that was designed to disguise dishonest conduct then I think it likely that the document resulting would be much more self-serving than this one is. In particular, Mr Stewart accepted correctly that the final paragraph is a correct response of an honest solicitor in this situation. It is said that this letter shows that Mr Murphy recalled the letters from the bank. This is not surprising given that on 23^rd January 2008 Mr Murphy specifically referred to this correspondence in a letter to Mr Stapleton. If this is a genuine as opposed to a contrived response, it suggests that at this stage Mr Murphy recalled the correspondence and, critically, information that he believed was supplied to him by Mr Stapleton to the effect that no funds were secured by the charge.
74. As I have said, this document is not one that I regard as justifying an inference of dishonesty. However, Mr Murphy's conduct on 17^th April is to be judged in the round. Firstly, he emailed Mr Billings in these terms:

'We refer to your letter of 15^th April, received today via Cobbetts.

We are assuming that notwithstanding the reference to Barnsley Road in the heading you are in fact referring to Beechwood. Please confirm.

We cannot recall ever having seen your letter of 7^th June 2006. If he had we would have referred to it when we emailed you a copy of our letter to our mutual client regarding Yorkshire Bank on 6^th December 2007.

We have no recollection of having been instructed by Yorkshire Bank regarding a mortgage on this property and have not been instructed by the client to register a mortgage.

We would point out that a mortgage has been registered by Mr Hayward against this title and one of the plots was transferred yesterday. Furthermore, 2 further plots sales are due to complete next week.

After our letter to our client of 6^th December 2007, our client informed us that there had been no drawdown of any funds - if that is still the case then it might be simpler to merely arrange for discharge of the charge forthwith.'

Secondly, he says in his statement, and I accept, that he attempted to speak to Mr Billings on two occasions without success. This is supported by a handwritten note at the bottom of the email that I have just quoted from. Unless I am to conclude that the note was added after the event for the purpose of improving the appearance of Mr Murphy's actions, that corroborates this evidence. Finally, Mr Murphy informed Mr Stapleton of what he had done by an email to this effect:

'Tony,

I attach a copy of my email to David Billings & a copy of the letters just received.

I note form [sic] my phone call that you were no longer sure whether or not there had been any drawdown of funds from this Bank, but that this would be clarified when Paul Tibbetts returns on Monday…'

It is worth noting that the email of 17^th April 2008 provides confirmation as to the date when Mr Murphy had received the letter of 15^th April.

75. In my judgment, the key point about this run of material is that the fact of the communication by Mr Murphy with Mr Billings is consistent only with Mr Murphy not being a dishonest assister in a fraudulent scheme at this stage. It is not consistent with Mr. Murphy being a dishonest assistant for him to say to his client that the problem had to be sorted out before any more transfers took place; it is not consistent with dishonesty to point out to the solicitor apparently acting for the bank either that the Hayward charge had been registered or that one plot had been transferred and that the transfer of two more plots was due to complete in the following week.
76. It is suggested that this email was misleading by suggesting that there had been no drawdown against the charge. In my judgment, that is entirely unrealistic. Mr Murphy had no reason to suppose that Mr Billings would accept at face value something that he said about the exposure of the bank in the email just as Mr Billings had no business doing so. The only point that matters is that the email to Mr Billings contained the information that it did about the transfers made and, more importantly, to be made.
77. There was criticism of the fact that Mr Murphy did not inform Mr Billings of the fact that Mr Tibbetts was the purchaser, that Mr Hayward was a nominee for Mr Tibbetts and that he did not know the precise sum secured by the Hayward charge. I regard that as misplaced. Firstly, I regard the fact that these factors were not mentioned as being as consistent with Mr Murphy not regarding them as suspicious as with him knowing or closing his eyes to the possibility of them being fraudulent. Secondly, however, it is immaterial, other than perhaps in relation to a challenge by the bank to the transfer of plot 2. As to future transfers, the information supplied would have enabled Mr Billings to protect the bank and there is nothing in the evidence that suggests that Mr Murphy thought the contrary.
78. The final point made about the last paragraph is that it was plainly untrue to suggest that there had been no drawdown of funds. As for that, firstly, it does not matter. The person in the best position to know whether the bank had an interest to protect was Mr Billings, who was the bank's solicitor, not Mr Murphy, who never had been and who was not involved on behalf of the company at the time that it acquired Beechwood. Secondly, whilst I agree that Cobbetts' ledgers showed that £1.35 million had been received from the bank, acting by BPE, there is no reason that Mr Murphy would have recalled that nearly a year after he might have noticed the entry and some four to five months before his conversation with Mr Stapleton about the bank's letter to Cobbetts.
79. I am reinforced in my view that on 17^th April 2008 Mr Murphy was not dishonestly assisting the company [and its?] promoters by the email traffic that followed. Mr Stapleton responded to Mr Murphy's email at 15.57 on 17^th April in these terms:

'Dear John,

I received with some concern your series of copy letters / e-mails to me, and to you from BPE. I am confused (as I probably confirmed to you at whatever time in the past) that we have never drawn down funds from Yorkshire Bank or any other Banks for the Barnsley Road project.

You should be aware of same as you dealt with the development of that project as is indeed two or three other members of the Cobbetts staff as they came and went from Cobbett thus adding to the confusion.

In relation to Yorkshire Bank we signed a Bank Charge and Resolution at the request of BPE on 8^th May 2006 and returned same to them for whatever purpose they required it. This enabled us to drawdown funds on the Beechwood project, not the Barnsley Road project. I have no idea why BPE's letters to you (which may or may not have been received by you) refer to Barnsley Road as to my knowledge they were never involved ins [sic] same.

However, I will go back over the files at the weekend to see if I can throw some further light in the matter.

In any event Paul is back on Monday and I'll ask him to contact you...'

Mr Murphy followed this up by an email in these terms:

'Tony,

As I mentioned in my email to BPE, I believe it likely that the reference to Barnsley Road in the letter from BPE is an error - I assume this because the letter last December from Yorkshire Bank chasing the deeds referred to Beechwood not Barnsley Road.

Clearly, the purpose of any loan is not important for this issue. What is important is which property was charged.

If, as is likely, Beechwood was charged and the funds have been drawn down from Yorkshire Bank [for whatever purpose] then there is a major problem, which can probably only be solved by paying off the Bank.'

This is not the response of a dishonest man. The exchange of emails on 18^th April confirms that view. Mr Stapleton emailed Mr Murphy in these terms:

'Dear John,

I am sure you are right that it is Beechwood the various Solicitors and the Bank refer to in the various correspondence.

As I say I will go back over the files at the weekend but I am sure the Directors of Beechwood signed the Yorkshire Bank required guarantees and returned them to BPE. Without doubt it has always been the intention to repay the Bank so this is not the issue. The issue is to find a way through the legal maze to allow us to do so in agreement with the Bank…'

Mr Murphy's response to this was:

'Tony

If you are able to merely pay off any loan now then the problem evaporates…'

This run of emails simply could not have occurred if Mr Murphy's recollection was as BPE allege. It is not suggested that they were concocted in order to disguise what was happening.

80. On 18^th April 2008, Mr Billings wrote to Mr Murphy saying that the reference to Barnsley Road was wrong and that the email of 6^th December 2007 had been 'overlooked'. The letter stated this:

'We acted for the Yorkshire Bank in the funding granted to Lord Edward Developments (Beechwood) Limited in relation to the acquisition of Ounty John Lane, Pedmore in May 2006 - you acted for "Beechwood" on the acquisition. Following registration of the Yorkshire Bank charge dated 12^th May 2006 at Companies House we wrote to at Cobbetts you [sic] asking whether you would deal with the registration of the Charge at HM Land Registry on our behalf (as opposed to you forwarding the deeds to us, for us to deal with the registration). Unfortunately, you never replied to this letter and the matter appears to have been overlooked…'

The response to this from Mr Murphy was his email of 18^th April, in which he said this:

'Dear Sirs,

We confirm that on completion of the sale of plot 2 earlier this week, all the sale proceeds { net of our charges and a sum to obtain the release of the overage on the property}, were forwarded to the registered mortgagee, Mr Hayward.

The client will be anxious to go ahead with 2 more sales next week.

Clearly, if there has been a drawdown of funds and the client is able to repay this now, you can merely get a redemption statement & pay off the loan.'

81. This email was criticised by Mr Stewart on the basis that it did not say what the sale prices were or who the sales were to. I consider this criticism to be misplaced. It certainly does not lead to the inference that Mr Murphy was knowingly assisting in a fraudulent scheme. The key point is that he informed Mr Billings, again, of the likelihood of two further transfers in the following week. If a person knows or suspects that transfers are part of a fraudulent scheme, such a person will not supply information to the lawyer apparently acting for the organisation that is being defrauded that will enable that organisation to stop the fraud if the person doing the informing is dishonestly assisting in the breach.
82. Mr Stewart also suggested that Mr Murphy was being thoroughly dishonest in suggesting that the liability to the bank could be paid off in circumstances where he could not investigate whether that is so. Again, I regard that as misplaced. Firstly, while I accept that a careful reading of Mr Stapleton's email of 18^th April does not suggest that the company had the means to repay, an uncritical reading of the phrase 'It has always been the intention to repay the bank, so that is not the issue' was clearly capable of creating such an impression in the mind of someone with Mr. Murphy's qualities and attributes, which were and are as I have described them. Irrespective of whether that is so or not, the email from Mr Murphy to Mr Billings very clearly does not imply that the company can repay it, but it makes clear that if the company can repay then the solution is to get redemption statements and pay.
83. On 21^st April 2008, there was a telephone conversation between Mr Stapleton and Mr Murphy. The note of the telephone conversation contains entirely proper advice. It was to this effect:

'Tony Stapleton phoning JM. He was aware that there were discussions between Paul Tibbetts and Mr Hayward. He confirmed to JM that there was about £2 million drawdown on the Yorkshire Bank loan. JM confirming that regardless of the registration or absence of it, the limited company was still liable for this and could be sued - TS also mentioning to JM that he was joint and severally liable in a personal guarantee for £200,000.

JM pointing out that if any money was to go to Yorkshire Bank from the sale of Plot 2 then clearly Mr Hayward needs to agree to this. The figure would also need to be agreed with Yorkshire Bank.'

84. It is undeniable that as a result of this conversation Mr Murphy was now fully informed of the position. He was aware that there was a charge in favour of the bank that should have but had not been registered. He was aware that the company had drawn down about £2 million that should have been but was not secured by a fixed charge registered at the Land Registry. Thus he was aware that the bank had an equitable interest in the proceeds of plot 2 and would have such an interest in the proceeds of sale of plots 3 and 4.
85. On the same date, Mr Billings informed Mr Murphy that he was immediately arranging to register the bank's charge. Mr Murphy's response is an email of 22^nd April 2008 at 10.08, which was to inform Mr Billings that he had been instructed to 'go ahead with completion on the sales of plots 3 and 4…' . At 10.15, Mr Murphy sent Mr Stapleton a copy of the letter from Mr Billings and told him the information that he had supplied to Mr Billings concerning plots 3 and 4. At 10.16, that is a minute later, Mr Murphy received an email from Mr Billings by which he asked for full details. At 10.21, Mr Murphy sent an email to Mr Stapleton asking whether he was authorised to supply such details. There was then a telephone call between Mr Murphy and Mr Stapleton, which is evidenced by an email sent the following day. It records Mr Stapleton's instructions as being '…you would prefer me not to give any detailed response to David Billings until the sale of plots three and four have been completed…'
86. Mr Stewart criticised Mr Murphy for not supplying further details to Mr Billings in his email of 22^nd April 2008 concerning what was owed to the bank or that the sale price was less than the sum owed to the bank. It is unclear what could be inferred from this. If it is being suggested that I should infer dishonest assistance from the paucity of information supplied then I reject that submission. As I said on a number of occasions already, the proper inference to be drawn from the fact of communication of what was intended suggests the opposite. Furthermore, the tenor of the correspondence that he had with Mr Stapleton at this time is not that to be expected of someone who is dishonestly assisting in a scheme that Mr Stapleton was himself involved in.
87. In reality, therefore, it is what happened thereafter and in relation to plots 3 and 4 that the Claimants must focus on. Mr Murphy and Mr Denslow say that they discussed whether they should follow Mr Stapleton's instructions. They could have relatively easily but did not:

a. Consult other partners in the Third Party firm;

b. Consult the Law Society or the SRA;

c. Consult the risk management team within the Third Party; or

d. take Counsel's advice.

They did none of these things. They say that they concluded that they should act in accordance with their instructions and that the end result was that the transfers of plots 3 and 4 were completed and on 24^th April 2008 Mr Murphy informed Mr Billings of that fact.

88. Mr Stewart submitted that I ought to find that the proceeds of sale in respect of plot 2 were paid away in circumstances where Mr Murphy and Mr Denslow knew of the bank's interest by reason of the receipt of the letter from BPE dated 15^th April on the 16th and not the 17^th, as alleged. I am not able to accept that BPE has proved this allegation for the reasons already given. I do not accept either that BPE has proved that Mr Murphy and Mr. Denslow were actually aware of the bank's charge and what it secured as at the 16^th or 17^th April or that it has been established either actually or inferentially that they were shutting their eyes to the existence of a charge in favour of the bank at that stage.
89. Mr Murphy's case is that he had been told – he maintains in December 2007, but rather more likely, on the documents, in January 2008 – that there was no lending outstanding that was the subject of the bank's unregistered charge. That is really the central issue. BPE asked me to infer that all this is untrue because of the information that appeared in Cobbett's ledgers and because it is inherently implausible that a company would have acquired Beechwood without secured funding. I am not able to accept that the Claimants have proved its case on that basis. It is clear from what I have referred to already that there was a discussion about the bank's charge in January 2008. It is true to say that there is no note of what Mr Murphy was told then. What there is, however, is an email of 17^th April in which Mr Murphy said in terms:

'You may recall that I had a letter from Yorkshire Bank last year, which was referred to BPE. You told me there was no money outstanding on it…'

90. That point was repeated in an email of 17^th April to Mr Billings. This was then discussed further and Mr Stapleton told Mr Murphy that he was no longer sure whether there had been a drawdown. This is not a negligence suit, thus the issue is not whether Mr Murphy ought to have understood what he was told by Mr Stapleton referred to Barnsley Road not Beechwood but rather whether subjectively he understood that to be the position. An individual is not dishonest if he or she acts on a mistaken understanding of the position unless it can be shown that this is the result of a reckless disregard. Clearly, there were two developments and one was charged and the other not. As Mr Murphy said in his 16.25 email on 17^th April 2008 '…clearly, the purpose of the loan is not important…what is important is what property was charged…'. By the time this conversation had taken place, plot two had been conveyed. There is nothing in the internal correspondence that is suggestive of Mr Murphy working with Mr Stapleton to deliver a dishonest project, rather as soon as he understood the position Mr Murphy told Mr Stapleton what he considered the position to be.
91. The positions of Mr Murphy and Mr Denslow have to be considered separately. One could be dishonest and the other not. However, Mr Denslow was not involved in the minutiae of the transaction. His only involvement was that he was asked by Mr Murphy about the existence of a charge and he supplied an answer that was based on his then recollection. The Claimants have not proved directly or referentially that Mr Denslow was being untruthful in the answers that he gave.
92. Mr Stewart submitted that demonstrating a motive was not an essential ingredient of this form of accessory liability. I agree. However, its presence or absence is one of the evidential features that can be capable of supporting or refuting inferences of dishonesty. Here, there is no obvious motive. The legal team moved from Cobbetts to the Third Party, so fee collection is unlikely have to been the motivating factor. Preservation of client goodwill was not either. The evidence shows that Mr Denslow was declining further work from the company and its promoters. In my judgment, BPE fail in their claim relating to plot two by reference to honesty of both Mr Murphy and Mr Denslow.
93. The position in relation to the transfers of plots three and four is more difficult from the Third Party's perspective. As I have explained, by 17^th April 2008 Mr Murphy was aware that there had been drawdowns by the company that should have been but were not secured by registration of the bank's charge. By 21^st April, Mr Murphy knew that the sums drawn down were £2 million and that regardless of whether the charge was registered the company was liable to the bank and indeed that the bank had an equitable interest in the property and the proceeds of its sale. Mr Murphy was also aware that the property was being sold to a connected party, Mr Tibbetts, for a sum that was less than the sum of the loan of the bank, which would be paid back to Mr Tibbetts in his capacity as a beneficial chargee under the Hayward charge in circumstances where Mr Murphy had not been told how much was secured by the charge. Finally and perhaps critically, he had been instructed not to give any further information to Mr Billings.
94. The issue that then arises is whether with that state of knowledge Mr Murphy and Mr Denslow acted dishonestly in deciding to continue acting for the company for the purpose of progressing the sales of plots 3 and 4. It is immaterial whether they thought that what they were doing was dishonest, rather the question is whether with the knowledge they had, the decision to continue to participate was contrary to normally acceptable standards of honest conduct. As it was put in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 [inaudible]:

'An individual is expected to attain the standard which would be observed by an honest person placed in those circumstances.

Tested in this way, I conclude that an honest solicitor with the knowledge available to Mr Murphy, the relevant elements of which I have summarised, and by 21^st April 2008, Mr Denslow would not have proceeded as they decided to do. The reality is that by 10.21 on 21^st April when the instructions were given to proceed without telling Mr Billings what was happening they were each being asked to participate in a transaction which, on the face of it, defeated the entirely legitimate interests of the bank. In those circumstances, an honest solicitor would have informed his client that either there must be full disclosure to the bank and its solicitors, coupled with a standstill for a reasonable period, in order to enable the bank to consider its position, or the firm could not continue to act. If and to the extent that the firm was holding funds relevant to the transactions then an honest solicitor if forced to discontinue from acting would either have commenced proceedings joining its former clients and the bank as parties for the purpose of obtaining directions as to how the funds were to be dealt with or perhaps inviting their former clients to sue them for the fund and joining the bank, but in either case, for the purpose of enabling the bank and the solicitors' former client to resolve who was entitled to what, with the firm in effect dropping out of the picture - in effect interpleading. Merely advising the client as to the position of the company vis-à-vis the bank was plainly not a sufficient response.

95. Mr Pooles submits that I should not conclude that Mr Denslow and Mr Murphy were dishonest because they genuinely believed that they were bound to act on their client's instructions. I reject that submission because it fails to ask or answer the correct question. The question is whether an objectively honest solicitor would act, as did Mr Denslow and Mr Murphy, with the knowledge that those individuals in fact had. If the answer to that question is negative then the fact that the individual subjectively believed that what they were doing was honest is simply irrelevant. Mr Pooles submits that although each of the individuals concerned was uncomfortable, they were not uncomfortable because they were professionally embarrassed but because they empathised with the position of Mr Billings. In my judgment, that too is beside the point. The fact that either of those individuals felt professionally embarrassed by continuing to act is immaterial if with the knowledge they had an honest solicitor would not have proceeded. Mr Billings' personal position was entirely immaterial. Either it was honest to proceed with the information known to each of the individuals concerned or it was not. If it was then Mr Billings' position was entirely immaterial - the solicitors' duty was to perform their retainer – or if it was not it was their obligation was to refuse to act further irrespective of whether that assisted Mr Billings or not. In those circumstances, BPE are entitled to recover equitable compensation or damages by reference to the sales of plots three and four.
96. The final issue that arises concerns contribution. Mr Stewart submits that the Third Party should be liable for 80% whereas Mr Pooles submits that on the facts there should be a 50/50 division. There is no dispute between the parties as to the applicable principles. They are summarised in the current edition of Jackson & Powell On Professional Negligence at paragraph 4-018 in these terms:

'The apportionment of liability between them is governed by the same general principles as apply to other wrongdoers. The court should have regard both to the culpability of the various parties and to the extent to which each party's conduct caused the damage in question. This includes consideration of each party's moral responsibility in the sense of culpability and organisational responsibility in the sense of where in the hierarchy of decision-making and in the organisational structure leading to the damage the contributing party was located. The just and equitable criterion is wide enough to enable the apportionment to take account of blameworthiness as well as causative potency and even to the extent of non-causative matters. However, the main factor to consider is each party's responsibility for the damage.'

It is common ground that the court can apportion even where one party has acted negligently and the other fraudulently or even, as in the litigation in Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48, where all the Defendants acted fraudulently.

97. In my judgment, a high degree of culpability attaches to Mr Billings, and thus to BPE, for the manner in which he conducted his client's affairs and was causatively culpable in at least the following respects. Firstly in my judgment, he was plainly negligent and causatively negligent in June 2006. Having sought the agreement of Cobbetts to them effecting registration of the bank's mortgage, Mr Billings did nothing to follow up the letter on his return from holiday or put in place any administrative machinery for enabling that to be done. An entry in his diary reminding him to review the file would or ought to have been sufficient, but that was not apparently done. Although he considered that the problem arose from an error by his secretary, I regard that as immaterial, firstly, because BPE are vicariously liable for the acts and omissions of the secretary, as they are for Mr Billings, but secondly and more importantly because an entry in Mr Billings' diary would have prevented the alleged error by Mr Billings' secretary from having any causative effect, unless that is there was an entry and it was ignored. It was the failure by Mr Billings to properly administer the affairs of his client that created the opportunity for the fraud that followed.
98. Thereafter, Mr Billings was negligent in a number of causatively material respects. He failed to act at all on the letter of 6^th December 2007, notwithstanding he accepted that the implications of what he was being told would have been clear to him had he bothered to read the letter. He failed to open the email. That was negligent, in my judgment, and causatively so in the circumstances. Had he done so, as he should have, he should have: a), reported to his client immediately and; b), taken immediate steps to register his client's mortgage. He could have obtained priority to do so if he had acted immediately and his client could have taken court action to protect its position had it been informed of the position. Thereafter, I accept that the steps that could have been taken to protect the position of the bank were more limited. Nevertheless, Mr Billings notably failed to respond to the bank's letter of 26^th February 2008. Once he received the information he did, he failed to take any steps to protect his client's position. In particular, as I have said, his letter of 15^th April 2007 to his client, the bank, was an entirely inadequate response to the situation that had occurred, even on the information that was available to him.
99. All of that said, both sides of the equation have to borne in mind. Each bears substantial responsibility for the loss suffered by the bank. If Mr Billings had not been negligent, the fraud would not have occurred. However, if Mr Murphy and Mr Denslow had acted as they should have done, they would have prevented a significant part of the fraudulent scheme from being carried into effect. However, I do not regard that as leading to the conclusion for which Mr Pooles contends, that is a 50/50 split because that outcome ignores the fact that whereas Mr Billings was negligent, Mr Murphy and Mr Denslow were dishonest. Had they acted as they should have done, the loss caused by the transfers of plots 3 and 4 could have been avoided. Whilst all cases are different and fact sensitive, in my judgment more responsibility generally rests on those who were dishonest than those who were negligent, or should in the circumstances of this case. In my judgment, therefore, the just and equitable split in those circumstances is that the Third Party should be responsible for 65% of the loss and BPE for 35% of the loss.