England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
(sitting at BRISTOL CIVIL JUSTICE CENTRE for judgment only)

		2 Redcliff Street Bristol BS1 6GR
		23rd February 2011

HHJ MCCAHILL QC:

Introduction:

1. This is an action brought by the defendants, NES Solicitors ('NES'), against the third party, Quinn Direct Insurance Ltd ('Quinn'), the professional insurers of NES, for a declaration that Quinn must indemnify NES in respect of a claim ('the claim') brought against NES by the claimant's solicitors Halliwells LLP ('Halliwells'). Halliwells is now in administration. The claim was for the enforcement of an undertaking (the Halliwells undertaking) given by NES to Halliwells on 22 December 2008 to pay Halliwells the sum of £1,500,000 on or before 10 March 2009. That undertaking was given by NES when, acting on behalf of NES's client, Dr Hassan – that is either H-A-S-A-N or H-A-S-S-A-N – who was otherwise known as either Mr or Dr Ahmed.
2. That undertaking was given by NES to Halliwells for the benefit of Halliwells' client, General Capital Finance Ltd ('GCF'). GCF is also now in administration. GCF intended to and, in fact, relying on the NES undertaking, ultimately did make a bridging loan of £1 million to Green Crown Properties Ltd ('Green Crown') on 23 December 2008 to be used as a deposit on a contract to buy all the issued share capital in Stratford Edge Ltd ('Stratford Edge'), but repayable on 11 March 2009. GCF had charged Green Crown an administration fee of £450,000 for making this bridging loan, which was to be added to the facility, requiring a total repayment of £1.45 million on 11 March 2009.
3. Stratford Edge, a company controlled by Leslie Serlui and JT Whyman, owned land at 80-92 High Street, Stratford, London close to the site to be used for the 2012 Olympic Games. The idea was to develop this site into a 27-storey skyscraper complex comprising, amongst other things, a large number of flats. Green Crown was controlled by John Bayle, an Irishman who was a business associate of Dr Hassan. It seems that Dr Hassan was himself to be a potential investor in the development. Apparently, he was willing to buy 25% of the shares in Green Crown for £1.5 million, either as an investment or as security for advancing that sum, directly or indirectly, to Green Crown.
4. Green Crown and Mr Bayle were represented by Arthur Barnes Solicitors, although Halliwells had previously acted, in wholly unrelated matters, for Mr Bayle. In my judgment, Mr Shillingford and Mr Carter, the partners in NES, enquired into only a fragment of the overarching commercial transaction, before giving their undertaking to Halliwells. By contrast, their client, Dr Hassan, knew all about the overarching commercial transaction and about all its components and strands.

NES:

5. NES was a small firm, established on 1 March 2004, occupying an office at Suite 39C Imperial House, 64 Willoughby Lane, London, N17. At all times material to this case, there were two partners in NES: Newford Eustace Shillingford (hence 'NES') and Isaac Carter. Mr Carter was a salaried partner who only worked part-time at the practice, as he was at the same time, also employed as a Local Authority solicitor. Mr Shillingford was obviously the managing partner. Mr Carter had no access to the firm's bank account, nor was he shown the bank mandate as an authorised signatory. Mr Carter ceased to have any involvement in NES on 31 October 2009. The firm itself has since ceased trading. The firm's turnover had fallen from £125,000 in 2007 to £84,259 in 2008. In his third witness statement, Mr Shillingford described how the firm had 'experienced a massive downturn in the chargeable work it has been used to dealing with and finances have been severely stretched since about July 2008'. The highest fee for commercial conveyancing in the last year had allegedly been £1,500.

The Claim Brought by Halliwells against NES:

6. Halliwells served the claim form and details of claim on the 3^rd April 2009. The claimant sought enforcement of the Halliwells undertaking given on 22 December 2008. The Halliwells undertaking given by NES was in the following terms:

'Our client: Dr Hassan Ali Hasan

We hereby confirm we are holding funds from our client in the sum of £1,500,000.00 sterling (One Million Five Hundred Thousand Pounds).

We hereby undertake to pay the sum of £1,500,000.00 sterling (One million Five Hundred Thousand Pounds) to your firm's client account on or before the 10^th March 2009 ("The Maturity Date"), upon our receiving your written request for payment and your account details on a date not before the 6^th March 2009, such payment to be made within 24 hours of our receiving your written request for payment. We hereby undertake that we shall hold the monies referred to in paragraph 1 from the date hereof in our client account to abide the undertaking here given and that we have irrevocable instructions from our client in this regard.

This undertaking is effective from the date of exchange of contracts for the purchase of the entire share capital of Stratford Edge … by Green Crown Properties Limited and a written confirmation from you of the date exchange will take place shall suffice to bring this undertaking into being and later written confirmation of actual exchange shall be given by you. In the event that we do not receive the request from you as provided for in paragraph 2 above, this undertaking shall automatically cease to be effective at midnight on The Maturity Date.'

7. This undertaking was identical, apart from the name of the recipient solicitors, to an undertaking NES had given to another firm of solicitors previously acting for Green Crown, namely Arthur Barnes, on 12 December 2008. On 19 December 2008, that firm, Arthur Barnes, had notified NES that it would no longer rely on that undertaking. Arthur Barnes was then immediately replaced by Halliwells, acting for GCF, not Green Crown, as the recipient of that undertaking. Indeed, it would appear that the decision to substitute Halliwells as the recipient of the undertaking had been made no later than 18 December, the day before Arthur Barnes' letter treating the undertaking as of no effect.
8. Both the Arthur Barnes and the Halliwells undertakings were signed by Mr Carter with the full knowledge, authority and agreement of Mr Shillingford, who had left England on 11 December 2008 on holiday and returned on 5 January 2009. Indeed, NES's offices were closed between 12 December 2008 and 5 January 2009, except for the two days when Mr Carter went in to give the undertakings, originally to Arthur Barnes on 12 December 2008 and subsequently to Halliwells on 22 December 2008. Mr Shillingford remained in telephonic and email contact with Mr Carter and Dr Hassan throughout his holiday abroad.
9. On 22 December 2008, contracts were exchanged for the purchase of the entire share capital of Stratford Edge by Green Crown Properties. On 6 March 2009, Halliwells wrote to NES requesting the payment of £1.5 million in accordance with NES's undertakings. NES was not and at no time ever had been holding funds from that client, Dr Hassan, and were not able to comply with the undertaking. On 14 April 2009, NES notified Quinn, NES's professional indemnity insurer, of the claim and sought an indemnity under NES's policy of insurance.
10. Quinn then instructed Levi Solicitors LLP ('Levi'), at their Leeds office, to investigate coverage. Michelle Levin and Megan Bartlett, whose maiden name was Peacock, now both partners in Levi, saw Mr Shillingford and Mr Carter on 12 May 2009 at Levi's London office. Megan Bartlett's attendance note sets out the version of events then given by the partners, augmented, in their evidence, by their recollection of what was said.

The Attendance Note of 12 May 2009:

11. It is to be observed that there were notable inconsistencies between the NES partners' version of events, as recorded by Mrs Levin and Mrs Bartlett in that attendance note, and the partners' subsequent statements in the claim and in this action. However, according to Michelle Levin and Megan Bartlett, whose evidence I unhesitatingly accept, Mr Shillingford confirmed that NES were being paid £5,000 on exchange of contracts and a further £10,000 on completion. That total sum of £15,000 represented 1% of the value of the undertaking of £1.5 million.
12. Whilst they had every opportunity to do so, I find that Mr Shillingford and Mr Carter did not mention, on 12 May 2009, any other work or services which they were asked to provide for Dr Hassan for that fee, apart from the giving of the undertaking. I reach this conclusion despite Mr Munro's submissions about the evidence of Michelle Levin and Megan Bartlett and about the differences which he pointed out (a) between their evidence and the notes and (b) between the manuscript note and the typed copy. There was some criticism, of Levi in general and of Michelle Levin and Megan Bartlett in particular, over Levi's alleged failure to notify Mr Shillingford and Mr Carter that Levi were no longer acting for NES at that meeting, but only for Quinn, because coverage under the policy was then under consideration, and Levi might otherwise be conflicted. On 12 May 2009, Quinn had in fact appointed separate solicitors, Crutes, to act for NES in its defence of Halliwells claim against NES.
13. In my judgment, that criticism of Levi is wholly unfounded, and, in the case of Mr Shillingford, somewhat undermines his credibility. The address, that is of Levi's London office, and the time of the meeting, namely between 3.00pm and 4.00pm on 12 May 2009, were contained in an email at 4.17pm on 11 May 2009 to NES. Mr Shillingford denied seeing that email. I reject that denial, not only because Mr Shillingford did attend Levi's London office at that time, but also because Mr Shillingford had imparted that same information to Mr Carter, otherwise Mr Carter would not have known where to go. That information must have come from that email which Mr Shillingford denied seeing.
14. I am satisfied that Levi had also made the position clear to Mr Shillingford in their letter to him of 6 May 2009 and in a telephone conversation on 7 May between Mr Shillingford and Michelle Levin. It was repeated in that email of 11 May. I am further satisfied that they repeated this both to Mr Shillingford and to Mr Carter, who joined the meeting later, on 12 May 2009.

Procedural History:

15. Quinn declined an indemnity on 19 June 2009. NES was granted permission to add Quinn as a third party by Master Bowles on 30 June 2009 provided particulars of the additional claim were filed and served straightaway. NES did not pay the issue fee for the additional claim until late October 2009. On 29 October 2009, NES served the third party claim and an application for summary judgment against Quinn returnable on 10 November 2009. The application for summary judgment had been issued before an acknowledgment of service had been filed, and was therefore irregular. NES was also out of time to join Quinn. On 9 November 2009, NES applied for an extension of time to add Quinn, but the hearing of that application and a summary judgment application by NES against Quinn were not heard until 25 February 2010.
16. NES's summary judgment application against Quinn was dismissed, although this was probably because Quinn had by that stage raised the issue of dishonesty, and it was obvious that there would have to be a trial. The Deputy Master was not prepared to deal with that application for summary judgment just on the question of Quinn's original reasons, namely the interpretation of the policy on issues two and three which are set out below, when dishonesty was later added as an additional ground of Quinn's defence.
17. In the meantime, Halliwells obtained judgment on the claim on 17 November 2009. This followed a part-heard hearing which had started on 26 September 2009. The Deputy Master made the following observations, and the quotations I am about to give come from paragraphs 26 and 27 of the Deputy Master's judgment:

'26. Secondly, the insurers have disclaimed liability, apparently on the grounds that the defendant's undertaking was not a solicitorial act, and that if they were right there could be no liability under the inherent jurisdiction over solicitors. Formally what Mr Munro says is correct. But it does not assist him. I am dealing with the case only as between the Claimant and the Defendant. What the insurer thinks is irrelevant. If the Defendant had served the Part 20 proceedings in time it might well have been possible to have those proceedings determined at this hearing, but in the event that did not happen, and I have to deal with what is in front of me. As Mr Munro himself says in his skeleton argument (para16), the Defendant accepts that the undertaking was a solicitorial act, and there is therefore no issue between the parties before me on this point.

27. … Mr Munro said that the Defendant was merely gullible, and duped by its client into giving the undertaking. He said that this did not meet the "high threshold for an enforcement order." I do not agree. Even though the Defendant may have been deceived by its client as to his intentions in relation to the deposited cheque (i.e. that he had no intention of then stopping it before it was cleared) the fact remains that whether it gave the undertaking before the cheque was cleared was a matter entirely within its own control. As I have said, that was a serious mistake, and it could have altered the wording of the undertaking to reflect the truth, i.e. (1) that the client had deposited an ordinary cheque which might or might not clear in the normal course, and/or (2) that the undertaking depended on clearance. That would at least have enabled the claimant and its client to decide what to do. But the defendant did not do so, and thus deprived the Claimant and its client of the opportunity to reconsider their positions in the light of the true facts.'

18. Following that contested hearing, at which Quinn did not take any part and at which the parties were content there should be no cross-examination, Halliwells obtained a judgment from Deputy Master Matthews, dated 17 November 2009, that NES pay the sum of £1,500,000 to Halliwells by 15 December 2009 and made various orders for costs. Halliwells has taken no steps to enforce the judgment and itself went into administration in July 2010.

Reasons for Refusal to Indemnify:

19. Quinn has declined to indemnify NES in respect of the claim for the reasons set out in the letter written by Levi, on behalf of Quinn, dated 19 June 2009 and for the additional reasons set out in its amended defence. In summary, Quinn has refused to indemnify NES in respect of its liability to Halliwells for its breach of that undertaking on the grounds that, one, the claim was excluded by reason of clause 4.8 of the policy of insurance, on the basis that the claim arose from dishonesty or a fraudulent act or omission committed or condoned by both partners in NES for the reasons set out in the defence.
20. Further or alternatively, the second reason for refusing indemnity was that the claim did not arise from the provision by NES of services in private legal practice as solicitors, within the meaning of clauses 1.1 and 7.19 of the policy of insurance, because the undertaking was not given in the ordinary course of business as solicitors because NES was only retained to give that undertaking and not to act in any underlying transaction to which the giving of the undertaking was ancillary; further or alternatively, the third reason for refusing indemnity was that the claim was excluded by reason of clause 4.6 (c) of the policy of insurance in that the claim arose out of the provision of an undertaking by NES in connection with a benefit or advantage directly or indirectly to that insured, namely the provision to NES of a £5,000 or £15,000 fee representing 1% of the value of the undertaking.
21. Quinn has counterclaimed for a declaration that it is not liable to indemnify NES in respect of the claim, and in the event that the court determines that one partner is entitled to an indemnity, but the other partner is not so entitled, for an indemnity and/or reimbursement against the non-innocent partner by reason of clause 6.10 of the policy of insurance.

NES's Reply to Reasons for Declining Indemnity:

22. Although the burden of proof is on Quinn to establish one or more of these three grounds, NES's core answer is that neither Mr Shillingford nor Mr Carter committed or condoned any dishonesty. Their case is that they had been duped by Dr Hassan themselves, and that, when they gave the undertaking to Halliwells, they honestly believed that the cheque for £1.5 million, in fact dated 23 December 2008, from their client and paid into NES's current account on 22 December 2008 would be met on presentation.
23. However, they both accepted that they knew that the undertaking on its face was false when given on 22 December 2008, because NES was not then holding funds in its client account, nor did it ever hold funds in its client account, for Dr Hassan. Moreover, NES contended that the undertaking was solicitorial in nature, formed part of an underlying commercial transaction relating to the sale of company shares and was not just to provide benefit, that is fees, to NES.

The Policy of Insurance:

24. Clause 1.1 of the policy provided that Quinn would indemnify NES 'against any civil liability, to the extent that it arises from Private Legal Practice in connection with the Insured's Practice'. 'Private Legal Practice' is defined in clause 7.19 as 'the provision of services in private Practice as a solicitor …'. The policy also contained exclusion clauses. Clause 4 provided that Quinn would not provide indemnity against:

'4.6. Debts and trading liabilities, etc.

Any claim arising out of any:

a) trading or personal debt of The insured; or …

c) guarantee, indemnity or undertaking by The Insured in connection with the provision of finance, property, assistance, or other benefit or advantage directly or indirectly to that insured.

4.8. Fraud or dishonesty

Any Claims to the extent that any civil liability or related Defence Costs arise from dishonesty or a fraudulent act or omission committed or condoned by an Insured, except that;

a) this Insurance nonetheless covers each other Insured.'

25. As I have indicated, the policy also contained a reimbursement clause, 6.10, in the following terms:

'Each Insured who;

a) committed; or

b) condoned (whether knowingly or recklessly):

1) non-disclosure or misrepresentation; or

2) any breach of the terms or conditions of this insurance; or

3) dishonesty or any fraudulent act or omission,

will reimburse [Quinn] to the extent that it is just and equitable having regard to the prejudice caused to [Quinn's] interests by such non-disclosure, misrepresentation, breach, dishonesty, act or omission…'

26. In that quotation, I have inserted the word 'Quinn' for 'the insurer' in the original policy.

Dishonesty:

27. The Chancellor has very recently reviewed the authorities on the civil test of dishonesty in Starglade Properties Ltd v Roland Nash [2010] EWCA Civ 1314. In paragraphs 24 to 30, the Chancellor considered Royal Brunei Airlines v Tan [1995] 2 AC 378, Twinsectra Ltd v Yardley [2002] 2 AC 164, Barlow Clowes Ltd v Eurotrust Ltd [2006] 1 WLR 1476 and Abu Rahman v Abacha [2007] 1 Lloyd's Rep 115.
28. At paragraph 32 in his judgment in Starglade, the Chancellor went on to say this:

'The relevant standard, described variously in the statements I have quoted, is the ordinary standard of honest behaviour. Just as the subjective understanding of the person concerned as to whether his conduct is dishonest is irrelevant so also is it irrelevant that there may be a body of opinion which regards the ordinary standard of honest behaviour as being set too high. Ultimately, in civil proceedings, it is for the court to determine what that standard is and to apply it to the facts of the case.'

29. However, as both counsel before me in this case accepted, that does not mean that the mental state of the person whose conduct is under consideration does not have to be considered at all. As the Chancellor had made clear in paragraph 25 of his judgment, when speaking of the Royal Brunei Airlines case:

'25. Later Lord Nicholls of Birkenhead emphasised that:

"...when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party such as his experience and intelligence, and the reason why he acted as he did."

These propositions appear to me to support the second objection to the judgment of the Deputy Judge of counsel for Starglade which I have summarised in paragraph 21 above. There is a single standard of honesty objectively determined by the court. That standard is applied to specific conduct of a specific individual possessing the knowledge and qualities he actually enjoyed.'

26. In Twinsectra Ltd v Yardley [2002] 2 AC 164 …Each of the members of the Appellate Committee considered the speech of Lord Nicholls of Birkenhead in Royal Brunei Airlines v Tan at some length. The majority concluded that the test of dishonesty was a combination of an objective and subjective test…

28. There is no suggestion in any of the speeches in Twinsectra Ltd v Yardley that the standard of dishonesty is flexible or determined by any one other than by the court on an objective basis having regard to the ingredients of the combined test explained by Lord Hutton.

29. In the third of the relevant authorities I have listed in paragraph 23 above, Barlow Clowes Ltd v Eurotrust Ltd [2006] 1 WLR 1476, the Privy Council accepted that (paragraph 10):

"although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards.

…

15. Their Lordships accept that there is an element of ambiguity in these remarks which may have encouraged a belief, expressed in some academic writing, that Twinsectra had departed from the law as previously understood and invited inquiry not merely into the defendant's mental state about the nature of the transaction in which he was participating but also into his views about generally acceptable standards of honesty. But they do not consider that this is what Lord Hutton meant. The reference to "what he knows would offend normally accepted standards of honest conduct" meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were.

16. Similarly in the speech of Lord Hoffmann, the statement (in para 20) that a dishonest state of mind meant "consciousness that one is transgressing ordinary standards of honest behaviour" was in their Lordships' view intended to require consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour. It did not also to require him to have thought about what those standards were.

17. On the facts of Twinsectra, neither the judge who acquitted Mr Leach of dishonesty nor the House undertook any inquiry into the views of the defendant solicitor Mr Leach about ordinary standards of honest behaviour. He had received on behalf of his client a payment from another solicitor whom he knew had given an undertaking to pay it to Mr Leach's client only for a particular use. But the other solicitor had paid the money to Mr Leach without requiring any undertaking. The judge found that he was not dishonest because he honestly believed that the undertaking did not, so to speak, run with the money and that, as between him and his client, he held it for his client unconditionally. He was therefore bound to pay it upon his client's instructions without restriction on its use. The majority in the House of Lords considered that a solicitor who held this view of the law, even though he knew all the facts, was not by normal standards dishonest."'

That is the end of the quotation from the Barlow Clowes case. Returning to the judgment of the Chancellor, within which that quotation arises, he continued:

'There is no suggestion in this case either that the standard of dishonesty is flexible or determined by any one other than by the court on an objective basis having regard to the ingredients of the combined test as explained by Lord Hutton in Twinsectra and Lord Hoffmann in Barlow Clowes.'

30. So by ordinary standards was the actual mental state of, (1), Mr Shillingford, and, (2), Mr Carter (with each of their cases being considered separately for and against) in giving the undertaking to Halliwells to be characterised as dishonest? It is for Quinn to prove on the balance of probabilities that each man was dishonest, and not for either man to prove that he was honest. Mr Shillingford and Mr Carter alleged that they trusted Dr Hassan, believed him to be influential, wealthy and good for his promises of payment. In short, they said that they believed that his cheque would clear and that therefore there would be cleared funds to satisfy the undertaking in March 2009. Accordingly, they contended that they gave their undertaking honestly.

Condonation of Dishonesty:

31. Quinn also contended that both partners condoned each other's dishonesty in signing the undertakings. As already stated, clause 4.8 of the policy of insurance entitled Quinn to decline an indemnity if the civil liability arose from the condonation of dishonesty by the insured, that is either partner. Irwin J reached the following conclusions about the ambit of the word 'condoned' in Zurich Professional Ltd v Karim & Ors [2006] EWHC 3355, when he said this:

'105. As we have seen, Clause 6.9 also states the insurer is not liable where a claim is made against any insured which arises "from dishonesty or a fraudulent act or omission committed or condoned by that insured". Is there a distinction to be understood between "dishonesty" and "a fraudulent act or omission"? I asked for further submissions on that point, which have helpfully been provided in writing by the claimants' counsel. The concern is this: do the claimants have to show that a given defendant/insured either committed or condoned the specific "dishonesty" or "fraudulent act or omission" from which the claim arose? Or is it sufficient for avoidance of the claim, that an insured should condone general practice or conduct which [1] was in fact dishonest or fraudulent [2] the insured being at least reckless as to whether the general practice or conduct was dishonest, which [3] brings the conduct of the "condoning" insured within the test of dishonesty as defined in either Derry v Peek or Barlow Clowes, and where [4] the general practice or conduct condoned led to or permitted the specific acts or omission giving rise to the claim? This is not a mere academic question. In my judgment it is determinative of liability under the policy in the cases of Imran and Saira Karim.'

106 …

107. In the end, the question becomes one of construction of the clause. The claimants proffered an elegant approach to the meaning of "condoned" in their opening written submissions. They say they can find no authority on the meaning of the word, save in the possibly misleading context of the old law of divorce. I agree that is not likely to be helpful. The Oxford English Dictionary definition is "To forgive or overlook an offence, so as to treat it as non-existent; especially to forgive tacitly by not allowing the offence to make any difference in one's relation with the offender." I accept that as the natural meaning of the word, but I am of the view that you cannot condone an act or omission of which you not aware. How can you be taken to forgive or overlook a fact which you do not know about, even if you should know about it? If the wording of the policy imports a requirement that there was a condonation of the specific acts or omissions which give rise to the relevant civil liability, I would not be able to grant the relevant declarations in respect of Imran and Saira.'

108. However, the claimants also argue that there is no need for specific condonation of the particular relevant acts or omissions. A number of reasons are set out in the further written submissions given to me. In my judgment, however this too is a matter of construction of Clause 6.9. After some consideration, it seems to me that the phrase "...dishonesty or a fraudulent act or omission committed or condoned…" is intended to be disjunctive as between "dishonesty" and "a fraudulent act or omission". That reading is reinforced by sub-paragraph (b) which deals with imputation to a corporate body of the relevant "dishonesty, act or omission", again appearing to me to emphasise that the three words are to be regarded as disjunctive, each adding something rather than being merely repetitive. I am in the end reinforced in this view by considering what the objective reasonable reading of such a contract would be - by the reasonable person on the Underground. Different responses to this situation might reasonably emerge from the person on the Underground, including surprise that such a contract permits Insurers to stand aside from this kind of liability at all. Nevertheless, construing the document, it seems to me the reasonable person would be surprised if this clause allowed the Insurers to step aside from those within the firm who practised or condoned the specific forgery but not from partners who condoned persistent dishonest handling of money, breaches of the rules, and so forth, which allowed the specific act or omission to take place.'

109. For those reasons, I find that the Insurers are properly able to take advantage of clause 6.9 of the policy in respect of Imran and Saira, as well as Mrs Karim. I will therefore grant the necessary declarations, consistent with my findings.'

32. I am therefore invited by Quinn to find that Mr Shillingford and Mr Carter condoned each other's dishonesty and/or condoned the dishonesty of Mr or Dr Hassan or Mr or Dr Ahmed.

What is a solicitorial function?

33. The question whether the Halliwells undertaking was given in the normal course of business of a solicitor was not considered by Deputy Master Matthews and for obvious reasons. Neither party, that is Halliwells nor NES, wished to take that point as neither wished to jeopardise cover under the Quinn policy, by arguing that the undertaking was of a quality which was excluded from cover. It is Quinn's case before me, and Quinn of course took no part in the application before the learned Deputy Master, that the undertaking was not given in the normal course of business and was not of a solicitorial nature, and so does not arise from the provision by NES of services in private legal practice as solicitors within the meaning of clauses 1.1 and 7.19 of the policy.
34. The test whether an undertaking is given in the capacity of a solicitor was considered in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051. There Staughton LJ confirmed that the test was an objective one, albeit one which had regard to how the matter reasonably appeared to the person relying upon the undertaking. At page 1063 G – H, he said this:

'… two requirements must be fulfilled before an undertaking is held to be within a solicitor's ordinary authority. First, in the case of an undertaking to pay money, a fund to draw on must be in the hands of, or under the control of, the firm; or at any rate there must be a reasonable expectation that it will come into the firm's hands. Solicitors are not in the business to pledge their own credit on behalf of clients unless they are fairly confident that money will be available so that they can reimburse themselves. Secondly, the actual or expected fund must come into their hands in the course of some ulterior transaction which is itself the sort of work that solicitors undertake. It is not in the ordinary business of solicitors to receive money or a promise from their client, in order that without more they can give an undertaking to a third party. Some other service must be involved.'

35. A similar approach was taken in Hirst v Etherington [1999] Court of Appeal transcript 15 July 1999 where, at paragraph 13, Stuart – Smith LJ said:

'It is part of the usual or normal course of business of a solicitor to be in possession or receipt of funds of or for a client in the course of handling a substantial transaction for that client. On the other hand it is not part of the usual or normal business of a solicitor either to receive money or promise from a client in order that without more they can give an undertaking to a third party, or to give guarantees for the debt incurred by a client.'

36. In Ruparel v Awan [2001] Lloyd's Rep 258, it was held in terms that undertakings to pay sums of money were not given in the capacity of a solicitor where it was not contemplated that the solicitor would provide solicitorial services in relation to an underlying transaction. The requirement that there should be an underlying transaction which is in the ordinary course of a solicitor to perform was also decisive in JJ Coughlan Ltd v Ruparelia and Others [2003] EWCA Civ 1057. In that case, which featured a $10 million return on a $500,000 loan, the solicitor had, amongst other acts, given an undertaking to return the money if certain bank documents were not provided within seven days. The Court of Appeal found that the solicitor was not acting in the ordinary course of his business. At paragraph 30 of his judgment Dyson LJ said:

'… it is necessary to examine the substance of the transaction to see whether, viewed fairly and properly, it is the kind of transaction which forms part of the ordinary business of a solicitor. This exercise requires the detail of the transaction to be taken into account. Most transactions will obviously fall on one side of the line or the other. There will be few cases where the answer may not be plain. For the policy reasons that I have mentioned, the court should not be too ready to find that the ordinary business requirement is not satisfied.'

37. Like Ruparelia, the facts of the case, with which I am concerned, are also highly unusual. Mr Munro, counsel for NES, submitted that Staughton LJ's description in United Bank of Kuwait v Hammoud of an undertaking made within a solicitor's ordinary authority is satisfied in this case. First, he contended that NES reasonably expected Dr Hassan's cheque to clear. NES, he submitted, believed that Dr Hassan to be very wealthy and believed his cheque would clear. There was therefore a reasonable expectation that the fund would come into the solicitor's hands.
38. Secondly, he contended that the expected fund was to be used in the course of the purchase of Stratford Edge by Green Crown. Dr Hassan was financing and brokering that transaction and, in turn, it was expected Dr Hassan would be remunerated in cash for his brokering of that purchase, and would be repaid his money, or would receive 25% of the shares in Green Crown. Therefore he argued NES provided services, including advice, negotiating and drafting and expected to provide further services, as solicitors, in relation to those transactions. I shall return to this issue later in my judgment.

The Proposal Form for the Quinn Policy:

39. On 19 September 2008 NES completed a proposal form for professional indemnity insurance through PYV Legal, that is Lloyd's Brokers. As I have already indicated, NES was a small firm occupying an office at Suite 39C Imperial House, 64 Willoughby Lane. It was a two-partner firm. Mr Shillingford worked fulltime and at best Mr Carter worked part-time. The firm's turnover had fallen from £125,000 to £84,259 in 2008. NES completed a conveyancing questionnaire in which they claimed 'all clients provide original ID - passport and utility bills and give NI number and telephone numbers. All clients attend to sign essential documents or, where not possible, sign before another solicitor who verifies the client's ID.' The proposal form was passed by PYV to Quinn, who provided professional indemnity insurance to NES.
40. Solicitors Code of Conduct 2007 before changes effective on 30 March 2009: The core duties of a solicitor are defined in Rule 1 of the Code of Conduct as:

'1.01 Justice and the rule of law

You must uphold the rule of law and the proper administration of justice.

1.02 Integrity

You must act with integrity.

1.03 Independence

You must not allow your independence to be compromised.

1.04 Best interests of clients

You must act in the best interests of each client.

1.05 Standard of service

You must provide a good standard of service to your clients.

1.06 Public confidence

You must not behave in a way that is likely to diminish the trust the public places in you or the legal profession.'

Rule 10.05(3) of the Code of Conduct stated that:

'If you give an undertaking which is dependent upon the happening of a future event, you must notify the recipient immediately if it becomes clear that the event will not occur.'

As solicitors, Mr Shillingford and Mr Carter knew they were subject to that Code of Conduct.

Money Laundering Regulations:

41. Whilst this case is not a money laundering case, on the basis of the information currently before the court, it is nevertheless important to note the obligations to which all solicitors are subject and to see how they were complied with in this case. All solicitors receive warnings on money laundering through the Blue Card Warning, the relevant edition of which is February 1999, in the Money Laundering Regulations 2007 and in guidance from the Solicitors Regulation Authority or Law Society called Anti-Money Laundering.
42. In the Blue Card warning and guidance solicitors are warned to look out for unusual instructions. The Blue Card Warning provides:

'Care should always be taken when dealing with a client who has no discernible reason for using the firm's services, e.g., clients with distant addresses who could find the same service nearer their home base; or clients whose requirements do not fit into the normal pattern of the firm's business and could be more easily serviced elsewhere.'

43. The Law Society 'Anti-Money Laundering' practice note makes similar warnings about unusual transactions in paragraph 11.2.2 and goes on to warn against providing banking services for their clients, 11.2.3, and disclosing client account details to clients, 11.2.3. Mr Shillingford claimed in his proposal form that NES had money laundering procedures in place. However, even if they did it is obvious to me that both partners largely ignored them. The Money Laundering Regulations 2007 apply to solicitors and I refer to a number of the Regulations relevant to this case:

'Meaning of customer due diligence measures

5.Customer due diligence measures' means –

a) identifying the customer and verifying the customer's identity on the basis of documents, data or information obtained from a reliable and independent source; [then]

c) obtaining information on the purpose and intended nature of the business relationship.

Application of customer due diligence measures

7.- (1) Subject to regulations 9, 10, 12, 13, 14, 16(4) and 17, a relevant person must apply customer due diligence measures when he –

(a) establishes a business relationship;

(b) carries out an occasional transaction;

(c) suspects money laundering or terrorist financing;

(d) doubts the veracity or adequacy of documents, data or information previously obtained for the purposes of identification or verification.

(2) Subject to regulation 16(4), a relevant person must also apply customer due diligence measures at other appropriate times to existing customers on a risk-sensitive basis.

(3) A relevant person must –

(a) determine the extent of customer due diligence measures on a risk-sensitive basis depending on the type of customer, business relationship, product or transaction; and

(b) be able to demonstrate to his supervisory authority that the extent of the measures is appropriate in view of the risks of money laundering and terrorist financing.

Timing of verification

9.-(1) This regulation applies in respect of the duty under regulation 7(1)(a) and (b) to apply the customer due diligence measures referred to in regulation 5(a) and (b).

(2) Subject to paragraphs (3) to (5) and regulation 10, a relevant person must verify the identity of the customer (and any beneficial owner) before the establishment of a business relationship or the carrying out of an occasional transaction.

(3) Such verification may be completed during the establishment of a business relationship if –

(a) this is necessary not to interrupt the normal conduct of business; and

(b) there is little risk of money laundering or terrorist financing occurring,

provided that the verification is completed as soon as practicable after contact is first established.

Requirement to cease transactions etc.

11 -(1) Where, in relation to any customer, a relevant person is unable to apply customer due diligence measures in accordance with the provisions of this Part, he –

(a) must not carry out a transaction with or for the customer through a bank account;

(b) must not establish a business relationship or carry out an occasional transaction with the customer;

(c) must terminate any existing business relationship with the customer;

(d) must consider whether he is required to make a disclosure by Part 7 of the Proceeds of Crime Act 2002 or Part 3 of the Terrorism Act 2000.

Policies and procedures

20 -(1) A relevant person must establish and maintain appropriate and risk-sensitive policies and procedures relating to –

(a) customer due diligence measures and ongoing monitoring;

(b) reporting;

(c) record-keeping;

(d) nternal control;

(e) risk assessment and management;

(f) the monitoring and management of compliance with, and the internal communication of, such policies and procedures, in order to prevent activities related to money laundering and terrorist financing.

Training

21. A relevant person must take appropriate measures so that all relevant employees of his are –

(a) made aware of the law relating to money laundering and terrorist financing; and

(b) regularly given training in how to recognise and deal with transactions and other activities which may be related to money laundering or terrorist financing.''

Then under the heading of 'Criminal Offences,' Regulation 45 stated

'A person who fails to comply with any requirement in relation to,' and I here select, '7(1), (2) or (3), … 9(2), … 11(1)(a), (b) or (c), … 20(1), … 21 … is guilty of an offence and liable –

(a) on summary conviction, to a fine not exceeding the statutory maximum;

(b) on conviction on indictment, to imprisonment for a term not exceeding two years, to a fine or to both.'

44. I have highlighted in that list of criminal offences the actual Regulations which I myself have quoted. There are other offences created, beyond those which I have quoted, but the major Regulations do themselves give rise to criminal sanctions if broken.

The Evidence and the Assessment of the Witnesses:

45. In addition to the documentation contained in the trial bundles, supplemented by additional documents produced during the trial, I have considered: (1) the six witness statements in the claim of Mr Robert Campbell, a former partner in Halliwells, who had conduct of the claim. Mr Campbell was not called by either party as a witness before me, but his statements explained the background to the transactions, and both counsel were content that I should and ought to read them. I did do so. (2) the six witness statements of Mr Shillingford, the first three of which were filed in relation to the claim and the fourth to sixth in relation to this action. Mr Shillingford, in his oral evidence before me, accepted and explained that there had been some errors in those three, or in one or more of those first three witness statements, which he corrected. I have read those witness statements, all six of them. (3) the witness statement of Isaac Carter, that is the partner in NES who actually signed the Arthur Barnes undertaking and the Halliwells undertaking in respect of this action. (4) the witness statements of Michelle Levin and Megan Bartlett, whose maiden name was Peacock, partners in Levi, who were retained by Quinn to investigate the coverage and who attended Mr Shillingford and Mr Carter on the 12^th May. I also heard oral evidence from Mr Shillingford, Mr Carter, Megan Bartlett and Michelle Levin.
46. As I have already indicated, I regarded Michelle Levin and Megan Bartlett as witnesses of transparent honesty, accuracy and reliability, whose evidence I unhesitatingly accepted. Neither Mr Shillingford nor Mr Carter had previously had an allegation of dishonesty made against them before this case. Mr Shillingford was admitted as a solicitor on 1 September 1993. He is a law graduate. Mr Carter was admitted on the 1^st August 1990. He, too, is a graduate, a Bachelor of Arts. The areas of law in which Mr Shillingford held himself out as practicing included business affairs, civil litigation, commercial property, residential conveyancing, environmental law, landlord and tenant, licensing law, planning law and wills and probate. Mr Carter held himself out as practicing in business affairs, commercial property, residential conveyancing, environmental law, planning law and wills and probate.
47. On the proposal form for insurance in September 2008, Mr Shillingford disclosed that in the previous 10 years a fee earner in the practice had been granted a conditional practising certificate, had been reprimanded, fined or otherwise sanctioned by the disciplinary tribunal and had been the subject of a monitoring visit from the Law Society or Solicitors Regulation Authority. Mr Shillingford said that this was largely or wholly associated with his late submission of accounts.
48. Following a regulatory visit to a firm, at which Mr Carter had also been working, on 21 August 2008, allegations were made against Mr Carter that, contrary to Rule 1 of the Solicitors Practice Rules 1990 (a) he had acted towards other solicitors with a lack of frankness and good faith (b) continued to act in conveyancing transactions which had suspicious features bearing the hallmarks of mortgage fraud and (c) provided misleading information to an officer of the Solicitors Regulation Authority during the course of the investigation. Mr Carter pleaded guilty to the first and third of those allegations and the disciplinary tribunal found the second allegation was not proved. In its decision, the reference was made to published warnings – this time a Green Card – on mortgage fraud. Following that adjudication Mr Carter was reprimanded for his conduct. He was not, as he thought would happen, struck off.
49. Those charges against Mr Carter in relation to a wholly different company, a wholly different practice, were laid against him on 21 August 2008. The disciplinary hearing to which I have just referred to took place on 11 June 2009. Therefore, the events with which I have to concern myself in this case occurred in the period when Mr Carter was awaiting his hearing for those allegations. He expected, according to what he told the Tribunal, to be struck off, even on the basis of his admissions.
50. Submissions made on his behalf at that hearing in June 2009 – and I acknowledge therefore aftere the December 2008 undertakings were given – included that he had not read letters accurately, that he had been naïve and that he should have done things differently. One might have expected him, therefore, in December 2008, given that he was awaiting a disciplinary hearing on those matters, to have had a heightened awareness of, and taken no chances with , his professional conduct.
51. My assessment of Mr Shillingford was of an urbane, mentally agile and shrewd man. He was very alert and alive to the importance of the issues about which he was being cross-examined. I do not consider that he was a substantially different man in December 2008, when these events occurred. In my judgment, he could not be regarded as naïve in December 2008. Mr Carter struck me as a less driven and perhaps more open individual. He was a little less shrewd than Mr Shillingford, but, in December 2008, he certainly could not have been regarded - and I do not regard him - as having been naïve on the need for honesty, accuracy and truth when giving a solicitor's undertaking.
52. Both men fully understood the seriousness of a solicitor's undertaking at all times, and of the liability to which they were exposing themselves when they gave one. This was a most unusual and, it seems to me, unprecedented transaction for them in which they became involved. It concerned the enormous sum of £1.5 million, many times the most recent turnover of the firm, and greatly in excess of the combined personal assets of Mr Shillingford and Mr Carter.
53. On their own admission, both men lied when giving the NES undertaking to Arthur Barnes on 12 December 2008. Both men knew they were not telling the truth, in my judgment, to Halliwells when they gave the replacement undertaking on 22 December 2008. I regret to say that, on the critical issues, I did not regard either Mr Shillingford or Mr Carter as credible witnesses.

Dr Hassan Ali Hasan Ahmed and his Instructions:

54. In December 2008, Dr Hassan knew that an organisation called Red Chilli Structured Finance had done an appraisal for the Stratford Edge development, showing the site purchase price as £25 million. The interim cost of the development was put at £65.5 million. It involved parking bays, commercial space, social housing, intermediate social housing and private flats on a large number of floors. The land for the development in question was owned by Stratford Edge, the entire shareholding of which Green Crown was going to buy.
55. . There were two shareholders in Green Crown, John Bayle and Lucille Aldwell. It was envisaged that Dr Hassan would acquire 25% of Green Crown in exchange for his financial assistance by way of funding the £1.5 million undertaking or an equivalent loan to Green Crown. However, in the first instance, Green Crown needed to borrow £1 million, by way of bridging finance, to pay the necessary deposit on the share sale agreement relating to Stratford Edge as well as other expenses. Someone, perhaps Red Chilli, introduced Green Crown to GCF. GCF agreed to loan Green Crown £1 million, with interest at 3% per month plus an administration fee of £450,000 to be added to the loan. That total sum was to be repaid on 11 March 2009.
56. Part of the security required by GCF was an irrevocable and unqualified undertaking from Arthur Barnes to pay GCF £1,450,000 on 11 March 2009. Further security required included a charge in favour of GCF of the entire shareholding in Green Crown owned by Mr Bayle and Lucille Aldwell. It followed from this that Mr Bayle and Green Crown were not free to sell a 25% shareholding in Green Crown to Dr Hassan, for so long as the entire share capital in Green Crown was charged to GCF.
57. . The Toynbee Housing Association was interested in acquiring 82 residential units in the proposed development for a total consideration of £10.5 million, including construction costs, and a very early draft of an agreement, but with no named vendor in it, was shown at some stage to Mr Shillingford. However, it is plain to me that this document was only in its most preliminary of stages and it is difficult to see how any meaningful advice could be given about it to anyone at that stage. Mr Shillingford said in evidence that somehow the undertaking which he was being asked to give by Dr Hassan was to provide comfort for this housing association. I reject that evidence. I find that Mr Shillingford knew from the outset that the undertaking was required by a lender of money.
58. On 9 December 2008, a man presenting himself as Mr Hassan Ali Hasan arrived at NES's offices at about 6.00pm. He was introduced to Mr Shillingford by Ernest Gale. Ernest Gale was a mortgage broker who had previously referred clients to NES. The meeting took place at that late hour because Mr Shillingford was a prosecution witness at a trial, and he had to attend court for that purpose on 9 and 10 December 2008. He was going abroad on holiday on 11 December 2008. Mr Gale was not a witness in the trial before me.
59. . There is a significant dispute between the parties as to what precisely NES was instructed to do by Dr Hassan. In paragraph two of its amended particulars of claim, NES alleged that on 9 December 2008 Dr Hassan attended at NES's offices with Mr Bayle and Ernest Gale. It is claimed in that pleading by NES that Dr Hassan introduced NES to him 'in relation to the proposed purchase of the entire share capital of a company called Stratford Edge Limited. Stratford Edge Limited had an interest in property in Stratford, London E15, in particular a development site called Stratford Edge at 80-92 Stratford High Street, …'.
60. In paragraph three of that pleading, it was alleged that Dr Hassan and his business partner, Mr Bayle would purchase Stratford Edge via Green Crown, a company in which Mr Bayle had a controlling interest. However, at that first meeting on 9 December 2008, I find that Mr Shillingford only met with Dr Hassan and Mr Gale. I find that Mr Bayle was not present at that meeting at all. The first time Mr Bayle met Mr Shillingford was the following day on 10 December 2009.
61. . In the trial bundle is a manuscript note, which has been typed up and in its typed form constitutes page 280A of the trial bundle, of a document produced to Mr Shillingford by Dr Hassan, whether he wrote it or not. It contained his name, Dr Hassan – two S's – Ali Hassan – two S's – Ahmed and an address of 7 Greenhaven Court, 1A Montagu Place, London W1H 2EP. It contained reference to gold certificates of 12,500 troy ounces, indicating that that certificate would be worth something in the order of $12 million in value. That document was presented to Mr Shillingford on 9 December 2008.
62. . It appears from the attendance note that Mr Shillingford himself made in manuscript on 9 December 2008, and which have been typed up by him and which form pages 281A to 284A in the trial bundle that Mr Shillingford was told that Dr Hassan was prepared to provide collateral to support a client who needed an undertaking to pay £1.5 million by 15 February 2010. The attendance note reads:

'Dr Ahmed Hassan with Ernest Gale. Has client who needs = u/t to pay by 15/2 £1.5 million. Dr H has the collateral. NES will hold the collateral and issue u/t. NES has to protect Dr H &.' And then underneath that, 'Before the maturity of my u/t we need back security and money or 2M to fulfil the u/t we are going to write.'

63. The note therefore recorded that Dr Hassan had collateral which NES would hold, and that the collateral was gold delivery certificates which were claimed to be valued – there were 17 of them – in millions of dollars. In the original particulars of claim and in his first witness statement, Mr Shillingford claimed that Dr Hassan had deposited the 17 gold delivery certificates.
64. . In evidence, he accepted that this was inaccurate, and that he had been shown the 17 certificates on 9 December, but none had been retained by him. Indeed, only one of those 17 certificates, worth in excess of $10 million it was claimed, was deposited on 12 December 2008 by Dr Hassan with Mr Carter. Dr Hassan also left Mr Shillingford with other documents which he claimed authorised Dr Hassan to deal with the certificates.

Gold Documentation

65. . As I have said, only one of the certificates was deposited with Mr Carter at NES on 12 December 2008. Even so, both partners said that they believed that that one certificate alone was worth $10 million. A receipt was signed by NES for that certificate on 12 December 2008, and also by Dr Hassan. Indeed, that was the only signature on file that NES had for Dr Hassan. The documents purporting to identify Dr Hassan, and which authorised him to deal with the gold certificates, are, it seems to be conceded by both sides, worthless or, at the very least, they have not been demonstrated to have any value. They contain features suggestive of their being absolutely bogus.
66. The amended defence, in paragraphs 16A to 16D, sets out what have been regarded by the third party, Quinn, as obvious errors in the documentation which was deposited. There are obvious spelling mistakes, and it is difficult to understand how anybody could really follow what these documents were seeking to describe. One of the documents was headed 'Corporate Resolution', a corporate resolution of Global Financial Associates Inc. That resolution said:

'It is resolved at this meeting of the"board" that Dr Hassan Ali Hassan, holder of United Nations Egyptian passport no: 1977, be appointed as director of GFA Corporation …'.

67. Dr Hassan had produced a plastic card (not a passport) to Mr Shillingford, on 9 December, which merely contained the number on the back 1977. By no stretch of the imagination could it be regarded as anything other than a plastic document with a photograph on one side, and a reference to the United Nations on the other, bearing the number 1977. Here was a discrepancy, first of all, between what was in the resolution and the card which was produced.
68. . The resolution had other important omissions in that it said, in line four, 'to act for and behalf of'. The word 'on' was omitted. There was a misspelling in the next line, in that the letter 'N' was excluded from the word 'including'. There then followed a number of certificate numbers and immediately thereafter was a phrase, 'The total quantity equaling,' with one 'L'. That paragraph then ended, 'Under the control of the International Banks of Nevis Monetary.' That description of the Bank Nevis 'Monetary' was a different description of that bank which on a certification document, to which I will return, referred to International Bank of Nevis 'Depository'.
69. . Still dealing with the corporate resolution, the resolution itself continued:

'It is resolved that Dr Hassan Ali Hasan, is hereby authorised to sign any financial contract, any private investment contract, to receive and distribute the return from these contracts (s) …'.

Therefore the word 'contracts' is itself in plural form, but the letter 'S' follows it in brackets. 'Open personal corprate' – spelled 'corprate' – 'trading, trust and/or foreign type(s) as he may deem appropriate for as many accounts as may be required by such bank(s) to accomplish the objectives(s) as stated herein.' Still dealing with that resolution, on page two of it, the word 'relationships' is spelled 'rekationships' and 'K' is put in instead of the letter 'L'.

70. It is indeed difficult to see that, if anybody read that document, they would have any real idea of what it meant. I find that that document itself is littered with such basic spelling mistakes, and makes such little legal or commercial sense, that even no incompetent but honest solicitor would or could have accepted it as genuine. In my judgment, Mr Shillingford had adequate time to read and analyse these documents despite his holiday arrangements. The errors in them are glaring and basic.
71. . The second document left with Mr Shillingford by Dr Hassan on 9 December was a document, again bearing the name Global Finance, and headed 'Affirmation of AU,' that is the chemical symbol for gold, 'Ore Ownership Transfer.' There is then an affirmation by the President and Chief Executive of Global Financial Associates that Dr Hassan had been given irrevocable authority to deal with the gold certificates. At the bottom of that page is a web address: www.gfausa.com. That web address was, at least on 27 January 2001, not registered to anyone and was still for sale, although it may well be that an earlier search of the site stated that it was undergoing reconstruction.
72. . The third document, left by Dr Hassan with Mr Shillingford on 9 December, was a document headed 'Registrar AU Certification'. This indicated that Global Financial Authorities held $380 million worth of gold in certificates or other documentation at the International Bank of Nevis Depository. That certificate concluded:

'We, the undersigned custodial depository escrow officers, also confirm that this AU ore metal deposit is good, clean and clear, legally earned and of non-criminal origin, free from all and any liens or encumbrances of whatsoever nature and is ready for any authorized documentary transfer and assignment.'

73. As I have already indicated, an Egyptian United Nations Association identity card was the only form of client identification obtained by NES. It could not possibly have been regarded as a passport. Yet, as I have indicated, the corporate resolution referred to it as a passport. Moreover, any Internet search would have revealed the above history of the website www.gfausa.com

74. The words on that Registrar AU Certification, 'legally earned and of non-criminal origin', are interesting. The ICC Commercial Crime Bureau produced a guide on preventing financial instrument fraud. Part 3 of that report began with the words, 'If it looks too good to be true, it probably is.' It then went on to give guidance and some words commonly used in financial instrument fraud. The words 'good, clear funds of non-criminal origin' are words which, of course, no bank could ever use, because it could never be sure of their accuracy, but they feature as words which can be associated with documentation which is not genuine and is used as an instrument of fraud.

74. The original gold certificate, which formed of the one of the 17 shown to Mr Shillingford on 9^th, but which was deposited with Mr Carter on 12^th, was produced in court. A photocopy of it, a colour photocopy, is also present in the trial bundle. The certificate, which purported to represent 12,500 troy ounces of gold in value, had 10 tear-off coupons, each therefore worth 1,250 troy ounces of gold. Therefore, each coupon, as one tore it off, was theoretically, if it was a genuine document, encashable for $1 million.
75. . In my judgment, that certificate could never have been treated as a bona fide document, even by an incompetent honest solicitor. In fact, there is no such thing as a gold delivery certificate. The Internet searches carried out by the third party's legal advisers indicate that the closest one can come to it is the phrase 'good delivery', in the London Bullion Market Association's Good Delivery Rules. When they carried out an Internet search on Google of 'London Gold Delivery Specifications', it revealed no hits. Neither Mr Shillingford nor Mr Carter had the slightest idea of how or where these certificates could be encashed and, in my judgment, made no enquiries in that regard before giving any of those undertakings.
76. . In this case, Mr Bacon asked the very telling question: Why would a man such as Dr Hassan, authorised to deal with $380 million of gold, allegedly living at a prestigious accommodation in Montagu Place, London, W1 and who purported to be connected with the United Nations, instruct NES solicitors whose offices was not even on the High Street but in a back street in Tottenham? In my judgment, the answer was that Dr Hassan needed to find a solicitor who would not ask obvious questions, and questions that needed to be asked, especially when there was a prospect of an easy but substantial fee and perhaps lucrative future business as well.

9 – 12 December 2008

77. . On 9 December 2008, Mr Shillingford drafted three undertakings. They were typed up the following day and sent to Arthur Barnes. The first draft was from NES to Arthur Barnes and was in the following terms, insofar as the undertaking to be given by NES is concerned:

'Upon our receiving your written request for payment and your account details on a date not before the 2^nd April 2009, we hereby undertake to pay the sum of £1,500,000.00 sterling (One Million Five Hundred Thousand Pounds) to your firm's client account on or before 15^th April 2009 ("The Maturity Date"), such payment to be made within 24 hours of our receiving your written request for payment.

This undertaking is effective from the 10^th December 2008 and shall automatically cease to be effective at midnight on The Maturity Date.'

78. That first draft therefore contained no reference to NES holding any money. When NES sent that out to Arthur Barnes they did so under a covering letter in these terms:

'We are instructed by Dr Hassan Ali Hasan concerning a proposed undertaking between our respective firms for the benefit of your client. We understand that you are similarly instructed that. simultaneously to our concluding the giving of an undertaking to assist your client's property developments in the Stratford, London area, you will provide two cross-undertakings to this firm.

We attach drafts, firstly of our proposed undertaking, [that is the one I have just read out] and secondly drafts of your proposed two cross undertakings that we understand our client has discussed with your client. It is expected, subject to discussion and approval of the attached draft undertakings, the documents will be signed and formally exchanged over the telephone and despatched by post to each of our respective firms utilizing Law Society formula B for exchange of contracts.

We should be grateful for any discussion on the documents to be in the afternoon of Wednesday the 10^th December, after the writer returns from a court appointment that day. Our instructions are that it is crucial for the documentation referred to above to be concluded by close of business on Wednesday 10^th December 2008.'

79. It seemed, at that time, that the parties were expecting this deal to be concluded on Friday 12 December 2008, or certainly no later at that stage. The other undertakings, which were prepared in draft by Mr Shillingford, were in the following terms. This is the one from Arthur Barnes:

'Upon our receiving your written request for payment and your account details on a date not before the 2^nd April 2009, we hereby undertake to pay the sum of £1,500,000.00 sterling (One Million Five Hundred Thousand Pounds) to your firm's client account on or before 15^th April 2009 ("The Maturity Date"), such payment to be made within 24 hours of our receiving your written request for payment.

This undertaking is effective from the 10^th December 2008 and shall automatically cease to be effective at midnight on The Maturity Date.'

It can be seen that that exactly mirrored the £1.5 million undertaking given by NES to Arthur Barnes, obviously with the name of the giving of the undertaker and the recipient substituted. The second undertaking which Arthur Barnes was going to give was in the following terms:

'We hereby undertake to pay on the 2^nd April 2009 the sum of £400,000.00 sterling (Four Hundred Thousand Pounds) to your client Dr Hassan Ali Hasan via your firm's client account the details of which are; [and then the bank details are provided, and it continued]:

This undertaking is effective from 10^th December 2008.'

80. It should be noted that there was, at that time, an expectation that the undertakings would become effective on 10 December. It seemed that the parties expected it to be concluded no later than 12 December, but there was, at that stage, no reference, either in the attendance notes or in the letter, to Dr Hassan acquiring the entire share capital of Stratford Edge, as pleaded in paragraph two of the amended particulars of claim. I am satisfied that is because there was no such reference on 9 December 2008. I am also satisfied that the proposal to acquire shares in Stratford Edge originated in Mr Shillingford's first meeting with Mr Bayle, on 10 December 2008, at which Mr Shillingford became aware that the undertaking was required by a bank and that Dr Ahmed would be paid an additional sum of £100,000 in exchange
81. The attendance notes prepared by Mr Shillingford during his meetings with Mr Bayle on 10^th read:

'Attending John Bayle, 80-92 Stratford High Street near Olympic Stadium. Contracts to be exchanged. 254 units. Note: bank which gives funding wants to do deal. Get UT for 14^th to 16^th March. We now plan to exchange on Friday. They have funds organised.'

82. The attendance notes for that meeting continue, and they are at pages 291A, 292, 292A, 293A, 294A, 295A and 296A in the trial bundle as typed up by Mr Shillingford from his manuscript notes. At that meeting on 10 December – and it is not clear whether there was a preliminary meeting between Mr Shillingford and Mr Bayle only, at which they were later joined by Mr Gale and Dr Hassan – manuscript alterations were made to those three undertakings which I have read out, and which had been initially prepared by Mr Shillingford. For the first time, the words 'we confirm we are holding funds from our client in the sum of £1,500,000.00' were added to the undertaking for £1.5 million which NES was proposing to give to Arthur Barnes.
83. . Before that meeting, or any of those meetings, took place on 10 December involving Mr Bayle or Dr Hassan a number of emails had been sent to NES. The first, at 1.27pm on 10 December 2008, was from Arthur Barnes, replying to the first version of three undertakings, emailed to them by NES:

'Thank you for your emails, our respective clients have spoken and agreed that the sum of £1.9 million [ that is 1.5 plus 400,000, which were the sums that Arthur Barnes were originally undertaking to pay over to NES] is to be paid from the monies our client shall receive from the Housing Association monies when it is received by our client in early April 2009. Our firm would be willing to provide an undertaking to this effect.

We should be grateful if you would contact our Mr Clarke to discuss this further…'.

84. From that, it seems Arthur Barnes were by no means offering to give a cross-undertaking in identical terms to the undertaking which NES was proposing to give to Arthur Barnes. In addition two emails, one at 4.15pm on the 10^th December, and the other was at 4.36pm on 10 December. were sent by Mr Bayle to NES addressed for the attention effectively of 'Mr Chillingford'. The first of these emails referred to the address of the developments, and may have contained some computerised mock-ups of the skyscraper. The second email contained detail of four areas within the proposed development and of the planning permission which had been granted. Therefore, by the time that the meeting took place, later on 10 December, involving Mr Shillingford, Mr Bayle and Mr or Dr Ahmed, it would have been known that Arthur Barnes were not simply endorsing the emails which had been previously sent, i.e the first edition of the undertakings, and were indeed suggesting something different in relation to the £1.9 million.
85. There is also in the trial bundle a client care letter taken from NES's file. This is marked 'Facilitating purchase of shares in a company, Stratford Edge Ltd'. As far as I can see, this is an undated letter. It should be noted that this client care letter is a standard client care letter for litigation, and nothing at all to do with this particular transaction. It is a standard typed letter. The name of the client and the words 'Facilitation of purchase of shares' have been written in by Mr Shillingford. In my judgment, this was completed probably on 10 December 2008 because of its reference to the purchase of shares of Stratford Edge. I find that Stratford Edge was only mentioned as a name on 10 December and it seems to me therefore that is the date of that letter.
86. Accompanying that letter, was a litigation related document entitled 'List Of Fees estimate' where the hours of work anticipated to be involved were 15 hours at £400 per hour, namely £6,000 plus VAT. The partner's charge-out rate was £490. That hourly rate vastly exceeded Mr Shillingford's normal rate of £190 per hour. Of course, it is at odds with what was actually agreed, namely £5,000 on exchange, and an additional £10,000 on completion.
87. . These documents do not, in my judgment, accurately encapsulate what was discussed at the time, however I accept that the letter and the fees estimate were written at around about the 10^th, but bore no relation to what had been agreed. There was no litigation and the fixed fee had been agreed by 10 December. Indeed, a payment into NES's bank account of £5,000 was made by telegraphic transfer on 23 December 2008. However, NES's invoice, which bore the date of 24 December 2008 ( a date on which the offices were in fact closed), was prepared showing a total fee of £5,000, inclusive of VAT, based on an hourly rate of £190. That invoice was only disclosed by NES on the weekend before trial.
88. The description of the work done in the invoice is 'Taking our clients instructions, obtaining and perusing documents re Stratford Edge, meeting you and your colleagues on an emergency basis. Drafting letters for approval by other partys' solicitors, corresponding with you throughout'. I find it surprising that the word 'undertaking' did not appear in that invoice. Mr Shillingford was due to fly from London at 7.00am on 11 December 2008. At about 10.00pm on 10 December he called at Mr Carter's home to tell him about the Hassan file and to put him into the picture, because Mr Carter would have to deal with the formalities of exchanging the undertakings in Mr Shillingford's absence, eventually on the 12 December.
89. . I reject the suggestion that Mr Shillingford told Mr Carter that there was an expectation of a cross-undertaking from Arthur Barnes for £1.5 million, since the email I have referred to demonstrated that by then there would be none. Moreover, the correspondence to which I shall turn, which was created following the meeting with Mr Shillingford and his client on 10 December demonstrated that too. In the event, Mr Shillingford's plane was delayed until about 3.00pm on 11 December 2008. During the night before his departure, he continued to work on the draft undertakings which he created following the meeting on the 10^th, because, at 4.49am on the morning of 11 December 2008, he sent an email to which the new drafts were attached. Those emails incorporated the amendments requested by Dr Hassan and Mr Bayle at the meetings on the evening of 10 December 2008. None of those undertakings required Arthur Barnes to pay £1.5 million to NES.
90. . Those undertakings were in the following forms. These are the 'second edition' undertakings, sent on NES notepaper at 4.49am by Mr Shillingford on his email. The first is this:

'Further to our communication of the 10^th December 2008,' this is the letter from Mr Shillingford to Arthur Barnes, 'and subsequent to discussions between your client and ours, we attach the drafts of three undertakings our client Dr Hassan Ali Hassan requires in order to trigger the giving of a fourth undertaking, this time from ourselves, in the form also attached as a draft.'

91. I pause there. This letter expressly says Arthur Barnes will be giving three undertakings and, in exchange for that, NES will be giving one. I resume the quotation:

'Please when replying respond at first by email to info@nessolicitors.co.uk, followed by fax/post. It is expected the documents will be signed and formally exchanged over the telephone and despatched by post to each of our respective firms utilising Law Society formula B for exchange of contracts.'

92. There then followed the three undertakings which Arthur Barnes were going to give. The first one read:

'We wish you to undertake that upon exchange of contracts on the 12^th December 2008 or so soon thereafter as exchange shall occur in the purchase of the entire share capital of Stratford Edge Ltd by Green Crown Properties Ltd you will immediately transfer the sum of £100,000 to our client, whose account details are: name of the account Mr AHA Hassan.'

That was the first undertaking and it was new. Previously, Arthur Barnes, had proposed paying £1.5 million plus £400,000. Now, there is a new one for an additional £100,000. The second undertaking which Arthur Barnes were going to give, as drafted by NES, stated:

'Upon our receiving from you the sum of £1.5 million by the 10^th March 2009 we hereby undertake to transfer to your client 25% of the entire share capital of Green Crown Properties Ltd.'

The third undertaking which Arthur Barnes was going to give was in the following terms:

'We hereby undertake that either upon completion of the purchase of the entire share capital of Stratford Edge Limited … by Green Crown Properties Limited OR as soon as cleared funds are received by us from the "One Housing Trust", … whichever of these occurrences Dr Hassan Ali Hasan shall choose as the triggering event, we shall pay the sum of £400,000 sterling (Four hundred Thousand Pounds) to your client Dr Hassan Ali Hasan via your firm's client account, the details of which are: …

This undertaking is effective from the date of exchange of contracts for the purchase of the shares aforesaid, written confirmation of such exchange being required of us.'

93. Therefore, three undertakings were to be given by Arthur Barnes. It will be recalled that, in the covering letter, Mr Shillingford said, 'We attach drafts of the three undertakings our client, Dr Hassan, requires in order to trigger the fourth undertaking.' The fourth undertaking was the one which NES was going to give, in exchange for those three, as follows:

'We hereby confirm we are holding funds from our client in the sum of £1.5 million. Upon our receiving your written request for payment and your account details on a date not before the 6^th March 2009 we hereby undertake to pay the sum of £1,500,000.00 sterling ()ne Million Five Hundred Thousand Pounds) to your firm's client account on or before 10^th March 2009 ("The Maturity Date"), … such payment to be made within 24 hours of our receiving your written request for payment.

This undertaking is effective from the date of exchange of contracts for the purchase of the entire share capital of Stratford Edge Limited by Green Crown Properties Limited and a written confirmation from you of the date exchange will take place shall suffice to bring this undertaking into being and later written confirmation of actual exchange shall be given by you. … this undertaking shall automatically cease to be effective at midnight on The Maturity Date.'

94. That is was what NES was offering in exchange for three, not four, undertakings, as the letter expressly indicated. None of those undertakings to be given by Arthur Barnes required Arthur Barnes to pay £1.5 million to NES, as originally anticipated. I am satisfied that this was because everybody understood that there had been a change of plan, as that email from Arthur Barnes at 1.27pm on 10 December 2008 clearly revealed. There was now to be no cross-undertaking from Arthur Barnes, just a new undertaking by Arthur Barnes to transfer 25% of the shareholding in Green Crown to Dr Hassan, in the event of Arthur Barnes receiving £1.5 million from NES under NES's undertaking.
95. At 1.58pm on 11 December 2008 NES, Mr Shillingford's secretary received an email from Arthur Barnes, which she forwarded at 2.03pm both to Mr Shillingford and Mr Carter. That contained version three, namely Arthur Barnes' proposed modifications to the second edition undertakings prepared by Mr Shillingford. The covering letter reinforced the point that Arthur Barnes were only giving three undertakings. The letter is in the following terms:

'Thank you for your emailed letter of today which enclosed three draft undertakings.

Referring to the first undertaking (the 25% transfer undertaking) we confirm we will give this although there will need to be a … Share Purchase Agreement as between the present shareholder and the prospective shareholder. We will draft this and send it to you shortly.

Concerning our proposed second undertaking (the £400,000 undertaking), we have amended the draft and attach the same with tracked changed.

Concerning the third undertaking (the NES undertaking), we attach the same with tracked changes.

We would be grateful if you could confirm that you agree to the amendments we seek to make to two of three undertakings and agree to the need for an SPA. [That is a share purchase agreement.]

In your second letter you ask us to write to you providing you with a further undertaking (the £100,000 undertaking). We attach a draft of words 'we hereby undertake that we shall hold the monies referred to in paragraph one from that.'

96. The amendments which came with the Arthur Barnes third edition, as it were, added the words 'We hereby undertake that we shall hold the monies referred to in paragraph one from the date hereof in our client account to abide the undertaking here given and that we have irrevocable instructions from our client in this regard.' There was also an amendment to the £400,000 undertaking to add the words 'provided our client is free to use those funds for that purpose.' In relation to the £100,000 undertaking Arthur Barnes wrote this:

'Our client proposes to borrow funds from a third party the security for which is the undertaking you have given to this form today.

Our respective clients have agreed a fee for the giving of this undertaking in the sum of £100,000.

We hereby undertake to you to pay to you the sum of £100,000 from the monies our client is borrowing from the third party as described above. This undertaking is conditional upon receipt by us of those monies and we confirm that we have been authorised by our client to give this undertaking. The funds will be with you within 24 hours of receipt of the same by us.'

97. That last undertaking contains those important words: 'Our client proposes to borrow funds from a third party, the security for which is the undertaking you have given.' There could be no doubt what was going on here. This was an undertaking which was to provide security to a lender. I am satisfied that both Mr Shillingford and Mr Carter knew that the proposed £1.5 million undertaking which NES was going to give was specifically needed to assist Green Crown's borrowing, and not to give comfort, as they have indicated, to Toynbee Housing Association, part of the One Housing group. In return for NES giving this undertaking, Mr Hassan was entitled to £100,000 from the monies Green Crown was borrowing.
98. . At 3.52pm on 11 December 2008, Arthur Barnes sent an email to NES which seems to have intended to have attached to it a draft of the share purchase agreement, although I cannot see on the document any attachment. It is unclear to me whether any agreement was attached. Mr Shillingford left the country eventually at about 3.00pm on 11 December 2008, but, as I have indicated, despite being abroad, remained intimately involved in the transaction. Mr Carter was left physically to complete the transactions, but both agreed that the NES undertakings would be given.
99. . At 4.06pm on 11 December 2008, Arthur Barnes sent another email to Mr Shillingford's secretary about the £400,000 undertaking, in which they indicated that they would no longer seek any change to it, and asked for approval of Arthur Barnes' amendment to the NES undertaking – that is the third version – which had been drafted. The secretary forwarded that email to Mr Carter and to Mr Shillingford at 4.13pm. Those amendments must have been approved, because they were subsequently executed in the form as amended by Arthur Barnes.
100. . At 11.02am on Friday 12 December 2008, Tim Clark of Arthur Barnes sent another email to Mr Shillingford's secretary, to which again he wanted to attach the share sale agreement. Again it is unclear to me whether this was attached to that email, because I can see no attachment on the document I have seen. Also, in NES's disclosure, is a faxed copy of the share purchase agreement between Mr Bayle and Dr Hassan which bears the fax header showing that it was sent to NES at 11.23 on 12 December 2008 from the fax number at Arthur Barnes. I cannot see why it would have been necessary for this agreement to have been sent by facsimile transmission, if the document had already been sent successfully as an email attachment.
101. . Mr Shillingford said that he had advised Dr Hassan about that share purchase agreement, and had told him that it was 'all-right' for him to sign it. It follows, from what I have just said, that it is unclear to me when Mr Shillingford actually received a copy of that draft. However, I do find it surprising that he should have given that advice, because the version of the agreement faxed at 11.23am on 12 December 2008 indicated that the consideration which Dr Hassan was going to pay on completion of his purchase of the 25% shareholding in Green Crown on 10 March 2009 – as referred to in clause 4.3 – was £150 million. That plainly was a glaring error, because I acknowledge that, in clause three and in schedule one, the consideration is properly described as £1.5 million, not £150 million. That error in clause 4.3 was an obvious one.
102. . I do not accept Mr Shillingford's evidence that he advised Dr Hassan about that document, and told him to sign it, because, if he had looked at it he would inevitably have discovered that glaring error in what was effectively only a four-page document comprising eight clauses and two brief schedules.
103. On 12 December 2008 Dr Hassan attended at NES's offices. Both he and Mr Carter signed a receipt for the gold delivery certificate, that one certificate containing the 10 coupons. The confirmation was given on behalf of Dr Hassan Ali Hassan Ahmed on that receipt. That should be contrasted with the fact that the only identity document on file was the card showing Dr Hassan's last name, Hassan, with only one 'S'. Dr Hassan was described on that card as being of Egyptian nationality, working in the Political Department of the United Nations.
104. . It should also be noted that there was no irrevocable instruction in writing given to NES by Dr Hassan to hold £1.5 million in NES's client account, before that undertaking was given to Arthur Barnes on 12 December. Indeed, that reference to the irrevocable instruction was an amendment made by Arthur Barnes in the third version of the undertaking. It was said by Mr Carter, and on behalf of Mr Shillingford, that the irrevocable instruction was present because Dr Hassan was in the room when the undertaking was given, and that he had approved its own wording. Therefore, although it was not in writing, he had given the irrevocable undertaking. Of course, the irrevocable undertaking was to hold funds which the solicitors had already said they were holding. so how could the irrevocable undertaking ever be given if the funds themselves were not in their possession?
105. I have seen no attendance note prepared by Mr Carter, dealing with the events of 12  December. He admitted that since his experience was largely Local Authority work he was not in the practice of making attendance notes. Perhaps, he said, if he had been in private practice more he would have done so. Nevertheless, his failure to make attendance notes of these critical issues and events in which he was involved has not assisted his case.

Exchange of Undertakings on 12 December 2008:

106. On 12 December four undertakings were signed and exchanged at about 12.04pm. That is the detail on the fax header of the three undertakings given by Arthur Barnes. There is no fax header on the NES signed copy that I have, but there is a transmission document which shows the NES undertaking being sent at 12.31pm. Nevertheless, the three undertakings given by Arthur Barnes were in the terms which had been approved, and the undertakings signed by NES in relation to the £1.5 million contained the statements:

'We hereby confirm we are holding funds from our client in the sum £1,500,000 and we hereby undertake that we shall hold the monies referred to in paragraph 1 from the date hereof in our client account to abide the undertaking here given and that we have irrevocable instructions from our client in this regard.'

107. Mr Carter made no note of the exchange. It was, in my judgment, clear and obvious from the earlier communications – that email, the correspondence, the drafts which had been going backwards and forwards – that there never was going to be any matching undertaking from Arthur Barnes to NES for Arthur Barnes to pay NES £1.5 million. As I have indicated, that was replaced by the undertaking to transfer 25% of the share capital. It would seem that the purpose of that undertaking was to provide security for Dr Hassan if NES (and therefore Dr Hassan one presumes) paid over £1.5 million to Arthur Barnes under the undertaking.
108. . Bearing in mind that these undertakings were being exchanged, it seems to me patently incredible that Mr Carter could have thought that there was a very critical undertaking for £1.5 million which was not being exchanged at the same time, but yet was to be dealt with at some later date. I find that no investigation was made into the ability or power of the directors of Green Crown to undertake the transaction, no company searches were carried out either on Green Crown or Stratford Edge, no attempt was made to see what actual shareholding Mr Bayle held or what authority he had under the articles to transfer those shares.
109. . I am satisfied that NES was simply not interested in any of the detail of the underlying transaction. Neither Mr Shillingford nor Mr Carter knew who the vendors were of the entire shareholding in Stratford or, indeed, who their solicitors were. They had not seen any facility letter from any bank, any loan agreement involving Mr Bayle or Green Crown, even though they knew from the file note and from the letter from Arthur Barnes that a lender was involved in advancing funds to Green Crown and Mr Bayle on the strength of their undertaking.
110. I cannot accept, and I do not accept, that this was because of gross incompetence. I find that it was because it was irrelevant to the service NES had undertaken to provide to Dr Hassan, which was in my judgment the simple provision of an undertaking on 12 December 2008, following the original instructions given on 9 December 2008. This fact is apparent from the attendance notes made on 9 and 10 December 2008 and from the letter written by Mr Shillingford to Arthur Barnes on the 10^th December.
111. NES claimed that they did not see the facility letter granted by General Capital to Green Crown on the 12 December. That letter was amended on 15 December 2008. Therefore, on their own case they, as solicitors acting for Dr Ahmed, that is Mr Bayle's business partner, did not concern themselves with the underlying loan or, indeed, ask themselves the question how was the development going to be funded? In my judgment, had they genuinely been involved with anything other than the giving of a simple undertaking, they would have ascertained this information, or a substantial part of it, and that the loan amount was only £1 million, at an interest rate at 3% per month with this truly amazing administration fee of £450,000. Indeed, all the shares in Green Crown were given also as a security to the lender, which arguably meant that Green Crown could not transfer any of its shares to Dr Ahmed, at least until the bank had been paid back.
112. The precise wording of the undertaking given on 12 December by NES to Arthur Barnes through Mr Carter, but with the express knowledge and consent of Mr Shillingford, is very important and it contains those two key passages:  

'We hereby confirm we are holding funds from our client in the sum £1,500,000 and we hereby undertake that we shall hold the monies referred to in paragraph 1 from the date hereof in our client account to abide the undertaking here given and that we have irrevocable instructions from our client in this regard.'

113. Mr Carter acknowledged in his evidence that this was a lie. He knew it was a lie at the time. He could give no explanation for why he knowingly lied. All he held at that time was a worthless certificate deposited on that day by Dr Hassan. He had assumed merely that all client checks on the bona fide nature of Dr Hassan and on the authenticity of this documentation had been previously carried out by Mr Shillingford. However, on what he based that assumption I do not know, because he did not say that that was something which had been imparted to him by Mr Shillingford, when he visited his home on the night of 10 December.
114. . Of course, the lie was not only in saying that NES was holding £1.5 million in its client account, when he knew it was not. The lie was further developed in the undertaking by stating that NES would hold the monies in its client account to abide the undertaking, and that they had irrevocable instructions from their client in that regard. If one does not hold the funds, one cannot give an irrevocable instruction to hold the funds.
115. . Mr Carter said that he was not fully familiar with the transaction and considered that nothing of consequence would turn on the undertaking, because he was expecting Arthur Barnes at some stage to provide a cross-undertaking in identical terms. I have already rejected this account. Mr Carter was copied in on all the correspondence from the early hours of 11 December 2008. He knew from that correspondence that Arthur Barnes were only supplying three undertakings, since this was clearly stated in the correspondence from Arthur Barnes. He could not have believed, and I find he did not believe, that, by the time he gave the undertaking on 12 December 2008 there was to be at any stage a cross-undertaking in identical terms. Had he believed that, he would never have sanctioned an exchange of undertakings without it.
116. . In cross-examination he was asked this question: 'Why did you sign the undertaking if you knew you were telling a lie?' 'I honestly don't know,' was his answer. Then, he admitted, 'I was prepared to condone the giving of a dishonest undertaking.' He acknowledged that, with hindsight, he should have ceased to act for Dr Hassan, because he was a client who was asking his solicitors to lie on his behalf.
117. . In my judgment, this was a dishonest undertaking on 12 December 2008. No honest solicitor could or would say that they held £1,500,000 in their client account, when they did not. Moreover, no honest solicitor could or would say in all the circumstances that they had irrevocable instructions to hold the money to abide the undertaking, nor did or could Mr Carter believe he was acting honestly in giving it. Mr Shillingford, too, was fully aware of what was going on and he, too, concurred in the telling of this deliberate lie.
118. . In my judgment, both Mr Shillingford and Mr Carter acted dishonestly in giving that undertaking to Arthur Barnes, because they deliberately and knowingly told lies in it for the prospect of financial gain. Both knew perfectly well the solemn and important nature of a solicitor's undertaking. The amount involved was enormous. This was an unprecedented transaction. A third-party lender was going to rely upon this undertaking from a solicitor as part of its security, when advancing a very significant amount of money to Green Crown and Mr Bayle.
119. . Mr Munro on behalf of NES, suggested that the civil liability to be covered by the policy was NES's breach, not of this undertaking to Arthur Barnes, but of the one which replaced it and which was given to Halliwells on 22 December 2008. He submitted therefore that Arthur Barnes' undertaking was not relevant to this case, since the civil liability to be covered under the policy did not arise in relation to the Arthur Barnes undertaking. I disagree. The undertaking subsequently given to Halliwells was identical to, and simply replaced, the undertaking given by NES to Arthur Barnes. It would be wholly artificial and, in my judgment, quite wrong to take this blinkered view suggested by Mr Munro.
120. . In considering the question of the honesty or dishonesty of Mr Carter and Mr Shillingford in relation to the Halliwells undertaking, it is the whole course of conduct of Mr Carter and Mr Shillingford in the various stages, from the 9^th December up to the 22^nd December 2008, which must be considered. This includes that part of the history which culminated in the giving by NES of its dishonest undertaking to Arthur Barnes on 12 December 2008.
121. As far as NES, that is Mr Shillingford and Mr Carter, were concerned, following the signature of the NES/Arthur Barnes undertaking, they did not anticipate any further involvement. I accept Mr Bacon's submission that, if Mr Shillingford had done so, Mr Shillingford would not simply have left the matter with Mr Carter with no further explanatory note. The reason there was no handover note was that they were not acting in relation to the underlying transaction. Dr Ahmed was not required to provide monies in NES's account, before giving their undertaking to Arthur Barnes. All NES had at this time was that gold delivery certificate of uncertain, if any, value, which in any event was not cash in their client account. Moreover, the fact that the invoice was prepared, once the undertaking was given by NES to Halliwells, further supports the conclusion that NES did not anticipate any further involvement in any other aspect of the underlying commercial transaction.
122. . I accept Mr Bacon's submission on behalf of Quinn that, in the circumstances I have described, all honest solicitors would have refused to give this NES/Arthur Barnes undertaking and would have refused to act thereafter for Dr Hassan. I am also satisfied that both Mr Shillingford and Mr Carter knew this as well. As we now know, if they had not continued to act for Dr Hassan none of the events which followed could have happened, and the Halliwells undertaking could not, and would not, have been given.

18 – 22 December 2008

123. On 18 December 2008, Dr Ahmed forwarded an amended version of NES's undertaking to NES, changing the recipient of the undertaking to Halliwells. It seems that this was a Word document, and it was possible for Dr Ahmed simply to modify the undertaking, because it was not in PDF format. This amended undertaking had been sent in the following order, insofar as I can deduce it. It started with Tim Mycock at Red Chilli. It was then sent to Mr Bayle, who forwarded it to Dr Ahmed, who sent it to Mr Gale, who then forwarded it to Mr Shillingford at 4.48pm UK time on 18 December 2008. It should be remembered that this was the day before Arthur Barnes wrote to inform NES that they were not going to rely upon the NES undertaking.
124. . Apart from the undertaking itself, NES had had no dealings, or correspondence or phone calls, with Halliwells. The only contact was the visit of an employee of Halliwells, a Mr William McCann. Mr McCann was a trainee solicitor. He was sent by Halliwells to NES's offices on 22 December. His purpose was to ask to see NES's professional indemnity certificate or insurance policy, to satisfy Halliwells from a Money Laundering point of view, of the identity of Mr Carter and to see Mr Carter's passport.
125. It is, I accept, remarkable that Mr Carter did not refer to these highly unusual events in his witness statement. It is also, I find, highly unusual for a City firm to visit a High Street practice to check on whether it had professional indemnity cover. It was unprecedented for Mr Carter, who had only known an institutional lender to ask to see his professional indemnity policy. Of course, Halliwells were in fact acting for a lender, GCF. Halliwells, at least on the information before me, did not carry out any investigation to see if NES was involved in any underlying transaction, in the context of which the undertaking was being given. Moreover, none of the loan, which GCF was advancing, was going at all to NES. It seems, on the material before me, that Halliwells could not have concluded that NES was involved in any underlying transaction, which would provide a solicitorial context to the undertaking.
126. . On Friday 19 December 2008, Arthur Barnes treated the NES/Arthur Barnes undertaking as withdrawn, but that meant that the Arthur Barnes undertakings had no value too. This does not appear to have been discussed. On 19 December, Dr Ahmed emailed Mr Shillingford's personal email address and confirmed that he would put funds into NES's account by 30 January 2009 to cover 'your undertaking to Halliwells'. The undertaking was imminent, not on 30 January 2009. Mr Shillingford forwarded that email to Mr Carter on 21 December 2008 at 8.04pm. So, Mr Carter knew about it. The implication of the email, at that time anyway, seemed to be that the undertaking would be given by NES once more without there being cleared funds in its account to cover that undertaking, when it was given.
127. . John Bayle also gave a guarantee – I say a 'guarantee' in inverted commas – to Mr Shillingford by email on Friday, 19 December 2008 at 7.32pm, which Mr Shillingford forwarded to Mr Carter on 21 December 2008 at 8.05pm. That guarantee simply said this:

'I wish to confirm that in the event of any person including myself calling on the £1.5 million that I will personally guarantee that I will put the funds in your account to cover that amount.'

129. Dr Ahmed or Mr Hassan or Dr Hassan's email was in these terms:

'I hereby confirm irrevocaabely (sic) that I will place funds in an amount of One million Five Hundred Thousand Pounds at the Client account with your firm on or before the 30^th of January 2009 in place of the security I have with you to cover your undertaking to Halliwells Solicitors.'

He signed that Dr H Ahmed, PhD. Of course that guarantee or those promises were only as good as the assets of Dr Ahmed and Mr Bayle to support them. I turn now therefore in detail to the events of 22 December 2008

22 December 2008

128. Mr Carter's evidence was that, on 22 December 2008, Dr Hassan was not expecting to have to provide funds then, and he told Mr Carter that his agreement with Mr Shillingford was to that effect. When Mr Carter insisted on the funds, before the undertaking could be given, Mr Bayle offered NES a cheque in Euros, which Mr Carter took to the bank. It was the same bank but a different branch of Dr Ahmed's bank, where he was advised by his bank manager that it could take up to six weeks for a Euro cheque to clear. I consider it likely that Mr Carter must have known, in any event, that there would be a problem associated with the quick clearing of a Euro cheque, even without this confirmation from the bank manager.
129. However, Mr Carter did not take any photocopy of that cheque, nor did he make any attendance notes in which he referred to the cheque. The only cheque on the NES file from Mr Bayle is one dated 28 December 2008. Nevertheless, on balance, I accept that Mr Bayle did offer a cheque in Euros to Mr Carter on the morning of 22 December, which he declined to accept. On Mr Carter's return from the bank, either Mr McCann of Halliwells was present at the NES office or his arrival was imminent. Mr Carter told Mr Bayle and Dr Hassan that the Euro cheque simply would not be acceptable, and that payment in Sterling was required.
130. There seems to have been no discussion at all about an electronic transfer of funds on that very day, as opposed to dealing with cheques. If the concern was how long it would take for a Euro cheque to clear, one would have thought that there would have been equally a concern about how long it would take for a sterling cheque to clear, because neither constituted liquid funds in the client account of NES. I simply do not understand why Mr Carter or Mr Shillingford, with whom Mr Carter had discussed these developments, was prepared to entertain cheques, when the matter could have been put beyond doubt by an inter-bank electronic transfer.
131. Mr Carter had let Dr Hassan and Mr Bayle therefore go to the bank on their own to deal with this Sterling cheque, because Mr Carter was by then waiting for Mr McCann to arrive or had to see him on his arrival. When they got back from the bank, Dr Hassan then produced a receipt from HSBC, timed at 11.42am. The account into which the cheque was allegedly paid was NES's office account, not its client account. It will be remembered that one of the warnings which had been previously given was not to release bank details of the solicitors' office account. That cheque was a personal one, and in fact bore the date of 23 December 2008. The signature on the cheque bore no resemblance to Dr Hassan's had signature on the gold delivery certificate receipt. The cheque was signed by Mr AHA Hassan, not Dr Ahmed, the name which was the most recently used one on the emails.
132. The bank receipt, I acknowledge was difficult to read. The copy which was produced to me was enlarged for the purposes of the trial. The original was in much reduced form at the time. However, it is the case that cheque bore the date of 23 December, and yet the undertaking was being given on 22 December. Mr Carter said he had not realised that fact. Whether he realised the date or not, what he must have known, as a solicitor, is that it would take up to four working days for a cheque to clear. Therefore any honest solicitor would know that the representation that it was holding funds from 'our client in the sum of £1,500,000' was untrue, at the point the undertaking was given. Mr Carter would also have known, as indeed did Mr Shillingford know, that they could not have had an irrevocable instruction, not only because it was not in writing (and therefore would be subject to debate) but also because they did not have the cleared funds, by reference to which the irrevocable undertaking was being given.
133. The obligation to comply with the Money Laundering Regulations and the guidance, to which I have referred, is of importance at this stage, bearing in mind the post-dated cheque, dated 23 December in the name of Mr Ahmed, was paid directly into NES's office account. It appears that the cheque never went into the account, because it seems it was stopped, probably on the very morning that the paying-in slip was produced by the computer. Mr Ahmed, or Dr Ahmed in the emails in which he described himself as Dr Ahmed, also said that he was the Managing Director and CEO of Transworld UK Ltd, but no search was made of this either. Had it been done, it would have revealed that the company was a shell company, in which Mr Ahmed was the sole director and the company was registered at his home address.
134. Returning to the events of 22 December 2008, Mr Carter faxed the NES undertaking to Halliwells at 12.31pm on that date. If that time is right, he knew the undertakings he had already received, which had been sent at 12.04pm. If they had been sent simultaneously, equally, he knew the undertakings that were to be sent, only three in number, and he knew what they were. I am satisfied that no honest solicitor could, or would, have given that undertaking in those terms, containing as it did the false assertion that NES was holding £1.5 million in its client account. As was manifestly obvious, and as Mr Shillingford and Mr Carter clearly understood the term, such an undertaking referred to cleared funds.
135. I am satisfied that a false undertaking was given by Mr Carter, but with Mr Shillingford's knowledge and consent, when they both knew it was wrong and dishonest to do so, and when they both knew that they really should no longer have been acting for Dr Hassan, when he had effectively asked them to lie for them before. Mr Carter could give no satisfactory explanation for why he was prepared to issue this undertaking, when all he had was a payment-in slip recording a payment in by Mr Ahmed of a personal cheque. Mr Carter said in evidence that he honestly believed that the cheque would be met in due course, so that the funds would be present when the undertaking had to be fulfilled. I reject this evidence.
136. Dr Ahmed had already demonstrated himself to be an unreliable and untrustworthy client, because he had asked NES to lie on his behalf. Moreover, Mr Carter knew that there was no cross-undertaking to cover NES's undertaking and the email correspondence to which I have referred from Dr Ahmed, had at one stage, indicated that he was only going to make funds available on 30 January. Even if it were the case that NES had been themselves duped by Dr Hassan, Mr Shillingford and Mr Carter willingly went along with telling lies for him in making and giving that undertaking.
137. In my judgment, neither Mr Carter nor Mr Shillingford honestly believed that the mere payment-in of the Sterling cheque justified the issuing of an undertaking in those terms. It would have been the simplest thing for either or both of them to have qualified the undertaking, to refer to the fact, as the Deputy Master in his judgment had indicated (i) that the client had deposited an ordinary cheque which might or might not clear in the normal course and/or (ii) that the undertaking depended on that clearance. Mr Carter and Mr Shillingford had allowed themselves to be seduced by the prospect of a significant fee, for the giving of this undertaking and, perhaps, by the possibility of conveyancing work on that development in the future.
138. Mr Carter said that he was under pressure at work that morning, because of the comings and goings which were involved, but, in my judgment, his response was not to refuse to act if he was under pressure. His response was to take a reckless, unwarranted, impermissible and dishonest gamble with the knowledge and consent of Mr Shillingford. These were mature men. They were experienced solicitors. They were not young professionals just embarking on their career. Mr Shillingford and Mr Carter, in my judgment, knew that they were taking a risk which no honest solicitor would take and, indeed, one which they both knew was wrong and dishonest.
139. They no doubt hoped that the cheque would clear, but I am satisfied that they were more interested in cleared funds being in the account when the undertaking had to be performed, rather than securing its presence as a precondition to issuing the undertaking in the first place. However, I find that, given everything that they knew, they could not and did not honestly believe that there would be any cleared funds in their account to meet the undertaking, even if and when they had to honour it. They were dealing with a dishonest client who had prevaricated whenever asked for funds.
140. I reject the evidence of Mr Carter that he honestly believed that the cheque would be met on presentation. Moreover, Mr Shillingford, in allowing Mr Carter to issue to the undertaking in those circumstances, acted in a manner which he knew was wrong and dishonest and in which no honest solicitor would have acted. Mr Carter was on the clearest possible notice that others were going to rely on his undertaking because of the highly unusual step of the lender's solicitors attending NES's premises to see the firm's professional indemnity policy and Mr Carter's passport. The stakes could not have been higher. They both knowingly issued a false undertaking which they intended to be relied upon by a lender. They did so for the prospect of financial gain. This was not the first time they did it. They had done so on 12 December 2008 in giving an identical undertaking to Arthur Barnes.
141. I have to say that I cannot regard this conduct merely as gross incompetence. I regret to say that, despite the gravity of the allegation, Quinn has satisfied me that, by ordinary standards of honesty, applied to the conduct of Mr Shillingford and Mr Carter in the light of the knowledge and qualities possessed by each of them, but considering each of them separately, both Mr Shillingford and Mr Carter acted dishonestly in giving Halliwells the undertaking in those terms. Accordingly, I am satisfied that the claim arose from dishonesty committed by both Mr Shillingford and Mr Carter. If I were wrong in that conclusion, I would have no hesitation in concluding that each of them was condoning the dishonesty of each other as well, for that matter, of the dishonesty of Dr Hassan.

Events after 22 December 2008

142. Contracts for the purchase of Stratford Edge were exchanged on 22 December 2008 and £1 million was transferred in accordance with bank statements that I have seen. £386,750 was paid to Arthur Barnes, solicitors for Green Crown and Mr Bayle. £500,000 was paid to Beachcroft for the contractual deposit. £50,000 was paid to Red Chilli Finance, and the balance of £63,250 was retained by Halliwells for their own fees. Nothing was sent to NES Solicitors. On the same day, 23 December, NES received £5,000 for its fees, as appears from the recently disclosed client ledger. The source of those monies has not been verified. The invoice for their fees, dated 24 December, a day when the office was closed, was only disclosed shortly before the start of the trial before me.
143. . When Mr Shillingford returned from holiday and checked his bank account, on 5 January 2009, he discovered that the supposed cheque from Mr Ahmed had not even gone through his bank account, let alone been returned unpaid. As I have already pointed out, when a solicitor is aware that an undertaking is incapable of performance, as the Code of Conduct requires, an honest solicitor would immediately have informed the recipient. In this case, NES did not tell Halliwells that they did not have cleared funds.
144. . There were attempts to get money from Dr Hassan between January and March 2009. On 6 March 2009, Halliwells made a demand on NES under its undertaking. It was only on 24 February that NES did searches on Green Crown and Stratford Edge. They did no search on Transworld (UK) Ltd. When a search was carried out on the Land Registry for the address given by Dr Hassan after the events, it was revealed that the property was owned by Nasim Khan. Of course, any proper client checks, e.g. a request for utility bills, had they been asked for at the outset, would have revealed that.
145. . In their letter, dated 19 March, to Halliwells, NES told Halliwells that they had received formal instructions not to release any funds to Halliwells. The implication of that letter was that they had those funds, but had instructions not to release them. The fact was, and they knew it, they had no funds to release, and I regard that letter as disingenuous.

Were the undertakings provided by NES as services in private legal practice as solicitors?

146. . Mr Munro invited me to accept Mr Shillingford's evidence set out in his fourth witness statement and in his oral evidence on this issue. Mr Munro submitted that there was clear documentary evidence, from NES's file, that NES was retained to represent Dr Hassan in the underlying transaction, as shown by a number of matters, including (i) the draft undertakings requiring Arthur Barnes & Co to pay NES the sums of £1.5 million and £400,000; (ii) the email to NES from Arthur Barnes about the Housing Association monies; (iii) the emails to NES from Mr Bayle; (iv) the notes of the meeting with Dr Hassan and Mr Bayle, and amendments to draft undertakings, including the draft undertakings of Arthur Barnes to pay NES sums in respect of Dr Hassan's commissions; (v) the Heads of Terms for the transfer of the Section 106 affordable housing, plus additional units; (vi) further correspondence with Arthur Barnes and further drafting of undertakings from Arthur Barnes, including the undertaking of Arthur Barnes to transfer 25% of the shares in Green Crown; (vii) the share purchase agreement.
147. . Mr Munro also relied upon the retainer letter given to Dr Hassan, stating that the retainer is for 'Facilitating purchase of shares in a company, Stratford Edge'. That retainer letter is undated and, as I have indicated, I find was made or written on 10 December 2008. In summary, Mr Munro submitted that NES agreed a) to act as Dr Hassan's solicitors and b) to follow his instructions in relation to the purchase of Stratford Edge by Green Crown and, in relation to transactions remunerating Dr Hassan for financing and brokering that purchase. The undertaking was given as part of actual and contemplated work as solicitors by NES for Dr Hassan. Mr Munro said that it was wrong to characterise this, as had the third party in its pleadings, as 'simply agree to give an undertaking to Arthur Barnes on 12 December 2008 and to Halliwells on 22 December 2008 in return for the payment to NES of a substantial fee.'
148. . Mr Munro contended that NES agreed to, and did, act as Dr Hassan's solicitors in relation to the purchase of Stratford Edge by Green Crown, and in relation to transactions remunerating Dr Hassan for financing and brokering that purchase. He said that NES had done a substantial amount of work for Dr Hassan, and that NES had a contractual right to be paid for that work. It was not just a case of an undertaking for a fee. He summarised all that by saying that NES, at all times, provided services as Dr Hassan's solicitors and the undertaking was not outside the normal business of solicitors. It was given by NES as Dr Hassan's solicitors.
149. . He drew my attention to a number of cases, and said that the cases on which Mr Bacon had relied were obvious cases. He argued that those authorities should be read in that light and that the policy, as the earlier decision had indicated, surely must be, in cases of doubt, to resolve the question in favour of the party arguing that the transaction occurred in the ordinary course of business of a solicitor. However, the explanations given by Mr Shillingford and Mr Carter to questions asked of them by Mrs Levin and Mrs Bartlett are of importance in this case. Mr Shillingford was asked about the share purchase agreement and Mrs Bartlett's note records:

'Mr Shillingford confirmed that he was not asked to advise about the share transfer itself and that the provision of funds was simply a stopgap. Mr Shillingford confirmed that Dr Ahmed was getting £100,000 on exchange of contracts, then a further £400,000 on completion of the contract, and that was the sole reason that the doctor was entering the deal. The 1.5 million was simply security and as far as the doctor was concerned it would never have to be called on.'

150. Michelle Levin asked what fees NES were being paid for this transaction, and Mr Shillingford confirmed they were receiving £5,000 on exchange and a further £10,000 on completion. It was the evidence of Mrs Bartlett and Mrs Levin that the account then being given by Mr Shillingford was that no other work was being done for the fee, bar the giving of the undertaking. I accept the evidence of Mrs Bartlett and Mrs Levin. I prefer it to the evidence of Mr Shillingford and Mr Carter. It is consistent with the first letter written by Mr Shillingford to Arthur Barnes, and with the lack of attendance notes and activity on the file. For example, the lack of searches, the lack of relevant documents dealing with the transaction or evidencing contact with the principal parties or their solicitors.
151. . As far as the draft Section 106 agreement is concerned, the Housing Society document, that was in a very preliminary form. It is difficult to see how any meaningful advice was required in relation to it. Moreover, the share agreement contained that very fundamental error, and yet Mr Shillingford said he had read it and had advised Mr Hassan or Dr Hassan to sign it, even though it contained a consideration expressed to be 10 times that which had been agreed. In addition to the matters to which I have referred above, when dealing specifically with the lack of activity at the time of the Arthur Barnes undertaking, NES did not even know for whom Halliwells were acting.
152. I am satisfied, on the balance of probabilities, that NES was only retained for, and only acted on, the provision of the undertaking requested by Dr Hassan, and for no other purpose. I am satisfied that this claim does not arise from the provision by NES of services in private legal practice as solicitors within the meaning of clauses 1.1 and 7.19 of the policy of insurance.
153. Finally, Mr Munro conceded that, if I found that Mr Shillingford and Mr Carter had acted dishonestly in giving the undertaking on 22 December 2008, then the claim would also be excluded under clause 4.6(c) because the claim would have arisen out of the provision of an undertaking by NES in connection with a benefit or advantage, directly or indirectly, to that insured, namely the provision to NES of a £5,000 or £15,000 fee representing 1% of the value of the undertaking. Given my findings on dishonesty, I am satisfied that Quinn has also established this exclusion on the balance of probabilities.

Conclusion

154. . Accordingly, NES's claim against Quinn under the policy fails and is dismissed. I make the declaration that Quinn is not liable to indemnify NES under the policy in relation to Halliwells' claim and the costs of defending that action. As I indicated at the conclusion of this case, when we were sitting in the Royal Courts of Justice, I will deal with all consequential matters by way of a telephone hearing to be arranged by the parties with my clerk at Bristol Civil Justice Centre. In the meantime, all time limits are extended (and no prejudice is going to be sustained by anyone as a result of my not being able to consider today matters such as applications for permission to appeal) until the determination of consequential matters at that telephone hearing.
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