17 November 2020

Solicitors' Fraud And Aggregation - Lord Bishop Of Leeds V Dixon Coles And Gill (A Firm) & Ors And Guide Dogs For The Blind Association V Box & Ors

Beale & Co


Beale & Co
the High Court considered applications for summary judgment in the related cases of Lord Bishop of Leeds v Dixon Coles and Gill (A firm) and Guide Dogs for the Blind Association v Box.
Ireland Criminal Law
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On 28 October 2020, the High Court considered applications for summary judgment in the related cases of Lord Bishop of Leeds v Dixon Coles and Gill (A firm) and Guide Dogs for the Blind Association v Box. Both relate to a solicitor's theft of client monies and consider issues of Partners' liability, limitation and, perhaps most significantly, aggregation in cases of fraud.

The case has significant implications for solicitors' Professional Indemnity insurers and may impact on the approach adopted at future renewals.

The Facts

The fraudster solicitor, Linda Box, was one of three equity partners at law firm Dixon Coles & Gill ("DCG"). Her Partners in the firm were Mr Gill and Mrs Wilding.

In December 2015, Mr Gill discovered that Mrs Box had made a series of unauthorised payments from the firm's client account. Subsequent investigations revealed significant and long-term thefts of client funds, amounting to over £4 million. DCG closed in 2016.

In 2017, Mrs Box pleaded guilty to 12 offences of theft, fraud and forgery. She was sentenced to seven years in prison.

DCG held the minimum permissible level of Professional Indemnity insurance cover of £2m with HDI Global Speciality SE (HDI). The victims of Mrs Box's frauds subsequently brought claims against Mr Gill and Mrs Wilding, and against HDI. Mr Gill and Mrs Wilding claimed under the Policy in respect of their liability for those claims. There was no suggestion in the judgement that they were in any involved in the fraud.

The Claims

The victims of Mrs Box's fraud fell into two categories:

1. The Lord Bishop of Leeds ("the Bishop") and the Leeds Diocesan Board of Finance (LDBF). DCG had a long association with the church, acting for the Bishop of Wakefield and the Wakefield Diocesan Board of Finance (whose assets later vested in the Diocese of Leeds). Mrs Box was Registrar of the Diocese of Wakefield until 2005.

2. The residuary beneficiaries (all charitable bodies) of the will of Mr Ernest Scholefield dated 15 July 2005 ("the Scholefield claimants"). Mrs Box was co-executor of the will, with Mr Gill, and carried out the administration of the Scholefield estate.

The Bishop and LDBF issued proceedings against DBG, Mrs Box and HDI. They alleged that, as equity partners in DCG, Mr Gill and Mrs Wilding were liable for money that went through DCG's client account and other losses sustained by Mrs Box's wrongful acts. The Bishop and LDBF applied for summary judgment for an account from Mr Gill and Mrs Wilding and a declaration that HDI should not be able to aggregate the various claims

The Scholefield claimants issued proceedings against Mr Gill and Mrs Wilding for money allegedly misappropriated from the Scholefield estate by Mrs Box, on the basis that both should bear responsibility for Mrs Box's fraudulent actions. They applied for summary judgment for a declaration that HDI could not aggregate their claims with those of other clients or entities.

The Judgment

Obligation to account

To succeed in their application for summary judgment for an account from Mr Gill and Mrs Wildings, the Bishop and LDBF needed to demonstrate that DCG had no real prospect of successfully challenging the facts or matters upon which they relied in support of their application. The key issue for the court to consider was whether Mrs Box's involvement in the thefts from the Bishop and LDBF was with Mr Gill and Mrs Wilding's authority and/or in the ordinary course of the DCG's business. The thefts can be summarised as follows:

1. The red ledger frauds This was a ledger in Mrs Box's handwriting that contained a number of disputed transactions for the benefit of the Bishop and LDBF, but which they did not recognise. Mr Gill and Mrs Wilding claimed to have no knowledge of the matters recorded in the red ledger.

2. The DBG ledger This was a DBG firm ledger containing spurious transactions unrelated to any matter in which Mrs Box or DCG were specifically instructed.

3. The conveyancing transactions There were eight conveyancing transactions where Mrs Box was instructed in her capacity as a Partner of DCG which show a number of payments out, ostensibly to or on behalf of the Bishop and LDBF, but which are unrecognised. Subject to a potential limitation defence (see below) Mr Gill and Mrs Wilding accepted an obligation to account for these misappropriated funds on the basis that "conveyancing was, of course, four-square within the firm's business"

These documents viewed together show systematic and long-term theft by Mrs Box. They also evidence that some funds were stolen from the Bishop or LDBF through DBG's client account; others were not.

In considering the question of Mr Gill and Mrs Wilding's liability for Mrs Box's wrongdoing under the terms of Partnership Act 1890, His Honour Judge Saffman relied on the judgment of the House of Lords in Dubai Aluminium Co Limited v Salaam [2003]. In the judgment it was said:

"the wrongful conduct must be so closely connected with acts the partner or employee was authorised to do that, for the purpose of the liability of the firm...the wrongful conduct may fairly and properly be regarded as done by the partner while acting in the ordinary course of the firm's business. "

Applying this guidance, the court drew an interesting distinction between the red ledger frauds on the one hand, and the DCG ledger on the other. It concluded that there was a reasonable argument (that could be run at trial) that the red ledger frauds were not carried out by Mrs Box "in the ordinary course of the firm's business" and that Mr Gill and Mrs Wildings should not therefore be liable for those frauds. Rather Mrs Box had personally taken on the custody and administration of property belonging to LDBF by virtue of her close personal friendship with the Bishop. It was sufficiently arguable (to beat a summary judgement application) that she was acting not as a Partner of DCG but "on a frolic of her own".

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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