Axis Fights To Overturn £6M Payout Over Atty’s Fund Misuse

Discovery Land is expected to respond to Axis’ arguments Thursday, and the hearing is expected to continue until Friday.

Axis is represented by Patrick Lawrence KC and Helen Evans KC of 4 New Square, instructed by CMS Cameron McKenna Nabarro Olswang LLP.

Discovery Land is represented by William Flenley KC and Heather McMahon of Hailsham Chambers, instructed by Davis Woolfe.

The case is Discovery Land Company LLC and others v. Axis Specialty Europe SE, case number CA-2023-001141, in the Court of Appeal.

–Additional reporting by William Janes, Silvia Martelli and Paige Long. Editing by Lakshna Mehta.

By Ronan Barnard

Law360, London (November 29, 2023, 7:48 PM GMT) — Axis urged the Court of Appeal on Wednesday to overturn a ruling forcing the insurer to pay £6 million ($7.6 million) for a judgment against a law firm that misappropriated client funds, arguing the judge had been “excessively benign” toward a partner at the firm.

Axis Specialty Europe SE said the High Court wrongly held that it could not refuse or limit its coverage to American real estate developer Discovery Land Co. LLC, claiming the judge should have concluded that a director at now-defunct Jirehouse Partners LLP “condoned” the actions of a solicitor who had misused money that was earmarked for buying a castle in Scotland.

Judge Robin Knowles ruled against Axis in April, saying he could not conclude Jirehouse partner Vieoence Prentice knew that fellow partner Stephen Jones was mishandling the money.

“[Judge Knowles] treated Mr. Prentice in an excessively benign way when he came to form conclusions as to what Mr. Prentice actually knew … and what Mr. Prentice must have suspected,” Patrick Lawrence KC of 4 New Square, Axis’ counsel, said Wednesday. “Mr. Prentice must have formed a focused suspicion that Mr. Jones was misusing client money.”

Discovery Land had been defrauded by Jones, who misappropriated money that was destined for the purchase of Taymouth Castle in the Scottish Highlands. The developer sent Jones’ law firm $14 million to a client account, then another $9.3 million to complete the deal, with the promise from Jirehouse that the second payment would be refunded two days later, according to Judge Knowles’ judgment.

Lawrence argued Judge Knowles had wrongly concluded that Prentice could not have known about the wrongdoing because if he had, the partner would have left the firm. Judge Knowles could have concluded that Prentice had “put the telescope to the wrong eye” by willfully ignoring the misuse of client funds, Lawrence said.

“You know it shouldn’t be happening, you are accepting that it does, you know you should do something about it,” Lawrence said. “You put the telescope to the wrong eye, you make sure you don’t acquire actual knowledge of what is going on — that is condonation.”

Lawrence argued that because Judge Knowles had ruled that Prentice had a suspicion Jones was misusing client money, the judge must then conclude that Prentice had chosen not to report it, because the solicitor would have known he was professionally obliged to do so.

The barrister argued Prentice had ignored Jones’ actions because Prentice believed Jones would escape any consequences, or correct the financial situation before it was discovered.

“He had a duty to certainly, at the very least, investigate, ask awkward questions, and he would then have had a duty to blow the whistle,” Lawrence said. “Mr. Prentice had reason to think, and did think on his own evidence, that Mr. Jones was some sort of Houdini who was very good at getting out of tight corners.”

Lawrence argued that because regulations around client money in solicitors’ client accounts were “highly prescriptive,” the judge had not sufficiently condemned Prentice’s investigation into the alleged wrongdoing.

Discovery Land brought the lawsuit against Axis to get the insurer to cover three judgments secured against the law firm after the High Court ruled the company is owed £12.7 million.

Axis had argued it was entitled to refuse coverage, alleging Prentice had condoned Jones’s wrongdoing, and the insurer was entitled to aggregate multiple claims limiting its liability to £2.75 million.

Discovery Land had fronted Jones the money to buy the castle on its behalf in 2018, but the funds were “dispersed” to other Jirehouse entities and never returned.

High Court Judge Antony Zacaroli rejected Jones’ “elaborate series of excuses” about the funds and found him in contempt for failing to explain what happened to the money. The property firm successfully sued its lawyers over the missing cash, with a High Court judge ruling that Discovery Land is owed a total £13 million.

A High Court judge jailed Jones for 14 months in 2019 after finding him in contempt of his promise to pay the property developer’s funds into the court.

Jones was admitted as a solicitor in 1986, offering international legal and tax planning advice through Jirehouse. Jirehouse entered into administration in July 2019 and was liquidated by the court in January 2020.