Axis Insurance Must Pay Discovery Land For Solicitor Misuse Of Castle Funds

“This is a decision of fundamental importance, not simply for Discovery Land, but for all victims of dishonesty by solicitors, as it is the first discussion at Court of Appeal level of what it means to ‘condone’ dishonest acts under the SRA Minimum Terms” commented Guy Davis, the managing partner of Davis Woolfe, litigation solicitors, who successfully acted for Discovery Land in this landmark case.

Axis Specialty Europe SE, who provides Professional Indemnity Insurance to solicitors firms across the United Kingdom, has failed in its attempt to overturn a decision of Mr Justice Knowles that it must pay around USD$7,000,000 to Discovery Land, an American real estate developer.

All three Court of Appeal Judges unanimously rejected Axis’s bid to overturn a ruling by Mr Justice Knowles sitting in the High Court in April 2023 to pay damages to Discovery Land under its professional indemnity insurance policy for Jirehouse following an unequivocal finding that Jones misused money earmarked for buying and developing Taymouth Castle in the Scottish Highlands, the Court of Appeal ruled on Monday 15 January 2024 .

Facts of the case

The events date back to April 2018, when Discovery Land instructed Jones to oversee the purchase of Taymouth Castle, near Kenmore, Perthshire. Queen Victoria and Prince Albert spent time at the neo-Gothic building during their honeymoon in 1840.

Discovery Land sent Jones’ law firm US$14,050,000 to purchase the castle. Jones diverted the purchase monies and, using false claims about compliance issues, caused the clients to use fresh funds and pay for the castle twice. In addition, Jones dishonestly and without authority arranged a loan for £4,980,470 from Dragonfly Finance against security over Taymouth Castle, and then removed that sum from Jirehouse’s client account without authority.

Jones refused to return the monies, and in August 2019 was jailed by Mr Justice Zacaroli for 14 months for contempt of court for refusing to reveal the whereabouts of the funds.

Remarkably, and despite being jailed for contempt of Court, the police and the CPS took no action against Jones.

On 29 November 2022, Jones pleaded guilty to two counts of fraud and was jailed for 12 years as a result of a private prosecution brought against Jones by the owners of Discovery Land and Jeff Holland, General Counsel, and subsequently struck off the roll for solicitors for his previous Contempt of Court. Sentencing Jones, Judge Martin Griffith at Southwark Crown Court found that Jones had acted with ‘rank dishonesty’ and Jones’s conduct was ‘obviously prosecutable’ and crying out for a prosecution that unfortunately the police and CPS had failed to do.

First Judgment

Discovery Land brought proceedings against Axis. Following an 8 day trial in the High Court, the case was decided in favour of Discovery Land by Mr Justice Knowles in April 2023. In his Judgment, the Judge decided that he could not conclude that Jirehouse partner Vieoence Prentice knew what Jones was doing, and found that if Prentice had learned of Jones’s wrongdoing sooner, he would have resigned earlier than March 2019, when the scheme was fully revealed.

The Appeal

Axis appealed this decision to the Court of Appeal. After a 3 day hearing, the panel of three justices found that Prentice had not condoned the wrongdoing. With reference to the decision by Mr Justice Knowles, Lady Justice Andrews found that “the judge was entitled to reject Axis’s case on condonation for the reasons which he gave … his decision that there was no condonation by Mr. Prentice of Mr. Jones’s wrongdoing was not “plainly wrong.””

In addition, Axis had also argued it was entitled to aggregate multiple claims, limiting its liability to £2.75 million. However, the justices upheld Mr Justice Knowles’ ruling that Axis could not treat the claims against it as a single claim under the policy’s aggregation clause, meaning Axis’ appeal was rejected in its entirety by the Court of Appeal.

Lady Justice Andrews held that although Axis was facing claims for two transactions related to the purchase of the castle, this did not link them together closely enough to trigger the aggregation clause. “The fact that the purchase of the castle provided the opportunity for Mr. Jones to steal the money on both occasions does not answer the question [of] whether the transactions fitted together,” Lady Justice Andrews added.

Discovery Land Company is now developing Taymouth Castle to be “one of the finest residential communities in Scotland” said Holland.

Discovery Land was represented both in the High Court and Court of Appeal by William Flenley KC and Heather McMahon of Hailsham Chambers, instructed by litigation law firm, Davis Woolfe.

Axis was represented both in the High Court and Court of Appeal by Patrick Lawrence KC and Helen Evans KC of 4 New Square, instructed by CMS Cameron McKenna Nabarro Olswang LLP.

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