Rahim v Arch Insurance Co (Europe) Ltd

In this action Ms Shirin Rahim, a solicitor, seeks an indemnity and other relief from her professional indemnity insurers, the Defendant, Arch Insurance Co. (Europe) Ltd (“Arch”), in respect of judgments entered against her by mortgage lenders Barclays Private Clients International Ltd and Barclays Bank Plc (“Barclays”) and Heritable Bank Plc (“Heritable”). The claims made by Barclays and Heritable (“the Claims”) arose out of mortgage frauds perpetrated by Mr Shariful Islam, a solicitor in whose firm O’Sullivan Last & Co., later renamed O'Sullivan Law, Ms Rahim worked from about December 2005 to 18 June 2007 and who was held out as a partner there for most of that period. The Claims did not allege that Ms Rahim had any personal involvement in the particular mortgage frauds alleged but included her because she was stated to be and admitted that she was a partner at the material times and therefore liable for the fraud or negligence on the part of Mr Islam, a fact which she did not deny.

On 22 June 2012 Barclays entered judgment against Ms Rahim for £2,118,793.00 in action number HQ10X02929 and for £2,230,724.94 in action number HQ10X02930 with no order as to costs. This was by consent following the submission of Defences by her on 4 January 2011 Heritable entered judgment in default against her for £300,580.15. An application to set aside judgment made by her was not ultimately heard and was later dismissed by consent.

Both Ms Rahim and Mr Islam were investigated by the Solicitors Regulation Authority (“the SRA”). Following disciplinary hearings and by an order made on 30 November 2011 by the Solicitors Disciplinary Tribunal (“the SDT”), Ms Rahim was fined £2000 and ordered to pay 5% of the costs. She had been charged with and admitted signing certificates of title while failing to disclose material information to her lender clients, failing to act in their best interests, and certain other matters. The case was not put against her on the basis of dishonesty.

As for Mr Islam, he did not attend the disciplinary hearing. The SDT found him guilty of numerous charges connected with mortgage frauds, put on the basis of dishonesty. He was struck off and ordered to pay 95% of the costs. Earlier this year, he stood trial in the Crown Court for fraud and was found guilty. He was sentenced to 4 years in prison.

In the meantime, by a letter dated 18 November 2008 from Arch’s solicitors, Reynolds Porter Chamberlain ("RPC"), Arch repudiated liability to indemnify Ms Rahim on the basis of her own dishonesty. The particular policy exclusion relied upon (“the Dishonesty Exclusion”) reads:

“we will not cover The Insured for any Claim or Defence Costs in respect of:

5.6

Fraud or dishonesty

any Insured to the extent that any civil liability or related Defence Costs arise from dishonesty or a fraudulent act or omission committed or condoned by The Insured except that:

(a)

We shall nonetheless cover each other Insured.”

That repudiation is contested by Ms Rahim and is the subject of this trial.

In early 2012, Ms Rahim sought a direction from the SRA that notwithstanding the coverage dispute, Arch should pay her defence costs in relation to the Claims. By a first instance decision given on 5 March 2012 this direction was refused on the ground, among others, that she did not have a reasonable prospect of winning as against Arch on the Dishonesty Exclusion issue. That decision was upheld on appeal for similar reasons on 25 July 2012.

The judgments obtained by Barclays and Heritable against Ms Rahim remain enforceable against her, hence her claim for an indemnity. Furthermore, she has spent £69,147.63 in dealing with the Claims and the SDT proceedings. She also seeks an indemnity in respect of such costs from Arch. Quantum is not in dispute here.

While the central issue in this case is the application or otherwise of the Dishonesty Exclusion, some other points have been raised as well. The issues may be stated as follows:

Ms Rahim is now 60. She completed a BA (Hons) degree in law in 1979. She left the UK in 1982 after she had married, and moved to Zimbabwe, which is where her husband wanted to establish a catering business. She did not pursue a legal career at that stage but helped in the business. The family moved to Johannesburg in 1990 and she and her husband were victims of a robbery there in 1996. They decided to return to the UK with their children, Alia, born in 1983, and Zahra, born in 1985. Their third child, Zain, was born in December 1996 after they returned.

Ms Rahim’s husband moved to the Lake District to try and establish a catering business there while his wife and children lived with her mother and later in temporary accommodation in London. The business did not succeed and in fact Ms Rahim never lived with her husband again. They were finally divorced in 2007.

After doing various temporary jobs, Ms Rahim decided to return to the law; she completed the CPE Course and then the Legal Practice Course (“LPC”) in 2001. Her elective modules were family, personal injury and employment. Her first job was as a paralegal in late 2001, for a firm doing mainly immigration work which was closed down by the Law Society in March 2002. In May 2002 she obtained a training contract with a small firm in Balham doing civil litigation and immigration work. That firm closed down in November 2004. She was admitted as a solicitor in December 2004.

By no later than 1 December 2004, she had started work at a practice in Wimbledon run by Mr Islam, then trading as Shariful Solicitors. The location suited her because she could drive from her home in Putney to drop off her son at school and continue on to the office.

Ms Rahim’s pay then, and throughout her association with Mr Islam, was £1500 gross per month on a self-employed basis so she had to deal with her own tax and National Insurance. To begin with, she did mainly immigration work but Mr Islam wanted to move into conveyancing and he did. Ms Rahim was a little apprehensive at first and told him that her only knowledge of conveyancing had come from her CPE and LPC training. Nonetheless she started in that field and continued.

In early 2005 Mr Islam bought the practice of a Mr Last in Woking and the firm was renamed O’Sullivan Last & Co. which later was renamed as O'Sullivan Law. I shall refer to both as "OSL". Mr Islam required Ms Rahim to work in the Woking office on conveyancing matters. This was an inconvenient location for her but she had no choice if she wanted to keep her job. In April 2005 she was able to return to the Wimbledon office.

In around February 2005 Mr Islam told her that she was now a partner although none of her work or remuneration changed. This was not recorded in writing anywhere and was evidenced only by her name on the firm notepaper. From June to November 2005 her apparent status changed to consultant, according to Mr Islam’s wishes. From November 2005 to February 2006 she was recorded as a “Senior associate” and then once more as a partner until June 2007.

As time went on, more and more lawyers joined OSL. They were all men who would speak mainly Bengali among themselves and Ms Rahim felt somewhat excluded. Her work was exclusively conveyancing of which there was a very substantial amount and the atmosphere was pressurised.

It is common ground that in fact there was a very substantial amount of mortgage fraud going on at OSL presided over by Mr Islam. Its principal form was misleading lenders to make mortgage advances based on a sale price which was higher than the true price in circumstances where the lenders would not have lent as much had they known the real price. The actual price was either simply a lower contract price or the notional price less a discount, allowance or bonus for the purchaser.

On 16 May 2007 Barclays visited the office and removed some files and the next day they returned with representatives of the SRA. On 24 May 2007 the SRA returned and interviewed Ms Rahim and Mr Islam at the office. There was a fuller interview by the SRA with them both on 18 June 2007. Shortly afterwards OSL was closed down.

Ms Rahim then helped Mr Islam’s brother Mr Mainul Islam who also had worked at OSL although he was not a qualified solicitor. He set up a new firm called Osborn Reed LLP. It took over a number of ongoing matters from OSL. Ms Rahim stayed at Osborn Reed until February 2008. She then worked as a locum solicitor until May 2010 with McLee and Co. whereupon she became a partner in that firm. But from December 2010 until January 2012 her status changed to associate.

She then moved to her present employer A-Z Law in Balham and worked there mainly in residential and commercial conveyancing. In the meantime, McLee and Co. had been investigated by the SRA and closed down in August 2012.

I have heard from only one live witness and that is Ms Rahim herself, whom I have observed over the course of a two-day cross examination. Other than that, there was an agreed statement from her daughter Ms Alia Ali. Arch called no evidence.

As Ms Rahim was the only live witness, I deal with all aspects of her credibility in context below. I should say however that I have been greatly assisted by the contemporaneous documents relating to the various particular transactions that were put to her, 11 in all. I have also been assisted by the transcripts of her interviews with the SRA, its Forensic Investigation Report, the SDT judgment and the judgments of the SRA at first instance and on appeal in respect of the costs direction application. None, of course, are conclusive insofar as they bear upon the issues before me which is where the question of Ms Rahim's alleged dishonesty has been most thoroughly examined.

Before turning to the particular issues, I remind myself of certain basic legal propositions where allegations of dishonesty are concerned:

In this context, Mr Chapman QC for Ms Rahim also made extensive reference to the decision of the Court of Appeal in Zambia v Meer Care [2008] EWCA Civ. 1007. Here, the Court of Appeal reversed the decision of Peter Smith J. whereby he had found the defendant solicitor to be dishonest in relation to a money-laundering scheme perpetrated by others but which he helped to facilitate. Broadly, this was because the Court of Appeal took the view that the judge had held what was or should have been gross negligence as dishonesty and that he saw the difference between the two as simply a question of degree. Other than the point made (which I accept) that the two things are qualitatively different, I do not consider that I gain any real assistance from a decision on particular facts (at both first instance and on appeal) in respect of different transactions and where the defendant’s contention that he honestly did as the fraudster dictated was given considerable support by the fact that the person giving the instructions was a member of the Zambian government. The issues in the case before me are much simpler and turn almost exclusively on the credibility of Ms Rahim as a witness in terms of what she knew and believed.

There is no doubt in my mind that Ms Rahim is highly intelligent and under normal circumstances would be very articulate. She was not always articulate during her cross examination and I accept that sometimes this might have been because she felt under pressure giving evidence and was sometimes distraught. But partly this must have been because it was very difficult for her to give clear and intelligible answers without incriminating herself. I do not accept that she was generally unable to understand the questions put to her or that she was at any real disadvantage while being cross-examined. I say that taking full account of the fact that she was awaiting a specialist appointment and further tests to see if an injury to her arm reflected a malignant condition and also that from time to time she wished to take painkillers. For that reason, the Court took more breaks than usual.

I also accept that she is someone who has had to struggle as a single mother for many years and I have no doubt that she has always put her family first, whatever the cost.

She was also someone who had not taken a specific conveyancing module in her degree but on the other hand, she had to do conveyancing in her LPC. Indeed, she retained her original textbook, the 2^nd edition of Abbey and Richards “a practical approach to conveyancing” (2000); I have inspected it. It is well thumbed and highlighted and annotated in many parts ("the Textbook").

Although Ms Rahim did not do conveyancing in practice until she joined Mr Islam, I do not accept that she would have found the residential conveyancing she did particularly difficult or complex for generally speaking it was not. Nor do I accept that during her time at OSL she was “really stupid” as she suggested sometimes in her evidence.

It is true that at the trial she was asked about transactions which in some cases occurred 11 years ago. On the other hand, she has lived with these matters since 2007 when her actions at OSL were scrutinised initially by the SRA and then the SDT, as well as in these proceedings which commenced in March 2015. Her witness statement deals with each of the transactions at length and before she gave evidence, she had the opportunity of considering the key points which would be put to her in cross examination by reason of the unusual extent to which these were foreshadowed in the helpful written opening of Mr Pooles QC for Arch. Moreover, for the most part, she was not being asked to recall the detail of something that happened - rather it was her own state of mind and knowledge.

The agreed evidence of Ms Ali does not really assist Ms Rahim. It recounts Ms Ali's observation of her mother that she would often find work stressful or upsetting and that she felt she had no choice when Mr Islam said that she was now to be a partner and that Mr Islam was prone to overbearing behaviour. She was under considerable financial pressure and felt trapped. Indeed when he was sent a reference request form from the recruitment agency Ms Rahim had consulted with a view to moving jobs, he ripped it up. All of this is reflected in Ms Rahim's own witness statement. I would accept all of that but it does not mean that Ms Rahim was not dishonest. It could also mean that in her particular position, she felt she had no option but to do Mr Islam's bidding.

Before turning to the individual sample transactions put to Ms Rahim some further general matters need to be addressed.

These are important because in many respects she admitted more then (much closer to the events in question) than she was now prepared to admit in cross examination. She was asked about those interviews at length.

In her defence it is said that it is not clear that her answers in interview always meant what they seemed. Also it was said that the questioning was sometimes rather rambling and inept. I agree as to the latter but on the key points, I see no reason not to accept at face value the answers she gave at the time.

It is true that in the SRA's Forensic Investigation Report it was stated at paragraph 40 that the partners (i.e. Mr Islam and Ms Rahim) “admitted” that their knowledge of the Handbook was limited at most. That was made as a point against them. But that view does not affect what she also said about it at particular points in the interviews (see for example paragraph 39(4) below). Indeed it is noteworthy that Ms Rahim never positively suggested that she did not say something which is recorded in the interviews as having been said by her.

While obviously accepting that they cannot be conclusive, Mr Chapman QC submits that I should place significant weight on the fact that the Forensic Investigation Report did not conclude that she had been dishonest and nor, of course, were the SDT charges against her put on the basis of dishonesty - and all of that was reflected in the modest sanction she received. Equally, it was said that note must be taken of the fact that unlike Mr Islam, she was never prosecuted for fraud.

However, if recourse is to be had to earlier materials, then the view of the SRA appeal body on the question of the costs direction should also be referred to. This was that on the balance of probabilities she had been dishonest or at least there was no reasonable prospect of her resisting that conclusion in a claim against her insurers. There was documentary evidence which showed that she included figures on reports on title which did not correspond with the reality of the transaction and it was obvious from the figures she saw from transactions over at least a year that the lender was advancing far more than was being paid for the properties, a situation that could not be right and which required no detailed knowledge of conveyancing to ascertain. Ms Rahim was directly involved. This was despite her case, put with considerable emotional force, that she was not dishonest, she did not know what was going on and had been deceived by Mr Islam. It was abundantly clear that she knew about the misleading figures. The absence of a finding of dishonesty by the SDT or the absence of police action did not alter the position. Those findings followed a hearing which featured oral presentations by Ms Rahim and Ms Ali.

I take all these previous matters into account while bearing in mind that the essential question of Ms Rahim’s dishonesty is now a matter for this Court based on the evidence before it.

At various stages in her evidence Ms Rahim suggested that she did not know that she was in fact acting for the lender as well as the purchaser-client. On its face that is a ridiculous suggestion, given the nature of residential conveyancing, even for someone only starting to work in this area, but in any event, the following matters all show that she knew that the lender was her client:

Prior to her first interview with the SRA, Ms Rahim had to fill in a standard Professional History Form which she did on 24 May 2007. Question 17 asked whether she was familiar with the Law Society guidelines on (a) property fraud (b) undertakings (c) bank instrument fraud and (d) money laundering with a yes/no option. For each, she answered yes. Her evidence on this in cross-examination was obfuscating and evasive in my view. She said that in fact she was not familiar with them but then could not say why she had said that she was. She accepted that her answer on the form may have been wrong but she was not dishonest. She then said it was possible that Mr Islam had told her to answer in the affirmative. Finally, in re-examination, she suggested that she had come across the guidelines but was "not that conversant". All of that evidence is inconsistent and unsatisfactory in relation to a simple matter. It was so, in my view, because the truth was that Ms Rahim was familiar with the guidelines including those on property fraud but did not wish to accept that because of the consequence it would have for her case in general.

The position is the same in respect of Ms Rahim’s evidence on the Law Society's Green Card warning. This is a very well-known document and has a section on how to spot a property fraud. It refers in particular to misrepresentations as to the purchase price and states that the solicitor must ensure that the true cash price is identical to the price shown in the mortgage instructions and the report on title to the lender. It also refers to directly paid deposits.

Ms Rahim said in evidence that she had “read about it” but could not remember what it said. It did not in any event resonate with her since she was not herself engaged in mortgage fraud anyway and so it did not apply to her. Later she said that (although it did not apply to her) she had read it and knew what it was. She then reverted to saying that she did nothing dishonest with the transactions and did not understand some of them. None of that adds up and again, I am quite sure that she was properly familiar with the contents of this brief document.

The above conclusions are supported by highlighted passages in the Textbook which Ms Rahim kept with her at work following the LPC. As noted above, it is well-thumbed and indeed certain sections of pages have now detached. Section 7.13 at page 234 deals with “mortgage fraud”. It starts by saying that as a conveyancing solicitor one must be “ever watchful for the possibility of mortgage fraud”. There is then a highlighted passage on suspicious circumstances and where the solicitor is instructed that the seller will accept less than the purchase price. Section 7.15 deals with acting for a lender. Ms Rahim suggested at one point that she went no further in her reading of the book than the highlighted section and also that this section did not apply to her. Both propositions are absurd in my view.

Another highlighted section deals with the mortgage offer and it states that any price reduction must be reported to the lender and that the deposit must be paid by solicitors cheque or bankers draft.

I am quite satisfied that Ms Rahim had read and understood all the relevant sections of the Textbook on mortgage fraud by the time she started her conveyancing work at OSL. Indeed, Ms Rahim struck me as someone who was actually quite diligent about her work (leaving aside the fraud) and I am quite sure that to the extent necessary she would have re-acquainted herself with conveyancing law and practice once she was told she would be doing it.

In this context, it is worth noting a further exchange where it was put to her that if there was a price reduction she should tell the lender. Initially she agreed but then said that she would go first to Mr Islam for guidance. When asked what she would do if he told her not to tell the lender, she said that this did not ever happen. But on her case, that made no sense since, as the documents show, there were price reductions and they were not reported to the lender. So either Ms Rahim decided herself not to tell them or she followed Mr Islam’s instruction not to tell them. Either way, as the context will show, that was dishonest. She ended by saying that if there was an issue she would tell the lender, but in the examples put to her that never happened.

The Handbook is well known especially to solicitors engaged in residential conveyancing. It is frequently referred to in mortgagee's instructions to solicitors as something to be followed, in particular its Part 1. Paragraph 3.1 thereof says that the Green Card guidance must be followed. Paragraph 5.1.1 says that the lender must be told if the owner has been registered as such for less than 6 months. Paragraph 6.3.1 in the section headed “Purchase Price” says that the purchase price must be the same as in the lender’s instructions. If it is not, the lender must be told, as it must also be told if there is a cashback to the buyer or the borrower has paid any sum to the seller direct.

In her 2009 interview, Ms Rahim answered a question about what the Textbook said about the Handbook (when she accepted she had a duty to lenders) and she later said that she referred to the Handbook frequently at the beginning when she was trying to familiarise herself. She said that she was aware of the protective provisions in the Handbook, for example the 6 month rule. While she went on to say that she did not know what a back-to-back transaction was she later agreed that the interview had established that she knew the Handbook and was aware enough to refer to it where necessary.

In her 2007 interview, along with Mr Islam, she did not deal directly with questions on the Handbook. She said that she did do conveyancing as part of the LPC and then later only in practice when she joined OSL. That said, she in fact accepted in cross-examination that in the interview she had suggested that the Handbook was covered in the LPC course.

In evidence she began by saying that she did not know about the Handbook. When taken to her 2009 interview she said that she had meant that she would ask Mr Islam about it and he said that he did not have one and would have to look at up on the Internet. This she could not do because she had no computer and was not computer literate. Nor could she have asked a secretary at OSL to download and print out a copy of the Handbook because her instruction would not be accepted. She did not think to telephone a lender to get hold of a copy. She then said that actually she had “seen it in passing” but not read it. She accepted that her answer to the SRA that she had frequently referred to it was therefore incorrect but she could not explain why she said it. None of that is credible.

Of course, the Handbook is often referred to in lenders' instructions to solicitors. Ms Rahim accepted this and said that she was aware of such references but did not read the instructions fully and anyway took guidance from Mr Islam. However, he, apparently, did not make any reference to the Handbook in which case she would be none the wiser despite having gone to him for guidance.

In my judgment, the truth is that Ms Rahim was familiar with the Handbook and it is inconceivable that it was not available for use in the office even if only electronically.

In the sample transactions the price discrepancies arose because of a simple mismatch between the contract price as stated and that in the mortgage offer or because of a discount, bonus or allowance being given so as to reduce the actual price. In evidence Ms Rahim claimed ignorance of this and thought that such things were irrelevant to her duty to the lender because they were simply some form of benign incentive to the buyer which was not otherwise of interest. I reject that suggestion as wholly implausible. In my judgment she knew perfectly well that discounts, allowances and bonuses all served to reduce the actual price payable and should be treated as such.

I accept that Ms Rahim treated Mr Islam as her boss as he obviously was and she knew that he had greater experience than her (though not in fact in conveyancing) and he may well have told her that he had worked at a magic circle firm in the past. She said she trusted him and went to him for guidance. All that might have helped her if she could have advanced a coherent and credible account of what they discussed, what advice he gave her as her principal and the justification for it. But in cross-examination she could not do so other than say repeatedly that he told her to take the price from the mortgage offer when submitting the certificate of title without more, it seems. Given what I find she knew about her duty to the lender, merely to say that she should use the mortgage offer price could have given her no comfort at all where there was a disparity.

I have no doubt whatsoever in concluding that Ms Rahim knew perfectly well by the time she did the first of the sample transactions, if not before, that she owed a duty to the lender as a client along with the buyer, to report among other things, any discrepancy in price whether apparent on its face or by operation of a discount bonus or allowance. She was also aware of the risk of mortgage fraud and how it might occur. She was aware of the salient points on this from her LPC, the Green Card, the Handbook and the Textbook.

Accordingly, if she did not report such a discrepancy to the lender she knew that she was in breach of duty, that the lender would be misled and that she was facilitating, albeit not instigating, a mortgage fraud.

In reaching this conclusion I obviously take account of the fact that at so many different points in her evidence she gave implausible and/or inconsistent and/or incoherent explanations. Her lack of credibility here, of course, has an impact on my findings as to the individual transactions to which I now turn.

Arch's original case was that Ms Rahim was dishonest in respect of her work at OSL and that this could be seen from a sample of 20 different transactions. Although discussed at some length in Ms Rahim's witness statement and the written openings, in the event, only 11 of these were put to her in cross-examination. Each needs to be considered separately. The earliest was April 2005 some 5 months after she started at OSL and the latest was February 2007 a few months before it closed down.

Although I accept that more than one person may have dealt with a particular file and that Ms Rahim did not generally deal with the mechanics of completion as distinct from exchange, it does not follow that she would not have looked at the file in order to understand the transaction and to assist with the documents that she did write or deal with. Indeed in interview, she said she might spend 2½ hours acquainting herself with a file. Where I refer below to correspondence from or to Ms Rahim that is because it bears her reference “SR” or is actually signed by her.

It is not in dispute that each of the examples referred to discloses a mortgage fraud - rather, Ms Rahim contends that her part in it was not dishonest.

Other than generally asserting that she was not dishonest, Ms Rahim’s explanations amounted to one or more of the following:

None of that adds up:

This was a sale by auction and the sale memo dated 10 June 2005 recorded a price of £99,000. The mortgage offer dated 7 July 2005 was for £85,000 based upon a purchase price of £160,000. Ms Rahim sent the certificate of title and the Request for Funds to the lender on 8 July 2005 with the price to be stated in the transfer given as £160,000. Because this was a sale by auction it is a relatively brief file. When it was put to her that she must have known the true price was £99,000 she did not give a clear response other than to say that she saw that now but took the price from the mortgage offer. Subsequent to the mortgage offer, she not only sent the certificate of title but, the day before, wrote to the client or his representative enclosing a letter from the vendor’s solicitors referring to a mistaken date on the auction contract. Although she did not clearly admit it, I consider it inconceivable that she was not aware from this that the actual purchase price was £99,000. Accordingly, when she informed the lender that the price was £160,000 she was knowingly misleading it. For the reasons given above I do not accept that in general terms she was not aware that she had to disclose the true price. Nor do I accept that being so aware she could have believed or did honestly believe from what Mr Islam told her that it was not necessary to disclose the true price to the lender in circumstances such as this.

The mortgage offer dated 22 March 2005 gave the value of the property as £345,000 with a proposed loan of £245,499. That price was repeated in the certificate of title sent by her on 26 July 2005. However, a few days later, on 1 August 2005 she conducted a simultaneous exchange and completion on behalf of her client purchaser at the price of £262,000. It is inconceivable either that she was not aware of the price given to the lender a few days earlier or that, as at the date of the certificate of title, she did not know what the actual contract price was. In evidence she did not really accept that the lender got the wrong information and simply said that she took the price of the mortgage offer, that she did not know what she was doing and that she did not deliberately mislead.

In re-examination she said that she only had the mortgage offer in front of her when completing the certificate of title. Whether or not that is true, I do not accept that in dealing with the file she did not see the actual contract price. Moreover, even if she did not see it initially, she surely saw it very shortly after she had sent off the certificate of title, since exchange and completion were only days away. If that was the case alarm bells would have rung at that point when she saw that the lender had in fact been misinformed. But instead she proceeded. The only possible explanation is that again, she deliberately misled the lender over the purchase price.

The mortgage offer dated 1 April 2005 provides for a borrowing of £193,470 based on a purchase price of £215,000. By letter dated 6 April 2005 the lender was informed that the price had reduced to £190,000 as a result of which the loan offer reduced to £117,000. On 13 April 2005 OSL wrote to say that this was an error and the correct price was indeed £215,000. Ms Rahim says she was away in the US for a family wedding at this stage but she was certainly back by 21 April because she wrote to her client purchaser with a fixtures and fittings form on that date. On 12 May she sent the certificate of title and request for advance to the lender with the price at £215,000. On the same day, contracts were exchanged for £190,000 although this was not done by her. However her own manuscript note (undated) says that the client should talk to the broker about the price difference "190/215" and there was a “need to clarify”. In re-examination she said she could not recall if clarification had ever been obtained. The important thing to draw from this is that she must have been aware that the contract price was £190,000 as the file would have shown. It is submitted that the very fact of the note shows that she must have been acting honestly, otherwise why set out the discrepancy. I do not accept that when the only inference from her knowledge of a £190,000 purchase price is that she knew that the lender was being given the wrong information on the certificate of title. Again, she misled the lender.

The mortgage offer dated 7 December 2005 was for a loan of £224,920 based on a purchase price of £249,950. Ms Rahim wrote the client care letter on 13 December 2005 and on 16 December she wrote to the lender in response to its special conditions stating among other things that the firm was happy to act for it and the purchase price was £249,950. But less than a week later she received a letter from the vendor’s solicitors enclosing a completion statement which gave an allowance of £45,000 off the purchase price. There can be no doubt that Ms Rahim was aware of this discount. She said that she did not know that she had to report this to the lender. I reject that as wholly implausible given her knowledge that she was to act for the lender and her knowledge of the Handbook (as I have found it to be). Accordingly she knew that the lender had been given the wrong figure.

The mortgage offer was for £293,000 based on a purchase price of £345,000. Ms Rahim wrote the client care letter on 20 December 2005 and her own handwritten note refers to the purchase price as £276,000 on the basis of a 20% discount from £345,000. That was referred to in the letter from the vendor's solicitors sent on 10 February 2006 which she must therefore have read, otherwise she could not have noted the discount. She put the figure of £276,000 in a letter to the client on 22 February 2006 which set out the breakdown of the figures and in particular the sum of £17,205 as due to the client from the mortgage proceeds of £293,205 after payment of the purchase price and subject to further costs. Just over one week earlier she had sent the certificate of title to the lender giving the purchase price as £345,000. The form signed by her on the second page contains a certificate at paragraph (h) that the lender would be notified of any matter regarding the certificate’s inaccuracy.

All Ms Rahim could say by way of an explanation of her note here was that she did not know what she was doing. I simply do not accept that. The note was clearly there to inform the client letter. She must have known that this discounted purchase price was different from that certified to the lender. I consider it equally implausible that she did not read the terms of the certificate of title just above her signature and in any event I have already found that she knew she had to report price reductions and discounts to the lender. It is irrelevant whether she saw the rider to the contract setting out the discount because her own note refers to it. Equally irrelevant is the fact that the discount was only for completion by 28 February 2006 because it was going to be, and she acted on the basis of the discount applying. Nor do I accept any suggestion that she did not see the certificate of title as certifying the matters therein as opposed to a simple request for money. It says that it is a certificate in terms that she could not have misunderstood. Accordingly, again, she knowingly misled the lender.

The mortgage offer dated 9 January 2006 was £136,752 based on a purchase price of £143,950. The completion statement dated 24 January 2006 sent from the vendor's solicitors to Ms Rahim showed an allowance of £25,911 off the purchase price. However the previous day she had sent off the certificate of title referring to the purchase price of £143,950.

The certificate of title was enclosed in a letter of the same date and although she would not admit it, she must have sent it albeit with the reference “SI” since it accompanied the certificate of title which she had signed. The fact that there is an earlier draft of the letter dated 19 January 2006 is irrelevant. What the letter shows is that the writer addressed the special conditions in the mortgage offer which made reference to the Handbook. She can have been in no doubt of her duty to give the lender the correct price and even if she did not write the covering letter that would in fact make no difference because I do not accept that she did not know that she had to report an allowance of this kind which obviously affects the value of the property. Her only excuse here was that she was “really stupid” but I do not accept this. Again, she misled the lender.

The mortgage offer dated 30 May 2006 was £125,951 based on a purchase price of £140,000. However the client care letter written by Ms Rahim referred to a purchase price of £130,000. On 15 June 2006 Ms Rahim wrote to the lender to notify it of the alteration of the property by the provision of a conservatory. In and of itself, this shows that she was perfectly aware of her duties to the lender in respect of any material matters. But she did not disclose the true contract price. On 10 July 2006 she prepared a price breakdown for the client stating the purchase price of £130,000. She exchanged contracts at this price on 10 July and then two days later sent the certificate of title with a price of £140,000. This was pre-printed but as noted above this is irrelevant and did not affect her duty to the lender. In fact, she altered in manuscript the pre-printed mortgage advance figure which was put at £126,000 instead of that offered which was the marginally less figure of £125,951. Further the contract is endorsed with a receipt for a directly paid deposit of £3,125 which also should have been notified to the lender.

I do not accept that Ms Rahim did not know to report the direct deposit but even if not, she knew to report the price discrepancy and knowingly failed to do so.

The mortgage offer dated 9 November 2006 was for £208,250 based on a purchase price of £220,000. However there was a bonus of £39,000 off the purchase price for the buyer. The vendor’s legal department wrote to Ms Rahim on 14 November 2006 asking her to confirm that the bonus had been disclosed to the lender. On 23 November 2006 she wrote back saying it had been. However the certificate of title sent by her one week earlier made no reference to the bonus and although this did not require a statement of the purchase price she wrote in the original advance, based as it was on the purchase price of £220,000. In fact after applying the bonus, the advance comfortably exceeded the true price. There is no evidence of disclosure to the lender.

Her only explanation was that the matter was complex (actually it was not) and that she had asked Mr Islam who told her to use the mortgage offer figure. But that flew in the face of her duty to the lender in respect of the true price as to which duty she had been expressly alerted in this case and had falsely said she had disclosed it when she had not. It is not even as if she said Mr Islam told her that the bonus somehow did not count for disclosure purposes - he just directed her to the undiscounted price. At another stage in her evidence she said that if directed to do something wrong by Mr Islam she would have refused; but here she did not. Again she knowingly misled the lender.

The mortgage offer dated 23 October 2005 was £202,745 based on a purchase price of £213,235. Ms Rahim opened the conveyancing file and wrote the client care letter on 26 October 2005. Again, there was a bonus here, this time for £38,383. On 30 October 2006 Ms Rahim sent the certificate of title with the original advance figure. On 1 November Ms Rahim wrote to the lender with details of insurance asking when funds would be released.

The matter was due to complete on 3 November. However it was delayed until 27 November. It appears there was a sub-sale to Ms Rahim’s client, Mr Umaru, but the transfer appears to have gone straight to him by means of an immediate assignment of the new lease. However, the point is that the documents show that the bonus was for Mr Umaru. Hence, of the mortgage funding of £202,745 sent to OSL from the lender, only £175,123.85 needed to be transferred to the vendors because of the effect of the bonus. All the relevant letters were sent to or from Ms Rahim. However, she never disclosed the bonus to the lenders notwithstanding calling for the original advance.

She was specifically asked by the vendors to disclose the bonus to the lenders. On 3 November she confirmed to the vendors that she had done so but this was not true. What she did disclose to the lenders was that her client had been gifted the deposit of 5%. That would have amounted to only some £11,500. The 5% gift appears to be a fiction since it is not reflected in the completion statement. It is true that there is a manuscript note from Ms Rahim referring to the client actually having received 5% but she could not explain much about this - it is wholly unclear if this is anything other than a note in preparation for the letter to be sent to the lender. In any event it was untrue. There is no evidence of the gifted 5% deposit and even if it existed, the true bonus was much more. Lenders tend not to be concerned if the discrepancy is 5% or less and I am sure that Ms Rahim was aware of this. Again, this means that she knowingly misled the lender. Otherwise, all she could say was that she did not understand what was going on, but I do not accept this.

The mortgage offer dated 9 August 2005 was £237,500 based on a sale price of £250,000. The original contract price, however, appears to have been £222,995 less a discount of £44,599. Ms Rahim signed the certificate of title using the mortgage offer figures on 11 August 2005. However, although it seems that the matter later exchanged on the basis of the lower contract price (before the discount) it may be that Ms Rahim’s role on this transaction was more limited and there are also earlier completion statements showing the purchase price of £250,000 and no bonus. The position is thus unclear. Therefore, simply because I do not have a complete picture, I consider it unsafe to make any findings of dishonesty against her here.

The mortgage offer dated 1 February 2007 was £212,465 based on a purchase price of £250,000. The correspondence to which Ms Rahim was a party on 13 and 14 March 2007 records however that the vendor had received a direct deposit of £28,000 and this was put into the contract exchanged by Ms Rahim on 15^th March. The deposit was not disclosed to the lender who produced the full advance. Indeed, on 13 March 2007 Ms Rahim signed the certificate of title in the full amount of £250,000.

Ms Rahim’s only point here (apart from suggesting she was not acting for the lender) was to say that she did not know she had to report a direct deposit. I do not believe her on this. Accordingly this is a further example of deliberately misleading the lender.

Together with my earlier findings as to what Ms Rahim knew about her duties to the lenders, it follows that of the 11 examples put to her, 10, in my judgment, clearly establish a course of conduct over a 20 month period from July 2005 to February 2007 during which she deliberately misled the lenders as to the true purchase price, consistent with the mortgage fraud being practised by others at OSL including Mr Islam and under his overall control.

As to motive, I reject the suggestion that because she did not receive any reward for taking part in the fraud it must follow that there was no reason for her to be dishonest. On the contrary, she desperately needed this employment and in my view was prepared to take a serious professional risk so that she could earn a steady wage even if a low one, in order to look after her family.

I accept that Ms Rahim repeatedly said in evidence that she was not dishonest. By itself, such an assertion goes nowhere; it has to be assessed in the context of what happened and what she knew as I have found above. It is possible that in some overall and distorted sense she did not consider that misleading the lenders was “really” dishonest since she made no personal gain and anyway this was all at the behest of Mr Islam and the others involved in each individual mortgage fraud who had instigated it. If so, then, objectively that is not a proper or reasonable interpretation of honesty and it is to be rejected.

In my view, it has been compellingly established that Ms Rahim acted dishonestly in relation to at least 10 of the sample transactions. The number is such as to support the general conclusion (not itself disputed) that there was lengthy and systematic mortgage fraud being facilitated at OSL.

It is not suggested that Ms Rahim played any role in the Barclays and Heritable frauds. But in order to establish the requisite condoning conduct on her part for the purpose of the Dishonesty Exclusion, it is not necessary that she did.

Rather it has to be established that she actually knew at the time that other mortgage frauds (not involving her) were generally or to a significant extent being carried out at OSL. This construction of the Dishonesty Clause emerges from the judgments of Irwin J in Zurich v Karim [2006] EWHC 3355 at paragraphs 107 and 108 and of Wynn Williams J in Goldsmith Williams v Travelers Insurance [2010] EWHC 26 at paragraph 97.

In my view, there can be no doubt that Ms Rahim knew perfectly well that she was part of a significant and systematic mortgage fraud being perpetrated at OSL. If she had not herself been a willing participant (but for example complained instead and refused to do the work) she would obviously have been dismissed because she would have been a threat to the operation as a whole. Since Mr Islam was in charge of the practice and thus in charge of the fraud it follows that, by being aware of the fraud generally and playing her own part in it, she condoned it generally. Since the frauds complained of in the Claims arose from the frauds of or led by Mr Islam, as far as the solicitors’ roles were concerned, she condoned them in the required sense. In closing, Mr Chapman QC submitted that the fact that Ms Rahim did not receive any profit from the frauds might be relevant on this question. I do not agree. This goes back to the question of motive. If she was prepared (by reason of desperation or otherwise) to engage in the frauds herself she would have been equally prepared to condone it in others.

Nor is any limited understanding of Bengali on her part a barrier to condoning the fraud. Again, if she understood the frauds in which she played a role, it is inconceivable that she did not know that it was going on elsewhere in the office irrespective of the fact that the other lawyers might usually converse themselves in Bengali.

Accordingly, Arch can rely upon the Dishonesty Exclusion and the result of that is that this claim must fail.

This issue, along with Issues 4 and 5, arises principally because of an alternative argument advanced by Arch in the event that I did not find the Dishonesty Exclusion defence made out as alleged in Issues 1 and 2. Since I did so find, this alternative argument is academic but I make a few brief observations about it.

This argument was said to be relevant in two ways. First, if Ms Rahim was not a partner but knowingly held herself out falsely to be such, then this was dishonest and constitutes further evidence on the question of dishonesty in respect of the mortgage frauds themselves. To that extent this is a further evidential point. Second, and as an alternative argument, had she not been knowingly held out as a partner then she could never have been liable in respect of the Claims, since she was only liable in the first place because she was said to be a partner. She played no role in the transactions which underlay the Claims themselves.

When Ms Rahim was “made” a partner nothing at all changed in her working conditions save that she was now described as such.

In truth, for present purposes, there are two kinds of partner which could be relevant. The first is a partner within the meaning of s 1 (1) of the Partnership Act 1890 (“the Act”). This requires there to be “a relation subsisting between persons carrying on business in common with a view of profit”. It is common ground that an actual sharing of profits is not required though it is often present. I refer to such a partner as a partner in law. But there is a second kind of partner who is not a partner at law but is held out as a partner. This may create in effect a partnership by estoppel which is given statutory force at least for some situations by s14 of the Act. This can therefore expose such a partner to liability to third parties for the acts of others in the firm. I refer to this kind of partner as a partner by holding out.

Reference was made in argument to the position of “salaried partners”. This is not a legal term of art but refers to those working for a firm which are expressly held out as partners even though they may have no share of profits and indeed their pay may not be performance- related at all. They may or may not have a management role. Some such “partners” may still be partners at law. An example is Young Legal Associates v Zahid [2006] EWHC Civ. 613. Here the Court of Appeal held that although the alleged partner at law was on a basic salary and had no management role within the firm he was a partner at law. This is because he agreed to work on the basis that he was a partner because he had been in practice much longer than the sole “principal” of the firm and his presence would then allow the firm to practice because it could comply with rule 13 of the Solicitors’ Practice Rules 1990.

In other cases, salaried partners might not constitute partners at law but only partners by holding out.

Accordingly, Issue 3 masks an ambiguity which is the type of partner which Ms Rahim is alleged not to be. The thrust of Mr Pooles QC’s submissions was that she was not a partner at law and this case could be distinguished from Zahid because it was far removed from the express agreement to act as partner so as to comply with a professional rule. Mr Chapman QC, on the other hand, submitted that irrespective of that point (which he did not concede) Ms Rahim was in any event a partner by holding out.

In my judgment, Ms Rahim was at least a partner by holding out. That is what Mr Islam wanted and to which she reluctantly agreed. And it was effected by putting her name on OSL’s notepaper.

That being the case, it is not necessary for me to decide whether she was a partner at law also, although in the defences filed in the Claims, that seems to have been admitted and in the SRA interviews and the SDT proceedings, all parties proceeded on the basis that she was a partner. The Claims said that she was liable for the acts of Mr Islam by reason of ss9, 10 and 11 of the Act, which deal with different forms of vicarious liability and the defences thereto (prior to the settlements) contended that Ms Rahim played no part in the relevant transactions and Mr Islam’s frauds were not committed in the ordinary course of OSL’s business.

This does not now arise but it is worth stating that in reality, Ms Rahim had no choice in the matter. She had misgivings about it because it was unusual at this stage in her career and she would get no benefit from it. Moreover, she probably knew she might then be liable as such. But she had to agree to it in order to keep her job.

In my judgment the only reason why Mr Islam would have wanted her to be seen as a partner is so that OSL could act for those lenders who generally would not deal with sole practitioners.

In cross-examination Ms Rahim also said that thought that she was “made” a partner because Mr Islam was ambitious and wanted to expand his business. But merely to make someone a partner would not per se expand the business. What would expand it would be the ability to do conveyancing work on a large scale which in practice meant having two partners if (as he would naturally want) OSL was to act also for those further lenders who required it.

In fact, in a statement she submitted to RPC in August 2009 she said that Mr Islam had insisted "she become a 'Partner' because it was a bureaucratic step that the firm needed to take to be named on the panel of lenders to undertake more conveyancing transactions." She said she had no choice but to agree since she had no other way to make ends meet financially. On the basis of that knowledge, her evidence before me about Mr Islam being ambitious does then make sense because in this way he could indeed expand the business.

While that knowledge does not by itself amount to clear evidence that she dishonestly condoned the mortgage frauds themselves (the subject of Issues 1 and 2) this does not matter for there is ample evidence of that anyway. Further, what it does do is give additional support to the notion that she was desperate to stay in the firm for financial reasons and would do whatever Mr Islam wanted.

This issue again does not now arise and there is no need to say anything more about it.

The same applies to Arch’s further alternative argument which was that if it was liable to indemnify Ms Rahim, then that liability was capped at £2m because of the application of the policy’s aggregation clause. Furthermore, the same aggregation clause and the interpretation of the description “one claim” therein is presently the subject of an appeal in the case of AIG Europe Limited v OC320301 [2016] EWCA Civ 367, which has been heard by the Supreme Court very recently and where judgment is awaited. In those circumstances there is even less point in my deciding this final and academic issue.

It would be wrong for me not to express some sympathy for the predicament in which I think Ms Rahim found herself when working for Mr Islam. I am sure she would have much preferred to work elsewhere if she could, especially as time went on. But unfortunately for her, this cannot affect the question as to her own dishonesty which I have determined against her for the reasons set out above.

I am most grateful to Counsel for the excellence of their oral and written submissions and I will hear them on all consequential matters at the handing-down of this judgment.