Case No: HQ05X02489
Neutral Citation Number: [2006] EWHC 3355 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 15th December 2006
Before :

THE HON MR JUSTICE IRWIN
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Between :

	ZURICH PROFESSIONAL LIMITED on behalf of THE QUALIFYING INSURERS SUBSCRIBING TO THE LAW SOCIETY’S ASSIGNED RISKS POOL IN 2002-3
(as listed in the schedule to the Particulars of Claim)	Claimants	
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	(1)	SHAMIM AKTAR KARIM
(2)	 IMRAN ASHRAF KARIM
(3)	SAIRA KARIM	Defendants	

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Mr Michael Pooles QC & Mr S Charlwood(instructed by Reynolds Porter Chamberlain LLP) for the Claimants
The Defendants were unrepresented and did not attend

Hearing dates: 4 – 6 December 2006
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JUDGMENT

Mr Justice Irwin : 

1.	This case concerns a contract for professional indemnity insurance for a firm of solicitors, Messrs Karim Solicitors, for the practice year 2002/3.  The Claimant insurers seek declarations that the claims which have arisen under that policy ‘arise from dishonesty or fraudulent acts or omissions committed or condoned by the insured’ so as to mean that they are not obliged to indemnify the insured in respect of the claims. 
2.	It is helpful to begin by reciting very shortly the procedural history of this case in the period before the hearing.  The case began with an Intervention by the Law Society on 23 June 2003 and freezing injunctions made initially on 18 September 2003.  After quite extensive correspondence, proceedings were issued on 24 August 2005 with particulars of claim on the next day.  The Defendants have been unrepresented throughout.  On 31March 2006, Master Eyre ordered that there should be a fixed trial, and the date of 3 December was fixed on 13 June 2006.  That order was not sought to be appealed by the Defendants.  There was a CMC in the case before McCombe J on 16 November 2006, attended by at least the First Defendant, where he picked up an indication that the Defendants might seek an adjournment of the trial.  He ordered that a proper application for adjournment should be listed and that matter was heard by him on 20 November 2006.  I have seen a note of what was said.  There was no mention in the course of the application of ill-health on the part of any Defendant as a basis for adjournment.  McCombe J refused the application.
3.	It should be noted that the Defendants had by then served no witness statements in the case, even from themselves, in breach of orders to do so. They were thus debarred from relying on any witness apart from themselves.  It should also be noted that there is a considerable history of procrastination by these defendants, for example, set out in the witness statements of Mr Foley at paragraph 48 and Mr Murrin at paragraph 26.  In correspondence leading up to the trial, the Claimants repeatedly asked the Defendants to make suggestions as to the contents of trial bundles, without response.  They later repeatedly asked where and when to deliver trial bundles which they had prepared unilaterally, on an inclusive basis.  Again there was no response, in the sense of no suggestion how to achieve this.  As I understand it, no trial bundles were ever delivered to the Defendants.  This was entirely their own fault.  In any event, the relevant documents are almost all from the firm. 
4.	On Sunday 3 December 2006 at some point in the afternoon, the First Defendant faxed to the Court office what amounts to a renewed application to adjourn the trial, this time claiming that she and both the other defendants were ill and unable to attend the trial.  No medical evidence of any kind supports this application.  I refused the application for a general adjournment on paper, but I did stand the trial out until the next day, ordering that if there was to be a renewed application to adjourn on medical grounds, the Defendants should attend with any written medical evidence to support their position.  It seemed unlikely that at any rate the Third Defendant would attend, since her faxed letter delivered to the court office on the Sunday was addressed from Sunset Boulevard, Hollywood.  The other Defendants still reside in the family home in Esher.  My order of Monday 4 December 2006 was served there on that day by a process server.  No-one appeared at court as a result on Tuesday morning.  IN those circumstances, I finally refused the renewed application for an adjournment, and the hearing proceeded in the absence of the Defendants or anyone representing them.  I gave reasons for that refusal then which I shall not repeat, but it seems sensible to set out the background here, since the reasonably lengthy recital of fact which follows is necessary partly because a trial of allegations of dishonesty in the absence of those accused, and of anyone to represent them, is a little unusual.  In my view, in these circumstances it is appropriate to set out some of the detail on which findings are made.  I emphasise that even though I address some of the detail below, there is a massive amount of relevant detailed evidence in the papers and witness statements, and it is neither necessary nor practical to give more than a reasonable summary.
5.	In circumstances where evidence would be unchallenged by any cross examination, I heard oral evidence from three witnesses only.  The first of these was Mr James Foley, a manager with Capita London Market Services Ltd, who has been responsible for the management of the Assigned Risks Pool ( a term I shall explain later) since 2000, and had supervision of the handling of the claims against the Defendants.  The second was Mr David Channon, who acted as book-keeper for Karims for much of the relevant period.  I wished to hear from him directly, how such matters were handled within the office, and to form an impression of him.  The third was Mr Philip Murrin, a partner in the firm of Davies Arnold and Cooper, who acted jointly for the insurers and the insured, in handling these claims.  I wished to hear directly from him how the potential conflict of interest between the insured, and insurers who suspected there had been fraud by their insured which might have the potential to release them from liability under the policy, had been handled during the conduct of claims which arose.  I should record that after quite a passage of evidence, I was entirely satisfied that Mr Murrin had taken great care to deal scrupulously with these difficult problems, and the problem of conflict plays no part in this judgment.
6.	I also accepted the suggestion from the Claimants that it would be preferable if other important witnesses in a case such as this should be on oath as to the truth and accuracy of their evidence, rather than accepting witness statements into evidence without more.  That process was followed in respect of Ms Farman, Mr Ireland, Mr Owen, Mr Simpson and Mr Sutton.  The content of what they have to say has not changed at all.  
7.	One other difficulty which has faced the Claimants and indeed the court, in dealing with this case is that many relevant documents have disappeared.  I do not intend to analyse what is missing or indeed set out any detail of the various explanations as to why the documents are missing.  At various times, those investigating the affairs of the Defendants have been told that the offices have been repeatedly burgled by burglars who have stolen bank statements and other such documents.  No police report was ever made of such a burglary.  No sensible explanation has ever been given as to why papers such as these were stolen in the course of burglary, or why no such report was ever made.  There is a suggestion that papers were stolen from Imran Karim’s car.  Again, as I understand the evidence no police report was ever made of the theft of such papers from the car.  Consistent with the findings which I make below, I find that these stories are untrue and that documents were removed and likely destroyed, to conceal what had happened.  It is not possible for me to say who did this, beyond saying it is likely that Mrs Karim was involved, for reasons which will be clear, to do with her level of control over the firm in general and property and financial transactions in general.  Nevertheless, the absence of documentation has to some degree at least obscured some of the relevant detail.  I do not believe this has in general prevented a true picture of the affairs of the Defendants from emerging.
8.	All three Defendants in this case have qualified as solicitors and were practising from within Karim Solicitors at the relevant period for the purposes of the insurance contract lying at the heart of the case.  The First Defendant is the mother of the Second and Third Defendants.  Her ex-husband – the father of the Second and Third Defendants – is also a solicitor.  His first name is Ashraf.  For convenience in the course of this judgment, I shall refer to the First Defendant as “Mrs Karim”, the Second Defendant as “Imran”, the Third Defendant as “Saira” and to Ashraf Karim as “Mr Karim”.  
9.	Mr Karim qualified as a solicitor in the 1970s and Mrs Karim was qualified in 1975.  They practised together under the name of Messrs Ashe Karim and Co.  That firm had a chequered history.  The detail is unnecessary to recite here, but is set down in the findings and order of the Solicitor’s Disciplinary Tribunal dated 26 August 1981, a copy of which is before the Court.  Mr and Mrs Karim had a matrimonial separation in 1976 and were apparently divorced in 1978.  However, apart from a period of absence from the country on the part of Mr Karim, they both appeared to practise as solicitors until 26 February 1981, when the Law Society intervened in their respective practices.  At the time of intervention, neither Mr nor Mrs Karim were in possession of current practising certificates nor had they paid premiums for or obtained professional indemnity insurance.  The Tribunal found in 1981 that Mrs Karim was guilty of a number of significant allegations, putting her in breach of  the solicitors’ accounts rules and constituting other significant examples of conduct unfitting a solicitor.  In their evidence to the Tribunal, both Mr and Mrs Karim had attempted to place all of the blame for the breaches alleged onto Mrs Karim.  The Tribunal found that this was a device: 
“The Tribunal have concluded that the first respondent hoping to avoid the imposition by the Tribunal of any penalty that might prejudice his contemplated immigration to Canada had persuaded his wife to join in an attempted deception of the Tribunal.  The second respondent has in any event shown that she is unable to cope with her professional responsibilities.  The first respondent has attempted to avoid these responsibilities by lying and the Tribunal Order that the names of the respondents Ashraf Remtulla Karim and Shamim Aktar Karim, ………..be STRUCK OFF the Roll of Solicitors…..”
10.	Both Mr and Mrs Karim challenged the sentence of the Tribunal by means of judicial review proceedings.  The findings of the tribunal were not disturbed, but the penalty in each case was reduced to a period of suspension from the Roll.  Following this suspension and a renewed application for a practising certificate, the Law Society wrote to Mrs Karim on 21 December 1984 indicating that the Society had decided to grant her a practising certificate for 1984/1985 “subject to your practising only in partnership or employment approved by the Society”.  This condition on Mrs Karim’s practising ticket remained in force until 31 January 1995, when her practising certificate terminated.  On that date the Law Society wrote to Mrs Karim at her home address as follows:
“As you have not applied for renewal of your practising certificate for the year 1994/5 our current practising certificate has been terminated with effect from 31 January 1995 ………
I take this opportunity to remind you that should you practise as a solicitor without a practising certificate you become an unqualified person within the meaning of the Solicitor’s Act 1974, section 1, sections 19-23 inclusive.  You should be aware of the penalties that apply to unqualified persons acting as solicitors and the powers of intervention exercisable by the Society under section 35 and schedule 1 of the Act.”
11.	In fact, the Law Society had not had a practising address for Mrs Karim since 1988.  It seems that, by the time of the termination of the first Defendant’s practising certificate, the obligation to practise only in approved partnership or employment had not been policed by the Law Society for a period of 6 or 7 years.  During that time, it appears that Mrs Karim had been more or less continually working in solicitors’ practices and that by 1994 she was working within Messrs Karim Solicitors, a firm in which her ex-husband was then a partner.  In the period with which we are concerned, this firm was variously called ‘Karim and Co’ or ‘Karims’ or ‘Karim Solicitors’.  I do not believe these different titles matter.  The firm was a continuous entity throughout the period, albeit with changes of actual and apparent personnel.  
12.	Despite their matrimonial separation and subsequent divorce, Mr and Mrs Karim were living in the same house with their children.  This is a house in Esher known as “Courtlands”, a property which becomes important later in the story.  
13.	As I have said, there is nothing to suggest that the Law Society were aware that Mrs Karim was practising in partnership, or employment, within a firm alongside her husband.  Records subsequently looked at confirmed that no other solicitor worked within Karims between 1 November 1990 and 12 July 1998.  It seems unlikely that any sober consideration by the Law Society would have approved of Mrs Karim’s employment with her husband given the findings of the Tribunal I have set out above.  
14.	On 26 October 1994 – some three months before the end of Mrs Karim’s conditional practising certificate – a new client ledger was opened within Karim and Co.  The client was entitled “Mrs S Karim-Parache” the ledger was numbered 1893.  On the day the ledger was opened £9,391.77 was paid in, representing the receipts of an insurance policy.  Mrs Karim’s father had just died.  Her maiden name was Parache.  On the same day £2,000 was paid straight over to the firm’s office account.  £6,521.25 was recorded as being paid out as “rent payment” and the balance of the credit or very close to it was debited as “loan to pay Karim and Co”.  
15.	It is the Claimant’s case, substantially supported by statements and admissions by the Defendants, that all stages in later years Mrs Karim was in effectively sole control of the funds of the firm, and was always a signatory to the bank account, alongside her daughter Saira. The latter, although a signatory, appears to have had little or no authority over the funds of the firm but acted under her mother’s strict instruction.  Imran was never a signatory on the bank account.  However, in 1994, Mr Karim had some 4 or 5 years still to go before he retired from practice and since he was ostensibly a sole practitioner at the time, according to the records, his ex-wife’s control over the funds of the firm is unlikely to have been as fully developed as it later came to be.  However, from the very outset the Parache Account demonstrates her direct financial involvement with the firm.  The insurance payment on her father’s death subsidised the office account, paid the rent and was exhausted by a loan to the firm, all on the day the credit was received.
16.	In April 1995 the proceeds of Mrs Karim’s father’s estate was paid into the Parache account.  The sum was just in excess of £100,000 and was immediately divided into seven shares six of which were paid out to other relatives.  The seventh share, which I find to be Mrs Karim’s share, was for the large part transferred swiftly to a Karim’s office account.  A relatively small balance was kept on the client account side of the ledger.  However, this client account was kept open.  Although there is no further evidence of additional credits arising from the estate of Mrs Karim’s father, this account stayed in existence, albeit with the change from manual to computer accounting and an alteration of ledger number, until the Law Society’s intervention in the firm and subsequent freezing injunction, in the summer and early autumn of 2003.  I consider below the uses to which this account was put.  
17.	On 3 June 1996, Imran was admitted as a solicitor.  His sister followed him, being admitted on 15 October 1997.  On 15 July 1997, Mrs Karim applied for a new practising certificate.  This was not granted immediately, but following an appeal she was granted a practising certificate for 1996/97 subject to conditions that: (1) she did not practise on her own account and (2) that she should attend a Legal Refresher course approved by the Office for the Supervision of Solicitors within six months.  These conditions were attached to the subsequently issued certificates for the years 1997/8, 1998/9 and 1999/00.  It follows that by the very beginning of 1998, all three Defendants were admitted solicitors and, in fact, all three had practising certificates. 
18.	Having been admitted as a solicitor in the summer of 1996, Imran was described as a partner in Karim Solicitors in correspondence by the end of October 1997.  Mrs Karim was working in the firm on any view by the spring of 1998 and had a designated client account for her opened on 17 March 1998.  By the 1 January 1999, Saira was a partner in the firm, according to Law Society records.  
19.	It is a little unclear when Mr Ashraf Karim retired from practice.  On the Annual Accounts Report Form for 1998, relating to the period 1 November 1998 – 31 October 1999, Mr Karim is recorded as held or received client’s money or controlled trust money from 1 November 1998 – 22 September 1999.  There are indications that he may have retired from practice earlier than this.  What is also of interest is that the same accountant’s report records that Imran and Saira only began to hold client’s money as of 23 September 1999, even though Imran is recorded as a partner from October 1997 and Saira is recorded as a partner from New Year 1999.  Mrs Karim is not recorded as holding client’s money on this accountant’s report, although a designated client account had been opened for her in March 1998.  
20.	One of the witnesses called in the course of the hearing was Mr David Channon.  He is a legal cashier with more than 25 years experience in book keeping for small solicitors’ firms.  He has traded under the name of “D Johns”.  Mr Channon tells us in his witness statement, adopted in evidence, that his relationship with the Karims goes back to around 1982 when he worked for Mr Karim in his previous firm.  He returned to working for Mr Karim later in the 1980s.
21.	Mr Channon’s account of the personnel within the firm is quite straightforward.  He states that originally Mr Karim ran the firm on his own but that in 1989 Mrs Karim joined him on a part time basis working as a conveyancing solicitor.  Mr Channon states that after Mr Karim lost a major source of work in “about 1997/1998, he began to withdraw from the business, and it was taken over by Mrs Karim”.  Mr Channon understood that Imran and Saira had become partners – he thought at some point in 1999 – but he is clear as to who ran the firm:
“It remained the case, however, that Mrs Karim was in control of the firm.”
22.	Mr Channon details his difficulties in carrying out his book keeping duties for Karim Solicitors.  He is quite clear that these difficulties became significant at the time of Mr Karim’s retirement and that the problems were due to basic faults in Mrs Karim’s approach to financial records.  From his point of view, his principal problems were that cheque stubs from both client and office accounts were left blank, were inaccurately completed, were illegible or were not available.  Paying in books were either not completed or were not available.  No details or documentation were provided for other financial transactions for example telegraphic transfers, BACS Payments and so forth.   Delivered bills, completion statements, statements of accounts were often not available.  And finally, bank statements for all of the accounts held by the firm were not provided on a regular basis.  Mr Channon says that, every month, one or two bank statements were missing.
23.	To Mr Channon’s recollection, it was at the latest by 1998 that he began to adopt a method of book keeping he normally used in the case of incomplete records.  He used the bank statements from various accounts as the original source of information to produce cash books on a monthly basis and then attempted to identify the various receipts and payments.  This approach meant that he could not take into account any cheques or receipts issued or received prior to the end of the month which did not appear in the bank statement but it did at least mean that he could attempt to reconcile directly with the bank accounts.  
24.	In the course of his oral evidence, Mr Channon emphasised the degree of difficulty he faced.  The books were often six months behind.  He would on occasion be faced with a sudden crisis to attempt to clear up a backlog of accounting.  He was able to record that on one occasion he had to work through the night in an attempt to create some order from this chaos.  
25.	Various attacks have been made on Mr Channon by the Defendants, in the pleadings in this action and elsewhere.  He is blamed for the book keeping problems which arose.  In common with others who have come into contact with these Defendants he has been attacked by them, and I bear in mind that he may not find it easy to be wholly independent in the view he now takes of them.  I should record therefore that I found him to be an honest and straightforward witness.  Because of the attitude taken by these Defendants to the hearing he was not cross-examined.  I was therefore not able to see him under the pressure of hostile or searching questioning.  Nevertheless, I did form the view that he answered fairly the questions he was asked, whether by counsel for the claimants or by me, and was not attempting to exaggerate the picture he gave, under the pressure of any allegations made against him.  Moreover, the picture he paints is amply corroborated.
26.	There were three Law Society investigations into Messrs Karim Solicitors, between the time when Mr Karim withdrew from the firm and the beginning of the period of the contract of insurance which gives rise to this action.  These investigations are dealt with in the witness statement of Mr Nicholas Ireland, Senior Forensic Investigator at the Law Society, the statement being dated 31October 2006.  The investigations took place in July 1999, July 2001 and May 2002.  Mr Ireland was the primary investigator dealing with Karim Solicitors from May 2002 until June 2003, but he is able to summarise the results of the inspections by his predecessors.  
27.	The report of 13 September 1999, recording the findings of the July inspection, stated that client money had been held improperly in the office account; withdrawals had been made out of the client account in excess of the funds held; bills were not being delivered to clients before funds were taken; cash cheques were readily being drawn from client account; the books were not being kept up to date and there was insufficient narrative and inaccuracy in the ledger cards and in the cash books; mortgage advances were not being noted; Mrs Karim was signing client account cheques and was not qualified to do so and interest due to clients had been retained.  That is a remarkable litany of failure.
28.	The Inspector in July 1999, Michele Bridgwater, also focused on the Parache account which she described as a “client account” which is referred to as a “loan account” and which was “propping up the practice”.  This picture is borne out by the Parache account ledger.  On 21 October 1997, the ledger records that a credit went into this account on a little over £11,000 which is detailed as representing the “sale of pension”.  By the end of November 1997, this money is gone in disbursements which would appear to include office expenses but also include a round sum of £4,000 paid to Imran Karim.  On 21 November there is a further credit to the account of £9,380 which is detailed as being “S/O pension” which probably stands for the sale of a pension policy. This is used to fund further payments including significant payments in cash, to Imran Karim, in settlement of large American Express debts and so forth.  There is a similarly large credit in early December 1997 with similar outflows.  
29.	In March 1998, the receipts from an insurance policy are paid into the account in the sum of £7,350.  There are then further drawings in cash and by transfers.  A similar pattern persists throughout 1998.  In May 1998 there is a payment to Saira Karim, who it will be recalled, was admitted as a solicitor in October 1997.  There are further payments to “S. Karim” through 1997 and 1998. It is conceivable that these entries relate to Mrs Karim, whose first name is Shamim, but they might equally refer to Saira.  Certainly, both Saira and Imran did benefit directly from the funds flowing out of this account.
30.	The use of the Parache account became more intense from about the summer of 1998.  In June and July 1998 transactions are going through this account at 2 or 3 a week.  By October 1998, the transactions are 3 or 4 a day. That intense usage goes on until the period of the inspection in July 1999.  Moreover, by that period credits into the account have begun to include “transfer of costs” with other ledger numbers recorded beside the credit.  Further, by the end of July 1999, the balance on the account has run down to under £3,500.
31.	  The Parache account was therefore a client account in name only, hanging over from a time when Mrs Karim was the beneficiary of her father’s estate.  In reality, this account was a mixed account, used as a conduit for funds dispersed for the individual benefit of Imran and Saira Karim, as well as their mother. In addition, as the inspector stated, these funds were used to prop up the firm.  
32.	In my judgment, the matters disclosed by the inspection of July 1999 should already have caused grave concern on the part of the Office of the Supervision of Solicitors.  This picture corroborates fully the account given by Mr Channon of the challenge he faced in seeking to create order out of chaos in respect of the books of the firm.  
33.	The report from the OSS of September 1999 did not change practice within Messrs Karim and Co.  As Mr Channon tells us, by January 2000:
“I became totally frustrated at the absence of information necessary for me to do my job properly and resigned from working for the Karims.  After receiving a letter from the Karims asking me to return, much against my better judgment, on 29 February 2000 I again attended the Karim’s offices and attempted to bring their books up to date.  I obtained assurances from Mrs Karim that she would in future both keep proper records and provide me with all the relevant information.”
Mr Channon did his best to catch up but failed to do so.  He recounts in his witness statement how he badgered the Karims “Mrs Karim in particular, but also Saira and Imran when they were in the office” to improve the position.  He went on to insist that the Karims request copies of all returned cheques drawn on the Barclays Bank client account during the year 2000.  These took quite a while to arrive and, when they did, he had great difficulty in allocating the payments to the correct client accounts.  In his witness statement he tells the court that:
“…..I had to consult with Mrs Karim over almost every book entry I made, as her handwriting on the cheques was impossible to decipher.  There would not have been much point in asking Imran or Saira as Mrs Karim used the firm’s cheque books almost exclusively and the cheques were virtually always made out and signed by her; in fact I recall that she kept the cheque books in the desk of her drawer and I do not believe that she allowed Saira and Imran access to them.”
34.	To carry this relationship forward to its conclusion, Mr Channon states that throughout 2000/1 he continually badgered Mrs Karim to put the firm’s house in reasonable order, but failed.  As I have indicated above, during this period there was a further inspection of the firm in June and July 2001.  The records recount (and they are summarised by Mr Ireland in his witness statement), that the Investigation Unit stated they were unable to express an opinion whether or not there was sufficient funds held in client bank accounts to meet the firm’s liabilities to clients, as at 4 July 2001, since the relevant accounting records had not been produced.  
35.	All of this was the final straw for Mr Channon.  On 9 July 2001 he wrote to Mrs Karim resigning.  It is worthy of note that his letter was to Mrs Karim and not to either of the partners in the Firm.  It is also worth quoting some of the terms of his letter:
“I have finally reached the end of my tether.  You are aware of the problems I have experienced with your accounting records and my own physical and family problems.  The loss of your accounts data and the consequent pressure on me to reconstitute the accounts is too much for me, I find myself unequal to the task.  Thus I find myself having to leave Karims”.
36.	It is worth recalling that, in regulatory terms, it was the Imran and Saira, not Mrs Karim, who held responsibility for the operation of Karims in the year 2000/2001.  In the annual return of 17 November 2000, Saira and Imran are shown to be partners and Mrs Karim is not mentioned.  Moreover, in the period before the inspection by the Law Society in June/July 2001, Imran had been reminded of his responsibilities as a partner.  On 11 April 2001 complaints had been upheld against him on behalf of the Royal Bank of Scotland and a client of the firms.  These complaints included inadequate professional service, a failure to release files, a failure to respond to solicitors instructed by a former client, failure to carry out a client’s instructions and misleading the Office for the Supervision of Solicitors.  Imran’s appeal against these findings failed.  
37.	Within a fortnight of the original finding against him, on 25 April 2001, the annual accountants report for the period November 1999 to October 2000 were signed off by Imran.  This report showed that Imran and Saira were the only people within the firm with control over client’s money.  Thus in the period immediately before investigation in the summer of 2001, both Imran and Saira had made renewed acknowledgement, formally signed off by Imran, of their responsibility for the flows of money through the firm.  In the case of Imran, he had just had a forceful reminder of the need to attend to his professional duties and responsibilities.  
38.	On 8 November 2001, on a separate complaint, Imran was severely reprimanded by the Adjudicator of the OSS on a number of complaints which included a failure to supervise Mrs Karim and a failure to provide a sufficient and satisfactory explanation to the OSS in regard to these complaints.  Imran was again severely reprimanded.  
39.	On 11 January 2002 the Adjudication Panel considered the forensic investigation report arising from the inspection in June/July 2001.  The essence of the report was that there were no books of accounts available for inspection and it was not possible for the Investigation Officer to express an opinion as to whether sufficient client funds were available on the client account to meet the clients’ liabilities.  Imran was referred to the Solicitors Disciplinary Tribunal.
40.	In the course of seeking to protect his personal position and the future of his practising certificate, Imran responded to these complaints in a letter of 17 July 2002.  He there addresses the complaint of April 2001.  It is worth reciting some of what he wrote;
“Mrs S A Karim was conducting this matter.  Whilst I appreciate that I should have supervised her, there were times when she held a practising certificate and in those circumstances I do not feel that this should have any effect upon me personally.  Matters are further compounded because Mrs S A Karim happens to be my mother.  She no longer works with the practice and therefore there is possibility of any such complaints arising in the future.”
In relation to the November complaint he wrote as follows:
“Once again, this was a matter which was being conducted by Mrs S A Karim.  I appreciate that I should have supervised her more closely but that was a matter which was very difficult to implement in the particular circumstances. ……..I have previously commented on this.   Mrs S Akhtar Karim is my mother and it was difficult to supervise her in the circumstances.  As indicated, there were occasions when she did have a practising certificate therefore she was acting as a solicitor in her own rights.  This situation will not arise again as she is no longer working with us.”
It is perfectly clear from the way Imran addressed these matters at the time that he was quite unable to control his mother, that he blamed her for his own disciplinary problems at this period and that he knew that he would not be able to control her in the future.  In addition, his assertion that his mother no longer worked at the firm was, I find, a lie.  There is no evidence that she ever ceased to work in the firm at this period.  When he was subsequently interviewed by solicitors acting for the Law Society after formal Intervention in the firm Imran asserted that his mother was in control of the firm and of its finances throughout.  Saira gave the same picture.  I refer to some of the detail of these accounts later in this judgment.  
41.	In late May 2002, the investigators returned to Karims on behalf of the OSS.  The team was lead by Mr Ireland and they spent several days in the office.  In his witness statement, Mr Ireland confirms that the initial work that he undertook prior to leaving the office on 24 May indicated there was a significant shortage on the firm’s client bank account.  Mr Ireland and his colleagues had a full discussion with all three Defendants on 24 May.  Reasonably full notes of this discussion are before the Court.  All of the Defendants in various ways acknowledged that there were shortages on the client bank account although said they could not say anything much about them without the full bank statements.  
42.	Both Mrs Karim and Miss Karim are expressly recorded as agreeing they were in breach of the Solicitors Accounting Rules.  I emphasise this acknowledgement, which was given a full year before the intervention of June 2003.  Imran acknowledged that he was responsible for compliance with the Rules, as did his sister.  Both Imran and Saira acknowledged specific failures to keep records up to date.  The latest client records at that stage were entries of 31 October 2001.  Both Imran and Saira acknowledged that they were aware of that situation.  They stated that they knew for the entire period, that the books were not up to date.  These interviews represent confirmation that both Imran and Saira were fully alive to the reality of the situation within Karim Solicitors by April 2002.  They knew that they were responsible for the firm as partners.  They did not themselves conduct conveyancing, whatever may have been said in declarations to the Law Society or correspondence putting forward a picture for regulatory purposes.  They knew their mother was in control and they were not.  They knew that the book keeping and accounting within the firm was shambolic and in persisting breach of the Solicitors Accounts Rules.  They knew there had been significant complaints upheld already as to the conduct of conveyancing matters and as to consequential failures in providing documentation to clients and to the regulatory authorities.  In short, they knew they could not control or supervise their mother.  
43.	With some possible exceptions to which I will return shortly, neither Imran nor Saira acknowledged that their mother had done anything positively wrong, in the sense of misuse of funds or fraud, as opposed to confusion or breach of the rules. But the very best complexion that could be put on their knowledge at this date, a few months only before the inception of the insurance contract, is that they were quite unable to say whether she had or had not done anything wrong.
44.	We have already seen that both Imran and Saira had received direct benefits from the Parache account and, at least in the case of Imran, these benefits had been considerable.  I will shortly turn to carry forward the story of the Parache account how it was misused in the period before the inception of the contract of insurance, however, it is necessary to look at one more regulatory change affecting the firm before I do that.
45.	I have set out above the conditions which had attached Mrs Karim’s practising certificate from an early date. The consideration of the conditions to be attached to her practising certificate became more active during the latter part of 2001, at a period following the second inspection of the firm.  The facts as portrayed by Mrs Karim to the Law Society, and upon which the Law Society made decisions at this period, were misleading.  Shortly, she portrayed herself to them as working less often and in a more junior capacity than was the truth.  However, even on the basis of fact proffered by her, she was in breach of the existing conditions.  On 6 August 2001 the Adjudicator resolved to stand over Mrs Karim’s practising certificate application until she made a further application to the Law Society and dealt with the outstanding queries and and also resolved to reprimand her severely;
“….for her failure to comply with a practising certificate condition that she should attend a legal refresher course since it was first imposed for the practice year 1996/1997.”
46.	I remind myself that that certificate had been in existence for five years without being policed.
47.	The OSS had received no response to this position from Mrs Karim by 21 November 2001.  On that date, the Law Society Adjudicator reconsidered her practising certificate application for 2000/2001 and the breaches of the listed conditions.  The Adjudicator went on to grant Mrs Karim a practising certificate for the practice year 2000/20001 subject to expanded conditions as follows;
“(i) she may act as a solicitor only in employment which has been approved by the Office for the Supervision of Solicitors, in connection with the imposition of that condition;
(ii) she is not an office holder, director and/or shareholder of an incorporated solicitors practice;
(iii) that any employer or respective employer is informed of this condition.
(iv) that she should attend a course approved by the Law Society for the purpose of continuing professional development…..within six months of the date of this letter……”
48.	The Adjudicator’s decision was sent to Mrs Karim on 21 November 2001.  In December, following representations from Mrs Karim, the application for a practising certificate was referred for review.  In a statement from Amanda Farman of the Law Society, it is made clear that the conditions imposed on 20 November would not be effective pending the determination of the review.
49.	It appears the Law Society lost the case note and the review was not carried out, as a result.  Another copy of the case note was submitted to the Review Panel on 21 May 2002. In the course of this review, the Review Panel looked at the two letters of 17 April 2000 and 13 March 2001 written by Imran suggesting that his mother was not working with the firm for most of those years.  The Panel recorded that Mr Karim had informed them his mother was employed as a solicitor between 23 March 1998 and 20 September 1999 and from 23 August 2000 until December 2000.  It would clearly have been difficult for the Panel to decide the truth of Mrs Karim’s professional or employment history with Karims Solicitors.  
50.	In the event, on 21 May 2002, the Review Panel reached a decision and imposed immediate conditions on Mrs Karim’s practising certificate consistent with those imposed in November 2001.  Mrs Karim’s appeal had failed.
51.	The news of this decision reached Mrs Karim on 24 May 2002, the day she attended the meeting with her children, Mr Ireland and his colleagues, touched on above.  The effect of these conditions were that Mrs Karim was told, both by Mr Ireland and by a Mr Simpson of the OSS, that it would be in breach of her practising certificate and those of the Solicitors Act 1974 for her to be in attendance at Karims Solicitors.  They were not a firm where her employment was or would be approved.  This was made abundantly clear to Mrs Karim and Imran, at a meeting on the firm’s premises on 28 May.  She was not entitled to be engaged in any further work on the firm’s behalf.
52.	Mrs Karim’s response to all this is revealing.  She told the Law Society representatives who were present on 28 May that she had asked “Redditch” to remove her name from the Roll of Solicitors.  When she was told this was ineffective and that she could not carry out any further work in relation to the inspection of the firm, she said she could not leave, because she had no transport arranged.  The team suggested that they would have a meeting with Imran the following morning.  He said he was free.  He asked permission for his mother to remain in the premises and it was given as long as she did not answer the telephone or deal in any way with client matters.  Mrs Karim initiated a further conversation in the course of which she asked the team if it was possible to delay any possible intervention in the firm for a week “as they may be able to get someone to take over the practice”.  She also asked if it was possible for her to return to the office on the following day, when it had been arranged there would be a further meeting between the Inspection Team and Imran.  She was told this was not a good idea.  Mrs Karim’s response was to say:
“….she didn’t want me [the inspector] to speak to her son without her being there.”
53.	The team from the OSS finished their inspection on 29 May.  Whatever was said subsequently in correspondence or returns, all the evidence points to Mrs Karim’s continuing involvement in the firm’s affairs and continuing control over the flow of money.  As I have pointed out, Imran was not a signatory to the bank account.  Mr Channon was no longer active in the firm.  Saira was a signatory but did exactly as she was told by her mother.  Although by this stage the firm’s legal business was severely run down, there were some continuing files carrying on from this point.  All the conveyancing or property files were, in practice, those of Mrs Karim.  Any conveyancing activity after this date was in breach of her practising certificate and both her children knew it.  
54.	It is necessary to consider now some of the activity in the Parache account and some conveyancing transactions up to the summer of 2002.  
55.	We have seen previously that by late July 1999, the Parache account had dwindled down to a few thousand pounds.  The account was kept afloat in late 1999 by a loan from an unidentified source on 1 November, in the sum of £20,000.  So far as the records confirm, the drawings on the account continued to be a mixture of cash, office expenses and private expenses.  Far and away the largest outgoing is cash.  The £20,000 credit is all gone by 1 January 2000, despite some potentially legitimate payments into the account in the interim.  On 1 February and then 21 February the ledger records loans to the account in the sums of £14,000, £10,000 and £36,000.  By 27 March the account is in deficit to the sum of £77,346.91.  On the next day, the proceeds of a re-mortgage of the family home, “Courtlands” is paid into the Parache account.  This is in the sum of £346,500.  The money is immediately used to repay the loans to the account made on 1 January and in February.  Nevertheless, even after the repayment of these loans the mortgage advance on 28 March represented a net credit to the account of ¼ million pounds.  
56.	This re-mortgage of the family home was financed by and advance from Future Mortgage Services Limited, which subsequently changed its name to Furness.  The Furness re-mortgage of Courtlands was achieved by forgery on the part of Mrs Karim.  She admitted forging her ex husband’s signature in letters of 27 August 2004 and 23 June 2005, and in a witness statement she made on 6 April 2004.  
57.	On 23 March 2000, the proceeds of sale of a house known as “Valewood” were paid across.  £450,000 of the proceeds were paid into the Karim Solicitors Barclays Client Account.  On 1 April 2000, a “loan” of £450,000 of the proceeds of the Valewood sale were paid into the Parache Account.  On the ledger this was described as “loan to Parache”. Taken together with the proceeds of the illegal re-mortgage of Courtlands, this means that the Parache Account had received very nearly £800,000 within a week.  By 20 July 2000, the Parache Account balance was £3,347.00 meaning that all but a tiny fraction of the Furness re-mortgage money and the proceeds of sale of Valewood had been dissipated.
58.	Part of this was used to redeem a Halifax charge on Courtlands, in the sum of £198,500.  This should have course have been redeemed before the Furness charge was placed on the property.  
59.	On 1 August 2000, the balance of the proceeds of the sale of Valewood in the sum of £30,795.26 was paid into the Parache Account.  By 30 August 2000, the whole of the Valewood proceeds had been dissipated.  A good deal of this spending was, once more, repeated and sometimes large round sums, paid in cash or paid personally to the Defendants.  This deficit position by the end of August was achieved despite transfers of costs and or further loans credited into the Parache Account totalling nearly £150,000, in addition to the Valewood proceeds and the Furness mortgage.  The expenditure through this account was not only chaotic and mixed: it was patently in free-fall.  
60.	Another contact and client of Mrs Karim was a gentleman called Fazil Chakrani.  He was the owner of a property known as 120 Tanners Hill, London SE8.  Mrs Karim organised a re-mortgage of this property from West Oak Holdings Limited in the sum of £288,000.  On 21 October 2000, £150,000 of this was placed into the Parache Account, bringing it into credit.  It is alleged that advance on Tanners Hill was as a result of forgery by Mrs Karim.  
61.	In August 2001 a further advance on the Tanners Hill property from West Oak Holdings Limited in the sum of £64,350 was paid into the Karim Solicitors Allied Irish Bank Client Account.  
62.	At about the same time, in the late summer or early autumn of 2001, Mrs Karim made an application for a further re-mortgage on the family home of Courtlands, on this occasion to Southern Pacific Mortgage Limited.  Various representations or undertakings were paid to solicitors acting for the lenders including, expressly, that this mortgage would be the first legal charge over the property.  The Southern Pacific advance was completed on 23 October 2001 and the sum of £459,721.50 was paid into the Karim Solicitors Allied Irish Bank Client Account and credited to the Parache Account, which by now had been given a different account number.  Much of this money was rapidly moved on in different directions.  £100,000 went straight to a deposit account to the credit of Mrs Karim.  A further £2000 went to “S Karim”. In my judgment, it is likely that this was Saira in this instance, given that her mother had already been in receipt of a much larger sum transferred two days before.  On 31 October 2001, £144,929.39 was paid out of this new Parache Account to clear the debit balance on the old Parache Account.  It is clear that the Southern Pacific mortgage on Courtlands was not the first charge on the property, given the Furness re-mortgage of the year before.  The proceeds of that first re-mortgage had been dissipated and it was not discharged.  
63.	In late October and early November 2001, Mrs Karim was organising the re-mortgage of a property owned by a Mr Kahloon.  The property was known as 7 Valleyfield Road, London SW16.  The advance in this case was £178,835 and here again it is alleged that in breach of an undertaking given as a solicitor, a prior mortgage was not repaid.  In this instance, the authorised signatory on the Certificate of Title, dated 1 November 2001, was that of Saira.  Saira has subsequently denied that she signed this Certificate of Title.  Either therefore she did in fact do so and her denial is untrue, or this is a forgery by her mother.  At any event the previous advance of the property was not discharged.  This re-mortgage was completed on 8 November and £170,000 net received into the Karims Solicitors Allied Irish Bank Client Account.  Ironically, this completion took place on the same day as Imran was reprimanded by the Law Society for failing to supervise his mother.  
64.	On 5 December 2001, there was a partial repayment of the Southern Pacific Mortgage in the sum of £230,000.  Such was the dissipation of monies into the Parache Account, that this partial redemption of the charge took the Parache Account into deficit.  
65.	In the summer of 2002, a third West Oak Holdings advance on the security of Tanners Hill was organised.  This was paid into the Karim Solicitors Allied Irish Account on 18 July.  It is alleged that, despite the instructions to stay away from the office which had been given in stringent terms at the end of May, this transaction was organised by Mrs Karim. I find that to be so. This also alleged to be a fraudulent transaction because based on false representations as to previous charges.  
66.	It is not necessary for me to make detailed findings about the all of the truth of the underlying disputes which have or may give rise to claims against the policy and which pre-dated the inception of the policy.  It is appropriate to say that the pattern of activity outlined and in particular the dissipation of the proceeds of the various advances and re-mortgages summarised must have been remarkable and would have been evident, in my judgment, to both Imran and Saira, if they had troubled to enquire at all.  They may well have known a good deal of what was going on.  If they had troubled to enquire in any detail, and had inspected the ledgers – even those which were available – they would have realised that the picture arising from the disciplinary problems which they and their mother had faced was more than matched by the financial churn revealed by these transactions, in and around the Parache Account.  
67.	There is yet another perspective which should have alerted them to this problem and that is the underlying weakness, and thus lack of profitability, of the practice.  
68.	The Claimants say that Imran and Saira must be taken to know that the firm could not be generating sufficient income to be viable.  There are several sides to this proposition.  During investigations in August 2001, it was discovered that only 27 new matters had been generated within the firm since October 2000.  As at 31 May 2002, there were only 8 client matter balances listed within the firm.  As at 21 June 2002, Mr Ireland noted that there was a shortfall in the Client Account balance of £150,295.60.  Saira all along acknowledged that she was doing little or no legal work: her interests were in the media practice she was attempting to develop.  Imran did no property or conveyancing cases himself, but was attempting to develop a criminal practice.  It seems clear this never took off.  
69.	Apart from a period when Imran had a flat, all three Defendants lived together in Courtlands.  It is also true that all three Defendants worked together in a small open plan office in Clerkenwell.  The Claimants say that Imran and Saira must have known at least in general terms that the practice was not generating sufficient fee income to be viable, never mind support the very large level of drawings which were being made over.  I accept this inference.
70.	It is noteworthy that, when the Karims applied for the Professional Indemnity Insurance in September 2002, the first estimate of the annual fee income for the firm was £133,000.  Once it became clear to the Karims – one imagines to Mrs Karim – that the premium was related to the fee turnover, the revised estimate of annual fee income for the firm put forward by Karims to the Claimants was £33,000.  I am not clear how these two figures were calculated, if they ever were calculated.  What I am clear about is that the first figure would be insufficient to support an office in Clerkenwell, even minimal secretarial support staff and two working solicitors, even for the moment discounting Saira.  That is true of the first figure, never mind the second.
71.	I have summarised sufficiently the evidence bearing on the knowledge of Imran and Saira, as well as Mrs Karim, up to the point when this contract was entered into.  It will be helpful to consider the contract itself, how it arose and its terms.  
72.	The Claimants are the representatives of solicitors’ insurers of last resort.  By 2002, it was policy on behalf of the Law Society that solicitors should seek commercial insurance, but a fall-back position had to be prepared.  The Assigned Risks Pool offered fall-back insurance at premium rates, consciously designed to discount reliance on the Pool.  As Mr Foley emphasised to me in evidence, the premiums were calculated on a swingeing basis, namely 25% of fee income, plus a 5% addition for those who were not prompt payers, plus insurance premium tax, making a total of 31.5% of turnover as the insurance cost.  The Defendants previous policy insurance ran out on 31 August 2002.
73.	On 16 September 2002, there was a telephone call between Eastgate Insurance Services Limited, acting for the pool at that styage, and “Ms Karim”.  A proposal form was sent out to Karim by DX on that day.  The proposal form was filled in on that day save that the firm’s gross fees were not completed but the document was marked “To Follow”.  The proposal form was signed by Imran.  There was confirmation of cover on 18 September.  On 24 September Eastgate wrote a letter prompting the Karims to give an estimate of fees, which followed by telephone on 1 October.   It was then that the figure of £133,000 was given.  On 3 October Eastgate wrote to Imran asking for a cheque for £7,303.67 to cover the two monthly instalments for September and October.  The gross premium for the year was £39,900, plus insurance premium tax at 5% of £1,995. plus administration charge of 4.6% because Karims had asked to pay monthly.  The total premiums thus was £43,822.17p.  
74.	Karims did not pay.  On 12 November they were pressed for payment and on 14 November “Ms Karim” was called and stated that the firms gross fees would be £33,000 not £133,000.  Even on this basis, which led to a reduced total premium of £10,873.17p, Karims asked Eastgate to set up a credit agreement so that the instalments could be made.  This credit agreement failed.  Karims did not pay, as far as the papers reveal to me, until a cheque of 23 February 2003 was sent intended to cover the premiums for September, October and November.  This cheque was made out in the wrong name.  By the end of March, the insurers had still not received a replacement cheque in the correct name.  At the end of April, the whole premium was still owing.  There were no response to the insurers demand letters.  A cheque was finally sent on 1 June 2003 in respect of the full premium.  This was of course within three weeks of Law Society intervention in the firm.  
75.	It may possibly be of significance that 16 September 2002 – the day when Karims applied for insurance – was a Monday.  On 13 September 2002, a letter was written to West Oak Holdings, under Imran’s reference, admitting that the original documentation of charge under which West Oak Holdings had made advances had “gone astray” that “…..we will let you have the replacement document as soon as the same is executed by our clients” and that 
“You will of course, appreciate that three advances were made to our client and the original would not have covered all the transactions to date.  In any event, we wish to advise you that our client will redeem the charge shortly.  Precise details of the preparation of the redemption statement will be provided to you in the early part of next week.”
So far as I can determine from the evidence, Karims would have thought they were uninsured on the afternoon of Friday 13 September 2002.  Is it coincidental that “Ms Karim” telephoned the assigned risks pool on Monday 16th and that Imran Karim signed a proposal form as soon as possible after it arrived?  In my judgment it is probably not coincidental.  The probability is that both Mrs Karim and Imran realised there was a pressing need to obtain insurance cover.  
76.	I will return to the terms of the insurance contract below. However, first I will summarise events between the inception of the policy and the intervention by the Law Society in June 2003.  
77.	I have already touched on the West Oak Holdings Limited mortgage on Courtlands and the difficulties which were beginning to emerge by September 2002.  Mrs Karim has admitted forging her ex-husband’s signature on the charge in relation to West Oak Holdings.  In addition, the Claimants say that Imran was dishonest directly in relation to obtaining money from West Oak on the security of Courtlands.  In particular, their attention centres on the letter of 27 December 2002, which bears his reference and what is alleged to be his signature.  An indication that in this instance Imran was directly involved comes from the fact that the letter begins with the sentence “it was indeed a pleasure to meet with you”.  The letter goes on to recite that there is a proposed sale of Courtlands which was “at arms length”.  Yet there was no such sale.  The letter goes on to offer a second charge on the property to West Oak Holdings when such a second charge could not be offered.
78.	Following the hearing of this case but before delivery of judgment, the Court was sent by Mrs Karim a manuscript fax with a number of attachments.  Two such attachments were letters in more or less identical terms written to Imran and Saira at Courtlands, from Mr Lewis of West Oak Holdings Limited, who had previously provided a witness statement in one of the underlying transaction cases.  He is not one of those who swore an affidavit adopting on oath the contents of his witness statement, and he did not appear before me.  Both these letters are dated 30 August 2006.  The text of the letter to Imran reads, in part, as follows:
“Dear Mr Karim
As you know, because of the losses suffered by this company as a result of your firm Karim Solicitors acting for us in several matters, we have started court actions against your firm as partners, including of course yourself………
Through me, our company was first contacted by another solicitor in your firm (who I understood was a partner) – your mother Mrs S A Karim.  It was Mrs S A Karim with whom we dealt in respect of the matters which have forced us to seek recovery through the actions.  So far as I understand it, up to now our claims in the actions have not alleged that you personally deliberately deceived or defrauded our company I believe you and I have never met.
Yours sincerely
Alan Lewis”
79.	This letter makes it clear that West Oak Holdings were a client of Karims as well as mortgagee of the property.  Mr Lewis makes clear in his witness statement that there had been reasonably extensive dealings between him and Mrs Karim whom he had previously mistakenly called “Saira”.  By the stage of the end of December 2002, he knew that Mrs Karim was called Shamim and was not Saira.  As I have pointed out above, the letter of 27 December bears the reference IK and appears to be signed by Imran.  The Claimants argue strongly that in this instance Imran was directly involved and actually signed this letter.  Yet it is clear that the writer of the letter to Mr Lewis was following up a meeting, and that Mr Lewis says he has never met Imran.
80.	In the end I cannot finally resolve these contradictions with confidence.  Without hearing oral evidence from those involved, I believe it would be wrong to accept this letter in truth came from Imran, in the face of Mr Lewis’s assertion he has never met him.  However, at the very least, the admitted forgery by Mrs Karim would not have been possible if Imran had minded the affairs of his firm to any reasonable level.  
81.	On 3 January 2003, the reported charge of Courtlands in support of the advance of £100,000 was amended to £400,000.  £97,000 came across from West Oak Holdings and was paid into Karims Client Account on 6 January 2003.  In May 2003 two significant payments from Karims to West Oak Holdings were made which left the indebtedness to West Oak at a figure just under £400,000.  Further payments were made in June 2003 from Karims Client Account in a further total of £85,000.  Such payments ceased with the Intervention.  West Oak Holdings sued the firm, proceedings being issued on 2 March 2004 and as I have indicated above, Mrs Karim admitted forgery of her ex-husband’s signature in her witness statement of 2 March 2004.  On 20 January 2005 Mrs Karim approved an admission of the relevant facts and her forgery is relied up by Imran and Saira in their defence to this action dated 21 October 2005, where they plead her consequent lack of an entitlement to an indemnity under the contract of insurance.  
82.	I have outlined above how the Southern Pacific Mortgage Limited advance was made on Courtlands and the fact that on 23 October 2001, £459,721.50 was paid into the Karims Allied Irish Bank Client Account and credited to the new Parache Account.  This was the advance from which Mrs Karim placed £100,000 on deposit account.  £230,000 of this advance was used to repay the Furness Mortgage, in part redemption, on 5 December 2001.  A letter of claim was issued in respect of this advance on 31 October 2003.  In her statement dated 7 November 2003, Mrs Karim admitted the essence of the facts underlying this claim.  In a letter of 27 August 2004, Mrs Karim admitted that the Furness Mortgage was “unauthorised not signed by Mr Karim” – in other words this meant it was a forgery.  In a letter of 22 December 2004, Mrs Karim admitted forgery of the signature on the Southern Pacific charge.  
83.	Both Imran and Saira in their defence deny knowledge of this forgery.  Their case is that they were advised, after the intervention in the firm, that she had signed these documents “on behalf of herself and her former husband hoping he would ratify the transaction”.
84.	On 30 April 2003 £500,000 was paid into the Karims Solicitors Barclays Client Account purportedly on the security of a charge over 120 Tanners Hill, the property of Mr Chakrani.  This advance was from Campden Hill Limited, a company owned substantially by a property developer Mr Inderbir Singh Kathuria.  The facts of this case have been fully analysed in the judgment of Mr Justice Hart handed down on 13 May 2005, in an action taken by Campden Hill Limited against Mr Chakrani, these three Defendants and others.  I need not analyse the facts of this story, other than to say that Mr Justice Hart found the advance was achieved by means of forgery on the part of Mrs Karim.  Paragraph 14 of the judgment deals with the case against the “Karim” defendants.  The Judge there recites that: 
“The case against the Second and Third Defendants [Imran and Saira] is that, as principals in the firm they are also liable.  It is not suggested that they were directly involved in the fraud which, on this hypothesis, their mother committed”.
85.	The Claimants in the action before me quite properly say that the findings of Mr Justice Hart are binding on the Parties to this action.  There are two reasons for this.  Firstly, that the Defendants to the action before me seek to claim against the policy on the basis of the judgment.  Secondly, it is the case that any attempt to seek different findings or conclusions in relation to the Campden Hill, story would represent an attempt at collateral appeal from the judgment in that case and thus an abuse of that process of the court.  In my judgment, both reasons are correct.  Mr Justice Hart’s findings are binding for the purposes of the instant case.  Accordingly for the purposes of this action, the blunt conclusion is that Mrs Karim is to be treated as having carried out another forgery, but neither Saira nor Imran are directly implicated in that forgery or fraud.  
86.	I have set out above the short facts of the Valewood proceeds of sale and no more need be said about that.  In the immediate period before intervention by the Law Society a number of payments were made into the firm’s Client Account in respect of various proposed mortgages or sales of property.  Rather than seek to analyse the individual facts of these I merely make reference to the re-amended Particulars of Claim in the chancery action taken by the Law Society against all three Defendants at paragraphs 9 – 11C inclusive.  In summary, these advances by the Birmingham Midshires Buildng Society and the Northern Rock Plc have been paid over to the firm’s Client Account and allegedly dissipated.  Summary judgment in respect of these claims was granted to the Law Society by Mr Justice Lewison on 5 July 2005.  At the heart of this claim lies the failure to create legal charges over the relevant properties, the failure to pay over the mortgage advance to Mr and Mrs Xavier or Miss Govindan and the dissipation of the monies.  Consistent with the picture elsewhere in this case, the allegation by the Law Society was that “the payments and depletion were caused or procured by Mrs Karim ……in breach of duty and breach of trust” – see the Amended Particulars of Claim, at paragraph 11A.  The Law Society allege that in failing to ensure compliance by Mrs Karim with the Solicitors Accounts Rules, Imran and Saira are in breach of Solicitors Account Rule 6 and are in breach of duty and breach of trust.  Summary judgment must be taken to have been given on the basis of those allegations. 
87.	The Law Society brought in Messrs Orchards, Solicitors, as Agents to conduct investigations in the course of the invention.  Orchards interviewed all three Defendants, but of most interest to me have been the interviews with Imran and Saira.  The role, level of knowledge and extensive dishonest wrongdoing of Mrs Karim is hardly an issue.  In the absence of hearing from Imran and Saira, the best indication of their state of mind is given by these interviews.  A number of significant points emerge.  
88.	It is clear from his interview Imran knew perfectly well that having two partners in a solicitors practice enables the firm to act for both sides, and to attract work by lenders, in conveyancing and mortgage work.  He put it that “two names on the paper” were important for this.  It was on that basis that he became a “paper partner” in a firm known as Fugler and Co. in January 1999.  He acknowledged that he never signed cheques.  He told Orchards that he had never carried out conveyancing.  His memory was that his sister Saira had become a partner the day after she was admitted in 1996.  He told his interviewer that his mother was the “de facto senior partner” in the firm and that she had vast experience.
89.	He said that he left all money matters to his mother and to the accountant and book keeper (by which he meant Mr Channon).  He said that he never looked at the accounts at all.  He acknowledged that he had very valuable cars and luxury watches supplied by the firm – a BMW, 2 Porches and a Ferrari paid for by the firm on hire purchase.  He had also had three Rolex and two Breitling watches, which by the time of the intervention he had pawned.  Imran also acknowledged that, towards the end, there were very few clients of the firm, indicating that he knew well the practice was not sustaining itself.  
90.	In a further interview of July 2004, Imran acknowledged that he would have a cursory glance at the bank statements but he left everything else to his mother and to Mr Channon.  His mother had done the conveyancing work throughout.  Indeed it is remarkable, that in all of Imran’s interviews and those of his sister Saira, neither suggested that was any particular difference from period to period, in the way that the firm’s business was transacted, once their father had retired.  Imran indicated that the American Express cards paid for from the firm’s account were both private and firm’s expenditure.  He was remunerated from petty cash from the firm, both from the office account and from the client account.  He said there were no real limits on his drawings.  He put his “ostensible salary” at £50, 000 - £100,000 per annum, depending upon the work.  He said that his mother was remunerated from her American Express card.  He also told Orchards that “in effect my mum owns the firm”. When he was questioned about the detail of payments out of the firm, he denied all knowledge about the payments.  He was asked about whether he was aware of the shortfall from the firm and acknowledged that he had been made so aware by Nick Ireland.  This reference must be, at the latest, to investigation of the firm in May and June 2002.  He denied that he was suspicious beforehand.
91.	Saira Karim told the investigators that “my brother and mother did most of the stuff”.  She said she was no good with accounts, describing herself as ‘remedial’.  She said that her father left the firm in 1999 and that she became a partner in about 1999.  This contrasts with the date of 1996 given by her brother, which must be too early, but it may be nearer the truth in the sense that in my judgment Saira is likely to have been ‘made a partner’, at least on paper, as soon as she qualified.  She too said that her mother always used to do all of the administrative side of things, making no distinction for period.  She told the investigators that she got money as and when she needed it, from the office account.  She guessed £1,000 a year was the appropriate amount, a guess which in my judgment was so far away from the truth as to be disingenuous.  
92.	Saira said the firm “was a family firm, i.e. the hierarchy”, a remark intended to imply obedience and compliance by her to her mother.  She confirmed that so far from managing the firm, she was so outside the decision making process that she did not know where the firm was going to move to from the Clerkenwell premises, in the move planned for June 2003.  She told Orchards that her mother did not think she was sufficiently intellectually capable to be given responsibility in the firm.  She said that her mother and Dave Johns (the practice name of Mr Channon) did all the banking.  She said that she had no interest in being a legal professional and “did not undertake any normal partner duties”. She confirmed that she did do the paying in of cash and cheques and did withdrawals, usually with two different bank books.  She said that she could pick up money “in lumps as she was instructed”.  She told Orchards that her mother was in complete control of the funds, once again, a remark without limitation in period.  She acknowledged that she was a partner but said she was “lower than a secretary” although she was a partner she had in fact no responsibility for the finances of the firm.
93.	Given the length and complexity of this story, the degree to which this case interlocks with others and the absence of the Defendants from the hearing, albeit at their own choice, as I said earlier, it has seemed to me right to set out fairly full factual findings.  Where do they take us?  
94.	I remind myself that in making findings in relation to allegations of fraud, dishonesty or similar conduct the law requires particular care in approaching the evidence. I remind myself that in claims of deceit, whilst allegations of fraud need only be proved to the civil standard of probability, the Court should in practice require more convincing evidence to establish fraud rather than other types of allegation: see Hornal –v- Neuberger Products Limited (1957) 1QB 247.
95.	The classic statement of the necessary ingredients for a claim in deceit is to be found in the speech of Lord Herschell in Derry –v- Peek (1889) 14 AC 337 at 376:
“First, in order to sustain an order of deceit, there must be proof of fraud and nothing short of that will suffice.  Secondly, fraud is proved when it is shown that a false representation has been made (i)knowingly, (ii)without belief in its truth or (iii)recklessly, careless whether it be true or false.  Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states.  To prevent a false statement from being fraudulent, there must I think, always be an honest belief in its truth.”

96.	The Claimants submit this is not a case that will turn on the meaning of dishonesty or any detailed analysis of it.  They have drawn my attention however, to consideration of the issue in Abou-Ramah v Abacha [2006] EWCA Civ 1492, commenting on Barlow Clowes v Eurotrust International [2006] 1 All ER 333.  At paragraph 59(a) of Abou-Ramah, Arden LJ summarised the relevant part of Barlow Clowes as follows:
“it is unnecessary to show subjective dishonesty, that is, consciousness that the transaction is dishonest.  It is sufficient if the defendant knows of the elements of the transaction which make it dishonest according to normally accepted standards of behaviour.”
97.	With that legal framework in mind, the key findings can be summarised.  Mrs Karim was throughout the dominant force in this firm, at least from the time when her ex-husband disengaged and retired.  The firm was always in fact run by her, and I find that she had full effective control of the finances of the firm and funds of the clients.  Whatever was the position on paper, Imran and Saira were never in a position to control her or supervise her in any meaningful way. They knew that as well as she did.  There were gross and continued breaches of the professional rules for solicitors and of the accounts rules in particular.
98.	  So far as I can determine, the Parache account was a fund which received office money, client’s money, some monies from loans, sales of assets or private funds of Mrs Karim, and the proceeds of advances on properties.  Sometimes those advances were on Courtlands, although obtained by forgery or otherwise by fraud.  Sometimes the advances were on properties belonging to others.  None of that mattered much to Mrs Karim.  All those funds were mixed in this account.
99.	The Parache account paid out indiscriminately, as well as received monies indiscriminately.  Although the pace at which this account paid out varied from time to time, it was used to pay office bills, to ‘keep the firm afloat’, to fund everyone’s casual and not so casual expenditure.  American Express bills, dollops of cash to all three defendants, hire purchase payments and what Imran rather charmingly called his ‘ostensible salary’ were all paid from mixed funds.  Perhaps even more to the point, as time went on this account was receiving funds from one advance on property in order to discharge, or part-discharge, an earlier advance, in an acute spiral of fraud to repay the proceeds of earlier fraud.  It is a firm conclusion that this was all controlled by Mrs Karim, and that she was dishonest throughout in relation to the management of this account and specifically in relation to the transactions leading to claims on this policy.
100.	So far as Imran and Saira are concerned, I am not able to find that they were directly concerned in any single property transaction.  Specifically, I am not able to say that Imran signed the letter to Westgate Holdings of 27 December 2002.  Nor am I able to say that Saira was actually involved in dishonest conduct in the Northern Rock and Stroud and Swindon transactions.  The claimants rely on the fact that Saira’s name appears on the Certificates of Title in those cases.  I do not accept that in this case that is reliable evidence that Saira took any active step in these matters, or indeed that she knew in any real sense what was going on.   Given her mother’s propensity for forgery, it seems to me perfectly possible, on the material before, that Mrs Karim forged any references and/or signatures in this regard as well. As I judge matters, Mrs Karim would not have trusted either Imran or Saira with managing any of these transactions.  She did not think they were up to it.  Although Imran must be regarded on paper as the senior partner, he was not even allowed to sign cheques.  Saira was treated as an office girl.  Although no doubt anxious to minimise her position within the firm, in my judgment the picture she paints of herself in the course of the Orchard and Co interviews is fairly close to the truth.
101.	However, both of them knew that they were not in control.  Both of them knew they were supposed to be in control.  They knew of their obligations, both in general terms and specifically so far as their mother was concerned.  I find they knew perfectly well that she was treating the firm, the firm’s money and clients’ money as her own fiefdom, to do with as she wished.  They also knew they relied on her for money, as and when they needed it – in fact as and when they wanted it.  
102.	They must have known – although neither has admitted this so far as I have been shown it – that the flows of money out of the firm, including to themselves, could not come legitimately from the income of the firm.  There was simply not enough legal business being done.  Saira may well have been farther removed from the detail of this than Imran, since she was clearly not interested in legal practice very much at all.  However, even Saira must have been actually aware that the firm could not be sustaining this level of payout.  I therefore find, in respect of both Saira and Imran, that they must actually have known the firm could not sustain the drawings which were being made, that they actually knew funds had been mixed broadly in the way I have described, that they had divested themselves of any responsibility as to how their firm was run - in full knowledge of their mother’s character and professional history - and that they were profoundly reckless as to how this circle was being squared.  In my view this behaviour was consistently dishonest, whether viewed by the test in Derry v Peek or Barlow-Clowes.  How do those conclusions mesh with the terms of the professional indemnity policy?
103.	The significant provisions of the ‘CONTRACT OF ASSIGNED RISKS POOL INSURANCE 2002/2003 Indemnity Period’ can be summarised or read as follows:
By clause 1 the policy covers civil liability in relation to a claim which is actually claimed or is notified during the period
By clause 4.1 – ‘The Insurer is not entitled to avoid or repudiate this contract on any grounds whatsoever including, without limitation, non-disclosure or misrepresentation, whether fraudulent or not’
By clause 6.9 – ‘The Insurer is not liable to indemnify 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 that Insured, except that-
(a)	this contract nonetheless covers each other insured…’
104.	These claims fall within the definition of civil claims.  Clause 4.1 must be read as being consistent with clause 6.9, and thus a specific fraud or dishonesty leading to a claim against an Insured, means that the Insurer is not liable in respect of that claim.  However, even in respect of that Insured, such dishonesty does not permit the Insurer to avoid or repudiate the contract.  Pausing there, I have found dishonesty – or it has been established by other judgments – in respect of all the relevant claims so far as Mrs Karim is concerned.  I shall therefore make the declarations sought in respect of all the claims as against her.   
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.	The Claimants allege that what they term ‘Transaction Dishonesty’ can be imputed to Imran in relation to the West Oak Holdings transaction on Courtlands, and the Stroud and Swindon and Northern Rock transactions in relation to Saira.  I have already made it clear I cannot make such findings with the correct level of confidence, on the evidence before me.  The Claimants further say that the firm was a sham, by which is really meant that Imran and Saira lent themselves to permitting their mother to run the firm as she wished, under the cover of their being qualified solicitor partners – not just in general terms, but both of them knowing that the firm needed two qualified solicitor partners to enable ‘both sides’ conveyancing to be done, and to attract work from lenders.  I have found that Imran and Saira did that and with that knowledge.  I have also found that to be dishonest.  I have also found that without that attitude on their part, their mother would have been unable to commit the acts and omissions which led to the claims.  However, in my judgment that does not mean Imran and Saira condoned those specific acts or omissions.  It is possible in respect of any of the specific acts or omissions that neither Imran or Saira knew of them.
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 are unaware.  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.
110.	Before I do so, I cannot avoid adding one comment.  I make absolutely no criticism of any official or individual.  However, I believe it to be highly regrettable that this firm, and Mrs Karim in particular, were permitted to carry on as they did for so long.  It might just be profitable for that message to be carried back to those with continuing responsibility for the regulation of solicitors.  But particularly it is a relevant message for anyone hereafter considering the position of innocent losers in this story.