Holder v Law Society

JurisdictionEngland & Wales
JudgeLord Justice Carnwath,Sir Christopher Staughton,Lord Justice Aldous
Judgment Date24 January 2003
Neutral Citation[2003] EWCA Civ 39
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2002/1674
Date24 January 2003

[2003] EWCA Civ 39

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

(MR JUSTICE PETER SMITH)

Royal Courts of Justice

Strand,

London, WC2A 2LL

Before:

Lord Justice Aldous

Lord Justice Carnwath And

Sir Christopher Staughton

Case No: A3/2002/1674

Between
David Herman Holder
Claimant/Respondent
and
The Law Society
Defendant/Appellant

Mr Timothy Dutton QC and Mr Nicholas Peacock (instructed by Wright Son & Pepper) for the Appellant

Mr Philip Engelman and Mr Roger Pezzani (instructed by Teacher Stern & Selby) for the Respondent

( )

Lord Justice Carnwath
1

On Friday 15 th June 2001 the Law Society resolved to intervene in the practice of the claimant under the Solicitors Act 1974. On 26 th June the claimant applied to the High Court for an order directing the Law Society to withdraw the Notice of Intervention. No further steps were taken pursuant to that application, until 2 nd August when The Law Society applied for summary judgment under CPR Part 24. On 30 th August Master Price made an order dismissing the claim. The appeal which was heard by Peter Smith J almost a year later, led to him allowing the appeal on 25 th July 2002 and directing that the claim should go to trial. The Law Society now appeals against that order.

2

In fairness to both the Master and the Judge, I record that, for reasons which have not been satisfactorily explained, the Judge was not given a note of the Master's reasoning, and may therefore have had the impression that it was dealt with more cursorily than was in fact the case. A subsequent note of the judgment, based on solicitors' notes and approved by the Master, has been shown to us, from which it is clear that the matter was fully considered by the Master.

Background

3

I can take the material facts from the Judge's findings. I do not understand them to be significantly in dispute. I record that Mr Engelman (for Mr Holder) said that his client did not admit dishonesty, although he admitted reasonable grounds to suspect dishonesty. I also note Mr Holder's evidence as to the difficult circumstances of his early life, which led to him being admitted as a solicitor relatively late at the age of 37, and to the problems he experienced thereafter in establishing himself. The judge held:

"9. The Claimant is a solicitor who was admitted to the Roll in 1994. In November 1996 he became a partner with a John Baskin and they practised under the style "Baskin & Co.". The practice was not set up as a true partnership. The Claimant described the structure as "sort of individual within the partnership". Despite the appearance of being in partnership, he stated that they had "separate bank accounts and separate overdraft facilities", although the accounts certified to LS were based on the average of their two branches.

10. Under the Solicitors Practice Rules 1990 (Practice Rule 13) it is forbidden for a solicitor to be a sole practitioner unless and until he is more than three years qualified. The Claimant in his evidence is describing an arrangement which appears to be designed to circumvent the Rule by an arrangement which, to the outside world and the LS, would appear as a partnership, whereas he and Mr Baskin were, in reality, operating as individual sole traders.

11. From August 2000 the Claimant practised on his own account.

12. On 8th June 2001 a Mr A S Becconsall an Investigation Compliance Officer of the OSS (the Office of Supervision of Solicitors) began an inspection into the Claimant's books and accounts. That inspection revealed:—

(1) That in breach of rules 32 and 33 of the SAR he had not maintained any Client Account records since 31st March 2000 (14 months); nor could he produce client bank account statements and paying-in books (rule 33). The Claimant admits this. The submission by Mr Dutton Q.C. that the absence of an accounting system of itself puts client funds at risk is well made.

(2) There was an agreed minimum cash shortfall on Client Account at £200,950 comprising £60,000 on the Client Account of SKT Charitable Trust and £140,950 nominally in the Client account of Hilary Simmonds. The Claimant admitted this and that he agreed it with Mr Becconsall at the time of the inspection and in my judgment does not challenge these findings in any credible way.

(3) The Claimant also told Mr Becconsall that he had withdrawn money from Client Account for his own purposes to reduce his liabilities to moneylenders.

(4) The Claimant was substantially in debt to two moneylenders, Jack Steinberg £220,000 and George Rothschild £266,000. He would obtain money from them, which he would put into the office or client account, and he would issue post-dated cheques for the amount of the loan paying 2% per month in cash as interest.

(5) He accepted in statements made to Mr Becconsall his calculation of the Claimant's debts as being £680,000 at least, excluding the Client Accounts shortage of £200,950. The creditors include his professional liability insurers (SIF and St Paul's), VAT, PAYE, Inland Revenue and National Insurance."

4

The judge also made findings on the reasons for Mr Holder's problems:

"13. The reason for his serious financial problems was that he put himself massively in debt to fringe moneylenders. This he admitted both to Mr Becconsall and in his evidence. In his first witness statement he stated that he became unable to continue any longer, or repay them for some months before the intervention. Further, although he did not believe the lenders monies were client funds (first witness statement paragraph 21) he admits that he signed letters on the headed notepaper which were to be used by the lenders in claims on the Law Society Compensation Fund saying that the monies could fall within the definition of "client monies". The Compensation Fund exists primarily to compensate those who have lost their money i.e. client monies at the hands of dishonest solicitors. A letter falsely describing the monies as clients monies when the Claimant did not believe them to be so, is the LS contended serious dishonesty as it could be used to mislead the Compensation Fund to the advantage of both the Claimant and those from whom he had been borrowing money…."

5

He rejected Mr Engelman's attempt to challenge this interpretation of the letter. He thought Mr Holder's state of mind was clear from his own evidence. Mr Holder had said (at paragraph 21 to 22 of his first statement):

"In or about latter part of 2000, I could not continue any longer and was unable to pay the two gentleman referred to. I began to receive various threats, which included reporting me to the Law Society. In those circumstances, and not knowing where to turn, and being let down by everyone, I was forced into signing letters, which the gentlemen thought they could use by claiming the funds loaned from the Compensation Fund…. I realised that the end was inevitable and started to wind down the practice. I became considerably depressed, and it was after I had considerably wound down the practice, in order to protect my clients, that I went to (solicitors) with the view to disclose everything to the Law Society."

He added that there were still some "active client files", and that, if the intervention were set aside, he would have —

"—financial assistance from my local community whom I have considerably assisted in the past to set me up again".

However there was, and is, no substantial evidence to support this hope. We were also told that Mr Holder is currently awaiting trial on charges of theft relating to his dealings in May 2001, but that fact cannot of course affect our view of the matter.

6

Mr Becconsall's findings were set out in a report dated 14 th June 2001 to David Middleton, head of the Investigation Enforcement of the Office for the Supervision of Solicitors (OSS). On the following day (Friday 15th) the Chairman of the Compliance and Supervision Committee of The Law Society, acting under delegated powers, resolved to exercise the powers of intervention under Schedule 1 of the Act, to vest the practice monies in the Society and to require the claimant to deliver practice documents to the Society's agent. The stated grounds were under paragraphs 1(1)(a) and (c). The notice was sent by recorded delivery on the 15 th June and arrived on Monday, 18 th June. Mr Holder first learnt of the intervention on the Friday as a result of a telephone call to Mr Becconsall's office.

7

The Judge, rightly in my view, concluded that apart from issues under the Human Rights Act, to which I shall come, the intervention of the Law Society was entirely justified. He said:

"34. In the light of the above evidence the following appear to be incontrovertible.

1. The Claimant was in serious breach of various of the SAC and had been for many months.

2. He had probably removed a large amount of money from his Client Account. Like Mr Dutton Q.C. I view the letters from the supposed clients attached to his third witness statement with scepticism.

3. He was involved with moneylenders and had substantial debts to them which led him to make a potentially fraudulent misuse of the Solicitors Compensation Fund.

4. The Claimant did not dispute in any credible way any of those allegations.

35. It follows from the above absent a human rights claim, the intervention of the LS was in my judgment entirely justified…"

8

Before turning to those issues, it is necessary to note a comment made by the Judge about what he thought was the apparent lack of urgency in the exercise of the powers. He said:

"36. I should observe however, that whilst the intervention was made under the Chairman's urgent emergency powers as set out above, the actual...

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