Martin J. Halley and The Law Society
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath,Lady Justice Hale,Lord Justice Mummery,LORD JUSTICE CARNWATH |
| Judgment Date | 13 February 2003 |
| Neutral Citation | [2003] EWCA Civ 97 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2002/0399A |
| Date | 13 February 2003 |
[2003] EWCA Civ 97
Lord Justice Mummery
Lady Justice Hale and
Lord Justice Carnwath
Case No: A3/2002/0399A
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR JUSTICE LLOYD)
Mr Romie Tager QC and Mr Justin Kitson (instructed by Downs) for the Appellant
Mr Timothy Dutton QC and Mr Richard Coleman (instructed by Russell-Cooke) for the Respondent
Background
This case follows an intervention by the Law Society, under the Solicitors Act 1974, into the practice of Michael Wilson-Smith ("the solicitor"), as sole practitioner, on the grounds of suspected dishonesty. Mr Halley's claim is for payment of a sum of US$114,000 odd, which was credited to his name in the solicitor's client account. The Society holds such sums, subject to the provisions of the Act, "upon trust for the persons beneficially entitled to them" (1974 Act, Sch 1 para 6(1)). The simple issue, therefore, is whether Mr Halley can make out his claim for an order for payment, as the person so entitled to the $114,000.
The sum allegedly represents commission paid in connection with (in Mr Halley's words) "high yield investments programmes" or (in the Society's words) "bank instrument frauds". Although the amount involved in this case is relatively small, from the Society's point of view it represents the tip of a large iceberg. Evidence obtained in the intervention showed $16m having been received into this solicitor's client account, under arrangements apparently similar to those in issue in this case; and there are other cases involving comparable amounts. More generally, the Society, like other regulators here and internationally, has expressed concern at the proliferation of similar schemes in recent years. The concern for the Society arises, both from the use of solicitors to give apparent respectability to such schemes, and also from their own responsibility for sorting out the mess following an intervention, and for dealing with claims for compensation from the victims.
The judge found that the sum in this case was derived from fraud, in that the bank instruments for which the commission was paid were worthless, as Mr Halley and his colleagues were aware (para 113–4). However, he decided that this fraud by itself was not enough to defeat Mr Halley's claim (para 125). Instead, he decided in favour of the Society on narrower technical grounds. Mr Halley appeals against the judge's decision on those grounds; the Society cross-appeals against the rejection of its case based on fraud.
The judge's findings
The facts are complex, and have been set out in admirable and meticulous detail by the judge (notwithstanding the considerable difficulties which had attended the preparation for the case). Since much of the detail is unlikely to be of interest to anyone not directly involved in the case, and is unnecessary for the determination of the issues in the appeal, I propose only to summarise the main points.
The two key players in the judge's account were Mr Halley, the claimant, and Mr Gibbins. Mr Halley described himself as a "corporate funding broker". He used the trading name, Benington Securities, first from about 1984 in connection with business as a mortgage broker, and later in connection with other forms of financial business. Mr Gibbins described himself as "a property developer and venture capital and finance broker". Since 1991 he had worked on his own account, but he operated through various companies. For the purposes of the present transactions he used a BVI company called Tidal Services Inc ("Tidal") set up in 1997. His precise relationship to Tidal was not wholly clear, as the judge noted:
"He said he was not a director or shareholder of, or financially interested in, this company, and that he is not the only broker who uses it. He claimed to be a self-employed representative of Tidal. In relation to his transactions which involve Tidal he said he paid a fee to Tidal and that it acts in accordance with his instructions. It is not necessary for me to decide whether the reality is that Tidal acted as an agent for Mr Gibbins rather than the other way round." (para 11)
Mr Halley and Mr Gibbins met in 1989, and from 1993 they started an informal working relationship. By the time of the present transactions they had developed both a close friendship and a close business collaboration, involving a high degree of mutual confidence. Mr Wilson-Smith was introduced to Mr Gibbins in about 1996, and from that time was involved in the preparation of agreements connected with the business activities of Mr Gibbins.
The story leading to the present transactions, as described by the judge, began in about 1996:
"In the mid 1990's Mr Halley was learning from Mr Gibbins about the sort of business that the latter was, or professed to be, able to undertake, through his contacts with people holding large sums of money available for an investment project of one kind or another… Just as Mr Gibbins acted, in essence, as a broker looking for opportunities for these funders, so Mr Halley would do the same, finding people through his contacts to introduce to Mr Gibbins and thereby to a funder. Because of his state of health, Mr Halley was not able to do anything effective in this respect until 1996…." (para 17)
There was an informal arrangement for the sharing of net fees from completed transactions on an equal basis between the two.
Mr Halley sought business by various means. He placed an advertisement in the Wall Street Journal, which apparently generated many inquiries and useful publicity; he wrote a letter to a number of holders of large US dollar deposits, which was less successful, and attracted the attention of the Securities and Investments Board; and he launched a website. He also prepared an Introductory Document Set for prospective clients, which described the history of Benington Securities (in terms regarded by the judge as "highly misleading") and included draft transaction documents, substantially in the form of those used in this case.
The money in issue in this case is said to represent part of Mr Halley's share of fees on four transactions, all of a similar nature, which are referred to in the judgment as the "Wagner", "Abacus", "Young" and "Toro" transactions. The first involved no more than the introduction by Mr Halley in mid 1998 of a client-broker, a Mr John Wagner, for which Mr Halley's fee was $25,000. Although Mr Halley was not further involved in setting up the transaction, and little evidence of its substance was available to the judge, he inferred that it was "similar in essence" to the other three contracts.
The Abacus transaction, concluded in August 1998, was the first in which Mr Halley played an active role. It resulted from his contact with a Mr Arthur Agustin, of Abacus International Financial Network. However, the solicitor involved in this transaction was not Mr Wilson-Smith. Its only relevance appears to be that Mr Halley's payment for the Young contract may have reflected in part a sum due in respect of the Abacus contract (judgment para 52). In so far as it matters, it appears to have followed the same form as the two later transactions, and raises no separate issues.
The main emphasis of the evidence and argument at the hearing and before us has been on the other two contracts, concluded respectively in September and December 1998. They followed Mr Halley's contact with a Mr Walter Combs, who introduced two clients, Mr J W Young and M Toro Ltd, a Bahamian company, who became parties to the transactions. Mr Charles Moro, who with his son Richard was one of the "individuals behind" M Toro Ltd, gave evidence, with the agreement of both parties, at the beginning of the hearing. The judge commented:
"Though highly unusual, this course in the event proved valuable, as well as convenient for Mr Moro, since it enabled the evidence called on behalf to Mr Halley to be considered in the light of the real experience of Mr Moro as a disappointed investor."
Mr Halley's fees in relation to the Young and Toro contracts were $143,750 and $154,000 respectively.
The treatment of these fees in Mr Wilson-Smith's client account shows how the sum claimed is arrived at. The first credit was the $143,750 (on the Young contract) on 16 September 1998. On 27 October $7,500 was transferred to Mr Gibbins' account and $36,000 paid out at Mr Halley's order, with some bank and agent's charges being incurred and debited. The $154,000 (on the Toro contract) was credited on 20 November, and the $25,000 (on the Wagner contract) on 25 November. On 11 January 1999 $164,952.98 was transferred to the credit of Mr Gibbins by way of loan. The balance left was $114,209.72, which, with interest, is claimed by Mr Halley in these proceedings.
The nature of the transactions
The judge gave a detailed description of documents and dealings involved in the Toro transaction, on which he had the most complete evidence. His summary of the terms of the Principal Agreement and the Escrow Agreement is included as an appendix to this judgment.
A convenient description of the main features of such transactions (although with differing interest rates) is found in Mr Halley's witness statement, where he describes "the procedure and general principles of the transactions to which (he) introduced applicants to Gibbins", and for which "a standard form of agreement has evolved over the years":-
"31. In respect of the facilities that I offer there is a fixed set of ground...
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