Re Ahmed & Company
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 14 March 2006 |
| Neutral Citation | [2006] EWHC 480 (Ch) |
| Docket Number | HC 05 C 00078, HC 05 C 00079, HC 05 C 01763, HC 05 C 01764 |
| Court | Chancery Division |
| Date | 14 March 2006 |
[2006] EWHC 480 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Lawrence Collins
HC 05 C 00078, HC 05 C 00079, HC 05 C 01763, HC 05 C 01764
Mr Timothy Dutton QC, Mr John Nicholls and Miss Abigail Doggett (instructed by Russell-Cooke) appeared for the Law Society in its role as Statutory Trustee
Miss Patricia Robertson (instructed by Field Fisher Waterhouse) appeared for the Law Society in its role as Trustee of the Compensation Fund
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of thisjudgment and that copies of this version as handed down my be treated as authentic.
)
I The Law Society and its powers of intervention
The Law Society is a corporate body which represents the solicitors of England and Wales. The Law Society's regulatory functions under the Solicitors Act 1974 ("the 1974 Act") are exercisable against solicitors regardless of whether or not those solicitors are members of the Law Society, and are exercised by the Law Society as a public body and in the public interest.
Under section 35 of the 1974 Act, the Law Society has power to intervene into solicitors' practices. Every year, there are between 50 and 100 such interventions. The grounds for an intervention are set out in Part I of Schedule 1 to the 1974 Act. Typically, interventions will occur when the Council of the Law Society has reason to suspect dishonesty on the part of the solicitor concerned (or his employees) or where there has been failure by the solicitor to comply with the Solicitors' Accounts Rules 1998. Interventions are also necessary in other circumstances, such as when a solicitor is incapacitated by age or illness, is made bankrupt, is imprisoned, has been struck off or suspended from practice, abandons his practice, is practising uncertificated, has previously been the subject of an intervention on grounds of suspected dishonesty and within 18 months is found practising as a sole solicitor, or when the personal representative of a deceased solicitor practising alone prior to death is guilty of undue delay in connection with the solicitor's practice.
The powers exercisable on intervention are set out in Part II of Schedule 1 to the 1974 Act. By paragraph 5(1) the court may, on the application of the Law Society, order that no payment shall be made without the leave of the court by any person of any money held on behalf of the solicitor or his firm. By paragraph 6:
"(1) … if the Council pass a resolution to the effect that any sums of money to which this paragraph applies, and the right to recover or receive them, shall vest in the Society, all such sums shall vest accordingly (whether they were received by the person holding them before or after the Council's resolution) and shall be held by the Society on trust to exercise in relation to them the powers conferred by this Part of this Schedule and subject thereto upon trust for the persons beneficially entitled to them.
(2) This paragraph applies?
(a) where the powers conferred by this paragraph are exercisable by virtue of paragraph 1, to all sums of money held by or on behalf of the solicitor or his firm in connection with his practice or with any trust of which he is or formerly was a trustee;
(b) where they are exercisable by virtue of paragraph 2, to all sums of money in any client account; and
(c) where they are exercisable by virtue of paragraph 3, to all sums of money held by or on behalf of the solicitor or his firm in connection with the trust or other matter to which the complaint relates."
By paragraph 9, the Law Society may require production of the solicitor's practice documents. The powers to vest monies in the Law Society and to obtain possession of practice documents can be exercised in combination: Sritharan v Law Society [2005] EWCA Civ 476, [2005] 1 WLR 2708, at [46].
If the Law Society takes possession of any sum of money to which paragraph 6 applies, it must pay it into a special account in the name of the Law Society or in the name of a person it has nominated on its behalf or in a client account of a solicitor nominated on its behalf. The monies in the hands of the nominated person or solicitor are held on trust on the same terms as the Law Society holds it on trust, that is (paragraph 7(1))
"on trust to exercise in relation to them the powers conferred by [Part II of Schedule 1] and subject thereto on trust for the persons beneficially entitled to them".
These powers are exercisable notwithstanding any lien on the money or documents concerned or any right to their possession: paragraph 12.
Under paragraph 13, the costs incurred by the Law Society for the purposes of Schedule 1, including the costs of any person exercising the powers in Part II of Schedule 1 on behalf of the Law Society, are to be paid by the solicitor (or his personal representatives, if appropriate) and are recoverable as a debt owing to the Law Society.
By paragraph 16 of Schedule 1: "The Society may do all things which are reasonably necessary for the purpose of facilitating the exercise of its powers under this Schedule." This is an ancillary power which is confined to facilitating the exercise of the express powers conferred by the Schedule: Rose v Dodd [2005] EWCA Civ 957, at [29]; see also Dooley v Law Society, November 27, 2001, unreptd, at [13].
Intervention does not give the Law Society the power to take over the practice and to carry it on or to close it down. The Law Society does not become the administrator of the practice, nor a receiver or manager. The focus of the legislation is on precautionary and preventive powers. The ownership of the assets (apart from practice monies) and the goodwill of the practice remain with the solicitor and can be disposed of notwithstanding the intervention; but the solicitor's practising certificate is automatically suspended under section 15(1A) of the Act where the intervention is on grounds of suspected dishonesty or breach of the Solicitors' Accounts Rules or the solicitor has been committed to prison: Rose v Dodd [2005] EWCA Civ 957 at [24], [27].
The right to recover sums due from former clients to the solicitor remains vested in the solicitor. The solicitor alone can commence and pursue recovery proceedings, and the Law Society has no duty to pursue such proceedings. But any recovery effected by the solicitor would vest automatically in the Law Society subject to the statutory trust: Dooley v. Law Society, supra, at [9], [10].
The Law Society is required to serve on the solicitor or his firm, and on any other person having possession of sums of money to which paragraph 6 applies, a certified copy of the Council's resolution and a notice prohibiting payment out of any such sums of money: paragraph 6(3). A payment out at a time when such payment is prohibited by a notice by a person on whom the notice has been served constitutes an offence: paragraph 6(6).
The intervention process is compliant with Article 1 of the First Protocol to the European Convention on Human Rights, in that, although it does constitute an interference with a solicitor's peaceful enjoyment of his property, the interference is necessary in proper cases in the public interest: Holder v The Law Society [2003] EWCA Civ 39, [2003] 1 WLR 1059.
II The Compensation Fund
The Compensation Fund is established under section 36 of the 1974 Act, funded by annual contributions paid by practising solicitors (Schedule 2, paragraphs 2 and 6(a)), out of which grants may be made by the Law Society for the purpose of relieving loss or hardship caused by dishonesty or failure to account. The Compensation Fund is not a legal entity, and the fund is held and administered by the Law Society.
Such a fund was first established under the Solicitors Act 1941, the purpose being then to relieve or mitigate losses sustained by any person in consequence of dishonesty on the part of a solicitor.
The Council of the Law Society may make a grant out of the Compensation Fund where it is satisfied that:
(1) a person has suffered or is likely to suffer loss in consequence of dishonesty on the part of a solicitor, or of an employee of a solicitor, in connection with the solicitor's practice or purported practice or in connection with any trust of which that solicitor is or formerly was a trustee; or
(2) a person has suffered or is likely to suffer hardship in consequence of failure on the part of a solicitor to account for money which has come into his hands in connection with his practice or purported practice or in connection with any trust of which he is or formerly was a trustee; or
(3) a solicitor has suffered or is likely to suffer loss or hardship by reason of his liability to any of his or his firm's clients in consequence of some act or default of any of his partners or employees in circumstances where but for the liability of that solicitor a grant might have been made out of the Compensation Fund to some other person.
The purpose of the grant must be to relieve the loss or hardship of which the Council was satisfied in order to consider making the grant. It is possible for the Compensation Fund to make a grant under (c) above in the form of a loan: section 36(3). The Council has to give reasons for a refusal of a grant: section 36(7).
The Compensation Fund Rules 1995, together with the guidelines published by the Law Society, give an indication of how the Law...
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