Solicitors Regulation Authority v Jason Roy Monteith Libby
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lindblom,The Honourable Mr Justice Lewis |
| Judgment Date | 03 May 2017 |
| Neutral Citation | [2017] EWHC 973 (Admin) |
| Date | 03 May 2017 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO 4725/2016 |
[2017] EWHC 973 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
DIVISIONAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lindblom
The Honourable Mr Justice Lewis
Case No: CO 4725/2016
Mr Richard Coleman Q.C. (instructed by Russell-Cook LLP) for the Appellant
The Respondent in person.
Hearing date: 16 March 2017
Approved Judgment
INTRODUCTION
This is the judgment of the court. This is an appeal by the Solicitors Regulation Authority ("the Authority") pursuant to section 49 of the Solicitors Act 1974 ("the 1974 Act") against an order of the Solicitors Disciplinary Tribunal ("the Tribunal") dated 26 August 2016. By that order the Tribunal dismissed three allegations of misconduct on the part of the Respondent, Mr Libby, but ordered that he pay 50% of the Authority's costs of bringing the proceedings, fixed at a sum of £46,577.04. The allegations concerned the borrowing of money by the Respondent from an investment company. The Tribunal found that the Respondent had used the money for purposes which were not permitted by the loan agreement but they found that, in doing so, the Respondent had not acted without integrity and had not acted knowingly or recklessly. The Authority does not seek to challenge those findings.
The Authority however, contend that the Tribunal did not address the question of whether the Respondent had failed to show the care and attention expected of a reasonably competent solicitor in dealing with the use of the money and thereby behaved in a way which undermined the trust the public places in a solicitor and in the provision of legal services. The Authority contends that, had the Tribunal properly addressed this issue, they would inevitably have found that the Respondent's careless conduct did undermine the public's trust and confidence in solicitors. The Authority also contend that the Tribunal erred in concluding that the Respondent was not on notice of the serious risk that the investment manager was using the funds fraudulently or in a way that involved serious wrong doing such as exceeding its authority. Finally, the Authority contend that the Tribunal erred in finding that the Respondent had not acted improperly by paying the loan monies received into his firm's office account rather than its client account. The Respondent cross-appealed contending that the Tribunal erred in ordering him to pay 50% of the Authority's costs of bringing the proceedings in circumstances where he had been acquitted and where he had co-operated with the investigation throughout.
THE FACTS
The Axiom Fund
The facts are set out fully in the decision of the Tribunal. The salient facts are as follows. The Respondent is a practising solicitor. In 2011, he set up a company, Drake Legal Limited ("the Firm"). Initially, the Respondent was the only fee earner and worked from his home address. From early 2012, the Respondent was looking for funds to expand his business. He was unable to obtain a loan from his bank. He was introduced to a company called Tangerine Investment Management Ltd. ("Tangerine"). Tangerine was acting on behalf of certain sub funds within a fund known as the Axiom Fund which held funds amounting to over £100 million invested by numerous small investors. The Axiom Fund was divided into several sub-funds, known as segregated portfolios, and Tangerine performed the role of investment manager for two of these sub-funds, namely the Axiom Legal Financing Fund Segregated Portfolio and the Axiom Legal Financing Fund Master Segregated Portfolio.
The Axiom Fund was promoted as a means of providing funding to law firms in the United Kingdom to finance the conduct of cases and some non-litigious work which would return a sufficient profit to repay the loan.
The Initial Discussions
The Respondent submitted a business proposal to Tangerine involving the loan to his Firm of funds. On 23 May 2012, he attended a meeting with a representative of Tangerine to discuss that proposal. He was told at that meeting that Tangerine was an investment manager for the Axiom Fund. On 27 June 2012, a firm of accountants, Baker Tilly, prepared a draft report based on the proposal that the Firm would be provided with £1,800 funding per case. The stated purpose of obtaining a report was to enable the Firm's application for funding to be assessed. It was prepared on the basis that the Firm was seeking funding of £3 million to finance the acquisition of work in progress of approximately 1,600 cases funding by the Axiom Fund at £1,800 per case. Baker Tilly noted that the Firm would appear to be insolvent, with net liabilities of £14,000 and loan liabilities of £40,000 and that of the £1,800 funding per case £1,270 would be needed for payments for making applications leaving £530 per case to fund work in progress. The draft report noted that the proposal loan carried "substantial risks" and, while the projections were themselves within a reasonable range, there was no historic information available to support the assumptions on which the projections were made and the ability to achieve those projections was dependent on the management team, that is the Respondent.
In early July 2012, the Respondent received a call indicating a new funding plan was available involving funding of £3,600 (as opposed to £1,800) per case and that that arrangement would be more suitable for the Firm. Baker Tilly were not asked to review their draft report on the basis of the changed funding model.
The Loan Agreement
The Respondent received a written contract on 30 July 2012 and was required to return it by the next day. On 30 July 2012, the Respondent signed a written document entitled "Funding Agreement for Law Firms in England and Wales" ("the Agreement") pursuant to which the Axiom Legal Financing Master Fund Segregated Portfolio would make available a facility of £3 million to the Firm. The Respondent's covering email of 31 July 2012 returning the signed Agreement stated that:
"the documents are signed with the simple caveat that given the very short timescales between the provision of documents and the requirement to have them returned and signed I have not been able to get full legal advice on the documents. However, the signed documents are provided in good faith with the understanding that any minor amendments can be made to the contracts signed with the agreement of both parties".
The Agreement provided that a facilitation fee was to be deducted from the amount of each loan (the fee was equivalent to 50% of the amount of the monies actually received by the Firm, or 1/3 of the total loan amount). The Agreement contained various terms restricting the use that could be made of the sums provided by the facility. Clause 2.2(a) and (b) of the Agreement, so far as material, provided that the loan could only be used for two purposes, namely:
"(a) The Panel Firm shall apply the proceeds of each Loan paid to the Panel Firm out of the Facility towards payment of the Eligible Legal Expenses in relation to which the loan was requested.
(b) The Panel Firm will apply the designated amount of the proceeds of a Loan to fund the insurance premium relating to the Financial Guarantee Insurance…"
Eligible Legal Expenses were defined as follows:
""Eligible Legal Expenses" means the Legal expenses relating to a Claim which is evidenced by an invoice, in form and substance the same as the form agreed in relation to that Claim prior to the first Utilisation in respect of that Claim".
Legal expenses were in turn defined as:
""Legal Expenses" means any sum payable in respect of Counsel's fees, expert's fees, Court fees, arbitration fees, the Legal Expenses Insurance or referral fees in relation to the Claimant's Claim or its Proceedings, or designated expenses agreed with the Investment Manager in advance in respect of Legal Work. Such expenses may include VAT where applicable, unless the Claimant is registered for VAT in which case the Claimant will be liable to pay the VAT element of such expenses. Such expenses shall not include any costs payable in respect of the Panel Firm's fees or any costs or expenses payable to one or more Opponents or to another party to the Proceedings".
Finally, legal work was defined as:
""Legal Work" means any type of work normally undertaken by a law firm in England and Wales [whether Reserved Work or not] designated by the Investment Manager in its absolute discretion as being a type of work that may be funded under the terms of this Agreement".
Clause 3.2 of the Agreement provided that the Axiom Fund would only be obliged to make the loan if the documents included in Part B of Schedule 1 to the Agreement were provided. Those documents included details of the relevant legal expenses and copies of all related invoices.
Clause 22 of the Agreement provided that the Agreement and certain defined documents constituted the entire agreement and any prior arrangement, agreement, representation or undertaking was superseded and the parties acknowledged that they had not relied upon any such matter.
The Use of Monies
During the period 2 August 2012 to 16 October 2012, the Firm borrowed a total sum of £716,400. Of that, £260,292 was deducted to pay the facilitation fee. The Firm, therefore, received sums of £456,108. The Firm spent only £54,500 of that amount on eligible legal expenses as defined by the Agreement. The remainder was spent on general practice funding to fund the Firm's activities. These include repayments of loans to the Firm, a large sum (£153,382) on general office expenditure, and £10,000 on payment for the draft report prepared by Baker Tilly. In short, therefore, a sum of £401,608 was used by the Respondent for purposes not...
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David Fenton Wingate v The Solicitors Regulation Authority
...Nevertheless the state of a person's knowledge was relevant to determining whether they had acted without integrity. 86 SRA v Libby [2017] EWHC 973 (Admin) was one of the cases arising out of Axiom's improper lending. L borrowed a substantial sum from Axiom pursuant to a funding agreement ......