The Law Society v Rajesh Singh Pathania
| Jurisdiction | England & Wales |
| Judge | John Martin,Mr John Martin |
| Judgment Date | 10 October 2017 |
| Neutral Citation | [2017] EWHC 2496 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: HC14C02586 |
| Date | 10 October 2017 |
[2017] EWHC 2496 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building
Fetter Lane
London EC4A 1NL
Mr John Martin QC sitting as a Deputy Judge of the High Court
Claim No: HC14C02586
James Ramsden QC (instructed by Devonshires) for the Claimant
Alexander Hill-Smith (directly instructed) for the Defendant
Hearing dates: 20, 21, 22, 24 March 2017
Pursuant to CPR PD 39A Para 6.1, I direct that no official shorthand note shall be taken of the judgment and that copies of this version as handed down may be treated as authentic.
John Martin QC
Mr John Martin QC:
These proceedings raise an interesting question about the scope of the statutory trust imposed by section 35 and Schedule 1, paragraph 6, of the Solicitors Act 1974 ("the 1974 Act"). That trust arises where the Law Society ("the Society") has intervened in the practice of a solicitor.
The defendant, Rajesh Singh Pathania ("Mr Pathania"), was formerly the sole principal of Newland Solicitors ("Newlands"), a firm of solicitors practising from 25 New Road, London E1 1HE. On 1 June 2009 the Society, acting by the Solicitors Regulation Authority, intervened in the practice of Newlands under section 35 of the 1974 Act, having on 28 May 2009 resolved that it had reason to suspect dishonesty on the part of Mr Pathania and that the monies referred to in paragraph 6 (2) (c) of Schedule 1 to the 1974 Act and the right to recover or receive them should vest in the Society.
Paragraph 6 (3) of Schedule 1 requires the Society to serve on the solicitor or his firm and on any other person having possession of sums of money to which the paragraph applies a certified copy of the resolution and a notice prohibiting the payment out of any such sums of money. There was a dispute as to whether or not this had been done, Mr Pathania saying that he was in India at the time and had not received any such copy or notice. In the course of the hearing, the Society produced a copy of a letter dated 29 May 2009 addressed to Mr Pathania at Newlands' offices notifying him of its exercise of its power to intervene on the ground of suspected dishonesty and enclosing a certified copy of the resolution. Section 84 of the 1974 Act provides among other things that any notice required by the 1974 Act to be served on any person may be served by sending it by post to his proper address. It is also provides that any such notice may be served on a practising solicitor by sending it in a registered letter addressed to him at any place specified as his place of business in his latest application for a practising certificate; but that latter provision is expressly stated to be without prejudice to any other method of service. It is not clear whether the letter dated 29 May 2009 was sent by registered post or not; but I am satisfied that it was in any event sent by post to Mr Pathania's proper address and was properly served in accordance with section 84 (2) of the 1974 Act.
Following the Society's intervention, Mr Pathania was made bankrupt on 29 June 2010 and was struck off the Roll of Solicitors on 4 February 2011. He was discharged from bankruptcy on 28 June 2011, and subsequently took assignments from his trustee in bankruptcy of the right to sue for various loans that he had made prior to the intervention. The Society found out about this when Mr Pathania tried to make a claim against the SRA Compensation Fund in respect of one of the loans. The Society has been added as a party to the proceedings relating to that loan, brought by Mr Pathania against Thavasar Iqbal Sharif in the Mayor's & City of London Court; and by order of that court dated 21 July 2014 the proceedings were transferred to this division and directed to be heard at the same time as these proceedings.
The Society's case is that the loans made by Mr Pathania were made with monies improperly taken from the Newlands' client account and on intervention vested in the Society, to be held subject to the statutory trust arising on intervention. Mr Pathania's case is that the loans were made out of his own money and never became subject to the statutory trust.
There are now 18 such loans in issue (although the Society initially pleaded 37). For reasons given later in this judgment, I find that some of those loans were made by Mr Pathania (a) prior to the intervention and (b) using monies initially derived from Newlands' client account, although to some extent those monies were subsequently repaid by Mr Pathania. On that basis, what Mr Pathania held at the date of the intervention was a number of choses in action, consisting of the right to receive the repayment of the loan monies in accordance with the terms of the loans.
The relevant statutory provisions are as follows. Section 35 of the 1974 Act, which is headed "Intervention in solicitor's practice", provides that "The powers conferred by Part II of Schedule 1 shall be exercisable in the circumstances specified in Part I of that Schedule". Paragraph 1 of Part I of the Schedule states that the Society may intervene where it has reason to suspect dishonesty on the part of a solicitor, an employee of a solicitor, or the personal representatives of a deceased solicitor, in connection with the solicitor's practice or in connection with certain other matters (subparagraphs 1 (a) and (aa)). The same paragraph describes a wide variety of other circumstances in which the Society may intervene, including undue delay by the personal representatives of a deceased solicitor, the failure of a solicitor to comply with rules, the bankruptcy of a solicitor, the committal of a solicitor to prison, the incapacity of a solicitor, the striking-off or suspension from practice of a solicitor, and the failure by a solicitor to hold or comply with the conditions of a practising certificate. The Society may also intervene where it is satisfied that it is necessary to do so to protect the interests of clients of the solicitor or of his firm or the beneficiaries of any trust of which the solicitor is or was a trustee, or (by paragraph 3) where there has been undue delay in connection with any matter in which the solicitor is or was acting.
The powers exercisable on intervention are set out in Part II of Schedule I. They relate to money (paragraphs 5 to 8) and documents (paragraph 9). Only the powers relating to money contained in paragraph 6 are relevant. So far as material, they are as follows.
"(1) … if the Society passes 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 Society'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 and to rules under paragraph 6B 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 former practice …."
It is also relevant to mention paragraph 6A, which applies to any right to recover or receive debts due to the solicitor or his firm in connection with his practice, and provides that if the Society passes a resolution to the effect that such rights shall vest in it, those rights shall vest accordingly.
In order to consider their proper scope, it is convenient to combine subparagraphs (1) and (2) of paragraph 6 into the following single statement of their effect:
"Upon the passing by the Society of a resolution to that effect, all sums of money held by or on behalf of the solicitor or his firm in connection with his practice or former practice, and the right to recover or receive them, shall vest in the Society (whether they were received by the person holding them before or after the Society's resolution) and shall be held on the statutory trust".
In those circumstances, there are issues (1) as to whether the loans were at the date of the intervention or subsequently "sums of money" held (a) by or (b) on behalf of Mr Pathania; (2) whether the fact that they were made initially out of client account means that they were at the date of intervention or subsequently held in connection with Newlands' practice; and (3) whether the right to recover or receive those loans vested in the Society on intervention or subsequently, or remained throughout with Mr Pathania.
In formulating those issues, I have taken the relevant period as the date of intervention and subsequently. This was the view taken by Lightman J in Dooley v The Law Society (unreported, 23 November 2001, HC 0102366), a case which addressed the question of the respective rights of the Society and a solicitor in relation to fees received after intervention and in relation to fees receivable but unpaid at the date of intervention. One of the issues that fell for decision was at what time money must be held for paragraph 6 (1) to apply, the solicitor contending that the relevant time was the date of the resolution and that consequently there was no vesting in the Society of sums received after the date of the resolution. Lightman J said this (at [8]):
"In my judgment the relevant time is the date of the resolution and the full period thereafter whilst the resolution remains in force. This is so for two reasons. The first is the words in paragraph 6(1) requiring vesting in the Society of sums: "whether they were received by the person holding them before or after the Council's resolution". This is plainly the intent behind the use of these words and [counsel for the...
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