Neumans LLP v The Solicitors Regulation Authority

This is an appeal by Neumans LLP from an order of Newey J dated 25^th September 2017. The judge dismissed the appellant’s application made under the Solicitors Act 1974 (“the 1974 Act”) for the intervention into its legal practice to be withdrawn and ordered the appellant to pay the respondent’s costs. The principal issue on this appeal is whether and, if so, to what extent the common law principles of procedural fairness (historically referred to as the rules of natural justice) are incorporated into the procedure for intervention into a solicitor’s practice. This is the first time that this question has been considered by the Court of Appeal since the 1974 Act was amended to allow a solicitor’s practice to be conducted through the medium of an LLP. The appellant contends that the procedure followed in this case did not sufficiently respect the common law requirements for procedural fairness or alternatively that the judge was in any event wrong to hold that the intervention was both rational and proportionate in all the circumstances.

The appellant law firm was established in 2006 with three members, Ms Sarwa Sabir, Mrs Chitra Selby and Mr Nabeel Sheikh. The firm has its main office in London and employed thirty-six fee earners and seven support staff. At its inception it was known as Sabir Selby LLP. Ms Sabir joined the firm soon after being admitted to the Roll of Solicitors in 2005. She married Mr Sheikh on 5^th January 2006. Between March 2007 and December 2015 Ms Sabir was away from Neumans on maternity leave and took no part in the operation or management of the firm. Mr Sheikh managed the practice during this period. On 31^st March 2008 Ms Selby also left the firm, leaving Ms Sabir and Mr Sheikh as equal equity partners. It was at this point that the firm was renamed Neumans. Ms Sabir returned to work at the firm on a part-time basis in December 2015. In 2016 she became the managing partner of the firm on a full-time basis.

Ms Sabir was assisted in her role as managing partner by a full-time practice manager, IT manager and head of accounts. This was the central management team of Neumans. In addition to this there were six department heads, one of whom was Mr Sheikh. He was also the compliance officer for legal practice (COLP) and the compliance officer for finance and administration (COFA). He maintained these positions until his resignation on 21^st June 2017.

The 1974 Act was amended by the Administration of Justice Act 1985 (“the 1985 Act”) so as to enable the Law Society to permit a solicitor’s practice to be conducted through what are described in s.9 as recognised bodies. The regulation of such bodies is carried out through rules made by the Law Society under s.9(1). Section 9(2)(f) also provides for rules made under any provision of the 1974 Act to have effect in relation to recognised bodies with such additions or modifications as are necessary. The power includes the making of amended rules to encompass the conduct of managers and employees of the firm and for the appointment of a person or persons to monitor compliance.

In relation to the Law Society’s power to intervene in the practice of a solicitor, paragraph 32 of Schedule 2 to the 1985 Act provides as follows:

Paragraph 35 of Schedule 2 also states:

The Law Society therefore has in relation to a recognised body all the powers of intervention conferred on it by Part II of Schedule 1 to the 1974 Act but the recognised body has the right (like any solicitor) to apply to the High Court for an order directing the Law Society to withdraw its notice of intervention: see the 1974 Act, Schedule 1, Part II, paragraph 6(4).

The intervention into Neumans arose from dealings between Mr Sheikh and a Mr Hitendra Patel. In January 2006 Mr Patel retained Neumans to assist in his defence in criminal proceedings concerning the unlawful marketing of a medicinal product. He was convicted in November 2007 but later appealed and had his convictions quashed in November 2009. On 20 January 2010 the Court of Appeal made an order permitting him to recover his costs from central funds. The costs agreements made between Mr Patel and Neumans are complicated. Originally it was agreed that Neumans would charge for their services at rates of between £150 and £350 per hour plus VAT. But in January 2007 there was an agreement that Neumans could charge higher hourly rates against an estimate that the total costs for the trial were likely to be in the region of £1.25m plus VAT of which the firm’s own costs would amount to about £900,000 plus VAT. At about this time Neumans also orally agreed with Mr Patel that they would cap their costs at £275,000 plus VAT. On 13 October 2009 Mr Sheikh and Mr Patel entered into and executed a deed of variation which removed this cap. The deed stated that the oral capping agreement was not binding and had not therefore varied the original retainer. The revised retainer was not referred to. The deed then proposed higher hourly rates and provided that these higher rates would be applied retrospectively to all work carried out on Mr Patel’s defence. The deed was signed by Mr Sheikh and witnessed by Ms Sabir. The appellant submitted to the Court of Appeal a costs bill of £2,916,396 plus VAT on 27^th June 2011. Substantial documentation was provided to the Court of Appeal but the deed of variation and capping agreement were omitted. The appellant later received, in December 2011, £500,000 out of central funds as an interim payment.

On 28 June 2012 the Court of Appeal asked Master Egan QC, the Registrar of Criminal Appeals, to carry out a formal investigation into various matters relating to Neumans’ bill. He produced a report dated 20^th May 2015 in which he explained why he was satisfied that there was clear evidence of fraud in relation to a number of aspects of the bill and the supporting documentation. The following is a summary of his main conclusions:

The report was sent to Neumans on 21 May 2015. On 19 December 2016 the Court of Appeal conducted a fact-finding hearing to decide whether or not the order of 20 January 2010 should be set aside. At the hearing (see [2016] EWCA Civ 2001) both Neumans and Mr Patel were represented by counsel. The Lord Chancellor had filed a statement of case and evidence in support of his application that the costs order be rescinded but neither Mr Patel nor Neumans filed any evidence in reply and neither opposed the order being set aside. In his judgment Simon LJ said:

Accordingly, the Court of Appeal set aside the costs order in Mr Patel’s favour and ordered that Mr Patel and Neumans were jointly and severally liable to repay the sum of £500,000 by 23 January 2017. At the conclusion of the hearing the Court indicated that it proposed to send the papers in the case to the Director of Public Prosecutions and to the Solicitors Regulation Authority (“SRA”). Mr Patel repaid the £500,000 on 8 January 2017.

On 16 January 2017 Master Egan sent his 2015 report to the SRA. On 21 March 2017 it served on Ms Sabir a notice under s.44B of the 1974 Act requiring her to provide information and documents relating to the matter together with an explanation of her involvement in it. On 7 April 2017 she responded that Mr Sheikh had been in charge of the day-to-day running of Neumans whilst she was on maternity leave and that during this period he had had control of the firm’s finances. It was, she said, “his terrain”.

On 16 April 2017 Neumans then served on the SRA a report which set out to refute point by point the six principal conclusions of Master Egan referred to earlier. As later summarised by Mr John Quentin, the regulatory supervisor appointed to investigate the matter by the SRA, the firm’s response was:

Mr Quentin prepared a report dated 17 May 2017 in which he recommended intervention into the practice of Mr Sheikh, Ms Sabir and Neumans on the basis that there was reason to suspect dishonesty and that there had been breaches of the SRA Rules. The report was sent to Neumans’ solicitors (RadcliffesLeBrasseur) on the same day. This led to correspondence between RadcliffesLeBrasseur and the SRA in the course of which Mr Sheikh offered to step aside from the management of Neumans whilst the SRA investigation continued and in particular to stand down as the COLP and COFA for the firm. These are regulatory functions provided for under rule 8.5 of the SRA Authorisation Rules 2011 and are mandatory for a recognised body such as Neumans. The individuals appointed must be a manager or employee of sufficient seniority; in a position of sufficient responsibility to fulfil the role; and be approved by the SRA to carry out the role which involves taking steps to ensure that the body and its managers and employees comply with obligations imposed on them by the SRA rules. This involves the duty to self-report instances of material non-compliance.

Ms Sabir was represented by Mr Andrew Hopper QC who made separate representations on her behalf. Ms Sabir also provided a witness statement to support her case. Mr Quentin provided his own comments on these representations in a memorandum of 15 June 2017 in which he continued to recommend intervention. The memorandum was sent to RadcliffesLeBrasseur and to Mr Hopper who then made further written representations on their client’s behalf. RadcliffesLeBrasseur informed the SRA that Mr Sheikh had resigned as Neumans’ COLP and COFA and had also given notice under s.4(3) of the Limited Liability Partnerships Act 2000 so as to cease to be a member of the firm with effect from 21 June 2017.

Notwithstanding these changes and the various representations made to the SRA, the Law Society’s Adjudication Panel resolved to intervene in the practice of Neumans and that of Mr Sheikh. They determined that there was “strong evidence” of misconduct by Mr Sheikh designed to enrich both him and Neumans. There was reason to suspect dishonesty on the part of them both and the firm had also failed to comply with many of the relevant SRA rules. But the Adjudication Panel decided not to intervene in the practice of Ms Sabir. They said:

The Adjudication Panel gave the following reasons as to why it was necessary in their view for the Law Society to exercise its power of intervention in relation to the practices of Mr Sheikh and Neumans:

Prior to making its decision the Panel received a request from Ms Sabir to attend in person and to make representations. The request was declined. In [2.1] of its Decision, the Panel said:

Notice of intervention was given to Mr Sheikh and Ms Sabir on 30 June 2017 pursuant to Part II of Schedule 1 to the 1974 Act and the intervention was effected on 3 July 2017. Neumans is now in administration.

On 10 July 2017 Neumans applied for the notice of intervention to be withdrawn. In its claim form (which was supported by a witness statement from Ms Sabir) the firm challenged both the legality and grounds of the intervention process as well as its proportionality. Newey J rejected the submission that the common law requirements of procedural fairness remain operative within the statutory framework governing intervention in a solicitor’s practice. It is not (and cannot be) suggested that the Law Society did not have reason to suspect dishonesty in this case on the part of Mr Sheikh. It was contended by Ms Morris QC for Neumans that this was not enough because the reference in paragraph 32(1)(d) to “dishonesty on the part of any manager” is one to someone who remained a manager at the time when the notice of intervention was given. This would not include Mr Sheikh. Newey J rejected this submission. He held that paragraph 32(1)(d) is wide enough to include someone who was a manager or employee when the relevant conduct took place regardless of whether he remains one. The validity of the notice of intervention given under Part II of Schedule 1 to the 1974 Act could therefore only be challenged if the Law Society was obliged at common law to adopt some other or additional procedure to ensure that the process was fair and failed to do so. Otherwise questions of proportionality are matters to be considered by the Court on a paragraph 6(4) review rather than as in limine questions going to the legality of the intervention process.

Having decided on the basis of the authorities that the rules of natural justice did not apply and that the safeguard for Neumans lay in the firm’s right to apply to have the intervention lifted, the judge then went on to consider whether the intervention should be withdrawn. This enabled him to take into account all the changes made in relation to the management of Neumans including, in particular, Mr Sheikh’s resignation as a member of the firm and the proposals as to who should take on the roles of COLP and COFA.

Notwithstanding these developments the judge decided that the intervention should continue. Neumans now appeal on three grounds:

that they were not observed in the present case; and

that the judge was wrong to hold that the intervention was rational and proportionate. The Law Society had failed (in part due to its failure to give the firm adequate notice of its case and an opportunity to respond) to take all the relevant information into account. Given that Mr Sheikh had left the firm, the protection of the public could have been achieved by a less intensive measure involving the appointment of new managers.

It is not in dispute that the common law imposes a duty of fairness (which may include a duty of prior consultation) in relation to the exercise of a statutory power whose exercise affects individual rights: see Cooper v Wandsworth Board of Works (1863) 14 CB (NS) 180. The content of that duty will differ according to the context and circumstances but, as a general rule, fairness will require the party affected to be given advance notice of the case it has to meet or the reasons for the proposed exercise of the power and an opportunity to respond: see R v Secretary of State for the Home Department, ex p Doody[1994] 1 AC 531 at 560; Al Rawi v Security Service[2011] UKSC 34 at [89]. In Bank Mellat v HM Treasury (No. 2)[2013] UKSC 39 Lord Neuberger of Abbotsbury said:

The question whether the right to be consulted and heard in advance of the exercise of the power is by implication limited or modified often arises when the statute conferring the power also includes some mechanism for the exercise of the power to be challenged or reviewed normally after it has been exercised. In Bank Mellat the Treasury used the power contained in s.62 and Schedule 7 to the Counter-Terrorism Act 2008 to impose financial restrictions which prohibited dealings with Bank Mellat on the ground that the development of nuclear weapons by Iran posed a risk to the national interests of the United Kingdom. Section 63 of the 2008 Act gave any person affected by the decision the right to apply to the High Court to set it aside. The Supreme Court, by a majority, held that the rights conferred by s.63 did not exceed what was already available by way of judicial review and did not exclude the duty of prior consultation which was in the circumstances necessary to achieve fairness.

A significant part of the reasoning in Bank Mellat centred on the fact that the exercise of the power depended on particular factual allegations which could have been the subject of consultation with the bank without causing any difficulty. Neumans take a similar position in the present case. Although Ms Morris acknowledges that there will be cases of suspected dishonesty which involve the misuse of client money and where the need for swift action excludes any possibility of prior consultation, this, she says, was plainly not one of those cases. The conduct complained of took place in 2011 when the bill was submitted to the Court of Appeal. Master Egan did not produce his report until May 2015. The Court of Appeal finally set the costs order aside in December 2016 and reported the matter to the SRA but the investigation (which involved correspondence and other communications with Neumans and its solicitors) lasted until June 2017 and the intervention finally took place in July. There was no immediate danger to clients’ funds and ample time in which to provide Neumans with details of all the matters which the Law Society relied on as justifying intervention and in which to allow Neumans to provide a response. The variety of circumstances in which the power of intervention becomes exercisable is therefore inconsistent, she says, with the exclusion by implication of any duty of prior consultation and there were no particular circumstances in this case to make a process of prior consultation either impossible or impractical. By way of comparison she took us to the procedure under the Medical Act 1983 for dealing with allegations of misconduct against doctors. Where the General Medical Council after investigation decides to refer the complaint to a Medical Practitioners Tribunal (MPT) it must notify the doctor concerned and even if it considers that an interim suspension order should be made the doctor is informed and the matter has to be referred for decision to an Interim Orders Tribunal. These are often cases where the health of patients and their safety are at stake but the right of the doctor to respond to the allegations is not excluded.

In the case of intervention in a solicitor’s practice this is not, however, untrodden ground. In Giles v Law Society (1996) 8 Admin LR 105 the Law Society intervened in a solicitor’s practice on grounds of suspected dishonesty. No particulars of the suspected dishonesty were contained in the notice to intervene or the accompanying letter and the report of the investigating officer on which the intervention was based was not disclosed to the solicitor until later. But the Court of Appeal held that the rules of natural justice had no application to intervention in a case of suspected dishonesty: Nourse LJ (at page 113) said:

Sedley J said:

The reference made in the last part of this extract from the judgment of Sedley J to the position of intervention in the case of a breach of the rules reflects the fact that at that time the Law Society was required under paragraph 1(2) of Schedule 1 to the 1974 Act to give the solicitor prior notice of the grounds of intervention in such cases. The express requirement to give such notice has now been removed from Schedule 1 but, as Newey J observed, it is difficult to see how the removal of the requirement to give notice can be interpreted as an indication that Parliament intended to increase rather than diminish the scope of any common law obligation of prior notice and consultation. Certainly that was the view of Sharp J (as she then was) in Gadd v The Law Society[2012] EWHC 2843 (QB) who said:

In Holder v Law Society[2003] EWCA Civ 39 the Court of Appeal was faced with an argument that the intervention process was also incompatible with the solicitor’s right to peaceful enjoyment of his possessions guaranteed by Article 1 of the First Protocol to the European Convention on Human Rights (“A1P1”). This was also rejected. Carnwath LJ said that the legislation lay within the ambit of the margin of appreciation allowed to Parliament:

Ms Morris submitted that the focus of the Court in Giles was on a no-notice intervention on grounds of suspected dishonesty in which context it is easier to understand why the perceived need to protect the public against the continuation in practice of a dishonest solicitor will often be held to outweigh the disadvantages to him of losing his practice without being given a prior opportunity to defend himself. The seriousness of the consequences of intervention was recognised by the Court in Giles and also in Sheikh v Law Society of England and Wales[2006] EWCA Civ 1577 where Chadwick LJ adopted the language of Sedley J in Giles who described the consequences as drastic and potentially terminal. Ms Morris submits that what the Court did not say in any of these cases was that the rules of fairness or natural justice could never apply to the intervention process particularly where the Law Society did in fact give notice of its intended action to the solicitor and provide some opportunity for a response. In such cases the need for immediate without notice intervention does not exist and the Court is entitled to consider whether the procedure that was followed did adequately safeguard the interests of the solicitor by giving him a proper opportunity of answering the case on which the Law Society relied.

Despite the force of these submissions, I consider that Giles is binding authority on us that the common law rules of procedural fairness are excluded by the statutory machinery in this case and that the solicitor’s rights and interests are adequately protected by being able to challenge the need for an intervention on an application under paragraph 6(4). I think it is clear from the language and terms of the judgments in Giles that the Court of Appeal was not restricting its observations to dishonesty-based interventions of an urgent and serious kind but was looking at the machinery of intervention more generally. It is also, I think, difficult to formulate as a matter of principle some kind of half-way house under which the common law rules are excluded for certain types of case but not for others. If the paragraph 6(4) right of review is effective to remove the need for some prior process of consultation and representation then it must logically do so in all cases. Insofar as reliance on A1P1 and Article 6 add anything to the appellant’s case on procedural unfairness, those issues have also been addressed and determined by this Court in Holder.

The provisions of Schedule 1 of the 1974 Act governing intervention have been adopted wholesale without significant amendment under the 1985 Act and it is not suggested that different treatment is mandated by reason of Neumans being an LLP. In these circumstances, we are, in my view, bound to dismiss the first ground of appeal. Although the Law Society may, as in this case, engage with the solicitor prior to the intervention, any inadequacy in that process is not sufficient in itself to render the intervention unlawful.

It is not therefore strictly necessary for me to deal with the particular complaints about the procedure that was adopted but I am far from persuaded that any real unfairness occurred. Three objections are taken to the fairness of the pre-intervention procedure:

The first of these points seems to me to be highly technical and without merit. It was always the Law Society’s position (as well understood by all concerned) that any intervention in the practice of Neumans would be based on the conduct of Mr Sheikh. It was his management of the firm which was always under scrutiny and the need to intervene in the practice of Neumans fell to be measured by the danger which his participation in the practice of the firm represented. This was why Mr Sheikh resigned from the firm and why Ms Sabir’s opposition to the intervention was based on the measures which she proposed to take for the future management of the firm. There is nothing in the suggestion that Neumans did not have adequate notice of the case against it.

The second and third points are directed to the findings of the Adjudication Panel about Ms Sabir’s ability to run the firm free from Mr Sheikh. I have quoted the relevant findings in [17] above. Ms Sabir and Neumans were provided in April 2017 with details of the findings made by Master Egan and served a detailed response. They and their solicitors received Mr Quentin’s report of 17 May 2017 which recommended intervention and both were able to make representations in response and, in the case of Ms Sabir, to serve a witness statement. Mr Quentin’s comments on these responses were also shown to RadcliffesLeBrasseur and to Mr Hopper who made further written representations in reply. The Adjudication Panel declined to hear Ms Sabir in person but that is no longer relied upon in itself as constituting unfairness.

I am unable to accept that there was any element of procedural unfairness in the Adjudication Panel not providing Neumans with a minded-to letter summarising their proposed course of action and inviting yet a further round of submissions. Neumans and Ms Sabir had notice from Mr Quentin’s report and his rejection of their response to it that the SRA did not consider that the risk to the public had been removed. They were able to and did propose certain measures including Mr Sheikh’s removal from the firm which were included in the submissions made by RadcliffesLeBrasseur and Mr Hopper and the Adjudication Panel considered them before making its decision. I see no reason why the Panel acted unfairly in declining to initiate another period of consultation based upon its rejection of the proposed safeguards as adequate. One of the difficulties was that the proposals lacked detail and were incomplete. But, by the time the decision to intervene was made, the appellant had been given ample opportunity to formulate and present its case on what safeguards would be adequate to ensure the proper functioning of the firm free of Mr Sheikh and it failed to do so. Moreover, even when it made the subsequent application for a review hearing, Neumans had not fully set out what it proposed. Further witness statements were served only shortly before the hearing before Newey J. I do not therefore accept that the Adjudication Panel can be criticised for reaching a decision on the basis of the material as it existed at the time.

That brings me to the third ground of appeal which is whether on the paragraph 6(4) review Newey J was right to hold that the intervention was proportionate and should continue. This of course required him to take into account not only the grounds of intervention but also any relevant proposals for the future conduct of the firm. For this purpose he was able to look at all the material available at the hearing.

The nub of the firm’s challenge is that the proposals put forward for the management of the firm did provide adequate protection for the public and that the judge failed to strike a fair balance between the interests of the firm and its employees and any continuing risk. The judge was clearly conscious of the need to weigh these matters and said that his decision was made more difficult by the fact that Mr Sheikh has resigned. He also considered the various witness statements filed on behalf of Neumans which confirmed that Ms Sahi (a solicitor who joined Neumans as a consultant in 2016) and Mr Brennan (a barrister) were willing to take on the roles of COLP and COFA and would have equal voting rights with Ms Sabir. In addition there was the evidence of Ms Sabir that she was in charge of the firm and would not allow her husband to influence her decision on professional matters.

Newey J concluded that the intervention should continue in essence because he was not satisfied that the practice of Neumans would in fact be able to be kept separate from Mr Sheikh. He set out his reasons as follows:

Ms Morris does not suggest that these findings were not open to the judge and, in my view, they provide a more than sufficient basis for concluding that the decision to intervene was rational and proportionate and should continue. Mr Sheikh clearly ran the firm prior to the intervention and was acknowledged by Ms Sabir to be the “rainmaker” in terms of introducing clients and new work. The proposals for the appointment of a new COLP and COFA were made very late and the candidates are untested. There is very little, if any, indication in the evidence of their respective experience and whether they would be suited to taking on these roles. The doubts as to Ms Sabir’s ability to limit the influence of her husband remain.

In these circumstances, it is not possible to say that the intervention was not proportionate or that the Law Society has acted irrationally in opposing the application to terminate the intervention. They were entitled to exercise a proper degree of caution in the judgment which they made. For the same reason, the judge was right to conclude that on a proper consideration of the proposals put forward by the firm there were no grounds for ordering the withdrawal of the notice of intervention.

I would therefore dismiss the appeal.

I agree.

I agree that this appeal should be dismissed for the reasons given by Patten LJ. I would like to add a few words of my own only in relation to the issues of procedural fairness.

There is, in my view, an air of unreality about this case. Ms Sabir submits that she was not afforded the basic rights of procedural fairness to which the common law would normally entitle her. In fact, as Patten LJ has demonstrated in his judgment, she was given the opportunity to make representations. There was no procedural unfairness on the facts of this case.

For its part the Respondent submits that the law should not impose a duty of procedural fairness in this context, where speed and sometimes secrecy are of the essence in order to protect the public interest. Yet, on the facts of this case, the Respondent did afford the opportunity to make representations before intervention took place. That at least suggests that it is possible, depending on the facts of a particular case, to comply with the normal requirements of procedural fairness and so it may not be necessary to have an absolute rule that those requirements never apply before an intervention can take place. In other contexts public law has not shied away from imposing the duty of procedural fairness as a matter of principle, while recognising that (where appropriate, depending on the facts of the individual case) it may not be possible to comply with that duty in advance of a decision, for example because there is a need for speed or secrecy.

However, in the end, whether the duty to act fairly is to be implied by the common law, to “supply the omission of the legislature”, to use Byles J’s famous phrase, will depend crucially on the particular statutory framework in which the issue arises. In the context of the statutory framework of the 1974 Act, this Court has already held in Giles that the requirements of procedural fairness are satisfied by looking at the entire package, including the opportunity to challenge the intervention on its merits before the High Court. For the reasons given by Patten LJ I agree that the amendments made to the 1974 Act since then have made no material difference to the essential analysis in Giles. I also agree that this Court is bound by its previous decision in Giles.