Nahal v Law Society

MR JUSTICE GIBBS: The appellant, Gurmit Singh Nahal, brings this appeal under section 49(1) of the Solicitors Act 1974 against a decision of the Law Society's Disciplinary Tribunal made on 1st July 2002. The decision was to strike the appellant off the Solicitors' Roll.

The appellant is now 50. He originally qualified as a barrister, but having completed a tenancy could not find a pupillage. He therefore took the necessary extra examinations to enable him to become a solicitor, and was admitted as such in March 1989.

He became an assistant solicitor and then an associate at two different firms. In 1990 he became the partner at the firm Nizar Kanji and Company ("Kanji and Co"). He did advocacy and involved himself in varied litigation work. At that firm conveyancing was dealt with by his senior partner.

On 4th December 1991 the appellant joined the firm VG Jenkins and Company. He became a partner of Vivian Gareth Jenkins, who had hitherto been the sole principal. Mr Jenkins' need for a partner arose regrettably because he faced criminal proceedings for a gold bullion VAT fraud. The appellant says that he knew nothing of this when he joined the firm, and only discovered it a few weeks before Jenkins' ultimate conviction. When told the position, the appellant caused the partnership to be dissolved and continued to practise as GS Nahal and Company.

This history is relevant to the subsequent disciplinary proceedings, for reasons will which become plain. Jenkins fearing, as it happened with good reason, that he would no longer be able to practise as a solicitor introduced an existing client, called de Serville, to the appellant.

De Serville was in the business of property dealing. He conducted this business through four companies of which he was or became a controlling director; the companies being registered at his business address. He was also director of a company known as "Choses", registered at his home address.

It appears that de Serville was recommended by Jenkins to the appellant as a man of integrity, as well as a very good client. Unsurprisingly perhaps in retrospect, in view of the source of the recommendation, it was not well-founded. De Serville was in fact a convicted fraudster and himself a former solicitor who had been struck off the Roll. It is not disputed that the appellant was unaware of this aspect of his history.

When a solicitor, de Serville had acted for a secondary bank known as JFB. This bank figures largely in the events leading to the appellant's disciplinary hearing.

In the course of 1994 the Law Society carried out an inspection of the appellant's practice and found several causes for complaint. These led to two allegations being brought before an earlier Disciplinary Tribunal which took place on 15th February 1996. The allegations were that the appellant had (a) drawn monies out of the client account other than as permitted by Rule 7 of the Solicitors Account Rules 1991 contrary to Rule 8 of the same Rules; (b) being guilty of conduct unbefitting a solicitor in that he had failed to disclose material information to clients.

The complaints were admitted. It is unnecessary to rehearse the subject matter of those complaints in detail, but certain aspects of them need briefly to be summarised: (i) they did not involve dishonesty; (ii) the first of the complaints was regarded as of minor importance, since the breaches of the Rules were promptly remedied. The mismanagement of the appellant's accounts was rectified and no client suffered loss. The penalty was a reprimand; (iii) the second charge was viewed more seriously. It involved property transactions to which de Serville or one of his companies was a party, and in which there had been failure to disclose material information to a client for whom, in relation to those transactions, the appellant acted as a solicitor. The client in each case was the mortgagee of the purchaser. The principal information which the appellant failed to disclose was the source of funds for the deposit on the purchase of the property and for the costs of the transaction. In neither case were the funds provided by the purchaser. The information would have been important because it was suggestive of a type of mortgage fraud prevalent at that time, and to which, as it was later discovered, de Serville was in fact a party; (iv) the Tribunal took a more serious view of this charge and fined the appellant £5,000. It considered suspension, but decided against it because no dishonesty was alleged and the allegations were admitted; (v) finally, on the matter of the earlier Tribunal hearing, it should be noted that the most serious matters which were dealt with at the later hearing, which this court is considering, had already taken place by the time of the earlier hearing. Indeed, they were connected to property transactions similar to those referred to at (iii) above.

The charges preferred and admitted at the later Tribunal were (and here I take the lettering used in the Tribunal's finding) (a) that he had failed to maintain properly written books of account contrary to Rule 11 of the Solicitors Accounts Rules 1991; (b) that he had drawn monies out of the client account otherwise than in accordance with Rule 7 of the Solicitors Account Rules 1991 contrary to Rule 8 of the said rules; (c) that he had failed to pay client funds into client account contrary to Rule 3 of the Solicitors Accounts Rules 1991; (d) that he had acted in breach of Rule 1(e) of the Solicitors Practice Rules 1990; (e) that he had acted improperly in a conflict of interest situation; (f) that he had practised as a solicitor whilst in breach of a condition imposed upon his practising certificate; (g), (h) and (i) were withdrawn; (j) that he had released to a third party a quantity of professional stationery in the knowledge that the said third party would make use of it in property transactions, thereby purporting that the correspondence emanated from the appellant; (k) that he had relied upon an unqualified third party to carry out professional business on behalf of himself and his clients.

The appellant's conduct which gave rise to those charges can be summarised in this way. Allegations (a), (b), (c) and (e) arose out of a report in August 1996, consequent on an inspection by a monitoring investigation unit. Allegation (a) consisted of a failure to show the sum of £708.92 in the books as owing to a client; allegation (b) arose from a cash shortage on his client account of £7,992, in part due to a large overpayment from that account; allegation (c) related to the retention in the appellant's office account of a sum which should have been in the client account, that sum was apparently one and the same as that referred to in allegation (a); allegation (f) was a breach of a condition imposed on the appellant's practising certificate and related to his failure to submit a half yearly accountant's report due at the end of August 1997. This was not submitted until 28th October 1997, after having to be chased up. The report when it came was satisfactory.

Thus far, the infringements, it is fair to say, were not regarded as serious. The mismanagement of accounts was put right and any shortfalls were rectified. However, the allegations at (d) and (e) were regarded as more significant by the Tribunal. Allegation (d) related to a conveyancing transaction which turned out later to be fraudulent. There were features of it which, had they been noted by the appellant, were indicative of fraud. The breach occurred while the appellant was still a partner in Kanji and Company. That firm had undertaken to the mortgagee, TSB Home Loans, to notify any matter which might affect the decision to lend, or which might call for special steps to protect their security.

There were such matters. They included the following. The vendor had bought from a building society for £187,000 and was selling to Kanji and Company's client the same day for £350,000. The amount being paid out of the solicitor's client account was less than the mortgage advance needed to complete the purchase. There was a payment to a third party for introducing the purchaser. The vendor's solicitors had insisted on a last minute increase in the purchase price from £285,000 to £350,000. These and other features of the deal were indicative of mortgage fraud.

The appellant, however, signed a clear report on title to the lenders in relation to the transaction. The mortgage lender suffered heavy losses of the order of £175,000.

The Tribunal accepted that the conveyancing was in fact being conducted by the appellant's former partner who, in his absence from the office, asked the appellant to sign the report. Thus the appellant was not party to any fraud and did not have principal conduct of the transaction. However, as a solicitor he was responsible for the contents of the report which were deficient and in breach of the undertaking.

Allegation (e) was a matter for which the appellant bore sole responsibility. He borrowed the sum of £3,000 from a conveyancing client without insisting that the client receive independent advice. This was in May 1996. It should here be noted that this was the only disciplinary breach which postdated the first Tribunal hearing. The shortfalls in the client account which have I described occurred after the 1994 investigation but before the first Tribunal hearing. However, the more serious allegations, to which I shall now turn, arose out of events which had already occurred by the time of the 1994 investigation. These were allegations (j) and (k).

They involved the fraudster de Serville. It was not sought to be proved that the appellant was a party to the fraudulent scheme which de Serville was undoubtedly operating during the relevant period; that is the period leading up to the previous Tribunal proceedings. What is clear, however, is that the appellant's serious default in his duties as a solicitor enabled the fraud to be perpetrated. De Serville was heavily in debt to JFB, with whom he had had a previous business relationship. They were aware of his previous fraudulent activities and the fact that he had been struck off the Roll. However, they were still prepared apparently to trust and to deal with him. In order to recover his position with JFB, de Serville and an associate devised a scheme known as the "little earner" scheme. Cheap properties were bought at auction, hastily refurbished and sold at a profit. The appellant was asked to act for the eventual purchasers. He was asked to do that by de Serville. His fees were paid by de Serville.

The latter asked the appellant to allow him and/or an associate of his, in effect, to carry out the necessary legal work in connection with the transactions. The appellant permitted him to do so. At one point the appellant supplied de Serville with some of the firm's stationery for that purpose. The funds received as a result of the transactions were paid into and out of the firm's client account at de Serville's direction. In the light of de Serville's indebtedness to JFB, their interests in the proceeds of the sales should have been registered or otherwise protected. In fact, however, the whole or a substantial part of the proceeds were wrongfully diverted to de Serville himself or one of his companies, for example Choses Nominees.

The appellant made these payments at de Serville's direction. He was paid £300 per transaction for his services. It subsequently became clear that de Serville had used the facilities afforded him by the appellant to create forged letters purporting to come from the appellant's firm as a means of covering up his dishonest activities. The precise mechanism of the fraud, for the purposes of this appeal, does not matter.

An associate of de Serville was introduced into the appellant's business to deal with de Serville's transactions. However, no effective supervision was exercised over him by the appellant, thereby allowing free rein for the perpetration of fraud. Eventually JFB discovered the fraud and took bankruptcy proceedings against de Serville, who owed them over £1 million. Civil proceedings by JFB against the appellant resulted in a judgment of £220,000 and costs against him. The court has been told that the whole or a large part of that judgment remains outstanding, but the appellant is determined to pay the debt rather than to be declared bankrupt.

The appellant was not indemnified by the Solicitors Indemnity Fund because of the irregularity in the way that he had dealt with the matter. The fund has however been called upon to indemnify victims of the fraud. Over £600,000 has been paid out to various people and bodies. It is right to say that the principal recipients of indemnity were JFB, but smaller, though still substantial, sums were paid to two other lending institutions, as well as apparently to two private individuals.

The appellant by way of mitigation before the Tribunal relied on the fact that his background had not been in conveyancing; he was not skilled with solicitors accounts; he had been unaware of de Serville's dishonest background and had been taken in by him. He relied on the fact that he and JFB were joint victims of de Serville; JFB with less excuse since they were aware, unlike him, of de Serville's dishonest background. The appellant had admitted his disciplinary offences. He had suffered because of the substantial delay in proceedings. In particular, he had not been able to practise because he had not been able to comply with conditions placed on his practising certificate since the investigation into the serious matters had commenced. Above all, he relied on the fact that he was naive rather than dishonest.

The core of the findings of the Tribunal was as follows:

On behalf of the appellant before us, Mr Bishop submitted that the sanction imposed by the Tribunal was not commensurate with the level or nature of the wrongdoing involved. He submitted that it was disproportionately severe in the light of the finding that the appellant had not been dishonest, and that his wrongdoing flowed from no more than excessive naivety. The Tribunal failed, said Mr Bishop, to pay sufficient regard to the appellant's lack of expertise and experience in the fields of conveyancing and accounting. It failed to give adequate weight to the fact that de Serville was an experienced fraudster to whom JFB, as well as the appellant, fell victim, and failed to give any or adequate weight to the fact that, as the Tribunal found, the appellant had not been complicit in de Serville's fraud.

Additionally, Mr Bishop submitted that no adequate weight was attached to the fact that the Disciplinary Tribunal proceedings in 1996 were, as he called them, a "mirror image" of the matters which give rise to the allegations at present being considered. He drew attention to the fact that the bookkeeping matters were put right by the appellant as soon as they were drawn to his attention and no loss was suffered by clients in relation to those. He submitted that the appellant had been found not to be dishonest at the earlier as well as the later proceedings. He drew the court's attention to the severe effect which delay had had upon the appellant, but informed us that nevertheless the appellant had been using the intervening period to re-educate himself in matters of conveyancing and account keeping. He had suffered because of his failure to practise and because of the disgrace that these proceedings had brought upon him.

Mr Bishop submitted that in all the circumstances the ultimate sanction of striking off was excessive and that a modest period of suspension would have been enough, having regard to the events following the commencement of the investigation.

In approaching this appeal it is necessary to keep in the forefront of the court's considerations the decision of the Court of Appeal in Bolton v Law Society [1994] 1 WLR at page 502 and the leading judgment of the Master of the Rolls, Sir Thomas Bingham (as he then was). At page 518B, he said:

The Master of the Rolls then went on to deal with the appropriate sanctions where dishonesty is proved. At letter D he continues:

Then the Master of the Rolls went on to consider the regrettably harsh consequences which sanctions may have on individual solicitors, but concluded by saying:

The section of Lord Bingham's judgment, parts of which I have cited, is the classic and lucid exposition of the principles which should be applied by Solicitors Disciplinary Tribunals and this court when exercising its appellate jurisdiction from such tribunals. It is right to note that the case was decided before the Human Rights Act 1998 came into force. That Act in no way disturbs or qualifies the principles themselves. However, it may affect the general approach of the court to an appeal of this kind.

The point was considered in an unreported decision of this court on 9th December 2002, Langford v Law Society [2002] EWHC 2802 Admin in which Rose LJ gave the leading judgment. This case was referred to in argument before us but not specifically relied upon by Mr Bishop for the appellant; thus I need not dwell on the case. It is enough to say that, as Rose LJ said at paragraph 14 of his judgment, "a greater flexibility is now appropriate in dealing with these appeals".

For my part, I am happy to adopt the tests cited with approval by Rose LJ from earlier decisions relating to other specialist tribunals:

Applying those tests, the court in my judgment has here, whilst according due respect to the Tribunal's views, to ask itself whether or not the sanction of striking off was appropriate in all the circumstances. An important part of the appellant's case is the acceptance that the appellant was not dishonest. Originally, there was a question raised in this appeal about whether the respondents might even now be alleging dishonesty, and/or whether the Tribunal may have been approaching the case on the basis of dishonesty. Reference was made in particular to the remark in the Tribunal's findings:

It is however clear from the Master of the Rolls' judgment in Bolton that the sanction of striking off may well follow in cases falling short of proven dishonesty. This is so where a solicitor has fallen short of the required standards of integrity, probity and trustworthiness. It was accepted by Mr Bishop that the appellant's conduct here fell into that category or, if not accepted, the contrary was not seriously argued. Nor in my judgment could it be. The question arose: how serious was the appellant's misconduct within that category? In my view, regrettably, it must be described as serious. In connection with the de Serville transactions the appellant effectively abandoned his responsibility as a solicitor to de Serville and his associates. He did so even to the point of allowing the conveyancing work to be carried out by an employee or agent of de Serville, allowing his client account to be used as a vehicle for payments at de Serville's direction, and giving out his firm's letterhead for de Serville's use. Whilst collecting a fixed fee for each transaction, he exercised no effective supervision over that which was being done in the firm's name.

In my view, these are not breaches which can properly be explained by the appellant's relative lack of expertise as a conveyancing solicitor. He was a mature person, with several years experience as a solicitor. He had previously been a member of the Bar, and he was a member of building society panels. There were matters which aggravated the seriousness of what occurred. They include the previous instance of signing a clear report on title without making any significant inquiry into its accuracy; the substantial losses which followed the appellant's default must also be regarded as relevant. It is of course true that no loss was intended by the appellant, and he must be regarded as innocent of the fraud being perpetrated on the earlier occasion by his former partner and on the latter occasion extensively by de Serville. But there can be little doubt that the risk of loss is, or should be, predictable if a solicitor so completely abdicates his responsibility for conveyancing transactions.

The fact that in doing so the appellant was taken in by a clever fraudster, who also duped others is, in my view, of limited assistance to the appellant in the context of this case. His serious misconduct undoubtedly facilitated the fraud. The other disciplinary offences were of course substantially less serious and I need not refer further to them. But they go to support the view that the appellant was sadly a person to whom clients could not safely entrust their legal affairs.

In my judgment, subject to one aspect of the case, to which I shall refer in a moment, no fault can be found in the Tribunal's approach. The remaining aspect of the case arises out of the delay between the disciplinary breaches complained of and the second tribunal hearing and, in particular, out of the question whether and, if so, to what extent, the defendant should at an earlier stage have uncovered the more serious allegations. The answer to this question could lead to consideration of whether, to the extent that delay could have been avoided, the appellant has suffered unduly as a result so as to render the sanction of striking off disproportionately harsh.

There is no doubt that some of de Serville's transactions were under investigation in 1994. Further, it is clear that some or all of such transactions were part of the fraud subsequently uncovered. It follows that the same series of transactions was under investigation during the earlier and the later inquiries. The later inquiries were focused on a different aspect of the transactions, namely the fraud on JFB. Should that fraud have been discovered in the earlier inquiry? The court has been taken to an analysis made in the course of the first investigation by the Chief Investigation Accountant of the Law Society, which sheds some light on this matter. It appears that apart from the irregularities uncovered in their earlier investigation, the only further matter of significance, which would have seemed unusual in these transactions, was the payment of the purchase price to a party other than the vendor. That party, Choses Nominees, was, it seems at the time, a holding company of the vendor company, both businesses being controlled by de Serville. Mr Bishop submits that the defendant had all the material necessary to undercover the fraud earlier than it did.

For my part, however, I am not persuaded on the facts disclosed that the defendant can be criticised for failing to discover it. One reason for this is that the appellant himself apparently did not know of it, having handed over responsibility for all dealings, including those with JFB, to de Serville. Mr Bishop accepts that (as he puts it) the delay cannot be described as contumacious. The fact is that the JFB did not discover the fraud until 1997. It is not suggested that there was undue delay in the complex investigations which followed.

There is no doubt that sadly the years since then have brought hardship to the appellant. We are told, and accept, that because of conditions meanwhile placed on his practising certificate he has in fact not been able to practise since 1997. However, it has not been submitted that those restrictions were unreasonable. This limits, in my view, the extent to which his cessation of practice since then can be prayed in aid now.

After careful consideration of the issue of delay, and the matters associated with it, I do not regard them as of sufficient weight to justify any abatement of the sanction of striking off, given that such a sanction was otherwise correct in principle.

I return, therefore, to the fundamental issue of whether, in all the circumstances, the sanction imposed was appropriate. I recognise the further personal hardship that accompanies it, as described by Mr Bishop, but in the end I can find nothing excessive or disproportionate about the decision to strike off. For my part, I consider it to have been the appropriate penalty.

For those reasons, I will dismiss the appeal.

LORD JUSTICE DYSON: I agree that this appeal should be dismissed for the reasons given by Gibbs J.

Although Mr Nahal was not party to the fraud perpetrated by Mr de Serville, and therefore not guilty of dishonesty, the Tribunal were right to consider this a serious case of conduct unbefitting a solicitor. I do not find it in the least surprising that they "had no difficulty at all in concluding that [he] was not fit to be a solicitor."

Without retaining any control, or the right to supervise, he handed over the conduct of many conveyancing transactions to Mr de Serville, an unqualified person, who was not employed in his firm, and gave him some of his firm's headed stationery, thereby enabling Mr de Serville to pretend that transactions were being conducted by Mr Nahal's firm. By this means, Mr Nahal facilitated a mortgage fraud on a large scale.

The Tribunal characterised Mr Nahal's behaviour as naivety of proportions that were hard to conceive. This seems to me to be an apt description in view of the fact that it is accepted on all hands that he was not dishonest. But at the very least, this was a flagrant case of conduct falling below the required standards of trustworthiness expected of a solicitor. It therefore fell within the category of cases described by Sir Thomas Bingham, MR, in Bolton v Law Society [1994] 1 WLR 512, 518D as being less serious than dishonesty but nevertheless "very serious indeed in a member of a profession whose reputation depends on trust." As the Master of the Rolls said, in such cases a striking off order will not necessarily follow, but it may well do so. The sheer scale of fraudulent transactions that Mr Nahal's conduct facilitated makes this is a particularly serious example of cases falling into this category. To this must be added the fact that Mr Nahal also signed the report on title in the TSB case, to which Gibbs J has referred. In these circumstances, I have no doubt that the penalty imposed was appropriate.

At one stage I was concerned that Mr Nahal might have been treated unfairly, in the sense that it appeared to be arguable that the allegations that formed the basis of the second Tribunal decision could and should have been dealt with in the context of the earlier investigation that culminated in the Tribunal decision of 13th May 1996. In principle, those charged with the task of instituting disciplinary proceedings against solicitors should ensure that the proceedings encompass all allegations of which they are aware. They should also be satisfied that adequate investigations have been carried out so as to eliminate, so far as possible, the need to start subsequent proceedings arising out of facts which ought reasonably to have been discovered in time to be the subject of allegations in the earlier proceedings. It is unfair to expose solicitors to sequential proceedings unnecessarily.

In my judgment, if unfairness of this kind does occur, then that ought to be taken into account in the penalty that is imposed in the later proceedings. No doubt this is something that those who are charged with the responsibility of instituting disciplinary proceedings bear in mind when they decide whether in fact to institute second or subsequent proceedings.

Returning, however, to the facts of the present appeal, I am satisfied that there was no unfairness of the kind that I have described here. It is true that all Mr Nahal's files were handed over in connection with the first investigation. It is also true that it was clear from these files in relation to most, if not all of the conveyancing transactions, that the purchase monies were paid out of the firm's client account to Choses Nominees Ltd ("Choses"), de Serville's holding company, and not to the relevant vendor de Serville company. But it seems that, if asked about this, Mr Nahal would have said that he thought that there was nothing strange about any of this. The vendor companies were all, it seems, wholly owned subsidiaries of Choses. I am satisfied that until James Findlay Bank Ltd made a complaint in June 1997, there was nothing in the material available to the Chief Investigating Accountant to put him on enquiry which would have been likely to lead to the discovery of the facts that were eventually discovered and which formed the basis of the second proceedings.

For these reasons, which are substantially the same as those given by Gibbs J, I too would dismiss this appeal.

MR WILLIAMS: My Lord, I apply for an order of costs on behalf of the Law Society. I appreciate the difficulties that may follow with enforcement and no doubt those instructing me will take them into account. I would ask the court in addition to note in the order to assess costs, I have served add schedule on those instructing my learned friend, the total being £7,264.43 inclusive of VAT and I produce that to your Lordships. That is my application.

MR BISHOP: My Lord, on instructions, we do not object either to the award of costs or to the sum claimed, so it would be open to your Lordships to make a summary order. But we would ask the Law Society to bear in mind the reality of the situation should they decide to enforce the order.

LORD JUSTICE DYSON: Well I have no doubt they will bear that in mind. Very well, we will make an order that the appellant pay the Law Society's costs, which are assessed in the sum claimed of £7,264.43p. Thank you both very much.