D v Law Society

LORD JUSTICE ROSE: There is before the court an appeal by D against an order made by the Solicitors' Disciplinary Tribunal on 10 September 2002 with written reasons dated 12 September. The Tribunal found him guilty of conduct unbefitting a solicitor in six respects. At the heart of the allegations against him was said to be his involvement in bank instrument transactions admitted to the be dubious or fraudulent, to which he was introduced by a man called Silver. The Tribunal ordered that he be struck off the Solicitors' Roll.

Eight allegations were made against him by the Office for the Supervision of Solicitors. The Tribunal did not find allegations (iv) and (viii) proved to the necessary standard. D admitted allegation (vi). The Tribunal found proved beyond reasonable doubt the other five allegations and did not accept that allegation (vi) was purely technical. The six allegations established, as the Tribunal found, were these:

The background history is that D was born in 1941. From humble beginnings, he was admitted as a solicitor in 1978 and he established a large and thriving practice on Merseyside, practising on his own account in Kirby and with a second office in Liverpool, in which there was another 10 per cent partner. There were many favourable written testimonials about him before the Tribunal and a Queen's Counsel gave character evidence for him.

Following a report by the Monitoring and Investigation Unit (MIU) of the OSS in June 2000, the Law Society intervened in D's practice because of his suspected dishonesty. D unsuccessfully challenged the intervention in proceedings in the High Court in September 2000 before Neuberger J. Involvement by D was alleged in 19 transactions described as dubious or fraudulent.

On the occasion of an inspection of D's books of account in 1996, Mr Shaw, the inspecting officer, noted that D had become involved in a transaction which appeared to be a prime bank instrument fraud. He drew D's notice to the dubious nature of the transaction and D agreed that the transaction was suspect. The Law Society administered a formal written warning to D. All solicitors had drawn to their specific attention in the Autumn of 1997, (and to that date I shall return in a moment) the general warning issued by the Law Society and known as the yellow card.

Mr Shaw's MIU report on 7 June 2000, before the Tribunal, showed continuing and substantial involvement by D in numerous transactions regarded by Mr Shaw as dubious and as having similar characteristics to those about which he had earlier warned D following the 1996 inspection. The 2000 report also drew attention to an apparent misapplication, which D disputed, of $50,000, which caused the books of account not to be in compliance with the Rules. In the course of the intervention proceedings, it was accepted on behalf of D that the transactions in which he had been involved were redolent of fraud. But D denied dishonesty in those proceedings on the basis that he had no such understanding at the time.

Before the Tribunal, both in his witness statement and in oral evidence, the Tribunal comments, in paragraph 9, that D somewhat qualified his admission before Neuberger J, saying that it had been made at a stressful time, following the intervention into his practice.

The Tribunal sets out at some length the evidence which it heard in the course of a five day hearing between 29 July and 2 August 2002. It will be necessary to refer later to some of that evidence and to the way in which the Tribunal directed itself as to how it should approach its task. For the moment, it is convenient next to summarise the general observations made by the Tribunal in paragraphs 137 to 140 of their findings, and to identify the Tribunal's findings as to the five specific allegations which they found proved.

In paragraph 136 the Tribunal says that they are seeking to apply the principles in Twinsectra Ltd v Yardley [2002] 2 AC 164, to which I shall later return. They go on, in paragraph 137, to quote from the speech of Lord Hoffmann in Twinsectra and say that they have regard to that judgment and approach the matter on the footing that the Tribunal should be satisfied that D:

The Tribunal goes on to rehearse the principal arguments advanced by the Office for the Supervision of Solicitors, that: first, D had involved himself in a number of transactions, which, on their face, bore many of the characteristics of fraudulent or improper transactions; and, secondly, he had specifically been warned that certain transactions were likely to be fraudulent and that certain individuals had a reputation for involvement in transactions believed to be fraudulent. The Tribunal referred to the large number of documents relating to 19 financial transactions with suspicious or unusual characteristics. They go on to say that D:

In a number of cases, D accepted that the transactions were, or probably were, fraudulent, or, in his words, a "scam". But he strongly asserted that, even in those cases, his actions had safeguarded any monies that came into his hands. There was no evidence before the Tribunal that any of the 19 transactions had been carried out in accordance with their terms, so as to generate profits for the investors. The Tribunal then said this:

The Tribunal had received evidence from most, if not all, of those intermediaries, who had no qualifications in the field of investment transactions and no authorisation from or registration by any regulatory body. A number of those intermediaries were ignorant of the transactions they were introducing. Evidence on behalf of D was given by intermediaries who included a retired jeweller, a distributor of audio and lighting products, and a retired gentleman who had fallen on hard times. None professed any knowledge of how the supposed underlying transactions worked. None was in a position to judge the worth of the transactions they were promoting.

It was also a feature of the agreements, said the Tribunal, that monies made available by the investor were very rarely themselves to be used for generating profit, but were more likely, by some obscure process of leverage, to give rise to the generation of millions or even billions of dollars, which were then to be traded in some unspecified way so as to generate a huge profit. The Tribunal said:

The Tribunal's findings in relation to the five proved allegations then followed, and it is necessary to rehearse these in some detail in view of the challenges which have been made to them. As to allegation (i), at paragraph 141, the Tribunal says that the extent of D's involvement in the 19 transactions varied and was the subject of dispute. Five transactions were particularly referred to before the Tribunal, who had to decide if D was involved; if the transactions were dubious or fraudulent; and if D's participation in them was with knowledge. In that respect the Tribunal made the following findings of fact:

It is convenient there, interposing my recital of the Tribunal's findings, to summarise the circumstances of the five specific cases. In 1995 W and Y of the United States had half a million dollars to invest. D acted for them in connection with a scheme promoted by Silver. The transaction did not go through, and their money was returned to them, but they were charged a "fee" of $25,000 by Silver for which payment was made through D's client account, Silver then discharging a debt to D of £5,000. D agreed with Mr Shaw that the transaction was fraudulent and it was this which led to Mr Shaw's warnings in August 1996 and a further warning by Mr Calvert of OSS on 1 November 1996.

In April 1996 Mr and Mrs S, wealthy Americans, had $100,000 to invest. D acted for them. Silver was paid a fee of $7,500 from monies held by D in his client account for Mr and Mrs S.

In April 1997, at Silver's question, D held $3.6 million in his client account for Vanborough, to the order of Tidewater, in circumstances which, as D accepted before Neuberger J, were redolent of bank instrument fraud, though the money without interest was ultimately all returned to Vanborough. There was no documentary evidence that D had reported Vanborough to NCIS.

In August 1997 Mr Song and a Mr Moreno of Global, having been introduced to D by Silver, put $1.8 million in his client account for Contrast, a Silver company, for investment with the Grosvenor Trust. From there it was transferred to Grosvenor's solicitors, Swepstone Walsh. The monies were eventually returned. D again accepted before Neuburger J that the investment documents were redolent of bank instrument fraud.

In acting for Moreno and Silver, D, it was said, had a conflict of interests, which also gave rise to allegation (iii). In late January 1998 Mr Song and Mr Moreno, together with a company called Taipan, put $1.5 million in D's client account for investment at an enormous return. Taipan's $660,000 was to become $5 million within 35 days. From that account it was paid to CITCO Bank in New York and lost. In the meantime, a $50,000 "fee" had been paid to Silver from D's client account from Taipan's contribution without Taipan's authority. This gave rise to allegation (v). There was also, the Tribunal found, a conflict of interest reflected in allegation (iii), in D acting for both Moreno and, in September 1999, a Mr Miller who sought to recover money, which he said Moreno had fraudulently obtained from him.

I return to the findings in paragraph 141 of the Tribunal's decision in relation to the D's involvement.

The Tribunal then made findings as to the dubious and fraudulent nature of the 19 transactions, all of which they found bore the hallmarks of being dubious and fraudulent in the way of bank investment fraud. They bore similar characteristics, including: unregulated intermediaries with no qualifications; concealment of the qualifications or ability of those expected to generate profits; the promise of huge and unrealistic profit; use of documentation which to a lawyer must have seemed incomprehensible and/or obscure; and use of documentation designed, by its terms, to prevent the investor finding out anything. The Tribunal at paragraph 145 expressed no hesitation in finding that none of the 19 transactions would be regarded by an honest and competent solicitor as other than spurious and in all likelihood fraudulent:

As to allegation (ii), the Tribunal found at paragraph 151 that D failed adequately to protect, or at least warn his clients about, investment of funds in the CITCO scheme.

As to allegation (iii) in relation to conflict of interest, at paragraph 152 the Tribunal found:

There then follow, in paragraphs 156 to 159, the Tribunal's findings in relation to conflict, vis-à-vis Moreno, Global, Miller and the CITCO scheme. That aspect of the matter arose because, in the course of his evidence, D said in cross-examination that he believed he could properly act for Mr Miller to recover from Moreno money said to have been obtained by Moreno from Miller by fraud. At paragraph 156 the Tribunal say that D had received monies from Global for investment in the spurious Grosvenor scheme. Together with monies provided by Mr Song, they went to Swepstone Walsh, but later were returned to D's client account. D claimed the Global money had belonged to Moreno or his companies. At paragraph 157 the Tribunal says that D accepted instructions from Miller to recover the Moreno investment in CITCO and he would preserve the funds to help Mr Miller recover them. D said a conflict of interest would only have arisen if any money had been recovered, but as it had not there was no conflict:

As to allegation (v) and the payment of $50,000 dollars to Silver, the Tribunal at paragraph 161 pointed out that there was no contemporaneous evidence to show that Taipan had authorised any part of its investment so to be paid. The Tribunal went on:

The Tribunal referred, in relation to allegation (vi), to D's admitted breach. Then, in relation to allegation (vii), the Tribunal referred back, at paragraph 163, to paragraph 64, which is in these terms:

The Tribunal referred to a number of other transactions or attempted transactions, in paragraphs 115 and 116. They were transactions which mostly did not get beyond a very preliminary stage, but they had a number of common features, namely: the documents were all found in D's offices; the documents were all of a kind that would at once have been recognised as being suspect; Silver was involved in almost all of them; D was involved as a solicitor, or monies were to be paid into his client's account; and, in some cases, D conducted correspondence in relation to those transactions. At paragraph 16:

Finally, so far as the Tribunal's findings are concerned, it is convenient to refer at page 32 of the findings to what they said in relation to the imposition of penalty. They referred to the numerous character references speaking of the high standards of competence and professionalism, honour and integrity of D, and the fact that those references came from a wide spectrum of people. In the light of that, the Tribunal expressed sadness to be driven to the conclusion that:

There was further reference to Lord Nicholl's speech in the Royal Brunei case, and the Tribunal went on to say that D was unable to admit to himself that the transactions in which he was involved were incomprehensible as legitimate commercial transactions:

On behalf of D, Mr Newman QC submits, first, that the Tribunal's finding of dishonesty was so against the weight of evidence that no reasonable Tribunal could have so concluded. He recognises the very high burden on him to establish this, bearing in mind that the Tribunal had the advantage of seeing and hearing the witnesses, (as to which see per Lord Hutton in the Twinsectra case at paragraph 43).

Contrary to the evidence before the Tribunal, it is common ground before us that the yellow card reached D, not in September 1997, but in late January 1998. The yellow card, submits Mr Newman, was crucial to the Tribunal's findings, but the Tribunal, because of the incorrect evidence before it as to the date on which it was received, placed undue reliance on it. Mr Newman stresses that D never caused any loss of investors' funds and was not involved, he submits, in any dealings with spurious schemes after late January 1998. Likewise, he submits, the date of 12 February 1998, to which the Tribunal referred in relation to positive proof of Silver's dishonesty, is a red herring because all the transactions in relation to spurious schemes took place before that date.

The Tribunal, he submits, placed too much reliance on the warnings to D by Mr Chadwick, the bank manager, particularly as the bank continued to deal with Contrast.

The Tribunal's findings that D was recklessly obtuse in continuing to deal with Silver before and after February 1998 and that he wilfully ignored the evidence that Silver was untrustworthy show that the Tribunal applied an incorrect, purely objective test for dishonesty contrary to Ghosh 1982 QB 1053 at 1064D to E, and Twinsectra v Yardley. The correct test for dishonesty involves a subjective element, as Lord Hutton said at page 174, paragraph 36:

Mr Newman next submits that the Tribunal's findings as to conflict of interest were wholly erroneous as a matter of law and unsustainable. There had been no allegation in the Rule 4 statement of any conflict between the interests of Miller and Moreno. The policy behind Professional Conduct Rule 16.02 in relation to confidentiality, which can be overridden where a client commits a crime or fraud, is that a solicitor should not lend himself as an instrument of fraud. Mr Newman referred to R v Central Criminal Court, ex parte Francis [1988] 3 All ER 775. If there was an offence, submits Mr Newman, it was very excusable: D was doing the best he could in the circumstances.

Mr Newman's third submission is that the Tribunal's finding that the transactions involving Taipan, Moreno and Song were carried out without proper regard for warnings given in relation to money laundering was entirely against the weight of evidence: money laundering had never been alleged; D did more than was required of him by reporting everything to NCIS, for which reporting he was blamed by another solicitor; and he had the best anti-laundering safeguards in the North West. Mr Bayley of Vanborough was totally satisfied with D's handling of his funds.

Mr Newman next submits that the Tribunal's findings at paragraph 161 about the payment of $50,000 to Silver were wholly against the weight of evidence: Taipan was not D's client and the money was transferred on the instructions of Contrast, which was the client; true, Mr Shaw had said in evidence that it made no difference whether Taipan was a client or not and a solicitor would have to take a view as to whose money it was, but D was bound to act on Contrast's instructions, so there could have been no breach of the Accounts Rules. The Law Society did not rely on the statements of Roe of Taipan, nor did the Tribunal. Accordingly, no breach of the rules was proved.

Mr Newman fifthly submits that the Tribunal's finding in paragraph 61 that D's dealings with the $150,000, in relation to which D admitted a technical breach of the Rules, was other than minor, was against the weight of the evidence. There was "incontrovertible", which Mr Newman amended to "uncontradicted", evidence from D that $20,000 of the money was owed for costs, although no bill had been delivered by D, and virtually all the £130,000 balance was lent by D to Contrast from D's office account. Further, Mr Newman submits, the Tribunal's findings in paragraph 64, which I have rehearsed, were against the weight of the evidence. Whether or not Silver's letter of 8 January 1988 was dishonest, breach of the Accounts Rules was only technical.

In his reply, Mr Newman invited us to find that, though D may have been reckless and foolish, we should not find he was dishonest. Findings of that sort were, of course, within the province of the Tribunal which heard the evidence, provided they correctly directed themselves as to the law and reached conclusions supported by the evidence.

It is unnecessary at this stage to rehearse the written and oral submissions by Mr Dutton QC on behalf of The Law Society. So far as is necessary, these will be reflected in the conclusions which I have reached, and to which I now turn. As to Mr Newman's first submission, it is, in my view, impossible to contend that the Tribunal misdirected themselves, or may have done so, as to the legal test for dishonesty. The words "wilfully ignored", particularly as used by the Tribunal in paragraph 64, do not connote an objective test. The words "recklessly obtuse" may do, though it is to be noted that those words are used in the specific context of D continuing to deal with Silver, rather than as part of a consideration of the legal elements of dishonesty. The words "grossly reckless" in paragraph 148 must likewise be read in their context. When the whole of the Tribunal's reasons are read, it is to my mind apparent that they applied the right test. The passages in paragraph 137, to which I have referred, in which they quote from the speeches of Lord Hoffmann in Twinsectra and Lord Nicholls in Royal Brunei Airlines v Tan make it plain that the test they sought to apply included an appropriate subjective element. That approach was repeated at paragraph 147 and, finally, in the remarks they made as to penalty, which I have quoted.

As to the yellow card, the Tribunal nowhere states, or to my mind implies, that it regarded this as crucial. On the contrary, it is but one of the six warnings to which the Tribunal referred in paragraph 148 and identified in paragraphs 14 to 23. The other five are: the 1994 warning about money laundering; the warnings from Mr Shaw orally in August 1996 and in his letter of 22 October as to the invariably fraudulent nature of this kind of bank instrument transaction; those warnings were repeated and emphasised by Mr Calvert on 1 November 1996; and on 4 July 1995 there were warnings from Mr Chadwick, referred to by D in his evidence as "a gypsy's warning" which, he says, he understood and which went specifically to Silver as well as to the nature of the transactions. Accordingly, the fact that, as is now accepted by the Law Society, D did not receive the yellow card until late January 1998 does not, in my judgment, begin to undermine the Tribunal's reliance on warnings.

That is apparent with even greater clarity when one takes into account the activities in which D engaged after the end of January 1998. The CITCO matter proceeded and $1.5 million was paid from D's client account on instructions. Between 27 January and 7 April 1998 four separate payments, amounting to over $30,000 were made by D to Silver or Mrs Silver from Taipan's $50,000 and accrued interest. In February 1999 D was instructed by a Silver company, Wexford, which had been involved in CITCO, in relation to Société Générale Fiduciaire SA. In August 1999 D chose to become embroiled in the dispute between Messrs Miller and Moreno as to the source of the funds for CITCO and, in March 2000, D received Silver-inspired papers from Financing and Development Trust SA.

The contention that the Tribunal attached too much weight to Mr Chadwick's warning is likewise, in my view, unsustainable. The weight to be attached to different pieces of evidence was a matter for the Tribunal. They accepted Mr Chadwick's evidence that he had said there was every reason to believe the W and Y transaction was spurious, that D should not be involved and that Silver was "known" to the bank.

Mr Chadwick's warnings and D's lack of response to them were, as it seems to me, highly significant. The contents of D's own notes of his meeting with Mr Chadwick are, on one obvious reading, highly damaging to his case. They refer to "spurious transaction", "do not meet Silver", "mafia based", "many forged bank instruments", "JS trying to produce fraudulent document and get Midland Bank to authenticate it", "major problems do not become involved at all". But, leaving these notes and their interpretation aside, D accepted in evidence that Mr Chadwick had strongly recommended him not to get involved in spurious transactions and that Silver was known to the fraud department of Midland Bank. Yet it was D's evidence that, a day or two after that conversation with Mr Chadwick, he met Silver in Madrid. He did not raise with him any of the concerns which Mr Chadwick had expressed. He did not, he said, regard Mr Chadwick's comments about Silver as derogatory.

In my judgment, the Tribunal were fully entitled to treat Mr Chadwick's warnings to an experienced solicitor, and D's lack of response to them, as highly significant. In the absence of any evidence that the Bank knew that Contrast was Silver, and bearing in mind Mr Chadwick's evidence that he never met Silver, the fact that his Bank until April 1998 continued to deal with Contrast, through D's client account, leads nowhere. In any event, D as a solicitor would not be entitled to shield behind the Bank's activity, particularly as he had himself had repeated and specific warnings from the Law Society about the spurious nature of the investment scheme.

As to conflict of interest, the gravamen of the matter was identified in paragraphs 152 to 155 of the Tribunal's reasons, the relevant parts of which I have already rehearsed. It is, in my judgment, impossible to contend that, while acting for Silver, D could also properly act for potential investors. Mr Newman's claim that the Rule 4 statement contained no reference to the conflict between Messrs Miller and Moreno withers on the vine when it is appreciated that the Rule 4 statement did refer to conflict in relation to CITCO, and D, in his evidence before the Tribunal, volunteered his view that he could properly act for Miller and Moreno. The Tribunal, therefore, dealt with this development in paragraphs 156 to 159, which I have earlier set out. They did so properly. Their conclusions are, as it seems to me, unimpeachable.

As to money laundering, it is correct that there was no allegation of money laundering by D, but the allegations against him were of involvement in bogus transactions. The evidence showed he had been warned against holding monies for no underlying purpose. The Tribunal were entitled to find, as they did at paragraph 114, that, as D was unable to explain the nature of the underlying transactions involving Taipan, Moreno and Song, who had all lodged large sums with him as a solicitor, he had acted without proper regard for the warnings about the risk of involvement in money laundering. The Tribunal were entitled to reach that conclusion despite D's claims about his anti-laundering safeguards and his practice of reporting, or even over-reporting, matters to NCIS.

As to the $50,000 transfer, the allegation was not of a breach of the Solicitors' Accounts Rules. It was, as I set out at the beginning of this judgment, an allegation of paying to Silver $50,000 of Taipan's money without their authority. It was beyond dispute that Taipan paid $660,000 for investment, as D knew. It was therefore held in his client's account, albeit in Contrast's name, on trust for Taipan, whether they were a client or not. It was beyond dispute that D paid $50,000 to Contrast without Taipan's authority: there was no contemporary evidence of such authority; the later accounts by Roe of Taipan were conflicting and the version he gave to Neuberger J was, as he admitted, incorrect. Unsurprisingly, neither the Law Society, nor the Tribunal, felt able to rely on Roe.

Furthermore, the manner in which the $50,000 and accrued interest was dispersed is pertinent. There were the four separate payments to Silver and Mrs Silver, to which I have already referred. There was a fifth payment of over $21,000 to a company owned by D's wife and daughter. In these circumstances, it would to my mind have been astonishing if the Tribunal had not concluded that there was conduct unbefitting a solicitor in D's treatment of the $50,000.

As to the $150,000 which Silver, in his dishonest letter of 8 January 1998, claimed were Contrast's monies to invest, thereby giving spurious credence to Contrast, the Tribunal were, in my view, fully entitled to reject D's claim that there was a purely technical breach of the Accounts Rules. D was a highly experienced solicitor, who, the Tribunal had found, was neither naive nor gullible. His present explanation of the make-up of the $150,000 is that about $20,000 was owed to him by Song and Moreno for costs, although no bill had been rendered, and about $128,000 was loaned by him from his office account for the venture. Not only is this strikingly different from the claim in the letter, (which claim the Tribunal found D knew was untrue), but it also involved intermingling client and office account money, in breach of the 1991 Rules 4,7,10 and 11, as well as appropriating money belonging to Moreno and Song. The Tribunal were, therefore, fully justified in finding that this was no mere technical breach of the Accounts Rules.

In my judgment, there is no sustainable ground for criticising the Tribunal's findings. In the light of their findings, striking-off was inevitable and no submission to the contrary has been made. I would dismiss the appeal.

MR JUSTICE MACKAY: I agree.

MR DUTTON: Would your Lordships dismiss the appeal and order that Mr Dooley pay the costs of the appeal. My Lord, I will have to ask that, if the costs cannot be agreed, they should be subject to detailed assessment. It is a two day listed case.

LORD JUSTICE ROSE: Mr Newman, can you resist the application for costs?

MR NEWMAN: No.

LORD JUSTICE ROSE: So be it then. The appellant will pay the Law Society's costs of the appeal, to be assessed.

MR NEWMAN: My Lord, may I seek this court's permission to appeal? It would be a second tier appeal. As your Lordships are aware under the Civil Procedure Rules, the basis upon which the court grants permission is one of two bases: either that the court believes the appeal would have a real prospect of success; or -- and perhaps I am relying on the "or" rather than the "either" in the light of your Lordships' judgment -- there is some other compelling reason why the appeal should be heard.

The compelling reason that I would advance is that the exact ambit of Twinsectra and how it applies in the context of the Tribunal's findings in relation to Mr Dooley is a matter which I would wish to seek to persuade the Court of Appeal to find differently from your Lordships upon. On that basis, I invite your Lordships to grant leave.

LORD JUSTICE ROSE: Thank you. No, Mr Newman, we see no arguable grounds, nor any other compelling reason for granting permission to appeal and, accordingly, it is refused. Thank you.