Holy v Law Society

This allegation related to loans made by A to Q and Q Co, by A to LC, and by Mrs K to LC. In the case of the loans by Mrs K to LC, Mr Holy acted as an intermediary. Principle 15.01 of the Guide is as follows:

“A solicitor should not accept instructions to act for two or more clients where there is a conflict or significant risk of a conflict between the interests of those clients.”

There was no issue before the Tribunal as to the basic facts giving rise to this allegation. The issue raised by Mr Holy is as to the application of Principle 15.01. It is common ground that the loans made by A were made by Mr Holy acting as solicitor and agent for A. It is also accepted that Q, Q Co and LC were clients of the firm in connection with on-going transactions. However, Mr Holy contends that the borrowers in question were not his clients for the purposes of the loans in question. They did not rely on him for legal, or indeed commercial, advice, in relation to the loans, and had no good reason to believe that he undertook any relevant responsibility to them as to the terms of the loans.

The loans were poorly documented. There was no letter to A setting out Mr Holy’s instructions and authority in relation to the loans, or even a relevant attendance note. The basis of the loans to Q and Q Co appears from Mr Holy’s letter to Q dated 22 November 2001:

“As you know, I have for some while held a not insubstantial sum of money on behalf of certain clients which was originally intended to fund a substantial asset acquisition. Unfortunately, the matter has become more protracted than was originally anticipated albeit I am hopeful that the funds can be applied reasonably soon.

In the meantime, I have been given authority by my clients to invest the funds on a short term basis if I am satisfied with the security, the financial return and that repayment can be achieved within 21 days of request.

On this basis I have been able to advance funds to your organisation and see no reason why I should not continue to do so. I propose an interest rate of 12% per annum which I will calculate upon repayment.

I would also look to you to underwrite the debt.

For the sake of my paperwork I should be grateful if you would kindly sign and return to me the enclosed duplicate of this letter by way of confirmation of the above.”

The letter was countersigned by Q personally.

It is plain that Q knew that A was Mr Holy’s client. It is also clear that there was a conflict of interest between A as lender and Q Co and Q as borrower and guarantor, and that in offering the loan on behalf of A Mr Holy was taking into account information, which must have included confidential information of Q and Q Co, that Mr Holy had as a result of acting as solicitor for them.

It is accepted that Mr Holy was probably acting for Q and Q Co in a property transaction at the time, and that the loan was required for the purpose of that transaction. However, the nature and scope of the retainer were not documented.

Initially, Mr Holy admitted this allegation. The report dated 20^th February 2003 on the inspection of the firm stated:

“Client to Client loans – Conflict of Interest

49.

Mr R Lane, Senior Investigation Officer, who was present with Ms Beenham at the final interview with Mr Holy on 14 November 2002, brought up the issue of a conflict of interest. Mr Holy said that as a lawyer he always considered it at the time and that implicitly there must be a conflict of interest between his clients, however it was a question of balancing the two.

50.

Mr Lane asked Mr Holy if it was appropriate to act in this manner. Mr Holy said that this was typical of the style he had adopted for the last twenty-five years, it had worked well and it was appropriate considering the clients he worked for. Mr Holy recognised that it was a “flagrant breach of the rules” but that his relationship with his clients was based on complete trust. Mr Holy said that he handled over a “billion” in client funds annually and that he would be unable to operate differently with his clients’ style of business.”

The Tribunal’s reasons for its decision were as follows:

“129.

So far as allegation (viii) is concerned it was accepted by the Respondent that Mr A was a client. So far as Q and the attendant Q companies are concerned the Tribunal is satisfied that they too were clients.

130.

In this regard the Tribunal particularly noted some of the documents that were referred to it, in particular pages 22 and 26 of the Applicant’s bundle which set out the transactions and movement of funds supporting them.

131.

No evidence was produced by the Respondent as to the terms of the retainers with Mr Q and the Q companies.

132.

The Tribunal has noted one of the authorities put forward on behalf of the Respondent that says “solicitors who do not define their retainer clearly and in writing can expose themselves to the imposition of a retainer the existence and extent of which may be implied from their own conduct. The solicitor may also find that he owes contractual duties to persons other than those directly providing his instructions”. [PNL Service Issue No 5, 1^st April 2004]

133.

Given the nature of the transactions involving lenders and borrowers where different interests or the possibility of different interests clearly exist, the Tribunal is satisfied that the Respondent acted and/or continued to act where a conflict of interest existed between two or more of his clients. The Tribunal finds allegation (viii) to have been substantiated.”

We do not find these reasons adequate. They do not explain why the Tribunal concluded that Q and Q Co were clients in relation to the loan transactions. There is of course a risk that in the absence of a clearly defined retainer (here for the borrower), a solicitor will be found to have been acting as such for a borrower where he did not appreciate that that client was looking to him to protect his interests, but where the client was entitled to do so. In evidence to the Tribunal, Mr Holy denied that he acted as solicitor for any of the borrowers of the loans that were the subject of this allegation in relation to the loans. He asserted that the borrowers were competent in business affairs and had no need to, and did not, look to him for advice or protection of their interests in relation to the loans. The Tribunal did not comment on this evidence, as it should have done. (The reference in paragraph 131 of the Tribunal’s findings to no evidence having been produced must, we think, be read as referring to written evidence). It did not expressly rely on his statement as set out in the report of 20th February 2003, but we think that it must have had it in mind.

The facts of the other loans that were the subject of this allegation do not raise different issues and do not call for separate consideration.

The evidence relating to this allegation showed a lack of proper recording of instructions, communications and transactions by Mr Holy, and a use of confidential information relating to one client for the purposes of transactions entered into by another client. We have not found the issue in respect of this allegation straightforward. Ultimately, however, given that Mr Holy was acting for the borrower in the property transaction for which the funding by the loans was required, and his acceptance of the trust reposed in him by his clients, including the borrowers, and the absence of any documented retainer relating to the property transaction, we are persuaded that the Tribunal was entitled to find that Mr Holy acted as solicitor for the borrowers in allegation (viii), and the Tribunal was therefore entitled to find this allegation proved.

Mr Moger submitted that this charge and the Tribunal’s findings assumed that the guidance on issues by the Law Society (commonly referred to as the Blue Card) in relation to the precautions to be taken by solicitors in relation to possible money-laundering is mandatory, rather than simply guidance. While we accept that this appears to have been the approach both of the Law Society and the Tribunal, in our judgment there is nothing in the point. A failure to comply with that guidance is liable to infringe Rule 1 of the Solicitors Practice Rules, particularly if the failure is a serious one, either wilful or reckless. The allegation was presented and treated as one of serious misconduct.

Mr Moger also referred to the lack of any evidence that the funds which were the subject for this allegation were of dishonest origin. Again, while this may be relevant to penalty, it is certainly not relevant to the question whether the allegation was proved. Moreover, it is unreal to expect the Law Society to be able to investigate, let alone prove, the origin of monies such as those received by Mr Holy which were the subject of this allegation.

The allegation related both to the receipt of the funds in question and their payment out of Mr Holy’s client account. Mr Moger submitted that it was only the receipt which might have called for enquiry beyond that in fact made by Mr Holy. If Mr Holy were reasonably assured as to the legitimacy of the funds in question, there could be no question of his having to make any further enquiry before paying out those funds. There is substance in this submission. However, in circumstances where the legitimacy of funds received by Mr Holy was not absolutely clear, the instructions he received for dealing with and paying out those funds might create or increase any doubts as to their legitimacy, and thus give rise to a need for further enquiry.

The larger sum which was the subject of this allegation was an amount of approximately £15 million received from Mr A, who was from Lagos in Nigeria. The bulk of the money was lodged in the client bank account in July 2001. There was no evidence on the Client Matter File of any correspondence or communication coming directly from A to Mr Holy. Mr Holy said that he communicated with Mr A by telephone. Mr Holy had written an internal memorandum to his money laundering officer, MG, dated 26 March 2001. It stated that A wished to invest substantially in UK property. Mr Holy emphasised that since Mr A had been introduced by Mr K, a person “of exceptional substance and undoubted integrity”, he considered Mr A to be “impeccably introduced”. He recorded in the memorandum that Mr A and Mr K would forward to the firm approximately £50 million which would enable Mr Holy to confirm to any prospective vendor that he was in funds to that extent and thereby give credibility to his clients’ intentions.

Following his receipt of Mr Holy’s memorandum, MG gave money-laundering advice to him in a memorandum dated 11 April 2001. He stated:

“The money you are to receive is being given to us for bona fide purposes and is to be invested in joint ventures with two other well established clients of this practice. You are clearly right to have concerns but with the background you have given, I do not feel that you (or this firm) are in any way exposed.

You must consider if the instructions you receive are unusual or contain unusual requests…. You should, of course, satisfy yourself that Mr A is who he says he is. You should ask to see his original passport (and retain a copy) and be satisfied that the person you are dealing with is the same person identified in the passport. A face-to-face meeting will deal with this. You may have to undertake additional enquires if the money is not coming from Mr A’s personal bank account, i.e. if it is received by way of third party transfer where there is a variation between the account holder, the signatory and a prospective investor.

In short, from your knowledge of the proposed transactions, you must ask yourself the question “do I have cause for concern?” If you satisfy yourself that there is no cause for concern, then there is no need to report the matter outside of this office.”

Mr Holy responded to that advice in a memorandum dated 17th April 2001:

“At the present time, I have no doubt at all as to the bona fides of Messrs A/K albeit I understand that this is a matter that I will need to keep under review as the transaction proceeds and this I will do. Actually, I have no doubt at all but that I will not need to trouble you further.

As agreed, I will not complete the Money Laundering Suspicious Clients/Matter Report Form unless and until the client becomes suspicious!”

Mr Holy did not take any steps to determine the origin of the funds from Mr A.

There was an attempt on behalf of Mr A to purchase a company which owned a major London building for £33 million. It did not come to fruition. Subsequently, Mr A had requested that certain payments be made to C Investments from the funds held in the client account, the funds being paid to C Investments at Bank Leumi in Tel Aviv. A total of £7.5 million was so paid between November 2001 and October 2002. Mr Holy did not know the purpose of those payments, and considered it not to be his business. He was under the impression that the funds might have been associated with a joint venture involving A and K.

Mr Holy relied on the following matters as justifying the lack of any enquiry as to the source of the funds in question:

In relation to Mr A’s funds, the Tribunal found that Mr Holy should have been concerned at the secretive nature of the client. It gave the following reasons for that conclusion:

“(i)

The Respondent met Mr A on one occasion in 1996 at dinner in the Dorchester approximately five years before the sums came through;

(ii)

He was unsure whether there was another meeting in the interim;

(iii)

The copy passport came not from Mr A but via Mr K;

(iv)

The copy passport was inadequate and difficult enough to decipher for the Respondent to ask for a better copy. The next copy was worse and not followed up (the last reference about the passport was in a fax from the Respondent to Mr K dated 11^th July 2001);

(v)

There were also difficulties in some communications by fax between England and Lagos.”

There is justification in Mr Moger’s submission that those matters did not justify a conclusion that Mr A was of a secretive nature.

In paragraph 136 of its findings, the Tribunal stated:

“… So far as Mr A is concerned the Tribunal finds that following the collapse of the deal involving the London hotel property, the Respondent should have been cautious about holding such a large sum of money in his client account pending further instructions from the client or for no other purpose than for onwards transmission to a third party.”

Again, we think that there is substance in Mr Moger’s submission that there was no justification for this finding as such. If Mr Holy was justifiably assured of the legitimacy of the funds in question, there was no good reason for him to be cautious about holding those monies in his client account pending further instructions from the client, if, as Mr Holy stated, the client was seeking another investment in the UK.

However, the question what precautions and enquiries are appropriate in relation to possible money-laundering is very much an area of judgment in which the Court must take into account the expertise of the Tribunal, whose practical experience exceeds that of most if not all members of the judiciary. The receipt of a large sum of money belonging to a Nigerian businessman from an account in the Cayman Islands called for enquiry as to the source of those funds and/or of the wealth of Mr A. The fact that the funds were to be invested in property was irrelevant: investment in property is a favoured method of money-laundering. It was relevant, but not sufficient, that Mr A was known to and a client of Mr K: to regard that as a substantial reason for enquiry to be unnecessary is, in effect, to delegate to Mr K the solicitor’s duty to be reasonably assured of the legitimacy of the funds. Moreover, there is nothing to suggest that Mr Holy made any enquiry of Mr K as to his knowledge of the source of Mr A’s funds or of his wealth. Again, the fact that A was known to exist as a person carries the matter only a little further from Mr Holy’s point of view. Mr Holy’s personal knowledge of Mr A was scant in the extreme (contrary to what Mr Holy told Mr T in a note of 2^nd April 2001).

The fact that Mr Holy received advice from his money-laundering officer to the effect that “with the background you have given, I do not feel that you … are in any way exposed” mitigates the seriousness of this offence. The only justification for MG’s advice was Mr A’s “impeccable introduction”, but as we have said that of itself could not justify not making appropriate enquiry, and we think (and we think that the Tribunal must have thought) that that should have been obvious to a solicitor in Mr Holy’s position and with his experience. It is also not clear what led MG to change his mind about the need to complete a Money Laundering Suspicious Client/Matter Report Form, as Mr Holy said he did, since nothing new came to light between the date of Mr Holy’s memorandum seeking advice and the decision not to complete the Report Form.

We consider that the Tribunal was entitled to find this allegation proved in relation to Mr A’s funds, although not for all the reasons it gave.

The position in relation to the funds received from LC is different. It is unnecessary to set out the relevant facts. Mr Holy told the Tribunal that he knew the source of the funds, and explained what it was, and that they were not of criminal origin. His evidence on this was not expressly rejected. The Law Society’s investigating officer had not suggested that these moneys gave rise to a money-laundering concern. Curiously, the Tribunal’s findings of fact omit any reference to the receipt of funds from LC or Mr Holy’s dealings with them. They are seriously defective in this regard.

The Tribunal gave the following reasons for finding allegation (x) proved in relation to the LC moneys:

“So far as allegation (x) is concerned and the money from LC, the Tribunal finds that the Respondent should have been alerted by the Blue Card advice relating to:-

(i)

Unusual instructions – where the Tribunal is not persuaded by the Respondent’s explanation that the €11.5 million had to be dealt with in London. The explanation offered by the Respondent that LC did not have UK bankers should have alerted the Respondent to potential money laundering problems, as would any proposed use of a solicitor’s client account instead of a bank.

(ii)

Where large sums of cash were requested to be held in client account with no instructions from the client other than for onward transmission to third parties.”

These factors may have given rise to other concerns, but neither of them gives rise to money-laundering concerns if the source of the money was legitimate. In the absence of any findings of fact and of adequate reasons for this finding, we would have allowed the appeal on allegation (x) if it had related to the LC funds alone.

None of these allegations was presented to the Tribunal as serious. However, they are not trivial. The failure to identify client accounts as such could place the funds in those accounts at risk in the event of the insolvency of the firm. That failure might also lead to the bank not exercising the care and taking the precautions in relation to the accounts that were appropriate to a client account. These allegations gave substance to the picture painted by the Law Society of a general failure to comply with the regulations relating to solicitors’ practice.

Allegation (iv) was explained by Mr Goodwin, the solicitor advocate for the Law Society, as follows:

“By way of further clarification in relation to allegation (iv), an allegation of failing to keep accounts properly written up, I have informed those who represent Mr Holy that I limit that allegation to that which is found at paragraph 5(2) of the accountant’s report, which is page 2 of my bundle.

Namely, the clients’ ledgers were not maintained for all the clients with funds held in the firm’s Euro client’s accounts, by which I mean instead of keeping separate cash books and/or ledgers, they kept a combined record which did not represent a complete record of the position, because my instructions are that a number of the transactions appeared on bank statements and did not appear on the ledger and/or cash book.

So it is quite a narrow allegation and I do not know whether that will persuade the respondent that the allegation is made out and he will alter the denial to an admission. That is of course for Mr Evans and his client but I hope that assists at this stage.”

Later Mr Goodwin said:

“I think it has already been accepted, certainly by me, if not the Tribunal, that in the context of the other matters the Tribunal is dealing with, this perhaps falls down the scale in terms of seriousness.”

Allegation (iv) was admitted after the latter statement.

In his skeleton argument for this appeal, Mr Williams submitted in regard to allegation (iv):

“The failure to maintain client ledgers for all clients with funds held in the Euro Client Account is particularly serious.”

Since Mr Holy admitted this allegation after the statements of Mr Goodwin to which we have referred, it would be unfair and inconsistent with the basis on which the case was put to and accepted by the Tribunal for this Court to accept that submission. In our judgment, the allegation, admitted by Mr Holy, must be treated by this Court as of the seriousness indicated by the Law Society before the Tribunal.

The facts as found by the Tribunal were set out in paragraphs 57 to 66 of its findings:

“57.

By letter dated 24^th April 2001, the Respondent wrote to Mishcon de Reya and Sears Tooth and said:-

“We confirm that we hold Five Hundred Thousand Pounds (£500,000) in our client’s account.

We Undertake to account to Sears Tooth (for the benefit of Mr D absolutely) by CHAPS payment for the above sum of Five Hundred Thousand Pounds (£500,000) within two working days of the later of…”

58.

At the time the Respondent gave the Undertaking the client ledger account for Mr Q contained no funds. The Respondent did not hold £500,000 for Mr Q and it was the Applicant’s case that the expression “we confirm that we hold £500,000 in our client’s account” was misleading and/or inaccurate.

59.

The Respondent indicated that he worded his Undertaking to mean that he had £500,000 on hand for all of the Q Co matters. A client matter listing as at the date of the Undertaking identified that there were 96 ledgers associated with Q. These ledgers combined held a total sum of £78,750.11.

60.

It was submitted by the Applicant that the Respondent should have ascertained the amount held on client account in respect of the particular client prior to giving the Undertaking in the terms that he did. The Respondent either knew or ought to have known that he did not hold the sum of £500,000 as represented in the Undertaking dated 24^th April 2001.

61.

A dispute arose concerning the £500,000 payment. An Order made in the High Court of Justice dated 26^th September 2001 stated, inter alia:-

“Mr Julian Holy and Messrs Julian Holy Solicitors be forbidden from dealing with the sum of £500,000 that is presently held in their client account and referred to in their letter dated 24^th April 2001, and the interest that has to date accrued and may hereafter accrue thereon, or any part of that sum or that interest, pending determination of the Respondent’s application…”

62.

On 9^th November 2001 a Court Order was made that the £500,000 plus interest was to be paid to Mr D by 13^th November 2001.

63.

On 13^th November 2001 the Respondent arranged a transfer of £511,506.85 to Sears Tooth Solicitors for Mr D in compliance with the Court Order.

64.

The funds were part of a deposit into the Respondent’s client bank account of £3,699,986.50 on 9^th November 2001, and credited to the client ledger account of “TFI loan to C Limited”. The Respondent said that the £3.6 million related to Q Co.

65.

The Applicant recognised that £500,000 was paid as required and the Undertaking had been discharged but nevertheless the Respondent had provided an Undertaking which contained a representation which he knew or ought to have known was misleading and/or inaccurate.

66.

In oral evidence the Respondent explained that he was a man of means and would have been easily able to comply with the Undertaking by the use of his own resources. There had been no possibility of there being a breach of the Undertaking.”

The seriousness of this allegation cannot be doubted. The confirmation that the firm held £500,000 in their client account could only have been given at best recklessly. The Tribunal accepted the Law Society’s contention that Mr Holy had been reckless in giving the undertaking. His responsibility was exacerbated by his failure to inform the Court when the order of 9th November 2001 was being considered that the confirmation in his letter of 24th April 2001 that he held the funds in question was inaccurate. The Tribunal’s finding was amply justified.

Allegation (vii) related to the conduct of Ms F, a member of the staff of Mr Holy’s firm, who had certified as true copies of a passport and a driving licence without having seen the original documents. The copies were produced to accountants acting in connection with the purchase of a company.

In his letter of 29th October 2004 to the Law Society, Mr Holy stated that he had exercised insufficient supervision over Ms F, but that he had not authorised any member of staff to certify documents in such circumstances.

If Mr Holy had knowingly authorised or permitted his staff to certify as true copies where they had not examined the originals, this would have been a most serious allegation. The Tribunal treated his conduct as reckless: see paragraph 156 of its findings. At paragraph 164, the Tribunal stated:

“The other allegation that the Tribunal finds to be serious is that the Respondent allowed or authorised his staff to certify as true copies, passports or other documents where the originals had not been seen. Again, this goes to the probity of the Respondent and his practices. ”

This suggests a finding that he knew of the improper certification. However, he denied having any such knowledge, and the Law Society did not contest that he did not know of it. The basis of the allegation was a failure to supervise, not authorisation or connivance: see Mr Goodwin at page 37 of the transcript of the first day’s hearing; and Mr Holy admitted this charge on that basis. We accept Mr Moger’s submission that the Tribunal treated this allegation as more serious than was justified.

This allegation was not at the most serious end of the spectrum, given that it was not suggested that the parties to the loans did not know that both lender and borrower were clients of the firm, and the absence of any suggestion of unfairness in the terms of the loans from the point of view of either lender or borrower, or of the inappropriateness of the terms of the loans, or of any failure to secure terms of the loans requirement properly to protect the interests of either party to them.

We have upheld the finding that this allegation was proved. It seems to us, however, that what was proved was an error of judgment rather than a want of probity.

The allegations proved against Mr Holy did not establish a want of honesty. In the case of allegation (vi), he made an important representation without checking its truth and, as a result, gave an undertaking when he was not in a position to do so. No loss resulted. It showed a marked recklessness, but not dishonesty. However, the evidence generally showed a disregard for a number of regulations affecting solicitors, a disregard that was aggravated by Mr Holy’s assertion that compliance was not consistent with the nature of his practice. This disregard was the underlying cause of the allegations proved against him.

We give full weight to the views of the expert Tribunal. It is clear that dishonesty is not a pre-requisite of an order striking off a solicitor, and that only in a strong case will the Court interfere with the assessment of the Tribunal of the seriousness of a solicitor’s conduct and of the penalty that is appropriate: see Law Society v Bolton [1994] 1 WLR 512. Nonetheless, in our judgment, the allegations proved did not justify striking off. For the reasons we have set out, we consider that the Tribunal erred in treating the conduct of which Mr Holy was found guilty as more serious than was justified.

Reckless disregard of regulations affecting solicitors may well justify striking off. In the present case, we take into account the candour and co-operation shown by Mr Holy during the Law Society’s investigation of his practice, and the admissions made by him.

In our judgment, for the offences admitted by Mr Holy and for the conduct charged by allegations (viii) and (x) together the appropriate penalty was a substantial period of suspension, which would demonstrate to him and to the public the importance of compliance with the regulations affecting the practice of solicitors, no matter how substantial or successful a solicitor’s practice and no matter how entrepreneurial he and his practice may be. In our judgment, that period is 4 years.