PS & Ors v Law Society

On Friday the 2^nd July 2004 I heard an application under CPR 24.2 (a)(i) for an order summarily dismissing the claim in these proceedings as having no real prospect of success. The proceedings were brought under paragraph 6(4) of Part 2 of the first schedule to the Solicitors Act 1974 by six Claimants, the first three of whom had previously carried on business as solicitors in partnership under the name the Bower Cotton Partnership, against the Law Society for an order directing the Society to withdraw its notice of intervention in the practice of the first Claimant, Paul Simms (“Mr Simms”) which had been given on the ground that the Council of the Law Society had reason to suspect that Mr Simms was guilty of dishonesty pursuant to paragraph 1(i)(a)(i) of the schedule. The fourth to sixth Claimants were, at all material times, salaried partners. At the close of the hearing on that day I indicated that I would accede to the Law Society’s application and dismiss the proceedings, but because of lack of time, would give my reasons in writing at a later date. These are those reasons.

The background events to the launching of these proceedings are as follows: in September 1998 the Law Society, through the Office for the Supervision of Solicitors (“the OSS”) mounted an inspection of the Bower Cotton Solicitors, the predecessor firm to the Bower Cotton Partnership (“hereafter the BCP”). On the 25^th February 1999, the OSS produced a report on this inspection, the decision was taken by the Law Society to take no further action, although further inspections were undertaken and assurance sought from the partners. In March 1999 representatives of the Law Society had a meeting with the partners of BCP at which advice was given that BCP should cease to permit its client account to be used in the furtherance of clients’ transactions in financial instruments in order to protect the partners from the suggestion that the partnership was assisting in money laundering transactions. On the 22^nd April the partners in BCP wrote to the Law Society indicating that they would cease to act for clients promoting investment schemes and make their client account available for use by those clients for that purpose. Further inspections of the practice took place in 1999, 2000 & 2001 the last visit to the practice being on the 2^nd July 2001. Those inspections were not satisfactory so far as the Law Society was concerned and on the 14^th February 2002 the council of the Law Society through the Professional Regulation Adjudication Panel (“the Panel”) of the OSS, to which its powers for the purpose had be delegated, passed a resolution to intervene in the practice of Mr Simms. On the 18^th February notice of the resolution was given the second to sixth Claimants and personally to Mr Simms on the 19^th February for the purpose of paragraph 6(3) of part2 of schedule 1 which reads as follows:-

“(3)

The Society shall serve on the solicitor or his firm and on any other person having possession of sums of money to which this paragraph applies a certified copy of the Council’s resolution and a notice prohibiting the payment out of any such sums of money.”

[being monies held by the practice for its clients pursuant to paragraph 6(1) of the schedule]

At the same time the claimants were provided with a copy of the report of Mrs Norton into the operations of BCP, and in particular Mr Simms, for the OSS upon the basis of which the decision to intervene in Mr Simms practice had been taken. On the 19^th February officials of the Law Society visited the office of BCP to take possession, inter alia, of clients money and client files held at their offices. On the 22^nd February the key documents referred to in the Norton report were delivered to the claimants. By a document dated 19^th February 2002 the second claimant circulated the BCP staff with a memorandum which concluded with the following paragraph:-

“The view of the six partners [the claimants] is that PFS [Mr Simms] has not done anything dishonest and that the OSS should not be carrying out their current exercise – they have gone for overkill in the hope that PFS will roll over- can you ever see that happening?”

These proceedings by way of a part 8 claim were issued on the 27^th February. On the 28^th February BCP wrote to Russell-Cooke, the Law Society’s agents in the Intervention, under the heading “Paul Simms & ors v The Law Society”:-

“We have applied to the Court seeking an order that the notice served by you on this firm and its bankers be withdrawn, for the intervention into the practice of Mr Simms to be withdrawn and for delivery up in their original format all documents and files removed from these premises. We now enclose by way of service on you the following :-

1.

CPR part 8 claim form:

2.

Witness statement by Michael Conlon [the second claimant] with exhibit MAC1:

3.

Witness statement of Paul Simms with exhibits… .”

On the 13^th March Mr Justice Timothy Lloyd gave directions for evidence in the proceedings but declined, on the application of the claimants, to make an order that monies, held by the Law Society’s agents under the intervention, should be returned.

Meanwhile the Panel having referred Mr Simms conduct to the Solicitor’s Disciplinary Tribunal (“the SDT”) the OSS commenced disciplinary proceedings against Mr Simms on 2^nd September 2002. In October 2002 pursuant to that tribunal’s normal procedure the SDT found that a prima facie against Mr Simms existed. On the 22^nd November the matter returned before Mr Justice Timothy Lloyd who adjourned these proceedings (“the Intervention Proceedings”) pending the hearing of the charges against Mr Simms before the SDT, the matter to return to court 14 days after the SDT, had handed down its verdict. The hearing of the disciplinary charges took place in November 2003 over a period of three weeks. The result was announced on the 2^nd February 2004.

The charges brought against Mr Simms were these:-

“1.

He had been actively involved in making, promoting or facilitating bogus transactions which lacked an honest commercial purpose (contrary to Practice Rule 1):

2.

He recommended that clients use purported businesses without having regard to what was in the clients best interests (contrary to Practice Rule 1 and section 4(1) of the solicitors’ introduction and referral code):

3.

He acted for two or more clients when there was a conflict between their interests (contrary to Practice Rule 1 and paragraph 15.03 of the guide to Professional Conduct of Solicitors):

4.

He failed to maintain procedures of internal reporting for the prevention or forestalling of money laundering in accordance with the Money Laundering Regulations 1993 (contrary to Practice Rule 1):

5.

He made deceitful misrepresentations to third parties, contrary Practice Rule 1 and principle 17.01of the Guide to Professional Conduct:

6.

He acted in other miscellaneous transactions whose purpose he knew or suspected was illegal (contrary to Practice Rule 1):

7.

He failed to comply with the Solicitors Separate Business Code in relation to BC Projects Ltd a company owned and controlled by the Bower Cotton Partnership, of which Mr Simms is a director, in that he has not ensured:-

(1)

The name of his law practice did not have a substantial element in common with the name of the separate business;

(2)

That paperwork and records relating to customers of the separate business were kept separate from paperwork and records relating to clients of the firm;

(3)

That all clients were informed in writing of the (sic) Bower Cotton’s interest in the business and that, as customers of the separate business, they did not enjoy the statutory protections attaching to clients of a solicitor (contrary to section 4(2) of the Code).”

Of those charges numbers 1 to 3, 5 and 6 involve allegations of dishonesty against Mr Simms. All of these save number 6 were found proved. The SDT made specific findings of dishonesty against Mr Simms as a result of his part in transactions in relation to CAMC, Elite, Maxhurst, Hackar, IDI, WC Ltd and TK and Euro Hypoteck.

Mr Simms has appealed all these findings to the Administrative Court and it is expected that his appeal will be heard early in October. It so happens that he has not appealed a finding of dishonesty against him at paragraph 273 of the judgment of the SDT but I will treat that as an oversight and proceed on the basis that all the findings of dishonesty against him by the SDT have been appealed.

It is not in issue, in particular Mr Simms does not contest, that the findings of dishonesty against him by the SDT can be treated in the Intervention Proceedings as evidence of his dishonesty as if he had been convicted of offences of dishonesty before a jury.

It was submitted by Mr Simms that the application to dismiss was premature and should await the result of his appeal to the Administrative Court against the findings of the SDT.

In the decision of Vice Chancellor Megarry in Buckley v The Law Society (no 2) 1984 1 WLR p 1101, later affirmed in an unreported decision of the Court of Appeal, it was held that a court deciding a case by a solicitor under paragraph 6(5) of schedule 1 should come to its conclusion in the light of all the evidence existing at the time the matter came to be decided and not at the time of the relevant intervention.

The issue to be decided in proceedings under paragraph 6(5) is defined by paragraph 1(1)(a)(i) in the following terms:-

“1(1) Subject to paragraph (2) [immaterial] the powers conferred by Part II of the schedule shall be exercisable where –

(a)

The Council have reason to suspect dishonesty on the part of –

(i)

A solicitor… . ”

In Wilson Smith v The Law Society unreported 21^st February 2000 Mr Justice Neuberger was considering a case where proceedings under paragraph 6(5) to terminate an intervention had been brought at a time when the solicitor against whose practice the intervention had been made was being proceeded against by the SDT on charges of dishonesty. He said this:-

“On the other hand, if Mr Wilson Smith is not found guilty, then the outcome of the disciplinary proceedings by no means necessarily determines the outcome of the application. Although I presume that the civil burden of proof will be applied by the tribunal it will obviously want to be satisfied on tolerably clear evidence before it concludes that Mr Wilson Smith was guilty of dishonesty. It is therefore by no means impossible that the tribunal will be doubtful about Mr Wilson Smith’s honesty but will conclude that it is not satisfied on the evidence that Mr Wilson Smith was dishonest. That would not be inconsistent with the Society’s maintaining the position that there is “reason to suspect dishonesty”… on the part of Mr Wilson Smith.”

For the purposes of the application before Mr Justice Timothy Lloyd on the 18^th November 2002 a skeleton argument was submitted by counsel then appearing for Mr Simms. At paragraph 6 it was conceded that whether the Law Society’s intervention in Mr Simms practice was justified “will effectively be decided by the outcome of the disciplinary proceedings … at which the issue of dishonesty will be decided.”

I have read the judgment of the SDT and been taken to some of the documents referred to in it. In my judgment, whatever the result of Mr Simms’ appeals, there is no real prospect of his succeeding in any claim that the Law Society, in February 2002, had no reason to suspect dishonesty on his part.

Before me Mr Dutton QC for the Law Society put forward an alternative reason for dismissing the proceedings, namely, that the court is not now in a position to give any worthwhile relief to Mr Simms even if, after a trial, he were to prove to be successful contrary to the conclusion which I have arrived at above. This was one of the conclusions reached by Lord Justice Aldous in his judgment in the case of Virdi v the Law Society unreported 30^th March 2000 dismissing the proceedings under paragraph 6(4) in that case, relying on the judgment of Lord Justice Balcombe in the unreported judgment of the Court of Appeal in the Buckley case.

Paragraph 6(5) empowers the court when making an order terminating an intervention “to make such other order with respect to the matter as it may think fit.” I asked Mr Simms what order he would now be seeking in these proceedings if they were to go to trial. The only order which he was able to come up with was a declaration that the original intervention was unjustified. It seems to me that the costs and time involved in taking these proceedings to trial are not justified by that very limited objective which could only be achieved in circumstances where Mr Simms had successfully appealed all findings of dishonesty against him by the SDT. In those circumstances Mr Simms would have been fully justified by his success on appeal and a declaration would hardly benefit him.

I turn to the issue of costs on which I have not yet ruled but on which I have heard the submissions of the parties. I do not have to deal with the issue of costs as between the Law Society and the fourth, fifth and sixth Claimants on which I am told agreement has been reached. I have to rule on the issue of costs as between the Law Society and Mr Simms and the Law Society and the second and third claimants.

The orders for costs which I am about to make dispose of the costs of the Law Society of the Intervention Proceedings commenced by the claimants on the 27^th February 2002 only. They do not dispose of any costs relating to the following matters:-

I have no doubt at all that Mr Simms must pay the Law Society’s costs of the Intervention Proceedings the only question being whether those costs should be on an indemnity basis. The normal rule that costs should follow the event should apply in this case. The arguments which Mr Simms raised in opposition to an order for costs where primarily based on “proportionality”. He contended that the manner in which the proceedings have been defended by the Law Society was not proportionate to the issues in the case. Those are matters for assessment and do not justify my making any sort of special order.

As to the appropriate scale of costs it seems to me that the issue here is whether Mr Simms, with the knowledge he must have had of his operations, the subject matter of the charges brought against him by the SDT, should have launched a challenge to the intervention. Mr Simms is appealing findings of dishonesty against him in disciplinary proceedings. However the remaining claimants now accept that he was dishonest. It seems to me that at all material times, Mr Simms must have realised that the Law Society were justified at least in suspecting that he had been conducting part of his practice dishonestly. It follows that he must have known that a challenge to the intervention was likely to fail and that, now it has failed, he should pay the costs incurred on an indemnity basis.

I turn to the issue of costs as between the Law Society and the second and third claimants.

An initial point is made by Mr Engleman on behalf of the second and third claimants, that they were never actually served by the Law Society with the intervention documents in accordance with paragraph 6(3) of the first schedule, and accordingly they were never properly parties to the proceedings and thus no order for costs can be made against them. I reject this submission. Whereas it does appear that they may not have been served strictly in accordance with paragraph (3), because they were not individually served with a certified copy of the Council’s resolution nor with what can be described as “a notice prohibiting payment out of any such …money” being money held by the firm on account of the clients of Mr Simms, all the pleadings and correspondence in the Intervention Proceedings show that, until BCP’s letter of the 5^th June 2002 to Messrs Russell-Cooke, the second and third claimants had made themselves parties to those proceedings and had joined in the litigation in their own interests and not only for the limited purpose of recovering files taken by the Law Society’s agents and practice money frozen by them. Further, in a number of documents they are shown to admit that they were properly served and no suggestion has been raised that they were not parties to the Intervention Proceedings until the question of the order for costs to be made on their dismissal arose.

This is well illustrated by the terms of the 5^th June letter itself which on its second page at paragraph 2, having advanced the argument why the 4^th to 6^th claimants should not be treated as parties to the proceedings, continues:-

“2

Additionally Messrs Conlon and Harris will be applying for an order that the proceedings, so far as they … are concerned, be discontinued with no order for costs. The grounds for that application will be, inter alia, that they have obtained the remedies they sought in the proceedings (namely recovery of files and clients monies) by order, and/or agreement between the parties to facilitate the provision of these, and that, for that reason, and because the situation has now changed substantially due to the passage of time, resulting in the delay of the Law Society in providing its evidence and the resulting inability to fix an early trial, the proceedings have now become academic.”

Had they not been treating themselves as full parties to the Intervention Proceedings there would not have been any necessity for a discontinuance.

I do take the view, however, that from the receipt of this letter it would not be right to treat the second and third claimants as pursuing the Intervention Proceedings for their own benefit since they had indicated that there was no relief which they were thereafter seeking. Mr Simms, by contrast, was pursuing the Intervention Proceedings and accordingly the Law Society were inevitably involved in the continuing costs of defending them.

In my judgment the second and third claimants must pay the Law Society’s costs of the intervention proceedings down to the 7^th June 2002, the date when the letter of the 5^th June is shown as being received by Messrs Russell-Cooke, on the standard basis as sought by the Law Society.