Conlon & Anor v Simms

The solicitors’ firm of Bower Cotton and Bower was founded in 1818. It changed its name to Bower Cotton in 1997. By that time it consisted of 8 partners. Mr Paul Simms, the defendant, was the senior partner. The other partners were Guy Vincent (the managing partner), Michael Conlon (the first claimant), Andrew Couch, Michael Parker, Bob Perrin, Paul Shaerf, and Andrew Smith. Mr Conlon had been a partner since 1974, and Mr Simms had been a partner since 1978.

Mr Simms’ primary area of practice was commercial litigation, but he also had a commercial practice, which included project finance work. He and his department were the largest profit centre of the firm. Mr Conlon had, primarily, a matrimonial practice, but he had introduced commercial clients to the firm.

The partnership agreement of June 3, 1997 (only a draft of which is in the papers before the court) provided that the partners would at all times conform to the rules and regulations of the Law Society (clause 2.2); and that each partner would be just and faithful to the other partners in all matters relating to the partnership, and conduct himself in a proper and responsible manner (clauses 18.1.1. and 18.1.3).

By mid-1998 Mr Simms and Mr Vincent had plans for a bolt-on or merger with another firm. They were concerned to generate more cash and the capital and equity structure of the firm to ensure greater fairness, in the light of the fact that the firm had not grown organically in 15 years, and had contracted in partner numbers. Their view was that it was an ageing partnership. In the next few years Mr Simms and Mr Conlon would be thinking of retirement and they had no one with whom to replace them.

There were approaches to, or from, several firms, and after discussions starting in the spring of 1999 Bircham & Co. (shortly to become Bircham Dyson Bell) (“Birchams”) made proposals which led eventually to six of the Bower Cotton partners joining Birchams.

Mr Simms and Mr Conlon decided not to join Birchams. On March 24, 2000 all the partners of Bower Cotton executed a deed of dissolution, confirming that on April 30, 2000 Bower Cotton would be dissolved and that on May 1, 2000 Mr Simms and Mr Conlon would enter into partnership and would practise as “The Bower Cotton Partnership.”

The Bower Cotton Partnership’s premises were the former Bower Cotton premises at 36 Whitefriars Street, London EC4. The equity partners were Mr Simms and Mr Conlon, with Christopher Richardson (who had been recruited in January 2000) as a salaried partner. From June 2000 Mr Conlon and Mr Simms negotiated the entry of Roger Harris (the second claimant) to the partnership as an equity partner. Mr Harris was a specialist in conveyancing and was at that time a sole practitioner. He joined the partnership as from September 1, 2000. Later, in addition to Mr Richardson, Philip d’Costa and Mark Boardman became salaried partners.

II Law Society: Solicitors Disciplinary Tribunal (“SDT”) findings and appeal to the Divisional Court

In August 1998 the Office for the Supervision of Solicitors (“OSS”) commenced an inspection of the books of the firm. On February 25, 1999, Mr James, acting head of the Monitoring and Investigation Unit, reported on the inspection of the firm’s books. No action was recommended by the Law Society in relation to issues concerning compliance with the Solicitors’ Accounts Rules, but attention was drawn to matters relating to what were described as “Banking Instrument Transactions,” in view of the “warning card” issued by the Fraud Intelligence Office of the Law Society in relation to the need for solicitors to exercise extreme caution if approached by individuals seeking to promote transactions in banking instruments such as, inter alia, prime bank guarantees. The report drew attention to the firm’s involvement in banking instrument transactions, and pointed out that during the period from December 1997 to September 1998 the firm had received more than $50 million (in sums varying between about $1 million and $10 million) into its client bank account.

In response to the report, in a letter of April 22, 1999 on behalf of the firm, Mr Simms said that the firm’s reputation for financial probity was undoubted, and it had never knowingly put any funds of clients at risk or misapplied them in any way. Mr Simms said:

“We have decided that the amount of time involved in acting for parties to schemes of the type described in the report is disproportionate to the reward and that we will not accept instructions in respect of the schemes involving the use of our client account for the proposed investment monies.”

The OSS enquiries continued, and in a letter of November 15, 1999 the OSS wrote to Mr Simms to advise that Mr James had been appointed to inspect the books of account of the firm.

On February 19, 2002 the Law Society’s Adjudication Panel resolved to intervene into Mr Simms’ practice on the grounds of suspected dishonesty. The intervention was based on an OSS Report of Forensic Investigations dated January 31, 2002 which was supplied to all the partners of The Bower Cotton Partnership on February 19, 2002. The Report stated (para. 14) that, notwithstanding Mr Simms’ assurance of April 22, 1999 that he would not accept instructions in respect of schemes affecting the firm’s client account for proposed investment money, funds continued to be received and paid after that date.

As a result of the intervention Mr Simms’ practising certificate was suspended, but was reinstated on March 19, 2002 subject to conditions.

On February 27, 2002, all of the then partners (including the 3 salaried partners) in The Bower Cotton Partnership applied to the court to set aside the intervention.

On September 17, 2002 disciplinary proceedings were commenced against Mr Simms by the Law Society.

The disciplinary proceedings were heard in November and December 2003 over about 14 days. On February 2, 2004 the SDT concluded that on the basis of the allegations found proved against Mr Simms he be struck from the Roll of Solicitors. The reasons were given in April 2004.

The SDT concluded in a lengthy decision (at paras. 537 to 544):

“The Tribunal is satisfied beyond any reasonable doubt that relevant evidence placed before it does establish that except for allegations 4 and 6 all the allegations are established and are found proven against [Mr Simms].

…

The Tribunal finds that the schemes themselves involved promises of returns which no reasonable or competent solicitor could have regarded as obtainable without one or other party being involved in transactions which were likely to be fraudulent, illegal or otherwise improper. The involvement of Mr Simms, and often as someone who might benefit from such transactions, and the association that he had with Intermediaries and others who were promoting such transactions, made it impossible for him to give independent advice to all his clients. The Tribunal is satisfied that no such independent advice was given.

The Tribunal finds that Mr Simms acted for or was in a business association with most if not all of the companies and individuals involved in the various transactions and as such he had serious conflicts of interest and duty. This was aggravated by the fact that he had a personal interest through success fees, shareholding interests and as a director of some of the companies. This was in addition to professional fees. The acute conflicts made it quite impossible for him to give independent advice to any of those who were said to be his clients or those to whom he owed duties as a solicitor.

…

The Tribunal was wholly persuaded that Mr Simms was the legal adviser and often the promoter or organiser in respect of the various schemes from which he expected substantial personal benefit and which promised benefits to certain of his clients. The Tribunal has no doubt it was incumbent on him to examine the various schemes and advise independently of any interest of his own or others on likely success or propriety. He lamentably failed to do so. The Tribunal has no doubt that Mr Simms’ willingness to be involved on behalf of so many parties in each transaction contributed to the facilitation of bogus schemes.

…

The Tribunal has no doubt that a transaction which on the face of it promises fantastic and incredible returns for no risk does not have the quality of a likely lawful and honest transaction. Mr Simms did not establish the veracity of the transactions he encouraged nor the bona fides or honesty of those with whom he was dealing. He made no proper enquiry and he took on trust extravagant and unlikely claims. This was not the conduct of an honest solicitor and he put his and the Profession’s reputation for prudence, integrity, honesty and trustworthiness at serious risk. This is all the more so where (as the Tribunal has found) he acted in circumstances of acute conflicts of interest, ignored warnings from responsible third parties, eg banks or professional colleagues, and where he had an actual or potential financial interest beyond any proper legal fees.”

On March 17, 2005 the Divisional Court (Latham LJ and Curtis and Newman JJ) dismissed Mr Simms’ appeal against the decision of the SDT and concluded that he was dishonest: Simms v Law Society [2005] EWHC 408 (Admin.). Its overall conclusion was (para. 188):

“The most serious finding of the Tribunal was, of course, that [Mr Simms] was dishonest. We agree with the Tribunal that the pattern of behaviour by [Mr Simms] establishes that he was not merely foolish and credulous. He was prepared on occasion dishonestly to mislead in relation to the purpose of various transactions … Accordingly we agree that his activities were, unfortunately, properly described as dishonest. That being the case, the order that [Mr Simms] be struck off the Roll is inevitable ….”

III 2002 Agreement and judgment of David Richards J

In May 2002 Mr Simms, Mr Conlon and Mr Harris entered into an agreement to deal with the position of Mr Simms’ suspension from practice.

The agreement was signed on May 15, 2002 (“the 2002 Agreement”) and recited that Mr Simms had left the partnership due to the suspension of his practising certificate, and it was intended that he would rejoin when his practising certificate was reinstated on acceptable terms. Mr Conlon and Mr Harris had asked Mr Simms to continue to provide security for the overdraft and loan facility with Barclays Bank.

It was agreed as follows:

(1)

The liability for the debts of the partnership including the overdraft would be borne in the ratios Mr Simms 50% and the other two 25% each, and that in the event that the security of Mr Simms would be called by the bank at any time they would indemnify him in respect of 25% each of the amount paid to the bank by Mr Simms or obtained by realisation of the security provided by Mr Simms.

(2)

Within 3 months either Mr Harris and Mr Conlon would each respectively provided satisfactory security to the bank for the sum £200,000 so that the limit of liability of Mr Simms to the bank would be a maximum of £200,000 or if Mr Harris was unable to provide such security Mr Conlon would provide security of £150,000 to the bank and thereby relieve Mr Simms of liability pro tanto.

(3)

The overdraft of the partnership would be reduced by October 31, 2002 to not more than £150,000 and by April 30, 2003 by not more than £100,000.

(4)

If Mr Simms did not return as a full equity partner by April 30, 2003 he would leave in place security to the bank for the sum of £120,000 which would be reduced by £2,000 per month over 60 months by the partnership paying to the bank the monthly capital instalment amounts due under the loan arrangements, and to the extent that the security was by April 30, 2003 in excess of £120,000 Mr Conlon and Mr Harris would put forward proposals for the release of Mr Simms from the debts of the partnership and a release of the security provided by Mr Simms in respect of the partnership, such release to be effected not later than September 30, 2003.

In 2003 Mr Simms brought proceedings seeking specific performance of the 2002 Agreement. He applied for summary judgment and the matter came on before David Richards J in January 2004, before the SDT had announced its decision.

On March 22, 2004 David Richards J gave judgment after the SDT had announced its decision, but before it had given reasons. His judgment was in favour of Mr Simms, who was awarded damages (specific performance no longer by then being an appropriate remedy) of £42,927.48 together with £6,000 in respect of arrears of instalment payments and £2,000 a month from February 2004 until monies paid by him to Barclays Bank were refunded to him: Simms v Conlon and Harris [2004] EWHC 585 (Ch.).

David Richards J rejected the contention of Mr Conlon and Mr Harris that the reference to a requirement to “put forward proposals” for the release of Mr Simms from partnership debts meant that the 2002 Agreement was not enforceable as a mere agreement to agree. He also rejected (a) a contention based on an alleged failure by Mr Simms to comply with a condition precedent in, or the terms of, the agreement, and (b) a claim to set-off in relation to partnership accounts because an accounting was required before the amount could be established.

There were also issues arising from the defendants’ contention that specific performance should not be given because Mr Simms did not come with clean hands, or that they had cross-claims against Mr Simms arising out of the matters which were the subject of the disciplinary proceedings, and that the application should be adjourned until after the findings of the SDT were available.

David Richards J held that in relation to certain matters raised by the defendants (including allegations that he had given promises and assurances about his honesty) no attempt had been made to explain how the allegations were relevant to Mr Simms’ claim or how they provided a defence to these claims, nor had any detail been given of the alleged assurances.

He referred to the argument put forward on behalf of the defendants that had they been aware of the scale of Mr Simms’ alleged dishonesty, they would not have entered into the 2002 Agreement. David Richards J said that this case could not stand with the evidence which they had themselves put forward: Mr Conlon, in a memorandum of May 2, 2002 to Mr Simms, had said that the Law Society believed that Mr Simms had been involved in dishonest transactions to an extraordinary degree.

If the case was that Mr Conlon and Mr Harris entered into the 2002 Agreement on the basis of Mr Simms’ statement in February 2002 that he had not been involved in anything dishonest, that defence could have been advanced from the beginning and appropriate directions made for the proper conduct of the fraud claim, and it was too late to raise it at the effective hearing of the Part 8 claim.

An application for an adjournment was not pursued, and David Richards J refused to allow the argument to be re-opened after the SDT had announced that it had found Mr Simms guilty of five of the allegations against him, all of which were serious and involved findings of dishonesty. He said that the purpose of the defendants’ application for an adjournment in January was to put the decision and findings before the SDT before the court, and they agreed with Mr Simms to withdraw that application and not to seek an adjournment. The application to reopen the argument so as to introduce the SDT’s decision was in substance, although not in form, to do the very thing which they agreed not to do. Introduction of the SDT’s decision would not conclude the case in the defendants’ favour. The connection between the dishonesty found by the SDT and the making of the 2002 Agreement would need to be defined and established, as would other issues such as reliance. He said (para. 39): “… the findings of the Solicitors Disciplinary Tribunal are not admissible in these proceedings as evidence of the facts found by the Tribunal; Secretary of State for Trade and Industry v Bairstow …, applying Hollington v F Hewthorn & Co Limited …”

An application for permission to appeal was refused by the Court of Appeal on July 1, 2004: [2004] EWCA Civ 1006. Neuberger LJ said that the judge’s decision not to allow oral argument to be re-opened was right and had no prospect of being overturned. The judge was entitled not to admit evidence of the SDT’s decision, the defendants having elected to proceed with the hearing before the SDT decision had been given.

Mr Simms says that, as a result of the judgment of David Richards J, at the date of the trial of this action, Mr Simms would be immediately entitled to £90,927.48, together with interest of 8% per annum from the date of the judgment and continuing payments of £2,000.00 per month until the full sum of £146,927.48 paid by him to discharge the Mr Simms’ overdraft with Barclays Bank Plc is discharged.

IV The present proceedings

These proceedings were commenced in February 2004, after the argument before David Richards J, but before judgment. The judge referred to the fact that both Mr Simms and counsel for Mr Conlon and Mr Harris had submitted that the issue of such liability should not be determined in those proceedings. Accordingly he stayed execution until determination of the claim by Mr Conlon and Mr Harris in these proceedings, which (he said) should be prosecuted expeditiously (para. 36).

There are some claims which are no longer pursued. In particular, there is now no claim for rescission of the partnership agreements. No remedy is sought in relation to the 2002 Agreement. No remedy is sought in relation to pleaded allegations that Mr Simms falsely assured Mr Conlon that (a) he need have no concerns as to the nature of transactions through accounts set up with the Bank of Ireland; and (b) statements by two solicitors to Mr Conlon that Mr Simms was dishonest and would be struck off were without foundation and made out of spite. So far as now material the relevant pleadings are as follows.

The claimants now say that at some time after January 18, 2000 (when the other partners accepted the Birchams offer), Mr Conlon and Mr Simms had oral discussions which led to the formation of The Bower Cotton Partnership commencing on May 1, 2000. In the amended defence Mr Simms says that the agreement to commence the partnership in the same premises was immediately following Mr Simms’ rejection of the Birchams proposals in December 1999, and the agreement was in or about December 1999 and not March/April 2000 (as originally pleaded by the claimants). In the amended reply the claimants say that the agreement between Mr Conlon and Mr Simms to continue as partners was not made immediately following Mr Simms’ rejection of the Birchams proposals. There were a number of discussions between Mr Conlon and Mr Simms and also between Mr Conlon and Mr Guy Vincent and Mr Michael Parker who were doing much of the negotiation with Birchams. The partnership commenced on May 1, 2000.

The Elite Corporation (“Elite”) and The Charlton Corporation plc (“Charlton”)

The claimants say that in the course of the discussions Mr Simms told Mr Conlon that: (1) Elite for which he acted was a substantial entity and would provide a valuable source of income; (2) Charlton was also substantial and would provide a valuable source of income: Amended Particulars of Claim, para. 1.4.

Those representations were untrue to Mr Simms’ knowledge, in that (ibid., para. 8A):

(1)

neither Elite nor Charlton was a substantial company;

(2)

they were companies with little or no assets;

(3)

neither of the companies was able to generate any profitable business for the partnership;

(4)

both corporations were instruments of fraud as found by the SDT.

The representations induced Mr Conlon to enter into the two partnership agreements of May 1, 2000 and September 1, 2000 and but for them he would not have altered his position by entering into them: para. 8C. Alternatively, the misrepresentations were a breach of the term of good faith implied into each of the agreements: para. 8G. Mr Simms is also said to be liable in negligence and under the Misrepresentation Act 1967: para. 8G.

Mr Simms denies that he told Mr Conlon what is alleged about Elite and Charlton. Neither Elite nor Charlton formed any part of the discussions regarding the formation of the partnership. Elite had never been a significant client of the firm and no fees whatsoever had been charged or received from it. Charlton, as Mr Conlon well knew, had been a start-up company to handle a project to design, construct, equip and operate a hospital bed factory in Bangladesh. By September 1998 the contract with Dadourian Group International Inc (“DGI”) to acquire the production line had been repudiated and DGI and Charlton had been involved in court proceedings in New York and then arbitration proceedings in London from December 1998 onwards. Accordingly, the fate of Charlton as a client depended on the success in the arbitration and without such success Charlton was likely to cease business altogether: Amended Defence and Counterclaim, para. 1.4. It is denied that Mr Conlon was induced by any such misrepresentations to continue in partnership with Mr Simms: para. 7.2. Mr Conlon needed to continue in partnership with Mr Simms, because he had been made no acceptable offer by Birchams: para. 8C.

The claimants

The claimants say (Amended Particulars of Claim, paras. 2.1 – 2.2) that Mr Simms owed to Mr Conlon a duty to make positive disclosure of anything which might affect his status as a solicitor and his ability to enter into the partnership agreement, and he failed to disclose to Mr Conlon the following relevant facts and matters:

(1)

that he had been actively involved in making and promoting or facilitating bogus transactions;

(2)

that he had recommended that clients used purported businesses without having regard to what was in the clients’ best interests;

(3)

that he had acted for two or more clients when there was a conflict between their interests;

(4)

that he had made deceitful representations to third parties;

(5)

that he had failed to comply with the Solicitors’ Separate Business Code in relation to BC Projects Ltd. (a consultancy established by Bower Cotton in 1995).

Under this head Mr Conlon says that he will rely upon the findings of the SDT made on February 2, 2004 and upon such further reasons as it might produce thereafter: para. 2.3.

It is pleaded that if Mr Simms had made these disclosures Mr Conlon would not have entered into the partnership agreement: paras. 2.4, 8C.

The same matters are repeated in relation to Mr Harris, and it is pleaded that he would not have joined the partnership if disclosure had been made: paras. 3.2; 8D.

In relation to these matters Mr Simms necessarily represented that he was entitled to practise as a solicitor and that there were no matters which would affect that status, and in omitting to bring forward those matters Mr Simms misled the claimants into entering into the partnership agreements; alternatively, the nature of the agreements gave rise to a duty of disclosure: para. 8B. It is pleaded that the failure to disclose was a “passive representation”: paras. 8C, 8D, and 8G.

It is also pleaded that Mr Simms is liable for the passive statements in negligence and under the Misrepresentation Act 1967: para. 8G.

Further or alternatively, the non-disclosure constituted a breach of the implied duty of good faith implied into the Agreements (which in context means the two Partnership Agreements of 2000, and the May 2002 Agreement): para. 9.

In the amended reply it is pleaded that in his letter of April 22, 1999 to the OSS Mr Simms stated he would not accept instructions in respect of banking instrument transactions involving the firm’s client account. Mr Conlon and the other partners accepted Mr Simms’ assurances: para. 2.2. Mr Conlon relied on Mr Simms’ assurance that there was no substance to the allegations made by the OSS. Mr Simms was aware that he had been involved in deceitful and fraudulent activity which rendered him unfit to continue practice as a solicitor: para. 2.3. Mr Simms repeatedly assured Mr Conlon that he had done nothing which was dishonest: para. 2.4.

Mr Simms

The Amended Defence and Counterclaim denies that Mr Simms was under any duty to disclose those matters: para. 2.1. Without prejudice to that contention, the substance of the facts underlying the five matters was the subject of extensive debate within the partnership in March 1989 following the inspection in February 1999, a meeting with senior officials of the OSS in March 1999 and the preparation of a letter dated April 22, 1999, in which Mr Simms had set out to the partners his answers to the allegations regarding the matters which (or some of which) formed the basis of adverse findings. It was a partnership decision to establish BC Projects Ltd: para. 2.2.

Mr Simms could not anticipate the findings of the SDT on February 2, 2004. The fact that the disciplinary proceedings might be commenced against Mr Simms was well known to Mr Conlon prior to his agreeing to continue with the partnership by reason of the inspection etc., the new OSS inspection in November 1999 and the fact that Mr Carr had commenced proceedings: para. 2.3.

Mr Harris was informed by Mr Simms that the OSS was continuing an inspection into the firm: para. 3.2.

The findings of the SDT are inadmissible: para. 8A(iii).

Mr Simms denies any misrepresentation, any duty to disclose, or any non-disclosure. The claimants were well aware when entering into each of the agreements of the allegations forming the basis of the subsequent disciplinary hearing before the SDT: para. 8B.

Claimants’ reply

In the amended reply it is denied that substance of the facts underlying the alleged non-disclosures were the subject of extensive debate within the partnership. Mr James in his report of February 25, 1999 to the assistant director of the Solicitors Practice Unit made none of those allegations: his report dealt with banking instruments transactions and the allegations by Mr Carr. In his letter of April 22, 1999 Mr Simms stated that he would not accept instructions in respect of banking instrument transactions involving the client account for proposed investment money, and Mr Conlon and the other partners accepted the promises Mr Simms gave them. Mr Conlon was not aware of how Mr Simms was using BC Projects Ltd. It is denied that Mr Conlon was aware in late 1999 or early 2000 that disciplinary proceedings might be commenced against Mr Simms. The investigations might not have happened if Mr Simms had complied with the letter of April 22, 1999. It is accepted that the findings of the SDP could not be anticipated. Nevertheless Mr Simms was aware that he had been involved in deceitful and fraudulent activity which rendered him unfit to continue practice as a solicitor.

Mr Conlon had no intention of carrying on the partnership on his own. It is denied that he knew that a disciplinary process would result. Mr Simms repeatedly assured Mr Conlon that he had done nothing which was dishonest. Mr Harris was not aware of the OSS investigation until after he joined the partnership. Had he been aware of the investigation he would not have joined the partnership.

The claimants accept that they received a copy of the forensic report and the Office Note and read them. Evans-Lombe J found that Mr Simms had to know that he was dishonest and that his challenge against the content of the forensic report would fail. If the claimants had been aware of Mr Simms’ dishonesty they would not have entered into any agreement with him nor given him the support they gave him until it was apparent from the further and detailed evidence provided by the Law Society that he was dishonest. It is admitted that Mr Conlon attended a meeting with all the partners of Bower Cotton and the OSS in March 1999. Mr Simms knew that he was lying when he was asked to deal with the issues raised by the OSS and he continued with his dishonesty notwithstanding the undertakings he gave following on the March 1999 meeting. The claimants were not aware of his dishonesty until the Law Society served their detailed evidence following on their examination of his files.

Issues

It has been directed, by orders of February 10 and September 30, 2005, that this trial be limited to the misrepresentation/negligence issues. I should add that despite these orders Mr Simms has argued that the claims should fail at this stage because the claimants have not shown damage. There is nothing in this point.

V The facts

Discussions with Birchams

From August 1999 Birchams were conducting negotiations with Mr Vincent on the basis that, of the Bower Cotton partners, Mr Simms would be offered the largest share of profits and that Mr Conlon would be among those who would not be offered equity partnership, but salaried partnership at a salary based on seniority and billings.

There was a meeting on August 5, 1999 between Mr Vincent and Mr Brown. Mr Brown asked Mr Vincent “If [Mr Simms] always got his way” and Mr Vincent minuted “I told him the truth”.

The offer from Birchams on October 6, 1999 stated that they were prepared to offer Mr Conlon a lower equity share, or a salary of £90,000. Mr Conlon found that unacceptable, and he was supported by Mr Simms, who at about this time wrote a note to the partners that stated on balance he did not consider that the time had yet come to abandon their name and destiny, and the cons outweighed the pros. One of them was the lack of equity for 3 partners, particularly Mr Conlon.

Mr Conlon said in a note of November 25, 1999 to Mr Simms and Mr Vincent:

“On at least four occasions I have said that not disclosing the OSS Enquiry until late in the day might make Nick Brown think that we are not as good as our reputation and standing. I appreciate Guy’s reasoning – up until last Friday it looked as if we may have been signed off so that it was no longer a problem. It is going to be some months before we will know from the OSS whether it will result in disciplinary proceedings and I am still of the view that the line I suggested at the PM yesterday is the best namely that your meeting with Ian McCulloch and Nick Brown should be postponed until you both have had the further meeting with the Investigating Accountant, Hird. You should be able to judge by the questions he asks what he is likely to say in his report and a decision can then be taken whether Birchams are told.

It would damage our reputation if we agreed the terms of a merger and Birchams then withdrew on hearing of the OSS Enquiry – the reason for the collapse of the merger would not remain confidential and until we knew the outcome of the Enquiry we would be handicapped on both the merger and bolt-on prospects – it would soon get out that it was the OSS Enquiry which frightened off Birchams.”

There was a meeting on November 26, 1999 between Mr Simms, Mr Vincent and three members of Birchams, including Mr Brown. Mr Vincent recorded that after Mr Simms had left the meeting: “ … they asked about compliance systems so I described in glowing terms our systems.” He went on:

“As this seemed a convenient moment I dropped into the conversation that the Law Society had been round last August following a complaint by Carr. I explained the odd behaviour by Carr, that a report was due, that we had a follow up last week, that we had received a report and had responded to it and that the matter was ongoing but that we did not believe that we had anything to answer for. They remained calm and said that they too received a visit last year about a complaint but they never found out what the complaint was about and as far as they knew the matter was closed. I promised to write to them with details”

At a partners meeting on December 7, 1999 Mr Simms announced on behalf of himself and Mr Conlon that they did not wish to join Birchams but would not stand in the way of other partners who did. They wished to continue Bower Cotton. Any arrangements should be sorted out and in an amicable manner and they would waive any requirements in the partnership deed that would stand in the way of this arrangement. The remaining partners would approach Birchams to see if they still wished to proceed with the negotiations.

In this period Mr Simms and Mr Conlon took the position that they would be the continuing partners of the firm, and that the other 6 partners would simply be leaving the firm.

On December 23, 1999 Mr Brown of Birchams wrote to Mr Vincent to say that they were still keen to continue with the proposed merger even if neither Mr Simms nor Mr Conlon wished to join them.

On January 18, 2000 the other partners wrote to Mr Simms and Mr Conlon to report that the partners of Birchams had on the previous evening approved the recommendation of their executive committee to approve the terms offered to them. They set out proposals to resolve the division of the firm and its assets. They asked for confirmation that Mr Simms and Mr Conlon would agree to a surrender of the lease and that they would give up their claim to use the name Bower Cotton. They also made it clear that if for any reason the deal with Birchams went off they would all intend to seek to move to another firm as soon as possible because they now had irreconcilable difference about the future of the firm and the conduct of its business. The note went on:

“Paul has in the past asserted that our concerns with his practice relate to the Birchams debate. This is not the case. The OSS investigation commenced well before the approach from Birchams was received and since then we have spent a lot of partnership time on the issue and we remain firmly of the view that the type of work that we have debated is not the sort that a firm of which we are partners should engage in. On this point at least it may be that Michael is in agreement with us. We do not believe any other partnership would take a different view and therefore that means that Paul is highly unlikely to agree to any merger proposal as the same issue would inevitably arise. The point is a very real issue for us for the remainder of our time together and conceivably this could be until 30th April next year. We will have to consider what are the appropriate terms for the firm to trade.. We do not feel that Paul should remain Senior Partner, not because of any difficulties over Birchams, but because of the recent problems over compliance and the Law Society investigation of his files. This post comes up for re-election by majority vote on 30^th April 2000 if nothing occurs before then. The Management Committee must tighten up on compliance issues, in particular the reporting of any worrying transactions, and the identity of clients and whether the firm as a whole wishes to act for them generally or on particular categories of work.”

On January 18, 2000 Mr Conlon wrote to Mr Simms to say that it had to be in Mr Simms’ interest to bring the OSS investigation to a head. If it was still continuing at the time they told clients of the partnership split, then it would enable the other six to say that Mr Simms was under investigation and that they had lost confidence in him as senior partner, and they should not give them the opportunity of being able to use the OSS investigation against him.

In mid January 2000 Mr Simms and Mr Conlon agreed that the profit shares between them would be that the first £100,000 would be split equally and that the profits in excess of £100,000 would be split 65% to Mr Simms and 35% to Mr Conlon.

The effect of the evidence of Mr Simms and Mr Conlon was that by December 7, 1999 that they had agreed not to go with the other partners to Birchams and that they had decided to continue in practice together, and that by mid-January 2000 they had agreed on the profit split. At that time what was envisaged by Mr Simms and Mr Conlon was a continuation of the Bower Cotton partnership, with the other partners leaving, and with Mr Simms and Mr Conlon having a new agreement as to funding of the firm and profit shares. When the other six partners announced on January 18, 2000 that they were accepting the Birchams’ offer, it is clear from their memorandum to Mr Simms and Mr Conlon that at that stage dissolution was a last resort, and that what they were then contemplating was the continuation of the partnership by the six partners by “retiring” Mr Simms and Mr Conlon, or by the six partners resigning and leaving Mr Simms and Mr Conlon as the partners (subject to agreement as to the use of the firm name). It was not until later (in February or March 2000) that the agreement between Mr Simms and Mr Conlon became an agreement to enter into a new partnership.

The new partnership

According to Mr Simms, the first year of Bower Cotton was successful with a turnover of approximately £1.6 million in fees to which Mr Simms and his department contributed approximately 50%. The following year, to April 30, 2002, produced a similar turnover figure notwithstanding the intervention on February 19, 2002.

On November 1, 2000 Mr Roland Jackson, corporate director, at NatWest Corporate and Commercial Banking, City of London Office, wrote to Mr Simms as follows:

“ … I have … taken the opportunity to review the occasions on which the Bank has had concerns over business which has either been introduced by you to the Bank or over sums which have actually passed through your firm’s account with NatWest. I attach a Schedule which sets out a number of matters, involving you or your firm, which have required careful consideration by the Bank over the last few years.

…

All this has lead us to the conclusion that the working relationship between your firm and this Bank has been seriously damaged. You may not share that view, but I think you will agree that when one party to a commercial relationship is undeniably of that opinion then it is best that the relationship terminate. I have taken account of the long relationship the Bank has enjoyed with your firm and I would ask you to accept that I have not come to this conclusion lightly. Unfortunately, the number and nature of the incidents detailed in the Schedule to this letter leave me with no alternative. Regretfully, therefore, I must ask your firm to make alternative banking arrangements.”

The schedule was not among the papers at the trial. Mr Simms wrote a memorandum in anticipation of the receipt by Mr Conlon, Mr Harris and Mr Richardson of that letter and said that the attitude of NatWest had generally been unhelpful when they had referred new business to them.

On November 15, 2000 Mr Simms replied to Mr Jackson as follows:

“My firm has conducted its banking for clients and on its own behalf impeccably over the years and we have generally had no reason to complain about NatWest Bank. On the only occasion that a meeting took place in our offices relating to the bank’s concerns, they appeared to centre on the activities of Citizens Asset Management, a client I had introduced, where there was anxiety that the company might be entering to deals where it might be defrauded. I explained at the time, that we were not involved in or aware of what the client was doing with his own account but would immediately pass on to the signatory your concern.

I was alarmed at that meeting that the bank officials were not in the slightest interested in the due diligence procedures we had in place and the checks we had made before we had received some large dollar amounts in preceding months. … I also made clear, that … we carried out much more than cursory checks on new clients, who were generally recommended to us …

… No client of ours has been the victim of PBI fraud and, obviously we have not been involved in any such activity.

…

As a solicitor of over 30 years standing, a chairman of two publicly quoted companies and a director of many UK and overseas companies, I am pleased to say that I am held in high regard by my clients who know that I offer them excellent service and advice and would never let them down.”

Law Society investigation, 1999; Trinity Union/Scroda; Elite

In this section I will set out more fully what was outlined in Section II above. As I have said, on August 28, 1998 the OSS wrote to Mr Simms as senior partner to say that Mr James, acting head of the Monitoring and Investigation Unit, had been appointed to inspect the books of the firm.

On February 25, 1999 Mr James wrote to Mr Stevens, assistant director, Solicitors Practice Unit, OSS, reporting on the inspection of the firm’s books which had been completed by Mr Hird. No action was recommended by the Law Society in relation to issues concerning compliance with the Solicitors’ Accounts Rules, but attention was drawn to matters relating to what were described as “Banking Instrument Transactions.”

The essence of Mr James’ report was that:

(1)

During the period from December 1997 to September 1998 the firm had received more than US $50 million (in sums varying between about $1 million and $10 million) into its client bank account. The principal clients involved were Nikea NV (“Nikea”) and Hackar Funding Corporation NV (“Hackar”).

(2)

Mr Simms had stated that some funds had been received in respect of major project funding in the third world and other amounts in respect of potential investment opportunities. Nikea acted as an intermediary party, assisting in the placement of investments. Mr Simms was a director of Hackar which was a potential nominee investor.

(3)

Mr Simms said that the funds were received from various potential investors, who were not clients of the firm, and were held by the firm as stakeholder: he did not provide advice to any of the potential investors and in all cases the funds received were subsequently returned to the potential investors with interest as no suitable investment opportunity could be found.

(4)

By way of example the report referred to about $10 million received on September 22, 1998 from Globus Investments Inc, which was recorded on the client ledger of Hackar, and which was transferred 2 days later to an account at the Bank of Ireland, London NW6, in the name of Hackar. Mr Simms said that the transfer was effected by him on the instructions of the solicitor acting for Globus, and that two signatories were required to withdraw funds from the account at the Bank of Ireland (namely Mr Bitel of Max Bitel Greene, and Mr Simms himself or another officer of Hackar). Mr Simms had said that the investment activity should have been known by October 30, 1998. On December 16, 1998 just over US $10 million was lodged in the firm’s client bank account to be held to the order of Globus, and 2 days later at the request of Globus $10 million was returned direct to Globus and the balance, being interest, was paid to Max Bitel Greene a few days later.

The report pointed out that the other funds followed a similar pattern, and Mr Simms had said that no investment opportunities had come to fruition. The firm’s role was purely that of stakeholder in respect of investment monies. The firm received costs totalling £3,520 in respect of two of the transactions only, and Mr Simms said that he had not charged costs as until such time as the investment programmes succeeded there was little point in rendering a bill to Nikea or Hackar as neither organisation would be in a position to settle the charges.

The other matter concerned a complaint by a Mr Malcolm Carr. Mr Simms acted for Kelci Management Consultants Ltd who were fund managers in investment programmes. In May 1998 Mr Carr signed a limited power of attorney in favour of Kelci and two directors, Mr Weaver and Mr Adkins, authorising them to administer the placement of funds in an investment programme. On May 18, 1998 about $4 million was received from Mr Carr and lodged in the firm’s client bank account. It was recorded on the client ledger account of Kelci, and on the same date a fax was received from Mr Carr stating that the funds were to be applied in accordance with the agreement and limited power of attorney.

On the same day Mr Simms sent a fax to Mr Carr saying that Messrs Adkins and Weaver wished to exercise the power of attorney to move the funds to an account at the NatWest bank in Jersey. He said that as the funds were in their client account in the name of Mr Carr, and not in the name of Kelci, he was not prepared to transfer the funds without security unless Mr Carr expressly authorised him to do so. Mr Carr returned a signed copy of the fax on the next day, when Mr Simms also received instructions from Mr Adkins to transfer the money to NatWest bank in Jersey to the account of DFM Consultants Ltd. Mr Simms reported to Mr Carr that he had received instructions to transfer the sums to NatWest bank in Jersey. On May 20, 1998 Mr Simms received a fax from Mr Adkins instructing him to substitute Unibank Copenhagen, and the account of Kelly Pahl & Associates Ltd. Mr Simms acted on this instruction, and informed Mr Carr without obtaining Mr Carr’s approval. Mr Carr complained to the OSS in July, 1998 expressing his concern about the location of his investment and alleging that funds were transferred to Unibank Copenhagen without his consent. On October 22, 1998 Mr Simms told the OSS that the money should be in UBS Zurich the following week and as soon as the funds were received they would be transmitted to Mr Carr. But when the OSS visited the firm on January 26, 1999 Mr Vincent said that the firm, acting on behalf of Kelci, had obtained a Mareva injunction against Mr Larkin Pahl in the sum of $39 million, and Mr Vincent confirmed that Mr Carr’s investment was included in that sum. In a letter to the firm of January 14, 1999 Mr Carr stated that although he had differences with Bower Cotton, he regarded the action taken by Kelci as a proper response to his complaint that action should be taken to recover funds.

In response to the report, in a letter of April 22, 1999 on behalf of the firm, Mr Simms said that the firm’s reputation for financial probity was undoubted, and it had never knowingly put any funds of clients at risk or misapplied them in any way. Since the introduction of the money laundering regulations, systems had been instituted to ensure that the firm was not used for money laundering activities. He made the following points:

(1)

The money referred to in the report of February 25, 1999 came from non-clients and were held in a stakeholder capacity by the firm on behalf of Nikea and Hackar, but the firm carried out the same checks on the payers and the source of the funds as if they had been clients of the firm in order to satisfy themselves of the satisfactory origin of the funds.

(2)

In the case of Globus and Chesterfield Capital Resources the parties were separately represented by other London solicitors, and in the case of J Waggoner and G Busiek these parties had their own investment advisers.

(3)

The firm was not involved in and did not permit any clients knowingly to be involved in any activity which was intended to cause money of any investor to be put into banking or other financial instruments which it believed did not exist or were fraudulent.

(4)

The firm was performing a legitimate legal advisory function of behalf of Nikea and Hackar in reviewing any potential transaction which was brought to it for advice.

(5)

During the period January 1998 until September 1998 Nikea was dealing with a succession of parties who made claims to have the ability to be able to take smaller deposits and effectively “pool” them without co-mingling the monies to reach the required entry levels to the type of funding operations which would receive much greater than usual returns, but on investigation it appeared unlikely that those claims would be fulfilled and where it appeared unsafe to go forward Nikea’s clients were kept informed by Nikea and decided to leave their funds on deposit for differing periods.

(6)

By late September Mr Simms was reasonably satisfied that the parties with which Nikea was proposing to do business were genuine.

(7)

As a result in October 1998 Hackar as a nominee for Globus and Zumbo, who had provided the funds, entered an investment where their funds were retained on deposit; the total funding pool had exceeded $300 million and a profit of $1.5 million was due to Globus, but as result of the activities of one of the participants there had been a breach of some of rules of the funding operation and consequently until the US regulatory authorities were satisfied with the situation they were not permitting Midland Bank plc to pay out the profit share. Much activity had subsequently taken place in the United States and in London to clear the situation and payment had only recently been authorised so that Globus should receive its $1.5 million shortly.

(8)

The principals of Nikea were Mr Newton and Mr Wyatt and their interest in the funding operations was to assist in the funding of various projects in Nepal and India, including the Melanchi water treatment project in Nepal.

(9)

Mr Carr had no legitimate complaint of the firm’s handling of the matter.

He dealt with a number of specific points raised by the Law Society in a letter of March 26, 1999, including saying that Hackar was formed on the instructions of Nikea to be a potential nominee investor, and Hackar was effectively the vehicle through which any proposed investment would be channelled. There was no conflict or potential conflict of interest, since Hackar was an adjunct of Nikea. The firm had not received any funds from any clients for the use in schemes of the type referred to in the report since the Globus funds were returned at the end of December 1998.

Mr Simms ended the letter by saying:

“We have decided that the amount of time involved in acting for parties to schemes of the type described in the report is disproportionate to the reward and that we will not accept instructions in respect of the schemes involving the use of our client account for the proposed investment monies.”

The OSS enquiries continued, and in a letter of November 15, 1999 the OSS wrote to Mr Simms to advise that Mr James had been appointed to inspect the books of account of Bower Cotton.

Trinity Union/Scroda Ltd/Grosvenor & Partners Ltd

In December 1999 three sets of correspondence addressed to or copied to Mr Simms came to the attention of the partners, and were the subject of concern to the partners.

The first was a letter from Trinity Union Capital, Ltd (“Trinity Union”) dated November 9, 1999 under the signature of T. Peter Guinn. The letterhead showed its address as 36 Whitefriars Street, London EC4Y 8BH, which was the address of Bower Cotton, with a globe logo. It was addressed by Mr Guinn to a company in Tulsa, Oklahoma, and marked “cc: Paul Simms.” The letter read:

“This letter is to confirm our discussions pertaining to the parameters and procedures of our endeavour. Please be advised that we are ready, willing, and able to arrange this transaction in the following manner.

1)

You travel to London to enter a contract through our counsel, Paul Simms, of the Law Firm of Bower Cotton.

2)

You transfer, to the escrow account of Bower Cotton, the amount of Ten Million U.S. Dollars ($10,000,000.00 USD). These funds will be held to your order, at market interest, protected by an undertaking from the Law Firm, and with a weekly statement.

3)

These funds will be utilized in a procedure available to us, to generate the proceeds need to raise a bond issue in the amount of One Hundred Million U.S. Dollars ($100,000,000.00 USD) for your firm. You will provide the project for the bond proceeds.

4)

We would contract for profit sharing on the return from the escrowed funds and the returns based on the face value of bond proceeds utilized by you for profit generation. On all returns the profit would be split on a Seventy Percent/Thirty Percent (70%/30%) basis. Seventy Percent (70%) to your company and Thirty Percent (30%) to ours. The returns on the escrowed funds (ie. the Ten Million U.S. Dollars ($10,000,000.00 USD) held in escrow) would not [be] distributed or subject to distribution until such time as the cost of the bond issue (app. Four Million U.S. Dollars ($4,000,000.00 USD)) has been achieved. Based on an annual return of One Hundred Fifty Percent (150%) this would be app. Ninety (90) days. Then the distribution on those returns will start and will be distributed by Bower Cotton on the profit sharing basis described above.

5)

The raising of the bond will take app. 120 days to complete. The preliminary work being done in December and starting the issue off to market in January.

If the above is acceptable to your company, please return a letter of intent to move forward and a proof of funds (bank statement or letter) in the amount of Ten Million U.S. Dollars. ($10,000,000.00 USD) by facsimile, to following address:

Trinity Union Capital, Ltd.

Attn: Paul F Simms

36 Whitefriars Street

London, U.K. EC4Y 8BH

Fax 011 44 (171) 583-2869

I await your response and remain with regards, …”

Mr Simms says the partners learned of the fax because there was a common fax machine. He later told the partners that he had not given authority to Mr Guinn for the firm’s address to be used, or for its bank account to be nominated.

The second matter was a letter from Scroda Ltd. From its letterhead it appears to be an English registered company, with an E2 PO Box number address. On December 9, 1999 Scroda Ltd wrote to Mr Simms stating that it would like to retain the firm in respect of three matters: first, in respect of the Bank of Scotland; second, in the matter of Grosvenor & Partners Ltd’s purchase of a bank guarantee from Canada Trust Bank; third, a substantial leasing transaction which Scroda was undertaking in Mexico through their associated US corporation, Cornwallis Capital Corp with Hyundai, Nissan and Association Nacional de Transporte Federal Estatal of the Republic of Mexico.

The third matter was a series of documents from or to Grosvenor & Partners Ltd (a BVI company with a London E2 address). On December 9, 1999 Mr Chris Osbourne-Shaw wrote a note to Mr Roddam Q Twiss on the letterhead of Grosvenor & Partners Ltd about a leverage programme, and it was copied to Mr Simms. It read:

“I have been advised by Wendell Gates, who was with us yesterday, that he wishes to proceed immediately with this transaction to start on Monday. Elmer Bradley and Craig Pickering are also proceeding but will probably take 2-3 days longer, since they are returning to the US today (Wendell is staying on in London) and therefore will go in on the second transaction.

I am also advised that Andy Mangano (MFP Investments) and Mr & Mrs Stewart Rich are ready to transmit their funds in time for a Monday start. Their respective attorneys will be making contact with Paul Simms today for confirmation that your instructions to him are as represented. I have not heard from Ed Gilbert.

There is a possibility that I will have one more $1m investor for the first transaction on Monday, who is also a London solicitor, but I will advise on this later in the day.

Please confirm that I may forward Bower Cotton’s bank co-ordinates to Wendell Gates, Andy Mangano and Stewart Rich in time for the opening of their bank day in the U.S.”

Mr Simms was also sent correspondence in September 1999 between Chase Manhattan, Woodbury, NY, and Grosvenor & Partners Ltd listing 4 accounts for Grosvenor & Partners, and confirming that one of the accounts had balances of over $4 million.

The Trinity Union/Scroda letters were on the agenda for the partners meeting of December 15, 1999.

Prior to the meeting Mr Simms wrote a note which commenced by saying that although Mr Vincent might have his own agenda for sending alarmist messages and seeking to discredit Mr Simms within the partnership, he wished to make a few matters clear. In his note he made the following points:

(1)

Trinity Union was a company brokering deals, with its principals being based in the United States. They entered into a bridging transaction for $200,000 on the basis that they would be repaid their loan and a fee of $20,000 when the transaction organised by Jacobs Minet, solicitors, completed at the end of April. David Jacobs was supposed to be arranging a mortgage on some commercial premises in Turkey. They took an unqualified solicitors’ undertaking from Jacobs Minet for the repayment. Mr Guinn came to the United Kingdom at the end of April but no money was returned, and they called on the undertaking which was not honoured and this led to them making a complaint to the OSS about Jacobs Minet. They eventually sued Jacobs Minet and obtained judgment.

(2)

Trinity Union through Mr Guinn talked to a small investment bank in Tulsa about the firm helping them to raise a bond on the United States market, and Mr Simms had indicated that they could assist in plugging them into the appropriate lawyers, underwriters etc. and what they were planning for the raising of finance for the power project in India. They would coordinate the task and be paid accordingly. He told Mr Guinn expressly that they would not give their undertaking in respect of funds received, and if the investment bankers wanted to bring their funds to London they would need to come here and open their own account.

(3)

The fax that Mr Vincent had circulated was dated at the beginning of November and sent by Mr Guinn, and he has made clear to the investment bankers since then that they were not giving undertakings regarding funds.

The minutes of the meeting of December 15, 1999 record:

“2.

All the Partners expressed to PFS their unhappiness about the instructions that he continues to receive in receive in respect of dollar transactions which have a strong flavour of money laundering. They were also concerned about the suggestions by clients that they should use our client account and do use our address.

3.

PFS stated that the Trinity Union letter was a misunderstanding and that he had not given his authority for Trinity Union to use our client account. He said that he had not given anybody the authority to use our client account and would not do so.

4.

PFS also stated that Trinity Union did not have his authority to use our address on its notepaper and that he would ensure that it was removed.

5.

PFS explained the transaction that he had been instructed on by Scroda, how investors were to send us funds to buy a bank guarantee from a bank in Amsterdam once we had done due diligence on the deal. He said that an independent consultant accountant had was [sic] checking the investors. The bank guarantee would then be sold and the funds sent to us to distribute, partly to fund a housing scheme in Argentina.

6.

The partners were concerned about the Scroda deal and agreed that PSS, as compliance officer should examine and monitor the deal to ensure that we have complied with all our duties.”

Shortly afterwards Mr Vincent wrote a note to Mr Simms after the partners meeting. He said:

“Your explanations of the position with Trinity Union Scroda and indeed all these types of business have not satisfied the partnership.

1.

We have devoted an inordinate amount of time to debating this work and the general unease remains with everyone apart from yourself.

2.

You are devoting what seems a similarly inordinate amount of time to activity which is not actually producing any revenue for the partnership.

3.

It would seem that the OSS remain unconvinced of the legitimacy of these transactions.

4.

None of them have ever worked. We seem to have had three which have actually demonstrated failure:

a)

Kelsci where you believed the transaction had succeeded but it became clear the monies had been defrauded producing a substantial amount of litigation which has recovered nothing

b)

Hacker where again you claimed success but no money was paid

c)

Trinity Union where you had to sue the other solicitor and report him to the OSS merely to get the original money back

5.

The people associated with these transactions are not reliable. Yet again we have a situation where they are bandying about our name address telephone number and client account details. This is not the first time and your relaxed attitude to what in our view are serious acts by your clients cause concern.

6.

It was specifically agreed that none of these clients would use our offices independently of you. Newton seems to have re-appeared holding meeting[s] in our building and wandering about as he pleases where other client files are held. He is another person who used notepaper with our address and telephone numbers on them and we believe actually takes calls at our office.

7.

These same clients require you to allow our client account to be utilised for cash payments in circumstances that are not acceptable. It is beyond belief that any reputable client particularly ones claiming to access multi million dollar funds cannot legitimately obtain proper banking facilities of their own. Again the circumstances of the cash payments are being closely looked at by the OSS

8.

We have demonstrated to you [on] numerous occasions that this type of work is positively disliked by the partners and our unease increases as more comes through the door. You have not demonstrated to anyones satisfaction that any participant in these areas of work is a client that we would wish to have.

None of your partners wish to be involved in the receipt of or the transmission of funds in any of these transactions

We have resolved therefore that:

The firm should cease to act on any of these transactions unless the format has been disclosed to and agreed by the partners in advance

Any dollar funds received by any client other than an institution shall be automatically reported to NCIS

Any dollar funds currently held will only be remitted back to the account of origin

No cash sums for any purpose will be paid to these clients

Mr Newton or his associates are not to attend at our offices again”

On December 22, 1999 Mr Shaerf wrote a note to partners drawing attention to the fact that the first two transactions in the letter of December 9 involved the purchase and discounting of bank guarantees, and that there was no trading of such instruments in the legitimate financial market. He remained unconvinced that the firm should act, and thought that if money was received in relation to any of the transactions it should be reported to NCIS. He was satisfied, on looking at the Scroda letter on the one hand and the Law Society Yellow Card on banking investment fraud on the other, that they were on notice that the transactions proposed might be a fraudulent investment scheme. The letter contained so many of the hallmarks highlighted by the Law Society that even if the whole transaction were entirely innocuous his advice was that unless they ceased to act at once and never received any money relating to it into their client account, they would be foolish in the extreme not to report it.

Mr Simms responded in a note sent to all partners (probably on about December 23, 1999) by saying that Mr Vincent’s note was a complete distortion of the facts. In particular he said that the Trinity Union transaction had nothing whatever to do with Hackar transactions. His clients were international and dealt in dollars and not pounds, and when they were instructed to handle transactions they were expected to deal with them in the usual way, by holding client funds until a transaction completed and then transferring the funds to the relevant party. He insisted that all clients prove the cleanliness of their funds before transfer to their accounts and there has not been any suggestion by the OSS or anyone else that they had received any funds that were in the slightest tainted. Where a client wanted to transfer dollar funds to their client account for a transaction upon which they were instructed, he required to know the provenance and to notify their bank of the transaction and the bank officer of the remitting bank so that their bankers could satisfy themselves of the legitimacy of the transaction. In most cases, because of the nature of the clients, there was no reason to doubt the legitimacy of what they were doing. During the coming year they would be responsible for handling substantial funds for progress payments on projects. They were getting this opportunity because they could be relied upon to deal with the payments in accordance with the contractual commitments. It was not acceptable and not proper business practice to report clients or transactions to the NCIS where they had carried out due diligence and knew the clients and why they had remitted the funding to them. The fact that most of his partners might carry out only domestic transactions did not entitle them to make different rules for dollar transactions than for sterling transaction. He went on:

“We have held funds of Elite Engineering Corporation Limited for over 18 months and they are people of repute dealing with substantial transactions. They sent the money to us originally for a deal with IEC Petroven but the transaction was not completed and we have only been instructed to date to make loans to them of $400,000. They have instructed us and I have confirmed our acceptance of their instructions to pay $1 million of their funds to a banking corporation in the USA in relation to a transaction they have concluded. We cannot break our commitment and will be liable if we do not account to the third party. The funds we received were without problem and from a known source. It is ridiculous to stop payment of clients’ funds in accordance with their instructions when we have held their funds and acted on their instructions on many deals over the last 18 months. The client is an important source of new business for the future.”

In cross-examination Mr Simms said that the letter from Trinity Union was created on the basis of a misunderstanding; his role in relation to the Trinity Union/Tulsa Bank would have been to explore private placements in the US and he would have acted as an introducer in the US and, it seems, he had discussions with a company just off Wall Street which was part of the Zurich Group and two sets of different placement agents; he did not know what the bond of $100 million was for; despite the partners’ expression of concern about the Trinity Union letter; the OSS investigation was an irritant and unimportant; in relation to the Scroda letter he agreed to act in the Bank of Scotland matter and purchase of the Canada Bank Guarantee but declined to act in the Republic of Mexico matter because it was not something “we wanted to get involved in”; however he then denied that there was any involvement in the bank guarantee which involved some sort of private placement. He accepted that Mr Twiss had received a prison sentence for fraud.

Elite

On December 23, 1999 Mr Conlon wrote to Mr Simms about the requisition for a cashiers cheque “yesterday afternoon” which was taken to the bank so that the firm would not be in breach of the undertaking which Mr Simms had given. The context was a payment from client account on behalf of Elite. Mr Conlon went on:

“I told you of the discussion I had with Ronnie Foley, Head of Private Banking, of the Bank of Ireland. He said that the bank was whiter than white on anything that had the slightest possibility of being a money laundering transfer of funds and that when they were approached by new customers they not only carried out the usual due diligence but wanted to know how the customer made the money and when offshore companies were involved they wanted to know who was really behind it and how they made their money in the offshore account. He said that in many cases such an approach was unnecessarily strict but that is the bank’s policy which was designed to protect the bank. He said that he was not saying that you were involved in anything that amounted to money laundering but that a number of clients to whom you had recommended to the Bank had parts of the set up used by money launderers …

MAP and GAC say one of their main reasons for voting in favour of Birchams is the OSS investigation – they think you are not suspicious enough of new clients who come to you where the transactions are in very sizeable dollar amounts and you do not handle the actual transaction. They accept they might be paranoiac but the points they make about the Jim Faulk fax of the 19th December are not unreasonable.

Can we please have a word today – I want to sent the other Partners a short note on Elite Engineering Corporation Limited setting out why I countersigned the transaction and why it should not be reported to NCIS – we do not want them to make such a report.”

Mr Conlon says that following this note Mr Simms assured him that every transaction he had been involved in was bona fide, and that Elite was a substantial entity and a potentially profitable client.

Mr Simms wrote a memorandum about Elite in anticipation of the partners’ meeting on January 4, 2000. He said:

“I will not be able to attend the partners’ meeting on 4^th January 00.

I see that there is still an item on the agenda relating to the transfer by banker’s draft of $1 million to International Banque Holding Corp..

As I have already made clear, our duty as solicitors is to check that the funds we receive are clean, and this we did when we received the Elite funds over 18 months ago. They were received by electronic transfer from a highly respectable bank and were originally intended for loan to IEC Petroven to develop their oil exploration technology.

The character of the monies cannot possibl[y] have changed just because they remained on our client account. We have gradually been disbursing the funds as loans to IEC Petroven and also by way of financing of the Charlton v DGI arbitration.

Elite have signed a contract with a new client of ours Maschinenbau Halberstadt Gmbh of Germany for a loan to develop the automation of their factory in Halberstadt and this is to go ahead in late January. Under no circumstances do I wish this valuable client to be unnecessarily reported to the NCIU.

A report indicates that we are not happy with the transaction and the NCIU are more likely than not to investigate. If our client discovers that we have reported them to the NCIU, they are unlikely to find it at all amusing and to decide that we are not responsible enough to be involved in their funding operations.

The sum of US$1million was transferred pursuant to a contract entered into between Elite and International Banque Holding Corp under which the sum of $1m became payable when Elite had satisfactorily completed their due diligence on the assets of IBHC which were to be utilised by Elite to arrange credit facilities for IBHC. We were informed on 20^th December 1999 that the due diligence was complete and that we should pay and that IBHC wanted payment by cashier’s cheque. This obligation has now been carried out.

I know a good deal about Elite and its principals, but I have asked for bank references for our files which will be forthcoming during this week. They are regarded as first class customers of National Westminster Bank Plc., Barclays Bank, ABN Amro, Deutsche Bank Merrill Lynch New York and Goldman Sachs New York.

If a report is made to the NCIU when there is no justification, I will [be] entitled to assume that this is being done to try and damage my practice. My cooperation over the withdrawal of colleagues from the partnership will need to be reassessed.”

At the meeting it was reported that Mr Conlon had made some inquiries about the Elite moneys but the files were incomplete and they were waiting for bank references which Mr Simms had asked for. There was not enough paperwork for them to have complied with their duty. Mr Conlon was to chase and then report.

A note of the meeting dated January 12, 2000 (at which all except Mr Simms and Mr Conlon were present) recorded that the only issue discussed was whether the payment by Elite should be reported. It was agreed to report the payment but not until Mr Simms had an opportunity to comment on his return to the office on the following Monday.

Admission of Mr Harris to the partnership

As I have said, Mr Harris joined the partnership as from September 1, 2000. The first £150,000 of profits was to be shared equally between Mr Simms, Mr Conlon and Mr Harris, and thereafter 50% to Mr Simms and 25% each to Mr Conlon and Mr Harris. It is common ground that neither Mr Simms nor Mr Conlon told Mr Harris about the Law Society investigation which had re-commenced in November 1999.

VI Intervention and disciplinary proceedings

Intervention and application to set aside

As I have said in section II, in February 2002 the Law Society’s Adjudication Panel resolved to intervene into Mr Simms’ practice on the grounds of suspected dishonesty. As a result of the intervention Mr Simms’ practising certificate was suspended, but was reinstated on March 19, 2002 subject to conditions.

On February 27, 2002, all of the then partners (including the 3 salaried partners) in The Bower Cotton Partnership applied to the court to set aside the intervention. On May 14, 2002 Messrs Russell-Cooke wrote on behalf of the Law Society to the partnership seeking to ensure that all the partners had seen and considered the Law Society evidence and asked for confirmation that that was the case. On May 23, 2002 they enclosed a further copy of the evidence on CD, the evidence having been originally served on May 8. On June 5, 2002 the Bower Cotton Partnership wrote to say that the partners other than Mr Simms did not propose filing evidence in reply to the Law Society’s evidence.

Disciplinary proceedings and the decision of the SDT

The disciplinary proceedings were commenced against Mr Simms by the Law Society on September 17, 2002. The disciplinary proceedings were heard in November and December 2003 over about 14 days. On February 2, 2004 the SDT concluded that on the basis of the allegations found proved against Mr Simms he be struck from the Roll of Solicitors. The reasons were given in April 2004.

I have set out in section II the SDT’s conclusions, which in particular found most of the allegations against Mr Simms proved beyond any reasonable doubt; that the schemes involved promises of returns which no reasonable or competent solicitor could have regarded as obtainable without one or other party being involved in transactions which were likely to be fraudulent, illegal or otherwise improper; Mr Simms’ willingness to be involved on behalf of so many parties in each transaction contributed to the facilitation of bogus schemes; his failure to establish the veracity of the transactions he encouraged and the bona fides or honesty of those with whom he was dealing, and his failure to make any proper enquiry, was not the conduct of an honest solicitor and he put his and the profession’s reputation for prudence, integrity, honesty and trustworthiness at serious risk.

The allegations against Mr Simms which the SDT found proved in concluding that he had been guilty of conduct unbecoming a solicitor were that:

(1)

he had been actively involved in making, promoting or facilitating bogus transactions which lacked an honest commercial purpose;

(2)

he had recommended clients use purported businesses without having regard to what was in the clients’ best interests;

(3)

he acted for two or more clients when there was a conflict of interest;

(4)

he made deceitful misrepresentations to third parties;

(5)

he acted in transactions whose purpose he knew or suspected was illegal;

(6)

he failed to comply with the Solicitor’s Separate Business Code by not informing clients doing business with BC Projects Ltd that they enjoyed the statutory protection attaching to clients of solicitors in connection with that work.

The SDT made, by reference to 10 groups of transactions, various findings of dishonesty, the promotion of transactions which were improbable in their likely returns and which were likely to be fraudulent, illegal or otherwise improper, substantial conflict of interest by either acting for or being in association with most if not all of the companies and individuals involved in these transactions, the recommendation of companies to innocent third parties who were of no substance such as Elite, the improper encouragement of innocent third parties in transactions which he knew or an honest solicitor would have known were bogus and the active making of misrepresentations as to the truth.

So that the nature of the findings may be understood I shall set out fully the reasoning in relation to Elite and Hackar, two clients in respect of whom the investigation had its origin.

Elite

The person behind Elite was a Mr Koffler, who gave evidence on behalf of Mr Simms. The SDT said that he claimed no expert knowledge of banking, and acknowledged that he was not authorised in relation to investment activity for the purposes of US securities legislation, or similar legislation, but claimed to have had contacts or dealings with numerous well known institutions and professional bodies. But Mr Koffler produced no evidence of any transactions which involved normal commercial negotiation. There was no evidence of instructions to or responses from any professional advisers other than Mr Simms. His business appeared mainly to involve discussion with various intermediaries who claimed to know of some person who, or some transaction which, would produce phenomenal profits for Mr Koffler and those associated with him using HYIPs. The SDT found that statements he made about the financial resources available to Elite, and that it had been involved in substantial transactions were inaccurate and that he was not a truthful witness.

The SDT found:

(1)

Elite was incorporated in Gibraltar on June on June 26, 1997 with an authorised share capital of £2,000 of which one hundred £1 shares were issued, 50 to Mr Binyon and 50 to Mr Fookes, who were the only directors, but neither of whom had any active involvement in any business conducted by Elite save possibly in some capacity to sign formal documents or to sign letters drafted for them by Mr Koffler or Mr Simms.

(2)

No account had been audited by any reputable firm and there was no evidence that Elite prepared any accounts at all.

(3)

Mr Koffler’s claim to control Elite’s business and assets by reason of his assertion that he was a “trustee”, “senior trustee” or “sole trustee” should not have been accepted without proper inquiry, and there was no evidence of such inquiry.

(4)

Even if Mr Koffler or companies controlled by him had substantial assets this would never justify a claim that Elite itself was a substantial company engaged in major transactions.

(5)

Elite had no subsidiaries.

(6)

Mr Koffler’s claims that he could facilitate or arrange financial activity to produce astonishing returns without risk were so improbable that any action taken by a solicitor to lend credibility to such a transaction was improper.

(7)

Mr Koffler’s evidence as to how Elite would utilise monies and the returns it would make was bizarre and incredible, and for Mr Simms to inform clients or others as to the bona fides of Mr Koffler and of his substance in involvement in major transactions on the basis of evidence of the kind he gave could only be explained by a desire to encourage others to involve themselves in transaction which in the view of the Tribunal could not, on the basis of the evidence before it, be seen as other than bogus, lacking an honest commercial purpose or actually or potentially fraudulent.

The SDT considered that for Mr Simms to have accepted Mr Koffler’s claims could in the SDT’s view only be explained on the basis that Mr Simms was wholly incredulous (something he did not appear to be when he was giving evidence) or that he was effectively involved in supporting and helping Mr Koffler in the various schemes he was advancing, and his involvement gave credibility to transactions which any lawyer doing his proper job would know was so out of the ordinary as to arouse suspicions as to their propriety and legality. On the basis of the SDT’s views as to the evidence given by Mr Koffler and that of Mr Simms in regard to Elite, the transactions which involved Elite could not be viewed as other than bogus.

The SDT then went on to summarise the transactions involving Elite.

The first transaction related to attempts to persuade GPR, an Indian company, to provide $6 million to Mr Koffler in advance of Elite producing a bank guarantee for $280 million in connection with a project known as the “H Project” about which the former chairman of GPR was enthusiastic. There was an abortive attempt by Mr Simms to introduce Oakland Resources Ltd (a Gibraltar company in which a family trust for the benefit of Mr Simms and his family was interested). This did not proceed, but subsequently Ms Pauline Alianza wrote to Mr Simms on September 12, 1997 on behalf of Eastcastle Finance Ltd, in which she introduced Elite, which she said had paid up shares in excess of $10 million, which was demonstrably untrue.

Mr Koffler wrote to Mr Simms on September 15, 1997 claiming that Elite and its affiliated companies had “continually demonstrated their capacity to finance viable projects in excess of US$100m and that Elite owned and controlled several subsidiary companies with combined bank and institutional cash deposits in excess of $10m and presently own additional income producing and contractual assets in excess of $500m.” No solicitor of integrity or prudence would have accepted such a letter at face value, especially as it was signed by Mr Koffler and allegedly came from a company called North American Fiduciary Services Inc which it said was the “auditor” of Elite’s “financial transaction activities”. Any such solicitor would have realised the letter coming from an auditor signed by the person whose companies were the subject of the audit was likely to be phoney. The funding memorandum prepared and sent by Mr Simms on September 15 which included the claim as to the $10 million deposits and $500 million of income producing assets was reckless to an extent that the SDT did not consider it was an honest document.

GPR was being encouraged to produce US $6 million which GPR was told would be returned when Elite procured the issue of a bank guarantee to support the bond and interest during the one year period of the note. At the same time Mr Simms said he was asking for a search of Elite in Gibraltar, and if he had made any use of the results of his request for a company search he would have immediately needed to recommend that GPR waste no more time on the matter since it had an issued share capital of £100. The SDT rejected his evidence that he obtained a search showing that it has an issued share capital of £750,000. Mr Koffler in evidence admitted that at no time did it have an issued share capital of more than £100.

But on September 19, 1997 Mr Simms wrote to GPR to say that he understood that there was a company search revealing paid up share capital of £750,000 and Mr Simms said that “everything turns on whether Elite could produce a bank guarantee for $280m”. He could not have had an honest belief that Elite could have secured a bank guarantee for that amount, and there was no evidence that he took any proper steps whatever to establish the financial credibility of Elite or Mr Koffler. Over the next few weeks Mr Simms sought to persuade GPR to provide $6 million for use by Mr Koffler in a high yield investment programme (HYIP), and made references to a Mr Smith who, like Mr Koffler, would produce large sums for GPR. Mr Simms could not have believed Mr Smith to be anybody other than Mr Koffler. At the end of October 1997 Mr Simms was told by NatWest that documents being used were suspicious and contained phraseology indicative of fraud. The bank said that it wanted nothing to do with the transaction. Mr Simms ignored this clear warning and continued his involvement as if he had not received it.

The SDT came to the conclusion that the transactions were kept in being in the hope that GPR or a potential supplier (GEC) would produce funds for Elite to use and to enable BCP to paid consultancy fees for a project, which as a project to be financed through Elite never had the slightest prospect of being brought to a conclusion. Despite his claims to the contrary, there was no reliable evidence on the basis of which Mr Simms could have believed that Elite was capable of providing the finance needed except on the footing it could turn base metal into gold. The transactions being promoted by Elite for the alleged benefit of GPR lacked an honest commercial purpose. Mr Simms was actively involved in recommending, promoting and facilitating them, and they could not have been in the best interests of GPR and Mr Simms could not honestly have believed that they were.

The next Elite transaction involved HBM, a medium sized engineering company in East Germany in financial difficulties. Mr Simms interested GPR in the possibility that HBM might supply some equipment to a GPR project. A memorandum of understanding drafted by Mr Simms and signed on March 18, 1999 gave the impression that HBM was capable of carrying out a vast engineering project when in fact it was only a medium sized engineering company in financial difficulties. The plan was to confer on Mr Koffler the right to act on HBM’s behalf by using its title documents to back what the SDT described as dubious financial transactions to be master-minded by Mr Koffler. Mr Simms was co-operating with Elite and Mr Koffler to enable Mr Koffler to obtain control HBM’s real property to enable Mr Koffler to pursue his HYIP. Mr Simms did not object to the Chairman of HBM signing on November 29, 1999 a joint venture agreement drafted by Mr Simms which said that Elite was based in England, although Mr Simms knew it was a Gibraltar company with no UK business. The agreement stated that Elite was prepared in principle, subject to validation by BCP, and acceptance by Elite, “to arrange funding of projects which were required and engines manufactured by HBM to a total project value of US$300m”. Insofar as these statements conveyed an impression that substantial funds were likely to be made available they were misleading. In order to establish funding HBM was to support the facilitating of credit by Elite for the purpose of enabling Elite to facilitate funding the project, and it appointed Elite on November 29, 1999 irrevocably “sole trustee” of HBM.

Mr Simms’ failure to advise that the agreement was bizarre and uncommercial and his failure to indicate any of the risks which arose from it led the SDT to the conclusion that Mr Simms was not concerned with the best interests of his client HBM but only with the interests of his other clients or business associates, Elite and Mr Koffler. Later Ms Alianza told the Chairman of HBM about a Mr Smith who is “a large contributor to a Foundation whose main priority is that of a charitable institution.” Mr Koffler in cross-examination accepted that Mr Smith was Mr Koffler, and Mr Simms also accepted that. The terminology of the letter was so redolent of a bogus transaction that no solicitor could have advised the Chairman to accept it at its face value. In March 2000 more fees were charged to HBM by BCP and then HBM, being desperate, allegedly sold an engine to Power Resources Corporation Ltd which had its office at Bower Cotton offices in London, and which was said to be controlled by Mr Koffler. It had no assets but was obliged to pay for the balance of the price, $750,000 on March 17, 2000 and a further $1.5 million within 90 days. Mr Simms knew that these promises were valueless. The SDT was satisfied beyond any reasonable doubt that Mr Simms in all material respects acted for Elite and Mr Koffler as well as HBM and that he entirely failed to protect the interests of HBM, always preferring the interests of Elite and Mr Koffler. It found that he had no basis for genuine belief that Elite or any other entity controlled by Mr Koffler had any prospect of securing the funding for HBM and that the proposed PPM was not evidencing a bona fide transaction. Elite had no real obligations. It was only said to be obliged to HBM if the HYIP produced the promised profit. There was no means by which HBM could recover the profit if Elite refused to account for it. It was a foreign company of no substance. Mr Koffler was seeking to use HBM’s assets to secure huge undisclosed profit for himself part of which could have gone to HBM and amongst others Mr Simms or BCP.

The third transaction related to a West African province, the K State, and related to a period from 2001. Mr L, the governor of the province, told Mr Simms in November 2000 of a gas pipeline project which the State wanted to undertake. BCP were appointed to carry out a feasibility study, but it did not have the capability to do so itself and it was done in conjunction with a well known Indian engineering consultancy. The study showed that it required funding of around US$110 million. All the funding arrangements that Mr Simms promoted involved Elite and the anticipated use of HYIP. The funding arrangements contemplated the utilisation of K State money ($10 million or $20 millions) which was in some way to be “leveraged” to enable Elite to produce $10 million of which 30% would be returned to K State.

In February 2001 Mr Simms wrote to Ms Alianza and Mr Ammerman to confirm that he had informed Mr L that a return of at least 100% to 120% of the sum of $10 million could be provided commencing 60 days after the deposit even if the project had not yet been fully investigated. The Elite involvement was that in October 2001 Mr Simms produced a draft agreement which was executed, with Elite as one of the parties. A deposit of $20 million was to be lodged with Bower Cotton to enable Elite to arrange funding for the power plant 45 days after the deposit. It was to fund the project “by way of equity” as to 80%. K State was not a party and the SDT found that it would not be seen by any responsible solicitor as conferring any valuable rights on K State or KIPD.

An agreement prepared by Mr Simms which though incomplete appeared to have been entered into between Elite and Power Resources NV and recited that the government of K State was to produce $20 million which was to be “lent” to Elite, which was said to have established a controlling interest in Power Funding Corporation Ltd. After the monies had been paid to Bower Cotton’s client account, subject to certain conditions within the control of Elite, Bower Cotton were to transfer to or loan this sum to Power Funding Corporation which was to have maintained US$20 million of cash or cash equivalent, and Elite were to issue a demand promissory note to Power Resources Corporation for $20 million payable 36 months after receipt of the $20 million. Elite was to pay various sums to PRC said to produce $115.5 million over 3 years and representing the 20% interest in the project. Under the agreement K State’s $20 million would have gone to Mr Koffler in exchange for Elite’s worthless $20 million promissory note. The SDT regarded the agreement as self-evidently, actually or potentially fraudulent. The SDT concluded that the agreements were to designed to extract $20 million from the government of K State for improper use in HYIP and for the benefit of Mr Koffler, his associates and Mr Simms through BCP. Mr Simms was substantially responsible for orchestrating the transaction and negotiations with Mr Koffler and companies controlled by him. Mr Simms was therefore responsible for an unsuccessful attempt to extract significant sums of money from a foreign sovereign state for improper purposes. The transaction was overtaken by the intervention into Mr Simms’ practice in February 2002.

The overall conclusion in relation to the Elite transactions was that the transactions were bogus and lacked an honest commercial purpose; Mr Simms knew, or as a prudent and honest solicitor would have known, they were bogus; he acted for Elite and Mr Koffler as well as investors and intermediaries and was in clear breach of conduct rules relating to conflicts of interest; he recommended and promoted Elite and the transactions they claimed to be able to effect and made representations which were deceitful.

The conclusion on Elite was (para. 541):

“The Tribunal finds that Mr Simms knew or should have known that many of the agreements and letters written to encourage participation in transactions related to transactions he knew or an honest solicitor would have known were bogus. In doing so he acted knowingly or recklessly in making misrepresentations of the true position.”

Hackar

In relation to Hackar the SDT found that Mr Simms was guilty of making, promoting or facilitating bogus transactions and that he flagrantly breached rules relating to conflicts of interest. The transactions lacked an honest commercial purpose and their encouragement and facilitation by Mr Simms were not the actions of an honest solicitors. The Hackar transactions concerned proposed HYIPs involving Hackar Funding Corporation NV, a company incorporated in the Netherlands Antilles, of which Mr Simms was managing director and Nikea NV a company controlled by Mr Wyatt and Mr Newton which acted as an intermediary. Mr Simms accepted that Bower Cotton had received funding from investors of some $46 million which was paid into client account, but denied that the “investors” were clients of Bower Cotton.

Divisional Court judgment

General

On March 17, 2005 the Divisional Court (Latham LJ and Curtis and Newman JJ) dismissed Mr Simms’ appeal against the decision of the SDT and concluded that he was dishonest: [2005] EWHC 408 (Admin.). As I have said, its overall conclusion was that the SDT was right to find that the pattern of behaviour by Mr Simms established that he was not merely foolish and credulous; that he was prepared on occasion dishonestly to mislead in relation to the purpose of the various transactions; and that his activities were properly described as dishonest.

The Divisional Court said that, as the appeal was by way of a rehearing, it had considered with care all the material which was before the SDT.

The Divisional Court accepted the SDT’s approach as to the duty of a solicitor. In particular a solicitor has a duty not to assist others who may directly or indirectly use funds for purposes which the solicitor believes or an honest solicitor would believe are illegal or improper. A transaction which on the face of it promises fantastic and incredible returns for no risk does not have the quality of a likely lawful and honest transaction. A solicitor who does not establish the veracity of the transaction and those with whom he is dealing or who makes no proper inquiry or takes on trust extravagant and unlikely claims put his and the profession’s reputation for prudence, integrity, honesty and trustworthiness at risk. A solicitor who accepts money into client account has wider duties to act so as to ensure that the funds entrusted to him will be used for proper purposes and not to facilitate improper or potentially fraudulent activities of third parties. This is because the involvement of the solicitor and the use of his client account may give spurious authenticity and respectability to dubious transactions. His involvement will thus effect his own and the profession’s reputation for integrity, honesty and trustworthiness.

Elite

The Divisional Court said that Mr Koffler’s evidence was said by Mr Simms to be critical to his case. It was the evidence upon which he relied to support his assertion that the sort of high yield investment programmes which he accepted he was introducing to clients and was providing documentation for were genuine and not bogus. Mr Koffler’s written statement set out his credentials as a Mortgage Banker (his description). He accepted that he was not accredited for the purposes of any securities trading in either the United States or the United Kingdom, but said that he was, and had for fifteen years or more, been involved in very high value investment transactions. The transactions which involved the appellant were carried out through the medium of Elite. Mr Koffler’s claim to control of the company was based on his assertion that he was a trustee. His evidence was that Elite was a “humanitarian entity” for doing projects world-wide. He asserted that it would do its business by raising funds through the major banking institutions in London and New York. He said that the resources available to Elite in the autumn 1997 were over $500 million.

Mr Koffler was unable to provide any evidence to support his contentions as to the assets available to Elite, save for vague assertions as to associated companies. He produced no evidence to substantiate his assertions that there had been any investment scheme of the type that he described let alone one which had been successful in producing any profits whatsoever. When cross examined by Mr Dutton on behalf of the respondent to the effect that the schemes that he described had been the subject of warnings both from the US Treasury and the Bank of England as being vehicles for potential fraud and that there were no legitimate transactions of the type that he described, Mr Koffler said that those warnings were published “to deter people from getting involved and creating a nuisance for themselves”.

The court rejected Mr Simms’ submissions that all the proposals in relation to GPR were proper attempts to provide funding for GPR. If the intent was to help GPR, as his main client, he was bound to have drawn GPR’s attention to the extraordinary nature of the proposals made by Elite, and the warning from the NatWest Bank. The proposals involved making available a substantial sum of money to Elite to use in schemes which it should have been clear were unrealistic. The fact that Elite may not have made any charges, highlights the fact that the proposals were to give them control of substantial funds. Even if it was hoped, or even expected, that those funds could be returned intact, the SDT was right to conclude, in effect, that the appellant was prepared to mislead his client in order to enable Elite to obtain those funds.

In relation to HBM, the court agreed with the SDT that the evidence established clearly that HBM was a client of Mr Simms for the purposes of all the material transactions, and had clearly relied upon him to advise them in relation to documentation. Not only did he at no stage provide any advice as to the extraordinary nature of the transactions proposed, but it was clear that he was acting in the interests of Elite, whether or not formally instructed as its solicitor. The court rejected Mr Simms’ account that all he was intending to do was to provide some assistance, through in effect BCP to HBM to manage the H Project and to provide funding which would enable that project and indeed the HBM business to become viable. The repeated attempts to raise funds in unusual ways, and the level of documentation prepared by Mr Simms made it abundantly plain that he was acting on behalf of HBM, but failed to act in its interests. That can only be on the basis that the various funding schemes were devised essentially in order to be able to use assets of HBM for the purposes of others, including Elite.

In relation to K State, the court rejected Mr Simms’ account that the proposals were transparent and realistic business proposals to assist in the proposed project can be accepted.

Hackar

The court said that these were the transactions which gave rise to the first inquiry into Mr Simms’ activities. Hackar was a company incorporated in Curacao of which Mr Simms was managing director. It was used in conjunction with a company Nikea, also incorporated in Curacao, which was controlled by Mr Wyatt and Mr Newton for the purposes of investment schemes. The company was not in fact not incorporated until February 1998. But in the autumn of 1997, there were discussions between the various parties for a joint venture between them, and that Bower Cotton would deal with the paperwork. The proposal was that they would seek funds from third parties which would then be invested, according to Mr Simms’ evidence, in medium term notes or similar securities. The funds were to be paid into the Bower Cotton client account. A total of US$46 million passed through the Bower Cotton client account as a result, which was what led to the concern expressed by the Law Society after the investigation in 1998. All these funds were reimbursed to the investors, so that there was no loss of capital. Equally, there was no evidence that any investment took place, let alone any successful investment.

The proposals were sold to potential investors on the basis of proposals which were set out a letter on Bower Cotton notepaper, signed by Mr Simms.

Investors did not receive anticipated profits, and one of them pressed for his money; and in September 1998, Mr Simms, writing on behalf of Bower Cotton said that things had not progressed and that if matters had not been resolved satisfactorily the following week it would be best to call matters to a halt and for the funds to be returned. The investor was worried that the delay was the precursor to the funds being lost, and threatened to call in the Fraud Squad. Mr Simms prevaricated over the next few weeks trying to encourage him to leave the money where it was. But ultimately it was returned in mid November, but without any profit. Other investors had similar stories. The proposals at all times had the air of unreality and promised remarkable returns. Perhaps the most significant feature, however, was the fact that at no stage did Mr Simms disclose his interest in Hackar so as to make it clear that he, through the medium of the joint venture agreement, had an interest in the transactions.

The SDT found that Mr Simms owed the duties of a solicitor to the investors by reason of the way in which the proposals were dealt with. It rejected the view that Mr Simms was merely accepting money into his client account on behalf of the investors and therefore only owed a duty to maintain those funds in his account to the order of the investor. It concluded that the circumstances showed that he was holding himself out as the person protecting their interest in relation to the documentation and contractual arrangements and in any event, as a solicitor having accepted money into his client account had wider duties to act so as to ensure that the funds entrusted to him would used for proper purposes and would not be used to facilitate improper or potentially illegal or fraudulent activities with third parties.

It concluded that throughout the period in question, Mr Simms was hoping that the monies that had been provided by investors would at least produce some returns which could then be shared amongst both the investors and the joint venture partners, that is Hackar and Mr Simms’ associates. It concluded that the proposed investments all had the hallmarks of dishonest ventures, and that the investors should have been so advised. They should certainly have been informed of Mr Simms's interest in the transactions through Hackar.

Mr Simms sought to persuade the Divisional Court, as he had the SDT, that he acted throughout perfectly honestly. He had no reason to doubt the honesty of the investors. His obligation in those circumstances was merely to hold their money, as he did, to their order. He was not responsible for giving any investment advice, as he had made plain in the documentation. It was no part of his duties to ensure that the investment, accordingly, was successful. He denied that he owed the duties of a solicitor to the investors because of the restricted nature of his involvement in the transactions. He was, accordingly, under no obligation to disclose any personal interest in those transactions.

The court had no doubt that the SDT was correct. The fact that the monies were ultimately returned to the investors does not detract from the clear breaches of Mr Simms’ obligations as a solicitor, which the SDT rightly held he owed to the investors. It may well be that he had hopes that somehow or other some money might be made from the substantial deposits made by the investors, which ultimately he was able to control through his position as a signatory for Hackar. But that did not absolve him from advising the investors that the investments as proposed did not have the hallmarks of genuine honest transactions.

Result of proceedings to set aside intervention

After the disciplinary proceedings had been commenced in September 2002 it was agreed that the proceedings to set aside the intervention should await the outcome of the disciplinary proceedings. On July 16, 2004 (after the decision of the SDT and while the appeal to the Divisional Court was pending) Evans-Lombe J acceded to the Law Society’s application to dismiss the proceedings as having no real prospect of success. Costs were awarded against Mr Simms on an indemnity basis. Judgment for costs for the period while they were active parties (until July 2002) was given against Mr Conlon and Mr Harris with a right over against Mr Simms. On July 12, 2005 the Court of Appeal dismissed Mr Simms’ appeal (which was on the basis that Evans-Lombe J should have adjourned the application until after the decision of the Divisional Court), but (1) it substituted an order for costs on the standard basis; and (2) it set aside the right over in favour of Mr Conlon and Mr Harris

VII The claims

Non-disclosure

Claimants

This aspect of the case is put in several ways by the claimants. First, they say Mr Simms is liable for failing to disclose that he had been actively involved in making and promoting or facilitating bogus transactions, etc. Secondly, they say that by entering into the partnership agreements Mr Simms necessarily represented that he was entitled to practise as a solicitor and there were no matters which would affect that status, and in failing to make those disclosures Mr Simms fraudulently misrepresented that he was so entitled to practise.

There was a positive duty on the part of Mr Simms to disclose to the claimants not just the fact that he was the subject of an investigation by the OSS but also the fact that he had been involved in fraudulent high yield investment schemes (HYIP schemes) and had otherwise acted so as to make himself liable to being struck off.

Whilst Mr Conlon plainly knew of the OSS interest in Mr Simms, Mr Simms repeatedly told him that he had not been involved in any dishonesty and was not dishonest. Mr Simms assured him that “every transaction he was involved in was a bona fide commercial transaction. He had never been or would never be dishonest because he had so much to lose.” (witness statement, page 19), and Mr Simms assured him that the OSS had no grounds to take any form of disciplinary action against him (page 21).

The claimants rely on the letter from Mr Simms to the Law Society, April 22, 1999, the note from Mr Simms to the partners of December 23, 1999; the note from Mr Simms before the partners meeting on January 4, 2000, when Mr Simms assured the partners that the Elite transactions were legitimate, and the note from Mr Simms to Mr Conlon/Mr Harris immediately prior to the signing of the May 2002 agreement, where he said: “Whatever the result of the hearings, I have never done anything deliberately dishonest ...”.

Mr Conlon said throughout his cross-examination that Mr Simms represented that all transactions he was involved in were bona fide and he was honest. In particular he said that there was an express representation to this effect made to him by Mr Simms on December 5, 1999, when (he said) at the time he agreed to continue with the partnership, Mr Simms told him that he had done nothing wrong and he swore on his children’s lives that that was true; and the Elite transaction/Foley statement was discussed on December 23, 1999; and when the May 2002 agreement was made. Mr Conlon added that these representations were also made in his presence during the course of consultations with Mr Lomas QC, in connection with the proceedings to set aside the intervention.

As to the collision of accounts as to whether there were positive assertions of honesty on the part of Mr Simms to Mr Conlon, the claimants rely on Mr Simms’ lack of credit and the post-intervention documentary evidence which establishes that Mr Simms was representing to all partners, Leading Counsel and to the OSS as to his honesty.

The SDT and the Divisional Court speak with one voice. Mr Simms was dishonest. In Mr Simms’ evidence in cross-examination he accepted that: (1) he had deployed before the SDT and the Divisional Court all relevant submissions; (2) he did not apply to produce any new material before the Divisional Court; and (3) his application for permission to appeal to the Court of Appeal was dismissed.

Mr Simms chose not to disclose his own fraudulent behaviour and the only conclusion that can be properly drawn was that his failure to do so was made fraudulently.

The evidence also discloses that there has been a positive misrepresentation of Mr Simms’ honesty by Mr Simms.

Mr Conlon’s evidence was that if he had known that Mr Simms was dishonest he would not have had anything to do with him, and Mr Harris’ evidence is that if he had known of Mr Simms’ dishonesty as a solicitor he would never have entered into partnership with him. There was accordingly inducement, and Mr Conlon and Mr Harris are entitled to damages for fraudulent misrepresentation.

Mr Simms

Mr Simms denied having made any assurances to Mr Conlon. Nothing was said about the OSS and his honesty on December 5, 1999, and Mr Conlon had invented his account, or at least been confused. Mr Simms claimed that Mr Conlon was not really interested in the OSS investigations in late 1999 because they did not think anything would come of it at the end of the day. They did not discuss the matter at all.

Mr Simms accepts that no matters were mentioned to Mr Harris. Mr Simms knew and Mr Conlon/Mr Harris did not, that Mr Simms had, inter alia, been heavily involved in the bogus transactions and other activities which rendered him liable to be struck off the Roll.

Mr Simms says that there was no duty of disclosure, and no dishonesty on his part. Mr Conlon and Mr Harris were fully aware of the underlying facts which resulted in the disciplinary proceedings and apparently believed in Mr Simms’ innocence.

Mr Conlon was fully knowledgeable about the OSS investigation; he had been present at the partners’ meeting with the OSS in March 1999; he had initialled the letter to the Law Society in April 1999; he had been aware of the continuation of the OSS inspection in November 1999; he had insisted that the matter be drawn to the attention of Birchams in the negotiation; he had been aware of the concerns of the other partners in December 1999; and yet he still continued with the partnership with Mr Simms.

It would have been impossible for Mr Simms to make the disclosures in December 1999 since Mr Simms would have had to anticipate the commencement of SDT proceedings in September 2002 and their result in February 2004. Neither the claimants nor Mr Simms could know of the prospective result of the SDT proceedings. The suggestion that Mr Simms in December 1999 or May 2002 could forecast the result of the SDT proceedings which did not commence until September 2002 is not realistic. Mr Conlon was undoubtedly aware of the potential consequences. In para. 12.4 of his witness statement of September 19, 2003 in the first action, he stated: “As at May 2002, we all understood that the Claimant would continue to use the third floor even if he were struck off because CitiLegal Consultants Limited would continue and need the space”.

In any event, there is no pleading that either resulted in any claim against the partnership or that Mr Conlon and Mr Harris lost anything as a result. Both Mr Conlon and Mr Harris confirmed that there had been no deficiencies in the client account, no complaints to the OSS and no negligence or other claims against the partnership. Indeed Mr Conlon and Mr Harris positively benefited from Mr Simms’ involvement in the partnership in view of his financial contribution which resulted in significant profit sharing benefits to Mr Conlon and Mr Harris. The complaint by the claimants appears to be that they are unhappy that they no longer have the £800,000 of contribution to the firm that he was able to bring in as a partner. The Amended Particulars of Claim refers to a report on loss but none was provided. The claimants could not particularise any loss when giving evidence. Mr Harris referred to issues relating to the accounts such as write-offs for bad debts but these cannot be losses arising from entry into the partnership agreement.

Breach of assurance to Law Society

This is not a separate head of claim, but is deployed by the claimants as evidence of Mr Simms’ dishonesty, and in particular to show that his non-disclosure was fraudulent. The claimants say that the assurance to the Law Society was broken by Mr Simms, and that he falsely claimed that he was complying with it.

The claimants say that the falsity of these assurances is proved by the findings of the SDT and the Divisional Court. Thus in relation to the Elite transactions which the SDT found were part of a fraudulent scheme, and in which Mr Simms participated, many of them took place after the April 1999 letter: see paras. 184 et seq. of the SDT decision. Even if the claimants’ contention that the SDT/Divisional Court findings are admissible is wrong, the case is made out.

Elite

The firm’s client account shows a payment of $1 million on December 22, 1989 from Elite to International Banque Holdings, which was the subject of Mr Conlon’s note of December 23, 1989. Mr Simms says that in late December 1999 he was asked by Elite to make a transfer from the funds that the firm had been holding for some time on client account of $1 million to an account of a banking corporation in the United States. He had undertaken that they would transfer their funds in the manner instructed and he passed the transfer slip to accounts in the normal way with the narrative on the form of what was required and the purpose of the transaction. The partner authorised to deal with such payments (he cannot recall which partner) refused to countersign the form. On about December 22, 1999, he spoke to Mr Conlon and explained that this was causing a problem and he had given the firm’s undertaking to transfer a sum of $1 million to the party in the United States on behalf of Elite. Mr Conlon signed the requisition on December 22, 1999 and sent Mr Simms the note of December 23, 1999. Mr Conlon asked to have a word with Mr Simms in the office about Elite so that he could write a note to the other partners as to why he had countersigned and also why he did not believe there was any basis for reporting the transfer to NCIS. The funds in question had been held by the firm since early 1998 and they were satisfied at the time of receiving the funds of their provenance. Nearly two years later, they were being asked to transfer the sum of $1 million to a third party on the basis that Elite wanted to invest this sum with the third party. If the funds were clear as to their provenance, then there could be no question of any impropriety in transferring the funds a very considerable time later to a third party for the purpose of investment. It was a transaction which was not in any way required to be reported to NCIS. He was pleased to have Mr Conlon’s support in the matter.

On January 28, 2000, the firm’s client account received $989,987 which was credited to Elite. Mr Simms accepted in his evidence that the receipt was to enable monies to be paid to Power Resources as part of the MBH deal. On March 6, 2000 there was a transaction that involved a transfer from Elite to Power Resources and then to MBH in the sum of $750,000 which was said by Mr Simms to relate to monies allegedly advanced by Power Resources to MBH against the sale of a diesel engine. On Mr Simms’ own admission, monies were received into the firm’s client account and there was a breach of the assurance that “we will not accept instructions in respect of such schemes involving the use of our client account for proposed investment monies”. The schemes of the type referred to by the OSS in their report of February 25, 1999 involved investments which promised large returns. The claimants say that the transaction between MBH, Elite and Power Resources was plainly such a scheme.

Ace Laboratories

There were payments through the client account in the name of Ace Laboratories from April to June 2000, which Mr Simms referred to expressly in his witness statement in the intervention proceedings (paras. 22 (x) and (xi), and 89) as being part of schemes involving an advance fee in respect of prospective finance. The claimants say that this too is in breach of the undertaking.

Trinity Union/ Scroda

The claimants say that this correspondence shows that Mr Simms was in breach of the undertaking, and was also participating in dishonest transactions. His claim not to have authorised the use of his and his firm’s name and bank account in the Trinity Union letter (which would have placed him squarely in breach of his undertaking) is not to be accepted. The client account schedules show extensive dealings with Trinity Union and many in the period November 1 to December 16, 1999 which included payments to Peter Guinn. It is inconceivable that Mr Guinn had written the letter without reference to Mr Simms. The claimants conclude that Mr Simms has been involved in a potential HYIP and his assertions to the contrary are to be disbelieved.

The letter from Scroda plainly involves some sort of private placement in relation to a Canada Trust Bank Guarantee. Mr Simms was at first inclined to admit that he was involved in that scheme (it was only the Republic of Mexico matter that he declined) but later recanted and said that there had been no involvement in the Canada Trust Bank matter. It is stretching credulity to accept Mr Simms’ evidence that he had no involvement in the second scheme. The author of the letter, who had apparently spoken to him the previous day, had plainly discussed the scheme with him without any demur on the part of Mr Simms. Mr Simms was being untruthful in denying such involvement. If Mr Simms is disbelieved he was proposing to become involved in the sort of scheme the SDT so roundly criticised.

Mr Simms’ case was that from April 22, 1999, until the end of the period covered by the report (June 30, 2001), the firm had not received any funds of significance in any way comparable to the funds referred to in the February 1999 report. No funds were received pending investment into any scheme. Had the firm received such monies, they clearly would have been reflected in the schedule. The payments column in the Law Society schedule, which showed two significant payments, one very shortly after the April letter and one a little later in the year, was the firm’s attempt to get rid of funds still held on the client account in view of the promise to the Law Society. The receipts column was almost entirely blank for most of 1999.

The matters which were the subject of cross examination had no relevance to any of the allegations in the Amended Particulars of Claim, were not pleaded, were not the subject of disclosure and were not the subject of potential witness evidence from the concerned parties.

Elite/Charlton

The allegation in relation to Elite is that Mr Simms represented that it was substantial and would provide a valuable source of income, whereas in fact it was not substantial, was a company with few or no assets, it was not able to generate profits for the firm, and was an instrument of fraud. The allegation in relation to Charlton is Mr Simms represented that it was substantial and would provide a valuable source of income, whereas in fact it was not substantial, had few or no assets, and was not able to generate profits for the firm.

As regards Elite, the claimants rely on the note to partners prepared by Mr Simms on or about December 23, 1999 in which he stated that Elite is “[run by] people of repute dealing with substantial transactions … The client is an important source of new business for the future…”; and on in his undated note to the partners for their meeting on January 4, 2000, in which he said that Elite was involved in funding operations, and said that although he knew “a good deal about Elite and its principals” he had asked for bank references, and said that they were regarded as “first class customers of National Westminster Bank Plc., Barclays Bank, ABN Amro, Deutsche Bank, Merrill Lynch New York and Goldman Sachs New York.”

Mr Conlon said in his witness statement, and in cross-examination, that after he sent his note on December 23, 1999 to Mr Simms, expressing concerns about the requisition for a cashier’s cheque in relation to Elite, Mr Simms came to see him and said that every transaction he had been involved in was a bona fide commercial transaction. He had never been or would never be dishonest because he had so much to lose. The representations relating to Elite as a valuable client were important. In cross-examination, Mr Conlon claimed that the prospect of fees from Elite was “pivotal” to continuation of the partnership. His evidence was that (a) he was concerned as to the identity of the clients because Mr Simms had been unable to attract any of his erstwhile “team” to the new partnership and (b) he had a number of options beyond either going into partnership with Mr Simms or joining Birchams.

The claimants argue that, given Mr Simms’ acceptance that a number of his clients had been introduced to other partners/members of staff – none of whom intended to continue in business with Mr Simms, it is unsurprising that Mr Conlon should have been concerned to ascertain which important clients remained who were likely to be income producers.

Mr Simms accepted in cross-examination that Elite was a £100 company registered in Gibraltar, that its accounts were not audited by a reputable firm of accountants, and that it did not have subsidiaries, and that he drafted letters on behalf of the two directors of Elite whom he had not met; and that no references were obtained from banks relating either to Elite or those standing behind Elite;

Mr Simms’ assertion that Elite was to be considered substantial because of its alleged connection with Mr Koffler was not accepted by the SDT or the Divisional Court. No evidence of this assertion was produced by Mr Simms and his assertion should not be accepted unless corroborated by evidence because of his lack of credit.

As regards Charlton, there are no documents evidencing the alleged misrepresentation. Mr Conlon says that Mr Simms told him that “it would be a good source of revenue for the Firm because of the hours he had worked he was going to put in a substantial bill which would be paid and would give the Partnership between himself and myself a good cash flow position”. Mr Conlon said in the witness box that Mr Simms told him that Charlton were substantial and because Mr Simms was losing a lot of people to whom he gave work he, Mr Conlon, specifically asked for assurances as to important clients.

In any event the relationship between Charlton, Eastcastle and its alleged shareholders Ms Alianza and Mr Ammerman is shrouded in mystery. Mr Simms accepted that he did not know who the shareholders were in Eastcastle and only speculated that they were Ms Alianza and Mr Ammerman. The documentary evidence relating to the firm’s client account suggests that there is a circulation of monies between different entities. The true source of monies for Charlton or Eastcastle remains a mystery.

The company accounts for Charlton for the year ending December 31, 2000 shows that its asset position in the year 2000 was a deficit of £526,450 and in the previous year £240,362. £28,973 and £49,182 was paid to the firm in those two financial years. The note to the 2000 accounts contains a disclaimer by the auditors. The notes to the 1998 accounts reveal that the ultimate holding company was Eastcastle incorporated in the Republic of Panama. It appears to have only £905 worth of fixed assets. For the financial year 1997 it was dormant. Its shareholders are in fact the Ancon Group and Eastcastle Finance. Nothing is known about either.

Mr Simms accepted in cross-examination that Charlton did not pay its bills to the firm because it did not have money of its own and its shareholders, Eastcastle, would not support it any further. This gives credence to the contention that Charlton was not a company of substance as alleged. In addition, substantial bills were left unpaid.

Insofar as there is a collision of evidence as to whether representations were made about Charlton by Mr Simms, then the evidence of Mr Conlon is to be preferred.

The dishonesty lies in the fact that Mr Simms must have known that Charlton was a creature of Eastcastle and had no independent existence and was liable to have the plug pulled on it at any time.

Mr Simms says (witness statement, para. 37) that they did not discuss individual clients and certainly did not discuss Elite and Charlton in this context. They were not material to the figures of the firm. Elite was not a client and he had no expectations of earning substantial or any fees from Elite. They discussed Elite (and its potential profitability) in the context of the issues raised by one or two of his colleagues regarding their unwillingness to countersign transfers involving dollars.

Although Elite had a £100 paid up share capital, other funds had been available to Elite including over $2 million on client account, $750,000 of which had been applied as the down payment on a diesel engine and other payments going to IEC Petroven NV, Dr Hertel and other projects.

They did not discuss Charlton at all except that he mentioned that the clients were becoming unhappy in relation to the arbitration and the cost of it. That discussion took place in May 2000 when Mr Simms was about to travel to New York for the second stage of the Charlton arbitration and appeared to relate to the potential rendering of a bill to Charlton in June 2000. That conversation can have no relevance to the continuing partnership agreement as the new partnership had already commenced in May 2000 and had been agreed very much earlier. It would clearly have been impossible for Mr Simms in December 1999 or in January 2000 to have told Mr Conlon what he was proposing to bill in respect of Charlton Corporation in mid June 2000.

Charlton had been a shell company which had contracted to carry out a project for the design, construction and commissioning of a hospital bed manufacturing facility in Bangladesh, but the matter had not proceeded due to a dispute between Charlton and the suppliers of the equipment which resulted in proceedings being commenced in New York by Charlton in December 1998 with arbitration proceedings between the parties following shortly thereafter in May 1999. Charlton had lost the arbitration and that would mean the end of Charlton, and even if it won the arbitration there was no prospect of the revival of the project and it would have been a question of Charlton hopefully recovering damages which it would then need to apply to other ventures which were not then contemplation. Accordingly the only fee income from Charlton was in respect of the arbitration and by the early part of 2000 the shareholders of Charlton were becoming unhappy at the length of time the arbitration was taking and as to the cost. The last bill rendered in the arbitration was in June 2000. The only way that Charlton could pay any bills was if the shareholders funded it and there was no value in Charlton as a client. The bills in 1997, 1998 and 1999 were all fully paid as was the bill in the spring of 2000. The only bill unpaid was that of June 13, 2000 where counsel’s fees were fully paid by the client but the partnership fees of £15,000 were not settled. However, that represents £15,000 out of the total revenue contribution of Mr Simms of over £800,000, an insignificant amount.

Even if the misrepresentations were made, they could not have induced Mr Conlon to continue his partnership with Mr Simms since that decision had been made in early December 1999.

Mr Simms says that income producing possibilities of particular clients were not discussed in any way between Mr Conlon and Mr Simms in relation to the continuation of the partnership since, with 24 years in partnership, each knew the financial capabilities of the other. If Mr Conlon had thought otherwise, the preparation of the first year’s accounts would have revealed the lack of income from Elite. If, which is denied, Mr Conlon was concerned about future business of Mr Simms after 22 years, he would not be interested in two new small clients, Elite and Charlton, but the important clients of Mr Simms for whom he had been acting, in some cases, for over 25 years, such as The Investment Company Plc, The El Ajou Group, Eurocentres, Grupo Iberostar, the RPG Group, the Ransat Group, the Lukoil Group, Saregama Plc and many others. There would be no reason for Mr Conlon to have any interest or concern as to whether two unimportant clients of Mr Simms did or did not continue, and indeed Mr Conlon in cross examination admitted that he never bothered to find out, after the first year of the partnership, what, if anything, had been billed to Elite.

Mr Conlon confirmed that as of December 1999, he had 22 years experience of Mr Simms and that Mr Simms had never failed to achieve his budget. He also confirmed that in the first year of the new partnership, Mr Simms and his department contributed 50% of the turnover of the firm. In the last year of the partnership, Mr Conlon accepted that he could not criticise Mr Simms for his financial performance.

Mr Conlon was delighted to continue the partnership with Mr Simms since it gave him the ability to continue to practise as a City solicitor notwithstanding the other partners leaving for Birchams. Mr Conlon can have no legitimate financial complaint since in the first year of the firm, Mr Simms personally billed £496,515.77 against a target of £366,300.00, a sum of £130,215.77 over budget. In addition, Mr Simms brought with him in his department, Philip d’Costa who achieved £170,458.35, V Novikova who produced £99,931.80 and Michelle Poltorak who produced £25,411.75. In addition Mr Simms’ trainee contributed to the overall total for the year of just over £1.6 million. The position of Charlton was not material to the financial results of the partnership.

Mr Conlon in cross-examination confirmed that he had never checked after the year end April 30, 2001 whether any bills had been rendered to Elite and whether such bills had been paid. If the matter was of any importance to Mr Conlon, it would have been a matter for concern if no bills had been rendered to Elite (as was the case).

The execution by the claimants of the May 2002 Agreement in the full knowledge of all matters which were subsequently to be adjudicated upon by the SDT, amounts to an affirmation by Mr Conlon of the partnership agreement which he claims he would not have entered into had he known the facts.

Further partnership agreement made on September 3, 2000

Mr Simms says that in so far as it appears to be alleged that Mr Conlon entered into the agreement with Mr Harris to join the partnership as a result of the pleaded misrepresentations and the non-disclosure, there is no relationship between those matters and the entry of Mr Harris into the partnership, no potential inducement and no possible loss to Mr Conlon.

Mr Simms was not principally conducting the negotiations with Mr Harris to join the partnership. This negotiation was conducted by Mr Conlon. Mr Simms had one or possibly at most two meetings with Mr Harris in order to meet Mr Harris and to decide whether he agreed with Mr Conlon that an invitation to join the partnership would be in order. Mr Simms was then involved in formulating a financial offer. Mr Simms relied on Mr Conlon to disclose anything relevant to the partnership in respect of which Mr Harris might enquire and expected Mr Conlon to make the same disclosure of the existence of the OSS investigations as had been made, at his insistence, in the context of the Birchams takeover.

Mr Harris accepted that he was aware that representatives of the OSS were visiting regularly and occupying the board room adjacent to the accounts department and requesting information from the accounts department. When the intervention took place into Mr Simms’ practice on February 19, 2002, Mr Harris made no allegations of misrepresentation or non-disclosure until in this action. He negotiated and entered into the Agreement of May 1, 2002 in full knowledge of the Intervention, the evidence in the Forensic Report, the evidence of Mr Simms and the response from the Law Society.

Mr Conlon was asked why having requested the OSS investigation be drawn to the attention of Birchams he made no mention of it to Mr Harris in the context of him joining the partnership. He was asked whether it slipped his mind. His answer was that it had not and he thought that the matter had probably gone away, and come to an end.

Mr Harris on his arrival in September 2000 took over control of the accounts department and appointed Mr Handscombe to run it, answerable to him and went to the accounts department first thing on his arrival in the office each morning to review progress. In those circumstances, it is impossible that Mr Harris was not fully aware of the visits of the OSS inspectors. During their visits the accounts department had to substantially devote their time to comply with the requirements of Ms Norton to provide them with printouts, documents and files.

Mr Simms also claims in this context that there was affirmation resulting from the execution of the May 2002 Agreement in the full knowledge of all matters which were subsequently to be adjudicated upon by the SDT.

VIII Conclusions

Duty of disclosure

The most fundamental obligation which the law imposes on a partner is the duty to display complete good faith towards his co-partners in all partnership dealings and transactions: Lindley and Banks, Partnership, 18^th ed. 2002, para. 16-01.

The relationship between partners is of a fiduciary nature (ibid. para. 16-03). “If fiduciary relation means anything I cannot conceive a stronger case of fiduciary relation than that which exists between partners”: Helmore v Smith (1886) 35 Ch D 436, 444.

It follows that when co-partners are negotiating between each other in relation to partnership assets, each partner must put the others in possession of all material facts with reference to the partnership assets, and not to conceal what he alone knows: Maddeford v Austwick (1826) 1 Sim. 92; Law v Law [1905] 1 Ch 140, 157.

It has been said that the duty of good faith exists not only as between persons who are actually in partnership together, but also as between persons who are negotiating their entry into partnership: Lindley and Banks, para. 16-06: Spencer Bower, Actionable Non-disclosure (2^nd ed Turner and Sutton, 1990), paras. 10.01 to 10.04; Chitty on Contracts, para. 6.157. It is true that the cases cited by Lindley and Banks and by Chitty do not bear out the proposition (the only one remotely near the point is Fawcett v Whitehouse (1829) 1 Russ & M 132, but that was not a case of a prospective partnership), and that Cartwright, Misrepresentation (2002), para. 11.10, on which Mr Simms relied, says that it is not clear whether the duty of disclosure arises during the negotiations for partnership.

But there is authority, including very strong persuasive authority, for the existence of such a duty. In Andrewes v Garstin (1861) 10 C.B. (N.S.) 444 the plaintiff sued for breach of an agreement to enter into a partnership with the defendant, who pleaded that previously the plaintiff had carried on trade in partnership with another person, and that the defendant made the agreement on the faith and under the belief that the plaintiff had up to that time acted with honesty towards his previous partner. But after the making of the agreement the defendant discovered that the plaintiff had before the time of making the agreement acted with fraud and dishonesty towards his partner, and did not disclose it. It was held that the plea afforded no answer to the action. Erle CJ said that the arguments urged by the defendant would have been addressed with more plausibility if the plea had been a little more specific. There was no suggestion of fraud on the defendant and as to the rest it was much too vague and uncertain. Contrary to Mr Simms’ argument, there is no suggestion in this decision that there was no duty to disclose material matters.

In Bell v Lever Brothers Ltd [1932] AC 161, at 227 (cited by Cartwright on this point, but not by Lindley and Banks), Lord Atkin assumed that an intending partner had a duty of disclosure. He said:

“Fraudulent concealment has been negatived by the jury; this claim is based upon the contention that Bell owed a duty to Levers to disclose his misconduct, and that in default of disclosure the contract was voidable. Ordinarily the failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract. The principle of caveat emptor applies outside contracts of sale. There are certain contracts expressed by the law to be contracts of the utmost good faith, where material facts must be disclosed; if not, the contract is voidable. Apart from special fiduciary relationships, contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made, so of an intending partner.”

I am satisfied on principle and authority that prospective partners have a duty to disclose material matters.

Mr Simms is right to say that the duty of disclosure depends upon the relative degree of knowledge as to the partnership affairs possessed by the parties, and there is a duty of disclosure on the partner who has “exclusive or superior knowledge of the affairs of the partnership” (Spencer Bower, para. 10.02). But this is only saying that there is no duty to disclose what is already known.

There is, in variety of contexts, a tendency towards the view that mere non-disclosure does not give a right to damages. According to the view of Spencer Bower, Actionable Non-Disclosure, and its present editors, the right of any party complaining who elects to avoid a contract in the negotiation for which material facts have been withheld is to have the contract judicially annulled or treated as a nullity and that party is not entitled to recover damages: para. 14.02. So also, according to Lindley and Banks, para. 16-08, a breach of the duty of good faith will give rise to a claim for damages in an appropriate case, but such a claim may not be sustainable where the breach involves a mere non-disclosure, citing Uphoff v International Energy Trading, The Times, February 4, 1989 (C.A.), where it was held that even if shareholders owed each other a duty of good faith as parties to a joint venture, it was not arguable that there was a duty of disclosure in that case, but even if there had been, it would not sound in damages. Mere non-disclosure does not found an action for deceit: Clerk and Lindsell, Torts, 19^th ed. 2006, para. 18-08. Nor does it give rise to liability for damages under the Misrepresentation Act 1967: Chitty, Contracts (29^th ed. 2004), para. 6-072.

But is clear that where there is a duty to disclose, and the failure to disclose is fraudulent, there will be an action in deceit and damages will be an available remedy. In such cases “the non-disclosure assumes the character of fraudulent concealment, or amounts to fraudulent misrepresentation, or is otherwise founded on, or characterized and accompanied by, fraud”: Spencer-Bower, para. 14.02.

But it has been said that in practice the line between misrepresentation and non-disclosure is often imperceptible: Pan Atlantic Insurance Co. Ltd. v Pine Top Insurance Co. Ltd. [1995] 1 AC 501, 549, per Lord Mustill. The deliberate withholding of information which the person knows or believes to be material, if done dishonestly or recklessly, may amount to a fraudulent misrepresentation: HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s Rep 61, at para. 21, per Lord Bingham. It cannot be easy to conceal material facts in the course of negotiating, without falsifying something which has been expressly or impliedly stated: ibid at para. 71, per Lord Hoffmann, who also said, at para. 72, citing Brownlie v Campbell (1880) 5 App Cas. 925, 950, that where there is a duty or an obligation to speak, and the person holds his tongue and does not speak, and does not say the thing he was bound to say, if that was done with the intention of inducing the other party to act upon the belief that the reason why he did not speak was because he had nothing to say, that was fraud also.

The Amended Particulars of Claim also plead a contractual duty, namely the implied duty of good faith which is breached by such non-disclosure. Mr Engelman cited the decision in Trimble v Goldberg [1906] AC 494, at 500 (P.C.) for the proposition that a breach of contract arising as a result of breach of an implied term of good faith sounds in damages. But the Privy Council in that passage was speaking of breach of an express term not to purchase property for the partner’s own account. Nevertheless there is no reason to doubt that breach of an implied term would give rise to a right to damages. But it is clear from the context that what is pleaded in the present case is a breach of the implied obligations in the May 2000 and September 2000 Partnership Agreements. As regards Mr Conlon, there was an express contractual duty under the 1997 partnership agreement (clause 18.1.1) to act in good faith, but no breach of that agreement is pleaded or relied upon.

Relevance of SDT findings and decision of the Divisional Court

Mr Simms argues that the findings in the SDT proceedings are inadmissible in principle. The defence put forward by Mr Conlon and Mr Harris in the first action included a claim that Mr Simms did not come to the court with clean hands because of the matters with which he was charged by the Law Society by way of disciplinary offences. The decision of David Richards J that the findings in the SDT were not admissible is res judicata in this action.

Mr Simms says that since David Richards J’s judgment of March 22, 2004, Mr Conlon and Mr Harris have known that the findings of the SDT were not admissible and that if they wished to raise any specific allegations which were in any way founded on or connected with the SDT proceedings that they would need to make express allegations in this action so that the matter could be dealt with by way of defence, disclosure and witness statements on the details. It has been open to the claimants for over 18 months to plead specific allegations, require disclosure, call evidence and cross-examine on the relevant documents.

Accordingly, he says, neither the decision nor any of its findings or conclusions will be admissible at any trial: Three Rivers DC v Bank of England (No.3) [2001] UKHL 16, [2003] 2 AC 1; Secretary of State for Trade and Industry v Bairstow [2004] Ch 1. Hunter v Chief Constable of the West Midlands Police [1982] AC 529 is of no relevance to the present action. There has been no initiation of any proceedings by Mr Simms. This action is not intended to and does not have as its purpose the mounting of a collateral attack on the SDT or Administrative Court decisions.

Mr Simms argues that the cross-examination of him on the findings of the SDT has not proved anything other than Mr Simms has an explanation for the matters raised in cross-examination and does not accept the findings of the SDT. The cross-examination on the findings of the SDT (which were inadmissible), without any recourse to any documentation relevant to the issues upon which cross-examination occurred, does not prove anything.

The claimants say that they are not precluded by the judgment of David Richards J from relying on the findings of the SDT and the Divisional Court.

They argue that the order of a professional disciplinary committee is admissible as prima facie evidence of the fact that Mr Simms was struck from the Roll of Solicitors on the grounds of his dishonesty: Hill v Clifford [1907] 2 Ch 236. The court is entitled to reach its own view of the facts as found by the SDT/Divisional Court: Clifford v Timms [1908] AC 12. Although judicial findings made in a previous case are not admissible in later proceedings, the principle of abuse of process would prevent collateral attack on an earlier decision of a court of competent jurisdiction where re-litigation of the same issues would be manifestly unfair or would bring the administration of justice into disrepute: Secretary of State for Trade and Industry v Bairstow [2004] Ch 1. The principle of collateral attack is not applicable where the party seeking to make that attack is able by reference to new evidence to show why the earlier judgment should not stand: ibid at para. 30.

Accordingly, the claimants contend that they do not have to get within the two categories identified in Bairstow, because of the failure by Mr Simms to identify any new evidence which would change the aspect of the case: Phosphate Sewage Co Ltd v Molleson (1879) 4 App. Cas. 801, 814. Even if that is not so, it would be either manifestly unfair or bring the administration of justice into disrepute to require such re-litigation where nothing is produced to show that the earlier decision was wrongly made.

Before I come to my conclusions on this aspect, I should mention that the question of the role which the SDT findings and the Divisional Court decision were to play in this trial was not explored prior to trial, and it was rather faintly suggested by Mr Engelman on behalf of the claimants that I should decide it as a preliminary issue. I decided that that would not be an appropriate course without looking at the findings and the decision in detail, and considering the case as a whole. I was referred to many decisions on this aspect of the case, and I will deal with those which I consider most directly relevant. It is convenient to take them in chronological order.

In the proceedings which culminated in Hill v Clifford [1907] 2 Ch 236 and Clifford v Timms [1908] AC 12, five dentists carried on a partnership under agreements which provided that if any partner should be guilty of “professional misconduct” the other partners would be at liberty to give notice in writing determining the partnership. The General Medical Council (“GMC”) acting under the powers of the Dentists Act 1878 made an order striking the Cliffords’ names off the register of dentists on the ground that they had been guilty of conduct which was infamous or disgraceful in any professional respect. Their partners gave notices determining the partnership, and the actions were brought to determine the validity of the notices. The misconduct consisted of employing unregistered assistants to attends to patients and perform operations, some of whom used the title of “Doctor” and publishing advertising pamphlets which were alleged to be of an objectionable character.

The order of the GMC was tendered in evidence. Warrington J rejected it and decided the actions in favour of the Cliffords. An appeal was allowed: Hill v Clifford [1907] 2 Ch 236. Cozens-Hardy MR considered that the order was admissible as evidence of the existence of conduct which was “infamous or disgraceful in a professional respect.” He said (at 245): “Unless and until evidence to the contrary was given, the orders suffice to prove that the Cliffords were guilty of statutory misconduct. No evidence was given by them to resist this prima facie evidence.” He added that he doubted whether it was competent to any court to review a declaration by the GMC that an act of a particular kind was disgraceful conduct in a professional respect, even though it might be competent to review the decision that a certain individual had committed an act of that particular kind. He preferred to base his judgment on that general principle, although in the present case it might be sufficient to say that the respondents, by the mouth of their counsel speaking in their presence in the most formal manner, admitted that they had been found guilty of offences of professional misconduct and promised not to repeat them.

Sir Gorell Barnes P said (at 249) that it was not necessary to decide whether the proceedings in the GMC were admissible for the purpose of proving the fact of professional misconduct because the case might be disposed of upon the facts admitted or proved at the trial without using the report of the GMC. But he doubted whether the order of the GMC was conclusive evidence of the grounds on which the GMC had acted. It would not be necessary to decide whether the order was conclusive evidence even as against the defendants and to what extent it was conclusive. It would probably be sufficient to determine whether the order was admissible in evidence in the case, because no evidence was given in answer to the plaintiff’s case. It was admissible as evidence, and conclusive evidence, of the fact that the defendants’ names had been erased by order of the GMC. It might be admissible to show the grounds upon which it was made.

Then a much more difficult question arose as to whether the order would be admissible as evidence of the truth of the grounds upon which the decision was given. He had been unable to satisfy himself that the order in the present case could be tendered as evidence of the truth of the facts, especially when the report of the Committee was made upon evidence that was not taken on oath. But the order might be evidence that from the facts before them the Council had found that the defendants had been guilty of conduct which was infamous or disgraceful in a professional respect, and although the ordinary courts might be competent to consider whether the facts were true, it was doubtful whether it could be competent for the courts to hold that a special tribunal created by the Act had formed an erroneous opinion that the acts imputed to the defendants and proved amounted to such conduct. In the present case substantially the same facts which were before the GMC had been proved or admitted, and yet on the issue of professional misconduct the court was asked to say that those facts did not show professional misconduct. The order was clearly admissible to prove that the defendants’ names had been erased from the register. The course taken by the defendants was tantamount to a plea of guilty and they must be taken to have admitted the charges.

Buckley LJ thought that the proceedings before the GMC had resulted in the order the effect of which was that Ruby Clifford had become incapable of being and acting as a partner. The order of GMC was admissible on the question that Clifford’s name had been erased from register. It was also admissible to show the grounds upon which his name was erased. That was not the same as saying that it was evidence that those grounds were truly alleged. The order could be tendered in evidence to show its own existence and to show the grounds on which it was made. The next question was whether it was admissible as evidence of the truth of the facts. It was no doubt not conclusive as to their truth, but it was admissible as evidence of their truth. It would have been open to assert and prove if he could that he had not been guilty of professional misconduct but he had adduced no evidence at all for that purpose.

There was therefore a majority (Cozens-Hardy MR and Buckley LJ) for the view that the order was prima facie evidence of the truth of the charges.

The House of Lords dismissed the appeal, but the decision was based on different grounds. Lord Loreburn LC said that it was not necessary to enter upon the legal question which had been discussed so much in the Court of Appeal. It was a matter of indifference whether the order made by the GMC should be admitted in evidence or be excluded. It was clear that the form of advertisements which were sanctioned amounted to professional misconduct.

This decision has rarely been cited or applied. In DPP v Head [1959] AC 83, 108-109, Lord Denning relied on the judgment of Cozens-Hardy MR to say that an order under the Mental Deficiency Act 1913 (that a person was a mental defective) was prima facie evidence (but not conclusive evidence) of the truth of the facts recited in it, and if uncontradicted, ought to be regarded as sufficient evidence. See also Novello & Co Ltd v Ernst Eulenberg [1950] 1 All ER 44; The European Gateway [1987] QB 206.

It was not cited in the well known (or notorious) case of Hollington v Hewthorn & Co. Ltd [1943] KB 587. The plaintiff sued as the administrator of the estate of his son who had died after the action was brought, and on his own behalf, claiming damages in respect of a collision which occurred between the plaintiff’s car and which was driven by his son and a car owned by Hewthorn & Co Ltd, and driven by Mr Poll. Because of the death of the son, the plaintiff was unable to adduce any direct evidence of the accident and he tendered in evidence, in addition to evidence as to the position and condition of the two vehicles (inter alia) a conviction of Mr Poll for careless driving at the time and place of the collision. For the plaintiff it was contended that he was entitled to put in the conviction, not as conclusive evidence, but prima facie evidence that the defendant was driving negligently. It was accepted that it would be open to the defendant to show if he could that he ought not to have been convicted or that the negligence of which he was convicted did not cause the accident.

It was held that the conviction was only proof that another court had considered that the defendant was guilty of careless driving. The court which has to try the claim for damages knows nothing of the evidence which was before the criminal court, and it could not know what arguments were addressed to it, or what influenced the court in arriving at its decision. The issue in the criminal proceedings was not identical with that raised in the claim for damages. Once the defendant challenged the propriety of the conviction, the court, in the subsequent trial, would have to retry the criminal case to find out what weight ought to be attached to the result. On the trial of the issue in the civil court, the opinion of the criminal court is irrelevant. Lord Goddard CJ said (at 596): “…it is relevancy that lies at the root of the objection to the admissibility of the evidence.”

In Hunter v Chief Constable of the West Midlands Police [1982] AC 529 the Birmingham Six sued the Chief Constables of the West Midlands and Lancashire Police and the Home Office for damages against the police for injuries caused by alleged assaults after they had been arrested following the explosions in Birmingham public houses in 1974. At their criminal trial, in the absence of the jury, Bridge J held that the prosecution had proved beyond reasonable doubt that the men had not been assaulted by the police and that their statements had been voluntary and should be admitted in evidence.

It was held that where a final decision had been made by a criminal court there was a general rule of public policy that the use of a civil action to initiate a collateral attack on the decision was an abuse of the process, and that the fresh evidence which the plaintiff sought to adduce in the civil action fell far short of satisfying the test to be applied in considering whether an exception to the general rule of public policy should be made.

Lord Diplock said that the case was about abuse of the process of the court and concerned the inherent power “which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.” (page 536)

He said (at 541) that the abuse of process which the case exemplified was the initiating of proceedings in a court for the purpose of mounting a collateral attack upon a final decision which had been made by another court of competent jurisdiction in previous proceedings in which the plaintiff had had a full opportunity to contest the decision in the court by which it was made. The proper method of attacking the decision would have been an appeal against conviction. At page 452 he cited Stephenson v Garnett [1898] 1 QB 677, at 680-681, where A. L. Smith LJ said:

“… the court ought to be slow to strike out a statement of claim or defence, and to dismiss an action as frivolous and vexatious, yet it ought to do so when, as here, it has been shewn that the identical question sought to be raised has already been decided by a competent court.”

No question arose in Hollington v Hewthorn of raising in a civil action the identical question which had already been decided in a criminal court of competent jurisdiction, and the case did not purport to be an authority on that subject: at 543. To allow a collateral attack the new evidence must satisfy the test in Phosphate Sewage Co Ltd v Molleson (1879) 4 App. Cas. 801, 814, namely that the new evidence must be such as “entirely changes the aspect of the case.”: [1982] AC at 545.

The effect of the actual decision was reversed by the Civil Evidence Act, section 11, which allows criminal convictions to be adduced in evidence in civil proceedings as prima facie evidence that the offence was committed: see also section 13, as amended (defamation cases: conviction conclusive evidence), and Police and Criminal Evidence Act 1984, sections 74 and 75 (admissibility of conviction of persons other than the accused).

In Hunter Lord Diplock said (at 541) that Hollington v Hewthorn was generally considered to have been wrongly decided. Hunter was an unsuccessful appeal from McIlkenney v Chief Constable of West Midlands [1980] QB 283, in which Lord Denning MR (who as A.T. Denning QC had appeared for the unsuccessful plaintiff in Hollington v Hewthorn) had said: “Beyond doubt, Hollington v Hewthorn was wrongly decided. It was done in ignorance of previous authorities. It was done per incuriam”: at 319). From the reference to ignorance of previous authorities, and from the dissenting judgment of Sir George Baker (at 342), it is clear that it had been argued that Hollington v Hewthorn was inconsistent with Hill v Clifford.

In Arthur J S Hall & Co v Simons [2002] 1 AC 615, 702, Lord Hoffmann said that Hollington v Hewthorn was generally thought to have taken the technicalities of the matter too far when it decided that the criminal conviction was no evidence whatever.

The decision in Hollington v Hewthorn was again recently described in R v Hayter [2005] UKHL 6, [2005] 2 All ER 209, at [72] by Lord Carswell as much-criticised, and (by implication) as irrational by Lord Steyn, at [21] when he described the statutory modification of the decision as marking an advance of the rationality of the law.

But Hollington v Hewthorn was followed in Secretary of State for Trade and Industry v Bairstow [2004] Ch 1, where the former managing director of a company brought wrongful dismissal proceedings against the company. Following a trial which lasted almost a year (from October 1997 to September 1998), the judge dismissed the claims in two judgments given in July and December 1999, and found that the director had been guilty of grave misconduct and neglect in the performance of his duty. An appeal against the decision was dismissed. The Secretary of State for Trade and Industry subsequently applied under section 8 of the Company Directors Disqualification Act 1986 for a disqualification order and sought to rely on the findings made in the wrongful dismissal proceedings.

Sir Andrew Morritt V-C, giving the judgment of the Court of Appeal, said that although Hollington v Hewthorn had been criticised by Lord Diplock in Hunter and by Lord Hoffmann in Arthur J S Hall & Co v Simons [2002] 1 AC 615, 702, it had been recognised as expressing the position at common law in several subsequent decisions: Savings and Investment Bank Ltd v Gasco Investments (Netherlands) BV [1984] 1 WLR 271; Hui Chi-ming v The Queen [1992] 1 AC 34 (P.C.); Land Securities plc v Westminster City Council [1993] 1 WLR 286; Symphony Group plc v Hodgson [1994] QB 179; Three Rivers District Council v Bank of England (No.3) [2003] 2 AC 1.

It was held that the decision was not limited to criminal proceedings. Accordingly the factual findings and conclusions in the employment proceedings were not admissible as evidence of the facts found in those proceedings. The cases established the following propositions. First, a collateral attack on an earlier decision of a court of competent jurisdiction might be but was not necessarily an abuse of the process. Second, if the earlier decision was that of a court exercising a civil jurisdiction then it was binding on the parties to that action, and their privies in any later civil proceedings. Third, if the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it would only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be re-litigated or (ii) to permit such re-litigation would bring the administration of justice into disrepute.

On the facts it was held that it would not be manifestly unfair to either party for the Secretary of State to be required to prove his case. Nor would re-litigation bring the administration of justice into disrepute, because the allegations made by the Secretary of State were serious, and they had to be proved to the satisfaction of the court hearing the application for a disqualification order by legally admissible evidence.

My conclusions on this aspect of the case are these. First, I am in no sense precluded by the decision of David Richards J from deciding the question of the admissibility of the findings of the SDT and the Divisional Court. What he said was obiter and tentatively expressed, and is not res judicata as between the parties.

Second, Hill v Clifford (having been affirmed on different grounds by the House of Lords) is not binding authority, and its value as persuasive authority is limited by the effect of Hollington v Hewthorn. The majority decision of the Court of Appeal in Hill v Clifford accords with common sense. I consider that it does support the view that the order of the SDT is evidence of the fact that Mr Simms was struck from the Roll of Solicitors on the grounds of dishonesty. But as regards the truth of the findings themselves, in relation to the potential admissibility of the decision of the Divisional Court in the present case it is difficult to reconcile Hill v Clifford with Hollington v Hewthorn, and it would be odd if the findings of the SDT had greater evidential value than the decision of the Divisional Court. Third, it is plain (if authority were needed for such an obvious point) from Clifford v Timms [1908] AC 12, the court is entitled to reach its own view of the facts as found by the SDT/Divisional Court, provided that the facts are properly proved in accordance with procedural fairness.

Fourth, even where judicial findings made in a previous case were not admissible in later proceedings, and even where the earlier decision was not res judicata between the parties, the principle of abuse of process would prevent collateral attack (by a defendant as well as a claimant) on an earlier decision of a court of competent jurisdiction if re-litigation of the same issues would be manifestly unfair or would bring the administration of justice into disrepute: Hunter v Chief Constable of the West Midlands Police [1982] AC 529; Secretary of State for Trade and Industry v Bairstow [2004] Ch 1. Fifth, the principle preventing collateral attack is not applicable where the party seeking to make that attack is able by reference to new evidence to show new evidence which entirely changes the aspect of the case: Hunter v Chief Constable of the West Midlands Police [1982] AC 529, 545, and Secretary of State for Trade and Industry v Bairstow [2004] Ch. 1, 14, applying Phosphate Sewage Co Ltd v Molleson (1879) 4 App. Cas. 801, 814.

In the present case I am satisfied that all three conditions are satisfied. First, it would be unfair to require Mr Conlon and Mr Harris to prove dishonesty in numerous transactions to which they were not parties and in relation to which the only contemporary evidence which they have is contained in the material annexed to the Law Society’s complaint. Second, and connected with the first point, it would bring the administration of justice into disrepute if, after a hearing before the SDT lasting several weeks, and a full appeal before the Divisional Court, Mr Simms could, in the absence of substantial fresh evidence, challenge those findings.

Nor would it be unfair to Mr Simms. Mr Simms has known since these proceedings were commenced that the claimants were relying on the findings of the SDT and the Divisional Court and all he has done is to deny their admissibility. Mr Simms did not seek to put in any fresh material in relation to any of the allegations of the SDT/Divisional Court before the court in these proceedings, and he accepted in cross-examination that all the submissions and materials he wished to deploy before the SDT and the Divisional Court were deployed, save for evidence that was not called by him for reasons that were not fully explained, and he accepted that he had no new material that would satisfy the Ladd v Marshall test to put before the Divisional Court and that he had made no such application to the Divisional Court.

If I were wrong in that conclusion I do not think it would have been right for me to go on to decide whether Mr Simms had been dishonest on the basis of the few examples from the Law Society complaint files which were put to him in cross-examination without prior warning. But I do consider that in any event I can take account of his answers to questions on those documents which were the subject of discussion and debate between the partners in 1999. His answers throw light both on his credibility in general, and on whether his non-disclosure was fraudulent. The documents relevant for these purposes are the documents relating to Elite, Trinity Union and Scroda.

To the limited extent that this decision turns on oral evidence, I will indicate my impressions of the witnesses. Mr Conlon seemed to be an honest, if somewhat weak, man, who was plainly overpowered by the personality of Mr Simms. I consider that his evidence was honest and satisfactory, except that hindsight coloured some of his answers. Mr Harris was an entirely satisfactory witness, and I accept his evidence that he knew nothing of the potential problems with the Law Society when he joined the partnership, and would not have joined if he had known the true nature of Mr Simms’ practice.

Mr Simms is a highly intelligent and articulate man, with a very powerful personality. In the course of the meeting on August 5, 1999 between Mr Vincent and Mr Brown, Mr Brown asked Mr Vincent “If [Mr Simms] always got his way” and Mr Vincent minuted “I told him the truth”. It is not difficult to guess what the answer was. Mr Simms was a dominant figure in the partnership, and the partners obviously did not stand up to him enough. In the end only Mr Conlon paid a price for it.

The claims falls under two broad heads. The first is the Elite/Charlton representations, and the second is the non-disclosure. The reply pleads express assurances of honesty, and I could have given permission for them to be pleaded as separate claims. But if made out they would in any event go the honesty of the non-disclosure. I have set out above the correspondence and other documents in some detail, and I will not repeat their contents in this section.

I am satisfied that Elite was not a substantial entity, and was an instrument of fraud. Mr Simms made the representation about Elite which Mr Conlon alleges, in substance that it was a substantial entity which would generate substantial fees. The occasion was when Mr Conlon expressed concern about a transfer from the firm’s client account for Elite and in the context of Mr Conlon’s conversation with Mr Foley, of the Bank of Ireland, about possible money laundering. The representation was confirmed or anticipated in Mr Simms’ note to the partners of about December 23, 1999, when he said “We have held funds of Elite Engineering Corporation Limited for over 18 months and they are people of repute dealing with substantial transactions … The client is an important source of new business for the future,” and he referred to Elite as a “valuable client” in his note to the partners a week or so later, when he said that they were regarded as first class customers of National Westminster Bank Plc, Barclays Bank, ABN Amro, Deutsche Bank, Merrill Lynch New York, and Goldman Sachs New York.

The representation about Elite was untrue, and was made in December 1999 and repeated in December 1999 or early January 2000, which was before the partnership arrangements between Mr Simms and Mr Conlon were finalised, which was probably not before March 2000, when it became clear that there would be a new partnership rather than a continuation of Bower Cotton. As I have said, Mr Simms accepted in cross-examination that Elite was a £100 company registered in Gibraltar, that its accounts were not audited by a reputable firm of accountants, and that it did not have subsidiaries, and that he drafted letters on behalf of the two directors of Elite whom he had not met; and that no references were obtained from banks relating either to Elite or those standing behind Elite. The context of the Charlton representation was simply a discussion about potential fees in the arbitration which Mr Simms was conducting, and it probably took place in May 2000 after the partnership had commenced. Mr Simms probably gave Mr Conlon the impression that Charlton was substantial (which it was not), but I do not consider that there is any basis in the misrepresentation claim in relation to Charlton.

But I accept Mr Simms’ case that in the statement made about Elite was not in the context of the future profitability of the firm, and that Mr Conlon was not, and could not have reasonably been, induced to enter into partnership by these representations. Mr Simms was the largest fee earner in the firm, and although Mr Conlon may have been worried by not continuing with those partners who did some of the work which Mr Simms introduced, I am satisfied on the evidence that he did not seek, nor was he given, any comfort in this respect by the representations about Elite.

I am also satisfied that Mr Simms failed to make adequate disclosure to Mr Conlon, both as an existing and as a prospective partner, of material matters, namely his dishonesty. It is no answer that Mr Simms did not know that he would be found guilty, and be struck off, nor that Mr Conlon knew (in relation to a limited number of transactions) that the Law Society had concerns. Mr Simms knew, and Mr Conlon did not know, that Mr Simms was engaged in a large number of fraudulent schemes.

I am also satisfied that the non-disclosure was not based on a bona fide belief in his innocence, but was fraudulent, and that because of that, Mr Simms gave numerous false assurances to his partners that the transactions in which he was involved were not fraudulent, and continued to do what he assured the Law Society the firm would not do. At the latest from the time when the Law Society first showed a interest in the transactions with which Mr Simms was involved, Mr Simms gave assurances to his partners (including Mr Conlon) that the clients and the transactions were bona fide. I accept Mr Conlon’s evidence Mr Simms represented that all transactions in which he was involved were bona fide and that he was honest.

In response to the OSS report, in the letter of April 22, 1999 on behalf of the firm, Mr Simms said that the firm’s reputation for financial probity was undoubted, and it had never knowingly put any funds of clients at risk or misapplied them in any way. Since the introduction of the money laundering regulations, systems had been instituted to ensure that the firm was not used for money laundering activities. The firm was not involved in and did not permit any clients knowingly to be involved in any activity which was intended to cause money of any investor to be put into banking or other financial instruments which it believed did not exist or were fraudulent. Mr Simms ended the letter by saying:

“We have decided that the amount of time involved in acting for parties to schemes of the type described in the report is disproportionate to the reward and that we will not accept instructions in respect of the schemes involving the use of our client account for the proposed investment monies.”

I accept Mr Conlon’s evidence that when he reported to Mr Simms in his note of December 23, 1999 on his conversation with Mr Foley of the Bank of Ireland, Mr Simms assured him that there was nothing untoward about the transactions he was involved in, particularly Elite.

Mr Simms wrote a memorandum about Elite in anticipation of the partners’ meeting on January 4, 2000, when he said that he had checked that the Elite funds were “clean” when they were received 18 months before, that he knew a good deal about Elite and its principals, and that they were regarded as first class customers of National Westminster Bank Plc, Barclays Bank, ABN Amro, Deutsche Bank, Merrill Lynch New York, and Goldman Sachs New York.

I have set out in detail above (paras. 82 et seq.) the events following the discovery by the partners of the Trinity Union transaction, and Mr Simms’ evidence in cross-examination. The minutes of the partners meeting of December 15, 1999 record assurances by Mr Simms that he had not allowed Trinity Union to nominate the firm’s client account, or to use the firm’s address. In his note to the partners sent on about December 23, 1999 he assured them of the bona fides of Trinity Union. I am satisfied that these assurances were false. Mr Simms’ attempts to explain the Trinity Union transaction as a genuine commercial transaction and his involvement in it was incomprehensible and wholly unbelievable. It is relevant for at least three purposes: first, Mr Simms’ evidence in the witness box on this incident satisfied me that he is a liar. Second, it shows that he was involved in dishonest transactions. Third, it shows that he gave false assurances to his partners about his honesty.

Even though it was written after Mr Conlon had gone into partnership with Mr Simms, Mr Simms’ letter to Mr Jackson of NatWest in November 2000 confirms the type of assurance which he consistently gave over the period, when he said: “My firm has conducted its banking for clients and on its own behalf impeccably over the years … [W]e would have no desire to act for anyone dubious.”

I also accept that during the period after the assurance was given to the Law Society, Mr Simms caused the firm to be in breach of the assurance by allowing (a) a payment of $1 million on December 22, 1989 from Elite to International Banque Holdings: (b) a receipt on January 28, 2000, of $989,987 which was credited to Elite: (c) a transfer on March 6, 2000 from Elite to Power Resources and then to MBH in the sum of $750,000; (d) payments through the client account in the name of Ace Laboratories from April to June 2000, as part of schemes involving an advance fee in respect of prospective finance; (e) arranging for the firm’s client account to be used for Trinity Union transactions in November/December 1999. I do not accept Mr Simms’ explanation that these were insignificant transactions or designed to comply with the assurance by getting rid of funds.

The letter from Trinity Union had all the characteristics about which the Law Society was concerned. It envisaged (a) a payment of $10 million to generate funds of $100 million; (b) a profit of 150 per cent. In addition, it was written on letterhead with Bower Cotton’s address. It was copied to Mr Simms. It named Mr Simms as the person through whom the contract would be made. It named Bower Cotton’s account as the account where the escrow funds would be kept. It said that a letter of intent should be returned to Trinity Union at the Bower Cotton address for the attention of Mr Simms.

Accordingly I am satisfied that Mr Simms fraudulently failed to disclose his dishonesty to Mr Conlon (and indeed falsely represented that he was honest) and thereby induced Mr Conlon to enter into the May and September 2000 partnership agreements, and Mr Conlon is entitled to damages to be assessed. There is nothing in the suggestion that Mr Conlon has waived his rights. Mr Harris was told nothing about the Law Society investigation by either Mr Simms or Mr Conlon. It is surprising that Mr Conlon said nothing (and he should have), but at that stage he did not know the nature of the Law Society’s interest or the scale of the transactions. But Mr Simms fraudulently failed to disclose his dishonesty, and is liable also to Mr Harris for the consequences of Mr Harris having entered into the September 2000 partnership agreement.