The Law Society (Solicitors Regulation Authority)

These proceedings are brought by the Law Society which administers and funds the Solicitors Regulation Authority (the SRA), the independent body responsible for regulating solicitors in England and Wales. The proceedings relate to the proposed destruction of documents which have come into the hands of the SRA as a result of a large number of interventions in solicitors’ practices over a period of many years. The documents are regarded by the SRA as redundant and the ongoing cost of keeping them is very high. The action has been brought under CPR Part 8 without a Defendant under rule 8.2A by permission of Deputy Master Matthews given on 14 April 2014.

As a key element of the regulation of legal services in England and Wales, the Law Society is provided with statutory powers to intervene in solicitors’ practices. Those powers are given by s35 and fully set out in Schedule 1 of the Solicitors Act 1974 (‘the 1974 Act’). The same powers have also been given in respect of registered foreign lawyers (Courts and Legal Services Act 1990), recognised bodies (Administration of Justice Act 1985) and licensed bodies (Legal Services Act 2007). The powers have now been delegated to the SRA Board pursuant to s79 of the 1974 Act and the Law Society General Regulations. The SRA Board in turn delegates its powers to the SRA’s Panel of Adjudicators Sub-committee.

Part I of Schedule 1 of the 1974 Act sets out the circumstances in which the Law Society may intervene to take control of a practice. They are wide-ranging and include dishonesty in connection with the practice, bankruptcy, mental or physical incapacity, imprisonment and striking off. Part II of Schedule 1 sets out the powers (and also duties) of the Law Society upon an intervention.

As Chadwick LJ stated in Sritharan v Law Society [2005] 1 WLR 2708, ¶46:

There have been a number of cases before the Courts which have considered the scope and effect of the powers of intervention granted to the Law Society. Many of them have been concerned with the exercise of those powers to seize money held by solicitors on behalf of their clients, and the distribution of such money. The Courts have recognised that the intervention regime is a draconian regime. So far as the solicitors themselves are concerned, it is apt to destroy their practice and to obstruct the recovery of unpaid fees. Furthermore, the effect of the regime is to override the private rights of clients of the firms involved. Prior to an intervention the client will have individual property rights in the funds held in a client account or in its traceable proceeds where misused. After an intervention, these rights are converted simply into interests under a public law trust administered by the SRA over all the sums of money held by the solicitor in connection with its practice. The SRA is not answerable as a traditional private law trustee to the former clients whose assets have been transferred into the trust. Rather it acts as a public body whose stewardship of the trust is subject to judicial review. See Re Ahmed [2006] EWHC 480 ¶120. Similarly, any claims for compensation for damage under the Solicitors Compensation Fund are purely a matter of administrative discretion (R v Law Society ex p Reigate Projects Limited [1993] 1 WLR 1531).

The Courts have nonetheless recognised that these powers are ‘essential in the public interest to protect clients, the public, the reputation of the profession and the Solicitors Compensation Fund’ (Lightman J in Dooley v Law Society, unreported, 23 November 2001, ¶2). They have also confirmed that although the interventions inherently amount to an interference with the peaceful enjoyment of property within the meaning of Article 1 of the First Protocol of the ECHR, they are justified because they pursue a legitimate aim and strike a fair balance between the relevant public and private interests involved (Holder v Law Society [2003] 1 WLR 1059 at ¶31, per Carnwath LJ).

It may be noted that the draconian powers of intervention are in general exercisable without the intervention of the Courts at all. Notably no Court order is required before the SRA makes distributions under the statutory trust. This is notwithstanding the fact that the trust represents the aggregate of client and other moneys and the distributions amount to final disposals.

The legal situation with money obtained and held by the SRA as the result of an intervention is now reasonably clearly understood. Under ¶6 of Part II of Schedule 1 of the 1974 Act, the money is held on trust by the Law Society, first of all in order to exercise the powers conferred by Part II and then, subject to that, for the benefit of the persons beneficially entitled (ie the clients whose moneys were being held). As I have mentioned, in Re Ahmed it was confirmed that this is a public law trust.

The position so far as concerns documents held by the SRA after an intervention is, unfortunately, less clear, either as a matter of statute or authority.

The statutory provisions concerning documents on an intervention are contained in ¶9 and ¶10 of Part II to Schedule 1 of the 1974 Act. Essentially, by ¶9, the Law Society is given the power to require a solicitor to hand over all documents in his possession in connection with his practice or any trust of which he is a trustee. It may also ask the Court for an order permitting it or a person authorised by it to enter the solicitor’s premises to search for and take possession of any documents to which the order relates. Under sub-paragraph (7) it must serve on the solicitor (or his personal representatives or any other person from whom they were received or taken) a notice that possession of the documents has been taken. The persons on whom such a notice has been served have 8 days to apply to the High Court for an order requiring the Law Society to return the documents. Under ¶10, the Law Society may apply to the High Court for a communications redirection order requiring specified communications to be directed to the Society or a person appointed by it.

Unlike the position with money, the 1974 Act says nothing about the legal status of the Law Society in relation to the documents coming into its possession by virtue of ¶¶9 and 10. It is not said to be a trustee of the documents. Nor is there any positive requirement to retain the documents. The only reference to destruction or disposal of the documents is in ¶9(10) which says as follows:

There are at least three purposes for which it may be assumed that Parliament contemplated that the documents obtained by the Law Society following an intervention would be used:

The SRA has given evidence to me which indicates that it takes its responsibilities with regard to documents obtained under ¶¶9 and 10 very seriously. The procedures which it follows, through its intervention agents, are set out in detail between ¶¶24 and 27 in the third witness statement of Mr Antony King, the Technical Manager of the Client Protection Directorate of the SRA.

The first step is to identify from the files all clients involved in matters which are current and active, and to invite them to instruct new solicitors. If this occurs, any and all live files belonging to that client are sent to the new solicitors.

Of the remaining documents, the SRA extracts any which appear to be ‘originals’ (deeds, certificates, wills, conveyances etc.). It is of course characteristic of many interventions that the solicitor will be holding large quantities of such documents which are purely historic and of no legal significance. In respect of certain categories of original documents, the SRA attempts to contact the clients to whom they relate. In the case of wills, for example, contact is attempted for any will made in the last 15 years. If contact is made, the client can give instructions as to how to deal with the document in question. However, all original documents are preserved indefinitely as a matter of course. Nothing in this application concerns such original documents.

The SRA has an Intervention Archive Department (‘IAD’), presently sub-contracted to Capita Total Document Solutions. The IAD uses two storage facilities in Coventry and Darlington.

Save for any files which are required for the purpose of disciplinary proceedings, the SRA sends all current files not required by clients and all completed/archived files held by the solicitor to IAD for storage. On receipt the files are checked to establish the identity of the client, the type of work involved and to extract all original documents. Both the file itself and any original documents within the file are bar coded for identification and sent for storage (the original documents are stored separately from the file).

In the early days of the 1974 Act, it seems that there were relatively few interventions, and therefore very few documents came into the possession of the Law Society. However, from the mid-1980s the number of interventions increased significantly. This of course also coincided with the advent of the photocopier which multiplied the volume of paper generated in the course of solicitors’ practices. For those reasons, the number of documents held by the Law Society began to increase substantially. I am told that the Society took Counsel’s advice at that time and reached the view that there was no requirement in law which obliged it to retain documents for any particular length of time. Between 1994 and 2001 certain files were then destroyed; records are only available for 1999-2001, in which period some 890,000 documents were destroyed. These files were all over 6 years old and did not include any original documents.

Since 2001 no documents of any kind sent for archiving by IAD have been destroyed. The change in policy occurred because of a fundamental review of the Law Society’s intervention policies owing to concerns relating to its treatment of practice money held under the statutory trust. The review culminated in the decision of Lawrence Collins J in Re Ahmed in 2006.

By 2008 the Law Society had completed most of its work on the historic statutory trust position, but it did not recommence its document destruction policy due to creeping doubts about the legality of doing so without the mandate of the Court under ¶9(10) of Schedule 1. In order to resolve the position an action was brought in the Chancery Division in 2008 (without a Defendant) in relation to 5 named interventions, under Case No. HC0802691. This action was heard by Lewison J (as he then was) on 16 January 2009. It is unreported but a transcript of the Judgment exists. According to Mr King, the application was brought under ¶9(10) and sought the approval by Lewison J of the destruction of files held under the document retention policy developed by the Society. This policy had been followed (up to the point when it mandated destruction) in relation to the files held from the 5 named interventions. Under the policy, non-original documents would be destroyed after storage for at least 6 years (the precise time depending on the nature of the case with which the file was concerned). The SRA apparently envisaged that if the Court approved that policy in relation to the named interventions, it would be able to destroy documents in the future having followed the policy without the need for further applications to the Court.

Lewison J recorded in his Judgment that at that date some 3.5 million files were held by the IAD in 180,000 boxes, at an annual cost of some £500,000 per annum. He noted that:

He went on to note that any commercial organisation, including solicitors’ practices, must have a policy of document destruction after a given period of time, and that this would inevitably include documents which did not technically belong to them. He held that:

Having considered the Society’s document retention policy, he required it to be modified in two respects: (i) to lengthen the minimum periods by one year to take into account the possibility of a claim being made within the limitation period which did not come to light until after it had expired; (ii) to identify documents of potential historic or archival interest. With those modifications he was content to authorise the destruction of the documents in the 5 named interventions in accordance with the policy.

Lewison J did not grant any general order in relation to the destruction of documents other than in the 5 named interventions. Nor did he resolve or consider the question whether the SRA itself was permitted by the 1974 Act to destroy documents without applying to the Court. In fact, for various reasons, the SRA has never got around to destroying the documents which were the subject of Lewison J’s order. Since his order, the number of documents being held by the SRA has greatly increased, as has the cost of retaining them.

The Claim is in two parts.

The application for a declaration

The Law Society seeks a declaration from the Court that:

This declaratory application itself gives rise to two issues. First, whether the Law Society does have the power under the 1974 Act to destroy documents without an order of the Court. Second, whether it is appropriate to make a declaration in the terms claimed, or at all.

So far as the former is concerned, Mr Dutton QC for the Law Society (for whom he appeared with Mr James McClelland) put his case on two bases:

In support of these submissions Mr Dutton QC made a series of points to the effect that a rule which prevented the Law Society from ever destroying any document of which they took possession without first seeking the permission of the Court would be contrary to reason. To recite some of these points:

In my view these arguments are very powerful, and I consider that Mr Dutton is right that the Law Society does have the power to destroy old and redundant documents seized in connection with interventions. I am not convinced by his first argument - that this power can be deduced as an inherently necessary incident of the powers granted by ¶¶9 and 10. However, it does seem to me that his second argument is correct, and such a power can be justified as falling within the scope of ¶16 of Part II of Schedule 1.

¶16 is entirely general in its effect, giving a wide power to commit any act which can be justified as ‘reasonably necessary to facilitate’ the Law Society in the exercise of its powers of intervention under the Schedule. This must in my view extend to any steps which are reasonably necessary:

So far as costs and quality are concerned, it is plainly necessary that the Law Society must maintain a reasonable filing and archiving system to fulfil the purposes of the 1974 Act. It would be impossible and impractical to fulfil those purposes without such a system. Improving the system of filing and archiving makes documents easier to find and therefore ‘facilitates’ the exercise of the Law Society’s powers. The destruction of entirely redundant documents necessarily improves any filing system by reducing the difficulties involved in the search process. Furthermore, without document destruction, the cost and administrative burden of a filing system becomes increasingly prohibitive. This can only ultimately result in cuts having to be made in the quality and usefulness of the service overall.

So far as legal rights are concerned, I am satisfied that the maintenance of redundant documentation beyond a reasonable period is likely to interfere with the interests of members of the public under Article 8 of the European Convention on Human Rights and under the Data Protection Act. As Mr Dutton QC points out, the information contained in the archived materials will inevitably include a great deal of ‘personal data’ including ‘sensitive personal data’ within the meanings of those terms in the DPA. The fifth data protection principle codified in Schedule 1 to the DPA provides that: ‘Personal data processed for any purpose or purposes shall not be kept for longer than is necessary for that purpose or those purposes.’ It may be noted that the response of the Information Commissioner’s Office to a proposed new document retention policy of the Law Society said this:

Having said all this, I am not willing to make a formal declaration as sought by Mr Dutton QC. This is for a number of reasons:

The application under ¶9(10)

The second part of the application before the Court is made under ¶9(10) of Part II of Schedule 1 of the 1974 Act, which, as will be recalled, gives jurisdiction to the Court to make ‘an order as to the disposal or destruction of any documents [or other property] in its possession by virtue of this paragraph or paragraph 10’. The application is specifically made in respect of the non-original documents seized from 885 firms, totalling around 1.5 million files (the equivalent of some 109,600 boxes), the destruction of which would produce an estimated annual saving of £344,000 per annum. The files in question include those which were the subject of the application before Lewison J in 2009.

As I understand it, the files comprise all those which the Law Society has identified as available (as at the date of application) for destruction in compliance with the terms of the document retention policy which Mr King explains in his witness statements. This policy is very similar if not identical to the policy approved by Lewison J and which I have explained earlier in this Judgment. I attach a copy of the policy to the Judgment as Schedule A.

It seems to me that when considering an application for mass destruction of documents under ¶9(10) the Court must take into account a number of factors. First, the cost and inconvenience of retaining the files, together with the data protection risks involved in doing so, should be weighed against the risk of damage to clients through the loss of documents of real value if the files are destroyed. Second, the Court should consider the reality of what could have been expected to happen to these documents in the long run if they had been held by a responsible firm of solicitors. Finally it should consider whether any alternative (or additional) solution is a practical, better alternative to the destruction sought.

In the present case, I have already mentioned the enormous cost to the Law Society of retaining these files, namely some £344,000 per annum, a sum which automatically increases by 1.5% every August. Retaining excessive numbers of boxes must necessarily also cause an increase in the cost and difficulty of searches. Furthermore, data protection risks are inherent in any retention of data, though one would suspect that data held in physical form in boxes in a secure storage facility is probably less vulnerable than electronic data prone to ‘hacking’.

Against this, Mr King has given some useful information from which one can begin to estimate the risk that destruction of these documents would be detrimental to the clients to whom they ultimately belong. Looking at the statistics for repatriated files (ones returned to their owners) between 2001 and 2013, the vast majority are returned in the first year or two. The number of returns becomes really quite small after 5 or 6 years. Under the document retention policy which has been put before the Court, only those documents which had been in the possession of the SRA for 7 years (at a minimum – longer in the case of trusts, probate or family matters) would be destroyed. Of the total number of files repatriated to clients by the SRA between 2001 and 2013, only some 266 (some 0.8% of all repatriated files, or 22 per annum) would not have been able to be repatriated due to destruction if the proposed retention policy had been in place. Were any of these were of real value? Mr King suspects not. Many of them were simply ancillary files which would have been returned simply as a matter of course when an ‘original’ document was asked for (originals of course would never be destroyed under this policy). It seems to me inherently unlikely that any significant damage will be caused by the destruction of non-original documents of this age. It may be noted that there is no record of any complaints being received in relation to any of the 890,000 files destroyed by the Law Society prior to 2001.

Moving to the second point, any responsible firm of solicitors will have its own document destruction policy under which aged non-original documents still remaining in its possession will be destroyed after a given period of time. It is unlikely that the documents being considered in this case would have survived such a policy (at least for very long). It is hard to identify any public policy reason why non-original documents obtained by the SRA from an irresponsible firm should remain in existence when they would have been destroyed if they had been in the hands of a responsible firm.

Finally, I consider the question of whether any alternative or additional policy would be feasible or sensible. Mr King has investigated the costs of electronically scanning files prior to destroying the physical copies. These are prohibitive – some £2.82 per file. This would of course fail to deal with the data protection issue in any event. He has also investigated whether it would be feasible to write to each client (insofar as they could be identified) prior to destruction. This again would be extremely expensive – some £2.12 per file plus the repatriation cost of £2.52.

I also note in passing that the Law Society has carried out a consultation exercise on a similar document retention policy (in fact a policy which would permit the destruction of documents somewhat earlier than the policy before the Court on this application). The responses received were generally supportive of the proposals. The issues of concern which were raised by respondents tended to be hypothetical in nature and were not borne out by the SRA’s experience of what happens in real life.

Taking these factors into account, I am more than satisfied that the application for a destruction order under ¶9(10) should be allowed in respect of documents which fall for destruction under the SRA’s document retention policy as put before the Court.

That leads to the question of the form of the Order which it is appropriate to make in this case. The powers granted to the Court by ¶9(10) and 9(11) are wide. Upon an application for an order by the SRA ‘as to the disposal or destruction of any documents…in its possession by virtue of this paragraph or paragraph 10’ the Court ‘may make such order as it thinks fit.’

As presently cast, the draft Order sought seeks permission to destroy ‘any documents in its possession by virtue of paragraph 9 and/or 10 of Schedule 1 to the Act arising from the interventions effected into the solicitors’ practices listed in the attached Schedule marked ‘A’ in accordance with the terms and requirements of the destruction policy contained in the attached schedule marked ‘B’.’

The limitation in the draft Order to documents arising from interventions in the solicitors’ practices listed in ‘A’ is (as I understand it) simply because those are the documents which, under the destruction rules contained in the document retention policy attached at Schedule ‘B’, are now due for destruction. This means (inter alia) that at least 7 years has passed since the date of intervention. It also means that, immediately after making the Order in that form, documents obtained in later interventions (less than 7 years ago) would start to fall for destruction under the policy but would not be covered by the Order. Thus another backlog of documents which should be destroyed but were not covered by a Court Order would start to build up.

I do not see why the Order needs to be limited in this way. Even on the narrowest reading of the powers of the Court under ¶9(10) and (11), an Order may be made in relation to any document in the possession of the SRA at the date of the Order. In the present case, the jurisdiction therefore includes (at least) all those files which have come into the possession of the SRA over the last 7 years and which would therefore (under the document retention policy) fall for destruction at some point over the next 7 years. By making an Order which is not limited to the documents from the solicitors in Schedule A, but extends to all documents presently in the possession of the SRA by virtue of ¶¶9 and 10, the Court could therefore sanction the SRA to engage in a ‘rolling’ scheme of destruction in accordance with established rules, for the next 7 years (longer in the case of some documents). This is the scheme which Mr King has (obviously correctly) identified as the ideal and most logical way of proceeding.

I therefore propose to make an Order which permits destruction of documents in accordance with the requirements of the document retention policy at Schedule B of the draft Minute of Order, but which extends to all documents presently in the possession of the SRA by virtue of ¶9 or ¶10 of Schedule 1 to the 1974 Act. This would enable an immediate destruction of the backlog of documents which has built up over the years (in particular those arising out of the interventions in Schedule A of the draft), and then permit a rolling destruction of documents as and when their destruction fell due under the policy for the next 7 years.

I would envisage that (assuming the sanction of the Court was still required or desired by the SRA) another application could be made in 7 years time (and so on) to enable the destruction to continue smoothly into the future. Alternatively it could be made earlier if and when the SRA decides that it wishes to update or alter the policy. Those future applications would enable the Court to monitor the scheme taking into account any developments (technological or otherwise) in the meantime. They would be simpler than the present application in that the Court would be aware that the general policy had been sanctioned in 2015. Furthermore there would be no need to identify specific documents or files by reference to a list of solicitors subject to intervention or in any other way.

I will invite Counsel to submit a draft Order to reflect the Judgment I have given.

All Intervention files will be sorted into the categories set out in the Schedule appearing as Appendix 1.

The minimum period for retention of any file is seven years from the date of the intervention into the firm where it was actively trading prior to the intervention, or, in cases where the firm had closed down prior to the intervention, seven years from the date of closure of the firm.

The relevant date for the purpose of paragraph 2 above will be determined by a Senior Advisor in Post Enforcement or their manager or the Director of Post Enforcement or such other person with the appropriate delegated power to do so

Any file relating to an intervention on which any money is held in a Statutory Trust Account either by the SRA or its appointed agent should still be sorted in accordance with the categorisations set out in Appendix 1. However, no such file can be destroyed until at least six months have passed following the authorisation of distribution of money from that Statutory Trust Account.

Prior to the destruction of any file, it will be sifted in to ensure the removal of all original documentation as set out in Appendix 2. Such documentation will be stored separately.

The destruction of any files must be approved under the appropriate delegated authority. A form for granting such approval is set out at Appendix 3. The approval form can be signed by a Senior Advisor in Post Enforcement, their line managers or the Director of Post Enforcement.

All destruction of files will be conducted in accordance with the SRA’s policy on confidential destruction.

Categorisation of Files in IAD and Appropriate Retention Periods

Conveyancing Deeds

Abstract of Title

Lease/Counterpart Lease/Licence to Assign or Sub-let

Life Assurance/Mortgage of Life Policy

Power of Attorney

Charge Certificate

Land Certificate

Tenancy Agreement

Assignment of Mortgage Deed

Mortgage Deed/Legal Charge

Guarantee Certificate

Endowment Policy

NHBC Certificate

Leasehold Assignment

Assent

Grave Deeds

Deed of Covenant

Grant of Easement

Marriage and Civil Partnership Certificates

Birth Certificate

Immigration Order

Passport

Deed of Separation/Matrimonial Deeds

Share Certificate

Deed of Partnership

Patents and Assignments of Copyrights

Will/Codicil

Bank Pass Book

Retirement Policy

Deed of Gift/Trust

Investment Business/Assignment of Goodwill

Bonds

Change of Name Deeds

Statutory Declaration

Personal effects/valuable items

Documents of historical or archival value.

More than 7 years have passed since the date of intervention or More than 7 years have passed since the closure of the firm.

The files to be destroyed are all older than the retention period laid down for that type of file.

The files have been examined and all original documents have been extracted for separate storage.

There is no Statutory Trust Issue arising on this intervention or to the extent that there were statutory trust issues, these have been resolved.

There are no other issues arising on this intervention which would require further retention of the files (e.g. police interest or ongoing compensation fund claim).