Bryant & Anor v Coe

This is an application by the defendant to strike out the claimants’ claim under CPR 3.4 and/or for summary judgment against the claimants under CPR 24.2. The claimants claim damages for allegedly negligent advice given to them by the defendant firm of solicitors in early 2005 in relation to an intervention by the Law Society in the firm of solicitors Bryant Hamilton & Co, of which the two claimants were then partners. The claim form was issued on 5^th April 2006, but on the previous day a bankruptcy order had been made against the second-named claimant. At the commencement of the hearing of the application before me, the second claimant conceded that, by reason of his bankruptcy, he is not entitled to bring this claim, as any such claim would have vested in his trustee. Accordingly, a consent order was made whereby effectively the second claimant withdrew from the claim. Thus the claim is continued by the first claimant only. He has appeared in person in this application and the defendant is represented by counsel.

The essence of the claim in negligence is that the defendant firm by one of its partners, Mr Brendan Murphy, negligently advised the claimants (1) that they should not apply for an order that the Law Society’s intervention in their firm be withdrawn and (2) that, in the absence of such an application, the claimants would have a separate right of action for damages against the Law Society for compensation under the Human Rights Acts.

In order properly to address the issues which arise in the application before me it is necessary to set out in some detail the somewhat complex factual background to and history of the subject matter of the claimant’s claim. Although the second claimant’s claim no longer proceeds, I will refer in this judgment to the claims of both claimants.

The first claimant, Mr Bryant, had been a solicitor since 1984. Between 1984 and 1990 he had worked for two insurance companies whose business included P & I insurance of ship-owners and others and marine insurance. In 1990 he joined a well-known firm of City solicitors which specialised in maritime and insurance law. He was an assistant solicitor there and subsequently he became a partner in five different firms, including his own firm, Bryant Hamilton & Co, which he reformed again in September 2002. As the Administrative Court stated in a judgment to which I will refer in due course, “Mr Bryant was therefore no stranger to international commerce and insurance and he would have been well aware of the need to be careful about possible fraudsters and their schemes.”

The second claimant, Mr Bench, was admitted as a solicitor in 2001 but had been a legal executive for many years before that. He had worked continuously with Mr Bryant since 1990 in a number of firms. He was a partner in Bryant Hamilton & Co with Mr Bryant from 2002 when Mr Bryant reformed that firm.

Some of the work of the claimant’s firm, Bryant Hamilton, concerned alternative risk transfer (“ART”) insurance, or financial guarantee insurance. One of Bryant Hamilton’s clients in connection with such work was Mr Harry Alonso and the company of which he was the chief executive, Northgate International Corporation (“NIC”), a company incorporated in the British Virgin Islands. NIC had become a client of the first claimant in 1996 or 1997, and Mr Alonso had to the claimant’s knowledge been arrested in the UK in connection with advanced fee fraud in 1998, though he was subsequently released without charge.

The basic form of the transactions carried out by NIC and Mr Alonso, with the assistance of the claimants, was that third parties who sought to improve their international credit rating could, in return for a payment to NIC, acquire letters guaranteeing their debts from insurance companies or banks or, alternatively, letters from insurance brokers stating that such credit insurance could be obtained. The role of Bryant Hamilton in such transactions varied. The firm had drafted a standard form of contract to be entered into between NIC and the third party clients of NIC, although such contract was not always used. On occasions, Bryant Hamilton also verified or attempted to verify the validity of any guarantee documents produced for the third party. Usually the third party’s monies would be paid into a Bryant Hamilton client account in the name of NIC. It appears that the underlying purpose of these transactions was to permit third parties to raise project finance against the guarantees in question. It is accepted that, in principle, there is nothing illegitimate about such transactions.

On 14^th June 2004 the Law Society commenced an investigation into Bryant Hamilton & Co. That investigation was conducted by Mr Middleton Cassini and was concerned with transactions in which the firm had acted on behalf of NIC. The investigation resulted in a 35-page report signed by Mr Calvert, the Law Society’s head of forensic investigations, dated 13^th December 2004 and to which was appended a considerable amount of documentation in 48 appendices. This report concentrated on six particular transactions in relation to which Bryant Hamilton & Co undertook work on behalf of NIC and Mr Alonso. The findings regarding those transactions are set out in paragraphs 25 to 151 of the report. Miss Patel, a case worker on the Law Society’s investigation casework team, then prepared a report for the Law Society Adjudication Panel regarding the investigation report and asked the panel to consider whether there were grounds for an intervention in the claimant’s firm under paragraph 1(1)(a) of Part 1 of Schedule 1 to the Solicitors Act 1974 on the basis that the Society had reason to suspect dishonesty on the part of Mr Bryant and Mr Bench in connection with their solicitors’ practice. It is to be noted that in paragraphs 4 to 8 of her report Miss Patel very carefully advised the panel regarding the question of suspicion of dishonesty and, in particular, that the determination of dishonesty involved both an objective and subjective test as set out by the House of Lords in Twinsectra Limited v Yardley [2002] 2 AC 164. Miss Patel further invited the panel to consider whether there were also grounds for intervention under paragraph 1(1)(c) of Part 1 of Schedule 1 to the 1974 Act on the basis that there were breaches of the Solicitors Practice Rules 1990 or Solicitors’ Accounts Rules 1998. She additionally asked the panel to consider whether it was appropriate to refer the conduct of Mr Bryant and Mr Bench to the Solicitors Disciplinary Tribunal, whether or not they were minded to intervene in their firm.

On 20^th January 2005 the Law Society Adjudication Panel resolved to intervene into the claimant’s practice, Bryant Hamilton & Co. The claimants were given notice of this dated 25^th January 2005 and their practising certificates were immediately suspended. The grounds for the intervention under Part 1 of Schedule 1 to the Solicitors Act 1974 were that, under paragraph 1(1)(a), the Council had reason to suspect dishonesty on the part of the claimants in connection with their practice Bryant Hamilton & Co and under paragraph 1(1)(c) the Council was satisfied that the claimants had failed to comply with the Solicitors Practice Rules and Solicitors’ Accounts Rules.

Under paragraphs 6(4) and 9(8) and (9) of Part 1 of Schedule 1 of the 1974 Act it was open to the claimants within eight days of the service of the notice of intervention to apply to the High Court for an order directing the Law Society to withdraw the notice. After taking legal advice, including from the defendant firm (to which I will refer later) the claimants decided not to apply for the notice of intervention to be withdrawn. The intervention therefore proceeded and the conduct of the claimants was also referred to the Solicitors Disciplinary Tribunal (“SDT”).

On 22^nd March 2005 a Law Society adjudicator terminated the suspension of the claimants’ practising certificates subject to conditions, including that they could only work as employed solicitors. On 25^th July 2005 the Master of the Rolls dismissed an application to set aside those conditions. By that time, the police were conducting an investigation into the claimants, although that resulted in no charges at all being laid against the claimants.

On 21^st March 2006 the claimants applied to the SDT to strike out the disciplinary proceedings, but after what was apparently a short hearing the Tribunal declined to do so. The claim herein was issued, as I have mentioned, in April 2006. In August 2006 the parties agreed that the claim should be stayed pending the outcome of the SDT proceedings. On 15^th September 2006 Julian Flaux QC (as he then was), acting as an arbitrator between the claimants and their professional indemnity insurers, held that the latter were liable to provide the claimants with an indemnity in respect of the legal costs and expenses of defending themselves before the SDT. The claimants were represented by Radcliffes Le Brasseur Solicitors and Mr Treverton-Jones QC in connection with those disciplinary proceedings.

The hearing before the SDT was from 9^th to 17^th October 2006. The allegations against the claimants, which were considered by the SDT were as follows.

The written decision of the SDT was dated 12^th January 2007. It was 82 pages in length and consisted of 496 paragraphs. The findings of the Tribunal on the allegations were as follows. The Tribunal found allegation 1 substantiated, subject to the issue of dishonesty which it dealt with separately. It considered allegations 2 and 3 together and found them substantiated, again subject to separate consideration of dishonesty. It found allegation 4 substantiated. It found allegations 5.1 and 5.2 substantiated against Mr Bryant but not against Mr Bench. It did not find allegation 5.3 substantiated against either of the solicitors. It found allegations 6 and 7 substantiated against both of them. In relation to the issue of dishonesty, the Tribunal found Mr Bryant but not Mr Bench to have been dishonest.

Mr Bryant was ordered to be struck off the Roll of Solicitors and Mr Bench was suspended for three years.

The SDT considered the six transactions relating to NIC in some detail. It made the following observations in the course of its decision:

“452.

The Tribunal finds that any of the above matters alone constituted warning signs which to any competent solicitor would have indicated the need for extreme caution. A solicitor in these circumstances who did not realise that continuing to act for NIC on HA’s instructions might put the public and the profession’s reputation at serious risk, would in the Tribunal’s view be incompetent or reckless and he ran a risk that such conduct might also be seen as dishonest.

453.

…the Tribunal unhesitatingly came to the conclusion that no honest and competent solicitor would have had anything other than extreme scepticism about the propriety of the transactions and those promoting it. It was no surprise to the Tribunal that Mr Merrett could conclude that they were bogus and nonsensical even allowing for the fact that given his role he might be predisposed to be more sceptical than an average solicitor...

454.

The Tribunal has absolutely no doubt that the documents in evidence gave the solicitors the strongest possible warning of the need to proceed with extreme caution since their failure to do so would put the profession’s reputation for integrity, prudence and trustworthiness at great risk and therefore expose the public to potentially fraudulent transactions.”

The Tribunal then set out a number of matters which led them to that conclusion in relation to various of the documents in question.

“473.

The Tribunal is in no doubt that as a matter of professional conduct a client account is not to be used as a mere conduit for the transmission of moneys from one person to another. Apart from the risk (which the Tribunal regarded as high in this particular case) that the account may be used for improper or illegal purposes e.g. for money-laundering or to facilitate fraudulent transactions, the reputation of solicitors for financial probity, honesty and trustworthiness cannot be maintained if moneys are received or paid out which come from or are going to a source about which the solicitor should entertain some suspicion. This is particularly so where they are paid out immediately without reference to an underlying contract or transaction in which the solicitor has had a material involvement.”

In relation to the question of the claimants’ dishonesty, the Tribunal at paragraph 487 made reference to the test laid down by the House of Lords in Twinsectra v Yardleyante which includes objective and subjective elements, and in relation to the objective element the Tribunal stated at paragraph 488:

“The Twinsectra test is in part objective and the evidence placed before the Tribunal leads it to the conclusion beyond any doubt that the transactions in which the First Respondent was involved were so questionable as to arouse a strong suspicion of impropriety or fraud.”

They then set out various matters which led them to that conclusion. At paragraph 491 they stated:

“…the Tribunal does come to the conclusion that no honest and competent solicitor would have ignored the many warning signs that the exemplified transactions were highly suspect. Continuing to assist in their implementation carried with it a great risk of participating in or facilitation of fraudulent or illegal activities which would cause serious damage to the reputation of the solicitors’ profession as well as damage to the public interest. In the light of this conclusion the Tribunal considers that the First Respondent’s conduct was so far beyond the standards to be expected of an honest and competent solicitor as to justify condemnation and it must not shrink from the conclusion that by the standards laid down for the profession it amounted to dishonesty.”

The claimants appealed to the Administrative Court against the findings of the SDT and the penalties imposed. The appeal was heard by Richards LJ and Aikens J on 11^th and 12^th October 2007 and their reserved judgment was delivered on 21^st December 2007, [2007] EWHC 3043 (Admin). The Administrative Court confirmed that in solicitor’s disciplinary proceedings the correct approach to the question of a solicitor’s dishonesty was the Twinsectra test with its objective and subjective elements. Although the Tribunal had referred to that test, the Administrative Court held that it had not properly applied it. At paragraphs 155 to 157 of the judgment the court stated:

“155.

Accordingly, the tribunal in the present case should, in our judgment, have asked itself two questions when deciding the issue of dishonesty:  first, whether Mr Bryant acted dishonestly by the ordinary standards of reasonable and honest people; and, secondly, whether he was aware that by those standards he was acting dishonestly.

156.

There is nothing to show that the tribunal asked itself the second of those questions.  At no point did it articulate with any clarity the test that it was applying, and the test applied cannot be derived from the authorities cited, since the passages selected for quotation do not lay down any single test.  Most pertinently, although the tribunal found that Mr Bryant acted dishonesty by the standards of an honest and competent solicitor, it did not make any finding or even any suggestion that Mr Bryant was aware that by those standards he was acting dishonestly. 

157.

It follows that in our judgment the tribunal's finding of dishonesty is vitiated by a serious legal error.”

The court therefore quashed the finding of dishonesty against Mr Bryant, but went on to consider the allegations against him shorn of any issue of dishonesty. In particular, the Administrative Court decided that it should consider whether the six NIC transactions or any of them were dubious in the sense that they bore the indicia of fraud or possible fraud – see paragraph 172 of the judgment – and whether the claimants participated in them knowing that they were dubious. At paragraph 173 the court stated:

“We start from the premise that this is a serious allegation of professional misconduct; the solicitor is being accused of something which is just short of dishonest.      In our view, the tribunal has to be satisfied, to the proper standard of proof, that the relevant appellant knew that one or more of the transactions was "dubious" in the sense set out above.  That entails a finding that the particular appellant actually knew the transaction was dubious, not simply that he ought to have done so.  But the tribunal would be entitled to reach this conclusion of knowledge on evidence that the appellant had deliberately shut his eyes to the obvious or refrained from enquiry because he suspected the truth but did not wish to have his suspicions confirmed.”

The court considered in some detail in paragraphs 179 to 197 of the judgment whether the six transactions were dubious in the sense described. It is not necessary for me to repeat the findings of the court as they are set out. Suffice it to say that in relation to each of the six transactions the court found that they were “dubious”. The Administrative Court went on to find that the tribunal was amply justified in reaching the conclusion that the claimants were incompetent because they did not conclude that the transactions were dubious (see paragraph 198 of the judgment). At paragraph 199 the court stated:

“In our view the appellants should have concluded that these transactions involving NIC and Mr Alonso were "dubious" in the sense described above at the very latest by the end of August 2003.    But they never did so.   They appeared to be naïve, uncommercial and unwilling to question matters;  whereas we would have expected solicitors who had considerable experience of international clients and transactions to have developed a healthy scepticism.”

The court then considered the other allegations against the claimants. Its overall conclusions were that they were guilty of allegation 1 in that they continued to act in the dubious transactions, albeit that the finding of dishonesty against Mr Bryant was quashed; that allegations 2 and 3 were only proved in respect of one transaction (the Rose Excalibur transaction); that Mr Bryant was guilty of allegation 4, but only for a very limited period; that allegation 5.1 was proved against Mr Bryant, it not having been appealed against; and allegations 5.2 and 5.3 were not proved. Allegation 6 was only proved in the Rose Excalibur transaction, and allegation 7 was not proved. By reason of the quashing of the tribunal’s finding of dishonesty against Mr Bryant and the extent to which it allowed the appeals on the various allegations as set out above, the Administrative Court reduced the penalties imposed on the claimants to a suspension for two years in the case of Mr Bryant and for nine months in the case of Mr Bench.

I now turn to the legal advice which the claimants sought immediately after the notice of intervention by the Law Society was served upon them on January 25^th 2005. Initially the claimants consulted Peters & Peters Solicitors, who Mr Bryant accepted in the hearing before me had some expertise in solicitors’ disciplinary matters. Clearly, at that time there was considerable urgency for the claimants, because, if they wished to apply to the High Court for the intervention of the Law Society in their firm to be withdrawn, such application had to be made within eight days, namely by 2^nd February 2005. Messrs Peters & Peters instructed counsel, Mr Pushpinder Saini, and a conference was held with him on 26^th January 2005 at which Mr McCluskey of Peters & Peters and the claimants attended. Mr McCluskey’s detailed attendance note of that conference is included in the evidence before me. In the conference counsel referred to the recent case of Sritharan v The Law Society [2004] EWHC 2932 and advised that the Law Society was only required to show reason to suspect dishonesty to justify an intervention. Counsel said:

“…the issue now was whether we go to Court under the 8 day rule. Counsel said, in his view, the Court might say that the clients might be absolutely right at the end of a full trial of the merits, but the focus would be on now and whether there were reasonable grounds for dishonesty now. Counsel said on his first reading of the papers, he thought there was a good chance that the Court would say that there are grounds to suspect dishonesty.”

A little later it is noted:

“Counsel said he noted that the documents appeared to have classic advance fee fraud phrases in them. Secondly, there was an allegation that money laundering checks were not carried out. Thirdly, there appeared to be an indication that some of the money might be the proceeds of crime.”

He continued:

“…in his view, because of the light touch that the Court would apply under the 8 day procedure, it would take the view that the clients might be completely right in that they may well be innocent, but that that did not dispel the suspicion of dishonesty. Counsel said the clients might take the view they can demonstrate swiftly and clearly that there is no question that what was done here was above board. Counsel asked this question of the clients and of DMC [Mr McCluskey]. DMC said he thought there were two reasons why he thought this could not be swiftly demonstrated. Firstly, the transactions as they stood were opaque and needed significant further evidence and further explanation. The more further evidence and explanation was required to be produced, the more likely it was that the Court would be reluctant to intervene and get bogged down in the merits of the argument. Secondly, there was an allegation on the papers that the clients had not cooperated with the Law Society investigation and this would again work to their disadvantage.”

Further on in the conference it is noted:

“Counsel said that, in his view, the documents, on the face of it, required an explanation. If we could answer each of the points made, it might be worthwhile making an application, but this type of argument would be very hard to make within a matter of days.”

A little further into the conference:

“Counsel confirmed his view that unless we can come up with chapter and verse answers to each transaction very soon, it would not be worthwhile trying to challenge this under the 8 day rule. He said that his own view was this looked suspicious and that these transactions simply looked like the firm was being used to warehouse funds and to give the appearance of respectability (through use of English solicitors) to the transactions. There were also strong indications that an advance fee fraud had been perpetrated. DMC confirmed his view was that there was no point in trying to challenge under the 8 day provision. Counsel confirmed that the provisional decision was that we were not going to challenge this in the Chancery Division within 8 days, but we would review this once we had the opportunity to sit down and consider the matter and had taken full instructions. He said that he did not hold out any hope that the documents and the explanations would support this… However, this was a document heavy case and the first impressions were that advance fee and warehousing fraud was being committed.”

Subsequent to that conference, Peters & Peters informed the claimants that they could no longer act for them due to a potential conflict of interest, in that in the past they had acted for Mr Harry Alonso. The claimants therefore instructed the defendant firm who, in turn, instructed Mr Peter Susman QC on their behalf. A conference was held with Mr Susman QC on 1^st February 2005 attended by the claimants and Mr Murphy, a partner in the defendant firm. Mr Bryant asserts that he understood from Mr Murphy that he had experience in relation to solicitor’s disciplinary matters. Mr Susman QC, after reading the papers, prepared a short bullet-point note for the conference referring to the six NIC transactions. His conclusion was: “No hope whatever of setting aside intervention.” Mr Murphy made a manuscript note at the conference. It is clear that Mr Susman’s advice remained as in his note and that Mr Murphy shared the same view. Mr Murphy’s conference note includes the observation: “No point going to court. No chance of success.”

It appears that Mr Susman’s advice was based on a number of factors regarding the NIC transactions as set out in his bullet-point note, namely:

The claimants accepted the advice which they were given and decided not to apply to the court for an order that the Law Society’s intervention in their practice be withdrawn. It appears that a further consideration for the claimants was that they would have had difficulties in funding such proceedings.

On 8^th February 2005 Mr Murphy of the defendant firm wrote to the claimants summarising the advice which the claimants had been given and referring to various steps that he had taken on behalf of the claimants, including conversations he had had with the Law Society. Included in this letter was the following:

“Leading counsel’s view, which I share, was that unfortunately, on the basis of the current law and particularly the somewhat artificial basis on which the courts can intercede and set aside this sort of action by the Law Society, the situation has to be viewed on a somewhat hypothetical basis. Basically one had to demonstrate to the court that the Law Society completely misjudged the situation without going through the benefit of evidence or a full hearing at this stage. That is a very difficult task to establish, particularly when the standard being used is the reasonable solicitor’s standard and the Law Society have obviously painted a fairly bleak picture against you… Sadly, therefore Leading Counsel’s view was that such an application to the Court was almost bound to fail and of course the costs involved in pursuing the matter and losing were, in any event, beyond your capability at the moment.”

A little later the letter stated:

“Equally, it was significant that the Law Society, despite some five promises to you that they would let you see the draft report before it went to the Committee so that you could comment on it, failed to do so. That seems to me and to Leading Counsel a blatant breach of not only your human rights but also the laws of natural justice.”

It is important to note that this is the only reference to human rights. Nowhere in that letter or in the conference note or in any other contemporaneous document which has been produced in this application is there any mention at all of the further advice now alleged by the claimants to have been given to them at the time by Mr Murphy, namely that, even if the claimants did not apply to set aside the Law Society intervention, they would have a separate claim for damages against the Law Society for compensation under the Human Rights Act.

In an email in reply from the first claimant to the defendant firm dated 8^th February 2005 he stated:

“…we have to face realities; these are that there is little more which we can do at present and that we do not have the financial resources to continue to instruct you.”

It appears that the defendant firm ceased acting for the claimants in March 2005. Subsequently, as I have already mentioned, the claimants instructed other solicitors and counsel in connection with the disciplinary proceedings.

In January 2006 the claimants unsuccessfully applied to join the Law Society as Part 20 defendants in a claim brought against the claimants by Barclays Bank for repayment of Bryant Hamilton’s borrowings. This application was based on an alleged claim against the Law Society under the Human Rights Act.

In a note dated 9^th February 2006, Piers Gardner, counsel, advised the claimants regarding the availability of any remedies under the Human Rights Act against the Law Society. He advised them that they had no such claim against the Law Society and that any human rights points, such as not being given an opportunity to comment on the Law Society’s financial investigation report and that a 55-page questionnaire completed by the claimants in response to the allegations against them had been inadvertently omitted from the appendices to the report, would have had to be raised in an application for the intervention to be withdrawn. Contrary to an assertion made by Mr Bryant in the present application, Mr Gardner did not advise that within proceedings to set aside the Law Society’s intervention a claim for compensation could have been made under the Human Rights Act.

In March 2006 there was an interesting exchange of emails between Mr Bryant and Mr Susman QC. It seems that Mr Bryant was seeking Mr Susman’s assistance in connection with the disciplinary proceedings, possibly on a conditional fee basis. Mr Susman’s email dated 2^nd March 2006 stated:

“(1)

The material you have sent me contains implied criticism of my advice not to appeal the intervention immediately.

(2)

My advice not to do so was based not only upon the expense of doing so, but more upon my opinion, which I remember explaining to you in some detail in our first consultation, that the transactions complained of were not innocent. It was my view that they were obviously money-laundering exercises. Counsel now acting obviously takes a different view. For what it is worth, I was personally sure that neither of you realised so at the time. However, that was not the point, since it was my opinion that you should have realised, and that an appeal against the intervention was most likely to fail.”

Mr Bryant’s reply dated 9^th March 2006 includes the following observations:

“I am sorry if I gave you the impression that we were in any way criticising your advice not to challenge the intervention. No criticism was intended or implied. We accepted your advice then, and do not now, even with hindsight, think we had any alternative. You advised that we would lose, and we agree with your assessment.”

It continues:

“…we thought that the reason why you thought we would lose any challenge was because the cases say that it doesn’t matter if it turns out that the Law Society were wrong in suspecting dishonesty….an intervention will always be upheld if the Law Society can say they had ‘reason to suspect dishonesty’.

As we understood you, you felt that the Forensic Investigation report amounted to such ‘reason to suspect’.”

Later in the email Mr Bryant referred to the unsuccessful attempt to bring a claim for compensation against the Law Society under the Human Rights Act within the Barclays proceedings. Again it is noteworthy that there is no mention at all in this email of Mr Murphy’s alleged advice the previous year that the claimants would have had such a claim if they did not seek to set aside the Law Society intervention in their firm.

It is next appropriate to consider the statements of case in the claimants’ present claim against the defendant firm. In the Amended Particulars of Claim it is stated that on the defendant’s advice the Law Society’s intervention in Bryant Hamilton was not challenged within the 8-day period although there were grounds to do so. Those alleged grounds are set out in paragraph 4 of the Amended Particulars of Claim, namely that:

“(a)

The Law Society had promised Mr Bryant an opportunity to respond to the report of the investigation…which in fairness the Law Society was bound to do.

(b)

Neither Mr Bryant nor Mr Bench were given an opportunity to comment on the Report.

(c)

The Report was materially inaccurate in failing to include a summary of Mr Bryant’s response to the principal allegations.

(d)

The principal reproach levelled at the Firm was based on a mistake of law. The Report asserted that the Firm should have held certain funds in separate client accounts opened for each of NIC’s clients. On their true construction the majority of the agreements between NIC and its clients provided that the funds in question were paid to NIC under contract, and that no trust relationship was created in respect of those funds which would have required that separate client accounts were opened in respect of them.”

Paragraph 6 of the pleading sets out the basis on which the defendant’s advice was given that any challenge to the intervention would be bound to fail, namely that the Law Society would be able to show they had reason to suspect dishonesty. The second basis of the claimants’ claim is then set out in the following terms:

“[The defendants] advised that, even if the Claimants did not use the Statutory Procedure, the grounds set out above would give the Claimants rights of action under the Human Rights Act (HRA) which would entitle them to substantial compensation against the Law Society for their losses suffered as a result of the Society’s intervention in their practice in breach of their rights under the HRA.”

In paragraphs 10 and 11 of the Amended Particulars of Claim the claimants assert that the defendant’s advice to them was negligent and that the defendants failed to take into account case law which indicates that in challenging an intervention by the Law Society the test is not whether the Law Society at the time of the intervention had reason to suspect dishonesty, but whether at the time of the court hearing the application to withdraw the intervention the court on the evidence before it considers the intervention should continue.

The Amended Particulars of Claim then sets out various losses said to have resulted from the defendant’s alleged negligence. In the hearing before me, Mr Bryant conceded that some of those claims were made inappropriately and that, for example, the claimants could not claim for their loss of turnover but, at best, for their loss of profit, and that they could not claim the judgment debt to Barclays Bank because that was money the claimants owed in any event. Mr Bryant also agreed that the claim should perhaps, more properly, have been framed as a claim for the loss of the chance of succeeding in setting aside the Law Society intervention. However, he said that all those matters could readily be rectified by amendment.

What is somewhat striking about the claimants’ claim is that, although it refers to the instruction of Mr Susman QC by the defendant on their behalf, there is no claim against Mr Susman QC for his advice in the conference in February 2005, which was precisely the same advice as that of the defendant regarding the Law Society intervention. Rather surprisingly perhaps, the claimants now assert that they did not rely on the advice of Mr Susman as they did not regard him as an expert in the field. They say they only relied on Mr Murphy’s advice, as they did understand him to be experienced in solicitor’s disciplinary matters. They further state that the advice about there being, in any event, a right to claim compensation against the Law Society under the Human Rights Act was not given by Mr Murphy at the conference with Mr Susman but at some time subsequent to it.

In the Defence, it is admitted that the defendant and Mr Susman QC advised that a challenge to the intervention was bound to fail and that such advice was based on a proper approach to the question of the suspicion of dishonesty. It is expressly denied that the defendant ever advised the claimants that if they did not use the statutory procedure to challenge the intervention, they would have a separate claim for compensation under the Human Rights Act. Any advice about the Human Rights Act was given only in general terms. It is pleaded that the claimants did not challenge the intervention because of the advice of the defendant and leading counsel and because of the claimants’ stated inability to undertake the financial burden and costs risk of such litigation. The defendant denies that its advice was negligent and further asserts a defence of reliance on counsel, as set out in paragraph 7(c) of the Defence. It is further denied that an application to have the intervention withdrawn would have had any prospect of success.

I was referred to various authorities relating to interventions by the Law Society and the approach to applications to set aside such interventions. In Yogarajah v Law Society (21^st May 1982), of which I have been provided with a transcript of the judgment of Walton J, the judge held that, although at the time of the Law Society’s intervention in the plaintiff’s practice there was evidence giving rise to a considerable suspicion of fraud, by the time of the hearing challenging the intervention he was satisfied that what was present was serious incompetence and breaches of the Accounts Rules by the plaintiff, but not dishonesty, and so he directed the Law Society to withdraw the intervention.

In Giles v The Law Society [1995], decided on 11^th October 1995 by the Court of Appeal, it was said by Nourse LJ that there is no requirement for the Law Society at the time of the notice of intervention to give particulars of the suspected dishonesty or of the reason for suspecting it. At page 15 he said:

“In my view, on a careful construction of the provisions of schedule 1 of the 1974 Act in the context in which it was passed, and for the reasons stated by Walton J, there is no requirement, at the time that a notice of intervention under paragraph 1(1)(a) is given, for the solicitor to be given particulars of the suspected dishonesty or of the reasons for suspecting it. If he applies to the High Court under paragraph 6(4), he will have the opportunity, as the appellant did here, of knowing what the case against him is and of answering it.”

Sedley LJ made some general observations about the procedure. On page 22 he said:

“The manifest purpose of schedule 1 to the Solicitors Act 1974, both in its original form and as amended, is to create an ex parte procedure leading where appropriate to intervention, the consequences of which are undoubtedly drastic and potentially terminal for a solicitor’s practice. Where an intervention is persisted with, paragraph 6(4) of Schedule 1 provides for the solicitor to be heard on an application, made within eight days, to the court for an order directing the Law Society to withdraw the notice prohibiting payment out of money held by the solicitor save with leave of the court. Since this is the key intervention power, at least in cases of suspected dishonesty, it is realistic to describe the sub-paragraph as conferring jurisdiction upon the court to direct the Law Society to withdraw from an intervention. On such an application it is for the court to decide whether or not to direct withdrawal on the material then before it.”

He continued on page 23:

“…it is by common consent a matter for the court’s judgment (I prefer not to use the word discretion in this context) whether it should direct withdrawal – a judgment which may be significantly, though not conclusively, affected by the Law Society’s own view of the facts, since the view taken by the professional body charged with the regulation of solicitors’ practices is in itself a relevant evidential factor to which the judge not only can but must have regard.”

On page 24 he said:

“But it is plain, in my judgment, that, once an originating summons for an order directing withdrawal has been issued, it becomes incumbent on the Law Society…to place before the court all the material both initially and subsequently relied on by it in forming its view that the intervention was, and still is, warranted. The court itself must have inherent power to give any directions needed to this end… It is, of course, likely to be equally in the interests of the Law Society to disclose the entirety of its case against the solicitor, since failure to do so will diminish its chances of sustaining the decision to intervene.”

In Holder v The Law Society [2003] 3 AER 62 the Court of Appeal considered whether the intervention procedure was compliant with the Human Rights Act and how the court should approach an application to have an intervention withdrawn. At paragraph 15 of the judgment Carnwath LJ stated:

“The Court itself conducts ‘a two-stage process’. Its role was summarised by Neuberger J (Dooley v Law Society 15.9.2000):

‘First it must decide whether the grounds under paragraph 1 are made out; in this case, primarily, whether there are grounds for suspecting dishonesty. Secondly, if the Court is so satisfied, then it must consider whether in the light of all the evidence before it the intervention should continue. In deciding the second question, the Court must carry out a balancing exercise between the need in the public interest to protect the public from dishonest solicitors and the inevitably very serious consequences to the solicitor if the intervention continues.’”

At paragraph 31 he dealt with the Human Rights Act point, and then said:

“As appears from the cases to which I have referred, it has been recognised as ‘draconian’ in some respects, but necessary for the protection of the public interest; and the courts have repeatedly emphasised the ‘balancing exercise’ which it involves.”

He then said he could see no material difference between that and the fair balanced required under Article 1 of the Human Rights Convention. He said:

“Having reached that point, the Law Society's actions must be judged by reference to the procedure laid down by Parliament, not to some hypothetical alternative procedure.”

Sritharan v the Law Society [2004] EWHC 2932 Ch was a decision of Hart J on 16^th December 2004, a month or so before the claimants herein were advised by the defendant. After referring to the two-stage process described by Carnwath LJ in the Giles case in relation to dealing with applications for an intervention to be ordered to be withdrawn, Hart J stated at paragraph 9:

“My first task is therefore to consider whether the facts as presented to the Law Society, and as now presented on the evidence before the court, establish “reason to suspect dishonesty.’”

At paragraph 14 he made his findings on the application and stated:

“I was not persuaded by those submissions, or the evidence on which they were based. On the contrary, I was entirely satisfied that there were and remain reasons to suspect dishonesty. That is not, of course, the same as saying that I am sure that there was dishonesty. Dishonesty for this purpose I take to be conduct which Mr Sritharan and the second claimant must have known was dishonest by the standards of ordinary decent people – see Twinsectra v Yardley [2002] 2AC 164.”

At paragraphs 16 and 17 he said:

“In my judgment there were and are reasons for suspecting dishonesty on these facts.

17.

I turn therefore to consider the second question which I must address, namely whether in the light of all the evidence before me the intervention should continue, for that purpose carrying out a balancing exercise between the need in the public interest to protect the public from dishonest solicitors, and the inevitably very serious consequences to the claimants if the intervention continues.”

He also made it clear at paragraphs 24 to 26 that the court cannot impose some alternative sanction to intervention. It either has to order the intervention to be withdrawn or for it to continue.

Mr Sritharan appealed to the Court of Appeal against the decision of Hart J. The Court of Appeal delivered its judgment, dismissing the appeal, on 27^th April 2005 [2005] EWCA Civ 476, subsequent to the time when the defendant firm herein was advising the claimants. Chadwick LJ delivered the judgment, with which the other two members of the court agreed. At paragraph 16 he said:

“It is important to keep in mind that the intervention powers conferred by Part II of Schedule 1 to the 1974 Act are exercisable where the council ‘have reason to suspect dishonesty’: paragraph 1(1)(a). Whether or not dishonesty on the part of the solicitor is established is a matter for the Solicitors' Disciplinary Tribunal on an application made by the society under section 47 of the Act. But, where dishonesty in connection with the operation of the solicitor's client account is established before the tribunal, the solicitor is almost invariably struck off the Roll of Solicitors…”

At paragraph 19 he said:

“The judge reminded himself, correctly, that the task of the court on an application by a solicitor under paragraph 6(4) of Schedule 1 to the 1974 Act - that is to say, on an application for an order that the Law Society withdraw a notice served under paragraph 6(3) - is, first, to decide whether the grounds for intervention upon which the council relied have been made out. If satisfied that the grounds for intervention have been made out, it is then necessary for the court to consider whether, in the light of all the evidence before it, the intervention should continue. That, second, question requires the court ‘to carry out a balancing exercise between the need in the public interest to protect the public from dishonest solicitors and the inevitable very serious consequences to the solicitor if the intervention continues…’”

Again he expressed the view that in an application to set aside a Law Society intervention, it was not open to the court to fashion some alternative remedy of its own.

I was also referred to the case of Sheikh v Law Society [2006] EWCA Civ 1577, again a decision some time after the period when the defendant advised the claimants herein. That was a case where the judge at first instance heard evidence over a period of eight days on an application to have the notice of intervention withdrawn and decided that the solicitor in question was not dishonest and ordered that the intervention should be withdrawn. The Law Society appealed against that decision and the Court of Appeal allowed the appeal. Again Chadwick LJ delivered a judgment with which the remainder of the court agreed. At paragraphs 83 to 90 of the judgment the two-stage process was again given approval. Again in the course of that judgment he set out further similar references to this procedure.

Finally, I was referred to Gauntlett v Law Society [2006] EWHC 1954. That was a case where the Law Society claimed against a solicitor the costs of an intervention in his practice and the solicitor claimed he had a cross claim for damages for losses he suffered as a result of the intervention. He had elected not to challenge the intervention. At paragraph 24 Evans-Lombe J stated:

“He elected not to take the only route available to him under schedule 1 to challenge the intervention. As, regrettably, is virtually always the case, the intervention has destroyed the value of the practise. It seems to me, however, that Mr Gauntlett has no claim against the Society as a result. The Society were acting lawfully at all times for the purpose of protecting the public.”

Then in paragraph 25 he refers to the contention of Mr Gauntlett that

“he is entitled to look to his rights under the Human Rights Convention for a remedy… However…the Court of Appeal have held that the intervention procedure provided for in schedule 1 is Human Rights Convention compliant. The District Judge correctly analyses the effect of the Holder case. In the result the District Judge's conclusion on this issue is in my view unchallengeable… In any event a challenge under Article 6… would not lead to a claim against the Society.”

Returning again to the judgment of Chadwick LJ in Sheikh, to which I have already referred, it should be noted that he said in paragraph 86 of his judgment:

“Where the Society relies on paragraph 1(1)(a) of schedule 1, the solicitor may well find it impossible to contend that, on the material available to the Society at the time when the resolution was passed and the intervention notices served, the Society did not have reason to suspect dishonesty. That was the position in the present case…In such cases the solicitor will usually focus his (or her) submissions on seeking to persuade the court that, whether or not the Society had reason to suspect dishonesty on the material available to it at the time, the court should hold, on the basis of additional material deployed at the hearing of the application under paragraph 6(4), that suspicion of dishonesty has been dispelled.”

At paragraph 89 he made reference to the fact that there should not be an “uncritical adherence to the ‘two-stage process’ suggested by Mr Justice Neuberger in Dooley.” At paragraph 90 he again addressed the nature of the balancing exercise which the court has to undertake in an application to withdraw an intervention. Finally, there was criticism of the judge at first instance at paragraph 97, where it was stated:

“It was unnecessary – and, I would say, inappropriate – in the present case for the judge to make a finding of honesty or dishonesty. The question which he had to decide was whether the suspicion of dishonesty raised by the material on which the Society relied had been dispelled by the oral evidence of Miss Sheikh and Mr Sampat so that he could safely direct withdrawal of the intervention notices notwithstanding the view of the Law Society, after hearing that evidence, that intervention needed to remain in place for the protection of the public. In my view he was wrong to conclude – on the basis of Miss Sheikh's demeanour as a witness – that he should answer that question in the affirmative.”

It is therefore, in my judgment, clear from the authorities that a solicitor has no right to claim under the Human Rights Act compensation from the Law Society for losses arising from an intervention into his practice. It is further clear, in my judgment, and I must therefore bear very much in mind in considering the issues which arise in the application before me, that the proper approach of the court in dealing with an application for an order that a notice of intervention be withdrawn is to consider whether there are grounds for suspecting dishonesty at the time of the service of the intervention notice and at the time of the hearing of the application, and then further to consider whether the intervention should continue or not. The court must consider those issues on the basis of all of the evidence which is placed before it.

The defendant’s application before me is made under CPR 3.4 and/or 24.2. CPR 3.4(2) provides:

“(2)

The court may strike out a statement of case if it appears to the court –

(a)

that the statement of case discloses no reasonable grounds for bringing or defending the claim.”

CPR 24.2 provides:

The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if –

(a)

it considers that –

(i)

the claimant has no real prospect of succeeding on the claim or issue…and

(b)

there is no other compelling reason why the case or issue should be disposed of at a trial.”

In my judgment, the application falls more properly to be dealt with under Part 24.2 rather than Part 3.4. The test to be applied in an application for summary judgment can be summarised as follows and as noted in volume 1 of the White Book 2008 at paragraph 24.2.3:

“In order to defeat the application for summary judgment it is sufficient for the respondent to show some prospect, i.e. some chance of success. That prospect must be real, i.e. the court will disregard prospects which are false, fanciful or imaginary. The inclusion of the word ‘real’ means that the respondent has to have a case which is better than merely arguable…The respondent is not required to show that his case will probably succeed at trial. A case may be held to have a real prospect of success even if it is improbable… The hearing of an application for a summary judgment is not a summary trial. The court at the summary judgment application will consider the merits of the respondent’s case only to the extent necessary to determine whether it has sufficient merit to proceed to trial. The court should not conduct a mini trial in order to establish whether a summary judgment is appropriate – see Swain v Hillman [2001] 1 All ER 9.”

The first question to consider is whether the claimants have a real prospect of establishing that the advice given to them by the defendant firm was negligent. Involved in that question is the issue of what advice was given to the claimants. The defendant admits that it advised the claimants that their prospects of setting aside the intervention were very poor, but deny that they were advised that, in the absence of an application under the statutory procedure to have the intervention withdrawn, the claimants would have a separate claim for compensation against the Law Society under the Human Rights Act. The claimants maintain that the latter alleged advice was a factor which influenced them in not challenging the intervention.

In relation to the issue as to whether Mr Murphy did advise there was a separate claim under the Human Rights Act, the claimants argue that Mr Murphy has not made a witness statement for the application before me and that that issue should be resolved by oral evidence at a trial. The defendant points out that this allegation is denied in the Defence, and Mr Murphy signed the statement of truth at the end of that Defence.

I have reached the firm conclusion on the material before me that the claimants have no real prospect of establishing that Mr Murphy did advise them that they had such a separate claim for compensation against the Law Society. As I have already stressed, there is absolutely nothing in the notes relating to the conference with Mr Susman QC on 1^st February 2005 or in Mr Murphy’s very detailed letter dated 8^th February 2005 to the claimants indicating that any such advice had been given to them. Bearing in mind the contents of the letter of 8^th February 2005, it is very likely indeed that, had Mr Murphy given such advice, he would have mentioned it. Furthermore, there are no other contemporaneous documents before me that indicate that any such advice was given. If such advice had been given, it would also be very surprising that no mention of that was made in the email to Mr Susman QC from Mr Bryant in March 2006, particularly as that was shortly after Mr Gardner’s advice about the Human Rights Act. I find the argument of the claimants that the fact that they sought to include such a claim against the Law Society within the Barclays Bank proceedings is evidence that they had been given such advice by Mr Murphy, wholly unpersuasive.

Turning then to the next essential issue of whether the claimants had a real prospect of establishing that the advice given by the defendant that they had poor prospects of setting aside the intervention is negligent. In my judgment this question has to be considered in the light of the authorities to which I have referred regarding the test to be applied by the court in dealing with an application for an order that an intervention be withdrawn. Also allied to this issue is the question of whether if, contrary to the defendant’s advice, the claimants had applied to set aside the intervention, such application would have had any prospect of success – see Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602. In effect, it seems to me that, to establish that the defendant firm was negligent in the advice which it gave about challenging the intervention, it would have to be demonstrated that the advice was wrong, or, alternatively, unreasonable in the sense that it was not advice which a reasonably skilled and competent solicitor would have given. It must also be borne in mind that the advice had to be given in a tight timescale because of the claimants only having eight days in which to make the application, and also that it was likely such application would, in the interests of the claimants, have been heard relatively quickly and decided on the basis of the evidence and information available at that stage. It also has to be remembered that the advice given was an opinion as to the claimants’ prospects of success in an application to have the intervention withdrawn.

In my judgment, the claimants have no real prospect of establishing that the advice given by the defendant firm in relation to the intervention was negligent. As I have said, it was advice which had to be given within a short space of time and I conclude that ,on the material available at the time, it was advice which any reasonable and competent solicitor would have given. In my judgment, it is very significant that similar advice was given at that time by Peters & Peters and Mr Saini, who considered that the suspicion of dishonesty could not be swiftly displaced by the claimants. The claimants’ argument that I should have no regard to that advice because they did not rely upon it has no force at all upon this issue. Furthermore, the advice given by the defendant firm was also the advice given in robust terms by Mr Susman QC. Somewhat oddly, as I have stated earlier, the claimants now seek to say that they placed no reliance at all on Mr Susman’s advice. Mr Bryant suggested that after the conference on 1^st February 2005 they told Mr Murphy they did not wish Mr Susman QC to advise them further. This is contradicted by the defendant’s bill of costs which showed that Mr Susman did continue to advise the claimants up to the end of February 2005. It is also contradicted by the terms of Mr Bryant’s email to Mr Susman in March 2006. Of further significance is that in that email Mr Bryant said in terms that they accepted Mr Susman QC’s advice and, even with hindsight, agreed with his assessment. The fact that, according to Mr Bryant, leading counsel subsequently instructed in the disciplinary proceedings said that a challenge to the intervention would have had a good chance of success in my judgment carries very limited weight in this application.

I have further reached the firm conclusion that there is no real prospect of it being shown that if an application to challenge the intervention had been made, there was any chance at all of it succeeding. In my judgment, on the material that would have been placed before the High Court on such an application, it is very likely indeed that, applying the tests in the authorities to which I have referred, the court would have found that there was a reasonable suspicion of dishonesty both at the time of the service of the intervention notice and at the time of the putative hearing and that the intervention should continue. In my judgment, the conclusions of the SDT and of the Administrative Court in January and December 2007 respectively, after detailed consideration of all the material then available, is very powerful evidence in support of such a conclusion. The SDT found in firm terms that from an objective point of view there was dishonesty on the part of Mr Bryant in relation to the transactions in question. It does not appear that the Administrative Court criticised that conclusion, but it quashed the finding of dishonesty because the SDT had failed to apply the subjective element in the test of dishonesty. Despite that, though, the Administrative Court concluded that all of the transactions were dubious, i.e. that they bore the indicia of fraud or possible fraud.

In the hearing before me, Mr Bryant argued that, if the present claim proceeds to a trial, he would seek to argue that the Administrative Court had reached the wrong conclusion in relation to the transactions. I take the view that it is highly unlikely that such a course would be open to him as the findings of the Administrative Court would give rise to an issue estoppel or other estoppel against him. The fact that the SDT and particularly the Administrative Court reached the conclusion which they did regarding the NIC transactions makes it almost certain that in early 2005 the High Court would have concluded that there was a reasonable suspicion of dishonesty and that the intervention should continue.

Mr Bryant argued that by the time of the SDT and Administrative Court decisions the weight of prejudice had built up against the claimants because they had not challenged the intervention, but I find such an argument completely unconvincing.

The argument by Mr Bryant that it could have been shown that the panel applied the wrong test regarding dishonesty would have failed, because Miss Patel in her report to it set out the correct test to be applied. In any event, at the time of an application to challenge the intervention the court would have applied the correct test and concluded, as I have said, that there was a reasonable suspicion of dishonesty. Of course, at such a hearing the claimants could have raised any points under the Human Rights Act such as the failure to include their answers to a questionnaire in the Law Society’s financial report. However, in my judgment, any such arguments would not have led to the High Court reaching a different conclusion regarding the suspicion of dishonesty or the continuation of the intervention. It is also irrelevant, in my judgment, that the finding of dishonesty against Mr Bryant was ultimately quashed by the Administrative Court, because the issue at a hearing to challenge the intervention is not whether the claimants were proved to be dishonest but whether there was a reasonable suspicion of dishonesty.

Insofar as the claimants still seek to maintain that they would have had any claim for compensation against the Law Society under the Human Rights Act, that is plainly wrong for the reasons set out in the advice note from Mr Gardner and by reason of the case law to which I have referred.

Another point made against the claimants by the defendant firm is that, even if the claimants had been advised to challenge the intervention, they would not have had the funds to do so, as the claimants conceded at the time. However, the claimants now assert that they could have obtained an indemnity from their insurers in respect of the costs just as they subsequently did in relation to disciplinary proceedings following the arbitration decision of Mr Flaux QC (as he then was). Even if such arbitration had been arranged quickly in early 2005, it is by no means certain that such costs came within the insurance policy or that, if they did, a decision to that effect would have been reached in time for the claimants to fund a challenge to the intervention. By reason of my earlier findings, however, this point no longer has any great significance.

A further argument relied on by the defendant is that, even if their advice to the claimants regarding the intervention was negligent, the defendant has a clear defence of reliance on counsel, namely Mr Susman QC. In Matrix Securities Limited v Theodore Goddard (A Firm) [1998] PNLR 296 it was stated by Lloyd J at paragraph 322F/323B:

“It remains the position, in my judgment, that after leading counsel has given considered advice to the client…it is only a solicitor’s duty to differ from it at that time and to give separate advice or to record reservations separately to the client if there was an important point on which the solicitor regarded counsel’s advice as being seriously wrong.”

In my judgment, it is plain from Mr Murphy’s conference note and his letter dated 8^th February 2005 that he was placing reliance upon the advice of Mr Susman QC and, in the circumstances, it would be difficult for the claimants to argue that there was an important point on which the defendant should have regarded counsel’s advice as seriously wrong. It is irrelevant if, as they now assert, the claimants did not rely on Mr Susman. The important question in relation to this issue is whether the defendant relied upon his advice. Thus, in addition to the other findings which I have made, I conclude that there are not real prospects of the defence of reliance on counsel being defeated.

I have already briefly mentioned that, even if their claim against the defendant firm succeeded, there are various difficulties in connection with the losses claimed by the claimants. Indeed, the defendant argues that the claimants would have suffered all of the losses in any event. However, by reason of my decision upon the main issues of whether there is any real prospect of negligence being established against the defendant or of establishing that the intervention could have been successfully challenged, it is not necessary for me to consider any issue relating to the losses claimed.

It must follow from the foregoing that I firmly conclude that the claimants have no real prospect of succeeding in the claim herein and that there is no other compelling reason why the case should be disposed of at trial. Accordingly summary judgment must be entered against the claimants on the whole of their claim under CPR 24.2.