England and Wales Court of Appeal (Civil Division) Decisions

ON APPEAL FROM THE LAW SOCIETY

		Royal Courts of Justice Strand London WC2A 2LL Tuesday 22 May 2001

1. LORD PHILLIPS MR: This is an appeal by Mr Needham from a decision of the Appeals Committee of the Office for the Supervision of Solicitors ("OSS"), dated 6 September 2001, whereby it dismissed his appeal against conditions that had been imposed on his practising certificate for the year 2000/2001 by the Compliance and Supervision Committee of the OSS on 2 December 2000. I shall revert to the individual conditions in due course. The most significant condition was and is that the appellant can only practise in approved employment.
2. The appellant was admitted as a solicitor in June 1976. He was articled at the London firm, Markbys, and left to join Smeath Mann & Co in Northampton as an assistant solicitor in August 1976. The partners at that time were Gill Smeath and Laurance Mann. After he joined the practice, he began to establish a successful and expanding practice, mainly based on commercial conveyancing for large developers.
3. Mr Needham became a partner in the firm in 1977 and remained an equity partner thereafter. In January 1999 there were three partners in the firm, one of whom, Mr Dyte, was a salaried partner, so the appellant and Mr Mann shared the equity, three partners having left the practice early in 1988.
4. In early 1999, as a result of a complaint lodged by a client, the OSS carried out an inspection of the books and accounts of the firm. That inspection commenced on 15 February and was carried out by Mr Calvert, the head of the Accounts Inspection Unit at the OSS. Mr Calvert's report (which is 15 pages long) concluded that the firm had failed to comply with the provisions of the Solicitors' Accounts Rules 1991 on numerous occasions. Among other things, the breaches related to the management of funds in the firm's client account. The report identified a cash shortage of some £7,000 caused by improper transfers out of that account. It further identified nine matters where clients' funds had been lodged in, or transferred to, the office account in breach of the Solicitors' Accounts Rules. Those nine matters were the more serious matters in the report.
5. The main findings of the report of a critical nature related to transferring clients' monies into the office account on account of costs where no bill had been delivered to the client; payment of the professional fees of a probate expert with client monies when that had not been shown as a disbursement on the bill; and an improper transfer of a deposit, received by the firm as stakeholder in a conveyancing transaction, into the office account. The report noted that at the time of some of these transfers from client's account into the office account, the overdraft facility on the latter had been exceeded. In particular it identified an instance where a substantial sum was transferred into the office account shortly before the Customs and Excise were likely to present a cheque in respect of the firm's VAT liability. The report pointed out that all the monies that had been transferred improperly were reimbursed into the client account at some time before the inspection took place.
6. The appellant, together with Mr Mann, was invited to comment on these matters. In summary, they contended that the failures that had been identified were attributable to inadvertence and certainly not to any deliberate attempt to manipulate the accounts in order to disguise the true position of the firm.
7. Tragically, Mr Mann committed suicide on 28 September 1999. The appellant has stated in a letter to the OSS that it is his belief that this was a direct result of the OSS' investigation, in particular of a letter they wrote on 23 September 1999.
8. On 24 November 1999 the Committee considered the report and concluded that the appellant's conduct warranted a referral to the Solicitors' Disciplinary Tribunal. The Committee concluded that the honesty of the appellant was put in question by these matters. The Committee held that:

(a) it would exercise powers under paragraph 6(1) of Part II of Schedule 1 of the Solicitors Act 1974, which had the effect that client monies in possession of the firm vested in the Law Society as trustee;

(b) it would exercise powers under paragraph 9(1) of Schedule 1 relating to delivery of documents relating to the practice to the Law Society;

(c) it would not make a direction under section 15(1B) of the Solicitors Act 1974 in respect of the appellant, which meant that the appellant was suspended from practice with immediate effect;

(d) it would refer the conduct of the Appellant to the Solicitors Disciplinary Tribunal; and

(e) the appellant had failed to give an appropriate and sufficient explanation in relation to matters relating to his conduct, and that a discretion thereby vested in the Law Society to impose a condition of the issue of his next practising certification under section 12(1) of the 1974 Act.

9. The appellant then applied under section 16 of the 1974 Act to have the suspension of his practising certificate lifted. A special committee meeting on 2 December resolved to permit the appellant to practise in approved employment only.
10. The appellant's employment by the firm Chandler Ray was approved for that purpose. That partnership is one in which there are three partners. It is to that partnership that the appellant managed to dispose of his practice after Mr Mann's suicide and his own suspension.
11. The conditions to which the appellant's certificate were made subject, in addition to the requirement that he practise only in approved employment, were as follows:

"1. That his work will be supervised by Mr Chandler or in his absence a partner of Chandler Ray in accordance with the proposal submitted by Mr Wigg in his letter of 2 December 1999.

2. That [the appellant] should not act as a Director or shareholder in an incorporated solicitors' practice and that any prospective employer be informed of these conditions.

3. That [the appellant] is not a signatory to client account cheques.

4. That [the appellant] does not work at Smeath Mann's former office in Sheep Street, Northampton.

5. That [the appellant] does not act as a sole executor and in any matter where he [was] a sole executor he makes arrangements to appoint another executor and/or resign within 14 days.

6. That he discloses to the partners of Chandler Ray the condition on his Practising Certificate."

12. I turn to the hearing before the Solicitors' Disciplinary Tribunal. Before the tribunal it was alleged that the appellant had been guilty of conduct unbefitting of a solicitor in breaching the various provisions of the Accounts Rules. The breach of those rules was not in issue. The issue was whether the breach was attributable to carelessness or to dishonesty.
13. I am told, though it is not apparent from the documents, that the hearing before the Disciplinary Tribunal fell into two parts, the first part under which the tribunal considered whether dishonesty had been made out. They concluded that, applying the test laid down by the Privy Counsel in Royal Brunei Airlines v Tan, they were not satisfied that dishonesty had been made out and that they would be proceeding to deal with the matter on the basis that the fault established was one of carelessness.
14. The Tribunal then heard submissions as to the appropriate penalty that they should apply on that basis. Their conclusion appears from the last page of their findings dated 14 February 2001 under the heading "Findings of the Tribunal". They are as follows:

"The tribunal find the allegations to have been substantiated, indeed they were not contested by the respondent.

The Tribunal had been asked to find that the respondent had behaved dishonestly. The Tribunal applied the test in Royal Brunei Airlines v Tan and had reached the conclusion that dishonesty on the part of the respondent had not been proved.

It has to be said that punctilious compliance with the Solicitors Accounts Rules 1991 is crucial to the practice of a solicitor. A partner in a firm is responsible to ensure that cashiers and bookkeeping procedures comply with those Rules and the system is such that error is extremely unlikely. The allegations are serious. A great many mistakes had been made.

In all of the circumstances the Tribunal considered that the imposition of a substantial penalty would be appropriate: that penalty did to some extent reflect the very large costs which the respondent was ordered to pay.

Although the Tribunal did not make a finding of dishonesty against the respondent, the Tribunal considered it right that the matter should have been aired before the Tribunal and for that reason ordered that the respondent should pay the whole of the costs of and incidental to the application and enquiry, (to include the costs of the Investigation Accountant, which the Tribunal fixed in the sum of £6,711.75) such costs to be subject to a detailed assessment if not agreed between the parties."

15. Mr Friend, who has appeared for the appellant, tells me that the total amount the appellant has had to meet in relation to legal fees amounts is in the region of £40,000.
16. I am not concerned with the imposition of a penalty on the appellant, I am concerned with the question of whether the conditions that have been placed upon his certificate are appropriate. On his behalf Mr Friend has urged that they are simply disproportionate for conduct which has been held to be no more than carelessness. In effect, Mr Friend invites me to rule that all the conditions should be removed. That would then leave the appellant in a position to enter into a partnership with the partners who are currently employing him, should that prove to be a possible option.
17. Mr Cadman, for the Law Society, has submitted that it is appropriate that the appellant's certificate should be subject to a condition requiring him to practise only in approved employment. He has urged on me the finding of the Disciplinary Tribunal that the allegations are serious, that a great many mistakes have been made and that, as is undeniably the case, an equity partner has a responsibility for ensuring that the accounts are properly kept.
18. I consider that these submissions are valid and that it was appropriate to impose the condition that the appellant should practise only in approved employment. After a period of three years the Law Society is likely to be prepared to review the condition, provided nothing adverse has come to light during that period. Its effect in this case is that the appellant works as an employed solicitor rather than a partner, in the partnership which is continuing to handle the practice in which he was previously a partner. Accordingly, I would dismiss the appeal that that condition should be lifted.
19. However, it does not seem to me to be appropriate that, having regard to the fact that that condition is in place, there should be a requirement that the appellant's work should be supervised by a partner in the practice. No complaint has been made of anything in relation to the appellant other than his failure properly to keep the partnership accounts. In my view that failure is satisfactorily met by requiring him to practise in employment so that he will no longer be responsible for those accounts.
20. The condition that he should not sign client account cheques is one that I do not propose to vary. He can of course sign cheques on the office account. The condition that he should not act as a director or shareholder in any incorporated solicitor's practice is one that follows from the primary condition that he practice in employment and will remain in place, as will the requirement that he does not act as a sole executor.
21. To the extent I have indicated, the appeal will be allowed, but only to that extent.

MR CADMAN: I make an application for costs since the main substance and thrust of my learned friend's application has failed.

MR FRIEND: My Lord, Mr Needham has achieved something as a consequence of this application, although not total success. It is a substantial matter for a man like him to have all his work supervised. In my submission, it would be appropriate for your Lordship to make no order as to costs.

LORD PHILLIPS, MR: I agree, there will be no order as to costs.