England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISIONAL COURT
(LORD JUSTICE AULD)

		Royal Courts of Justice Strand London, WC2
		Thursday, 16 December 2004

1. LORD JUSTICE KENNEDY: This is an appeal by the Law Society and a cross-appeal by Mr Bultitude from an order of the Divisional Court made on 19th May 2004 at the hearing of Mr Bultitude's appeal from a decision of the Solicitors' Disciplinary Tribunal which on 7th November 2003 found Mr Bultitude to be guilty of dishonesty and ordered that his name be struck off the Roll of Solicitors.
2. The Divisional Court ordered that Mr Bultitude's appeal be allowed to a limited extent in that it ordered first, that certain words appearing in paragraph 110 of the findings of the Solicitors' Disciplinary Tribunal be deleted. Secondly, that the substituted penalty be a suspension from practice for two years from 17th September 2003.
3. But the Divisional Court did not relieve Mr Bultitude of the finding that he had been dishonest. The Law Society's principal ground of appeal is that the reduction of the striking-off order made by the Solicitors' Disciplinary Tribunal to an order of two years' suspension is inconsistent with well-established authority to the effect that dishonesty by a solicitor in connection with the operation of a client account will lead all but automatically to an order that the name of the solicitor be struck off.
4. There were not, it is submitted in this case, exceptional features which would justify a reduction in penalty and the effect of the decision of the Divisional Court, if it is allowed to stand, will be a reduction in the sentencing tariffs available to the Solicitors' Disciplinary Tribunal with a risk that public confidence in the profession will be eroded and that the reputation of the profession will be damaged.
5. Mr Bultitude in his cross-appeal contends that neither the Tribunal nor the Divisional Court should have found that he was dishonest. Although this is a second-tier appeal, the single Lord Justice, when granting permission to appeal to the Law Society, said that there is a compelling reason why the Court of Appeal should hear this appeal, because of the importance of the issues raised by the Law Society. He subsequently gave Mr Bultitude leave to cross-appeal.
6. At the end of the hearing on Tuesday, we said that for reasons to be given today, the appeal would be allowed, the cross-appeal would be dismissed and the penalty would be that originally imposed by the Tribunal, namely that Mr Bultitude be struck off, although that order would be made on the factual basis envisaged by the Divisional Court.
7. Logically the cross-appeal falls to be considered first and I turn therefore to the issue of dishonesty.
8. Mr Bultitude was born in 1957 and was admitted as a solicitor in 1981. In 2000 he and Mr Ritson were practicing from premises in Watford, Hertfordshire as Seakens, Mr Bultitude being the sole equity partner and Mr Ritson a salaried partner having no managerial or administrative responsibilities. On 29th August 2000, the Forensic Investigation Unit of the Office for the Supervision of Solicitors carried out an inspection of Seakens' books and accounts, and produced a report dated 31st May 2001 which was before the Solicitors' Disciplinary Tribunal.
9. The report revealed a shortfall of clients' funds of £46,971.57 as at 31st July 2000, of which £36,205.75 related to relatively small client ledger credit balances which were improperly transferred to the office bank account.
10. Mr Bultitude gave evidence to the tribunal and it seems that in many respects, what he said was accepted. The firm's accounting year ended on 30th April, and following 30th April 1999, the firm's regular reporting accountants resigned. The accounts were due to be filed by 30th October and the accountant resigned, it seems, in September. On the advice of Mr Rosen, who was in practice as an accountant, and who advised Mr Bultitude on accountancy and taxation matters on a day to day basis but who was not qualified to give an accountant's report, Mr Bultitude's firm instructed Mr Rossides as its new reporting accountant.
11. It also obtained from the Law Society an extension of time for filing the firm's accountant's report to 30th November 1999. The new accountant drew attention to the number of credit balances on client account and on or about Tuesday 23rd November 1999, he said that unless those credit balances were removed he would not sign the report, which was due to be filed by 30th November.
12. Mr Bultitude himself had a pressing meeting with a client in Bath fixed for the end of the week and he had to prepare for it, but he also needed to have the accountant's report filed on time. In 1994, he had been reprimanded because his report was filed late and he told the tribunal that if it was late again, he feared that he might be prevented from practicing.
13. Before going to Bath, he caused lists to be prepared of credit balances. There turned out to be 310 of them and in the time available, it would not be possible to go through them all properly so as to see what ought to be paid to the firm, what ought to be paid to the client and so forth.
14. That was accepted by Mr Lane, the Law Society investigating accountant, when giving evidence to the tribunal, but because of his commitment in Bath Mr Bultitude did not devise any solution to the problem. He simply passed it to his partner, Mr Ritson, and his bookkeeper, Adele Beasley, for them to resolve with the assistance of Mr Rosen. In the event, Mr Ritson did not play any significant part in the events which followed.
15. Mr Bultitude then left for Bath on the afternoon of Friday 26th November.
16. Mr Rosen gave evidence to the Tribunal and he explained that Mr Bultitude's firm had a computerised accounts package which made it impossible to transfer money from client to office account unless a bill had been drawn and recorded as a debit in the office column of the individual client's ledger. So, that weekend, he devised a system of false debit notes dated 30th April 1999 and made out to look like bills of costs complete with Value Added Tax, the total in each case being the amount of the credit balance in the relevant client's ledger.
17. The debit notes were put into a lever arch file which was kept in the bookkeeper's room and it was, said Mr Rosen, the intention in due course to work through them to find out why a credit balance had appeared on the individual client's ledger and then put matters right, either by making payments due to be made or by returning the money to the client.
18. Mr Benjamin Browne QC for Mr Bultitude submitted to us that the backdating of the debit notes was essential to satisfy the reporting accountant that the transactions took place in the correct accounting year, and that debit notes rather than invoices were created so as to make it clear that it was not yet established that the money should go to the office account. Although the money would be going into the office account, that was simply because there was no opportunity at the weekend to open a suspense account, but of course, in addition to creating false debit notes, it was necessary to make entries in the ledger sheets, and Mr Treverton-Jones QC for the Law Society drew our attention to one such entry. One client, Mr and Mrs C, had a credit balance in the client account of £1,080.67 because they had paid too much to redeem a mortgage. The ledger entry showed that on 30th April 1999, they incurred charges of £917.17 with Value Added Tax of £160.50 thus enabling the sum of £1,080.67 to be transferred to the office account. As Mr Browne pointed out, the reference in the ledger sheet is DN300, indicating the existence of a debit note. So, as was said in the Divisional Court, there was an audit trail. But the whole procedure was, as it seems to me, totally unacceptable.
19. It was the procedure adopted in relation to all credit balances of over £50. For those under £50, no debit note was created but the balance was simply posted in the ledger to the office account and a list was prepared of the clients concerned and the amounts involved. The total amounted to just over £2,178.
20. Mr Rosen and Ms Beasley spent the whole weekend implementing the system devised by Mr Rosen. Mr Bultitude had told the Tribunal that he did not telephone his office or his staff during that weekend to enquire how the problem was being dealt with. That caused the Tribunal to find that Mr Bultitude was not as worried about the late delivery of his accountant's report as he suggested. Furthermore, the implementation of the Rosen system, as recorded by the Tribunal, does not explain how it was decided which were old credit balances and which were not, because it was only old credit balances which Mr Rossides required to be removed.
21. On return to the office after the weekend, Mr Bultitude spoke to Mr Rosen by telephone. He seems only to have asked whether enough had been done to get the accountant's report signed and, as he told the Tribunal, he did not ask what had been done.
22. Mr Bultitude also spoke to Mr Rossides who was at the office of Mr Bultitude and made a similar enquiry. Mr Bultitude then signed a cheque transferring a composite sum of client balances of £50,099.45 to the office account. He saw no supporting documentation when signing that cheque. Mr Rossides then signed off the accountant's report.
23. In his proof of evidence which was treated at the Tribunal as his evidence-in-chief, Mr Bultitude said:

"My simple assumption was that all the hard work which had been contributed in my absence that weekend had achieved a standard analysis and treatment of the credit balances. There was no reason for me to think anything other than that, where appropriate, a range of invoices had been raised in respect of fees due to the firm and sent out in the relevant clients....,. I had no conception of the nature of the exercise which had been carried out. There was no reason for me to think that any unorthodox steps had been taken and I knew only that a great deal of effort had been expended."

24. So, he professed to have been under the impression that despite the shortage of time, the work had been properly done, and he was specific that he never saw the debit notes until after the first visit by Mr Lane in August 2000. That was rejected by the Solicitors' Disciplinary Tribunal which found that:

"Mr Bultitude was guilty of conscious impropriety amounting to dishonesty in endorsing the system of transfers of client money from office to client account devised by Mr Rosen and had failed to exercise the proper stewardship of clients' money which was a fundamental duty of a solicitor."

25. The Tribunal also said that it was unable to accept that Mr Bultitude "intended to carry out an analysis of the individual client's ledger at a later time". That conclusion as to the intention of Mr Bultitude caused concern in the Divisional Court because, as Sullivan J who gave the leading judgment pointed out, that was not the case which Mr Bultitude had been required to answer.
26. The nature of the dishonesty alleged against him was, as Mr Goodwin made clear in the Divisional Court, that:

"He had signed a cheque transferring his clients' funds to his office account without knowing or caring whether or not his firm was entitled to be paid those funds. Such conduct was dishonest, even if there was an intention to repay the clients if it was found on a subsequent investigation that the firm was not in fact entitled to the sums transferred under the cover of the debit notes."

27. In fact, seven or eight more false debit notes were created after November 1999 and before the arrival of the investigating officer in August 2000. That was, it seems, dealing with a few credit balances which had been overlooked but, as Mr Browne pointed out, there was no evidence that the Rosen system had been implemented before 27th November 1999.
28. Not much progress was made thereafter towards regularising the position created by the unjustified ledger entries, false debit notes and unjustified transfer of funds, prior to the arrival of the Forensic Investigation Unit about ten months later.
29. Mr Bultitude produced to the Tribunal a schedule of "Balances re-credited to client account on 4th February 2000". It lists 48 names with amounts against each name to a total of £12,900.56, but only four of the 48 names can be related to those affected by the Rosen system. So, as Mr Treverton-Jones submitted, it seems that only about £3,000 or £4,000 of the £50,000 was re-credited at that time.
30. Mr Bultitude also produced to the Tribunal a schedule of "Amounts re-transferred to client account on 4th July 2001", some months after the arrival of the investigating accountant. It purported to account for £34,027.60, the total value of the debit notes, but of that sum, £16,030.92 was explained as "Amount simply re-credited to client account and retained pending further investigation".
31. As Mr Treverton-Jones submitted, if in July 2001 it was still not possible to deal properly with credit balances, it would seem to follow that some clients suffered financial loss as a result of the way in which Mr Bultitude's firm operated its client account, quite apart from any question of loss of interest.
32. But having regard to the way in which the case was presented, the Divisional Court accepted that Mr Bultitude was entitled to be dealt with on the basis that he may have intended to carry out an analysis of the individual client's ledgers at a later time. Nevertheless, the Divisional Court found that he was dishonest. Mr Browne submitted to us that the Divisional Court was wrong to reach that conclusion. He submitted, and I would accept, that the test to be applied when deciding dishonesty is as formulated by the House of Lords in Twinsectra Ltd v Yardley (2002) 2 164, namely, in the context of this case: first, did Mr Bultitude act dishonestly by the ordinary standards of reasonable and honest people, and if so; secondly, was he aware that by those standards he was acting dishonestly.
33. Mr Browne submits that the test was not satisfied because first, Mr Bultitude was not charged with or shown to have intended permanently to deprive anyone of anything. Secondly, everything that was done was done to satisfy the requirements of the reporting accountant, Mr Rossides, there was no other motive. Thirdly, it was Mr Rosen, not Mr Bultitude, who decided what should be done and Mr Rossides approved what had been done when he signed off the accounts on the Monday morning. Fourthly, in fact the funds transferred were not jeopardised because the office account was in credit and there was a clear audit trail.
34. In my judgment, the Divisional Court was right to find as it did in relation to the issue of dishonesty. At the behest of Mr Browne, we have looked at more of the evidence than was referred to in the judgment of the Divisional Court, but to my mind that has only served to confirm the conclusion that Mr Bultitude was dishonest.
35. I accept of course that he is not shown to have intended permanently to deprive his clients of their funds. The proof of dishonesty in this context is not dependent upon proving that intention. Before he went to Bath, he knew that there was a serious problem, but he seems to have done nothing to address it other than to ask his staff to seek the assistance of Mr Rosen, and to solve it for him. Over the weekend, he made no enquiries as to how the problem was being resolved and on the Monday he was, it seems, only anxious to be assured that Mr Rossides would now sign the accountant's report so that it could be filed in time. He did not ask Mr Rosen what had been done, nor is there any evidence to suggest that Mr Rossides knew what had been done. Indeed, in his proof of evidence, Mr Bultitude's stance was that he, never mind Mr Rossides, assumed that the credit balances had been properly cleared.
36. So, as Mr Goodwin submitted in the Divisional Court, Mr Bultitude signed a cheque for £50,000 transferring his clients' funds to his office account without any supporting documentation and thus, it must be inferred, without knowing or caring whether his firm was entitled to be paid those funds. That, to my mind, satisfies both legs of the Twinsectra test, and the position is compounded by what happened thereafter. At some stage, as the Tribunal found, Mr Bultitude did become aware of the debit notes and once he saw those bogus documents, it must have been clear to him what had been done to clear the credit balances but he did nothing to backtrack. As the Tribunal found, he was guilty of conscious impropriety amounting to dishonesty in endorsing what had been done.
37. That was not a momentary error of judgment and the retention in the office account of funds some of which at least belonged to clients clearly meant that the funds were not safeguarded as they should have been. They were therefore jeopardised, and although there was an audit trail, it was clouded by false ledger entries and bogus debit notes. In my judgment, this was a clear case of dishonesty of a serious kind.
38. I turn therefore to the question of penalty, the subject matter of the Law Society's appeal.
39. Mr Treverton-Jones submitted that where dishonesty is established when dealing with clients' account, the penalty should be, in almost every case, striking off. In Bolton v The Law Society and (1994) 1 WLR 512, Sir Thomas Bingham, MR, said at page 518:
40. "Lapses from the required high standard may, of course, take different forms and be of varying degrees. The most serious involves proven dishonesty, whether or not leading to criminal proceedings and criminal penalties. In such cases the tribunal has almost invariably, no matter how strong the mitigation advanced for the solicitor, ordered that he be struck of the Roll of Solicitors."
41. In Weston v Law Society, reported in the Times on 15th July 1998, where the Court of Appeal dismissed an appeal against an order striking off a solicitor for serious breaches of the Accounts Rules without any allegation of dishonesty, Lord Bingham, LCJ, said at page 11:

"The striking off of any solicitor found to have acted dishonestly in relation to clients' monies must now be seen as all but automatic."

42. Mr Treverton-Jones told us that the Law Society was aware of only one case where a solicitor who was found to have been dishonest in relation to his firm's client account was not struck off, and in that case, there were personal circumstances which were, as we were told, truly exceptional. That was the case of Gilbert in 1998. But if the confidence of the public in the integrity of the profession is to be maintained, the sanction envisaged in Bolton and Weston must be applied to all types of dishonesty. Many defaulting solicitors when they first raid their client's funds intend to repay, but they should not escape the usual penalty simply because they are stopped before any repayment becomes an impossibility.
43. The present case is, as the Divisional Court pointed out, unusual but as I have demonstrated, there was serious dishonesty and after the critical weekend Mr Bultitude endorsed the dishonesty. There was also some further movement of monies out of client account, and no urgent attempt at rectification.
44. Mr Browne emphasises the unusual one-off nature of the case, and the fact that Mr Bultitude, who has a good record and of whom others speak well, did not devise the suspense account scheme. The scheme, he points out, did not jeopardise clients as much as it would have done if the office account were not in credit and there was no paper trail. He also submits that the circumstances are so unusual that they are unlikely to recur. That may be, but dishonesty in other forms will recur. I would completely reject any notion that where dishonesty is shown, a solicitor should not be struck off unless it is also shown that he intended permanently to deprive.
45. I accept that for the reasons set out by the Divisional Court in Langford v Law Society (2002) EWCA 2802 Admin, the approach of the court to decisions of the Solicitors' Disciplinary Tribunal is not quite as it used to be. But we can, and in my judgment should, take cognizance of what the profession regards as the normal necessary penalty to be imposed upon those found to have acted dishonestly. Furthermore, as Mr Treverton-Jones points out, this was quite a bad case of its kind. The firm was Mr Bultitude's firm. He was the sole equity partner and he was experienced. There was, in reality, no compelling reason for him to do what he did, and the sum of money involved was significant. False documents were created and continued to exist and, unlike in some cases there has not been any clear-cut evidence of restitution.
46. I appreciate that for Mr Bultitude the proceedings have been lengthy and the penalty is devastating. It is now 15 months since he was before the Solicitors' Disciplinary Tribunal. But in my judgment, even on the facts as found in the Divisional Court, there was in this case no room for any finding other than that he be struck off. As Mr Treverton-Jones submitted, if leniency were to be extended in this case, that would lower the tariff so that it would in practice become difficult to strike off anyone not shown to be dishonest however gross his breach of the rules, and it would even become difficult to strike off anyone guilty of dishonesty not amounting to theft. That is at variance with the authorities and would be perceived by the profession and by the public as detrimental. That is why, in my judgment, it was necessary to set aside the lesser penalty imposed with some hesitation by the Divisional Court.
47. The order therefore is that the appeal be allowed with costs. The cross-appeal is dismissed. It is ordered that Mr Bultitude be struck off from the Roll of Solicitors and the application for leave to appeal to the House of Lords should, in my judgment, be refused.
48. LORD JUSTICE LAWS: I agree that the order should be made for all the reasons given by him. In my opinion, on the facts which he has fully described, this is a serious case and to impose any penalty lesser than striking off Mr Bultitude would be quite wrong.
49. LADY JUSTICE ARDEN: I also agree with both judgments.