QUEEN'S BENCH DIVISION
B e f o r e :
(Vice President of the Court of Appeal, Criminal Division)
MR JUSTICE MACKAY
|THE LAW SOCIETY||(DEFENDANT)|
Smith Bernal Wordwave Limited
190 Fleet Street London EC4A 2AG
Tel No: 020 7404 1400 Fax No: 020 7831 8838
(Official Shorthand Writers to the Court)
MR T DUTTON QC AND MISS C CARPENTER (instructed by Wright Son & Pepper Solicitors, London, WC1R 5JF ) appeared on behalf of the DEFENDANT
Thursday 20 February 2002
Crown Copyright ©
(i) He became involved in dubious or fraudulent transactions that he accepts "bear a number of the hallmarks of bank instrument schemes", notwithstanding (a) a warning that he should not participate by the OSS and his bankers; (b) his previous experience of such transactions; (c) his knowledge after 12 February 1998 that Silver, who referred many such transactions to him, was wanted by police for dishonesty involving a gross breach of trust and his guilt was not in dispute; (d) the fact that each such transaction was highly unusual and not one in which a solicitor should properly involve himself and, therefore, by virtue of (a) to (d) his involvement in such transactions was as a knowing participant.
(ii) He failed to take adequate and reasonable steps to protect funds held on behalf of clients and/or third parties.
(iii) He acted in circumstances of conflict of interests re W and Y, Grosvenor and CITCO.
(v) He deducted $50,000 from funds provided by Taipan Asset Management for the purpose of an investment without its authority and paid that money to Silver.
(vi) As I have said, he admitted this allegation. On 8 January 1988 he transferred into his client account office money in the amount of £78,250 in breach of Rule 4 of the Solicitors' Accounts Rules 1991 and he paid out of his client account to solicitors Swepstone Walsh monies held on behalf of clients Moreno and Song in breach of Rule 7 of the Solicitors' Accounts Rules 1991.
(vii) Receipt by him of a letter dated 8 January 1998 from Silver to Moreno, complaining that Contrast Finance, a Silver company, had transferred $150,000, when in fact the funds had been provided by D, should have constituted a further warning to D as to the honesty of Silver and he continued to be involved in dubious and fraudulent transactions, notwithstanding such warnings and also in breach of Practice Rule 1(a) and (d).
" ... must himself appreciate that what he was doing was dishonest by the standards of reasonable and honest men."
The Tribunal go on:
"It was very apparent that [D] in this case vehemently asserted his honesty but this on its own is not sufficient to acquit him of the allegation. It might be so if he 'did not know that what he was doing would be regarded as dishonest by honest people'. That is consistent with the statement by Lord Nicholls in Royal Brunei Airlines case supra [ 2 AC 378] when he said that 'For the most part dishonesty is to be equated with conscious impropriety. However, this subjective characteristic of honesty does not mean that individuals are free to set their own standards of honesty in particular circumstances."
" ... contended that in relation to a number of these his involvement was very minor or they had never progressed beyond an initial stage."
D also said that, where monies were received into his client account, there were no instances where his firm had caused any loss to his client. Indeed, his involvement had ensured that no monies which had passed through his account were lost. That was disputed by the OSS, particularly in relation to the CITCO transaction.
"This came as no surprise to the Tribunal since the transactions often promised an investment return which could only be described as incredible. For instance, a return of 2½ per cent of the amount invested per week for a period of 40 weeks. In another case the return calculated as somewhere between 1200 and 1600 per cent generated over a relatively short period of time."
The Tribunal commented that, although the contracts contained sophisticated wording and were often lengthy and complicated, they were obviously deficient in failing to disclose how these extravagant returns would be achieved and who by. The agreements contained phraseology which, to any alert professional adviser, would appear meaningless or suspicious, especially if he had received specific and general warnings from the Law Society. Furthermore, the agreements often contained confidentiality clauses designed to prevent the investor from becoming aware of who was truly involved, and so the investor was left to rely wholly on the intermediaries who had introduced the transaction and who, in almost every case, were to be the recipients of the investor's money. The honesty, good faith and qualifications of the intermediaries was, therefore, very relevant.
"It was not apparent why the person said to be capable of achieving these phenomenal profits would be willing to give the provider of the 'margin' such a large proportion of them."
(a) Almost all the transactions involved Silver who, from at the latest 12 February 1998, was known to D as a man of bad character ...
(b) In all the transactions involving Silver, D or his firm were to D's knowledge held out as in some way connected with or involved in the transaction either as solicitors to or advisers to Silver and his various companies.
(c) There were many instances where D allowed Silver to use D's name and the name of his firm and its address as the address at which Silver and his various companies conducted business.
(d) In a case which did not involve Silver, the participation of an unqualified intermediary (the wife of D's outdoor clerk) and documentation similar to that used in Bank investment frauds put D on notice of the dubious nature of the transaction.
(e) In five cases D acted as the would-be investors' solicitor, as well as acting as solicitor to Mr Silver and his companies, and in the cases of Vanborough, Song, Moreno and Taipan monies intended for investment passed through D's client account.
(f) The Grosvenor Trust transactions involved Song and Moreno, but D denied that he also acted for Global. The Tribunal found that D had been appointed to act for Global. Moreno was D's client in relation to Global's funds. The Tribunal rejected D's explanation that he was entitled to regard Silver and his company, Contrast, as his only client in relation to the $1 million sent by Global on 21 October 1997.
(g) The Tribunal found that D had allowed his name and that of his firm to be referred to as the address for correspondence relating to the various transactions, and anyone having access to the documentation would have been entitled to assume that D was acting in the transaction. D thus gave the transactions a credibility which they did not deserve.
(h) In relation to the investment of money into the CITCO scheme (all of which was lost), the Tribunal found that these monies had been paid out of D's client account. The Tribunal go on to refer to D's evidence, whereby he, in part, appeared to have resiled from his acknowledgment before Neuberger J that he knew the schemes were likely to be dubious or fraudulent. He said that after Silver had confessed that he had embezzled money from his previous employer, and he knew a warrant had been issued for Silver's arrest, he, D, believed Silver's explanation that he had stolen money to help with medical treatment for his wife. The Tribunal go on to say that, though they accepted Silver might have seemed plausible to D, the Tribunal rejected D's arguments:
"As a experienced solicitor who had received certain warnings about Mr Silver from The Law Society and the Midland Bank and who after 12 February 1998 knew Silver was liable to arrest for fraudulent behaviour, the Tribunal find that [D] knew that all the transactions in which he had been or was involved were in all likelihood tainted by their association with Mr Silver and likely to be dubious or fraudulent."
"Any involvement in such a transaction would in the opinion of the Tribunal give rise to a serious risk of damage to the reputation of the profession. Involvement by a niaive or gullible solicitor would not however necessarily involve a charge of dishonesty or conscious impropriety."
Then I quote in full paragraphs 147 to 150:
"147. The charge of dishonesty or conscious impropriety relies on a claim that [D] must have appreciated that his actions were dishonest by the standards of honest and reasonable men. The Tribunal has considered what [D] knew in two crucial areas.
"148. Did [D] know that the transactions in which, as found by the Tribunal, [D] was involved, were dubious or fraudulent? In the light of the warnings referred to earlier the Tribunal has come to the clear conclusion that either [D] knew the transactions were suspect or he was grossly reckless. He seems to have been wholly unwilling to question the honesty of Mr Silver or the legitimacy of the transactions he involved himself in.
"149. Did [D] know that he was receiving his instructions from a person with a reputation for dishonesty? As to this the Tribunal found that [D] knew but chose to ignore that Mr Silver was dishonest from the time of his discussion with Mr Chadwick in July 1995.
"150. The Tribunal is unable to accept [D's] evidence that he believed Mr Silver was honest and that he had, even after 12 February 1998, an honest belief that Mr Silver had had some reasonable grounds for maintaining his stance as an honest man."
"[D] acted on the instructions of Mr Silver. The Tribunal have no doubt that an intermediary whose principle interest is securing his fee or commission has a quite different interest to that of the investor. A solicitor advising the investor on the merits of whether or not to make an investment should not be influenced by the interests of another client whose overriding concern is to have the investment made ... [D's] connection to the transactions at least carried the obligation to say if it was or appeared to be suspicious or a fraud."
In paragraph 153 the Tribunal say that such advice as D gave was wholly inadequate, but, worse, gave potential investors encouragement to believe that the transactions were legitimate and capable of producing an incredible level of profit. At paragraph 154, the Tribunal held that D's letter to Moreno, saying that the Grosvenor scheme was "a good investment" could not be other than seriously misleading. The CITCO scheme was a fraud and had all the tell-tale signs of being so. In paragraph 155 the Tribunal said D acknowledged that this letter was unwise and foolish, but, said the Tribunal:
"It however demonstrates very clearly the conflict ... a solicitor could not properly recommend to a client a transaction which should have been recognised as fraudulent whilst also acting for the intermediary whose commission depended on the transaction proceeding."
"The Tribunal disagrees. [D] did not inform Mr Moreno of Mr Miller's claimed interest in the moneys, [which D] was ostensibly seeking to recover on behalf of Mr Miller. For so long as Mr Moreno remained a client, [D] could not properly represent the interests of Mr Miller. The Tribunal rejects [D's] arguments based on Practice Rule 16.02."
At 158 the Tribunal therefore found that, in addition to the conflict arising between Silver and his companies and the investors, there was also a conflict in relation to Miller, Moreno and Global.
"In principle the sum paid by Taipan to Contrast Finance's designated client account with [D] for investment could not be applied by Contrast Finance for other purposes, eg paying itself commission or repaying a loan from [D] to Mr Silver. In the absence of Taipan's instructions, [D] should not have acted on Silver's instructions."
"Mr Justice Neuberger found that the letter of 8 January 1988 [from Silver to Moreno, claiming that Contrast had paid $150,000 to meet the deadline for investment] was a dishonest letter. The Tribunal is of the same view. Mr Silver knew and [D] knew that Contrast had put up no money. [D] knew that he had provided money and that he had utilised funds held on his client account for Mr Song and Mr Moreno. He sought to justify this by claiming he was owed costs by Mr Song and Mr Moreno, but no bill had been rendered. [D] sought to explain his conduct by continuing to deny that he knew or should have known of Mr Silver's dishonesty and by later asserting that he did not regard Mr Moreno or Global as his client. The Tribunal rejects both propositions and considers neither could have been honestly held by [D]. Even though positive proof of Mr Silver's dishonesty was not received by [D] until 12 February 1998, there was overwhelming evidence available to [D] that Mr Silver was not to be trusted. Apart from the warnings given by The Law Society and Mr Chadwick, and the manifestly suspect nature of the various schemes Mr Silver was propounding, the letter written by Mr Silver was known to [D] not to be true. The Tribunal found [D's] attitude to Mr Silver not capable of an explanation other than that he had wilfully ignored the evidence that Mr Silver was untrustworthy."
"The Tribunal finds that all these transactions were dubious or fraudulent and that [D's] involvement in them gave them credibility."
"There was no other explanation but that [D] behaved in a consciously improper manner, amounting, in the Tribunal's view, to dishonesty."
"In behaving as he did in relation to the matters complained of, D did seem in the Tribunal's view to have 'set his own standards of honesty': standards which the Tribunal did not consider any honest and competent solicitor would have set if confronted with the circumstances in which D found himself."
In the light of those conclusions, they ordered, as I said at the outset, that D be struck of the Roll.
" ... dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct."
Mr Newman accepts that it was open to the Tribunal to come to a finding of conduct unbefitting on the basis of recklessness, but such a finding would have had a dramatic effect, he submits, on penalty. If there is a risk that the Tribunal applied the wrong test as to dishonesty, the Tribunal's conclusions, he submits, cannot stand.