QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| JULIAN HOLY
|- and -
|THE LAW SOCIETY
Geoffrey Williams QC and Jonathan Goodman (instructed by The Law Society) for the Respondent
Hearing date: 28th March 2006
Crown Copyright ©
Mr Justice Newman:
The allegations against the Appellant
"(i) That contrary to Rule 14 (3) of the Solicitors' Accounts Rules 1998 (hereinafter referred to as "SAR"), two of the firm's USD accounts and the Euro account did not contain "client" in the title (see paragraph 5 of the Forensic Investigation Unit Report dated 20th February 2003, hereinafter referred to as "the Report").
(ii) That he withdrew monies and/or made payments from client account, otherwise than permitted by Rule 22(1) of the SAR.
(iii) That contrary to Rule 30 (2) of the SAR, did arrange private loans from one client to another, without having obtained the written authority of both clients.
(iv) That contrary to Rule 32 (1) and (2) of the SAR, failed to keep accounts properly written up.
(v) That he acted for the buyer and seller in a conveyancing transaction without having the written consent of both parties, contrary to Rule 6 (2) of the Solicitors Practice Rules 1990.
(vi) That he gave an undertaking dated 24th April 2001, which contained a misleading and/or inaccurate representation.
(vii) That he failed to exercise adequate and proper supervision of staff, and/or allowed and/or authorised his staff to certify as true copy documents, in circumstances where the original documents(s) had not been seen.
(viii) That he acted and/or continued to act where a conflict of interest existed between two or more of his clients.
(ix) That he acted and/or continued to act in circumstances where his own interests conflicted with the interests of a client(s).
(x) By virtue of the matters set out in "The Report" dated 20th February 2003, acted contrary to Rule 1 of the Solicitors Practice Rules 1990, in that his conduct compromised or impaired or was likely to compromise or impair his independence or integrity as a Solicitor, his duty to act in the best interests of a client or clients, his good repute or that of the Solicitors' profession, and in particular:
(a) that he failed to make any or sufficient enquiry as to funds received into and paid out of his client account, absent any underlying transaction, and in so doing disregarded the guidance issued by The Law Society."
The allegations were further particularised in specified paragraphs of the Report referred to in allegation (i).
The grounds of appeal
(a) Allegations (i) and (iv) concerned admitted but minor and technical breaches of the Solicitors' Account Rules (which we too shall refer to as "the SAR").
(b) Allegation (iii) concerned an admitted breach of the SAR in failing to obtain written consents in connection with the inter-client loans which were the subject of allegation (viii), instead of the oral consents that Mr Holy said he obtained. Allegation (v) also concerned a failure to obtain a written, rather than merely an oral, consent. These could not justify striking off.
(c) The Tribunal erred in finding allegation (viii) proved.
(d) Allegation (x) was an allegation that Mr Holy failed to make sufficient enquiry as to funds passing through his client account. The Tribunal erred in finding that allegation proved.
(e) Even if the Tribunal was entitled to find allegations (viii) and (x) proved, the Tribunal imposed a penalty that was manifestly excessive.
"… As previously advised (paragraph 49 of the Report), I believe that there is always an implicit conflict of interests between clients when represented by the same adviser (of whatever discipline). If that, of itself, is a "flagrant breach of the rules" then I accept that I have been frequently culpable over the greater part of my career. Acting as I do for such a tight-knit, commercially orientated society, it is hard to conceive how business could be conducted in any other way. I am able to say, however, that I have always acted in the very best interests of all of my clients which I consider to be the overriding criteria."
The disputed allegations
"A solicitor should not accept instructions to act for two or more clients where there is a conflict or significant risk of a conflict between the interests of those clients."
"As you know, I have for some while held a not insubstantial sum of money on behalf of certain clients which was originally intended to fund a substantial asset acquisition. Unfortunately, the matter has become more protracted than was originally anticipated albeit I am hopeful that the funds can be applied reasonably soon.
In the meantime, I have been given authority by my clients to invest the funds on a short term basis if I am satisfied with the security, the financial return and that repayment can be achieved within 21 days of request.
On this basis I have been able to advance funds to your organisation and see no reason why I should not continue to do so. I propose an interest rate of 12% per annum which I will calculate upon repayment.
I would also look to you to underwrite the debt.
For the sake of my paperwork I should be grateful if you would kindly sign and return to me the enclosed duplicate of this letter by way of confirmation of the above."
The letter was countersigned by Q personally.
"Client to Client loans – Conflict of Interest
49. Mr R Lane, Senior Investigation Officer, who was present with Ms Beenham at the final interview with Mr Holy on 14 November 2002, brought up the issue of a conflict of interest. Mr Holy said that as a lawyer he always considered it at the time and that implicitly there must be a conflict of interest between his clients, however it was a question of balancing the two.
50. Mr Lane asked Mr Holy if it was appropriate to act in this manner. Mr Holy said that this was typical of the style he had adopted for the last twenty-five years, it had worked well and it was appropriate considering the clients he worked for. Mr Holy recognised that it was a "flagrant breach of the rules" but that his relationship with his clients was based on complete trust. Mr Holy said that he handled over a "billion" in client funds annually and that he would be unable to operate differently with his clients' style of business."
"129. So far as allegation (viii) is concerned it was accepted by the Respondent that Mr A was a client. So far as Q and the attendant Q companies are concerned the Tribunal is satisfied that they too were clients.
130. In this regard the Tribunal particularly noted some of the documents that were referred to it, in particular pages 22 and 26 of the Applicant's bundle which set out the transactions and movement of funds supporting them.
131. No evidence was produced by the Respondent as to the terms of the retainers with Mr Q and the Q companies.
132. The Tribunal has noted one of the authorities put forward on behalf of the Respondent that says "solicitors who do not define their retainer clearly and in writing can expose themselves to the imposition of a retainer the existence and extent of which may be implied from their own conduct. The solicitor may also find that he owes contractual duties to persons other than those directly providing his instructions". [PNL Service Issue No 5, 1st April 2004]
133. Given the nature of the transactions involving lenders and borrowers where different interests or the possibility of different interests clearly exist, the Tribunal is satisfied that the Respondent acted and/or continued to act where a conflict of interest existed between two or more of his clients. The Tribunal finds allegation (viii) to have been substantiated."
"The money you are to receive is being given to us for bona fide purposes and is to be invested in joint ventures with two other well established clients of this practice. You are clearly right to have concerns but with the background you have given, I do not feel that you (or this firm) are in any way exposed.
You must consider if the instructions you receive are unusual or contain unusual requests…. You should, of course, satisfy yourself that Mr A is who he says he is. You should ask to see his original passport (and retain a copy) and be satisfied that the person you are dealing with is the same person identified in the passport. A face-to-face meeting will deal with this. You may have to undertake additional enquires if the money is not coming from Mr A's personal bank account, i.e. if it is received by way of third party transfer where there is a variation between the account holder, the signatory and a prospective investor.
In short, from your knowledge of the proposed transactions, you must ask yourself the question "do I have cause for concern?" If you satisfy yourself that there is no cause for concern, then there is no need to report the matter outside of this office."
"At the present time, I have no doubt at all as to the bona fides of Messrs A/K albeit I understand that this is a matter that I will need to keep under review as the transaction proceeds and this I will do. Actually, I have no doubt at all but that I will not need to trouble you further.
As agreed, I will not complete the Money Laundering Suspicious Clients/Matter Report Form unless and until the client becomes suspicious!"
(a) Mr A had been introduced to Mr Holy by a long-standing client, K, with offices in Geneva, Monte Carlo and Tel Aviv. K was well known to Mr Holy and of impeccable credentials.
(b) Mr Holy drew the conclusion that Mr A, as a client of Mr K, was himself personally wealthy and above board.
(c) Mr Holy had met Mr A on at least one occasion before 2001, and spoke to him on at least nine occasions on the telephone between March 2001 and October 2002. He was a real person.
(d) Mr Holy had specifically asked his money-laundering officer for advice, and he asked Mr A for a copy of his passport "which I am required to hold on my file in connection with money-laundering requirements".
(e) There was nothing unusual about the instructions or the underlying transaction, namely the proposed acquisition of substantial property in the UK. The initial investment of £50 million was not an unusually large amount in the context of the firm's usual business.
(f) Mr Holy had no doubt that the intention to invest was a genuine one.
(g) Having discussed the matter with his money-laundering officer, Mr Holy considered whether he had reasonable grounds for suspicion and decided that he did not. His decision not to complete a Suspicious Clients/Matter Report Form was taken by agreement with MG.
(h) The pressure for a deposit of cash came from Mr Holy rather than Mr A.
(i) There was a genuine reason why the original investment was not purchased.
(j) There was a respectable reason for the substantial deposit remaining on client account after the failure of the proposed transaction, namely to fund an investment when one was identified.
"(i) The Respondent met Mr A on one occasion in 1996 at dinner in the Dorchester approximately five years before the sums came through;
(ii) He was unsure whether there was another meeting in the interim;
(iii) The copy passport came not from Mr A but via Mr K;
(iv) The copy passport was inadequate and difficult enough to decipher for the Respondent to ask for a better copy. The next copy was worse and not followed up (the last reference about the passport was in a fax from the Respondent to Mr K dated 11th July 2001);
(v) There were also difficulties in some communications by fax between England and Lagos."
"… So far as Mr A is concerned the Tribunal finds that following the collapse of the deal involving the London hotel property, the Respondent should have been cautious about holding such a large sum of money in his client account pending further instructions from the client or for no other purpose than for onwards transmission to a third party."
"So far as allegation (x) is concerned and the money from LC, the Tribunal finds that the Respondent should have been alerted by the Blue Card advice relating to:-
(i) Unusual instructions – where the Tribunal is not persuaded by the Respondent's explanation that the €11.5 million had to be dealt with in London. The explanation offered by the Respondent that LC did not have UK bankers should have alerted the Respondent to potential money laundering problems, as would any proposed use of a solicitor's client account instead of a bank.
(ii) Where large sums of cash were requested to be held in client account with no instructions from the client other than for onward transmission to third parties."
The seriousness of the allegations admitted or proved
Allegations (i), (iii) and (v)
"By way of further clarification in relation to allegation (iv), an allegation of failing to keep accounts properly written up, I have informed those who represent Mr Holy that I limit that allegation to that which is found at paragraph 5(2) of the accountant's report, which is page 2 of my bundle.
Namely, the clients' ledgers were not maintained for all the clients with funds held in the firm's Euro client's accounts, by which I mean instead of keeping separate cash books and/or ledgers, they kept a combined record which did not represent a complete record of the position, because my instructions are that a number of the transactions appeared on bank statements and did not appear on the ledger and/or cash book.
So it is quite a narrow allegation and I do not know whether that will persuade the respondent that the allegation is made out and he will alter the denial to an admission. That is of course for Mr Evans and his client but I hope that assists at this stage."
Later Mr Goodwin said:
"I think it has already been accepted, certainly by me, if not the Tribunal, that in the context of the other matters the Tribunal is dealing with, this perhaps falls down the scale in terms of seriousness."
Allegation (iv) was admitted after the latter statement.
"The failure to maintain client ledgers for all clients with funds held in the Euro Client Account is particularly serious."
"57. By letter dated 24th April 2001, the Respondent wrote to Mishcon de Reya and Sears Tooth and said:-
"We confirm that we hold Five Hundred Thousand Pounds (£500,000) in our client's account.
We Undertake to account to Sears Tooth (for the benefit of Mr D absolutely) by CHAPS payment for the above sum of Five Hundred Thousand Pounds (£500,000) within two working days of the later of…"
58. At the time the Respondent gave the Undertaking the client ledger account for Mr Q contained no funds. The Respondent did not hold £500,000 for Mr Q and it was the Applicant's case that the expression "we confirm that we hold £500,000 in our client's account" was misleading and/or inaccurate.
59. The Respondent indicated that he worded his Undertaking to mean that he had £500,000 on hand for all of the Q Co matters. A client matter listing as at the date of the Undertaking identified that there were 96 ledgers associated with Q. These ledgers combined held a total sum of £78,750.11.
60. It was submitted by the Applicant that the Respondent should have ascertained the amount held on client account in respect of the particular client prior to giving the Undertaking in the terms that he did. The Respondent either knew or ought to have known that he did not hold the sum of £500,000 as represented in the Undertaking dated 24th April 2001.
61. A dispute arose concerning the £500,000 payment. An Order made in the High Court of Justice dated 26th September 2001 stated, inter alia:-
"Mr Julian Holy and Messrs Julian Holy Solicitors be forbidden from dealing with the sum of £500,000 that is presently held in their client account and referred to in their letter dated 24th April 2001, and the interest that has to date accrued and may hereafter accrue thereon, or any part of that sum or that interest, pending determination of the Respondent's application…"
62. On 9th November 2001 a Court Order was made that the £500,000 plus interest was to be paid to Mr D by 13th November 2001.
63. On 13th November 2001 the Respondent arranged a transfer of £511,506.85 to Sears Tooth Solicitors for Mr D in compliance with the Court Order.
64. The funds were part of a deposit into the Respondent's client bank account of £3,699,986.50 on 9th November 2001, and credited to the client ledger account of "TFI loan to C Limited". The Respondent said that the £3.6 million related to Q Co.
65. The Applicant recognised that £500,000 was paid as required and the Undertaking had been discharged but nevertheless the Respondent had provided an Undertaking which contained a representation which he knew or ought to have known was misleading and/or inaccurate.
66. In oral evidence the Respondent explained that he was a man of means and would have been easily able to comply with the Undertaking by the use of his own resources. There had been no possibility of there being a breach of the Undertaking."
"The other allegation that the Tribunal finds to be serious is that the Respondent allowed or authorised his staff to certify as true copies, passports or other documents where the originals had not been seen. Again, this goes to the probity of the Respondent and his practices. "