QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE HOLLAND
MR JUSTICE WALKER
| JOHN COSTA CONSTANTINIDES
|- and -
|THE LAW SOCIETY
Smith Bernal WordWave Limited
190 Fleet Street, London EC4A 2AG
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Official Shorthand Writers to the Court)
Mr Geoffrey Williams QC (instructed by The Law Society) for the Respondent
Crown Copyright ©
Lord Justice Moses :
BANKING INSTRUMENT FRAUD
Fraudulent investment schemes are on the increase. "Prime Bank Guarantees", "Prime Bank Letters of Credit" and "Zero Coupon Letters of Credit" are not issued by the legitimate banking community. The legitimacy of such investments must always be questioned.
Solicitors should exercise extreme caution if approached by individuals promoting such transactions.
Look for typical phrases such as … good clean cleared funds of non-criminal origin …
Beware of any schemes which require the depositing of any substantial sums of money to you for safe keeping at lucrative rates for doing very little. It may sound too good to be true and probably is."
i) A "Joint Venture Agreement" with RVL involving a "Blocked Funds Investment Program for Project Financing", and
ii) A "Distribution of Profits Agreement" with Westminster Services Limited ("Westminster").
i) Westminster was an offshore company and was a client of the appellant and would on completion of the transaction pay any fees due to the appellant.
ii) The appellant knew the identity of the officers of that company, although the appellant declined to disclose such identities.
iii) The Joint Venture Agreement contained a discrepancy as to duration and the appellant was unable to explain the meaning of a "Blocked Funds Investment Program for Project Financing" or to explain how the promised return was achieved.
a) He had wrongly paid clients' funds into his office account contrary to Rule 3 Solicitors' Accounts Rules 1991;
b) He had acted improperly in a conflict of interest situation;
c) He had failed to act in the best interest of a client.
d) He accepted instructions to advise a client in a matter in respect of which he was unable to properly advise.
It was further alleged that the appellant had breached the terms of Rule 1 Solicitors Practice Rules 1990 in the following respects:-
Rule 1 (a) – Independence and integrity.
Rule 1 (c) - His duty to act in the best interests of his client.
Rule 1 (d) – The good repute of the profession.
Rule 1 (d) – His proper standard of work.
a. This was a fraudulent transaction in which [the appellant's] client lost US$1,000.000 capital.
b. [The appellant] should not have acted for [Mrs Manolakaki] at all given the conflict of interest.
c. Furthermore he should not have acted given his professed inability to understand the documents he was advising upon. No Solicitor should accept instructions unless he is competent to perform them.
d. Having acted he dismally failed to protect the interests of his client [Mrs Manolakaki]. Whatever the level of her determination to proceed with the scheme [the appellant] was under a duty to render the clearest possible advice to the effect that the scheme was fraught with danger.
e. [The appellant] was at least reckless in the extreme.
f. Furthermore the question of whether or not [the appellant] had behaved dishonestly is an issue for this honourable Tribunal. I submit that subject to any further explanation that may be offered [the appellant] has behaved dishonestly."
"193. It is difficult to overstate the level of failure on the part of the Defendant. I have rejected his limited retainer argument. If I was wrong on that, it was plainly incumbent on him to spell out that his role was a limited one rather than a general retainer as a solicitor. He failed even in that task.
194. He bore scant regard to the Yellow Card, his duties as regards clients and potential conflicts that might arise between his client and other clients and him and his client.
195. He failed to give any advice at all of any significant nature in relation to these transactions. He should have viewed the transactions with great suspicion; instead he surrendered his independence to RVL and allowed himself to become a mere cipher for meaningless documents prepared by her as part of her fraud exercise."
"210. I was troubled about the finding of dishonesty against the Defendant in respect of this transaction because profit motive is usually a major factor in dishonesty. He only obtains money if the arrangement is a success. It is difficult to see how he acted dishonestly when he only stood to gain if the fraud was not actually a fraud. There is no evidence to show that he has personally benefited from the transaction in any other way.
211. I put this to Mr Pooles QC [counsel for the insurers] in his closing submissions. His response (T13 page 1684) was that applying the Twinsectra test the Defendant necessarily has to have knowledge that what he is doing will be regarded as dishonest by honest people. As Mr Pooles QC has submitted, the Defendant in his first three answers in cross-examination acknowledged that it was dishonest to withhold information wilfully from one's client, to lie to clients and to lie to third parties. He did all of these things. He knew they were wrong. I have to be careful to weigh answers that are given by reference to what the Defendant appreciated at trial as against what he appreciated and believed at the time the events took place. He was cross-examined extensively for many days. I am satisfied that during the course of his evidence as I have said, he lied and I have rejected his evidence extensively.
212. I am satisfied that the liability arises from dishonest or fraudulent acts or omissions committed or condoned by the Defendant in accordance with Clause 6.9 of the Policy of Insurance. The main fraud was that by RVL. I accept that the Defendant was taken in by her. He was plainly mesmerised by the large amount of money that he believed would come his way as a result of this proposal. This so overwhelmed him that he cast aside all his professional duties and standards. I have set out extensively all the dishonest acts that he took. I am satisfied that, whilst he might not have obtained the money on the evidence unless the transaction had proceeded, he nevertheless condoned RVL's fraud (by his abject surrender of duties and responsibilities and lies) but also, he knew what he was doing was dishonest. I appreciate the line between gross incompetence and dishonesty in this case is a very fine one, but having seen his performance and his inability to explain large amounts of the documentation and transactions, the way in which he conducted himself in relation to the transaction afterwards, my firm conclusion is that he acted in a dishonest way. There were numerous occasions when, if he had stopped for one minute and considered everything the Claimant would not have been deprived of her money. The Defendant has repeatedly denied that he was dishonest, but to my mind that is setting his own test of honesty which is not permissible as shown by the Twinsectra case."
a) the judgment of any civil court may be proved by producing a certified copy of the judgment.
b) the findings of fact upon which such a judgment is based shall be admissible as prima facie proof of those facts.
c) the Tribunal has a discretion not to apply the strict rules of evidence at any hearing.
"When called upon to make a decision as to whether or not the [appellant] had acted dishonestly and ultimately, in the light of the admitted allegations, to decide the sanction to be imposed on the [appellant], the members of the Tribunal would confine themselves to the [appellant's] conduct relating to his association with [Mrs Manolakaki] and the relevant issues."
"We find that that there has been dishonesty, particularly in relation to the conflict allegation… we came to this view entirely independently of the judgment. We have applied the criminal standard of proof in our decision."
"139. The Tribunal found that [the appellant's] behaviour had been dishonest. In making that finding it referred particularly to the conflict of interest which existed at the time when [the appellant] agreed to act for [Mrs Manolakaki] and Westminster Services Limited, a company which was to benefit and did benefit, from the investment, and of which another client was a beneficiary. A company moreover in which he himself was a shareholder and a director, and from which he expected to receive a very substantial fee if [Mrs Manolakaki's] investment business had reached fruition. It was dishonest of [the appellant] not to disclose these significant conflicting interests to [Mrs Manolakaki]. The Tribunal considers that it was dishonest for [the appellant] to encourage [Mrs Manolakaki] to believe that he was competent to advise in an area of work in which he had no knowledge or competence.
140. In [Mrs Manolakaki's] case the sum of money involved was very large indeed. She was at risk of making a very substantial loss. It is not possible to envisage any reason why [the appellant] became involved in the scheme other than the fact that the involvement of a solicitor and the use of his firm's client account would lend a cloak of responsibility to an otherwise transparently bizarre and fanciful scheme, allied to the fact that he and two other clients stood to gain from the transaction.
141. The Law Society's Yellow Card warned that "if it seemed too good to be true then it probably was."
142. [The appellant] was a conveyancing solicitor and would have been well aware of standard rates of interest charged, for instance, by mortgage lenders and he would not have failed to realize that in a climate where mortgage lenders were lending at five or six per cent per annum where the loan was secured by property, that a return of 120% per annum was mythical. If it had not been no doubt mortgage lenders would have diverted their funds to such investments rather than obtain a low return on mortgage lending.
143. The Tribunal has reached its findings that [the appellant] was dishonest by applying the two part test in Twinsectra v Yardley. The Tribunal is in no doubt that the actions of [the appellant] would be regarded as dishonest by ordinary honest members of the solicitors' profession, and the Tribunal was in no doubt that [the appellant] as an ordinary but experienced member of the solicitors' profession must have known that what he was doing was wrong and dishonest.
144. The Tribunal has reached this decision upon the facts placed before it by the [Law Society], which [the appellant] did not dispute, and without taking into account any part of the Judgment relating to the civil trial.
145. The Tribunal has satisfied itself beyond reasonable doubt that [the appellant] had been guilty of dishonesty."
"160. The Tribunal found the admitted allegations to have been substantiated and, as stated above, found that [the appellant's] conduct amounted to dishonesty.
161. The Tribunal found this to be a very sad case involving as it did a solicitor of long standing and well thought of in the community in which he practised, having had a previously unblemished career in the law.
162. [The appellant] had very properly admitted the formal allegations and after a great deal of consideration the Tribunal had reached the conclusion that [the appellant's] behaviour had been dishonest.
163. The Tribunal has taken into account the fact that [the appellant] had not practised as a solicitor since The Law Society's intervention into his practice, has given him credit for the excellent character witnesses who gave evidence in his support, and has taken into account all the submissions made on [the appellant's] behalf. Whilst the Tribunal had taken all of these matters into account and recognising that the Tribunal's Order represents a personal tragedy for [the appellant], the Tribunal had made its decision in the light of its duty to protect the public and the good reputation of the solicitors' profession. The Tribunal concluded that it was both right and proportionate to impose a Striking Off Order upon [the appellant]. The Tribunal also ordered that [the appellant] should pay the costs of and incidental to the application and enquiry to include the costs of the forensic investigation accountant of The Law Society, such costs to be subject to a detailed assessment if not agreed between the parties. For the avoidance of doubt the Tribunal wishes to make it plain that such costs shall include the costs of the two interlocutory hearings before the Tribunal prior to the substantive hearing."
Grounds 1-3 Admission of the judgment of Peter Smith J.
"The Tribunal has reached this decision upon the facts placed before it by the applicant, which the respondent did not dispute, and without taking into account any part of the judgment relating to the civil trial."
Finding of dishonesty
These allegations were repeated at the end of the Rule 4 statement. In paragraph 24 it was said:-
"e. The respondent was at least reckless in the extreme,
f. Furthermore the question of whether or not the respondent has behaved dishonestly is an issue for this honourable Tribunal."
"It was dishonest of the Respondent not to disclose these significant conflicting interests to Mrs Manolakaki." (paragraph 139).
"The Tribunal considers also that it was dishonest for the Respondent to encourage Mrs C M to believe that he was competent to advice in an area of working of which he had no knowledge or competence." (See paragraph 139).
Mr Bartlett contends that there was no evidence to suggest that the appellant encouraged Mrs Manolakaki in that belief. In every aspect of the transaction for which the appellant was responsible, the introduction of Mrs Manolakaki to the scheme, the preparation of documents, he failed to give any warning or advice about the transaction. The mere fact that he chose to act in that way amounted to a warranty to his client that he was competent to do so. The very fact of acting as a solicitor led his client to believe that he was competent so to act. It was unnecessary for The Law Society to prove more than he did act in that way. It was not necessary for it to establish that there were any words of encouragement, action in the capacity of solicitor was enough.
"140. In Mrs CM's case the sum of money involved was very large indeed. She was at risk of making a very substantial loss. It is not possible to envisage any reason why the Respondent became involved in the scheme other than the fact that the involvement of a solicitor and the use of the firm's client account would lend a cloak of respectability to an otherwise transparently bizarre and fanciful scheme, allied to the fact that he and two other clients stood to gain from the transaction.
141. The Law Society's Yellow Card warned that "if it seemed too good to be true then it probably was."
142. The Respondent was a conveyancing solicitor and would have been well aware of standard rates of interest charged, for instance, by mortgage lenders and he could not have failed to realize that in a climate where mortgage lenders were lending at five or six per cent per annum where the loan was secured by property, that a return of 120% per annum was mythical. If it had not been no doubt mortgage lenders would have diverted their funds to such investments rather than obtain a low return on mortgage lending."