England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
DIVISIONAL COURT

		Royal Courts of Justice Strand, London. WC2A 2LL
		07/03/2007

Lord Justice Maurice Kay:

1. On 16 November 2005, following a two day hearing, the Solicitors' Disciplinary Tribunal ("the Tribunal") ordered that Adrian Gerard Donkin ("the appellant") be struck off the Roll of Solicitors. He now appeals to this court pursuant to section 49 of the Solicitors Act 1974. Before the Tribunal the appellant admitted that he was guilty of conduct unbefitting a solicitor. However, he denied that he had acted dishonestly. The allegations of unbefitting conduct were particularised as follows:

"(i) that he withdrew money from client account other than as permitted by Rule 22 of the Solicitors' Accounts Rules 1998;

(ii) that contrary to Rule 21 of the Solicitors' Accounts Rules he failed to ensure that money received from the Legal Services Commission in respect of disbursements was paid within 14 days of receipt, or in the alternative, transferred to a client account;

(iii) that he utilised clients' funds for his own purpose;

(iv) that he. failed to remedy breaches of the Solicitors' Accounts Rules promptly upon discovery contrary to Rule 7;

(v) that he misappropriated clients' funds, which for the avoidance of doubt is an allegation of dishonesty;

(vi) that he acted and/or continued to act in circumstances where his own interests conflict with the interests of a client (s);

(vii) that he acted for the buyer, seller and lender in a conveyancing transaction contrary to Rule 6(2) of the Solicitors' Practice Rules 1990, or, in the alternative, that he acted for two or more clients when there was a conflict or significant risk of a conflict of interest between those clients, contrary to Principle 15. 01;

(viii) that he failed to ensure that each office of his firm was properly and adequately supervised and managed by a person qualified to supervise, contrary to Rule 13 of the 'Solicitors' Practice Rules 1990;

(ix) by reason of [matters set out in a report by an officer of the Forensic Investigation Unit of the Law Society], he has acted contrary to Rule 1 of the Solicitors' Practice Rules 1990. "

Only particular 5 was in dispute before the Tribunal.

2. The appellant was born in 1949 and was admitted as a solicitor in 1975. At the time of the alleged conduct he was practising on his own account as John Donkin & Co from offices in Gateshead. John Donkin was the father of the appellant. The appellant had practised for almost 30 years without attracting any concern about his integrity. It will become apparent that he was a solicitor of high repute. His difficulties began when he and his firm were defrauded by a dishonest partner. The allegation against the appellant of dishonest misappropriation of clients' funds related to three clients in respect of whom the appellant had taken money from client account in order to discharge liabilities of the practice. In each case the transaction was recorded in the accounts of the firm and the money was repaid with interest at the client account rate. The case for the appellant was and is that in each case the withdrawals were by way of authorised loans. He accepts that he was remiss in not ensuring that the clients in question had resort to independent advice and, in relation to two of the clients, he further accepts that he did not inform them of what he was doing.

The estate of Mrs W

3. Mrs W died on 20 December 1991. The appellant and his then partner were her executors. Over a period of time the appellant had withdrawn from the client account in two tranches a total of £ 73,500 which was used in the main to discharge the VAT liability of the practice. The appellant sought to rely on a letter that Mrs W had written to the appellant's father in January 1991. It was in the form of instructions for a will and included this passage:

"I know that my house will sell but I will want everything to go to my grandchildren. It might take a long time to finish off. In view of your many past kindnesses to me, you can be generous with your charges! You can do what you like with the money until it needs to be shared out."

4. The entitlements of the grandchildren did not vest until they were 21. The eldest grandchild did not attain that age until 15 January 2004. At the time when the appellant took the money from client account he did not write to the beneficiaries or their parents because he "did not see the need to".

The estate of Mr B

5. Mr B died on 19 May 2001. The appellant was his sole executor. On 7 November 2002 £ 32,249.46 was transferred from client account to the office bank account. It was used immediately to discharge a VAT liability in the same sum. The accounts of the practice show that on 22 July 2003 the money had been repaid with interest. So far as this transaction was concerned the appellant relied on a letter written to him by Mr B which was in these terms:

"Dear Mr Donkin

Following our recent meeting, and bearing in mind all your kindnesses to me over the years, I confirm that in view of all the difficulties caused to you by your ex-partner ... , when you are dealing with the administration of my estate after my death, you may use the funds for your own purposes for so long as you need to, as long as you pay all of the legacies eventually."

6. There was evidence that the appellant and Mr B had become friends. There was also evidence that, at least by 7 March 2001, Mr B was resident in a 24hr-care nursing home suffering from a severe form of dementia. At the time of and during the period when the money was absent from client account, the appellant did not communicate with the beneficiaries or their representatives, feeling that it was unnecessary to do so.

Miss B

7. Miss B's brother died on 21 August 1992, leaving his residuary estate to Miss B. For personal reasons, Miss B did not want the money left to her by her brother for her own use. It seems that Miss B, a capable and intelligent lady, was friendly with Mrs Porter, the appellant's office manager. Mrs Porter, without consulting the appellant, requested a short-term loan from Miss B's funds for office purposes. Miss B was happy to oblige and she signed a form of agreement, witnessed by Mrs Porter, agreeing to lend £25, 000 to the practice for three months to be repaid with interest "at the standard rate payable by Barclays Bank plc". Mrs Porter did not ensure that Miss B took independent advice. The appellant never met Miss B. The accounts of the practice show that £25, 000 was transferred from client account to office account on 26 March 2001 and that, in conjunction with-£30, 000 which had been transferred from the estate of Mrs W, it was used to fund a payment of £54, 225. 49 in respect of VAT liability. On 8 June 2001 the £25, 000 was repaid and £95. 72 in respect of interest was credited on the same date. Miss B continued in her desire not to use the money for her own purposes. She later donated it all to charity.

The findings of the Tribunal

8. The Tribunal found that the allegation of dishonesty in relation to the three matters was established. It is necessary to set out its findings in some detail:

"73. The Tribunal made its finding of dishonesty having applied the two-part test in Twinsectra Limited v Yardley [2002] UKHL 12; [2002] 2 All ER 377. The Tribunal was in no doubt that ordinary members of the solicitors' profession, and indeed members of the public, would be of the view that for a solicitor or executor to take money from a deceased's estate to bolster his office account and to enable office outgoings to be met without punctilious compliance with the rules of professional conduct relating to such transactions would be dishonest. ³ In this particular case it stretches credibility too far to suggest that the letter written by Mrs W to the appellant's father saying that 'You can do what you like with the money until it needs to be shared out' gives authority to the appellant to treat that money as a loan. The letter appears on its face to authorise a wide choice of investment, but it does not authorise a loan to an executor. If the latter interpretation were to be placed on it, the letter could not be acted upon by an executor until he had ensured that Mrs W had taken independent advice. The appellant appeared not to have considered whether Mrs W's death revoked any authority she might have given. She had in any event made a subsequent will.

74. The Tribunal finds that the appellant decided he could safely use this money to tide him over and repay it without detection. He would rely on the letter if the loan were detected.

75. In the matter of the late Mr B there was doubt as to the mental capacity of Mr B for a period of time. The Tribunal does not believe that an honest solicitor/executor would construe a wide power to invest contained in a will to include a power to permit the executor to borrow estate monies. The appellant's explanation that it was an investment because interest was paid was unsatisfactory. The appellant told the Tribunal that he had paid only interest that would have been earned on general client account and not interest calculated at a normal commercial rate. There was a clear conflict here in his capacity as a borrower and his duty as executor and trustee. The appellant should not have acted upon the client's letter without first ensuring that the client had had independent advice about the loan. The Tribunal finds that the appellant considered that he could use the money and repay it and seek to rely on the letter if detected.

76. With regard to the loan from Miss B, this lady had been upset by the death of her brother and had not wanted to accept her inheritance. She was in need of help and guidance in this respect. The appellant should not have taken a loan from her in those circumstances in the Tribunal's view, and, of course, certainly he should not have taken it without ensuring that Miss B had taken independent advice. She had no security for the loan. The Tribunal finds that the appellant improperly borrowed Miss B's money and to do so in the particular circumstances did amount to dishonesty.

77. The appellant asserted that he did not believe that in each of the three loans he had acted dishonestly and that he borrowed the money in the firm belief that what he was doing was above board, authorised and honest.

78. The appellant may not set his own standards of honesty. The Tribunal considers it to be inconceivable that a solicitor of the appellant's experience could be unaware of the light in which his fellow solicitors and members of the public would regard his actions. The appellant did not comply with the requirements of the Practice Rules. Although his position is mitigated by his intention to repay and the fact that repayment has actually been made, the fact remains that the appellant failed to act with the integrity and probity required of a member of the solicitors' profession and in particular he failed to exercise a proper stewardship over client funds where he had in two cases the additional responsibility of being an executor.

79. An intention permanently to deprive is not a factor to be taken into account and neither is an intention to repay when considering dishonesty under the Twinsectra v Yardley principles.

80. For these reasons the Tribunal has found the appellant to have been dishonest. "

9. The Tribunal then went on to consider penalty. At this stage it acknowledged the substantial mitigation advanced on behalf of the appellant but nevertheless concluded that the finding of dishonesty necessitated the sanction of striking-off. The Tribunal added (at paragraph 89):

"... it is not acceptable for a solicitor to accept money from a ' client in the absence of a strict and punctilious compliance with the Rules of Practice. Because he did not do so the Tribunal has found the appellant to be dishonest... "

The grounds of appeal

10. Although originally expressed more extensively, the grounds of appeal advanced by Miss Morris on behalf of the appellant are essentially two in number. First, notwithstanding the references to the Twinsectra test, the Tribunal was incorrect in its understanding or application of the test. Secondly, the Tribunal did not take into account or did not appreciate the relevance of the highly impressive evidence of good character which was placed before it.

Ground 1: Twinsectra

11. It is common ground that the test of dishonesty which has to be applied in cases such as this is the one expressed by Lord Hutton in Twinsectra in these terms (at paragraph 27):

"... before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest. "

12. Lord Hutton added (at paragraph 36):

"... 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. "

13. In course of submissions reference was also made to Bultitude v The Law Society [2004] EWCA Civ 1853 which illustrates that dishonesty does not require proof of an intention permanently to deprive the clients of their funds and that the subjective element in the two-stage Twinsectra test can be satisfied by a reckless disregard which negatives honest belief.
14. I do not propose to dwell on the first, objective stage of the Twinsectra test, not least because counsel then representing Mr Donkin appears, realistically, to have conceded that it was satisfied. The difficulty arises with the second, subjective stage. Plainly, the Tribunal understood that the test is a two-stage test. It is expressly referred to as such in paragraph 73 of the Reasons. However, the Tribunal did not set out the test in terms. Should this concern us? In a case in which the findings are set out in terms wholly consistent with the two-stage test, an omission expressly to set out the test would be of little or no concern. However, there is a problem in the present case. When he was opening for the Law Society before the Tribunal, the appointed advocate referred to Twinsectra and the two-stage objective/subjective test. His first reference was unobjectionable. However, when he next referred to it in the context of the present case he said:

"... we submit that the person knowing of the facts would consider it would be wholly wrong for a solicitor to act as Mr Donkin did, and we submit that subjectively Mr Donkin knew or ought to have known that what he was doing was wrong, but proceeded regardless. "

15. A little later he said:

"It is sufficient for a solicitor to be found to have acted with conscious impropriety if he takes funds in circumstances where he knew or ought to have known that he couldn't have done. "

16. Before us, Mr Geoffrey Williams QC (who did not appear in the Tribunal) properly acknowledges that, by using the words I have emphasised, the advocate for the Law Society was misleading the Tribunal. Mr Williams invites us to accept that the misleading was unintentional and I am entirely content to do so. When counsel then representing Mr Donkin addressed the Tribunal he correctly stated the test. However, in its reasons the Tribunal does not show in terms that it was rejecting the objectivised formulation of the second stage of the test. Mr Williams submits that it nevertheless becomes apparent from the findings of fact that the Tribunal was satisfied as to Mr Donkin's subjective dishonesty. He relies in particular on paragraph 74 of the Reasons and the final sentence of paragraph 75. He further relies on the second sentence in paragraph 78:

"The Tribunal considers it to be inconceivable that a solicitor of the appellant's experience could be unaware of the light in which his fellow solicitors and members of the public would regard his actions. "

17. At the same time Mr Williams acknowledges some concern about the findings in relation to Miss B in the light of the evidence to which I have referred.
18. I am bound to say that the second sentence in paragraph 78 does cause me some concern. Read by itself the references to "inconceivable" and "a solicitor of the appellant's experience" bear a hint of the objective. My concern increases when one observes that the quoted sentence is followed immediately by these words:

"The appellant did not comply with the requirements of the Practice Rules. "

19. This gives rise to a suspicion that, properly construed, paragraph 78 embraces a finding of subjective dishonesty because that is the inevitable corollary of a solicitor of the appellant's experience failing to comply with the requirements of the Practice Rules. This suspicion hardens when it is viewed with the later paragraph, admittedly stated in the context of the imposition of sanction rather than the finding of liability, in which the Tribunal appears to say that it was the absence of a strict and punctilious compliance with the Rules of Practice that gave rise to the finding of dishonesty (see paragraph 89 of the Reasons set out in paragraph 9 of this judgment).
20. I have come to the conclusion that, at the very least, the Reasons stated by the Tribunal do not demonstrate a clear and consistent understanding and application of

. the second, subjective stage of the Twinsectra test. The question that then arises is whether the findings in paragraph 74 and the last sentence of paragraph 75 are clear findings of subjective dishonesty which survive any possible misapprehension as to the precise requirements of the test. There is some force in Mr Williams' submission about these passages. In the end, however, I do not think that they enable him to sustain the findings because the passages themselves may be tainted by the point raised in the second ground of appeal.

Ground 2: Good character

21. I have referred to Mr Donkin's high reputation for integrity through almost thirty years of practice. One assumes that any solicitor on the Roll is in a position to assert good character in the sense in which that expression is used in the criminal courts. In the present case the evidence went much further. At the commencement of the hearing counsel for Mr Donkin sought to place before the Tribunal a large number of references speaking to Mr Donkin's professional and social reputation. They were 47 in number. They came from Circuit Judges, a Magistrate, Queens Counsel, Junior Counsel, Police Officers and others of high standing. They could hardly have been more positive in relation to matters of honesty and integrity. When reference was made to them at the outset of the hearing before the Tribunal, the advocate representing the Law Society uttered a mild complaint about the late production of the material and its form (ie that it was not in witness statement form). He also observed that such material is more usually produced only at the stage of consideration of sanction rather than as being relevant to misconduct. Nevertheless, he did not dispute the authenticity of the material nor did he seek to prevent its deployment at the first stage. The Tribunal Chair agreed to receive the material at that stage, although she commented that the weight to be attached to it might be less in view of the fact that the material was in writing and its authors (with one exception) had not attended for cross-examination. I find this latter observation somewhat surprising. In view of the identity of the authors it is difficult to believe that any advocate appearing on behalf of the Law Society would have wished to cross-examine them if they had attended to give evidence. Be that as it may, the material was before the Tribunal. When counsel came to address the Tribunal on dishonesty he placed that material at the forefront of his submissions. That is plain from a reading of the transcript and from paragraph 69 of the Reasons of the Tribunal where, dealing with the submissions made on behalf of the appellant, the first recorded submission was that he "was an honest man whose integrity and probity was recognised by all, whether fellow professionals or members of the public, who had dealings with him". However, having recorded that submission, the Tribunal made no reference whatsoever to the cogent evidence of positive good character when setting out their findings on dishonesty.
22. In this court, Mr Williams' first submission in his skeleton argument was that the material was not relevant to the issue of dishonesty but only to sanction. He resiled from this position in his oral submissions. He was undoubtedly right to do so. Whilst it is true that, in some professional disciplinary cases, evidence of character is only relevant at the second stage, there are other cases where it has potential relevance at the earlier stage. An example of irrelevance at the first stage would be a case where the alleged misconduct does not require proof of a guilty state of mind. Once the conduct has been proved or admitted, it cannot avail the person charged to say that his previous exemplary character prevents the conduct from being misconduct. These issues were authoritatively canvassed in The Queen (Campbell) v General Medical Council [2005] EWCA Civ 250. Giving the judgment of the Court of Appeal Judge LJ referred to issues of culpability and mitigation as being distinct, with a need for them to be addressed and decided sequentially (paragraph 43). However, the Court did not suggest that material relevant to the discrete issues is always mutually exclusive. The same passage continues:

"The fact that in some cases there will be an overlap, or that the same material may be relevant to both issues, if they arise, does not justify treating evidence which is exclusively relevant to personal mitigation as relevant to the prior question, whether serious professional misconduct has been established. "

23. In other words, it is the context which determines whether material which would be relevant to personal mitigation is also relevant to "the prior question". The mischief which was the concern of the Court in Campbell was the situation where personal mitigation might be misused to downgrade what would otherwise amount to serious professional misconduct to some lesser form of misconduct (see paragraph 46(iii)).
24. On behalf of the appellant, Miss Morris submits that where the issue is dishonesty, evidence of good character, particularly evidence as reliable and extensive as was produced in this case, is relevant to credibility and to propensity just as it would be in a criminal trial. She further suggests that it is also relevant to an examination of the circumstances in which the misconduct took place although, ultimately, this may add little to propensity in the sense that that word surely denotes propensity to commit the offence in the circumstances which are established.
25. In my judgment the evidence of good character in this case was relevant to the issue of dishonesty. As in a criminal trial, it cannot afford a defence in itself. Moreover, the weight to be attached to it is in the last resort a matter for the Tribunal. In the present case, the reasons stated by the Tribunal do not disclose that it gave any consideration at all to this evidence in this context. I am not satisfied from the text of the stated Reasons that it played any part in its consideration of dishonesty. I find that to be a significant legal error. Moreover, if it had played a part, it might have impacted on the findings in paragraphs 74 and 75 to which I have referred.

Conclusion

26. It follows from what I have said that I would allow this appeal. In these circumstances, Miss Morris invites us to deal with the appellant ourselves rather than remit the case to the Tribunal. I do not feel able to accede to this invitation. Although we have a transcript of all the evidence given at the hearing before the Tribunal, including that of the appellant, we did not see and hear that evidence. In my view it is essential that the issue of dishonesty should be resolved by those who have seen and heard the evidence. Moreover, the circumstances of this case call for determination by the expert body entrusted by Parliament with that task. In some cases, the eventual outcome is obvious and further expense and delay can be avoided by proceeding to finality in this court. I do not consider this to be such a case. Accordingly, I would remit the case to the Tribunal, differently constituted, for rehearing. I express the hope that such a rehearing can be expedited. This is now an old case, through no fault of the parties. I emphasise that nothing I have said in this judgment should be taken as indicating any view, one way or the other, on what the eventual finding on dishonesty should be. Moreover, although sanction would have been a live issue before us if the substantive appeal had not been allowed, I forbear to express any view on it at this stage.

Mr Justice Goldring:

27. I agree.