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
		6 March 2009

1. MR JUSTICE GOLDRING: Mr Oakley has been a solicitor since 15 March 1974. On 12 April 2007 he faced six allegations of conduct unbefitting a solicitor. One was withdrawn at the outset of the hearing, one was not proved and in respect of one he does not appeal.
2. The allegations found proved and in respect of which he now appeals are as follows: allegation 1, that he acted where there was a conflict or a significant risk of a conflict of interest between himself and a client; 2, allegation 3, that he acted for a client and/or clients after the period of his professional indemnity insurance expired; 3, which was allegation 4, failing to deal substantively and promptly with correspondence from the Law Society.

Conflict of interest

3. Rule 15.04 states:

"A solicitor must not act where his or her own interests conflict with the interest of a client or a potential client."

4. Paragraph 1 states:

"Because of the fiduciary relationship which exists between solicitor and client a solicitor must not take advantage of the client, nor act where there is a conflict of interest, or potential conflict of interest between the client and the solicitor. In conduct there is a conflict of interest where a solicitor in his or her personal capacity sells to, or purchases from, or lends to, or borrows from his or her own client. The solicitor should in these cases ensure that the client takes independent legal advice. If the client refuses to do so the solicitor must not proceed with the transaction. The fact that the client accepts the conflict does not permit a solicitor to continue to act. It is generally proper for a solicitor to provide short-term bridging finance for a client in a conveying transaction."

Professional indemnity insurance

5. Rule 17 of the overseas rules, which it was said applied provided as follows:

" . . . a~solicitor shall take out and maintain insurance or other indemnity against professional liabilities, or shall be covered by such insurance or other indemnity. The extent and amount of such insurance or other indemnity should be reasonable, having regard to the nature and extent of the risks the solicitor incurs in his or her practice for the local conditions in the jurisdiction in which the solicitor practices and to the availability of insurance, or other indemnity on reasonable terms, but [my emphasis] need not exceed the current requirements of any other rules made by the Council under section 37 of the Act."

6. That was effectively a reference to the Solicitors' Indemnity Insurance Rules 2000 which were in force from 1 September 2000. They apply to solicitors practising in England and Wales.
7. By them the solicitor was required:

"(a) to take out and maintain qualifying insurance if he carried on a practice during any indemnity period beginning on or after 1 September 2000." (See rule 4)

Practice is defined by rule 3. It means:

"The whole or any part of the private practice of a firm as is carried on from one or more offices in England and Wales."

8. Private practice is also defined. It is said not to include:

"A practice consisting only of (a) providing professional services without remuneration for friends . . . or relatives . . . "

9. It is clear, and is accepted by Mr Turner on behalf of the Law Society, that whether or not Mr Oakley was in practice within or without the jurisdiction, the applicable rule would be that within the 2000 rules as no more onerous terms can be imposed by the overseas rules.

Correspondence

10. The relevant rule reads as follows:

"A solicitor is obliged to deal promptly and substantively with correspondence from the OSS. Failure to answer commonly results in disciplinary proceedings and failure to give a sufficient and satisfactory explanation of the solicitor's conduct may make the solicitor subject to sections 12 and 13(a) of the Solicitors Act 1974 ...."

The background facts and the conflict of interest allegation.

11. Mr Oakley practised in the Isle of Man. He had an assistant called Miss AK. She was for some time his fiancée. Her father was Mr K. Mr K wished urgently to complete the 'right~to~buy' purchase of his council house. Mr Oakley acted for him in that regard. Mr Oakley had also been engaged by Mr K in respect of Mr K's application in the Divorce Registry against his former wife. Mr K wished to set aside an earlier consent order. His case was that his wife had misled the court by pretending that she was not cohabiting with the person she subsequently married. The consent order which Mr K wished to set aside provided that his former wife was to receive a lump sum payment. Mr K's pension, which was to fall in, was to be used to pay it. If the order was set aside, Mr K's pension would not be substantially depleted by paying his former wife that lump sum.
12. In correspondence drawn to our attention the original lump sum payable to the wife was in the order of £64,000. The pension we were told was in the order of £60,000.
13. Mr Oakley's case was he was acting for Mr K as a friend and as a prospective son-in-law without charge. Mr K was only responsible for disbursements.

The loan by Channis Management ASA to Mr K to buy a council~house

14. At least until he had his pension money and assuming a reduced payment to his wife, Mr K needed some money. The Tribunal summarised what happened in the following way:

"The respondent, Mr Oakley, had in 1991 created a trust in the Turks & Caicos Islands. The beneficiaries were members of his family ...

. . . the trust owned through individual companies a number of properties, including a flat in London which had been purchased by Channis Management. It was agreed by the trustees of the trust and the directors of Channis that Channis would obtain funds to lend to Mr K by borrowing the money and securing the loan against the flat. Mr Oakley was a director of Channis during the transaction. He stated that he became a director temporarily in order to seek

finance for the remortgage on the Isle of Man.

"A loan of £28,510 was made to Mr K to enable him to purchase his house. No loan agreement was drawn up between the parties. Mr Oakley did not advise to obtain independent legal advice. Mr Oakley believed that Mr K would repay the loan out of pension funds which would be released once he concluded the matrimonial dispute with his ex-wife. Mr Oakley took over the conduct of the matrimonial proceedings on behalf of Mr K and went on the record as acting for him using the address of the flat."

15. The right to buy purchase was completed in December 2000. Mr K acquired title to his home. Registration was carried out subsequently and according to Mr Oakley the work in relation to it was substantially done by Miss AK.
16. The dispute with Mr K's wife was compromised in early March 2001. The first ancillary relief hearing was on 7 March 2001. On that occasion there was an approach by the former wife for a settlement. A settlement was ultimately reached. There was a reduction in the lump sum payment from £64,000 to £2,000.
17. In May or June 2001 Mr K repaid some £10,000 to Channis upon the drawdown of his pension. The relationship between Mr Oakley and Miss AK broke down. Thereafter Mr K sought to contest his obligation to repay the balance to Channis which led to litigation. As to the litigation the Tribunal said this:

"A legal dispute arose concerning the loan made by Channis and legal proceedings ensued. Channis became a complainant in the proceedings and Mr K the defendant. Mr K claimed that the loan had in fact been to Miss AK and Miss AK alleged that she had a claim against Mr Oakley for arrears of salary and bonus arising from her work in the Isle of Man. During the course of the proceedings Mr Oakley was joined as a second claimant and Miss AK was joined as a second defendant. The loan from Channis was assigned to Harlman Management Limited, a UK company wholly owned by Mr Oakley and in which he was a director. Mr Oakley, as well as being a second claimant in the proceedings, also acted as a solicitor on behalf of Harlman which became the first claimant."

18. The judgment in July 2002 found that Mr Oakley personally was entitled to be paid the outstanding balance by Mr K. Miss AK's counterclaim was dismissed. She was ordered to repay certain lesser sums to Mr Oakley.
19. When Channis lent the money to Mr K, no loan agreement was drawn up between the parties and no advice was given by Mr Oakley.
20. It was alleged, perhaps not surprisingly, that what had happened amounted to a clear breach of Rule 15.04. Mr Oakley gave evidence and said that he had not perceived any conflict of interest. He didn't regard himself as personally lending the money. It had been short-term bridging finance to be repaid from the pension fund. The pension had been released almost immediately after the ancillary relief order had been set aside. Channis hadn't employed the solicitor. There had been no written document. He, Mr Oakley, had merely acted as a facilitator for Channis in the transaction. Mr K wouldn't have sought independent legal advice because he wouldn't have had the funds to do so.
21. A number of submissions were made to the Tribunal. It was emphasised that the loan was interest free and repayable when the lump sum could be drawn from the pension. It was from Channis not Mr Oakley personally. It had not been foreseeable that Mr K would turn "nasty". He would have behaved in exactly the same way had he had independent legal advice, or had there been a written document. The transaction, it was submitted, fell within the short-term bridging finance provision of paragraph 2. If there was a conflict, given the loan was interest free, that conflict was de minimus. There was no real risk of conflict. It had been acceptable for Mr Oakley to make the loan as facilitator as he did.
22. The Tribunal found as follows in paragraph 136 of its findings:
23. "The Tribunal was satisfied that regardless of whether the loan was from a company, or from the respondent personally, there was a significant risk of conflict exacerbated by the lack of any written agreement. The Tribunal did not accept that the loan was exempt from the conflict rules as short-term bridging finance. This was an open-ended loan as it was not possible to say at the time the loan was made when the ancillary relief proceedings would conclude and the pension from which the loan was to be repaid would be released. The litigation relating to the loan which followed was precisely the reason why such high standards of caution are required from solicitors when there was any risk of a conflict of interest between solicitor and client. Allegation 1 was substantiated."

The professional indemnity insurance

24. There was no doubt that Mr Oakley's professional indemnity insurance expired. It did so on 5 March 2001. He obtained a week's extension. He continued to act for Mr K in the ways that I have indicated.
25. He said in evidence that he had not specifically looked at the rules, but had sought advice from the Law Society on a no names basis and was told that there was nothing wrong with carrying on for a family member. He had not wished to let Mr K down after Mr K's 11 year battle in the ancillary relief proceedings. He had done no more than solicitors normally would. He emphasised the limited role as far as the purchase of the council house was concerned after the lapse of the professional indemnity insurance. He repeated that he was acting for a friend.
26. The submissions made to the Tribunal, which were repeated by Mr Bard on behalf of Mr Oakley to us, revolved around the Solicitors' Indemnity Insurance Rules of 2000 to which I previously referred. In short, the submission was that Mr Oakley did not need insurance because he was acting for a friend. That was the case whether he was acting within the jurisdiction or without.
27. In its findings in relation to the insurance it is fair to say, as Mr Turner on behalf of the Law Society in argument accepted, that the Tribunal did not really get to grips with the provisions of the 2000 rules. It said this in paragraph 138 of the findings:

"It was clear from the respondent's correspondence at the time that he was concerned about his lack of insurance. The correspondence clearly implied Mr Oakley believed he needed insurance and not that he thought that he came within an exemption covering work for family and friends for no payment. The work he was doing for Mr K, albeit without any fee, was a continuation of the work he had been doing in his practice, indeed he continued to write on his practice's headed notepaper. Mr Oakley said that Miss AK completed the registration of the property, but the registration documents which he said he prepared previously were submitted bearing his name. He remained on the record in the ancillary proceedings. Mr Oakley's incorrect response to the Law Society in correspondence that he had only been without insurance for a week was further evidence that he was fully aware that he needed insurance. Allegation 3 was substantiated."

28. It is unnecessary to go into the detail of the response to the Law Society to which the Tribunal referred.
29. I can deal with the insurance matter quite shortly given Mr Turner's very fair and undoubtedly correct concession in that regard. Mr Turner accepts that the Tribunal did not, as he put it, explore the submissions made by Mr Bard regarding the exemption concerning a friend as it should have done. He, Mr Turner, accepts that the Tribunal's failure to get to grips with the appropriate rule meant that its finding cannot be sustained. It seems to me that Mr Turner is right about that. On the face of it, given the facts which the Tribunal accepted, Mr Oakley fell within the exemption set out within the 2000 rules. I need say no more about that.

The correspondence with the Law Society

30. The complaint Mr K made was first made by letter of 5 December 2002. It was not until December 2003 that further information had been obtained from him by the Law Society which led the Law Society, on 4 December 2003, to write for the first time to Mr Oakley. There was a sequence thereafter of correspondence which was summarised by the Tribunal and to which our attention has been drawn. It is not necessary for me now to go through that correspondence in detail given again a correct concession by Mr Turner in these proceedings.
31. Subsequent to the decision of the Tribunal it became apparent that a letter, to which reference had been made in the course of proceedings but which had not been produced for consideration by the Tribunal in the proceedings, dated 11 March 2004 saw the light of day. That letter is in detailed terms from Mr Oakley to the Law Society. It is clear to me, without going into the detail, that had it been before the Tribunal it could well have decided the case differently. That is particularly so given, as my Lord pointed out, the way in which the case had been put by Mr Turner to the Tribunal.
32. Effectively Mr Turner accepted before the Tribunal and in cross-examination of Mr Oakley that a letter that he wrote of 8 June 2004 was sufficiently substantive to answer any obligation upon him under the rule.
33. The letter of 11 March is, as far as I can see, in very similar terms. If the letter of 11 June was sufficiently substantive, as it seems to me, so was the letter of 11 March. On any view it is clear the letter of 11 March, had it been before the Tribunal, could well have affected its decision. In those circumstances, as I say, Mr Turner does not seek to sustain the finding on the allegation relating to correspondence and it is unnecessary to go into further detail.
34. I should emphasise that it was through inadvertence that the Tribunal was effectively misled and Mr Turner could not have acted more fairly once it came to his attention.
35. Effectively, therefore, that means that we are simply left with the conflict of interest allegation. Mr Bard accepts that whether or not this was short-term bridging finance there was an obligation upon Mr Oakley to ensure that Mr K took independent legal advice. If he failed to do so, Mr Oakley should not have proceeded with the transaction. He submits, however, that that makes the breach of the rule an academic one, very much de minimus, and one which should result in no finding against him, or alternatively should mean a much reduced penalty.
36. A number of other aspects are drawn to the court's attention by Mr Bard. I have referred to them mostly in terms of the submissions he made to the Tribunal and need not repeat them. He emphasised that it was clear that the money would be forthcoming with which to repay the loan. He repeats the submission that this was short-term bridging finance.
37. In my view, as far as this remaining allegation is concerned, the position was as follows. Mr Oakley was a director of the lender. The lender was effectively Mr Oakley's creature. He was the borrower's solicitor at the time the money was transferred from the lender, via presumably Mr K, to the local authority. The lender appointed him to be responsible for the loan's recovery should difficulties arise. It seems to me that in such circumstances the Tribunal was entitled to conclude there was a clear conflict, or a significant risk of conflict between Mr Oakley's interest as a director of the lender, the person expected by the lender's trustees to be responsible for the recovery of the loan if difficulties arose, and as a solicitor to the borrower. The interests of the two parties were different.
38. Moreover, the Tribunal was entitled to conclude that this was, as it found, an open-ended agreement. In any litigation there is uncertainty. There was no specific provision for repayment. Repayment within the suggested short-term span depended upon the outcome of matrimonial litigation. Indeed it might be said that the proof of the pudding was in the ensuing litigation. Mr Oakley acted both for the lender and subsequently for himself as a claimant in an action for recovering the money against his former client. In those circumstances I would not set aside the finding of the Tribunal with regard to that allegation.
39. Although, as I indicated in argument, I have some sympathy with Mr Oakley for the situation in which he found himself and accept that he was seeking to act in the best interests of Mr K, it does seem to me the Tribunal was entitled to impose the penalty which it did. It said this:

"The respondent had failed to recognise the potential of conflict with Mr K, had not documented the matter properly and had not ensured Mr K sought independent advice and the result had been chaos. The appropriate penalty in respect of allegation 1 was a fine of £2,500."

40. Of course the Tribunal has to bear in mind, as the authorities make plain, that any penalty has to reflect not simply the personal circumstances of someone in Mr Oakley's position, but also the interests of the public.
41. In short, therefore, I have concluded:
42. 1, the finding in respect of the conflict allegation should stand.
43. 2, the fine imposed in relation to it should stand.
44. The finding in relation to the other two allegations should be set aside. To that extent, therefore, Mr Oakley succeeds in his appeal.
45. MR JUSTICE SWEENEY: I agree.
46. MR JUSTICE GOLDRING: Mr Bard?
47. MR BARD: My Lord, Mr Oakley has succeeded on two out of three of his appeals.
48. MR JUSTICE GOLDRING: That is certainly correct.
49. MR BARD: I would make two submissions. The first is he should have his costs of bringing the appeal and the second is that the costs order below ought to be modified in order to reflect that he has now succeeded on four out of the six original charges.
50. I should perhaps start by saying that on the insurance matter it is, and was, puzzling that the Law Society, having seen the supplemental skeleton argument in which the rules were analysed, proceeded with the matter at all. During the course of the hearing I had the overseas rules drawn to my attention and made the point to the Tribunal that they cannot be more onerous, so whichever it was -- my Lord, on that matter we shouldn't have had to be here at all.
51. On the other one, the correspondence matter, it was of course no fault of the appellant that the important missing letter was not in the bundle. That should have been there from the Law Society files. I exonerate Mr Turner personally entirely for its absence, but it has led to a prolonged hearing below and to the relevant part of this appeal and again that is not Mr Oakley's fault.
52. So, my Lord, I submit he should have his costs of this appeal. They are very simple, if your Lordships are minded to impose a summary assessment of those costs, because they consist solely of my fees in relation to the appellant's notice, the skeleton and today.
53. MR JUSTICE GOLDRING: Mr Bard, what were the costs below? How did they break down? I think there is some reference in the findings.
54. MR BARD: The order was simply for the respondent to pay the Law Society's costs. The Tribunal declined to give a discount for the fact that two out of the six matters had not resulted in a conviction.
55. MR JUSTICE GOLDRING: Are you suggesting that there should be a proportion effectively?
56. MR BARD: Yes. My submission would be that the Law Society -- perhaps the fairest way, bearing in mind the substantial success that Mr Oakley has now managed, might be to say that below there should be no order as to costs. He succeeded on four of the matters and two of them, he failed, that is true. If your Lordships were not minded to say no order as to costs below -- and I acknowledge it would be unusual to have some sort of split order that he should have some of his costs and the Law Society should have some of theirs. The way to do fair justice is no order as to costs below.
57. MR JUSTICE GOLDRING: And his costs today?
58. MR BARD: And his costs today. Failing that, my Lord, a very significant discount of his costs below.
59. One other matter I could raise on costs below is this. It does deal with the other matter of conviction. There was quite a significant item of costs for the attendance at the hearing of the witness Rosie Border. It had been made clear to the Law Society in advance that her attendance was not necessary -- I think she traveled from France to be there -- and that as long as a signed statement from her was provided, which it had not been, we would not require her attendance. Nevertheless she was brought along.
60. My Lord, perhaps that is one matter to take into account in considering an overall way of dealing with the costs below. I have raised the figure for the costs of the appeal with my learned friend. I informed him of what it is.
61. MR JUSTICE GOLDRING: Are we going to have the benefit of --
62. MR BARD: It is £4,800. The simple breakdown is £1,800 for the skeleton argument and the appellant's notice, which was entirely prepared in my chambers, and £3,000 for today's hearing.
63. MR JUSTICE GOLDRING: Thank you very much. Mr Turner, what do you say, first of all about the costs here?
64. MR TURNER: Costs here, my Lord, well, the appellant hasn't been totally successful and I would rely on the case of Baxendale Walker which relates to a regulator as a public body bringing proceedings in the public interest, but that's more an argument for costs below than here, but my argument would be that in relation to today there should be no order for costs.
65. In relation to the costs below, I remind your Lordships of what Lord Justice Moses said in Baxendale Walker case.
66. MR JUSTICE GOLDRING: Have you got Baxendale with you? It is some time since I looked at it.
67. MR TURNER: I only have a marked copy of the Court of Appeal version, but it was in relation to what my Lord Justice Moses said in this court, which was that:
68. "A regulator brings proceedings in the public interest in the exercise of a public function which it is required to perform. In those circumstances the principles applicable to an award of costs differ from those in relation to private civil litigation. Absent dishonesty or lack of good faith, a costs order should not be made against such a regulator unless there is good reason to do so. That reason must be more than that the other party has succeeded. In considering an award of costs against a public regulator the court must consider on the one hand the financial prejudice of the particular complaint, weighed against the need to encourage public bodies to exercise public function of making reasonable and sound decisions without fear of exposure to undue financial prejudice if the decision is successfully challenged."
69. MR JUSTICE GOLDRING: What do you say about the suggestion there should be no order for the costs below in all the circumstances?
70. MR TURNER: The reality of the hearing below was that the majority of the time was spent on the allegation that wasn't appealed today.
71. MR JUSTICE GOLDRING: Yes, obviously that -- so are you suggesting that he should pay a proportion of the costs below?
72. MR TURNER: I'm suggesting he should pay all of the costs below.
73. MR JUSTICE GOLDRING: And as a backstop?
74. MR TURNER: As a backstop a proportion of 80 per cent of the costs below.
75. MR JUSTICE GOLDRING: Yes. Thank you.
76. MR BARD: My Lord, first of all, yes, of course a public regulator is in a slightly different position, but they do have to make good and sensible decisions. The two matters that your Lordships have set aside today were, if I can say so respectfully, obvious. One of them was obvious before the Tribunal and it was surprising that they did not get to grips with the matter at all. It is surprising that the defence was opposed by my learned friend and that he sought to oppose it today.
77. The other one rose out of the absence of an important document and again once that document emerged one would have thought that a sensible regulator would have looked at that and thought to himself, "Actually that does rather change the position" (inaudible) full preparation and full argument and in those circumstances if one is going to say that one should not make an order for costs without good reason, there is a good reason.
78. As far as costs below are concerned, whilst it is correct that a great deal of the time was taken up with the other matter which is not appealed, far less would have been taken up with it had that witness not attended.
79. MR JUSTICE GOLDRING: I think it is very difficult for us to start going into the rights and wrongs of what happened regarding a witness below.
80. MR BARD: Yes, but I would submit if you are not minded to make no order for costs below, a fair apportionment would be to say that the appellant has now won 4/2 and that the respondent should only have one third of its costs below.
81. MR JUSTICE GOLDRING: Thank you. The reasoning behind the decision of my Lord and myself I think will be apparent. As far as below is concerned, he should pay one third of the costs. As far as the appeal is concerned today, he should have two thirds of his costs.
82. I don't think it is necessary for me to expand upon the reasoning of that. It is pretty self-evident.
83. MR BARD: My Lord, the logic is not hard to follow.
84. MR JUSTICE GOLDRING: Thank you both very much indeed.
85. What is Mr Oakley doing now?
86. MR BARD: Still doing work for trust companies and not in private practice. Based in Gibraltar, my Lord.