England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/7/2006

Mr. Justice Evans-Lombe :

1. This is an appeal from the decision of District Judge Karp sitting in the Guildford County Court given on the 3^rd February 2006 by which she dismissed the application of Matthew Vincent Gauntlett ("Mr Gauntlett") to set aside a statutory demand dated the 7^th April 2004 for the sum of £191,619.64 served on him by the Law Society ("the Society") being the costs of an intervention in his practise as a solicitor pursuant to resolution of the Society's Professional Regulation Panel on the 14^th February 2003. The intervention was made pursuant to schedule 1 of the Solicitors Act 1974 paragraph 1(1)(a) which provides:-

"1(1) Subject to sub–paragraph (2), the powers conferred by Part II of this Schedule shall be exercisable where—

(a) the Council have reason to suspect dishonesty on the part of—

(i) a solicitor…

in connection with that solicitor's practice …"

2. Paragraph 13 of part 2 of schedule 1 requires the solicitor in respect of which an intervention is made to pay "any costs incurred by the Society for the purpose of this schedule, including, the costs of any person exercising powers under this part of this schedule on behalf of the Society." The intervention took place on the 17^th February 2003. Simultaneously the Society intervened in the practice of Sarah Beveridge, Mr Gauntlett's only partner, that intervention being on the same ground.
3. Statutory demands and their service are governed by Rules 6 of the Insolvency Rules 1986. Under Rule 6.4 application may be made to set aside a statutory demand by a debtor. Rule 6.5 governs the hearing of an application to set aside a statutory demand. Sub-rule (4) provides:-

"(4) The court may grant the application if

(a) The debtor appears to have a counter claim, set off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand: or

(b) The debt is disputed on grounds which appear to the court to be substantial; or

(c) It appears that the creditor holds some security in respect of the debt claimed…

(d) The court is satisfied, on other grounds, that the demand ought to be set aside."

4. Between paragraph 1 and paragraph 20 of her judgment the District Judge sets out the background facts of the case and the test which she applied in dismissing Mr Gauntlett's application to set aside the statutory demand. No challenge is made by Mr Gauntlett to this part of the judgment and I will not repeat it here. The only material fact which must be added is that Mr Gauntlett and Miss Beveridge together with Mr Ford, a senior employee of the firm, were charged with fraud and money laundering. In the result Mr Gauntlett and Miss Beveridge were acquitted and Mr Ford convicted and given a substantial prison sentence.
5. At paragraph 6 the District Judge quotes from a letter by the Crown Prosecution Service ("the CPS") to Mr Gauntlett dated the 23^rd April 2003. It would, I think, be helpful if I set out the important passages in three letters passing between the CPS and Mr Gauntlett before that letter and the full text of the letter of the 23^rd April. The first letter in the series is from the CPS to Mr Gauntlett dated the 13^th February 2003 the material parts of which read as follows:-

"Further to my letter dated 3^rd February 2003 informing you that your name had been placed on a reserve list, a position has now become available.

I am pleased to offer you an appointment in the Crown Prosecution Service as a permanent, full time Level C Pay Band 2, Crown Prosecutor based at Reading.

Your starting salary will be £34,679 per annum.

This offer is conditional, subject to the satisfactory completion of our usual pre-employment enquiries.

Please contact Kay Bullock on (01483) 468279, as soon as possible to let us know if you would like to accept this offer, and to discuss a possible start date."

6. The next letter is from Mr Gauntlett to the CPS and materially reads as follows:-

"Thank you for your letter of 13'^h February 2003.

I take great pleasure in accepting the above position.

However, please note that I am currently under investigation, by Customs & Excise, for alleged money laundering and Beveridge Gauntlett [the firm name] is under investigation by the Law Society. There have been no charges or Law Society disciplinary proceedings as yet and I trust that none will follow…"

7. The third letter is from the CPS to Mr Gauntlett dated the 20^th February which, materially, reads as follows:-

"2. As per our letter to you of 13 February 2003, the offer is conditional subject to the satisfactory completion of our usual pre-employment enquiries. These enquiries will now be made and include requesting references, obtaining security clearance and a referral to our medical advisors

3. I would therefore advise you not to tender your resignation at present, but following satisfactory completion of our enquiries, we will then be in a position to discuss a start date."

8. The full text of the letter of the 23^rd April 2003 from the CPS to Mr Gauntlett reads as follows:-

"I am writing with reference to previous letters of 13^th and 20^th February 2003 which offered you an appointment as a Level C Pay Band 2 with the CPS based at Reading. The letters also advised you that the offer was conditional subject to the satisfactory completion of our usual pre-employment enquiries. Although you have satisfactorily met our pre-employment enquiries regarding health, references and security, you brought it to our attention that you are now the subject of an investigation by Customs and Excise.

The CPS is therefore unable to employ you as a solicitor, as The Law Society have advised that your practising certificate is currently suspended. We are unable to keep the position open indefinitely, and I am therefore terminating your employment with the CPS, and am in a position to pay you the statutory notice of one week, in lieu of notice…"

9. The powers exercisable by the Society on an intervention are contained in part 2 of schedule 1 of the Solicitors Act 1974, the material provisions for the purposes of this judgment are contained in paragraph 6 as follows:-

"6(1) Without prejudice to paragraph 5, if the Council pass a resolution to the effect that any sums of money to which this paragraph applies, and the right to recover or receive them, shall vest in the Society, all such sums shall vest accordingly (whether they were received by the person holding them before or after the Council's resolution) and' shall be held by the Society on trust to exercise in relation to them the powers conferred by this Part of this Schedule and subject thereto upon trust for the persons beneficially entitled to them.

(2) This paragraph applies

(a) where the powers conferred by this paragraph are exercisable by virtue of paragraph 1, to all sums of money held by or on behalf of the solicitor or his firm in connection with his practice or with any trust of which he is or formerly was a trustee;

(b) where they are exercisable by virtue of paragraph 2, to all sums of money in any client account; and

(c) where they are exercisable by virtue of paragraph 3, to all sums of money held by or on behalf of the solicitor or his firm in connection with the trust or other matter to which the complaint relates.

(3) The Society shall serve on the solicitor or his firm and on any other person having possession of sums of money to which this paragraph applies a certified copy of the Council's resolution and a notice prohibiting the payment out of any such sums of money.

(4) Within [8] days of the service of a notice under sub-paragraph (3), the person on it was served, on giving not less than 48 hours' notice in writing to the Society and (if the notice gives the name of the solicitor instructed by the Society) to that solicitor, may apply to the High Court for an order directing the Society to withdraw the notice.

(5) If the court makes such an order, it shall have power also to make such other order with respect to the matter as it may think fit."

10. This is true appeal and not a rehearing. It is therefore for Mr Gauntlett to satisfy me that the District Judge arrived at her conclusion in error as a result of error of law or findings of fact which there was no sufficient evidence before her to support.
11. Before the District Judge, Mr Gauntlett deployed his arguments under 9 heads and she dealt with those arguments under the same 9 heads. I will do the same.
12. The District Judge characterises the first of those arguments as "the surrender of powers argument" and deals with it between paragraphs 21 and 28 of her judgment. She correctly sums up Mr Gauntlett's argument under this head in paragraph 21 as follows:-

"The applicant argues that the Council of the Law Society has surrendered the power to intervene in a solicitors firm to the adjudication panel of the office for the supervision of solicitors. The applicant accepted that the Society have power to delegate but not to surrender that power and argues that the decision to intervene in his practise was therefore ultra vires."

13. Section 79 of the Solicitors Act provides as follows:-

"79 Committees and sub-committees of the Council

(1) Subject to any provision to the contrary made by or under any enactment, the Council may arrange for any of its functions (other than reserved functions) to be discharged by

(a) a committee of the Council;

(b) a sub-committee of such a committee; or

(c) an individual (whether or not a member of the Society's staff).

(2) Where, by virtue of subsection (1) (a), any of the Council's functions may be discharged by a committee, the committee may arrange for the discharge of any of these functions by

(a) a sub-committee of that committee; or

(b) an individual (whether or not a member of the Society's staff).

(3) Where, by virtue of subsection (1) or (2), any of the Council's functions may be discharged by a sub-committee, the sub-committee may arrange for the discharge of any of those functions by a member of the Society's staff.

(4) Subsections (2) and (3) shall have effect subject to any contrary direction given by the Council.

(5) Subject to any direction given by the Council under subsection (4), subsection (3) shall have effect subject to any contrary direction given by the committee concerned.

(6) Any power given by subsection (1), (2) or (3) may be exercised so as to impose restrictions or conditions on the body or individual by whom the functions concerned are to be discharged.

(7) A committee of the Council, and any sub-committee of such a committee, discharging functions delegated under this section may include persons other than

(a) members of the Council;

(b) members of the Society;

(c) solicitors.

(8) The majority of the members of any such committee or sub-committee may be persons who may be included by virtue of subsection (7)."

Regulation 18 of the Law Society's general regulations 2002 provides at sub-rule (2) that the Compliance Board of the Council is deemed to be a committee of the Council for the purposes of section 79 (1)(a) and at sub-rule (3) may arrange by resolution for functions which may be discharged by them under (2) to be discharged by sub-units of those Boards, by whatever name known which are deemed to be sub-committees of the Council for the purpose of section 79 (2)(a) of the Act, or by individuals (whether or not members of the Society's staff).

14. Regulation 24 defines the terms of reference of the Compliance Board which include "interventions under schedule 1 of the Act".
15. The exercise of the powers under schedule 1 have been duly delegated to the chairman of the Adjudication Panel or in his absence any solicitor member of that panel; see the decision of Mr Justice Patten in the unreported case in 2003 of Harvey v The Law Society to which the District Judge refers.
16. In the present case the resolution to intervene in the practise of Mr Gauntlett was signed by the chairman of the Adjudication Panel.
17. In his submissions Mr Gauntlett relied on a resolution of the Council of the 25^th April 1996 of which paragraph 1 reads:-

"That in principle all adjudications and other case work decisions carried out within the office of the supervision of solicitors (whether by sub-committees or staff) shall be and be seen to be independent of the Council or any other part of the Law Society."

18. It was Mr Gauntlett's submission that this resolution separated the Adjudication Panel from the Council of the Society so that by delegating the power to intervene to the Adjudication Panel the Society was surrendering its powers as opposed to delegating them.
19. This contention is plainly misconceived. The resolution to which the District Judge refers in her judgment has no such effect. The Adjudication Panel was the due delegatee of the Council for the purpose of exercising the relevant powers. The District Judge's analysis of the provisions of section 79 and of the regulations is demonstrably correct.
20. I turn to consider Mr Gauntlett's second argument. This is that he has a cross-claim within rule 6.7(4)(a) of the Insolvency Rules in respect of damages for loss of opportunity to obtain employment by the CPS resulting from the Society's intervention in his practise which in turn had the effect of suspending his practising certificate. He contends that the Society is an "organisation" within section 12 of the Sex Discrimination Act which at paragraph (3) provides:-

"(3) It is unlawful for an organisation to which this section applies, in the case of a man who is a member of the organisation, to discriminate against him—

(a) in the way it affords him access to any benefits, facilities or services, or by refusing or deliberately omitting to afford him access to them, or

(b) by depriving him of membership, or varying the terms on which he is a member, or

(c) by subjecting him to any other detriment."

21. It is entirely clear from the letter of the 23^rd April 2003 and the three letters leading up to that letter that Mr Gauntlett never became, even for a short time, an employee of the CPS notwithstanding that he appears to have been paid a weeks wages in lieu of notice. It is Mr Gauntlett's contention that he lost his opportunity of employment by the CPS because his practising certificate was suspended in February 2003. He claims that he was discriminated against by the Society because they took much longer to return his practising certificate to him than they took to do so in respect of Miss Beveridge. It seems to me that this argument is entirely misconceived. The time at which the existence of any discrimination falls to be assessed in the circumstances was the time at which the CPS rejected Mr Gauntlett's application for a job namely the 23^rd April. At that time both the practising certificates of Mr Gauntlett and Miss Beveridge were suspended by the Society. Mr Gauntlett accepts that he has no evidence as to when Miss Beveridge's practising certificate was returned to her but accepts that is was probably in June of 2003. It follows that any discrimination cannot have been the cause of Mr Gauntlett's loss because at the material time both practicing certificates were suspended.
22. The District Judge deals with this argument between paragraphs 29 and 30 of her judgment. She takes the view that it was the ongoing investigation by Customs of the conduct of Mr Gauntlett which led to his loss and not the absence of his practising certificate. This seems to me to be a reasonable interpretation of the letters. She concludes by saying that in the circumstances it was inconceivable that the CPS would act in any other way than the way in which they did. This is a conclusion of fact which she was entirely entitled to arrive at on the evidence before her. It seems to me, in addition, that Mr Gauntlett's contentions fail under this head even if his interpretation of the facts is accepted.
23. The District Judge summarises Mr Gauntlett's contentions under the third head at paragraph 31 of her judgment. In the unreported decision of Mr Geoffrey Voss QC sitting as a deputy judge of this court on the 14^th May 2002, Mr Voss said this at page 36 of his judgment:-

"Nonetheless it seems to me that without any significant exception, the authorities speak with one voice in deciding that the procedures for application to the High Court under paragraphs 6(4) and 9(8) of schedule 1 of the Solicitors Act 1974 form part of a complete statutory scheme laid down by Parliament to protect the public from errant solicitors. The scheme ensures that the intervention process is swift, and that any admissible challenge by the solicitor is undertaken pursuant to a very rapid timescale. There is no express or implied power to extend the time for application to the court."

24. Mr Gauntlett does not contend that the intervention in his practise was unlawful. He does not contend that the chairman of the Adjudication Panel had no "reason to suspect dishonesty" on his part pursuant to paragraph 1(1)(a) of schedule 1. It would be quite impossible for him to do so given that the case for dishonesty for which he was prosecuted but acquitted was that some £190M had passed through the accounts of his firm having no connection with conventional legal work being performed by the firm. His defence, which the jury accepted, was that he was unaware that this was going on and that the responsibility for what the jury concluded was a money laundering operation was entirely that of Mr Ford a senior employee. Mr Gauntlett accepted that he considered whether he should apply to the High Court under sub-paragraph (4) of paragraph 6 of Part II of schedule 1 for an order directing the Society to withdraw the notice of intervention. He decided not to do so, he said, because he considered that he did not have sufficient information, in particular he did not have access to the firm's bank accounts which had been taken by the Society's agents. He also said that another reason for failing to take advantage of sub-paragraph (4) was that he did not wish to disclose what his defence would be, in any criminal proceedings which were to follow, to his co-defendant Mr Ford. It does not seem to me that these were compelling reasons which explain Mr Gauntlett's failure to act. He elected not to take the only route available to him under schedule 1 to challenge the intervention. As, regrettably, is virtually always the case, the intervention has destroyed the value of the practise. It seems to me, however, that Mr Gauntlett has no claim against the Society as a result. The Society were acting lawfully at all times for the purpose of protecting the public.
25. Mr Gauntlett contends that schedule 1 confers no remedy upon him for the loss of the value of his practise. In consequence he is entitled to look to his rights under the Human Rights Convention for a remedy, in particular, to Article 1 of the First Protocol, the right to enjoy possessions, and to Article 6 the right to a fair hearing. However, as the District Judge points out, in Holder v The Law Society [2003] 3 All ER p 62 the Court of Appeal have held that the intervention procedure provided for in schedule 1 is Human Rights Convention compliant. The District Judge correctly analyses the effect of the Holder case. In the result the District Judge's conclusion on this issue is in my view unchallengeable. As to Mr Gauntlett's contentions under Article 6 the District Judge found that he had sufficient opportunity to challenge the intervention under schedule 1. Before me he accepted that, whereas he had the opportunity which he considered, he elected not to do so. In any event a challenge under Article 6, as Mr Peacock points out, would not lead to a claim against the Society. In my view the District Judge's conclusion under this head is also unchallengeable.
26. Mr Gauntlett's fourth point related to the detailed assessment of the costs of the Society's agent which comprised the debt in respect of which the statutory demand was served. Mr Gauntlett was entitled to have those costs assessed and, possibly, reduced. He elected to compromise his claim for an assessment in the manner described by the District Judge which left the costs figure appearing on the statutory demand unaltered. He therefore did not press his fourth argument either before the District Judge or me.
27. The fifth argument relates to the existence of unbilled fees on the files of cases being conducted by the firm. It is accepted that where the Society's agents have intervened in a solicitors practise they have no power to bill clients for unpaid fees. Only the solicitor whose practise it is can do so. However, if he does so, and fees are paid, the Society is entitled to take the proceeds and to credit it against the costs of the intervention. Mr Gauntlett explained that he had not sought to bill for unpaid fees because the Society would not agree that part of the proceeds should be available to him for the payment of VAT for which he would in consequence be liable. The District Judge dismissed Mr Gauntlett's argument that the costs of the intervention should be treated as reduced or released in some way because of the value of the unpaid fees which the Society controlled. In my view she was right to do so. The unpaid fees did not represent a fund which, without more, was available to set off against the costs of the intervention. That the fees are an asset of the firm, and thus Mr Gauntlett as a partner, is a matter which might be deployed if a bankruptcy petition follows to support a contention that Mr Gauntlett is not insolvent.
28. Mr Gauntlett's sixth argument was that the Society was bound to "mitigate" its loss by using less expensive methods of administering the intervention. The District Judge's answer to this contention was that there was no such requirement under the law. Mr Gauntlett informed me that he was currently fighting a case to the Court of Appeal in which this was one of the issues and that there was Commonwealth authority in support of his contention. It seems to me that, whether or not such be the case, it does not assist Mr Gauntlett. He cannot challenge the extent of the expenses incurred by the Society's agents in administering the intervention because he has agreed them.
29. Mr Gauntlett's seventh argument was based on a suggested right of "subrogation" against Miss Beveridge and possibly other third parties. The District Judge correctly construed Mr Gauntlett as really meaning "contribution". Again Mr Gauntlett's rights of contribution against third parties may constitute assets which, if a bankruptcy follows he can deploy in support of an argument that he is not insolvent. If he is made bankrupt it will be open to his trustee to enforce those rights for the benefit of his creditors and, if there is a surplus for the benefit of Mr Gauntlett. The existence of any such rights of contribution do not confer any ground with which Mr Gauntlett can seek to set aside the Society's statutory demand.
30. Mr Gauntlett does not press before me an argument based on his membership of the Law Society's Council which he advanced before the District Judge, and which constituted his eighth argument.
31. Mr Gauntlett's final argument was that because Miss Beveridge had served notice to dissolve the partnership which took effect on the 31^st January 2003 before the intervention, the costs of the intervention were a post dissolution debt for which he was not responsible. As the District Judge pointed out after a dissolution partners remain liable for partnership debts undertaken during the process of dissolution. However, as Mr Peacock points out, intervention in the practice of a solicitor pursuant to schedule 1 operates on the solicitor individually and the claim to recover against him the costs of the intervention under paragraph 13 is a personal claim by the Society against him. Mr Gauntlett's final argument also fails.
32. For these reasons in my judgment this appeal must be dismissed.