[2003]JRC227
royal court
(Samedi Division)
4th December, 2003.
Before: |
Sir Philip Bailhache, Bailiff, and Jurats de Veulle, Quereé, Le Breton, Georgelin, Allo and Clapham. |
Between |
The Bâtonnier |
Representor |
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An Advocate |
Respondent |
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Her Majesty's Attorney General |
Partie Publique |
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Representation by Bâtonnier alleging professional misconduct by an Advocate.
Advocate J A Clyde-Smith, the Bâtonnier;
Advocate J. D. Kelleher for the Respondent;
The Solicitor General for the Partie Publique.
judgment
the bailiff:
Introduction
1. This is a representation of the Bâtonnier alleging professional misconduct by Advocate Anthony John Olsen. Counsel for Advocate Olsen has admitted two breaches of the Code of Conduct of the Law Society but has submitted that the breaches were not, in context, sufficiently serious to warrant any public sanction. The Court has not accepted that submission. The hearing was conducted, as is customary, in private, but this judgment is accordingly being delivered in open court.
2. The complaint of misconduct was made by a former client of Advocate Olsen in relation to advice given by his firm to a company of which the former client was a director and shareholder. The nature of the mitigation advanced on behalf of Advocate Olsen makes it inappropriate for us to identify either the former client or the company, neither of whom was represented before us. We shall therefore refer to the former client as "X" and to the company in question as "the company".
3. The immediate cause of the complaint was a letter written by Olsens to the company tendering advice as to the validity of a convening notice of an adjourned annual general meeting of the company.
The background
4. The company was the owner of hotels and other interests. The principal shareholders of the company were X and two others whom we shall call "Y" and "Z". Other smaller shareholders held a minority of the issued shares. X was the chairman of the company. X, Y, Z, X's son and four others, including Advocate Olsen, were the directors of the company. The management of the company's affairs had in practice been undertaken by the X, Y and Z families so that four of the directors might be said to represent the majority shareholders and four (including Advocate Olsen) the remainder. Advocate Olsen was a non-executive director of the company, and charged for his services on a time basis, submitting fee notes at irregular intervals in accordance with his charge out rate prevailing from time to time. He is the senior partner of the firm of Olsens, which was the legal adviser to the company.
5. By a notice dated 6th June 2001, the company secretary convened the AGM for 10th July 2001. Item 3 on the agenda provided - "To reappoint the directors". It may be noted that the company's articles did not require an annual retirement or rotation of directors. On 10th July 2001 the meeting was adjourned. By a notice dated 26th July 2001 the meeting was reconvened by the company secretary for 2nd August 2001. The first item on the new agenda revealed the true purpose of Item 3 on the first agenda. It now read - "To remove A J Olsen as a director of [the company] and its subsidiary companies".
6. On the evening of 27th July one of the company's directors representing a minority shareholder, an English solicitor named Mr Sly, sent an email to Advocate Olsen asking him to check whether it was legitimate to alter the agenda in this way particularly at such short notice. The question was put to Advocate Olsen because Mr Sly did not think that it was appropriate for his clients as minority shareholders to have to fund the provision of legal advice in this way. Advocate Olsen was reluctant to give advice but after further exchanges and a telephone conversation between him and Mr Sly on 30th July he agreed that Olsens would look at the legal issues raised in the email of 27th July. On 31st July Advocate Olsen sent an email to Mr Sly stating "We have done a letter to the shareholders .... It will be signed by Eddie Quinn and circulated this afternoon. I attach a copy, but bear in mind that it might be amended prior to Eddie's finalisation of it".
7. In the meantime the letter had been drafted over the 30th and 31st July. During that period Advocate Olsen recorded 4 hours 36 minutes of time chargeable to the company for his services as director. In addition fee earners at Olsens charged the following time to the company for general legal advice -
Advocate Olsen 2 hours 24 minutes
Edward Quinn 24 minutes
Stephen Fitzgerald (legal assistant) 3 hours 24 minutes
The result of this effort was a letter addressed to the chairman, secretary and shareholders of the company.
8. It was in the following terms -
1 Certain of the shareholders have drawn to our attention the existence of a notice dated 26 July 2001. For the sake of brevity we shall call this the "Notice." The Notice purports to reconvene the Annual General Meeting, which was adjourned on 10 July last, for 11 am on Thursday 2 August 2001. We shall call this the "Proposed Meeting". We have been asked to comment on the validity and effect of the Notice and as legal advisers to the Company we consider it appropriate in any event to do so.
2 We understand that the Notice has not been sent to [Mr J]; at any rate, he had not received it by the time he left the Island yesterday afternoon.
3. It is our opinion that the Notice is invalid. The decision to adjourn the Annual General Meeting without fixing a date was tantamount to an abandonment of that meeting. That proposition is reinforced by the fact that the agenda has now changed very significantly. The Proposed Meeting is therefore not in any sense a continuation of the meeting that was adjourned on 10 July last; it is an entirely new one. This being the case, proper notice of the Proposed Meeting must be given. Under Article 45.1 of the Company's Articles of Association, at least 21 days' notice in writing must be given specifying the day, time and place of the new meeting and the general nature of the business to be transacted. It perhaps goes without saying that such notice should be given to all members of the Company so entitled.
4. Even if the Proposed Meeting could be regarded as an adjournment of the AGM held on 10 July last, which as we have said it clearly and patently cannot, the Proposed Meeting could not deal with the agenda contained within the Notice. Article 52 of the Company's Articles of Association provides that, "... no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place". The agenda contained within the Notice contains two items that are entirely new. They can in no way be unfinished business from the previous meeting.
5. We advise as objectively as we can in the current circumstances that the removal of a director from office is a very serious matter. If the shareholders are to be asked to vote on so important an issue, it is our view that they should have ample opportunity to consider the matter well in advance of the date of the meeting at which the proposition is to be debated. The shareholders should be intimately familiar with the grounds upon which such removal is sought; they should know whether or not the removal is sought on the grounds of misconduct and, if so, whether or not the director in question has been guilty of such serious or repeated misconduct that his removal is justified; they should know whether or not such director has been warned about his conduct at any time in the past and whether or not such warnings have been heeded; and they should know whether or not the director in question has been given an opportunity to answer any allegations and/or explain his position - if so, what his answer and/or explanation is and if not, why not. The guiding principle in relation to notices of meetings of limited liability companies, as my partner Nicholas Crocker observed in his letter of 20 July last addressed to you all, is that the shareholders should be put into a position of knowing what they are voting about.
6. In passing we observe that no meeting of the Company would be empowered to remove any person as a director of its subsidiaries: separate meetings of those companies would have to be convened.
7. To summarise, our advice to the shareholders is that the Proposed Meeting should not proceed. If notwithstanding our advice it proceeds, any decisions purportedly made thereat would be invalid. We advise that the Secretary issues a further notice as set out towards the end of paragraph 3 above and that the notice should be accompanied by supporting documentation to cover the matters referred to in paragraph 5 above.
8. As legal advisers to the Company, we would appreciate sight of a copy of such further notice. We would be happy to assist the Secretary in its preparation should that assistance be required.
Yours faithfully,
Edward Quinn
9. Following receipt of that letter the adjourned Annual General Meeting was further adjourned. Advocate Olsen was eventually removed as a director of the company on 18th March 2002. On 19th March 2002 Advocate Olsen sent an email to X's son which contained the following -
I judge by the coldness of your tone that you and I are no longer co-directors. If that is the case, clearly I am going to have to consider my own position very carefully in terms of substantial damages for wrongful dismissal and compensation for loss of office.
No such claim for wrongful dismissal has in fact been made.
The complaint
10. On 19th December 2002 the Bâtonnier received a complaint from X in relation to this letter. On 27th January 2003 the Bâtonnier referred the complaint to Mr Ian James and Advocate Julian Gollop for investigation. They reported on 29th April 2003 that in their view Advocate Olsen had breached Rule 2 of the Code of Conduct as he had not upheld the high ethical and technical standards of the legal profession "as a result of his failure -
10.1 to exercise independence of judgment and to promote the best interests of his client by being primarily responsible for the provision of legal advice to the shareholders of [the company]:
10.1.1 which had not been sought by the board of directors of [the company];
10.1.2 which, in the case of paragraph 5 of the 31 July letter, was not an accurate statement of the relevant requirements of Jersey corporate law and was intended to frustrate the wishes of the board and a majority of the shareholders of [the company]; and
10.1.3 which was given when there was a clear conflict of interest between Olsens' own interests and those of [the company]."
11. Rule 2 of the Code of Conduct provides, so far as material, -
2. Standards
It is the duty of every member at all times to uphold the dignity and high ethical and technical standards of the legal profession, and to adhere to the terms of the oath sworn before the Royal Court.
Accordingly:
(1) A member must exercise independence of judgement and protect the best interests of the client.
.........
(3) A member must not act where the member's own interests conflict with those of the client.
Mitigation
12. Advocate Olsen has placed before the Court a substantial affidavit setting out in considerable detail his professional relationship with X and the company, and the circumstances in which he became a director of the company. We have studied this document with great care. In order to preserve the confidentiality of the company's affairs (and it must be noted that the company has not made a complaint) it is not possible however to do more than to adumbrate the circumstances leading up to the proposal by X and some of his colleagues to remove Advocate Olsen from the board of directors.
13. Advocate Olsen had acted for the company since 1981 and had been a director since 1988 or 1989. He had enjoyed a close personal as well as professional relationship with X for many years. Advocate Olsen's presence on the board of the company originated in a representative capacity when he was acting as executor of a deceased minority shareholder. Subsequently he was invited to remain on the board as an independent director. Advocate Olsen took his duties seriously. A number of issues arose when he gave advice and insisted that certain actions or proposed actions of X and others were improper. In particular there was a severe disagreement in relation to the procedure adopted by X and other members of the board following a decision to sell a hotel owned by the company. The result of this disagreement was a break-down in the relationship between X and Advocate Olsen. It was put to us that this complaint was motivated by spite.
14. Counsel for Advocate Olsen placed before us affidavits sworn by Mr Sly and other minority shareholders of the company. Mr Sly states that "for the avoidance of any doubt, I instructed Olsens to advise the shareholders on the correctness of the Notice and the proposed mode of proceeding to remove Advocate Olsen". He adds -
30) In conclusion, for my own part and on behalf of my clients, I wish it to be a matter of record that throughout the sale of [the Hotel], Advocate Olsen acted with bravery and determination to ensure that the Company behaved properly, safely and with fairness to all of its shareholders. In so doing he incurred the wrath of the one man he had thereby thwarted, [X]. Advocate Olsen's removal as a director was not a good thing for the company, but thereafter at least a number of shareholders were rather more aware of their rights than before the sale of [the Hotel] and rather less willing to allow [X] to treat the Company as if he were the majority shareholder.
15. Other minority shareholders expressed similar sentiments.
16. Counsel submitted on behalf of Advocate Olsen that he was an advocate of integrity, honesty and great experience and the Bâtonnier supported that submission. Counsel also contended that the sole motivation of Advocate Olsen in causing the letter of 31st July 2001 to be written was to protect the interests of the company and its minority shareholders. Rightly or wrongly he believed that it was in the interests of the company that he should remain a director. He felt that it would be inappropriate to resign his directorship because he would be letting the side down. He was not in any way motivated to continue as a director by the fact the company was a valuable client.
Conclusion
17. It is not appropriate for us to comment upon the motivation of the complainant, X. The Court accepts however that Advocate Olsen's motives in causing the letter to be written were not tainted in any way by financial considerations. We also accept that he believed that it was in the interests of the company and the minority shareholders that he should remain as a director and that he wished in good faith to protect the interests of those minority shareholders. We think however that there was another factor which cannot be ignored, and that was the collapsed relationship with X. We draw support for that conclusion from the papers placed before us. In our view Advocate Olsen allowed the acrimony surrounding the perceived behaviour of X to cloud his judgment.
18. There is no doubt that there was a clear conflict between the interests of Advocate Olsen personally and Olsens as a firm on the one hand and the interests of the company on the other. It is surprising that in his affidavit sworn in March 2003 in relation to these proceedings Advocate Olsen should have denied any professional misconduct. In fairness counsel did concede at the hearing that there had been breaches of the Code. On any objective view however Advocate Olsen could not possibly have expressed an impartial opinion as to his own removal as a director of the company. Whatever the background to the proposed resolution before the AGM, Advocate Olsen should have recognised that he could not exercise independence of judgment in the matter. He should not have acceded to the request of Mr Sly to give legal advice to the company, a request which Mr Sly was not in any event authorised by the company to make.
19. Had the advice to the company been spontaneous we might have regarded the breach of the Code as being less serious. But the letter of 31st July was not spontaneous. It was a carefully crafted piece of advice over which many hours of professional time had been spent. It was a seriously misleading piece of advice in that it wrongly conveyed the impression that the shareholders could not remove a director without cause. It was undoubtedly designed to inhibit Advocate Olsen's removal from the Board and, for a period of time, it had that effect. The letter did not disclose Advocate Olsen's participation in its drafting, nor did it expressly refer to the conflict of interest which underlay the advice. The statement that "we advise as objectively as we can in the current circumstances" indicates however that those involved in the drafting must have been aware of the underlying conflict.
20. We agree with the Bâtonnier that a conflict of this kind made it impossible for the firm and its partners to exercise independence of judgment which the company, as client, was entitled to receive. An ability and capacity to give impartial and dispassionate advice lies at the root of the professional relationship between a lawyer and his client. In purporting to give such advice to the company Advocate Olsen committed a serious error of judgment for which, in the unanimous view of the Court, he must be reprimanded. We so order.
No Authorities.