The Law Society (Solicitors Regulation Authority), Court of Appeal - Chancery Division, February 09, 2015, [2015] EWHC 166 (Ch)

Resolution Date:February 09, 2015
Issuing Organization:Chancery Division
Actores:The Law Society (Solicitors Regulation Authority)
 
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Neutral Citation Number: [2015] EWHC 166 (Ch)

Case No. HC14C01703

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

IN THE MATTER OF SECTION 35 AND PARAGRAPH 9(10) OF SCHEDULE 1 TO THE SOLICITORS ACT 1974

Rolls Building

7 Rolls Buildings

London EC4A 1NL

Date: 9 February 2015

Before :

Iain Purvis QC sitting as a Deputy Judge of the Chancery Division

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Mr TIMOTHY DUTTON QC and Mr JAMES McCLELLAND (instructed by RUSSELL-COOKE LLP) for the Claimant

Hearing date: 27 November 2014

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JUDGMENTMr Iain Purvis QC:

Introduction

  1. These proceedings are brought by the Law Society which administers and funds the Solicitors Regulation Authority (the SRA), the independent body responsible for regulating solicitors in England and Wales. The proceedings relate to the proposed destruction of documents which have come into the hands of the SRA as a result of a large number of interventions in solicitors' practices over a period of many years. The documents are regarded by the SRA as redundant and the ongoing cost of keeping them is very high. The action has been brought under CPR Part 8 without a Defendant under rule 8.2A by permission of Deputy Master Matthews given on 14 April 2014.

    The legal background

  2. As a key element of the regulation of legal services in England and Wales, the Law Society is provided with statutory powers to intervene in solicitors' practices. Those powers are given by s35 and fully set out in Schedule 1 of the Solicitors Act 1974 (`the 1974 Act'). The same powers have also been given in respect of registered foreign lawyers (Courts and Legal Services Act 1990), recognised bodies (Administration of Justice Act 1985) and licensed bodies (Legal Services Act 2007). The powers have now been delegated to the SRA Board pursuant to s79 of the 1974 Act and the Law Society General Regulations. The SRA Board in turn delegates its powers to the SRA's Panel of Adjudicators Sub-committee.

  3. Part I of Schedule 1 of the 1974 Act sets out the circumstances in which the Law Society may intervene to take control of a practice. They are wide-ranging and include dishonesty in connection with the practice, bankruptcy, mental or physical incapacity, imprisonment and striking off. Part II of Schedule 1 sets out the powers (and also duties) of the Law Society upon an intervention.

  4. As Chadwick LJ stated in Sritharan v Law Society [2005] 1 WLR 2708, ¶46:

    `It is pertinent to keep in mind that Part II of Schedule 1 to the 1974 Act confers a number of specific powers, each distinct from the others. Although, in any given case, the several powers may be exercised in combination, there is no single, or general, power of intervention.'

  5. There have been a number of cases before the Courts which have considered the scope and effect of the powers of intervention granted to the Law Society. Many of them have been concerned with the exercise of those powers to seize money held by solicitors on behalf of their clients, and the distribution of such money. The Courts have recognised that the intervention regime is a draconian regime. So far as the solicitors themselves are concerned, it is apt to destroy their practice and to obstruct the recovery of unpaid fees. Furthermore, the effect of the regime is to override the private rights of clients of the firms involved. Prior to an intervention the client will have individual property rights in the funds held in a client account or in its traceable proceeds where misused. After an intervention, these rights are converted simply into interests under a public law trust administered by the SRA over all the sums of money held by the solicitor in connection with its practice. The SRA is not answerable as a traditional private law trustee to the former clients whose assets have been transferred into the trust. Rather it acts as a public body whose stewardship of the trust is subject to judicial review. See Re Ahmed [2006] EWHC 480 ¶120. Similarly, any claims for compensation for damage under the Solicitors Compensation Fund are purely a matter of administrative discretion (R v Law Society ex p Reigate Projects Limited [1993] 1 WLR 1531).

  6. The Courts have nonetheless recognised that these powers are `essential in the public interest to protect clients, the public, the reputation of the profession and the Solicitors Compensation Fund' (Lightman J in Dooley v Law Society, unreported, 23 November 2001, ¶2). They have also confirmed that although the interventions inherently amount to an interference with the peaceful enjoyment of property within the meaning of Article 1 of the First Protocol of the ECHR, they are justified because they pursue a legitimate aim and strike a fair balance between the relevant public and private interests involved (Holder v Law Society [2003] 1 WLR 1059 at ¶31, per Carnwath LJ).

  7. It may be noted that the draconian powers of intervention are in general exercisable without the intervention of the Courts at all. Notably no Court order is required before the SRA makes distributions under the statutory trust. This is notwithstanding the fact that the trust represents the aggregate of client and other moneys and the distributions amount to final disposals.

  8. The legal situation with money obtained and held by the SRA as the result of an intervention is now reasonably clearly understood. Under ¶6 of Part II of Schedule 1 of the 1974 Act, the money is held on trust by the Law Society, first of all in order to exercise the powers conferred by Part II and then, subject to that, for the benefit of the persons beneficially entitled (ie the clients whose moneys were being held). As I have mentioned, in Re Ahmed it was confirmed that this is a public law trust.

  9. The position so far as concerns documents held by the SRA after an intervention is, unfortunately, less clear, either as a matter of statute or authority.

  10. The statutory provisions concerning documents on an intervention are contained in ¶9 and ¶10 of Part II to Schedule 1 of the 1974 Act. Essentially, by ¶9, the Law Society is given the power to require a solicitor to hand over all documents in his possession in connection with his practice or any trust of which he is a trustee. It may also ask the Court for an order permitting it or a person authorised by it to enter the solicitor's premises to search for and take possession of any documents to which the order relates. Under sub-paragraph (7) it must serve on the solicitor (or his personal representatives or any other person from whom they were received or taken) a notice that possession of the documents has been taken. The persons on whom such a notice has been served have 8 days to apply to the High Court for an order requiring the Law Society to return the documents. Under ¶10, the Law Society may apply to the High Court for a communications redirection order requiring specified communications to be directed to the Society or a person appointed by it.

  11. Unlike the position with money, the 1974 Act says nothing about the legal status of the Law Society in relation to the documents coming into its possession by virtue of ¶¶9 and 10. It is not said to be a trustee of the documents. Nor is there any positive requirement to retain the documents. The only reference to destruction or disposal of the documents is in ¶9(10) which says as follows:

    `Without prejudice to the foregoing provisions of this Schedule, the Society may apply to the High Court for an order as to the disposal or destruction of any documents [or other property] in its possession by virtue of this paragraph or paragraph 10'.

    On the making of such an application, by ¶9(11)

    `the Court may make such order as it thinks fit.'

  12. There are at least three purposes for which it may be assumed that Parliament contemplated that the documents obtained by the Law Society following an intervention would be used:

    (i) To identify those persons interested in the funds held on the statutory trust, and the extent of their interest, so that the moneys can be properly distributed. See Lawrence Collins J in Re Ahmed ¶29:

    `29 In intervention cases, the Law Society frequently inherits a disordered and chaotic situation, and must seek to understand, as best it can, such records as there are with the available resources it has, in order to distribute the monies it has removed from a solicitor's control to the clients or other persons who appear to the Law Society in all of these circumstances to be entitled to it.'

    (ii) To scrutinise and use as evidence in disciplinary proceedings (see Simms v The Law Society [2005] EWHC 408).

    (iii) To identify (using one of a panel of firms who act as `appointed persons' under ¶9(1)) the solicitors' clients in live cases and ensure that their interests are protected, deadlines are not missed, instructions obtained etc. Many of the documents in the files will of course be confidential to the clients, and taking possession of the documents enables the confidentiality to be preserved. The normal and expected course would be for the clients to appoint a new firm to act on their behalf and provide written authority to the SRA's agent to release their files to that new firm.

    The policies of the SRA

  13. The SRA has given evidence to me which indicates that it takes its responsibilities with regard to documents obtained under ¶¶9 and 10 very seriously. The...

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