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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Neumans LLP v The Solicitors Regulation Authority [2018] EWCA Civ 325 (02 March 2018) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2018/325.html Cite as: [2018] EWCA Civ 325 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
NEWEY J
HC-2017-001962
IN THE MATTER OF THE SOLICITORS ACT 1974
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE HICKINBOTTOM
and
LORD JUSTICE SINGH
____________________
NEUMANS LLP |
Claimant/ Appellant |
|
- and – |
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THE LAW SOCIETY (THE SOLICITORS REGULATION AUTHORITY) |
Defendant/Respondent |
____________________
Mr James Ramsden QC (instructed by Capsticks LLP) for the Respondent
Hearing date : 25 January 2018
____________________
Crown Copyright ©
Lord Justice Patten :
"Subject to sub-paragraph (2), where—
(a) the Society [i.e. the Law Society] is satisfied that a recognised body or a manager of such a body has failed to comply with any rules applicable to the body or manager by virtue of section 9 of this Act; or
…
(d) the Society has reason to suspect dishonesty on the part of any manager or employee of a recognised body in connection with
(i) that body's business,
(ii) any trust of which that body is or was a trustee,
(iii) any trust of which the manager or employee is or was a trustee in his capacity as such a manager or employee, or
(iv) the business of another body in which the manager or employee is or was a manager or employee or the practice (or former practice) of the manager or employee; …
…
the powers conferred by Part II of Schedule 1 to the 1974 Act shall be exercisable in relation to the recognised body and its business in like manner as they are exercisable in relation to a solicitor and his practice."
"In connection with the application of Part II of Schedule 1 to the 1974 Act for the purposes of this Schedule, in that Part of that Schedule—
(a) any reference to the solicitor or to his practice shall be construed as including a reference to the body in relation to which the powers conferred by that Part of that Schedule are exercisable by virtue of paragraph 32, 32A, 33 or 34(1) of this Schedule or to its business (or former business) as a recognised body;
(b) any reference to paragraph 1 of that Schedule shall be construed as including a reference to paragraph 32 or 34(1) of this Schedule;"
"1. Claims for 2,783 hours of the 3,047 hours Crown Court preparation by NS [i.e. Mr Sheikh] between 27 January 2006 and 11 September 2007 are false.
2. The sheets that support NS's claim for 102 hrs work in the Court of Appeal bear a striking similarity to the sheets for the claims for the 2783 hours. This could support an inference that they too are false.
3. The claim made for the Noting Brief is an example of dishonest opportunism in claiming over £300,000 which HP [i.e. Mr Patel] would never have contemplated agreeing to pay himself.
4. The creation of the invoice for £2,916,396.22 dated 10 June 2011 for submission to the [Court of Appeal (Criminal Division)] with the deliberate non-disclosure that HP had paid 8 solicitor and own client bills for work up to 16 November 2007 ('the 8 invoices') was dishonest and designed to facilitate a payment from Central Funds of far more money than the client was entitled to recover under section 16(6) Prosecution of Offences Act 1985.
5. The evidence of HP in his affidavit:-
(i) swearing that he was content to pay £2,188,166 (ex VAT) to the solicitors retrospectively without any legal obligation to do so, and
(ii) deliberately failing to disclose the 8 invoices
was dishonest and would support a clear inference that he was also involved in a fraud to obtain public funds.
6. If the jury were satisfied of any of the above that could support a factual conclusion that the retrospective variation agreement of March-October 2009 was designed to facilitate the dishonest claim."
"81. The present position is as follows. The Lord Chancellor submits, and Mr Patel and Neumans both accept, that the DCO should be revoked. In our view, this is plainly right. The facts are set out in the Lord Chancellor's case and in the witness statements of Mr Fitzgerald-Morris, including the points by reference to the detail in the Registrar's report and the conclusions are clear. They have not been answered by either Mr Patel or Neumans and they are in no position to contest the facts. If the true facts had been known, we are clear that the court would not have made the original DCO. Additionally on the basis of largely unchallenged facts, as they have now belatedly emerged set out in the Lord Chancellor's case and evidence, we are quite satisfied the DCO should be revoked and we so order."
"(a) Master Egan wrongly concluded that 91% of the hours spent preparing the defence to the Crown Court proceedings were false. The Firm [i.e. Neumans] does not accept the conclusion that the lack of contemporaneous notes by Mr Sheikh must mean the work was not done. If Master Egan is correct in his conclusion then it would mean that only 38 minutes per working day were spent preparing the defence to the Crown Court proceedings. The Firm considers that to be clearly wrong given this case was deemed to be the biggest worldwide conspiracy ever brought to trial.
(b) The Firm does not accept the criticism that Mr Sheikh's attendance notes supporting his work for the 2,783 claimed hours in preparation of the defence to the Crown Court proceedings bear a striking similarity to those supporting his claim for 102 hours in the Court of Appeal proceedings. The Firm accepts as a fact that the attendance notes are similar in style and content. However, the Firm states that fact does not equate to evidence of the work not being done. This fact is reflective of the similar nature of the activities being done, for example, reading and considering documents.
(c) The Firm considers that the basis of Master Egan's allegation that the claim of over £300,000 for a noting brief was required to attend the trial of co-defendants of Mr Patel (the trial of which took place prior to Mr Patel's trial) in order to better prepare Mr Patel's defence. The Firm accepts that at the time of this earlier trial Mr Patel did not contemplate having to pay in excess of £300,000 for the noting brief. This was because of the existence of the Capping Agreement. At the point of retrospectively varying the fees (with the Deed of Variation) Mr Patel was then in a position to assess the value of work undertaken by the noting brief and, ultimately, pay for that work.
(d) In relation to Master Egan's conclusion that the submission of the bill of costs and the deliberate non-disclosure of the eight invoices by the Firm was dishonest, the Firm submits that the non-disclosure was not dishonest. Instead, the Firm chose not [to] disclose the invoices in order to avoid confusion. The Firm considered the invoices to be unenforceable due to the retrospective effect of the Deed of Variation so instead treated the payments made against those invoices as payments on account against the final bill. Further, the Firm is of the view that it did disclose the invoices when it was asked for them.
(e) Master Egan's fifth conclusion was in relation to Mr Patel's affidavit, which the Court of Appeal ordered him to prepare in support of the DCO [i.e. defendant's costs order]. Master Egan concluded that Mr Patel's evidence that he was content to pay the final invoice in the full amount and his evidence about the deliberate non-disclosure of the invoices he paid was dishonest. In response to this the Firm repeated its points raised in response to the fourth conclusion. The Firm also directed the Supervisor to a witness statement prepared by Mr Patel to support the Firm's report to the SRA. Specifically, the Firm provided this statement in relation to Master Egan's conclusions about the non-disclosure of the eight invoices. As can be seen, Mr Patel's witness statement does not address this point.
(f) Master Egan's sixth and final conclusion is that the Deed of Variation was designed to facilitate a dishonest claim on Central Funds. In response to this point the Firm stated that it took advice from a highly experienced costs lawyer with specific experience in retrospective variation agreements (Mr Roger Mallalieu). Further, Mr Patel was strongly advised by Mr Sheikh to take independent legal advice but he chose not to."
"We shall give Ms Sabir the benefit of some considerable doubts that we have about her evidence. We do not say that there are no grounds to suspect dishonesty. We do not make a finding that [Ms] Sabir was honest or not. Simply put, we do not propose to intervene into the practice of Ms Sabir on the ground of reason to suspect dishonesty."
"9.16 We have carefully considered whether it is necessary to intervene into the individual and former practice of Mr Sheikh and the Firm [i.e. Neumans], and have balanced the need to exercise the powers of intervention in the public interest against the serious consequences of the intervention for him, Ms Sabir, the Firm's employees and clients.
9.17 We are satisfied that it is necessary to exercise powers of intervention in this case because there is strong evidence which suggests that the misconduct of Mr Sheikh is serious, involves the public at large and large sums of public money.
9.18 The misconduct was intentional and pre-meditated and appears to have been designed to enrich Mr Sheikh and the Firm.
9.19 The misconduct had its origins, it seems, in 2009 when the idea of the Deed of Variation was conceived and then executed. However, the consequences of the misconduct continue to the present, as can be vividly seen from the Court of Appeal's judgment of 19 December 2016.
9.20 The Firm was slow to self-report matters which ought to have been reported years ago. It seems that it was only after an FI investigation started, in the comparatively recent past, that the Firm self-reported.
9.21 Mr Sheikh has recently resigned as the COFA and COLP. He has also, very recently indeed, resigned as a member of the Firm. This removes some risk to the Firm and to the public, since a person who appears to us to be wholly and obviously unsuited to be a COFA and a COLP is no longer in those roles. His resignation as a member of the Firm also provides an apparent degree of reassurance.
9.22 However, Mr Sheikh is still at large, and he can still influence the way in which the Firm is managed and run, albeit with a degree of less viability, and with less personal liability (as a COLP, COFA and member) than before. He poses a continuing threat to it that is not extinguished by him resigning in the way that he has.
9.23 Moreover, this was, until very recently, a firm with two owners: Mr Sheikh and his wife, Ms Sabir. They ran it together. Mr Sheikh's relationship with the Firm is so close and their respective interests and history so closely intertwined that no meaningful and realistic distinction can be drawn between him and the Firm.
9.24 We have been asked to accept that (i) Ms Sabir is now in charge of the Firm and she is best placed to continue to do so; (ii) there is no risk any longer because Mr Sheikh is not in any recorded and regulated roles. We do not accept this. For years, and particularly when Ms Sabir has been on maternity leave, Mr Sheikh has run the Firm. Significantly, he has controlled the finances. He has done this without any robust third party oversight.
9.25 Equally significantly, Ms Sabir, when recently describing her role as the Managing Partner in response to the Production Notice, does not mention any financial management role at all. While her list of functions is not prescriptive, the fact that there is no mention of fiscal control at all is telling.
9.26 The fact that Mr Sheikh has now resigned as the COFA does not mean that his ability to exercise control and influence of the Firm's finances is restrained. It means that he is no longer accountable to the SRA about them as COFA. His legal obligations as a member have ceased.
9.27 We consider that Mr Sheikh's breaches of the rules, principles and outcomes identified above creates an unacceptable risk to clients and the wider public. On balance, we are satisfied that the need to intervene into the practice to protect clients and the public interest outweighs the serious implications of intervention for Mr Sheikh and Ms Sabir."
"Ms Sabir has requested that she attends before us for interview to make representations. We have considered whether we have all the information and evidence that we require to enable us to make a decision in respect of this matter. We have extensive and detailed representations from Ms Sabir's legal representative, in addition to the bundle of evidence. We do not consider it necessary to invite her for interview as we have sufficient evidence and information to make a decision."
(1) that Newey J was wrong to hold that the rules of natural justice did not apply to the making of the decision to intervene;
(2) that they were not observed in the present case; and
(3) that the judge was wrong to hold that the intervention was rational and proportionate. The Law Society had failed (in part due to its failure to give the firm adequate notice of its case and an opportunity to respond) to take all the relevant information into account. Given that Mr Sheikh had left the firm, the protection of the public could have been achieved by a less intensive measure involving the appointment of new managers.
Natural justice
"[179] In my view, the rule is that, before a statutory power is exercised, any person who foreseeably would be significantly detrimentally affected by the exercise should be given the opportunity to make representations in advance, unless (i) the statutory provisions concerned expressly or impliedly provide otherwise or (ii) the circumstances in which the power is to be exercised would render it impossible, impractical or pointless to afford such an opportunity. I would add that any argument advanced in support of impossibility, impracticality or pointlessness should be very closely examined, as a court will be slow to hold that there is no obligation to give the opportunity, when such an obligation is not dispensed with in the relevant statute."
"In Yogarajah v The Law Society Walton J considered the provisions of Sch 1 to the 1974 Act in the light of Lord Hailsham's observations. He summarised his views thus:
"This provides a simple and sensible statutory scheme: on one hand enabling the Law Society to act swiftly when the possibility of mischief becomes apparent and, on the other hand, enabling the solicitor, against whom such action is taken, to apply as swiftly to the Court to obtain a suspension of such activity on its behalf. I see no necessity for complicating this scheme and so, in effect, depriving it of its essential characteristics - swiftness of action - by the introduction of the concept of natural justice into a category of situations - a reason for suspicions - into which it does not sensibly fit."
Those observations were, with others of Walton J in the same case, approved by Balcombe LJ (with whose judgment Oliver and Neill LJJ agreed) in Buckley v The Law Society, unreported, 9 October 1985.
Mr McCulloch seeks to distinguish the decision and reasoning of Walton J in Yogarajah v The Law Society on the ground that what the judge was there considering was the more extreme argument that the solicitor must be given a fair opportunity to meet the case against him before the notice of intervention is given. That is not a valid ground of distinction. The judge's view, approved by this court in Buckley v The Law Society, was that the rules of natural justice do not apply at all to the giving of a notice of intervention on the ground of suspected dishonesty. In my view, on a careful construction of the provisions of Sch 1 of the 1974 Act in the context in which it was passed, and for the reasons stated by Walton J, there is no requirement, at the time that a notice of intervention under para 1(1)(a) is given, for the solicitor to be given particulars of the suspected dishonesty or of the reasons for suspecting it. If he applies to the High Court under para 6(4), he will have the opportunity, as the appellant did here, of knowing what the case against him is and of answering it. Under these provisions that is the point of judicial determination when, in the words of Lord Hailsham, the solicitor will be given a reasonable opportunity of presenting his case."
"Mr McCulloch, however, argues that the preferences for full and early disclosure expressed by Mr Justice Carnwath are entitled to the force of law, with the consequence that breach of them vitiates an intervention such as the present one and requires the court ex debito justitiae to exercise its power to direct withdrawal. He relies, correctly for this purpose, on the classic decision of the Court of Common Pleas in Cooper v Wandsworth Board of Works (1863) 14 CB (NS) 180 and on the judgment of the Privy Council in Kanda v Government of Malaya [1962] AC 322, [1962] 2 WLR 1153. The latter gives life to the near-truism that a right to be heard is worthless unless the individual affected knows what is being said against him. The former, most memorably in the judgment of Byles J, is authority for the proposition that in construing and applying a statutory regime the common law will insist upon a right to be heard where the statute is silent. The doctrine is generous in its willingness to insist on supplementary forms of justice in public administration without requiring the individual to go down the thorny path (which belongs more properly to contract law) of seeking out implied terms; but it is not unbounded, and it requires the court to have careful regard to Parliament's prescriptions, especially when these do provide for an opportunity to be heard, albeit not at the stage which the individual would have preferred: see Wiseman v Borneman [1971] AC 297; Pearlberg v Varty [1972] 2 All ER 6.
Applying these principles to the legislation which we are now considering, it seems to me that the want of any provision in Sch 1 for notice to be given to the solicitor of particulars of a suspected breach other than a failure to comply with certain specified rules demonstrates not an omission which (in the phase of Byles J) it is for the justice of the common law to supply, but an intelligible scheme of professional self-regulation for the protection of clients and the public which defers, but does not deny, a due opportunity for the solicitor to know the case against him or her and to challenge it and its consequences before a court of law."
"It is submitted on behalf of the Law Society, and rightly in my view, that the common law principles of natural justice do not apply to the intervention process which is a statutory process enabling a challenge to be made in the High Court as provided for in Schedule 1 to the Solicitors Act 1974: see Giles v. The Law Society [1996] 8 Admin LR 105 and Miller v. The Law Society [2002] All ER (D) 312."
"[31] In the present case, the "margin" arises at two stages: first, the discretion allowed to the legislature in establishing the statutory regime, and, secondly, the discretion of the Law Society as the body entrusted with the decision in an individual case. (In the former case, the only remedy for exceeding the "margin" may be a "declaration of incompatibility" under the 1998 Act.) The intervention procedure, now contained in the Solicitors Act 1974, is long-established (dating back to 1941, in its earliest form), and has been reviewed by the court on many occasions. As appears from the cases to which I have referred, it has been recognised as "draconian" in some respects, but necessary for the protection of the public interest; and the courts have repeatedly emphasised the "balancing exercise" which it involves. I see no material difference between this and the "fair balance" which Article 1 requires. Nor do I see any reason why theHuman Rights Act 1998 should be thought to have changed anything. There has long been a right of individual petition to the Strasbourg Court for breaches of the Convention, but we have not been referred to any questioning of the intervention procedure under Article 1. I see no arguable grounds for thinking that the margin allowed to the legislature has been crossed, particularly having regard to the deference which is properly paid to an Act of Parliament, as compared to an administrative decision (see the Roth case, above, at paras 26, 83)."
(1) that the report prepared by Mr Quentin which recommended intervention did not give adequate particulars of any allegations against Neumans itself but instead concentrated on the conduct of Mr Sheikh and Ms Sabir. The appellant did not therefore have adequate notice of the case against it;
(2) that the decision to intervene was based on findings about Ms Sabir and in particular her inability to keep the firm's practice free from the influence of Mr Sheikh. She was not given notice that the Adjudication Panel was minded to make these findings against her and did not have a proper chance to address the case against her; and
(3) that in reaching its decision to intervene the Panel failed to give proper consideration to the proposals for the new management of Neumans which would have ensured the proper functioning of the firm. The appellant was entitled to be given reasons why these measures could not provide a satisfactory alternative to intervention.
"(i) Neumans has made common cause with Mr Sheikh. Master Egan's May 2015 report did not prompt the firm to distance itself from Mr Sheikh in any way. When giving judgment on 19 December 2016, Simon LJ said that the defendant's costs order in Mr Patel's favour fell to be revoked on the basis of "largely unchallenged facts" and that Mr Patel and Neumans were both "in no position to contest the facts". Neumans nevertheless, and despite Ms Sabir by now being the managing partner, roundly rejected Master Egan's findings in its "self-report" of April of this year. On top of that, Mr Sheikh was allowed to continue as both COLP and COFA, notwithstanding the very serious allegations that had been made against him and the Court of Appeal's indication that it considered that the firm's conduct should be referred to the SRA. RadcliffesLeBrasseur, moreover, acted for, and made representations on behalf of, both Neumans and Mr Sheikh;
(ii) Until very recently, therefore, there was no indication of Neumans, or Ms Sabir in particular, separating itself from Mr Sheikh or even bringing an independent judgment to bear. That is perhaps unsurprising when Ms Sabir and Mr Sheikh were married to each other and also co-owners of the firm. It does, however, cast doubt on whether it is realistic to suppose that Neumans would act entirely independently of Mr Sheikh and his interests in the future. That is of the more concern since there are matters relating to Mr Patel and the £2,916,396 bill of costs that have yet to be resolved;
(iii) Mr Sheikh's resignation as COLP, COFA and member has the air of a last throw of the dice. Mr Sheikh did not resign until after his solicitors had been supplied with both the Intervention Report and Mr Quentin's 15 June memorandum. That limits the reassurance that it provides;
(iv) While Ms Sabir said in her witness statement of 19 July 2017 that the "future practice of Neumans is not dependent on a continuing stream of clients introduced by my husband", she spoke in her previous statement, made just ten days earlier at a time when he had already resigned, of Mr Sheikh as a "rain maker" and of its "still [being] open to him to introduce clients as a third party introducer". Further, RadcliffesLeBrasseur told the SRA's solicitors in a letter of 19 July that Ms Sabir estimated that, during the year leading up to the intervention, approximately 40% of Neumans' gross fee income was attributable to clients introduced to the practice by Mr Sheikh. These matters raise further questions as to whether there would or could in fact be a complete divorce between Mr Sheikh and Neumans, and the profiles on Neumans' website compound those concerns. On top of that, there is force in the SRA's observation that leaving an LLP such as Neumans "requires much more than a simple resignation in terms of the practical position of the members";
(v) There is a lack of clarity as to the roles that Ms Sahi and Mr Brennan would play if the intervention were withdrawn. It is said that they would have equal voting rights with Ms Sabir, but on what basis? What, if any, interest would each of them have in Neumans? It is noteworthy that I have not been supplied with even draft documentation; and
(vi) The SRA, whose views are entitled to respect, considers that the intervention should continue."
Lord Justice Hickinbottom :
Lord Justice Singh :