Holder v The Law Society

The Court of Appeal allowed the Law Society's appeal and restored the Master’s order dismissing the claimant's application to set aside the Law Society's Notice of Intervention. The court applied the two-stage test for intervention under Schedule 1 to the Solicitors Act 1974: (i) whether the statutory grounds for intervention were made out (here, reason to suspect dishonesty and failure to comply with accounts rules under paragraph 1(1)(a) and (c)); and (ii) whether, on balance, the intervention should continue.

The judge below was wrong to conclude that the intervention regimen itself necessarily engaged a breach of the claimant’s rights under Article 1 of the First Protocol to the European Convention on Human Rights so as to require an alternative procedure (for example the appointment of a receiver). The Court of Appeal emphasised the margin of appreciation accorded to Parliament in creating the statutory regime and the deference due to the Law Society's professional judgment; on the facts there was no real prospect of successfully establishing an Article 1 or Article 6 breach. The factual findings (failure to keep client account records, a client account shortfall of £200,950, substantial debts to moneylenders and evidence giving rise to reasonable grounds to suspect misuse or fraud) meant the intervention was justified and proportionate.

Background and procedural history:

• The Law Society resolved to intervene in the claimant's practice on 15 June 2001 under Schedule 1 to the Solicitors Act 1974. The claimant applied to the High Court on 26 June 2001 for an order directing the Law Society to withdraw the Notice of Intervention. The Law Society applied for summary judgment on 2 August 2001 and Master Price dismissed the claim on 30 August 2001.
• The claimant appealed to Peter Smith J, who on 25 July 2002 allowed the appeal and directed that the claim should go to trial. The Law Society appealed to the Court of Appeal, which heard the matter and handed down judgment on 24 January 2003.

Facts and findings:

• The claimant was a solicitor admitted in 1994 and later practised effectively as a sole practitioner. An OSS inspection beginning 8 June 2001 found that he had not maintained client account records since 31 March 2000 (breach of rules 32 and 33), could not produce bank statements and paying-in books, and there was an agreed minimum client account shortfall of £200,950. The claimant admitted withdrawing money from client account for his own purposes and had large debts to moneylenders (noted debts of c. £220,000 and £266,000 and a wider indebtedness of at least c. £680,000 exclusive of the client shortfall).
• The claimant accepted there were reasonable grounds to suspect dishonesty but did not admit actual dishonesty.

Relief sought and issues:

• The claimant sought an order directing the Law Society to withdraw its Notice of Intervention. The court was required to decide (i) whether the statutory grounds in Schedule 1 (paras 1(1)(a) and (c)) were made out; (ii) whether the intervention should continue following the balancing exercise emphasising public protection and the consequences for the solicitor; and (iii) whether the intervention procedure as applied engaged rights under Article 1 of Protocol 1 or Article 6 of the Convention and therefore required a different or additional remedy (for example receivership).

Court’s reasoning:

• The Court of Appeal summarised the established two-stage approach (whether grounds exist; and whether intervention should continue after balancing interests) and emphasised deference to Parliament’s statutory scheme and to the Law Society’s professional judgement. It held that the judge below had been wrong to treat the intervention procedure as prima facie incompatible with Article 1 and to substitute an alternative procedural solution in place of the statutory scheme.
• The court applied the margin of appreciation in proportionality analysis, concluded that the statutory intervention powers were long-established and directed at protecting the public, and found that on the facts there was no real prospect of persuading a court that the intervention was disproportionate or otherwise incompatible with Article 1. The Article 6 access-to-court argument was also rejected in light of authority and the claimant’s capacity to present his case.

The appeal by the Law Society was allowed. The Court of Appeal held there was never a real prospect of the Law Society’s intervention being set aside: the statutory grounds (Schedule 1 to the Solicitors Act 1974, in particular paragraphs 1(1)(a) and (c), and related provisions) were made out by the evidence (failure to keep accounts, a substantial client account shortfall, admissions of withdrawing client monies and heavy debts suggesting potential fraud). The judge below was incorrect to treat the intervention procedure as necessarily infringing Article 1 of Protocol 1 and to propose receivership as a general alternative; the court must give deference to Parliament’s regime and to the Law Society’s judgment and assess proportionality with a margin of appreciation. The Master’s order dismissing the claimant’s application was restored.

Appeal from the High Court of Justice, Chancery Division (Peter Smith J). Master Price dismissed the claimant's application on 30 August (2001). Peter Smith J allowed the claimant's appeal on 25 July 2002 and directed a trial. The Law Society then appealed to the Court of Appeal, which gave judgment on 24 January 2003 ([2003] EWCA Civ 39).