Gauntlett v The Law Society

An appeal against dismissal of an application to set aside a statutory demand will succeed only where the first-instance judge made an error of law or reached a factual conclusion unsupported by the evidence. A statutory intervention under Schedule 1 to the Solicitors Act 1974 is part of a complete statutory scheme. The Society may delegate intervention functions under section 79, and the solicitor’s prescribed route for challenging an intervention must be used promptly. Loss of practice value, alleged discrimination, unbilled fees, contribution rights and complaints about intervention costs do not themselves establish grounds for setting aside the demand. Partnership dissolution does not prevent personal recovery of intervention costs incurred in relation to an individual solicitor.

The Law Society intervened in the appellant solicitor’s practice after its Professional Regulation Panel had reason to suspect dishonesty. It sought £191,619.64 for intervention costs and served a statutory demand. The appellant applied to set it aside under the Insolvency Rules 1986.

A District Judge dismissed the application in the Guildford County Court on 3 February 2006. The appellant appealed, advancing nine arguments, including invalid delegation, discrimination, Convention rights, disputed costs, unbilled fees, mitigation, contribution rights and partnership dissolution. The central issue was whether any argument disclosed a proper ground for setting aside the statutory demand.

1. Appeal dismissed. This was a true appeal, not a rehearing. The appellant had to show an error of law or findings of fact unsupported by sufficient evidence.
2. The Council had validly delegated its intervention functions. Section 79 of the Solicitors Act 1974, together with regulations 18 and 24 of the Law Society’s general regulations 2002, permitted delegation to the Adjudication Panel. The Council’s resolution requiring independence in adjudication did not amount to surrender of its powers. The intervention resolution was therefore valid.
3. The alleged employment loss could not constitute a cross-claim sufficient to set aside the demand. The appellant had never become a CPS employee. At the relevant date both practising certificates were suspended, and the evidence supported the District Judge’s conclusion that the ongoing Customs investigation caused the refusal of employment.
4. The intervention procedure under Schedule 1 was Convention-compliant. The appellant had an opportunity to apply to the High Court under paragraph 6(4), but elected not to do so. Article 6 did not provide a basis for a claim against the Society.
5. Unbilled fees were assets which might be relevant to a later insolvency question, but did not constitute an immediately available set-off against intervention costs. Agreed intervention expenses could not be challenged through a mitigation argument.
6. Any contribution rights against partners or third parties were potential assets, not grounds for setting aside the statutory demand. Dissolution of the partnership did not prevent recovery of intervention costs, which arose from intervention in the appellant’s individual practice and constituted a personal claim against him.

• Guildford County Court: District Judge Karp dismissed the application to set aside the statutory demand on 3 February 2006.
• High Court (Chancery Division): The appeal was dismissed.