The Law Society of England and Wales v Pathania

On intervention in a solicitor’s practice, the statutory trust covers money actually held by or on behalf of the solicitor at the intervention, together with money subsequently received. The phrase concerning the right to recover or receive money qualifies the Law Society’s resolution; it does not enlarge the assets covered. Claims for breach of trust or fiduciary duty, and loan repayment rights, are not sums held where no specific fund exists. Repayments later received are caught. A Compensation Fund grant is discretionary, so the Law Society may deduct appropriate sums owed to it from any payment.

The Law Society intervened in the practice of a sole solicitor after passing a resolution based on suspected dishonesty. Before intervention, the solicitor had made loans from the firm’s client account. The deputy High Court judge held that the loan choses in action vested in the Law Society, ordered the solicitor to account for any loss, and permitted set-off against any entitlement from the Solicitors’ Compensation Fund.

The appeal concerned the meaning and scope of paragraph 6 of Schedule 1 to the Solicitors Act 1974, the account ordered for past defaults, and the proposed set-off.

Appeal allowed in part. The appeal succeeded on the first and second issues and was dismissed on the third. Declarations (1)–(3) of the deputy judge’s order were not justified.

1. Paragraph 6(1) and paragraph 6(2)(a) of the Solicitors Act 1974 must be read separately. The reference to the right to recover or receive money qualifies the resolution which the Law Society may pass. It does not define or enlarge the assets covered by paragraph 6(2)(a).
2. The word held points to money actually available to the solicitor or held on his behalf at the intervention, or money subsequently paid to him. The surrounding provisions concerning possession, notices, payment into a special account and information about accounts support that construction. Paragraph 6A separately addresses rights to recover debts.
3. Money paid away before intervention in breach of trust or fiduciary duty is not within paragraph 6(2)(a) where no specific fund remains held by or on behalf of the solicitor. The solicitor may remain personally liable to clients, but that liability is not itself a sum of money held.
4. The choses in action represented by the loans were therefore outside paragraph 6(2)(a). The fact that a bank deposit and a loan repayment right are both choses in action did not determine the statutory question. The court followed the approach in Dooley, approved in Ahmed and supported by Austin; the intervention regime is principally precautionary and preventive, as explained in Rose v. Dodd. Repayments later received by the solicitor would fall within the statutory trust.
5. The solicitor could not be ordered under the paragraph 6 resolution to account to the Law Society for past defaults concerning the loans, although his liability to clients remained. A grant from the Compensation Fund was wholly discretionary under the SRA Compensation Fund Rules 2011. The Law Society could deduct appropriate sums owed to it from any payment otherwise made, so the appeal was dismissed on set-off.

1. Court of Appeal (Civil Division) — In [2019] EWCA Civ 517, the appeal was allowed on the construction of paragraph 6 and the accounting order, but dismissed on set-off.
2. High Court of Justice, Business and Property Courts, Business List (ChD) — The deputy judge held that the loan choses in action vested in the Law Society, ordered an account for loss or reduction in value, and permitted set-off against any Compensation Fund entitlement.