The Law Society v Waddingham & Ors [2012] EWHC 1519 (Admin)

Case No CO/2979/2009[2012] EWHC 1519 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
DIVISIONAL COURT
ON APPEAL FROM THE SOLICITORS DISCIPLINARY TRIBUNAL
IN THE MATTER OF THE SOLICITORS ACT 1974
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 01/06/2012
Before
LORD JUSTICE RICHARDSMR JUSTICE MADDISON
Between
The Law Society (Acting Through Its Independent Regulatory Arm The Solicitors Regulation Authority)AppellantGerard Joseph Waddingham1 st RespondentDavid Thomas Smith2 nd RespondentNeil David Parsonage3 rd Respondent
Mr Timothy Dutton QC (instructed by Russell Jones & Walker Solicitors) for AppellantMr Simon Myerson QC (instructed by Lindsays Solicitors) for 2 nd& 3 rd RespondentsHearing Hearing dates: 26 January 2012
Judgment
[1]These are appeals by the Law Society, acting through the Solicitors’ Regulation Authority (“the Authority”) against findings and orders made by the Solicitors’ Disciplinary Tribunal (“the Tribunal”) in proceedings taken by the Authority against Gerard Joseph Waddingham, David Thomas Smith and Neil David Parsonage, which were heard by the Tribunal on 1st and 2nd October, 2008. Proceedings were also taken against Michael Scott Winston, but no appeal arises in his case. I will refer to them collectively in the context of the proceedings as “the Respondents”.[2]Following the lodging of these appeals, Mr Waddingham undertook to this Court and to the Authority to cause his name to be removed from the Roll and not seek re-admission at any future time. In these circumstances, and by the consent of the parties, the Court ordered on 24th January, 2012 that the appeal relating to Mr Waddingham be withdrawn, and that there be no order as to costs. The appeals against the Tribunal’s findings and orders relating to Messrs Smith and Parsonage remain to be determined. Although the appeal in Mr Waddingham’s case has been withdrawn, and there is no appeal in Mr Winston’s case, it will be necessary to refer to them from time to time in this judgment in order properly to explain the allegations made against Messrs Smith and Parsonage.[3]At all relevant times Messrs Smith and Parsonage, together with Messrs Waddingham and Winston, were partners in the Solicitors’ firm of Ward Dewhurst in Preston, to which I will refer as “the Firm”. Proceedings were commenced against all four of them by a Notice of Application and a Statement pursuant to rule 5(2) of the Solicitors (Disciplinary Proceedings) Rules (“the Rule 5 Statement”) signed by George Marriott (who has since died) on behalf of the Authority on 25th January, 2008. Five allegations were made in all.[4]The first allegation, made against all four Respondents, was that they had improperly drawn monies from Client Account contrary to rule 22(1) of the Solicitors’ Accounts Rules, 1998 (“the 1998 Rules”). This related to the transfers of sums of £20,000 and £1,700 from the Firm’s Client Account to its Office Account on 30th September, 2005 and 31st October, 2005 respectively. The second and third allegations, also made against all the Respondents, related solely to the sum of £20,000. These allegations were that that sum had been improperly withdrawn from Client Account contrary to rule 23(1) of the 1998 Rules, and improperly transferred from Client Account to Office Account contrary to rule 19(2).[5]There was no clear evidence as to who had authorised these transfers, though the Firm’s cashiers said that the transfer of the £20,000 had been verbally authorised by Mr Smith and/or Mr Parsonage. The transfer of the £20,000 increased the credit balance in the Office Account to £20,591.91 and enabled the Firm to draw a cheque on the same day for £20,000 payable to Templeton Insurance Limited (“Templeton”) which had previously lent money to the Firm. The cheque for £20,000 was signed by Mr Smith.[6]By letter dated 30th November, 2005 the Respondents were informed by the Law Society that the Firm’s books and accounts would be inspected by a Mr Freeman, a Senior Investigating Officer, on 7th December, 2005. As a result of this, on or about 6th December, 2005 two representatives of the Firm’s then accountants, Lonsdale Partners, attended the Firm’s offices to review the Firm’s Client Account. They discovered the incorrect transfer of the £20,000. On the same day the ensuing shortage, together with that resulting from the incorrect transfer of £1,700, were made good from funds belonging to Mr Waddingham and his wife personally.[7]On 7th December, 2005 Mr Freeman’s inspection began, during which various irregularities were discovered which later formed the basis of the allegations made against the Respondents in the disciplinary proceedings.[8]In a letter to the Law Society dated 28th September, 2006 Mr Waddingham said that he did not authorise the transfer of the £20,000, but learned of it in December, 2005 and that the £20,000 paid to Templeton was part of a loan repayment. In a letter of the same date from Mr Smith to the Law Society, of which what follows is intended only as a brief summary, Mr Smith said that he could not recall who had authorised the transfer of the £20,000, though it might have been himself or Mr Parsonage. He agreed that the money had been used to repay part of a loan made to the Firm by Templeton. Due to what Mr Smith accepted were inadequate accounting procedures, the shortfall of £20,000 had not been noticed until the Law Society’s notice of inspection was received. In a letter to the Law Society dated 29th September, 2006 Mr Parsonage gave an account broadly similar to that of Mr Smith, adding that he (Mr Parsonage) did not know who had authorised the transfer of the £20,000. Mr Smith and Mr Parsonage both accepted that the transfer and payment of £20,000 had been made in breach of the 1998 Rules. They both contended that the transfer of £1,700 had been made in error, and that they had been unaware of it until Mr Freeman had drawn it to their attention.[9]It should be noted that the Authority did not allege that any of the Respondents had acted dishonestly in relation to these sums of £20,000 and £1,700. During the Tribunal hearing, Mr Marriott, on behalf of the Authority, instead attributed what had happened to defects in the Firm’s accounting procedures.[10]The fourth allegation was made against Messrs Waddingham, Smith and Parsonage. It was that they had acted in circumstances of conflict of interest in the making of loans to Messrs Smith and Parsonage. It is to be noted that the way in which the allegation was framed accepted that the payments concerned were loans. The Authority alleged that Messrs Waddingham, Smith and Parsonage had acted dishonestly in this regard, though the Rule 5 Statement correctly pointed out that dishonesty was not an essential element of this fourth allegation, which could therefore be found proved without any element of dishonesty.[11]The facts relevant to the fourth allegation were as follows. A client of the Firm, coincidentally named Mr Dewhurst, died in 1973. In his will he appointed Mr Waddingham and Mr Waddingham’s father, who was then also a partner in the Firm, as his executors and trustees. Clause 10 of the will provided that the residue of Mr Dewhurst’s estate be held by the trustees in trust “…for such institution or institutions or other object or objects as my Trustees may in their absolute discretion select and if more than one in such proportions as my Trustees may think proper AND I REQUEST but without imposing any duty or obligation on them or in any way interfering with the discretion previously given to them, my Trustees shall select such institution or institutions or such object or objects as shall be of a Roman Catholic nature or related to the welfare of Animals.”[12]On 2nd March, 1984 Mr Waddingham’s father died and Mr Waddingham became the sole trustee of the will. Letters later produced by Mr Waddingham showed that between 1995 and 2004 about £30,000 of the trust fund was distributed by him to institutions of or associated with the Roman Catholic Church. However, in 2000 it was proposed that some of the trust funds should be used to make loans to a partner or partners in the Firm. It was unclear from the evidence available to the Tribunal which of the partners made this proposal, how many loans were being contemplated at that stage, or to which partner(s) it was contemplated that the loan(s) should be made. However, Mr Waddingham was later to tell Mr Freeman that his initial reaction was that it should not be done, at least until Counsel’s Opinion on the matter had been obtained.[13]The result was that Mr Parsonage instructed Mr Paul Creaner of Counsel to advise. Evidence was no longer available to the Authority of the instructions that were given to Mr Creaner, but it appears from his ensuing Advice dated 6th September, 2000 that he may well have been asked to advise only in relation to a single loan to Mr Smith. I say this because in paragraph 6 of the Advice, Mr Creaner stated:
“For reasons totally unconnected with the business of the firm David Smith needs to borrow a relatively modest amount of money”
. In paragraph 7 Mr Creaner stated:
“My advice is sought as to whether it is permissible for Gerard Waddingham to lend trust money to David Smith.”
In paragraph 9 of his Advice Mr Creaner observed that clause 10 of the will gave Mr Waddingham an unfettered discretion. In paragraph 12 he stated:
“After careful consideration I have come to the conclusion that to lend money to David Smith is permissible (though it may appear at first blush to be an investment which is not permitted).” “My advice is sought as to whether it is permissible for Gerard Waddingham to lend trust money to David Smith.” “After careful consideration I have come to the conclusion that to lend money to David Smith is permissible (though it may appear at first blush to be an investment which is not permitted).”
[14]Following receipt of that Advice, £15,000 was loaned to Mr Smith from the trust fund on 22nd September, 2000. This was to assist Mr Smith in relation to financial difficulties he was facing following a divorce. Subsequently, a number of further loans from the trust fund were made both to Mr Smith and to Mr Parsonage. They and Mr Waddingham were all later to tell Mr Freeman that these further loans were to enable Messrs Smith and Parsonage to introduce further capital into the Firm, as indeed they did, the sums loaned all being placed into their Capital Accounts. These further loans were as follows: Date of Loan Amount of Loan To Whom Loan Paid 31st July 2002 £10,000 Mr Parsonage 16th August 2002 £14,500 £ 4,500 Mr Smith Mr Parsonage 19th August 2002 £19,500 £19,500 Mr Smith Mr Parsonage 2nd September 2002 £10,000 £10,000 Mr Smith Mr Parsonage 24th October 2002 £ 5,500 Mr Parsonage 30th October 2002 £10,500 Mr Smith 12th November 2002 £ 5,000 Mr Parsonage 4th December 2002 £ 2,000 Mr Parsonage 20th February 2003 £ 5,000 £ 5,000 Mr Smith Mr Parsonage 4th March 2003 £11,500 £11,500 Mr Smith Mr Parsonage Thus the total sums paid to Mr Smith and Mr Parsonage were £86,000 and £73,000 respectively.[15]Mr Waddingham was able to provide Mr Freeman with “promissory notes” relating to all these loans except for the original one of £15,000 to Mr Smith made on 22nd September, 2000. Two of the promissory notes suggested that on 4th December 2002 £1,000 was loaned to each of Mr Smith and Mr Parsonage, rather than £2,000 to Mr Parsonage alone, but nothing significant turns on this. By each of the promissory notes the recipient of the money concerned promised to repay it to Mr Waddingham “as Trustee of the Will of Thomas Joseph Dewhurst Deceased” (or similar wording) “together with interest thereon at the rate of 5% p.a. for value received” (or similar wording). No date for repayment was ever specified. None of these loans was secured.[16]The partners in the Firm received notice that what they had done was possibly irregular in the form of accounts for the years ending 30th January 2003, 2004 and 2005, prepared by their then accountants, Moore Smalley. Each of these accounts referred to the payments made from the trust fund to Messrs Smith and Parsonage, with the comment that “whilst this has been fully recorded in the firm’s books and records it would appear that the firm maybe in breach of rule 22 [of the 1998 Rules]”. That said, it is right to observe not only that the payments had indeed been fully recorded in the Firm’s books and accounts, but also that the Firm itself submitted each of the annual accounts prepared by Moore Smalley, including their comments about the loans, to the Law Society.[17]Messrs Waddingham, Smith and Parsonage all told Mr Freeman during his inspection in December, 2005 that they relied on Mr Creaner’s Advice together with their understanding of the terms of the will, when giving and receiving these further loans. They all regarded the loans as permissible, and a proper use of the trust funds. Mr Waddingham accepted in answer to Mr Freeman that he did not ask but perhaps should have asked Mr Creaner to reconsider his Advice when, after the initial loan to Mr Smith, which was for purposes unconnected with the Firm, further substantial loans were made both to Mr Smith and Mr Parsonage of monies all of which were ultimately placed in their Capital Accounts. Messrs Waddingham, Smith and Parsonage later offered broadly similar explanations in their letters to the Law Society dated 28th and 29th September, 2006 to which I have already referred. Messrs Smith and Parsonage added in effect that they did not challenge and had no reason to question Mr Waddingham’s authority to make the loans.[18]These loans to Messrs Smith and Parsonage had the effect of removing all or practically all of the monies remaining in the Dewhurst trust fund. As at 31st October 2005 only £6.20 remained. In the event, the funds thus removed were ultimately repaid by Mr Waddingham personally. Despite claims later made by Mr Waddingham to those investigating the allegations on behalf of the Law Society that he intended to demand repayment from Messrs Smith and Parsonage, and claims by Messrs Smith and Parsonage that they intended to repay Mr Waddingham, Mr Waddingham had not in fact received any reimbursement either from Mr Smith or Mr Parsonage by the time these appeals were heard.[19]To complete the history relating to the loans to Messrs Smith and Parsonage, I should add that Mr Waddingham subsequently instructed Messrs Halliwells, Solicitors, to represent him in connection with the disciplinary proceedings, and Halliwells obtained an Opinion from Mr Nicholas Riddle of Counsel dated 10th January, 2007. In his carefully reasoned Opinion, Mr Riddle advised that the trust of the residuary estate was in fact void “for administrative un-workability”. There was therefore a partial intestacy, and Mr Dewhurst’s statutory next of kin as at the date of his death were entitled to his residuary estate. It would, opined Mr Riddle, be wholly inappropriate for Mr Waddingham to remain as trustee. In reality, therefore, Mr Waddingham had been holding Mr Dewhurst’s residuary estate on trust for the persons entitled to it upon the intestacy, though he did not appreciate this until receiving Mr Riddle’s Opinion.[20]The fifth allegation was made against Messrs Waddingham and Smith only. It was that they acted in circumstances of conflict of interest in making loans to a company called Impact Assist Limited (“Impact”). Again the way in which the allegation was framed accepted that the payments concerned were loans. The Rule 5 Statement made it clear that the Authority alleged that Messrs Waddingham and Smith had acted dishonestly in this regard, whilst pointing out that dishonesty was not an essential element of the fifth allegation.[21]The relevant facts were that on 3rd August, 2000 £10,000 was transferred from the Dewhurst trust funds to a client ledger in the name of Impact. Impact was a company which leased vehicles to persons who had been involved in road traffic accidents, and recommended the Firm to any such persons who might become involved in litigation as a result of the accidents. On the same day (3rd August 2000) a director of Impact signed a document by which Impact agreed “to pay interest on all monies advanced to us from time to time by the Trustees of Thomas Joseph Dewhurst Deceased at the rate of 8% per annum.” The loan was unsecured, and was not made on terms that could render any of the directors of Impact personally liable.[22]From the £10,000 transferred to the client ledger, three payments to Impact, each of £1,762.50 were made during August and September, 2000 (a total of £5,287.50). Mr Waddingham told the investigating officer Mr Freeman that he had agreed that these sums should be paid to Impact, whereupon Mr Smith had dealt with the matter. Mr Waddingham added that the payments represented loans from the trust fund to Impact. They were not payments for services rendered by Impact to the Firm. Mr Smith told Mr Freeman that he had been aware of the payments, which were made to settle debts owed by Impact to third parties in respect of vehicle rentals. He agreed with Mr Waddingham that the payments did not relate to monies owed by the Firm to Impact.[23]On 21st September, 2000 £3,000 of the £4,712.50 now remaining in the Impact client ledger was transferred back to the Dewhurst Trust Fund. Much later, on 4th August, 2003 the remaining £1,712.50 was transferred to the office bank account in part settlement of bills rendered by the Firm to Impact for professional fees.[24]Impact did not in the event pay any interest on these loans.[25]Both Mr Waddingham and Mr Smith insisted to Mr Freeman, and in their letters to the Law Society dated 28th September, 2006, that they considered the use of the Dewhurst Trust Funds as described above to have been proper. It will be noted, however, that some of the financial dealings in relation to Impact took place before Mr Creaner’s Advice was received, and that Mr Creaner does not appear to have been instructed to advise in relation to such dealings.[26]The monies owing to the Dewhurst trust as a result of the Firm’s loans to Impact were later repaid by Mr Waddingham from his own funds.[27]I now turn from the nature of the charges made by the Authority to the conduct of the proceedings before the Tribunal on 1st and 2nd October 2008.[28]At the beginning of the hearing the Tribunal was informed by Mr Marriott on behalf of the Authority that the Respondents admitted all the allegations made against them, the central issues being whether Messrs Waddingham, Smith and Parsonage has acted dishonestly when making loans from the Dewhurst trust funds to Messrs Smith and Parsonage, and whether Messrs Waddingham and Smith has done so when making loans to Impact. It was not alleged that Mr Winston had been involved in any of the loans, or that he had acted dishonestly in any respect.[29]Mr Marriott then made an application to add a further allegation, namely misuse of trust funds, against Messrs Waddingham, Smith and Parsonage. He had given notice to all parties of his intention to make this application by letters dated 25th April, 2008 and 23rd September, 2008. In relation to Messrs Waddingham and Smith this proposed allegation, which would be the sixth to be made against them, related to the loans of the Dewhurst trust monies to Messrs Smith and Parsonage and to Impact to which I have referred. In relation to Mr Parsonage the proposed allegation, which would be the fifth to be made against him, related to the loans of the Dewhurst trust monies to him and to Mr Smith. Mr Marriott observed that the proposed new allegations could not take any of the Respondents concerned by surprise, since the allegations relied entirely on the material already in the Rule 5 Statement. The failure to include the proposed further allegations of misuse of trust funds in the Rule 5 Statement had been an oversight on his part.[30]Mr Goodwin, representing Mr Waddingham and Mr Edwards, representing Messrs Smith and Parsonage, objected to the proposed additional allegations, not because they were taken by surprise, but because if Mr Marriott’s application was granted, and the additional allegations were then found to be proved, their clients would be liable to an additional penalty. After a short adjournment, the Chairman announced that the Tribunal would grant Mr Marriott’s application adding:
“We anticipate that the allegation will be contested but in reality it will run hand in glove with the allegation of dishonesty.”
There was no indication at that stage from any of the parties as to whether or not the additional allegation would in fact be contested.[31]The Rule 5 Statement was then amended accordingly. To each of paragraphs 2, 3 and 5 of the Rule 5 Statement, which listed the allegations made respectively against Messrs Waddingham, Smith and Parsonage the words “Misused trust funds” were added. An amendment was also made to paragraph 58, the relevant passage of which now read:
“Dishonesty is not an essential ingredient of any one of the allegations. Nevertheless the case is put against [Messrs Waddingham, Smith and Parsonage] on the basis that they were dishonest with regard to the allegations relating to conflict of interest and misuse of trust funds. The issue of dishonesty will be a matter for the Tribunal to decide, but it will be open to the Tribunal to find any or all of the allegations proved without any element of dishonesty.”
The words underlined were those added by way of amendment. Paragraph 59 was also amended to make it clear that the matters which the Authority wished the Tribunal to consider when deciding whether the allegations of conflict of interest involved dishonesty now applied in the same way to the new allegations of misuse of trust funds.[32]When Mr Marriott opened the case, he said that he would not be calling witnesses because all the evidence was agreed. He accepted that he bore the burden of proving the allegations of dishonesty to the criminal standard, that is beyond reasonable doubt. The Tribunal would have to decide, separately in relation to Messrs Waddingham, Smith and Parsonage, and separately in relation to each relevant allegation, whether what they did was dishonest by the ordinary standards of reasonable and honest people and if so, whether they themselves must have realised that what they were doing would be regarded as dishonest by those standards. The two-part test is derived from Twinsectra Limited v Yardley and others [2002] 2 A.C. 164.[33]Mr Marriott then took the Tribunal through his Rule 5 Statement, and the documents exhibited to it. None of the Respondents gave evidence, but Mr Waddingham called two witnesses to give evidence as to his character, and written character references were submitted on behalf of Messrs Smith and Parsonage. These indicated that before becoming a Solicitor Mr. Smith had served with distinction for five years as an officer of the Metropolitan Police, and had for some years been a Lieutenant Commander in the Royal Naval Reserve. Mr Parsonage had given 22 years’ service in the Royal Naval Reserve, and had received a Reserve Decoration. He too was a Lieutenant Commander. Both had been required to sign the Official Secrets Act. Closing speeches followed, from Mr Marriott on behalf of the Authority, Mr Goodwin on behalf of Mr Waddingham, and Mr Edwards on behalf of Messrs Smith and Parsonage.[34]By now it was 5.15pm on the first day of the hearing. The Chairman said that the Tribunal would like to retire to consider “the dishonesty point”. After a short adjournment the Tribunal returned. At this stage what had until now been a competently conducted hearing began in my view to go astray. The Chairman immediately embarked on a judgment. He said:
“Save for [the allegations of misuse of trust funds] which I will come onto in a minute, we have been asked to rule in relation to allegations of dishonesty that arise out of that factual background. There have been admissions in relation to the breaches of the Accounts Rules and acting where there was a conflict of interest.”
In relation to the allegations of conflict of interest the Chairman referred to Twinsectra test for dishonesty and announced that the Tribunal was not satisfied that dishonesty had been made out against Messrs Waddingham, Smith and Parsonage. However, he said that the Tribunal had not deliberated in relation to the allegation of misuse of trust funds.[35]Mr Goodwin then said that he understood that the allegation of misuse of trust funds had also been admitted by the Respondents, subject to the question of dishonesty. In fact, the Respondents concerned had not expressly admitted this allegation, though in my view it should have been sufficiently clear from the way in which the hearing proceeded that this allegation was in fact admitted. The following exchange then followed. THE CHAIRMAN: Well, what I was going to move on to and say was in the light of the fact that we found the early allegations, as admitted, proven, but that there is no element of dishonesty so far as [Messrs Waddingham, Smith and Parsonage] are concerned, you may wish to reflect overnight. But if, Mr Goodwin and Mr Edwards, there is now an admission in relation to misuse of trust funds not connected with dishonesty, then we do not have to deliberate on that and give you a decision. MR GOODWIN: Yes. Just in terms of the way Mr Marriott put – it depends how he puts the misuse of trust funds. If it be that the Tribunal has found no dishonesty in relation to [the allegation of misuse of trust funds] as well – THE CHAIRMAN: We do not find dishonesty in relation to any of the allegations in this case. MR GOODWIN: Thank you, sir. Appreciate that. THE CHAIRMAN: But the allegation of misuse of trust funds remains, as I understand it, as a stand alone allegation.[36]By now matters had become confused. Having announced that the Tribunal had not yet considered the allegation of misuse of trust funds (as to which the Authority alleged dishonesty on the part of the Respondents), the Chairman now said that the Tribunal had not found dishonesty in relation to any of the allegations. Mr Goodwin then endeavoured to point this contradiction out to the Chairman. The Chairman retorted that the word “dishonestly” did not appear in the allegations of misuse of trust funds which were added by the way of amendment at the beginning of the proceedings. This was in fact true in relation to the amendments to paragraph 2, 3 and 5 of the Rule 5 Statement (see paragraph 31 of this judgment). However, Mr Marriott then pointed out (correctly) that it had been made clear by the amendments to paragraph 58 and 59 of the Rule 5 Statement (again see paragraph 31 above) that the Authority did allege dishonesty in relation to the misuse of trust funds. Indeed, although none of the parties raised the matter at this stage of the proceedings, it does appear that the Tribunal had been aware at the beginning of the proceedings that dishonesty was indeed alleged in relation to the misuse of trust funds. When allowing the Authority’s application to amend the Rule 5 Statement, the Chairman had said that “we anticipate that the allegation [of misuse of trust funds]…will run hand in glove with the allegation of dishonesty.”[37]After further discussion the Chairman said that:
“…it seems to me that misuse of trust funds and the Accounts Rules and the conflict of interest point are all wrapped up in the same factual matrix…save that in our view there is no dishonesty in relation to any of those allegations. Now the question that arises therefore is do you still contest a pure factual allegation that as part of this background there was a misuse of trust funds?”
[38]After the adjournment Mr Marriott said that although he had understood that all three Respondents were admitting the misuse of trust funds absent dishonesty, that now appeared not to be the case. It is unclear to me how Mr Marriott came to assert this when minutes earlier Mr Goodwin on behalf of Mr Waddingham, without any objection or correction from Mr Edwards on behalf of Messrs Smith and Parsonage, had told the Tribunal that the allegation of misuse of trust funds was admitted subject to the question of dishonesty. Be that as it may Mr Marriott went on to say that “…in those circumstances I do not propose to take this matter any further and do not invite you to find this allegation proved or otherwise, simply to park it or to adjourn it.” Then, when the Chairman observed that “this is not a criminal forum where matters are allowed to remain on the file”, Mr Marriott withdrew the allegation altogether. Proceedings were then adjourned until the following day, 2nd October, 2008. Thus the final outcome of these exchanges was that Mr Waddingham and Mr Smith fell to be dealt with in relation to the five allegations originally made against them, and Mr Parsonage in relation to the four allegations originally made against him, on the basis that dishonesty had not been proved against any of them in relation to the allegations concerning conflict of interest.[39]The Tribunal reconvened on 2nd October, 2008. Mr Goodwin spoke in mitigation on behalf of Mr Waddingham. Some of the points he made applied to all the Respondents and Mr Edwards later adopted them on behalf of Messrs Smith and Parsonage (and Mr Winston, whom he was now also representing). These points were the substantial time that had elapsed between the events which founded the allegations and the proceedings before the Tribunal; the anxiety, shame and distress resulting from the proceedings in general and the allegations of dishonesty in particular; the cooperation of the Respondents with the Authority’s enquiries; and their early acceptance of the allegations made against them, subject to the issue of dishonesty which had now been resolved in their favour.[40]Mr Edwards then addressed the Tribunal. He adopted the points already made by Mr Goodwin. He referred to the character testimonials that had been submitted on behalf of Messrs Smith and Parsonage. He pointed out that Mr Smith had been made bankrupt on 10th January 2008 as a result of debts relating to the Firm, which had now been dissolved. Mr Smith was now working as a consultant for a legal practice known as Quay Law. He had not yet received any income in that regard, but had received about £2,500 in the past year in his capacity as a naval officer. He was the father of a disabled child. Mr Parsonage was now a partner in a firm of Solicitors known as the Solomon Partnership, drawing £2,000 a month and receiving about £10,000 for his share of profits in the previous financial year. He had also received about £500 in his capacity as a naval officer. He was the father of triplets, who were about to go to university, and was subject to financial burdens accordingly.[41]The Tribunal then retired, and returned to announce its conclusions as to the penalties to be imposed. Mr Waddingham and Mr Smith were each fined £12,000 and Mr Parsonage £7,000. Mr Winston was fined £2,000. After further submissions about costs, Messrs Waddingham, Smith and Parsonage were each ordered to pay costs of £6,800, and Mr Winston £5,100.[42]The Tribunal published its written findings on 6th March, 2009. It set out its conclusions and explained the reasons for them in the final section, entitled “The Findings of the Tribunal” which began at paragraph 84.[43]Consistently with the announcement it had made during the proceedings of 1st October, 2008 the Tribunal stated that the allegations that Messrs Waddingham, Smith and Parsonage had acted dishonestly had not been made out. In paragraph 85 of its findings the Tribunal referred to the features of the case that had particularly influenced its conclusion, as follows. “In particular, Mr Waddingham, Mr Smith and Mr Parsonage had taken Counsel’s advice and believed that they had acted upon it. The Respondents had openly and transparently recorded all of the dealings with the trust money. They had been made aware of their Reporting Accountant’s concerns and yet did not budge from their position that handling of the trust money was appropriate.” In the case of Mr Waddingham it found in paragraph 91 that the first condition of the “Twinsectra” test had been met, since “…the public would undoubtedly regard his taking and use of the trust monies as dishonest…”. However, although there was “…some argument in saying that Mr Waddingham did know that what he had done was wrong…” the Tribunal was not sure about this. Thus the second of the Twinsectra conditions had not been met. The Tribunal went on in paragraphs 94 to 96 to repeat that dishonesty had not been made out against Mr Smith and Mr Parsonage either, without expressly indicating whether or not it had decided that the first condition of the Twinsectra test had not been met in either or both of their cases.[44]Although the Tribunal explained its conclusions and the principal reasons for them clearly enough in the paragraphs to which I have referred, Mr Timothy Dutton Q.C., for the Law Society, submits that viewed overall the concluding section of the Tribunal’s Findings contains significant contradictions and reflects the confusion which characterised the latter stages of the earlier Tribunal hearing. Though I will return to Mr Dutton’s submissions later in this judgment, this will be a convenient point at which to set out the features on which he relies in this regard. (a) Although in paragraph 85 the Tribunal accepted as a feature of the case pointing to a lack of dishonesty that “…Mr Waddingham, Mr Smith and Mr Parsonage had taken Counsel’s advice and believed that they had acted upon it”, in paragraph 93 it stated:
“The Tribunal fully considered the facts that the partners would have known the limitations within Counsel’s Advice and must therefore have been aware that the loans were not covered by that advice. They did not go back and seek clarification from Counsel…”. (b) Although in paragraph 85 the Tribunal referred to the fact that the Respondents “…had been made aware of their reporting Accountant’s concerns and yet did not budge from their position that the handling of the Trust money was appropriate”, in paragraph 89 the Tribunal said that it “…felt that the Respondents had acted atrociously. They continued to withdraw funds from the Trust despite having been given notice of their Reporting Accountant’s concerns…Mr Waddingham should have paused to check to see whether it was right to withdraw the monies in the way that he did.”
It should be noted that this latter passage appears to have been based on a false factual premise. The final loans to Messrs Smith and Parsonage of £11,500, each on 4th March 2003 were made before the Firm received Moore and Smalley’s accounts for the year ending 31st January, 2003, those accounts being dated 30th July, 2003. (c) In paragraph 86, the Tribunal stated that it “…had allowed the amended allegation in relation to [Messrs Waddingham, Smith and Parsonage] having misused trust funds and this was admitted”. It will be recalled that following confusion about this matter, Mr Marriott asserted towards the end of the Tribunal proceedings that this allegation was not admitted and ultimately withdrew it altogether. Indeed, the Tribunal itself recorded this development in paragraph 92, 94 and 96 of its Findings. Realistically, the allegation of misuse of trust funds would never have been withdrawn had it already been unequivocally admitted. (d) Reading together paragraphs 92, 94 and 96 it appears that in concluding that the Respondents had not acted dishonestly, the Tribunal attached significance to the fact that at the Tribunal hearing the Authority had ultimately withdrawn the allegations of misuse of trust funds. Thus in paragraph 92, immediately after stating that dishonesty had not been made out against Mr Waddingham, the Tribunal added:
“Significantly, the misuse of Trust funds allegation was not pursued against Mr Waddingham by the Applicant.”
In paragraph 94 it stated that it had been asked “…to find that Mr Smith had also been dishonest as there had been a conflict of interest in relation to the misuse of the Trust funds. The misuse of Trust funds allegation was not pursued against Mr Smith by the Applicant…”. In relation to Mr Waddingham, the Tribunal in paragraph 96 referred to the Authority’s submission that it was inconceivable that Mr Parsonage was not also dishonest, and added:
“The Tribunal was not satisfied that that could be right. The misuse of the Trust funds allegation was not pursued by the Applicant and in any event the Tribunal were not satisfied that the high test of dishonesty was made out.”
In fact, the position was that the Authority had contended from the outset that the circumstances of the loans to Messrs Smith and Parsonage and to Impact, which formed the basis of both the conflict of interest and the misuse of trust fund allegations, indicated dishonesty on the part of the Respondents. This remained their case in relation to the allegations of conflict of interest despite the late and unexpected withdrawal of the allegations of misuse of trust funds. Thus no significance should have attached to the withdrawal of the latter allegation. (e) Moreover, in some parts of its Findings the Tribunal made comments and findings so adverse to the Respondents that the conclusion that they had not been dishonest might appear surprising. For example, in paragraph 85 the Tribunal said that “there were undoubtedly concerns about the handling of the Mr D. Trust monies”. I have already mentioned that in paragraph 89 the Tribunal described the Respondents as acting “atrociously”. In paragraph 90 the Tribunal added that the Respondents’ “…handling of the Trust monies and the conflicts of interest that were identified by the Applicant were very serious matters”. In paragraph 91 the Tribunal found that “…Mr Waddingham had helped himself to the Trust monies outside the terms of the Trust” and that the public “…would undoubtedly regard his taking and use of the trust monies as dishonest.” In paragraph 93 the Tribunal stated or appeared to state that the Respondents must have been aware that the loans were not covered by Mr Creaner’s Advice, despite having suggested otherwise in paragraph 85.

The Appeals – The Legal Test

[45]Mr Dutton contends that the Tribunal erred in concluding that it had not been established that Messrs Smith and Parsonage had acted dishonestly in relation to the allegations of conflicts of interest. In any event, he submits that the financial penalties imposed were wholly inappropriate, given the gravity of the Respondents’ conduct. Before summarising his more detailed submissions, and those of Mr Simon Myerson Q.C. on behalf of Messrs Smith and Parsonage, this will be a convenient point at which to refer to the approach which this court should adopt when considering such an appeal.[46]Happily, the law in this regard is clear and uncontroversial, and I do not propose to embark on a detailed analysis of the authorities. In essence, when considering an appeal from a Solicitors Disciplinary Tribunal this court should accord considerable respect to the findings of and penalties imposed by the Tribunal, it being an expert and informed body; but as to the Tribunal’s findings, this court is entitled to substitute its own view in an appropriate case, and it is also entitled to interfere with the Tribunal sentencing decision if it was clearly inappropriate. (See e.g. Bolton v. The Law Society [1994] 1 WLR 512, 516 G-H, per Sir Thomas Bingham M.R.; Otchere v. The Law Society [2008] EWHC (Admin.) 2233 at paragraph 18 per Lloyd Jones J.; and Salsbury v. The Law Society [2008] EWCA Civ. 1285 at paragraph 30, per Jackson L.J.[47]I have summarized Mr. Dutton’s central submissions at paragraph 45 above. He relies on the confusion towards the end of the Tribunal’s hearing, and the inaccuracies in the Tribunal’s Findings to all of which I have referred, as showing that the Tribunal did not approach the issue of dishonesty in the correct way. He submits that the Tribunal placed too much emphasis on the criminal standard of proof in a case which turned on the inferences to be drawn from undisputed facts. He submits that although it would be open to this court to remit the case to the Tribunal for reconsideration, the Tribunal went so far astray that this court should determine the issues afresh, particularly since all the primary facts were admitted and no witnesses were called before the Tribunal.[48]Mr Dutton does not suggest that the initial loan of £15,000 to Mr Smith was dishonest. In relation to all subsequent loans, however, he submits that inferences of dishonesty from the undisputed facts of the case are unavoidable. Without intending to rehearse all of Mr Dutton’s submissions, he draws attention to the following features in particular.(a) Messrs Smith and Parsonage admitted that they had acted in conflict of interest in relation to the loans to themselves and (in Mr Smith’s case) to Impact.(b) Messrs Smith and Parsonage had respectively borrowed no less than £86,000 and £73,000 from a trust fund which they knew was being administered by their fellow partner Mr Waddingham.(c) Mr Smith had used the first £15,000 loaned to him to help to resolve the personal financial difficulty. Otherwise, both he and Mr Parsonage had used the monies loaned to them to pay into their Capital Accounts and thus to assist the Firm which itself was in such a parlous financial situation that, as they must have appreciated, it was highly unlikely that commercial loans would have been obtainable.(d) Messrs Smith and Parsonage must have appreciated that Mr Creaner’s Advice related only to the loan of £15,000 to Mr Smith for purposes unconnected with the firm.(e) Knowing the source and amount of the further loans they received, and the use to which the monies were to be put, they must have been concerned about the propriety of what was happening, yet they sought no further Counsel’s Advice.(f) The loans had been made to Mr Smith on seven separate occasions between 2000 and 2003, and to Mr Parsonage on nine separate occasions between 2002 and 2003.(g) The loans were unsecured and no date(s) for repayment were specified.(h) Neither Mr Smith nor Mr Parsonage had paid any interest on the loans, or repaid any part of the loans themselves.(i) Nothing was done following Moore and Smalley’s pointing out in the 2003, 2004 and 2005 Accounts that the loans made to Messrs Smith and Parsonage might be in breach of Rule 22 of the 1998 Rules.(j) In relation to the loans to Impact, Mr Smith knew that these were being made to a company which introduced work to the Firm.(k) The loans to Impact were unsecured; no dates(s) for repayment were specified; and nothing was done to render any of Impact’s directors personally liable.(l) At no stage was Counsel’s Advice sought specifically as to the propriety of the loans to Impact.(m) Moreover, Mr Smith later applied some of the money transferred from the Dewhurst trust fund to the Impact ledger in order to discharge part of the debt owed by Impact to the Firm in respect of professional fees rendered.(n) In relation to all of the loans, although there was an open documentary trail, and an obligation to repay, neither of these features negatived dishonesty. Had these features been absent, the Respondents could well have faced criminal charges.[49]As to the penalty imposed, Mr Dutton submits that a finding of dishonesty in this case would render inevitable the striking off of the Respondent(s) from the Roll of Solicitors. He further submits that even if the Respondents were not dishonest, they were guilty of serious misconduct and behaved in such a way as to forfeit the public’s trust in them, and damage the public’s trust in the Solicitors’ profession. He submits that the financial penalties in this case were wholly inappropriate. This court should consider making orders striking Messrs Smith and Parsonage from the Roll. Mr Dutton points out that in the past this court has upheld striking off orders in cases of serious misconduct in the absence of any finding of dishonesty, for example in Bolton v. The Law Society [1994] 1 WLR 512 and Weston v. The Law Society [1998] EWHC (Admin.) 681. At the least, he submits, orders imposing substantial suspensions from practice would be appropriate.[50]On behalf of Messrs Smith and Parsonage, Mr Simon Myerson Q.C. submits that many of the criticisms made of the Tribunal by Mr Dutton are not justified or amount to no more than insubstantial quibbles. For example, what the Tribunal said in paragraph 93 of its findings did not amount to a finding of fact, but only to an indication that it had considered the argument there referred to. Even if there were inconsistencies in the way the Tribunal expressed itself, the Tribunal was clearly aware that the issue whether or not Messrs Smith and Parsonage had acted dishonestly in relation to the allegations of conflict of interest remained a live one and fell to be determined. Moreover, the Tribunal was quite right to refer repeatedly to the criminal standard of proof, which applies just as much to the drawing of inferences as it does to the resolution of factual disputes. For these reasons, submits Mr Myerson, there is no need to remit this case to the Tribunal. Moreover, this court should accord the Tribunal’s decision the respect to which the authorities indicate it is entitled, and should not interfere with the Tribunal’s findings or with the penalties it imposed.[51]Mr Myerson also submits that it would be inconsistent with the Law Society’s decision not to proceed with their appeal in relation to Mr Waddingham to find that Messrs Smith and Parsonage had acted dishonestly. In any event, he submits that the Tribunal was perfectly entitled on the admitted facts presented to it to conclude that dishonesty had not been proved to the requisite standard. Without intending to rehearse all of his submissions, he draws attention to the following features in particular.(a) The Authority accepted from the outset that the sums of money removed from the trust fund were used in order to make loans, the repayment of which was enforceable.(b) The Authority also accepted from the outset that dishonesty was not a necessary element of the allegations of conflict of interest and (while they were being made) misuse of trust funds.(c) The admissions of conflict of interest made by Messrs Smith and Parsonage reflected their state of knowledge at the time the admissions were made, rather than at the times when the various loans were made.(d) Mr Waddingham was the sole trustee of Mr Dewhurst’s will. Messrs Smith and Parsonage were never trustees.(e) Mr Dewhurst’s will did appear to give Mr Waddingham a complete discretion as to how to apply the trust funds. Messrs Smith and Parsonage were both junior to Mr Waddingham and, unlike him, did not specialise in trust law. They were entitled to rely on his assurances that the loans were permitted by the terms of the will.(f) Mr Creaner’s Advice confirmed that Mr Dewhurst’s will gave Mr Waddingham a complete discretion. Though written in relation to the first proposed loan of £15,000 to Mr Smith, the Advice did not suggest that other loans of trust money to partners in the Firm would necessarily be objectionable.(g) There was never any suggestion that Messrs Smith and Parsonage knew how much money was in the trust fund.(h) All of the loans were recorded in the Firm’s accounts. Messrs Smith and Parsonage never took steps to cover their tracks.(i) Promissory notes in relation to all the loans, except for the initial loan of £15,000 to Mr Smith, were obtained and retained.(j) The accounts from Moore and Smalley for the years ending 31st January 2003, 2004 and 2005, though all were qualified by concerns that the loans to partners might be in breach of Rule 22 of the 1998 Rules, were nevertheless all submitted to the Law Society.(k) The Authority’s assertion that trust monies had been placed into the Capital Accounts of Messrs Smith and Parsonage because they knew that commercial loans would probably be unobtainable was not made out. There was no evidence that any application for commercial loans had been made or refused, and the Firm had in the past borrowed substantial sums of money by way of commercial loans.(l) Messrs Smith and Parsonage were of unblemished character. Mr Smith had formerly served as a police officer. Both were now senior officers in the Royal Naval Reserve and had been required to sign the Official Secrets Act.[52]In relation to the penalties, Mr Myerson concedes, rightly in my view, that in the circumstances of this case, were there to be a finding of dishonesty it would be difficult to argue that the Respondents should not be struck off the Roll. However, submits Mr Myerson, findings of dishonesty would not be justified. Neither was this a case in which trust had been forfeited. The Respondents had continued to practice without restriction since the Tribunal announced its findings. The Tribunal had been fully aware of the gravity of the allegations when deciding to impose financial penalties. It had also been aware of the considerable delays prior to the Tribunal proceedings, and of the considerable mitigation that was available to each of the Respondents, as set out in the character references to which I have referred, and as drawn to the Tribunal’s attention in the closing submissions of Messrs Goodwin and Edwards to which I have also referred. In the circumstances, submits Mr Myerson, the penalties imposed by the Tribunal were not clearly inappropriate and should not be interfered with by this court. Moreover, since the penalties had been imposed, there had been further substantial delays before the hearing of the appeals. In the interim period Messrs Smith and Parsonage had been called up for service in the Gulf for about 14 and 18 months respectively and, on their return, had been engaged in legal practice without restriction for over a year. Had the Tribunal decided that suspensions were appropriate, the suspensions would probably have been served by now. It would be unjust to impose at this stage a more severe penalty than that imposed by the Tribunal.[53]I first consider whether this case should be remitted for the Tribunal for reconsideration and, if not, whether this court should re-examine the Tribunal’s findings that Messrs Smith and Parsonage did not act dishonestly.[54]I do not consider that the case should be remitted to the Tribunal. I regret to say that in my view the Tribunal dealt with this case in an unsatisfactory manner. I do not say that all of the criticisms made of the Tribunal are valid. For example, it was right to attach importance to the criminal standard of proof throughout the proceedings. I reject Mr Dutton’s submission that the inferences to be drawn from established facts are not assisted by reference to the standard of proof. A decision as to whether or not someone has acted dishonestly will very often be made by drawing inferences from the facts that are found (where they are disputed) or agreed (as in this case). It would be impermissible in my view in a case to which the criminal standard of proof applied to infer that the person accused had acted dishonestly without being sure that he had done so.[55]In other respects, however, the proceedings before the Tribunal and the way in which the Findings were expressed were characterised by confusion, inconsistency and sometimes inaccuracy. I have already referred to the particular features that have led me to that conclusion, and Mr Myerson’s skilled attempts to deflect criticism away from the Tribunal have not persuaded me otherwise.[56]For the same reasons, and because the primary facts were agreed and no evidence was called before the Tribunal, I consider that this court should re-determine the question whether or not Messrs Smith and Parsonage acted dishonestly. I remind myself that their cases should be considered separately from each other.[57]I have considered separately the objective and subjective limbs of the Twinsectra test, but have concluded that they stand or fall altogether. In the particular circumstances of this case, I cannot see how anyone could sensibly conclude that the conduct of Mr Smith or Mr Parsonage would have been regarded as dishonest according to the ordinary standards of reasonable and honest people, without their being aware that by those standards they were acting dishonestly.[58]I should next explain what factors I have and have not taken into account in deciding whether or not it has been shown to the criminal standard that Mr Smith and Mr Parsonage did act dishonestly.[59]I have not attached any weight to the Law Society’s decision to withdraw the allegations of misuse of trust funds, for the reasons I have already explained. Neither have I attached any weight to the Law Society’s decision not to pursue its appeal against Mr Waddingham. At no stage did the Law Society withdraw its allegation that Mr Waddingham had acted dishonestly. It withdrew its appeal because he had undertaken to cause his name to be removed from the Roll, and never to seek re-admission; and because he had acted responsibly in repaying the monies borrowed from the Dewhurst trust fund.[60]I have, however, had regard to the features on which the Law Society relies and which are set out in paragraph 48 above. Read together, these present a powerful case. I conclude that both Mr Smith and Mr Parsonage probably did act dishonestly, both parts of the Twinsectra test being met to that standard. However, I have also taken into account the counterbalancing factors on which Messrs Smith and Parsonage rely (see paragraph 51 above). I attach particular importance to those set out at (a), (f), (h) to (j) and (l). I am not able to be sure that either Mr Smith or Mr Parsonage acted dishonestly. Having regard to the criminal standard of proof, I conclude, as indeed did the Tribunal, that the allegations of dishonesty have not been made out.[61]I turn finally to deal with the penalties to be imposed. On any fair view it seems to me that by being parties to the removal of tens of thousands of pounds from what they knew was a trust fund administered by their partner Mr Waddingham, for the purposes of swelling their own Capital Accounts and (in Mr Smith’s case) of assisting Impact, a client of the Firm, and partly discharging a debt owed by Impact to the Firm, Messrs Smith and Parsonage were guilty of serious misconduct, which would be bound to diminish the public’s trust in the Solicitors’ profession.[62]In Bolton v. The Law Society, to which I have already referred, Sir Thomas Bingham M.R. said as follows at page 518D et seq.:
“If a Solicitor is not shown to have acted dishonestly, but is shown to have fallen below the required standards of integrity, probity and trustworthiness, his lapse is less serious but it remains very serious indeed as a member of a profession whose reputation depends upon trust. A striking off order will not necessarily follow in such a case, but it may well. The decision whether to strike off or to suspend will often involve a fine and difficult exercise of judgment, to be made by the Tribunal as an informed and expert body on all the facts of the case. Only in a very unusual and venial case of this kind would the Tribunal be likely to regard as appropriate any order less severe than one of suspension. It is important that there should be full understanding of the reasons why the Tribunal makes orders which might otherwise seem harsh. There is, in some of these orders, a punitive element: a penalty may be visited on a Solicitor who has fallen below the standards required of his profession in order to punish him for what he has done and deter any other Solicitor tempted to behave in the same way…The second purpose is the most fundamental of all: to maintain the reputation of the Solicitors’ profession as one in which every member, of whatever standing, may be trusted to the ends of the earth.”
[63]I have taken those remarks into account, since they seem to me to be applicable to this case. I have also taken into account the considerable mitigation on which Mr Smith and Mr Parsonage are entitled to rely, and to which I have already referred. I have also borne in mind that Mr Smith acted in conflict of interest in relation to the loans to himself and to Impact, whereas Mr Parsonage did so only in relation to loans to himself. In my judgment the financial penalties imposed by the Tribunal were wholly inappropriate. After anxious consideration, I have concluded that this is not a case in which a striking off order would be appropriate. However, I consider that it would be appropriate and proportionate to make orders quashing the fines imposed by the Tribunal but suspending Mr Smith from practice as a Solicitor for 18 months and Mr Parsonage for 12 months. I would allow Counsel to make short written submissions as to the date from which the suspensions are to take effect and as to any consequential matters arising out of this judgment. Lord Justice Richards: I agree.

Cited in 2 later judgments