The Law Society v Karim & Ors [2007] EWHC 3548 (Ch)

[2007] EWHC 3548 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of JusticeDate Tuesday, 5th July 2005
Before
Mr Justice Lewison
Between
THE LAW SOCIETY-v-
Between
KARIM and others
(Transcribed from the official court tape recording by HarryCounsell & Co., Cliffords Inn, Fetter Lane, London EC4A 1LDTelephone 020 7269 0370)
Mr Matthew Collings (instructed by Messrs Orchards) appeared for ClaimantMr Sean Brannigan (instructed by Messrs Davies ArnoldCooper) appeared for respondents
J U D G M E N T - Nos 1 and 2
J U D G M E N T - Nos 1 and 2
[1]This is an application for summary judgment in a case in which the Law Society has intervened in the practice of a firm of solicitors called Karim Solicitors. The intervention relates primarily to two particular matters, one connected with certain building Society advances and the other called the Derany and Khan matter. The three defendants are the two principals in the firm and an employee, and it is accepted on their behalf that they are liable to account in the sense of being required to explain what has happened to money that they received into their client account. On that basis it follows that there is no defence to the Law Society's claim for an account and consequently the Law Society is entitled to summary judgment for an account.[2]The taking of the account, will, it is conceded, result in the payment of money by the defendants to restore the client account to what, it would have been had the solicitors accounts rules been properly complied with. The dispute is about, how much. Consequently what is asked for today is an interim payment in respect of such liability as may be established on the taking of the account.[3]Dealing first of all with the Building Society matters it is accepted for the purposes only of an interim payment that the defendants are liable to pay£352,835.89p. So far as the Derany and Khan matter is concerned it is accepted that the defendants are liable to pay £387,719.65p, subject to a deduction in relation to interest on an outstanding invoice of £65,851.97p. One issue that arises is at what rate interest should be charged on that invoice.[4]The matter principally in dispute is whether interest should be awarded on the sums which the defendants are liable to pay by way of interim payment at a fixed rate of 5.75 per cent, or at base rate plus 1 per cent. The second issue is whether interest should be simple interest or compound interest with yearly rests.[5]It seems to me that at any rate for the purposes of an interim payment I should adopt a broad brush approach and rather than require a calculation to be made of every movement in base rate to adopt a rate of 5.75 per cent both on the deduction in relation to the outstanding invoice in the Derany and Khan matter and on the balances of the principal amounts of money payable.[6]The remaining question is whether interest on those balances should be simple interest or compound interest. Again for the purposes of today only it seems to me that simple interest is what I should order and that is what I shall do.[1]Under Schedule 1 to the Solicitors Act 1974 the Law Society has a number of statutory powers. One of those powers is contained in paragraph 9 of the Schedule, which enables the society to require the production of documents, and the Society is entitled to apply to the High Court for an order allowing it to require third parties to produce documents.[2]Paragraph 9(6) of Schedule 1 provides:
"On making an order in this paragraph or at any later time the Court on the application of the Society may authorise a person appointed by the Society to enter any premises using such force as is reasonably necessary to search for and take possession of any documents to which the order relates."
There is therefore under the Schedule a statutory procedure analogous to the ordinary search and seizure orders.[3]On the 18th December 2003 the Society applied to the Court for such an order. The written statement filed in support of the application was sworn by Mr Sutton and he said in paragraph 10:
"We have obviously been concerned to ensure that the intervention agent has all the documents to which he is entitled. Throughout, the time since the intervention in June we have therefore sought to gather information that will help us to get to the bottom of what happened at Karim solicitors. For the reasons set out below I now believe that the remainder of the Karim solicitors files are located at Unit 1, Trafalgar Mews, Eastway E9 5JA title number of freehold EGL412764 title number of leasehold EGL430412 and as shaded red on page 3 of WPS 1 ('the premises'). 11. I consider that the source of this information is highly confidential. Details of why I believe that the files are located at the premises and the reasons why I consider our source should be kept confidential are set out in the confidential exhibit to this affidavit. All the details in the confidential exhibit are true to the best of my knowledge and belief. 12. Upon discovering the address of the premises I requested my colleagues in our property department to look into who owned and occupied the premises. A search of the indexed map was conducted (pages 1 to 3 of WPS 1) and from our results we were able to order an office copy from the Land Registry which revealed that the leasehold interest in the premises was held by Mark Norden and Kevin Frederick Crace (see pages 4 to 6 of WPS 1). We believe that Mr Crace is involved with the missing documents to the extent set out in the confidential exhibit WPS 2."
[4]The application for the order came before Mr Justice Blackburne. He was taken through the evidence, including the confidential exhibit, and he made the order souqht. The order recited that amongst the evidence that the applicants relied upon was the confidential exhibit, but the order did not require them to serve the confidential exhibit on the respondents to the application.[5]In due course the search order was executed and it revealed that there were indeed documents at the premises identified by Mr Sutton in his witness statement. A schedule of the documents is included in the case papers. A large number of the documents are text books of one kind and another, but they also include correspondence to and from Karim Solicitors, a ledger, several letters, either to or from those solicitors, and one or two files.[6]Mr Brannigan, who appears on behalf of the defendants, says, without contradiction by Mr Collings, that the documents that were seized as a result of the execution of that order have not or have not materially advanced the Society's case against the defendants. 7. Some 17 months later the defendants have asked to see the confidential exhibit. There was no application to set aside the search and seizure order; such an application would in any event be pointless since it has already been executed. But Mr Brannigan says that the question of the contents of the confidential exhibit and possibly the identity of the informant may be relevant to the question of costs. The question may arise partly in relation to the cost of the application for the search and seizure order itself and partly in relation to wider issues. He says that depending upon what the confidential exhibit contains he may be able to say that his clients should not have been subjected to lengthy interviews by the Society's intervention agents and that the costs of the exercise have been unnecessarily high. 8. I take as my starting point the general principleformulated by

Lord Justice Upjohn in Re K (infants) [1963] Ch. 381 at page 405:

"It seems to be fundamental to any judicial inquiry that a person or other properly interested party must have the right to see all the information put before the Judge, to comment on it, to challenge it and if needs be to combat it and to try and establish by contrary evidence that it is wrong. It cannot be withheld from him in whole or in part. If it is so withheld and yet the Judge takes such information into account in reaching his conclusion without disclosure to those parties who are properly and naturally vitally concerned the proceedings cannot be described as judicial". 9. A further statement of the general principle inrelation to search and seizure orders was that of Sir JohnDonaldson MR in WEA records Ltd -v- Visions Channel 4 Ltd [1983] 1 WLR 721. He said at page 728: "
I cannot at the moment visualise any circumstances in which it would be right to give a judge information in an ex parte application which cannot at a later stage be revealed to the party affected by the results of the application." 10. In the normal sort of case in which a party does not wish to reveal the source of an informer the party chooses not to rely on the information given by the informer. The informer may direct the party to attend at a particular place or to take certain action, but it is the result of the action which the party seeks to rely on. In the present case however that is not what happened. The Judge was invited to rely on the contents of the confidential exhibit. 11. Mr Collings, who appears on behalf of the Law Society, submits that it is not an inflexible principle that material placed before the Court by way of evidence must be shown to the person against whom it is deployed. He relies on the analogy of office holders who are given statutory responsibilities under the Insolvency Act. In Re British and Commonwealth Holdings PLC [1992] Ch page 342 the Court of Appeal considered the long-standing practice of office holders making confidential reports to the Court. What Justice Nourse said was that the provisions of Rule 9.5 of the Insolvency Rules effectively codified the long-standing practice. He held that there was a burden to discharge in seeking an order for inspection and that burden had to be discharged before the Court would exercise discretion in favour of inspection. But it is right to say that the starting point in that case was the rule itself, which provided that the report was not to be open to inspection without an order of the Court. Lord Justice Ralph Gibson at page 366 said this:
"To lay down as a basis for a new practice the principle, as in effect it would be on Mr Goldsmith's Submissions, that the statement must be disclosed unless the office holder can show that undue damage such as defeat of the proposed proceedings would or might result from disclosure would in my judgment reverse the apparent structure of the rule, which provides that a party wishing to see the statement must obtain an order of the court to that effect. The principle should be in my judgment that the applicant must show good reason for requiring disclosure before disclosure will be ordered and that disclosure should then be ordered by the court unless the office holder is able to show some more powerful reason for not disclosing the statement or some part or parts of it". 12. As is apparent from the way in which Lord JusticeRalph Gibson formulated the principle the starting point is the apparent structure of the rule. 13. In Re Murjani (a bankrupt) [1996]1 WLR page 1498, MrJustice Lightman considered the analogous provisions in relation to bankruptcy. The trustee had relied on confidential evidence before the Registrar and the Judge was concerned to decide whether he should have done. Having considered the cases of British and Commonwealth HoldingsPLC [1992]Ch 342 and WEA Records Ltd -v- Visions Channel 4 Ltd [1983] 1 WLR 721, Mr Justice Lightman said this(1508): "
The answer, as it seems to me, is that the wEa Records Ltd case merely restated a long established rule or principle of natural justice of general application in cases of adversarial litigation. There are two limitations on the rule which it was unnecessary for Sir John Donaldson MR to consider in his extempore judgment. The first is (as I ventured to suggest, in coca-cola -v- Gilbey) that the rule does not apply in non-adversarial litigation, e.g. on applications by trustees for directions whether to sue, or defend proceedings brought, by a beneficiary. The second in that the rule may admit of limited (principally if not exclusively statutory) exceptions. The principle established by the Court of Appeal in Re British and Commonwealth Holdings PIC clearly falls into one or other of those categories. The application by the office holder from order under Section 236 is a specialstatutory procedure designed to further and facilitate exercise of his statutory investigative powers and functions and must, if the statutory provisions for such investigations are to be effective, enable him to justify the need for the order without having to make disclosures which may frustrate the whole exercise. Rule 9.5 of the Rules of 1986 accords with and confirms the existence and applicability of this exception and it is in no wise inconsistent with the principle of natural justice or ultra vires. I have no doubt that the decision in Re British and Commonwealth Holdings PLC is good law and is an exception (as the judgments in the case recognise) to the general rule, a general rule which the judgments acknowledge, though without reference to its restatement in the wea Records Ltd case". 14. Mr Collings submits that the Law Society is performing regulatory functions and therefore falls within an analogous principle to that enunciated in Re Murjani and British and Commonwealth Holdings. I am inclined to agree, but that does not mean that the Law Society has an absolute right to withhold information. Once information has been placed before the Court and is relied on in support of the making of an order, particularly in cases where the Society wishes to pursue an application for costs in relation to the making of that order, there is in my judgment sufficient to discharge the burden that the party against whom the order was made wishes to see the evidenceupon which the order was based. The burden then swings back to the Law Society to justify withholding that information. 15. In the present case Mr Brannigan submits that noreason other than a general desire for confidentiality has been placed before the Court. The reasons for keeping confidential the source of the information were themselves contained in the confidential exhibit which I have not seen and upon which Mr Collings did not rely in this application. In my judgment therefore the Law Society have not demonstrated that it is necessary to keep confidential either the contents of or the identity of the informant who provided the information in the confidential exhibit, and I would order it to be disclosed.