Acting to stop harm: the FCA and Appointed Representatives
Williams and Solicitors Regulation Authority  EWHC 1478 (Admin)
Mr Peter Williams (the Applicant), a former solicitor, lodged an appeal against the findings of misconduct against him by a Tribunal of the Solicitors Disciplinary Tribunal (SDT). In short, the issues were in respect of representations made by the Applicant which were alleged to amount to dishonesty or a want of integrity.
Background to the representations
The referral to the Solicitors Regulation Authority (SRA) about the Applicant had been made by Wilson Solicitors LLP (Wilsons), whom in the course of reviewing the Applicant’s files noted concerns. It is of note that the report made by Wilsons was done in the course of court proceedings involving an Involuntary Notice of Retirement which was acrimonious. The crux of the report made by Wilsons to the SRA was that the Applicant had planned and sought to implement a scheme to defraud the client’s creditors, and in this attempt, misled, or cause his client to mislead, third parties.
The client for whom the Applicant was acting was made bankrupt in April 2009, which was discharged in April 2011. The client owned a property which was mortgaged by Northern Rock Asset Management PLC (NR). The mortgage debt was in the region of £2.9 to £3m. A gentleman known to the client, JD, was presented to the Applicant as being interested in purchasing the property for the sum of £3.9m. The Applicant met JD for the first time on 18 February 2010, but he decided not to act, informing the client of this in a letter dated 2 March 2010. It is of note that the Applicant was concerned with the role he was being asked to play; essentially to negotiate with NR to achieve the lowest price for the property, although he had knowledge that a higher price was already available.
The client returned to the Applicant in April 2011, and at a meeting on 27 April 2011, the client instructed the Applicant to act in relation to a proposed transaction involving the purchase of the property from, or with the agreement of, NR, at a price consistent with the market value. The client had a connection with the purchasing entity, and therefore hoped to profit from the sale of the property to JD. The Applicant advised that he was prepared to act if:
On 16 June 2011, the Applicant obtained an open market valuation of the property to the sum of £2.3m. On 22 June 2011, the Applicant advised NR of his client’s connection with JD, and that “our client will seek to negotiate with the Purchaser in order to try to obtain an increase in the offer, ideally to £2.3 million”. A written report confirming the valuation was provided by the company instructed by the Applicant on 26 July 2011. NR responded on 13 July 2011 to the effect that it would not be prepared to sell unless the price was fully supported by independent valuation evidence due to the connection between the client and JD. Following this, NR obtained two valuations, and agreed to the sale of the property for £2.2m.
On 16 August 2011, during a telephone conversation, the Applicant advised NR that he was “engaged in the process of trying to get a firm increased offer”. On 1 November 2011, the Applicant advised NR that the offer of £2.2m had not been made by the client, it was an offer made to the client by a prospective purchaser. On 9 November 2011, NR wrote to the Applicant agreeing to sell the property at £2.2m; however the sale did not proceed despite various communications.
On 8 March 2012, the Applicant wrote to two banks, in the same terms as mentioned above, regarding the possibility of a loan to the purchaser. The Applicant stated that his firm acted for the purchaser.
On 13 April 2012, the Applicant sent a letter to the solicitors acting for the client’s trustee in bankruptcy stating that the client did not have a valuation of the property for £3.9m. In November 2013, an order was made authorising the sale of the property at £2.25m, and the sale was finally made by NR to a third party for £2.4m in July 2014.
The SRA served a statement in accordance with Rule 5(2) of the Solicitors (Disciplinary Proceedings) Rules 2007 on 22 August 2015; this statement did not include dishonesty. An amended statement was served on 1 December 2015 which included dishonesty by the Applicant, and also that he had deceived the court at a possession hearing on 22 September 2011. This allegation rested on statements made by the Applicant to the effect that there was negative equity in the property in respect of which NR had obtained a valuation confirming the market value at £2.2m.
The SRA’s case, up until closing submissions, included an allegation that the Applicant had lied about the value of the property. The SRA withdrew its case in this respect, and the Tribunal ordered the SRA to re-amend the Rule 5 statement.
The Tribunal found that the Applicant had made the following false representations:
“i) The £3.9m representation: [the Applicant] had acted dishonestly, failed to act with integrity, failed to behave in a way that maintained the trust the public placed in him and the provision of legal services and took unfair advantage of third parties in his professional capacity;
ii) The F Ltd representations: [the Applicant] had failed to act with integrity and failed to behave in a way that maintained the trust the public placed in him and the provision of legal services; and
iii) The negotiation representations: [the Applicant] had failed to act with integrity and failed to behave in a way that maintained the trust the public placed in him and the provision of legal services” (para 35).
The Tribunal found all of the representations demonstrated a “manifest” lack of integrity. As to dishonesty, the Tribunal took account of the test in Twinsectra Ltd v Yardley and others  UKHL 12;  2 AC 164. The Tribunal found the £3.9m representation to be both objectively and subjectively dishonest.
The material appeal points were that the Rule 5 statement was deficient, the allegations underlying the findings on the £3.9m and the F Ltd representations were not put to him and that “each finding was in any event irrational, perverse, unsupported by the evidence given before the Tribunal and inadequately analysed and considered by the Tribunal” (para 45)
The appeal in relation to the F Ltd representations was not opposed by the SRA on the basis that they were not pleaded as any part of the SRA’s case.
As to dishonesty versus want of integrity, the court noted that the SRA was seeking permission to appeal Malins v SRA  EWHC 835 (Admin);  4 WLR 85 (as well as the permission already granted in SRA v Wingate and Evans). By way of background, In Newell-Austin v SRA  EWHC 411 (Admin), Morris J opined that dishonesty and integrity were mutually distinct concepts; specifically that lack of integrity does not require conscious transgression. Our previous blog on this case can be accessed here. In Malins, Mostyn J concluded that the two concepts are synonymous stating:
“It is elementary, and supported by abundant authority, that if you are accused of dishonesty, then that must be spelt out against you with pitiless clarity. In my judgment, you cannot circumvent this obligation by pleading the same facts and matters as want of integrity. We do not have in our system dishonesty in the first degree and dishonesty in the second degree.”
As to the comments by Mostyn J, Sir Brian Leveson stated as follows:
“…..I ought to make it clear that, in the absence of compelling justification, I would reject Mostyn J’s description of the concept of want of integrity as second degree dishonesty. Honesty, i.e. a lack of dishonesty, is a base standard which society requires everyone to meet. Professional standards, however, rightly impose on those who aspire to them a higher obligation to demonstrate integrity in all of their work. There is a real difference between them” (para 130)
Having noted the potential appeals, the court proceeded on the basis that in respect of solicitors’ regulation, the concepts of dishonesty and want of integrity are “separate and distinct”, in that want of integrity “does not require the subjective element of conscious wrongdoing” thereby rejecting Mostyn J’s description in Malins.
In relation to the £3.9m representation, the court considered whether the Tribunal’s finding was one which was open to it on the basis of the SRA’s pleadings, and the hearing that followed.
The court commenced by considering the Rule 5 statement. Considering paragraphs 82 to 86 of the Rule 5 statement, the court stated: “On one view, the natural and proper reading is that each of paragraphs 83, 84 and 85 form part of the particulars of the first element of that cornerstone” (para 83) and on other view “a possible alternative reading of paragraphs 82 to 86 is that the allegations of deceitful misrepresentation were those set out in paragraph 85, and that there was no self-standing allegation of deceitful misrepresentation based on the letter of 13th April 2012 alone” (para 85).
The court noted that the Applicant was not cross-examined on the £3.9m representation, by reference to the documents leading up to it, or at all. Further, no mention was made of the representation in closing, although the letter of 13 April 2012 was referred to as “finely crafted”. Moreover, the Tribunal did not press the issue when the representation was described as “a very minor error” (para 91)
The court clarified that the key issue was whether the failure to cross-examine the Applicant in respect of the £3.9m representation, even though he had addressed the letter of 13 April 2012 at some length in his witness statement, was sufficiently unfair in all the circumstances. The key section of the judgement on this issue is at paragraph 95:
“There was ambiguity in the pleaded case. In all the circumstances, it was necessary for [the Applicant] to be challenged directly on the point so that his evidence could be tested properly before a finding of dishonesty could be made. The Tribunal could not fairly find him to be dishonest without the most careful consideration of what he said in his defence (as it was put by Lewison LJ, in Clydesdale Bank (supra) at )”.
In essence, the case was pleaded with some ambiguity, there was a failure to challenge evidence in cross-examination, there was no “meaningful reference” to the £3.9m representation in closing submissions, and that the combination of these matters rendered the Tribunal’s findings of dishonesty unfair. Notwithstanding, the court did not accept a submission by the Applicant that the entire judgement was “infected as a whole” (para 102). This was on the basis that the Tribunal carefully considered each of the allegations, deciding some of them in the Applicant’s favour. Whilst the Tribunal made a finding of dishonesty and two findings of want of integrity, these findings arose out of separate conduct, and therefore could not be considered to “infect” each other.
The appeal was therefore allowed on the basis that there had been serious procedural irregularity in relation to the finding of dishonesty on the £3.9m representation, and in relation to the finding of a want of integrity based on the F Ltd representations. The court invited the parties to make written representations as to how the appeal should proceed and as a means of resolving the outstanding issues.
The first striking feature is that the case law in respect of dishonesty and a want of integrity remains unsettled. My colleague Iain Miller addressed the decision in Malins in a previous blog which you can access here. We will be keenly awaiting the decisions in Wingate and potentially Mailns as to dishonesty versus a want of integrity.
The decision in this case demonstrates the critical importance of clear and unambiguous pleadings. It also demonstrates that a failure to test each element of misconduct in cross examination and/or closing submissions can potentially lead to a decision on the facts which is unsustainable.
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