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OUTER HOUSE, COURT OF
SESSION [2006] CSOH 148 |
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P1788/04 |
OPINION OF J GORDON REID Q.C. F.C.I.Arb Sitting as a Temporary Judge in the Petition of (FIRST)
JOHN BILLIG (SECOND)
ALLIED STERLING PLC Petitioners; for Judicial Review of a decision of the Council of the
Law Society of made under section 43 of
the Solicitors ( ________________ |
Petitioners: Dean of Faculty, Wolffe;
Simpson & Marwick
Alt:
Introduction
[1] This Petition for
Judicial Review relates to a decision by the Council of the Law Society of
Scotland (the "Council") dated
[2] At the First Hearing,
which took place on 4, 5, 6 and 13 July 2006, the Petitioners sought inter alia decrees of declarator
and reduction of the Council's decision, and the Respondents, the Council,
sought dismissal. The issues debated
before me raised questions about the administration of the Scottish Solicitors
Guarantee Fund (the "Guarantee Fund") currently established by section 43
of the Solicitors (
[3] The issues debated
before me largely concerned the question (which can be expressed in a variety
of ways) whether there was material before the Council entitling them to make a
finding of negligence on the part of the Petitioners, and if there was not,
whether the Council had a general or residual statutory discretion to refuse to
make a grant, and whether the proceedings therefore fell to be remitted to the
Council to consider the exercise of any such statutory discretion. Other related questions were also debated and
fall to be determined.
[4] Finally, by way of
introduction, I record that the petitioners tendered a short Minute of
Amendment which substituted declaratory craves for branches (3) and (4) of Article
3 of the Statement of Facts. The
amendment was not opposed and I allowed it.
Statutory Background
[5] A compensation fund was
established in
"(1) A fund to be called "the Compensation
Fund" shall be established ... By the
Society for enabling the society to make grants thereout
in any cases which the Council think suitable for such treatment and in their
absolute discretion decide so to treat, for the purpose of relieving or
mitigating losses sustained by any person in consequence of dishonesty on the
part of any solicitor ..."
[6] The Legal Aid and
Solicitors (
"to cover one of the
great injustices that has sometimes occurred in legal circles, where
unfortunately a solicitor may have gone off the rails; he may have embezzled
money belonging to a client, and the client has unfortunately had to go without
any proper compensation because the solicitor's estate has not been sufficient
to provide proper compensation.
In assessing what the compensation should be, provision is made in this Clause that the compensation
should be the compensation which, in the opinion of the Council of the Law
Society, will be appropriate. It may be
total compensation, or it may be partial compensation, because subsection (3)
makes provision for the limiting of the compensation if there has been
negligence on the part of the client. We
feel that it has to be left very largely on a discretionary basis, having regard
to the merits of each case." (column 367)
[7] When the Bill was
considered in the House of Lords for its Second Reading on
"... Clause
22 ... provides for the establishment of a Guarantee Fund to compensate persons
who may suffer loss by reason of dishonesty on the part of any solicitor or a
servant of his. A similar Guarantee Fund
already exists in
[8] Section 22 of the 1949
Act provided inter alia that
"(2) ... the Guarantee Fund shall be held by the
society for the purposes of making grants in order to compensate persons who in
the opinion of the Council ... suffer pecuniary loss by reason of dishonesty on
the part of any solicitor ...
(3) ... The
Council may refuse to make a grant or may make a grant only to a limited extent
if they are of the opinion that there has been negligence on the part of the
applicant or of any person for whom he is responsible which has contributed to
the loss in question ..."
[9] The relevant provisions
of the English 1941 Act were substantially re-enacted in section 32 of the
Solicitors Act 1957. By subsection (2)
it was provided that if loss sustained in consequence of the dishonesty on the
part of a solicitor is proved "to the satisfaction of the Council" a grant may
be made "if the Council thinks fit".
This provision was in turn substantially re-enacted by section 36 of the
Solicitors Act 1974 which omitted the phrase "if the Council thinks fit" and simply
stated that the Society "may make a grant" of the purpose of relieving such
loss.
[10] The current Scottish
statutory provisions are in section 43 of the Solicitors (Scotland) Act 1980,
which provides inter alia as follows:-
"Protection
of clients
Guarantee Fund
43. - (1) There shall be a fund to be called "The
Scottish Solicitors Guarantee Fund" (in this Act referred to as "the Guarantee
Fund"), which shall be vested in the Society and shall be under the control and
management of the Council.
(2)
Subject to the provisions of this section and of Schedule 3 the
Guarantee Fund shall be held by the Society for the purpose of making grants in
order to compensate persons who in the opinion of the Council suffer pecuniary
loss by reason of dishonesty on the part of
(a) any
solicitor, registered foreign lawyer or registered European lawyer in practice
in the United Kingdom, or any employee of such solicitor, registered foreign
lawyer or registered European lawyer in connection with the practice of the
solicitor, registered foreign lawyer or registered European lawyer, whether or
not he had a practising certificate in force when the act of dishonesty was
committed, and notwithstanding that subsequent to the commission of that act he
may have died or had his name removed from or struck off the roll or may have
ceased to practise or been suspended from practice; or
(b) any
incorporated practice or any director, manager, secretary or other employee of
an incorporated practice, notwithstanding that subsequent to the commission of
that act it may have ceased to be recognised under section 34(1A) or have been
wound up.
(3) No
grant may be made under this section -
(a) in respect of a loss
made good otherwise;
(b) in respect of a loss
which in the opinion f the Council has arisen while the solicitor was suspended
from practice;
(c) to a solicitor or his representatives in
respect of a loss suffered by him or them in connection with his practice as a
solicitor by reason of dishonesty on the part of a partner or employee of his;
(cc) to
an incorporated practice or any director or member thereof in respect of a loss
suffered by it or him by reason of dishonesty on the part of any director,
manager, secretary or other employee of the incorporated practice in connection
with the practice;
(d)
unless an
application for a grant is made to the Society in such manner, and with such
period after the date on which the loss first came to the knowledge of the
applicant, as may be prescribed by rules made under Schedule 3;
(e)
in respect
of any default of a registered European lawyer, or any of his employees or
partners, where such act or default takes place outside Scotland, unless the
Council is satisfied that the act or default is closely connected with the
registered European lawyer's practice in Scotland;
(f)
in respect
of any act or default of a registered foreign lawyer, or any of his employees
or partners, where such act or default takes place outside Scotland, unless the
Council is satisfied that the act or default is closely connected with the
registered foreign lawyer's practice, or any of his partners' practice, in
Scotland; or
(g)
in respect
of any act or default of any member, director, manager, secretary or other
employee of an incorporated practice which is a multi-national practice, where
such act or default takes place outside Scotland, unless the Council is
satisfied that the act or default is closely connected with the incorporated
practice's practice in Scotland.
(4) The
decision of the Council with respect to any application for a grant shall be
final.
(5) The
Council may refuse to make a grant, or may make a grant only to a limited
extent, if they are of opinion that there has been negligence on the part of
the applicant or of any person for whom he is responsible which has contributed
to the loss in question.
(6) The
Council or any committee appointed by them may administer oaths for the purpose
of inquiry into any matters which affect the making or refusal of a grant from
the Guarantee Fund.
(7) Part I of Schedule 3 shall have effect
with respect to the Guarantee Fund, including the making of contributions
thereto by solicitors and the administration and management of the Fund by the
Council;"
[11] Part 1 of Schedule 3 to
the 1980 Act makes provision for payment of annual contributions to the
Guarantee Fund by practising solicitors and for the investment of monies held
therein. Paragraph 4 of Schedule 3
enables the Council to make procedural rules in relation to the form of
application for a grant, and other related matters to give effect to the
provisions of section 43 and include "any matters incidental, ancillary or
supplementary to those provisions or concerning the administration, management,
or protection of the Guarantee Fund".
Factual Background
[12] The first Petitioner ("Mr
Billig") is an experienced businessman, residing in
[13] In about October 1992, Mr
Billig was introduced by a friend to a man named
"Dear Sirs,
In consideration of your client, John Billig,
lending to our clients Braundsway Investments (UK)
Limited the sum of £50,000 we hereby irrevocably and unconditionally undertake
to repay to you on behalf of your client the said sum of £50,000 within 42 days
of the date hereof together with interest thereon and a facility fee of
£7,000. For the avoidance of doubt in
the event that such sum is repaid earlier than the said 42 days fro the date
hereof the full amount of £57,000 will nevertheless be paid to you.
If for any reason we have not fully paid to you the aforementioned sum
of £57,000 within the aforementioned period of 42 days we shall be liable for
and shall pay to you the sum of £4,000 for each period of 4 weeks or part
thereof that the loan or any part remains unpaid together with all accrued
interest and the said facility fee."
[14] On
"Dear Sirs,
ALLIED STERLING PLC - BRAUNDSWAY INVESTMENTS (
In consideration of your clients, Allied Sterling Plc, lending to our
clients, Braundsway Investments (UK) Limited, the sum
of £100,000, we hereby irrevocably and unconditionally undertake to repay to
you on behalf of your clients the said sum of £100,000 within 21 days of the
date hereof together with interest thereon and a facility fee of £17,000.00. For the avoidance of doubt in the event that
such sum is repaid earlier than the said 21 days from the date hereof the full
amount of £117,000.00 will nevertheless be paid to you.
If for any reason we have not fully paid to you the aforementioned sum
of £117,000.00 within the aforementioned period of 21 days we shall be liable
for and shall pay to you the sum of £17,000 for each period of 21 days or part
thereof that the loan or any part remains unpaid together with all accrued
interest and the said facility fee.
We confirm that we are dealing with various property matters on behalf
of this client and in giving this undertaking we are entirely satisfied that we
shall be in a position to honour the same and make the payment out of the
surplus of funds being made available to my clients secured against properties
currently being purchased prior to the aforementioned repayment date.
We confirm that we do not have any interest in or connection with our
said clients other than the usual Solicitor and client relationship."
[15] There is now no dispute
that Mr Mullen issued these letters of undertaking dishonestly. The loans were not repaid by Braundsway. Mr
Mullen was unable to meet the undertakings from his own resources. He was sequestrated on
[16] The petitioners made
various attempts to recover their losses.
They obtained decrees against Mullen at
[17] In December 1992, a
complaint was lodged with the Law Society of Scotland against Mr Mullen (7/2). In January 1993, Messrs Wright Johnston &
Mackenzie, solicitors,
[18] On
[19] The Petitioners sued
Messrs Anthony Oberman & Co for professional
negligence in the High Court in
(1) The
proceedings considered the two loans involving Mr Mullen and a third loan
involving a company named Victoria Trust Limited and a solicitor named Kilner; Mullen was not involved in that transaction.
(2) Mr
Billig began lending to friends, then acquaintances,
then to borrowers introduced by such acquaintances. The loans were for short periods, at short
notice and at high rates of interest and usually secured by mortgage (pages
2-3).
(3) Mr
Billig first lent in March 1992 on the strength of only
a solicitor's undertaking (page 5). He
was concerned about the value of such undertakings and sought advice from Mr Ogus (pages 8-9; and see
also pages 14-15).
(4) In
relation to the Braudsway loans, Mr Ogus contacted the Law Society of Scotland who confirmed
that Mr Mullen held a practising certificate and that he had paid his dues to a
be a "member of the Scottish Indemnity Fund" (page 12). There is no indication in the judgment that
advice from a Scottish solicitor was taken as to the nature and value of the
undertaking in question or the prudence of accepting one as the sole form of
security. Mr Ogus
did, however, consult the English Law Society (page 15).
(5) The
petitioners' case was inter alia that Mr Ogus advised that if the loan were not repaid the
petitioners would be adequately covered by the solicitor's undertakings, which
were usually given in the ordinary course of their business, and could look to
the Law Society for repayment of the loan and interest; and that he failed to
point out the weakness of such an undertaking as security (pages 5and 23). Mr Billig
apparently thought that such a solicitor's undertaking was the equivalent of a
bank guarantee. The position of Mr Ogus was,
however, that his advice was that if the undertakings were given in the
normal course of a solicitor's business, and the solicitor defaults, then the
Compensation Fund would normally pay the amount due if the solicitor was
fraudulent; and the Solicitor's indemnity Fund would pay if the solicitor was
negligent (page 6).
(6) Mr
Ogus negotiated the form of undertakings with Mr
Mullen (page 13).
(7) In
relation to the Victoria Trust Ltd loan, a similar form of undertaking was
given by the English solicitor (named Kilner) for the
borrower, another sole practitioner. No
financial checks were made about the borrower (pages 17-21 generally and 20 in
particular).
(8) Evans-Lombe J accepted Mr Ogus's
version of the advice given (pages 25-26) and held that it was not
negligent (page 34). He found it
intrinsically unlikely that Mr Ogus was not aware of
the weaknesses of solicitors' undertakings as security for advances (page 26). The petitioners led no expert evidence to
support their contentions (page 37).
(9) Evans-Lombe J also found that the scope of Mr Ogus's
retainer in relation to each loan transaction was to draw the documents
recording each transaction of loan and the security for repayment. In particular, his duty was to ensure that
the undertakings were in a form which rendered them enforceable as such (pages
35-36). It was not his duty to review
the commercial standing of the transactions themselves, or the financial
strength of the borrower or the value of the solicitors' undertakings
(page 36). Nor was it his duty
having been informed of the existence of underlying transactions, to make
further enquiries unless he had been alerted to facts which ought reasonably to
have made him suspicious (page 37). He concluded that Mr Billig
was an experienced businessman conducting the business of lending money to
those who were either not able to obtain loans from other sources or who wanted
money quickly and in circumstances which did not give much opportunity to the
lenders' advisers to take steps to ensure that the transaction involved the
minimum risk to the lender. The
consequent risk element in the business was thus reflected in the very
substantial rates of interest and charges obtainable (pages 43-44).
(10) Evans-Lombe J was also of the view
that had separate Scottish advice been obtained it was unlikely that it would
have affected the conduct of the parties in any way (page 43). So far as appears from the judgment there was
no evidence of Scots law or practice.
[20] An action of damages for
fraudulent misrepresentation was raised against Mr Mullen by the
petitioners in the High Court in
[21] By that stage, Mullen had
been prosecuted at
[22] The second petitioner's
application in relation to the Victoria Trust Ltd transaction for a grant from
the Compensation Fund administered by the Law Society of England and
[23] Formal applications for a
grant were lodged with the Law Society of Scotland in about April 1998 (7/38 of
process). By letter to the petitioners'
solicitors dated
[24] The petitioners then
applied to this Court for judicial review of the Council's decision (RB2/G). The Council lodged Answers in defence of its
decision but at the first Hearing on
[25] Progress was slow. On
[26] The Guarantee Fund
Committee met in June 2003 (RB2/H) and July 2003 (RB2/J) August 2003. They recommended rejection of the
applications on the basis that (i) the Council had a discretion whether or not to make a payment from the
Guarantee Fund, and (ii) these applications were not the sort of applications
which called for a grant from the Guarantee Fund. The Council met in November 2003 (RB2/T). It acknowledged that the petitioners had
suffered pecuniary loss, that the claims were being
made on the Guarantee Fund as a last resort, that the transactions at the
centre of the claims had been in connection with a solicitors' business, and
that there had been dishonesty on the part of Mr Mullen. The Council noted that there appeared to be
no policy in relation to the consideration of claims made against the Guarantee
Fund; instead, each claim was considered on its merits. The Council remitted matters to the Guarantee
Fund Committee to consider all aspects of the claims (RB2/T - Council Minute of
Meeting held on
[27] The Committee met once
more in February 2004 (RB2/W- Minute of Meeting). It was of the view that the claims did not
have "the characteristics of the sort of case which deserved payment of a grant
from the Guarantee Fund". They concluded
that the petitioners' loss was caused by their "own carelessness and negligence
in not making financial checks on the relevant parties". The Committee considered that the petitioners
were "entirely responsible for their loss".
They considered that no payment of grant was appropriate. The petitioners' English solicitors wrote a
lengthy letter to the Council's solicitors (Brodies) criticising in
considerable detail, the content of the Committee's Minute (RB2/X; 7/35 and
6/27). Some of those criticisms were
reflected in the submissions made to me by counsel for the petitioners.
[28] The applications were
finally considered by the Council at a meeting on
[29] The Minutes of the
Council meeting held on
[30] It is recorded in the
Minutes inter alia that (i)
counsel for the petitioners submitted that (a) the key issue was whether there
was negligence (i.e. a failure to take reasonable care in relation to one's own
affairs) on the part of the claimants with respect to the loss they had
sustained due to the dishonesty of Mr Mullen; (b) there was no such negligence;
(c) the Council had therefore no residuary discretion to refuse a grant; (d) there
being no such negligence a full grant had to be made; (e) if there was a
finding of negligence the Council would also have to consider whether that
negligence contributed to the petitioners' losses; (f) the petitioners cannot
be said to have acted unreasonably by relying on a solicitor's undertaking, and
their solicitor had no duty to look behind Mr Mullen's undertaking; (g) the
Council could only find the applicants negligent if no reasonably careful
person would have relied on an undertaking given by a Scottish solicitor as had
been given by Mr Mullen; the implication of such a conclusion was that it would
be unreasonable to rely on an undertaking given by a Scottish solicitor; and
(h) on quantum, grants which included interest at the judicial rate plus costs
should be made; (ii) the Convenor of the Guarantee Fund Committee spoke to the
recommendation contained within the Minute of the Guarantee Fund Committee
meeting held on 6 February 2004 (7/34; Respondents' Bundle Volume 2 tab W
(RB2/W)); he noted that the advice received by the Committee was that the
Council had a (residual) discretion to refuse a grant; he noted that it was
necessary to examine the actings of Billig and Allied Sterling; he noted that the undertakings
given by Mr Mullen were "extremely unusual" and concluded that the claims
should be rejected; (iii) the Council considered the key issue to be whether
the petitioners had or had not contributed to their loss due to their
negligence; and (iv) the Council considered that the undertakings were written
in such terms that "no reasonable Scottish solicitor would have given". Having "aired" the above matters, the Minutes
proceeded as follows:-
"CLAIMS BY ALLIED
1. Attendance
Council AGREED that the
shorthand writer Catherine McCuish of William Hodge
attend the first part of the meeting on the above subject matter for the
duration of the applicant's legal advisers' oral submissions to Council. Council also AGREED that the Society's solicitor Robin Macpherson
attend the meeting for the duration of the full debate on these claims.
Council first considered whether the former Convener of the Guarantee
Fund Committee and other members of that Committee should absent themselves
from the Council deliberations with respect to the claims from Allied Sterling
plc and John Billig. Council AGREED
that there were no reasons why a member of the Guarantee Fund Committee should
not sit in Council and contribute to the debate on these claims. Council members should only absent themselves
from the meeting if they had a direct personal interest in the claims which was
not the case.
Council also AGREED that it
was essential that former and current Guarantee Fund Committee members who had
a detailed knowledge of the claims make their knowledge and experience
available to the Council.
It was the unanimous will of the Council that the former Guarantee Fund
Committee Convener attend and participate in this part
of the Council meeting.
The Council had received and considered a file of papers containing,
amongst other things, copies of documentation forwarded by the applicants in
support of their claims and notes and copies of representations made by them.
The legal representatives for Allied Sterling plc and John Billig joined the meeting -
The claimants Allied Sterling plc and John Billig
were represented by James Wolffe, Advocate,
Douglas Russell of Simpson & Marwick and Grenville Reeves
of Andrew Jay & Co. Mr. Wolffe spoke on behalf of the applicants.
No Council member had any interest to declare in the proceedings.
2. Applicants' Submissions -
General
Mr. Wolffe stated that the key issue which
required to be addressed was whether there was negligence on the part of the
claimants with respect to the loss they had sustained due to the dishonesty of
Mr. Mullen. Mr. Wolffe
stated that he would argue that there was no basis for finding contributory
negligence by the applicants and if that was the case the Council of the Law
Society of Scotland by law has no discretion in the matter and must grant the
applicants their full award of compensation.
He contended that it is only where there is contributory negligence that
the Council can exercise its discretion in determining the size of the award to
make to any applicant.
Mr. Wolffe reminded Council of the statutory
provisions with respect to the Guarantee Fund which are set out in Section 43
of the Solicitors (
'may refuse to make a grant, or make a grant,
only to a limited extent, if they are of the opinion that there has been
negligence on the part of the applicant or of any other person for whom he is
responsible which has contributed to the loss in question.'
Mr. Wolffe emphasised that it is only where
there had been contributory negligence on the part of the applicants, in those
limited circumstances that the Council can either refuse to make a grant or
limit the size of the grant. Mr. Wolffe stated that if Parliament had wished to grant the
Council a general discretion, the wording in Section 43 of the 1980 Act would
have been different and would likely have been used on the wording in Section
36 of the Solicitors Act 1974. It is
this Act which establishes and governs the operation of the Compensation Fund
of the Law Society of England and
Mr Wolffe stated that if Council decided that
there was no contributory negligence on the part of the applicants then Council
was bound to make the full grant from the Guarantee Fund which the applicants
sought in their claims. However, Mr. Wolffe stated that if Council decided there was
contributory negligence by the applicants in terms of Section 43(5) of the 1980
Act, in order to bring such contributory negligence into play, the Council
would have to make two findings. First,
Council would have to decide that there was negligence on the part of the
applicant and second, that the applicants' negligence contributed to the loss
in question. Mr. Wolffe
defined negligence as a failure by the applicants to act with reasonable care
in relation to their own affairs.
Mr. Wolffe then outlined to Council the
circumstances which had led to the losses suffered by the applicants. The applicants were involved in providing
loans to clients of Mullen & Co. The
applicants' monies had been advanced on the reliance of undertakings given by
Mr. Mullen. Mr. Mullen had given written
undertakings to Ian Ogus, Solicitor on behalf of Mr. Ogus's client John Billig one of
the applicants and Allied Sterling plc the other applicant. The loans advanced were in relation to property
transactions in which Mr. Mullen had been instructed.
The English solicitor acting for the applicants had been told by Mr.
Mullen that there were underlying property
transactions which would secure the money borrowed and that there would be
funds to repay the loans at the end of the transaction. It was against this background that the
applicants made the loans based on the undertakings from Mr. Mullen.
Mr. Wolffe directed Council to page 151 of the
papers which recorded that Mr. Mullen had confirmed that there was an
underlying transaction for which the loan, as advanced by the applicants, was
required and in which he (Mr. Mullen) was instructed. Noted that Mr Ogus
had negotiated with Mr. Mullen the form of the latter's undertaking. Mr. Wolffe emphasised
to Council that the nature of the transactions between the applicants and Mr.
Mullen was important as a lender, he argued, cannot be said to have acted
unreasonably if a lender had relied on a solicitor's undertaking. A lender should not be expected to look to a
borrower for the repayment of a loan if the lender had been told by the
solicitor acting for the borrower that repayment of the loan will be made from
funds available from the underlying property transaction. Mr. Wolffe stated
that the applicants correctly believed that a solicitor would not give an
undertaking, as Mr. Mullen had, unless there were funds available to repay the
loan, any lender must reasonably have confidence in such an undertaking where
it is given.
Mr. Wolffe then drew Council's attention to
page 174 of the papers and advised Council that the applicants' solicitors had
no duty to look behind Mr. Mullen's undertaking. Mr. Wolffe
therefore argued that the Council could only find the applicants negligent if
no reasonably careful person would have relied on an undertaking given by a
Scottish solicitor as had been given by Mr. Mullen. The broader implication of such a decision by
the Council would be that in future it would be unreasonable to rely on an
undertaking given by a Scottish solicitor without looking beyond that
undertaking to the credit worthiness of the solicitor or his clients.
Mr. Wolffe stated that to suggest that a
person should have to check on the credit worthiness of a solicitor when such
solicitor provides an undertaking is not a course of action which would be
regarded as either normal or reasonable.
Mr. Wolffe also stated that it was not
reasonable, as had been suggested, that Mr. Mullen's relative inexperience
as a solicitor and the fact that he was a sole practitioner should have any
bearing on the question of whether there was any contributorily
negligence on behalf of the applicant.
To suggest otherwise could imply that the undertakings given by a sole
practitioner or relatively junior solicitor should be relied on to a lesser
extent than undertakings given by other solicitors.
Mr. Wolffe advised Council that on the basis
of this analysis it would be wrong for the Council to assert that the
applicants were contributorily negligent and that the
Council should therefore make a full grant from the Guarantee Fund with respect
to the applicants' claims for compensation.
However, if Council concluded that the applicants were contributorily negligent while Council did have a discretion in such circumstances this discretion had to be
applied fairly. Thus it was argued that
as the undertakings given in the transactions were the real cause of the loss
and the solicitor had given the undertakings dishonestly, and had there been no
undertakings, the applicants would not have provided their loans, the Council
should therefore grant the applicants' request for compensation.
Mr. Wolffe concluded the submissions by
stating that the applicants had relied on the dishonest undertakings of Mr.
Mullen and had not contributed by their negligence to their loss were therefore
justified in having their requests for compensation paid in full. For the Council to fail to make a grant for
compensation from the Guarantee Fund would leave the applicants in no better
position than a client who had had their funds stolen by a dishonest solicitor.
3. Applicants' Submission -
Quantum
Mr. Wolffe then turned to the issue of quantum
and advised that Mr. Billig was seeking the principal
sum of £50,000 plus interest plus costs and that Allied Sterling plc were
seeking the principal sum of £100,000 plus interest plus costs - these two
principal sums being the monies originally advanced on the basis of the
dishonest undertakings by Mr. Mullen.
The interest which the applicants were seeking was interest at the
judicial rate as the applicants had been deprived of the use of their monies
for over 11 years. Mr. Wolffe also advised Council that the applicants had
incurred costs in pursuing Mr. Ogus and Mr. Mullen as
well as pursuing their claims under the Guarantee Fund. The grants which the applicants sought from
the Guarantee Fund were in respect of the loss of the principal sum plus
interest at the judicial rate plus costs in terms of paragraph 4, Schedule 3 of
the 1980 Act. Mr. Wolffe
advised Council that the applicants, through their legal advisers, could at a
later date provide the exact sums of interest and costs which were sought as
these sums were not currently available.
The applicants' legal team left the meeting together with the shorthand
writer -
4. Council's Deliberations
Council noted that the applicants' solicitors had made their oral
representations to Council within the one hour allotted and AGREED by Council at a previous
meeting.
The Guarantee Fund Committee Convener then spoke to the recommendation
within the Guarantee Fund Committee Minute of
The Convener advised Council that the circumstances of the applications
for an award of compensation from the Guarantee Fund were unique and very complicated. Noted that legal advice had
been sought at each stage of the proceedings. The Committee had received Opinions from
three leading QCs as well as advice from the Society's solicitors, Brodies, on
the applicants' claims. The Convener
reminded Council that claims which go to the Guarantee Fund are dealt with in a
staged process where four questions have to be answered. These four questions are:-
1. Has pecuniary loss been suffered?
2. Has there been dishonesty by
solicitors?
3. Is
the dishonesty by the solicitors in connection with a solicitor's practice?
4. Is
the claim against the Guarantee Fund - a claim of last resort?
The Convener advised Council that the answers to all of the above
questions with respect to the claims before the Council meeting today were all
'yes'. The Convener then reminded
Council of the statutory provisions in relation to grants from the Guarantee
Fund under Section 43 of the 1980 Act.
The Convener stated that it was the applicants' position that the
Council has no discretion in making grants from the Guarantee Fund under
Section 43 where dishonesty of a solicitor has been proved other than under
Section 43(5). The advice which the
Guarantee Fund Committee has received is that the Society does have discretion
in making grants from the Guarantee Fund.
This advice is set out on pages 415, 420, 431 and 445 of the Opinions
provided to the Guarantee Fund Committee over the course of its consideration
of the claims. Furthermore, the Convener
argued that the very use of the term 'grant' implies a
discretion on the part of the Society and that awards from the Guarantee
Fund are not guaranteed even if dishonesty has been established. Awards from the Guarantee Fund relate to
compensation and not restitution.
The Convener drew Council's attention to the advice contained at pages
416 and 450 in the papers before Council which refuted the applicants'
suggestion that the issue of the exercise of discretion had in some way been
'dreamt up' by the Guarantee Fund Committee.
The Convener accepted that while there was no judicial authority in
Scotland on the issue of payments from the Guarantee Fund, the issue had been
considered in a number of English cases albeit that they were applying the
English legislation which is differently worded. The issue of the Guarantee Fund's discretion
was also clearly narrated in the Opinion from the late David Williamson, QC., at page 450.
Contributory Negligence
The Convener then turned to the terms of Section 43(5) and whether the
applicants were negligent. Noted that a
definition of negligence is provided in the Opinion at page 422 where it is
described as a lack of reasonable care.
The Convener then advised Council that it was necessary in making an
assessment of the applicants' negligence to look at the actings
of Mr. Billig and his company Allied Sterling
plc. The Convener drew Council's
attention to pages 248 and 253 of the papers where Mr. Billig
states that no loan documentation had been prepared with respect to the loans
provided to the clients of Mr. Mullen.
Mr. Billig stated 'Although I was very
suspicious and wary about making the advance as
Procedure
The Convener then addressed the issue of the Guarantee Fund Committee's
procedures in dealing with the claims.
Again the Convener emphasised to Council that in each step of the
Committee's proceedings legal advice had been sought and obtained. Furthermore the applicants had previously
been given an opportunity to be heard and make oral representations. There had been delays in the proceedings but
a number of these delays were due to the applicants wishing to make further
representations and obtain further advice.
The Convener also reminded Council that it was extremely rare for
solicitors to give personal undertakings and that the undertakings given by Mr.
Mullen were extremely unusual.
The Convener concluded his remarks by advising the Council that based on
both the written and oral submissions presented to Council, the claims by Mr.
John Billig should be rejected and the claim by
Allied Sterling plc should be rejected.
Council AGREED that there
were no matters on which it required clarification from the legal team of
Allied Sterling plc and John Billig.
Council aired a number of matters in its initial consideration of the
submissions and documentary evidence as follows:-
·
AGREED that the claims could be fully considered and disposed of at the
Council meeting as the key issue to determine was whether the applicants had or
had not contributed to their loss due to their negligence. It was clear to many members of Council that
the applicants had acted negligently with respect to the undertakings provided
by Mr. Mullen as the applicants had neither consulted the Law Society of
Scotland nor a Scottish solicitor for advice on the terms of Mr. Mullen's
undertakings. It is also clear that Mr. Billig had acted negligently as from his statements within
the papers he was suspicious of Mr. Mullen but as a result of those suspicions he
had contacted an English solicitor for views on Mr. Mullen's undertaking who in
turn contacted the Law Society of England and
·
Council
also AGREED that Mr. Billg and Allied Sterling plc should have looked at the
exact terms of the letter of undertaking as it was written in such terms that
no reasonable Scottish solicitor would have given. Given the very unusual terms and nature of
Mr. Mullen's undertakings, any reasonable person would have made investigations
to the appropriate Scottish authority and made the appropriate searches in
order to look behind the undertakings.
Mr. Billig and Allied Sterling plc had not
done this and their failure to do so amounted to a lack of reasonable care.
Council AGREED to adjourn its
consideration of the claims by Allied Sterling plc and John Billig against the Guarantee Fund to allow Sheila Spicer,
Secretary to the Clementi Review of the Regulatory
Framework for Legal Services in England and Wales, to give a presentation to
Council - 12.10pm.
CLAIMS BY ALLIED
The Council continued its deliberations on the above matter -
Council noted the following matters with respect to the written evidence
and oral submissions:-
1. Statutory Background
Section 43(5) of the 1980 Act is quite clear in that where the Council
is of the opinion that there has been negligence on the part of an applicant or
of any person for whom the applicant is responsible which has contributed to
the loss in question Council can refuse to make a grant, or make a grant only
to a limited extent.
2. Absence of Loan Documentation
Council also AGREED that the
applicants had been negligent in securing no loan documentation for the loans
and in this context the undertakings given by Mr. Mullen could only be
viewed as guarantees and not undertakings to be given in the course of his
business. This point was strengthened on
the basis of the papers which showed that it was Mr. Billig's
regular practice to obtain the appropriate loan documentation. Further, the Council noted that it was a
deliberate decision on the part of the lenders and their advisers not to
prepare loan documentation. Council
considered that the failure to obtain such loan documentation showed a lack of
reasonable care in the whole circumstances of the undertakings relied on and
had contributed to the losses.
3. Extraordinary Nature of the Letters of
Undertaking
Council AGREED that the
undertakings given by Mr. Mullen were so exceptional and outwith
the boundaries of any reasonable undertaking a Scottish solicitor would provide
that any reasonable person would not have relied on such undertakings.
The form of words used in the undertakings, being so
unusual and so unlikely to have been given by a Scottish solicitor, were
probably drafted by Mr. Ogus and that it had only
been signed by Mr. Mullen. There was
therefore negligence on the part of the lenders - Mr. Billig
and Allied Sterling plc as principals and Mr. Ogus
as their solicitor, on the basis of a principal being responsible for the actings of his agent, and had contributed to their loss.
4.