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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Neumans LLP v The Law Society (The Solicitors Regulation Authority) [2017] EWHC 2004 (Ch) (31 July 2017) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2017/2004.html Cite as: [2017] EWHC 2004 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Rolls Building, Royal Courts of Justice 7 Rolls Buildings, Fetter Lane London, EC4A 1NL
		31/07/2017

Mr Justice Newey :

1. This case involves an application by Neumans LLP ("Neumans"), a firm of solicitors, for the intervention of the Solicitors Regulation Authority ("the SRA") into its practice to be withdrawn.

Narrative

2. Neumans was established in 2006 as "Sabir Selby LLP", replacing a partnership of the same name. It originally had three members: Ms Sarwa Sabir, Mrs Chitra Selby and Mr Nabeel Sheikh. Ms Sabir and Mr Sheikh were already, and remain, married to each other.
3. In 2008, following a partnership dispute, Mrs Selby left the practice and the firm changed to its present name. Ms Sabir and Mr Sheikh became the only members. They each had a 50% interest, but Ms Sabir has explained that she was away from the business between March 2007 and December 2015 while she had and cared for children.
4. The SRA's intervention arose out of work that Neumans undertook for a Mr Hiran Patel, who was charged with a number of offences. Under its original retainer letter, Neumans was to charge for its services at rates of between £150 and £350 per hour (plus VAT). By early January 2007, Neumans and Mr Patel had agreed somewhat higher hourly rates on the basis of which Neumans estimated that total costs were "likely to be in the region of £1,250,000 plus VAT", of which the firm's own fees (without counsel) would be approximately £900,000 plus VAT. At much the same time, however, Mr Sheikh and Mr Patel appear to have orally agreed that Neumans' fees should be limited to £275,000 plus VAT ("the Capping Agreement").
5. On 28 November 2007, Mr Patel was convicted of two offences of placing on the market without an appropriate authorisation a medicinal product. The other charges against him had been dropped.
6. In August 2008, Mr Patel applied to the Court of Appeal for permission to appeal and, in November of the following year, his appeal was allowed and his convictions quashed. On 20 January 2010, a defendant's costs order was granted allowing Mr Patel to recover his legal expenses from central funds.
7. In the meantime, Neumans and Mr Patel had entered into an agreement formalised in a "Memorandum of agreement & understanding and deed of variation" dated 13 October 2009 ("the Deed of Variation"). This stated that the Capping Agreement was not binding and provided for the firm's hourly charging rates to be increased with retrospective effect. The Deed of Variation was signed by Mr Patel and Mr Sheikh, whose signature was witnessed by Ms Sabir.
8. On 27 June 2011, Neumans submitted to the Court of Appeal a bill of costs in the sum of £2,916,396 plus VAT. Later that year, Neumans received an interim payment of £500,000 out of central funds. On 28 June 2012, however, the Court of Appeal invited Master Egan QC, the Registrar of Criminal Appeals, to conduct a formal investigation into matters relating to the bill.
9. In a report dated 20 May 2015, Master Egan explained that he was satisfied that there was clear evidence of fraud. In summary, he considered that the evidence would clearly support a case that:

"1. Claims for 2,783 hours of the 3,047 hours Crown Court preparation by NS [i.e. Mr Sheikh] between 27 January 2006 and 11 September 2007 are false.

2. The sheets that support NS's claim for 102 hrs work in the Court of Appeal bear a striking similarity to the sheets for the claims for the 2783 hours. This could support an inference that they too are false.

3. The claim made for the Noting Brief is an example of dishonest opportunism in claiming over £300,000 which HP [i.e. Mr Patel] would never have contemplated agreeing to pay himself.

4. The creation of the invoice for £2,916,396.22 dated 10 June 2011 for submission to the [Court of Appeal (Criminal Division)] with the deliberate non-disclosure that HP had paid 8 solicitor and own client bills for work up to 16 November 2007 ('the 8 invoices') was dishonest and designed to facilitate a payment from Central Funds of far more money than the client was entitled to recover under section 16(6) Prosecution of Offences Act 1985.

5. The evidence of HP in his affidavit:-

(i) swearing that he was content to pay £2,188,166 (ex VAT) to the solicitors retrospectively without any legal obligation to do so, and

(ii) deliberately failing to disclose the 8 invoices

was dishonest and would support a clear inference that he was also involved in a fraud to obtain public funds.

6. If the jury were satisfied of any of the above that could support a factual conclusion that the retrospective variation agreement of March-October 2009 was designed to facilitate the dishonest claim."

10. At a hearing on 15 June 2016, the Court of Appeal concluded that it should conduct a fact-finding hearing before deciding whether the defendant's costs order in Mr Patel's favour should be set aside. The matter returned to the Court of Appeal on 19 December 2016. On that occasion, the defendant's costs order was revoked and Mr Patel and Neumans were held to be jointly and severally liable to repay the £500,000 interim payment. Simon LJ, who gave the Court of Appeal's judgment, concluded by saying that the Court intended to send the papers in the case to the Director of Public Prosecutions and to refer the conduct of Neumans to the relevant regulatory authority. In the event, Mr Patel repaid the £500,000 on 8 January 2017.
11. Master Egan submitted his May 2015 report to the SRA on 16 January 2017. On 21 March, a notice under section 44B of the Solicitors Act 1974 was served on Ms Sabir requiring her to provide information and documents relating to the Patel matter and her involvement with it. Ms Sabir responded to that on 7 April and then, on 16 April, Neumans provided the SRA with a "self-report". This explained that the "Firm and its Partners vehemently deny any suggestion that there has been any form of dishonesty or agreement to unlawfully obtain funds from the public purse or otherwise". Neumans addressed, and rejected, each of Master Egan's six points. The report mentioned in the next paragraph summarised the firm's responses as follows:

"(a) Master Egan wrongly concluded that 91% of the hours spent preparing the defence to the Crown Court proceedings were false. The Firm [i.e. Neumans] does not accept the conclusion that the lack of contemporaneous notes by Mr Sheik must mean the work was not done. If Master Egan is correct in his conclusion then it would mean that only 38 minutes per working day were spent preparing the defence to the Crown Court proceedings. The Firm considers that to be clearly wrong given this case was deemed to be the biggest worldwide conspiracy ever brought to trial.

(b) The Firm does not accept the criticism that Mr Sheik's attendance notes supporting his work for the 2,783 claimed hours in preparation of the defence to the Crown Court proceedings bear a striking similarity to those supporting his claim for 102 hours in the Court of Appeal proceedings. The Firm accepts as a fact that the attendance notes are similar in style and content. However, the Firm states that fact does not equate to evidence of the work not being done. This fact is reflective of the similar nature of the activities being done, for example, reading and considering documents.

(c) The Firm considers that the basis of Master Egan's allegation that the claim of over £300,000 for a noting brief was required to attend the trial of co-defendants of Mr Patel (the trial of which took place prior to Mr Patel's trial) in order to better prepare Mr Patel's defence. The Firm accepts that at the time of this earlier trial Mr Patel did not contemplate having to pay in excess of £300,000 for the noting brief. This was because of the existence of the Capping Agreement. At the point of retrospectively varying the fees (with the Deed of Variation) Mr Patel was then in a position to assess the value of work undertaken by the noting brief and, ultimately, pay for that work.

(d) In relation to Master Egan's conclusion that the submission of the bill of costs and the deliberate non-disclosure of the eight invoices by the Firm was dishonest, the Firm submits that the non-disclosure was not dishonest. Instead, the Firm chose not [to] disclose the invoices in order to avoid confusion. The Firm considered the invoices to be unenforceable due to the retrospective effect of the Deed of Variation so instead treated the payments made against those invoices as payments on account against the final bill. Further, the Firm is of the view that it did disclose the invoices when it was asked for them.

(e) Master Egan's fifth conclusion was in relation to Mr Patel's affidavit, which the Court of Appeal ordered him to prepare in support of the DCO [i.e. defendant's costs order]. Master Egan concluded that Mr Patel's evidence that he was content to pay the final invoice in the full amount and his evidence about the deliberate non-disclosure of the invoices he paid was dishonest. In response to this the Firm repeated its points raised in response to the fourth conclusion. The Firm also directed the Supervisor to a witness statement prepared by Mr Patel to support the Firm's report to the SRA. Specifically, the Firm provided this statement in relation to Master Egan's conclusions about the non-disclosure of the eight invoices. As can be seen, Mr Patel's witness statement does not address this point.

(f) Master Egan's sixth and final conclusion is that the Deed of Variation was designed to facilitate a dishonest claim on Central Funds. In response to this point the Firm stated that it took advice from a highly experienced costs lawyer with specific experience in retrospective variation agreements (Mr Roger Mallalieu). Further, Mr Patel was strongly advised by Mr Sheik to take independent legal advice but he chose not to."

12. Mr John Quentin, a regulatory supervisor with the SRA, prepared a report dated 17 May 2017 ("the Intervention Report"). He recommended:

"(a) intervention into the practice of Mr Sheik and Ms Sabir and into the Firm [i.e. Neumans];

(b) publication of the decision to intervene and referral of the conduct to the SDT [i.e. Solicitors Disciplinary Tribunal];

(c) referral of Mr Sheik and Ms Sabir's conduct to the SDT."

13. The Intervention Report was sent to Neumans' solicitors, RadcliffesLeBrasseur, on 17 May 2017. Correspondence ensued in which, among other things, (a) Mr Sheikh offered to step aside from any role in the management of Neumans' practice, or charging arrangements with clients, while the SRA's investigation was carried out, (b) lengthy representations were provided on behalf of Ms Sabir (from Mr Andrew Hopper QC) and Mr Sheikh and Neumans (from RadcliffesLeBrasseur), (c) Ms Sabir made a witness statement to supplement Mr Hopper's submission and (d) Mr Quentin prepared a memorandum dated 15 June 2017 in which he analysed and commented on the representations that had been received. He continued to recommend intervention.
14. Mr Quentin sent his 15 June memorandum to Mr Hopper and RadcliffesLeBrasseur. That led Mr Hopper and RadcliffesLeBrasseur to supply further representations. Among other things, RadcliffesLeBrasseur explained that, in order to satisfy the SRA's Adjudication Panel that intervention was unnecessary, Mr Sheikh had ceased to be a member of Neumans with effect from 21 June 2017 and also resigned from his positions as the firm's compliance officer for legal practice (or "COLP") and compliance officer for finance and administration (or "COFA"). RadcliffesLeBrasseur produced a letter dated 21 June from Mr Sheikh countersigned by his wife in which he said:

"I hereby give you notice pursuant to the provisions of Section 4(3) of the Limited Liability Partnerships Act 2000 that I cease to be a member of Neumans LLP with immediate effect.

I also give you notice that I resign from my positions as COLP, COFA and head of international sanctions at Neumans LLP with immediate effect."

15. The Adjudication Panel nonetheless resolved to intervene into Neumans as well as the current and former practice of Mr Sheikh. As regards Neumans, the decision was taken on the basis that there was "reason to suspect dishonesty on the part of Mr Sheikh and the Firm (on whose behalf Mr Sheikh acted) in connection with the Firm's business" and the firm had "failed to comply with any rules applicable to them by virtue of section 9 of the [Administration of Justice Act 1985]" (see paragraph 2.3). The Panel also concluded that it should refer Mr Sheikh, but not Ms Sabir, to the Solicitors Disciplinary Tribunal.
16. In the course of its decision ("the Decision"), which was dated 28 June 2017, the Panel explained that it found there to be reason to suspect dishonesty on the part of Mr Sheikh. As regards Ms Sabir's honesty, the Panel said this (in paragraph 9.14):

"We shall give Ms Sabir the benefit of some considerable doubts that we have about her evidence. We do not say that there are no grounds to suspect dishonesty. We do not make a finding that [Ms] Sabir was honest or not. Simply put, we do not propose to intervene into the practice of Ms Sabir on the ground of reason to suspect dishonesty."

17. The Panel considered both Mr Sheikh and Neumans to have failed to comply with a number of rules made by the SRA. The Decision identified (in paragraph 9.15) breaches of Rules 1.01, 1.02, 1.04, 1.06, 3.01 and 11.01 of the SRA Code of Conduct 2007, Principles 1, 2, 4 and 6 of SRA Principles 2011 and Outcomes (3.4), (5.1) and (5.2) of the SRA Code of Conduct 2011.
18. In a section of the Decision headed "Is it necessary to intervene?", the Panel said this:

"9.16 We have carefully considered whether it is necessary to intervene into the individual and former practice of Mr Sheikh and the Firm [i.e. Neumans], and have balanced the need to exercise the powers of intervention in the public interest against the serious consequences of the intervention for him, Ms Sabir, the Firm's employees and clients.

9.17 We are satisfied that it is necessary to exercise powers of intervention in this case because there is strong evidence which suggests that the misconduct of Mr Sheikh is serious, involves the public at large and large sums of public money.

9.18 The misconduct was intentional and pre-meditated and appears to have been designed to enrich Mr Sheikh and the Firm.

9.19 The misconduct had its origins, it seems, in 2009 when the idea of the Deed of Variation was conceived and then executed. However, the consequences of the misconduct continue to the present, as can be vividly seen from the Court of Appeal's judgment of 19 December 2016.

9.20 The Firm was slow to self-report matters which ought to have been reported years ago. It seems that it was only after an FI investigation started, in the comparatively recent past, that the Firm self-reported.

9.21 Mr Sheikh has recently resigned as the COFA and COLP. He has also, very recently indeed, resigned as a member of the Firm. This removes some risk to the Firm and to the public, since a person who appears to us to be wholly and obviously unsuited to be a COFA and a COLP is no longer in those roles. His resignation as a member of the Firm also provides an apparent degree of reassurance.

9.22 However, Mr Sheikh is still at large, and he can still influence the way in which the Firm is managed and run, albeit with a degree of less viability, and with less personal liability (as a COLP, COFA and member) than before. He poses a continuing threat to it that is not extinguished by him resigning in the way that he has.

9.23 Moreover, this was, until very recently, a firm with two owners: Mr Sheikh and his wife, Ms Sabir. They ran it together. Mr Sheikh's relationship with the Firm is so close and their respective interests and history so closely intertwined that no meaningful and realistic distinction can be drawn between him and the Firm.

9.24 We have been asked to accept that (i) Ms Sabir is now in charge of the Firm and she is best placed to continue to do so; (ii) there is no risk any longer because Mr Sheikh is not in any recorded and regulated roles. We do not accept this. For years, and particularly when Ms Sabir has been on maternity leave, Mr Sheikh has run the Firm. Significantly, he has controlled the finances. He has done this without any robust third party oversight.

9.25 Equally significantly, Ms Sabir, when recently describing her role as the Managing Partner in response to the Production Notice, does not mention any financial management role at all. While her list of functions is not prescriptive, the fact that there is no mention of fiscal control at all is telling.

9.26 The fact that Mr Sheikh has now resigned as the COFA does not mean that his ability to exercise control and influence of the Firm's finances is restrained. It means that he is no longer accountable to the SRA about them as COFA. His legal obligations as a member have ceased.

9.27 We consider that Mr Sheikh's breaches of the rules, principles and outcomes identified above creates an unacceptable risk to clients and the wider public. On balance, we are satisfied that the need to intervene into the practice to protect clients and the public interest outweighs the serious implications of intervention for Mr Sheikh and Ms Sabir."

19. It is also relevant to note paragraph 2.1 of the Decision, in which the Panel said:

"Ms Sabir has requested that she attends before us for interview to make representations. We have considered whether we have all the information and evidence that we require to enable us to make a decision in respect of this matter. We have extensive and detailed representations from Ms Sabir's legal representative, in addition to the bundle of evidence. We do not consider it necessary to invite her for interview as we have sufficient evidence and information to make a decision."

20. Notice of intervention was given to Ms Sabir and Mr Sheikh on 30 June 2017. Representatives of the SRA, including intervention agents from Devonshires, attended Neumans' premises on 3 July and effected the intervention.

Legal framework

21. The Law Society (of which the SRA is a functionally independent arm performing regulatory functions) has long had an ability to intervene in a solicitor's practice. Nowadays, powers of intervention in relation to individual solicitors are to be found in the Solicitors Act 1974 ("the 1974 Act"). In the case of a "recognised body" such as Neumans, the power to intervene is conferred by schedule 2 to the Administration of Justice Act 1985 ("the 1985 Act"). Paragraph 32(1) of this schedule provides as follows:

"Subject to sub-paragraph (2), where—

(a) the Society [i.e. the Law Society] is satisfied that a recognised body or a manager of such a body has failed to comply with any rules applicable to the body or manager by virtue of section 9 of this Act; or

…

(d) the Society has reason to suspect dishonesty on the part of any manager or employee of a recognised body in connection with

(i) that body's business,

(ii) any trust of which that body is or was a trustee,

(iii) any trust of which the manager or employee is or was a trustee in his capacity as such a manager or employee, or

(iv) the business of another body in which the manager or employee is or was a manager or employee or the practice (or former practice) of the manager or employee; …

…

the powers conferred by Part II  of Schedule 1 to the 1974 Act shall be exercisable in relation to the recognised body and its business in like manner as they are exercisable in relation to a solicitor and his practice."

22. Section 9 of the 1985 Act, to which there is reference in paragraph 32(1)(a) of schedule 2, empowers the Law Society to make rules in respect of recognised bodies, including provision for rules made under the 1974 Act to have effect in relation to recognised bodies and their managers and employees. The 1974 Act, in turn, allows the Law Society to make rules as to professional practice, conduct, discipline and accounting matters.
23. Applications for intervention notices to be withdrawn can be made under paragraph 6(4) of schedule 1 to the 1974 Act. This states:

"Within 8 days of the service of a notice under sub-paragraph (3), the person on whom it was served, on giving not less than 48 hours' notice in writing to the Society and (if the notice gives the name of the solicitor instructed by the Society) to that solicitor, may apply to the High Court for an order directing the Society to withdraw the notice."

24. The Court of Appeal considered the approach to be adopted to applications under paragraph 6(4) of schedule 1 to the 1974 Act in Sheikh v Law Society [2006] EWCA Civ 1577, [2007] 3 All ER 183, which concerned an intervention pursuant to the 1974 Act. Chadwick LJ noted that, if there is a challenge to the exercise of intervention powers, "the court will need to ask itself whether the grounds under Part I of schedule 1 to the 1974 Act upon which the Society relied at the time of the resolution to intervene were made out on the basis of the information available (or, perhaps, reasonably available) to the Society at that time" (paragraph 85). "If," Chadwick LJ said, "that question is answered in the negative, then … the resolution under paragraph 6(1) is of no effect and notices served under paragraph 6(3) or 9(1) are 'fundamentally flawed' …." However, "[c]ases in which there is a challenge to the validity of the resolution under paragraph 6(1) or to the service of intervention notices are rare." Where there is no such challenge, "the single issue for the court is whether the notices should be withdrawn" (paragraph 89), and "there is no doubt that that issue must be determined on the basis of the material before the court at the time of the hearing" (paragraph 87).
25. In addressing that question (as Chadwick LJ explained in paragraph 90):

"[T]he court must, indeed, weigh the risks of re-instating the solicitor in his (or her) practice against the potentially catastrophic consequences to the solicitor (and the inconvenience, and perhaps real harm, to his or her existing clients) if the intervention continues. In weighing the risks of re-instatement the court must have regard to the views of the Law Society as the professional body charged by statute with the regulation of solicitors … and as the body whose members are obliged, through the compensation fund, to underwrite those risks …. "

26. The decided cases also provide authority for the following propositions:

i) The intervention procedure laid down in the 1974 and 1985 Acts is compatible with article 6 of the European Convention on Human Rights and article 1 of the First Protocol to that Convention. In Holder v Law Society [2003] EWCA Civ 39, [2003] 1 WLR 1059, Carnwath LJ explained (at paragraph 31):

"The intervention procedure, now contained in the Solicitors Act 1974, is long-established (dating back to 1941, in its earliest form), and has been reviewed by the court on many occasions. As appears from the cases to which I have referred, it has been recognised as 'draconian' in some respects, but necessary for the protection of the public interest; and the courts have repeatedly emphasised the 'balancing exercise' which it involves. I see no material difference between this and the 'fair balance' which article 1 [of the First Protocol] requires. Nor do I see any reason why the Human Rights Act 1998 should be thought to have changed anything. There has long been a right of individual petition to the Strasbourg court for breaches of the Convention, but we have not been referred to any questioning of the intervention procedure under article 1. I see no arguable grounds for thinking that the margin allowed to the legislature has been crossed, particularly having regard to the deference which is properly paid to an Act of Parliament, as compared to an administrative decision: see International Transport Roth GmbH v Secretary of State for the Home Department [2003] QB 728, 746, 765, paras 26, 83";

ii) The rules of natural justice do not apply as such to an intervention. As Sedley J observed in Giles v Law Society (1995) 8 Admin LR 105, "The manifest purpose of Sch 1 to the Solicitors Act 1974 … is to create an ex parte procedure leading where appropriate to intervention". Sedley J went on to say that "there is nothing on the face of the schedule which takes out of the hands of the Law Society the decision what, if any, information it is right to give to the solicitor either before or immediately after the moment of intervention", and "the want of any provision in Sch 1 for notice to be given to the solicitor of particulars of a suspected breach other than a failure to comply with certain specified rules demonstrates not an omission which (in the phrase of Byles J) it is for the justice of the common law to supply, but an intelligible scheme of professional self-regulation for the protection of clients and the public which defers, but does not deny, a due opportunity for the solicitor to know the case against him or her and to challenge it and its consequences before a court of law". At the time, paragraph 1(2) of schedule 1 to the 1974 Act stipulated that the Law Society could not intervene on the basis of failure to comply with rules made under the Act (but not other grounds of intervention) without giving the solicitor prior notice. That provision has since been repealed, but I cannot see that that removal of a notice requirement can have imported the rules of natural justice. In that connection, it is noteworthy that in Gadd v Law Society [2012] EWHC 2843 (QB) Sharp J took it (at paragraph 49) that "the common law principles of natural justice do not apply to the intervention process";

iii) As can be seen from the passages from the judgment of Chadwick LJ quoted in paragraph 24 above, it can potentially be appropriate for the Court to direct an intervention to be withdrawn because the grounds on which the SRA relied at the time of the resolution to intervene were not made out. In Giles v Law Society, Sedley J had noted:

"If it is demonstrated to the court that a notice … is fundamentally flawed (for example, because it is based on an ultra vires resolution) it may well be that a direction for withdrawal should be made ex debito justitiae, leaving it to the Law Society to decide whether, in the light of what it then knows, it ought to pass a fresh resolution to intervene";

iv) "In the exercise of its powers of intervention the Law Society must of course comply with the Human Rights Convention" (per Staughton LJ in Holder v Law Society, at paragraph 38). That means that questions of proportionality are capable of arising. It is, however, important to have in mind "the 'all important' factor, when considering issues of proportionality, of the 'margin of appreciation or discretion' or 'area of judgment' allowed to the legislator and the decision-maker" (per Carnwath LJ in Holder, at paragraph 31). The SRA thus "has a 'margin of discretion'" (Carnwath LJ, at paragraph 33);

v) There is room for argument as to whether the Court should always direct withdrawal where the SRA's decision was not justifiable at the time it was taken. In Giles v Law Society, Sedley J said:

"even in a case where it can be shown by the solicitor that the original notice ought not to have been issued because, say, the original evidence prompting the intervention was too exiguous to found a reasonable suspicion, the court need not direct withdrawal if on intervention abundant evidence of dishonesty has been found".

In Sheikh v Law Society, on the other hand, Chadwick LJ said this (at paragraph 92):

"I should add (by way of parenthesis) that, for my part, I confess to some doubt whether, as Sedley J suggested in Giles v Law Society, the court could refuse to direct withdrawal of a notice which 'ought not to have been issued' because the original evidence prompting the intervention 'was too exiguous to found a reasonable suspicion' on the basis that abundant evidence of dishonesty had been found on intervention—if he intended to include in that example a case where, on a proper analysis of the position at the time the decision to intervene was taken by the society, the powers of intervention had not become exercisable. As Sir Robert Megarry V-C observed in Buckley v Law Society (No 2) [1984] 3 All ER 313 at 316, [1984] 1 WLR 1101 at 1105: 'the Law Society ought not to be free to intervene on inadequate grounds in the hope that what will be found will justify the intervention.' But I recognise that the Vice-Chancellor clearly took the view in that case that it would be open to the court to refuse to direct withdrawal notwithstanding that, on the facts known to the society at the time of the resolution, there was insufficient reason to suspect dishonesty. He said this, by way of example ([1984] 3 All ER 313 at 316, [1984] 1 WLR 1101 at 1105):

'On the available material the Law Society concludes (wrongly) that there are sufficient reasons for suspecting dishonesty, and passes the resolution. The intervention then reveals that there are other facts, previously unknown to the Law Society, which demonstrate that the solicitor is in fact grossly dishonest. On the hearing, the court must nevertheless direct the Law Society to withdraw the notice (and perhaps pay the costs), and leave the Law Society to begin again. [That] seems to me to be an unjust result that Parliament is unlikely to have intended.'

As I have said, the powers under Pt II of Sch 1 to the 1974 Act are exercisable only in circumstances within Pt I. If, at the time when the society purports to exercise its powers under Pt II, those powers have not become exercisable—because the pre-condition (the existence of circumstances within Pt I) is not met—it seems to me difficult to avoid the conclusion that the exercise of the powers was, indeed, ultra vires in the public law sense. But that is not how it has appeared to other judges in other cases. This is not a case in which it is said—or could be said—that the intervention powers were not exercisable at the time when they were exercised. It is unnecessary to decide the point; and I do not do so"; and

vi) The SRA can properly decide to intervene on the basis of risks rather than certainties. In Buckley v Law Society (No 2) [1984] 1 WLR 1101, Megarry V-C said (at 1106):

"The powers of intervention conferred by Schedule 1 are plainly powers that are intended to enable the society to nip in the bud, so far as possible, cases of dishonesty by solicitors. The power to act on suspicion is a strong power, and there must often be a real element of risk in its exercise. But the decision of Parliament that the society is to have power to act on suspicion necessarily involves a decision that the society is to take whatever risks are involved in so acting; and these include risks both to the society and to the solicitors concerned."

27. Miss Fenella Morris QC, who appeared for Neumans, argued that Giles v Law Society should not be taken as meaning that Neumans did not have a right to be heard in advance of any intervention. She pointed out that the decision pre-dated the Human Rights Act 1998; that, unlike the present case, it concerned the 1974 Act rather than the 1985 Act; and that the facts of the present case (in contrast to those of Giles) did not justify the SRA intervening on a without-notice basis.
28. I have not, however, been persuaded by these points. It is true that the Giles case was decided before the Human Rights Act was passed, but in Holder v Law Society, in which Carnwath LJ referred to Giles, the intervention procedure was held to be compatible with the European Convention on Human Rights and the First Protocol to it. Again, I can see no good reason for natural justice principles to have any greater application in the context of a 1985 Act intervention than they do with an intervention under the 1974 Act. Further, while it is doubtless very desirable that the SRA should give a solicitor or recognised body an opportunity to make representations where possible, I do not think the fact that that is a viable course on the particular facts can mean that the rules of natural justice are imported into the "intelligible scheme of professional self-regulation for the protection of clients and the public which defers, but does not deny, a due opportunity for the solicitor to know the case against him or her and to challenge it and its consequences before a court of law".
29. In the circumstances, it seems to me that the rules of natural justice do not apply as such in relation to intervention under either the 1974 Act or the 1985 Act, though a failure to allow a solicitor or recognised body to answer allegations where that would have been a viable course could potentially bear on the rationality and proportionality of a decision to intervene.

The scope of the present application

30. Neumans contends that the SRA should be directed to withdraw its intervention both on the basis that the decision to intervene was fundamentally flawed ("Stage 1") and on the footing that, having regard to the material now before the Court, the intervention ought in any event to be withdrawn ("Stage 2").

Stage 1: The decision to intervene

31. Miss Morris argued that the SRA's decision to intervene was fundamentally flawed for more than one reason. As I understood her, she essentially submitted that:

i) Paragraph 32(1)(d) of schedule 2 to the 1985 Act could not apply since the individual in respect of whom the SRA considered that there was reason to suspect dishonesty (viz. Mr Sheikh) was no longer a manager of Neumans;

ii) The SRA relied on matters that had not been put to Neumans, Mr Sheikh and Ms Sabir;

iii) The SRA failed to afford Ms Sabir an opportunity to explain matters in person;

iv) The SRA failed to have regard to the alternative proposals put forward by Neumans;

v) The SRA arrived at a decision which was irrational and disproportionate.

32. I shall take these matters in turn.

The applicability of paragraph 32(1)(d) of schedule 2 to the 1985 Act

33. Paragraph 32(1)(d) of schedule 2 to the 1985 Act empowers the SRA to intervene where it "has reason to suspect dishonesty on the part of any manager or employee of a recognised body" in connection with various matters. It is Neumans' case that "manager" refers to someone who is still such when the SRA makes its decision. The words "any manager", so it is said, do not extend to a former manager. Here, Mr Sheikh was no longer a manager of Neumans by the time the SRA decided on intervention. Paragraph 32(1)(d) must therefore, it is suggested, have been inapplicable.
34. Developing her submissions on this point, Miss Morris pointed out that, while Parliament made no reference to a former manager in paragraph 32(1)(d) of schedule 2, it used the word "former" elsewhere, notably in paragraph 32(1)(d)(iv) ("the practice (or former practice) of the manager or employee") and paragraph 32(1)(e) ("the interests of clients (or former or potential clients)"). Miss Morris took me, too, to section 207 of the Legal Services Act 2007, where "manager" is defined, as regards a "body corporate whose affairs are managed by its members", as a person who "is a member of the body". Miss Morris stressed the use of the present tense.
35. For my part, however, I accept the submission of Mr James Ramsden QC, who appeared with Miss Sarah Bousfield for the SRA, that it is good enough that there is reason to suspect dishonesty in connection with, say, the body's business on the part of someone who was at the time a manager. Paragraph 32(1)(d), as I see it, includes someone who was a "manager or employee" when the relevant conduct took place, regardless of whether he remains one. Of course, the fact that the relevant manager has left may be significant when the SRA comes to decide whether (and, if so, how) to intervene, but I agree with Mr Ramsden that it makes sense that the SRA should have powers of intervention in such a situation. Mr Ramsden took by way of hypothetical example a case where a manager had emptied the body's bank accounts and then retired: there might, Mr Ramsden said (and I accept), be a need for the SRA to intervene notwithstanding the manager's departure. Moreover, I do not think the references to "former" elsewhere in paragraph 32 provide any substantial support for Miss Morris' case. Without the word "former" in, for instance, paragraph 32(1)(d)(iv), it would be very hard to read the provision as rendering material dishonesty in connection with a manager's previous practice. No similar difficulty arises with the absence of the word "former" in the context of "manager".
36. It follows, since it has not been disputed that there was (and is) reason to suspect dishonesty on the part of Mr Sheikh in connection with Neumans' business at a time when he was a manager, that paragraph 32(1)(d) applied when the SRA concluded that it should intervene. That said, the point would not seem to be crucial in the present context if the SRA was right in thinking that paragraph 32(1)(a) (rule breaches) was in point.

Reliance on matters not put to Neumans, Mr Sheikh and Ms Sabir

37. The particular point that Miss Morris developed in this respect related to whether the SRA had given Neumans and Ms Sabir an adequate opportunity to comment on the alleged rule breaches. Mr Ramsden countered that the rule breaches were detailed in the Intervention Report, which was provided to Neumans. To that, Miss Morris said that the relevant section of the report was headed, "Mr Sheik and Ms Sabir have failed to comply with rules made by virtue of section 31 of the Solicitors Act and section 9 of the AJA". The report thus, she argued, referred to breaches by Mr Sheikh and Ms Sabir, not Neumans.
38. To my mind, there is nothing in this point. I have already said that the rules of natural justice do not appear to me to be applicable as such. In any case, Mr Sheikh and Ms Sabir were the only two members of Neumans; the paragraph of the Intervention Report that followed the heading included references to the firm (for example, "the Firm's claim on Central Funds was dishonest"); and the response to the report that RadcliffesLeBrasseur provided on behalf of Neumans and Mr Sheikh included a paragraph relating to the rule breach allegations (though it said little more than that they did not introduce new factual allegations). Neumans seems to me to have had notice of, and ample opportunity to answer, the allegations of rule breaches.

Failure to afford Ms Sabir an opportunity to explain matters in person

39. As can be seen from paragraph 19 above, the Adjudication Panel considered it unnecessary to invite Ms Sabir for interview. Miss Morris submitted that its failure to do so represented a fundamental flaw. Among other things, it was suggested that the Panel should not have taken the view that Ms Sabir might be influenced by her husband without having first invited her to attend an oral hearing.
40. In my view, however, the Panel was not under any obligation to see Ms Sabir in person. As I have now said more than once, I do not consider the rules of natural justice to apply as such in this context. In any case, Neumans and Ms Sabir had the benefit of seeing and commenting on both the Intervention Report and Mr Quentin's memorandum of 15 June 2017. Mr Ramsden told me that he was not aware of any occasion on which an Adjudication Panel had received oral evidence before deciding whether to exercise its powers of intervention.

Failure to have regard to Neumans' proposals

41. Miss Morris submitted that the Decision failed to engage with the proposals that Neumans had put forward for the future management of the firm and that, in the circumstances, it should be inferred that the Adjudication Panel did not have any proper regard to them. Where, she said, a decision-maker does not mention something in its reasons, it is fair to infer that it did not take it into account.
42. However, Neumans' proposals were to be found in representations from RadcliffesLeBrasseur and Mr Hopper which were placed before the Panel, and the proposals which had by then been put forward were the subject of detailed comment in Mr Quentin's memorandum of 15 June. Further, the Decision records in terms that Mr Quentin had "not accepted the parties' alternative proposals to intervene", that Mr Sheikh had recently resigned as COLP, COFA and a member of the firm and that it was "asked to accept that … Ms Sabir is now in charge of the Firm". The fair inference is not that the Panel overlooked Neumans' proposals, but that, like Mr Quentin, they did not consider them to provide a solution.

Rationality and proportionality

43. I shall have to decide for myself in the context of Stage 2 whether to direct the withdrawal of the intervention. That being so, I do not think that I need address rationality and proportionality separately in the context of Stage 1. If I conclude that the intervention ought to be withdrawn, the rationality and proportionality of the SRA's original decision will not matter. If, on the other hand, I decide against withdrawal, it will inevitably follow in the circumstances of the present case (where the SRA is not relying on all that much new evidence) that the Adjudication Panel's decision was, in my view, one that it could properly arrive at, especially having regard to its "margin of discretion".

Stage 2: Should the intervention be withdrawn?

44. When considering whether I should direct the intervention to be withdrawn, I must carry out a balancing exercise. In Sheikh, Chadwick LJ referred to the need to "weigh the risks of re-instating the solicitor in his (or her) practice against the potentially catastrophic consequences to the solicitor (and the inconvenience, and perhaps real harm, to his or her existing clients) if the intervention continues".
45. Miss Morris submitted that the balance clearly comes down in favour of withdrawal. Among other things, she said that the intervention arose from a single historic incident, that the solicitor said to be responsible for it has left the firm and that no other major concerns have been identified.
46. Miss Morris relied in support of her submissions on the various witness statements that Neumans has filed. These include evidence to the effect that:

i) A Ms Nighat Sahi, a solicitor who joined Neumans as a consultant in 2016, is willing to act as a member of Neumans and as COLP if the intervention is withdrawn;

ii) A Mr Michael Brennan, a barrister who has practised as a transactional lawyer and now has a client base of his own, is willing to act as a member of Neumans and as COFA if the intervention is withdrawn;

iii) Ms Sahi and Mr Brennan would have equal voting rights with Ms Sabir;

iv) The future practice of Neumans is not dependent on a continuing stream of new clients introduced by Mr Sheikh;

v) Mr Sheikh is now pursuing business interests unrelated to the law and did not return to Neumans' offices after his resignation; and

vi) Ms Sabir does not have a passive nature, was in charge of the firm after her husband's resignation and would not allow her husband to influence her decisions on professional matters.

47. For its part, the SRA maintains that the intervention should continue. The evidence it has filed includes the following:

i) The Legal Aid Agency has terminated Neumans' 2017 contract in the light of the SRA intervention. The Agency's letter included this:

"We are also conscious of the fact that you were recently subject to a Peer Review audit under the terms of the Contract where you received a result of 'Below Competence'. This clearly gives us significant concerns as this process, undertaken by independent expert criminal lawyers, indicates that the firm represents a risk to clients. In the ordinary course of events we would conduct a further audit approximately six months after the original audit result, however, it appears that this will not now be possible. Whilst this first Peer Review audit result is not a termination event on its own account it does provide context and adds weight to our decision to formally terminate the Contract.

Finally, we consider that the Court of Appeal judgment of 19 December 2016 constitutes a finding of 'grave professional misconduct' under the Public Contracts Regulations 2015 which you should have disclosed to the LAA's procurement team during the tender process. As this did not occur we were prevented from undertaking this reassessment to determine, having regard to the judgment, whether it was appropriate to enter into the 2017 Contract with you. This failure to self-report constitutes a breach of clause 18.1 of the Contract Standard Terms. As indicated above, we have not undertaken a reassessment, however we consider this breach is a factor we may consider in determining whether to terminate your Contract following intervention. For the avoidance of doubt, and as confirmed above, we do not consider this or the other background events/considerations to be individually determinative or tipping the balance in favour of termination";

ii) The SRA suggests that, "[i]n reality, leaving an LLP that has been trading for several years involving substantial income requires much more than a simple resignation in terms of the practical position of the members"; and

iii) On 30 June 2017, nine days after Mr Sheikh's resignation, Neumans' website said merely "Profile to follow" for Ms Sabir, while there was a lengthy entry for Mr Sheikh. After a quote from Chambers UK 2014, the first few paragraphs of the profile read:

"Nabeel [Sheikh] enjoyed his reputation as an internationally renowned lawyer and the Former Senior Partner and Founder of Neumans LLP.

Nabeel is an expert in litigation with an underlying element of criminal conduct or fraud. He is ranked as a leading individual in litigation, white-collar crime & business crime in the foremost legal directories, including Global Law Experts, Legal Experts Directory and Chambers & Partners UK and has received numerous awards in recognition of his expertise in these areas. After an illustrious career spanning nearly two decades, Nabeel has been fortunate enough to retire to pursue other business interests both here and abroad.

He was a supervisory member of the Specialist Fraud Panel, and his expertise extends to both criminal and civil/commercial fraud arising through a wide range of circumstances. He commonly defends those investigated by the highest level UK Government bodies/agencies."

48. If Mr Sheikh had not resigned from Neumans, I would have had no hesitation in saying that the intervention should continue. He was evidently a major influence within the firm as well as having a 50% interest in it and, on the face of it, there is very good reason to suspect him of having been complicit in a serious fraud involving large sums of money. The apparent rule breaches are also of grave concern.
49. Mr Sheikh's resignation makes my decision a more difficult one. Even so, I have in the end concluded that I should not direct withdrawal. My reasons include these:

i) Neumans has made common cause with Mr Sheikh. Master Egan's May 2015 report did not prompt the firm to distance itself from Mr Sheikh in any way. When giving judgment on 19 December 2016, Simon LJ said that the defendant's costs order in Mr Patel's favour fell to be revoked on the basis of "largely unchallenged facts" and that Mr Patel and Neumans were both "in no position to contest the facts". Neumans nevertheless, and despite Ms Sabir by now being the managing partner, roundly rejected Master Egan's findings in its "self-report" of April of this year. On top of that, Mr Sheikh was allowed to continue as both COLP and COFA, notwithstanding the very serious allegations that had been made against him and the Court of Appeal's indication that it considered that the firm's conduct should be referred to the SRA. RadcliffesLeBrasseur, moreover, acted for, and made representations on behalf of, both Neumans and Mr Sheikh;

ii) Until very recently, therefore, there was no indication of Neumans, or Ms Sabir in particular, separating itself from Mr Sheikh or even bringing an independent judgment to bear. That is perhaps unsurprising when Ms Sabir and Mr Sheikh were married to each other and also co-owners of the firm. It does, however, cast doubt on whether it is realistic to suppose that Neumans would act entirely independently of Mr Sheikh and his interests in the future. That is of the more concern since there are matters relating to Mr Patel and the £2,916,396 bill of costs that have yet to be resolved;

iii) Mr Sheikh's resignation as COLP, COFA and member has the air of a last throw of the dice. Mr Sheikh did not resign until after his solicitors had been supplied with both the Intervention Report and Mr Quentin's 15 June memorandum. That limits the reassurance that it provides;

iv) While Ms Sabir said in her witness statement of 19 July 2017 that the "future practice of Neumans is not dependent on a continuing stream of clients introduced by my husband", she spoke in her previous statement, made just ten days earlier at a time when he had already resigned, of Mr Sheikh as a "rain maker" and of its "still [being] open to him to introduce clients as a third party introducer". Further, RadcliffesLeBrasseur told the SRA's solicitors in a letter of 19 July that Ms Sabir estimated that, during the year leading up to the intervention, approximately 40% of Neumans' gross fee income was attributable to clients introduced to the practice by Mr Sheikh. These matters raise further questions as to whether there would or could in fact be a complete divorce between Mr Sheikh and Neumans, and the profiles on Neumans' website compound those concerns. On top of that, there is force in the SRA's observation that leaving an LLP such as Neumans "requires much more than a simple resignation in terms of the practical position of the members";

v) There is a lack of clarity as to the roles that Ms Sahi and Mr Brennan would play if the intervention were withdrawn. It is said that they would have equal voting rights with Ms Sabir, but on what basis? What, if any, interest would each of them have in Neumans? It is noteworthy that I have not been supplied with even draft documentation; and

vi) The SRA, whose views are entitled to respect, considers that the intervention should continue.

50. In all the circumstances, it seems to me that the risks attached to withdrawing the intervention outweigh those of continuing it, even having regard to the very serious consequences of taking that course. I also consider the SRA's decision to intervene to have been rational and proportionate.

Conclusion

51. I shall dismiss Neumans' application.