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	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Izzet & Anor v The Law Society [2009] EWHC 3590 (Admin) (24 November 2009) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2009/3590.html Cite as: [2009] EWHC 3590 (Admin)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
DIVISIONAL COURT

		Royal Courts of Justice Strand London WC2A 2LL
		24 November 2009

1. LORD JUSTICE MOSES: These are appeals pursuant to section 49(1)(b) of the Solicitors Act 1974 against penalties imposed by the Solicitors Disciplinary Tribunal of 9th January 2009. Mr. Izzet is a 33 year old solicitor who has been nine years in practice, Mr. Cazaly a 56 year old solicitor who has been 30 years in practice. They have not been accused of dishonesty and they have not been found guilty of any dishonesty, yet the tribunal at the conclusion of their findings ordered that Mr. Izzet be struck off the Roll of Solicitors and that Mr. Cazaly be suspended from practice as a solicitor for the period of three years.
2. So serious a punishment in both the cases must reflect serious misconduct, but it is with regret that I have to recall that the facts reveal why it is that the tribunal thought that those punishments were necessary to preserve the integrity of the profession. To do that it is also necessary to understand the context in which the four allegations were made in a period starting December 2007, the period relevant to the findings, and the penalties under appeal.
3. These two solicitors were investigated in a period leading up to and around December 2005. That led to a disciplinary hearing and the findings of a disciplinary tribunal of 6th July 2006. Allegations were made against these two solicitors of failing to comply with Solicitors Accounts Rules. During the course of their findings the Law Society contended that there were significant and serious breaches of those rules which put clients' money at risk. It was contended that they were the result, not of dishonesty but of disorganization and muddle. The tribunal accepted that and at paragraph 38 of their findings said that the Law Society had been prepared that they should "continue" in practice. If it were not for that view and for the mitigation put forward on their behalf, the tribunal might have been minded to impose a more serious penalty. In the result, they were fined. It is in that context that the four allegations with which the tribunal had to deal in their findings, which are the subject matter of the instant appeal in respect of the hearing dated 20th October 2008, must be considered.
4. The first allegation was that these two solicitors had acted contrary to the provisions of rule 7 of the Solicitors Accounts Rules 1998, in that they had failed to remedy a breach promptly on discovery. The facts relevant to that allegation relate back to the period during which breaches of rules were considered at the earlier hearing. Very substantial money had been fraudulently withdrawn from the firm's client bank account resulting in a cash shortage of just under 600,000. These two solicitors had, as was their obligation, made up the shortfall out of their own money. However, that apparently left an unallocated cash surplus of just under 43,500. That unallocated surplus had not been dealt with ever since it had been discovered some time towards the end of 2005 before the disciplinary hearing. It appeared to the tribunal that no remedial action had been taken in relation to that until the firm these two solicitors operated had been closed, when that money was discovered to be their own money, not belonging to clients and was accounted as such with the aid of an independent accountant. The response on behalf of these two appellants is that no client in fact suffered. That may be right but, nonetheless, the importance of not mixing a solicitor's own funds with client money cannot be underestimated. The integrity of client accounts depends upon the accuracy of the records shown in the accounts. The tribunal were entitled to regard the breach as a serious breach, aggravated by the failure of either of those two appellants to do anything about it, despite the previous disciplinary hearing. The tribunal, no doubt measuring that allegation against the others to which I shall turn shortly, made no specific reference to it, but it was clearly incorporated in their conclusion that these appellants had acted, to use the words of the tribunal, "serially in disregard of regulatory matters". The pattern of behaviour, particularly with regard to undertakings, gave the tribunal grave concern.
5. I turn to the second allegation which accused the appellants of failing to notify lender clients of material facts, thereby compromising or impairing their duty to act in the best interests of their clients in breach of rule 1(c) of the Solicitors Practice Rules 1990. This allegation was regarded by the tribunal as particularly serious. Two occasions were identified on which these appellants had failed to inform the lender of the correct purchase price at which the property was being bought. Indeed, on one of those occasions that failure to notify the lender led that lender to lending a sum to the purchaser of more than the purchase price. The response advanced as mitigation on behalf of these two appellants was that it was well known that in the market in which they operated, which was the sub-prime market, where new buildings were being offered for sale, to allow the purchaser discounts. It was submitted on behalf of these appellants by way of mitigation that they expected the broker to notify the lender but they did not suggest that they had instructed the brokers to do so. Even then, that would have been no answer whatever to the allegation. Solicitors know, and if they do not know the guidance from the Law Society makes it clear in the Council of Mortgage Lenders Handbook, that they are under an obligation to ensure that their own client, the lender, knows the amount for which the property is being sold. What is more, they are under an obligation to notify the lender by means of a certificate of title of the title and the purchase price, and in that certificate of title solicitors give an undertaking that the lender's conditions have been complied with, amongst which is an obligation to notify them of the purchase price. As the guidance makes clear, that notification and accurate knowledge of the purchase price is of particular importance to avoid mortgage fraud. Any difference between that which is notified to the lender and the true purchase price is itself an indication of fraud. The result in this case was no actual loss, although the mortgage lender lent in one case more than the property had been sold for.
6. The tribunal noted in its findings at paragraph 46 that the failure to notify the lender of discounts offered to purchasers was a serious matter. It was indeed. It is noteworthy that when these offences took place, in relation to one of them completion took place in July 2006 and in relation to the other, where the lender lent more than the purchase price, completion took place in June 2006. Those dates are important. It demonstrates that those failures took place while these two solicitors were awaiting a hearing before the disciplinary tribunal after the first investigation. To my mind, to act in that way in 2006, in the context of the first disciplinary hearing, demonstrates that both these two solicitors had a flagrant disregard for the rules and, even more importantly, their responsibilities as solicitors.
7. The third finding relates to their conduct in relation to a particular client. It was alleged that they had failed to act in the best interests of their client and thereby acted in a way unbefitting a solicitor, contrary to rule 1(c) of the 1990 Rules. In November 2006 a client discovered that her mortgage with a lender had not been discharged and she received a series of letters from the lender asserting that she was in breach of her mortgage conditions. She had sent a cheque and it was the building society's failure to pay in that cheque that had led to that situation. She sought, as she was entitled to, help from her solicitors to discover what had been going on. Not only were the demanding letters from the building society embarrassing and upsetting but it compounded her own financial difficulties because she was unable to obtain credit from other lenders. She made several phone calls and wrote a letter of complaint to the solicitors but still received no reply to her letter. Eventually the appellants did respond and paid the client £650 compensation in October 2007. As the findings record the mitigation offered was that this should have been dealt with, not as a regulatory issue but as a "service issue". This was mitigation which should never have been offered on their behalf. It suggests ignorance as to how a solicitor ought to behave. That client needed protection. These solicitors could not be bothered to give it.
8. The fourth allegation was particularly serious, since it alleged a failure to honour undertakings to provide an indemnity policy. The allegations were contained in four separate contentions, failure to comply with the Solicitors Code of Conduct in failing to act with integrity, in acting in a way likely to diminish the trust the public placed in the profession, in failing to comply with undertakings and, finally, failing to deal with the authority in an open, prompt and co-operative way, contrary to the rules.
9. The allegations arose out of a transaction in which Mr. Izzet was selling his own property. The Register referred to a deed of gift in the Charges Register and the solicitor acting for the purchaser of Mr. Izzet's property wanted a copy of that deed of gift or, alternatively, a statutory declaration in relation to the missing document, coupled with an indemnity policy. Mr. Izzet wrote on 1st February 2008 to the solicitors acting for the purchaser, Sedgwick Kelly LLB: "we refer to the above and write to confirm that the relevant statutory declaration and indemnity policy will be available during the course of next week." It was not. Mr. Izzet and Mr. Cazaly, who became involved later, acknowledged that that amounted to an undertaking to provide those documents and that implicit within the undertaking was that the indemnity policy existed, but no such policy or a cheque showing that it had been paid for was forthcoming until 19th May 2008, when Sedgwick Kelly himself reported to the Solicitors Regulatory Authority that the statutory declaration had been made together with a cheque to cover the indemnity policy. This was admitted to be a breach of an undertaking in which Mr. Cazaly had become involved. The mitigation offered was that, in fact, the deed of gift was not a necessary document for the completion of the sale and was extraneous to the transaction of sale. It was not an important document since the Register itself adequately referred to it and, in any event, it was eventually forthcoming. Again, it is with regret that I record that this mitigation demonstrates a complete failure to understand and appreciate the duties of a solicitor. It seems to suggest that some undertakings are more important than others, that if the undertaking relates to a trivial matter it may be breached with little serious consequence. Yet it surely requires no emphasis that the solicitors' profession depends for its integrity on an acknowledgement by each of those who are solicitors, coupled with the understanding of the public that if an undertaking is given by a solicitor it will be honoured. That proposition goes to the route of the standing and indeed justification for the profession, yet not only was the undertaking in this case broken, but then, given the opportunity to rectify that breach, both these solicitors disregarded the reminders from their own regulatory authority and from the solicitors for the purchaser. They had ample opportunity to comply with the undertaking that had been given and then did nothing about it. The rule 4 statement sets out the sorry picture of how what had been promised was never given. There is a record within that rule 4 statement of 10 communications, letters and telephone calls between September 2007, addressed to both these appellants, and 4th February 2008, which met with no response until the second appellant, Mr. Cazaly, deigned to respond on 1st February 2008, saying that the statutory declaration and the indemnity policy would be available during the course of the following week. It was not. Two further letters were sent on 11th and 18th February, to neither of which was there any response by either appellant. The authority then sought an explanation as to why there had been no response. Again, over and over again, the authority sought to persuade the appellants to send what had been promised so as to avoid more serious allegations being made, yet the appellants did nothing until finally some time in May 2008. It is therefore no surprise that the tribunal in their findings regarded the breach of the undertaking as being particularly serious and noted that solicitors' undertakings were central to the practice of a solicitor. The findings recorded the failure of the first appellant to honour the undertaking he had given, despite the intervention of the Solicitors Regulatory Authority.
10. The second appellant's position was slightly different, as is recorded, since he had taken some steps to co-operate. Again these allegations demonstrate to my mind a failure by these two solicitors to understand how serious the breach of the undertaking was and to understand how important co-operation is with those who regulate their own profession. There has never been any explanation as to how these failures in relation to that undertaking came about, other than the suggestion that they were too busy. In those circumstances, it is difficult to see how the tribunal could have imposed any alternative, still less a lower punishment on either of those two solicitors. In my judgment, any lesser punishment would have been wrong.
11. In those circumstances these appeals are dismissed.
12. MR. JUSTICE HICKINBOTTOM: I agree.
13. MR. BARTON: There is an application for costs. I had discussions during the break. They have agreed the figure of 7,500. I ask you to incorporate that into a costs order.
14. LORD JUSTICE MOSES: Against both of them?
15. MR. BARTON: Joint and several.
16. MR. JUSTICE HICKINBOTTOM: Joint and several against both of them. They should pay the costs of this appeal in the sum of 7,500.