Costs –Intervention in solicitors’ practice – Suspected dishonesty – Solicitors Accounts Rules

Shahrokh Mireskandari v Law Society: Ch D (Mr Justice Henderson): 4 September 2009 The court was required to determine issues of costs and other consequential matters after the claimant solicitor (M) discontinued his claim challenging the defendant Law Society’s intervention into his practice.

M had been the senior, and virtually sole, equity partner of a firm. The Society commenced an investigation of the firm. M’s reaction was not to cooperate but to obtain a without notice injunction on the basis that the investigation was improperly motivated. The injunction was later set aside on the basis that the court had been misled on the without notice application and there was no evidence to show that the investigation had been undertaken for improper motives. M then purported to take a sabbatical from the firm and transfer his interest in the firm to its former sole principal. The investigation report concluded that there were a number of grounds for suspecting dishonesty on the part of M and that he had breached the Solicitors Accounts Rules. The Society, accordingly, decided to intervene in M’s practice. The resolution to intervene was put into effect and the process of removing files from the firm’s offices commenced. The Society instructed its solicitors (R) that no papers relevant to employment tribunal proceedings by M against the Law Society should be taken or inspected, and independent counsel was instructed for that purpose. M issued proceedings to set aside the intervention notices and the suspension of his practising certificate. At the hearing M gave notice of discontinuance. The Law Society sought its costs on the indemnity basis. M argued that R had a conflict of interest because they were instructed in the employment proceedings and were therefore disentitled from recovering any costs, and that unreasonable conduct of its case by the Law Society justified a reduction of any costs order in its favour.

Held: (1) Where a solicitor had acted for a client in the past, confidential information relating to the client’s affairs would almost inevitably have come into the solicitor’s possession in the course of that relationship. In that situation it was clearly appropriate that an evidential burden should rest on the solicitor’s firm to show that there was no risk of contamination if it acted against the same client, Bolkiah v KPMG [1999] 2 AC 222 HL considered. By contrast, the only real issue in the instant case, since R had never acted for M, was the effectiveness of the precautions taken to prevent M’s confidential papers and information coming into R’s possession during the intervention. M had not begun to discharge the burden of showing that contamination had actually taken place, or that there was any significant risk of it occurring in the future. R had taken elaborate precautions, including the instruction of independent counsel before the intervention, to ensure that there would be no significant risk of contamination. In the circumstances, the potential conflict of interest remained purely theoretical and no burden lay on R to show that no contamination could occur. Even if there was a more than theoretical risk of conflict of interest, R had acted throughout the instant case without objection from M, and in the course of so acting had incurred costs and disbursements in the usual way. There was no authority which in such circumstances could disqualify R from recovering their costs at the end of the case.

(2) There were no grounds for reducing the costs recoverable by the Society on the basis of unreasonable conduct of the proceedings.

(3) The grounds relied upon in the claim form disclosed no basis of challenge whatever to the decisions to intervene. The propriety of the interventions depended on the existence of reason to suspect dishonesty and on the Society being satisfied that M had breached the accounts rules. M’s sabbatical, alleged retirement and transfer of his equity interest were all completely irrelevant to the question of whether those threshold conditions were satisfied. Despite numerous opportunities M had consistently failed to explain his conduct either in or outside the proceedings. Instead he had employed diversionary tactics of every kind, none of which could disguise the fact that there was no plausible reason for withdrawal of the intervention notices. M’s claim was from its inception hopeless and his conduct throughout the proceedings had been unreasonable to a high degree. Those factors were enough to take the case out of the normal run and justify an order for costs on the indemnity basis.

Judgment accordingly.

Hugo Page QC (instructed by Saunders Bearman) for the claimant; Hodge Malek QC, Andrew Tabachnik (instructed by Russell-Cooke) for the defendant.