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In the matter of the interventions into the Solicitors’ practices known as Ahmed & Co & Ors (2006)

Summary

The Law Society's duties as statutory trustee under the Solicitors Act 1974 Sch.1 Part II para.6 in relation to monies received upon an intervention in a solicitor's practice were grounded in public law.

Facts

The applicant Law Society applied to the court for directions in relation to the powers that it exercised in respect of monies received upon an intervention in a solicitor's practice. The application was prompted by the numerous difficulties encountered by the Law Society in interventions, such as identifying those to whom monies were due and distributing such monies. In particular, a determination was sought as to whether the Law Society's duties as statutory trustee under the Solicitors Act 1974 Sch.1 Part II para.6 were the same as those of a trustee under a private trust or whether those duties were affected by the statutory nature of the trust and its status in public law. The Law Society argued that the trust in para.6 was subject to public law.

Held

The Law Society's duties in relation to the para.6 trust were grounded in public law. There was no doubt that the Law Society's duties in relation to its compensation fund were duties grounded in public law. Further, in regulating the profession, the Law Society performed a public duty. The background to the need for the powers and the structure of Sch.1 Part II made it clear that the para.6 trust was not intended to be, and could not have been intended to be, an ordinary private law trust. The Law Society inherited, like a trustee in bankruptcy, a situation not of its own making, including records that were often in a chaotic state, in which it did not know initially where all the funds lay, and then, having recovered the funds, did not know who the claimants to the funds were. It had, nonetheless, to determine entitlement to the funds and distribute to those identified as claimants to the funds. It would be difficult if the Law Society were, in that context, to be burdened with overly excessive or onerous duties as a private law trustee under para.6. The trust created under para.6 could be labelled a statutory trust. That approach was supported by the consideration that the Law Society needed to be able to act efficiently in circumstances where there might be many clients involved. It would also avoid the danger that the trust might be void. If the para.6 trust were a private law trust, it would be a fixed trust, not a discretionary one. A fixed trust with conceptual or evidential uncertainty or both was a void trust, and a fixed trust would only be valid if it was possible to draw up a complete list of the beneficiaries at the time of distribution. The Law Society therefore had a statutory power to determine who was entitled to the funds under para.6. That did not mean that it had a discretion as to who was beneficially entitled. In taking steps to determine who was so entitled, the Law Society had to exercise the power in a way that was bona fide, rational, reasonable, took into account relevant considerations and did not take into account irrelevant considerations. The exercise of the power would be subject to review on public law grounds. Also the statutory power to distribute had to be exercised in accordance with public law principles. The court went on to set out its conclusions on a number of other matters arising from interventions, including the position of unbilled costs, distribution where there was a deficit between the amount of money recorded as being in client account at the time of the intervention and the amount of money that was in fact there, and whether the Law Society could reimburse itself for costs out of undistributable sums.

Judgment accordingly.

Chancery Division
Lawrence Collins J
Judgment date
14 March 2006
References

[2006] EWHC 480 (Ch), LTL 21/3/2006