349 / 482
GAZETTE.
SEPTEMBER 1989
Compensation Fund held
liable to bank on basis of
fraudulent undertaking.
A Solicitor obtained an advance
from a bank by way of bridging
finance on the strength of an
undertaking presented to the bank
on the notepaper of the firm of
solicitors of which he was a partner
and apparently signed by the other
partner in that firm as had been
required by the Bank. It was
represented to the bank that a
property owned by M and his wife
was being sold and another
property being purchased by them.
No sale or purchase was con-
templated and M's wi fe was
unaware of the application to the
bank for the loan and did not sign
or authorize the signing of any
application. The signature of the
partner to the letter of undertaking
was forged by M and the partner
was unaware of the application for
the loan. The bank advanced
£60,000 by way of t wo drafts
payable to the firm and the monies
were lodged into the client account
of the firm. The monies which were
to be repaid to the bank in 6
months were not repaid though
some payments of interest were
made. M on investigation by the
Law Society was found to be in
default in relation to his client
account and was struck off the
Register of Solicitors. Section 21
(4) of the Solicitors (Amendment)
Act 1960 reads:-
" ( 4) Where it is proved to the
satisfaction of the Society that
any person has sustained loss in
consequence of dishonesty on
the part of any solicitor or any
clerk or servant of a solicitor in
connection wi th that solicitor's
practice as a solicitor or in
connection wi th any trust for
which that solicitor is a trustee,
then, subject to the provisions of
this Section, the Society shall
make a grant to that person out
of the Fund and the amount of
the grant shall be such as
represents in the opinion of the
Society full indemnity for that
loss".
The Law Society contended that
practice as a solicitor involved, as
an essential ingredient, the solicitor
or his firm having in respect of any
particular activity, a client on
whose behalf that activity is carried
out. It was urged that the firm did
not have any client since the
pretence that it was carrying out
conveyancing work in connection
with the sale and purchase of
houses was entirely false.
An alternative submission was
that on the true construction of the
sub section the phrase "any person"
at the commencement of it, in the
context of loss suffered in conse-
quence of dishonesty in connection
with the solicitor's practice as a
solicitor as distinct from loss suf-
fered in consequence of dishonesty
by a solicitor as trustee, should be
construed as being confined to a
client of the solicitor. Reliance was
placed on the provisions of Section
23 of the 1960 Act which provides
for the mak i ng of reciprocal
arrangements wi th Incorporated
Law Society of Northern Ireland
(referred to in the Section as " t he
Corresponding Soc i e t y " ). Sub
section 2 of Section 23 reads:-
" ( 2) Where a scheme operated
by the corresponding Society
requires corresponding practit-
ioners controlled by that Society
to contribute to any fund or
insurance policy or to take out
any insurance policy, for the
compensation or indemnification
of clients for or against losses
due to defalcations of such
practitioners or their agents or
servants"
The Society argued that the use
of the words "for the compensation
or indemnification of clients" must
be taken as having intended that
the scheme which it had created in
the provisions of Section 24 of the
1960 Act should also be a scheme
confined to the indemnification or
compensation of clients.
The bank contended that the
words contained in Section 21 (4)
were unambiguous and must be
given their .ordinary meaning
without reliance on any of the other
provisions of the Statute. They
further argued that the provisions
contained in Section 21 (4) of the
Act dealing wi th dishonesty of a
solicitor in connection wi th any
trusts of which that solicitor is a
trustee could not be interpreted as
confining the portion of the Section
dealing with dishonesty on the part
of a solicitor in connection with that
solicitor's practice as a solicitor to
cases where the claim was made
by a client because it was clearly
a necessary provision to provide for
dishonesty on the part of a solicitor
acting as a trustee though not in his
capacity as a solicitor. Secondly,
wi th regard to the provisions of
Section 23 it was submitted they
could not be interpreted as doing
anything more than providing for
t he special s i t ua t i on of t he
corresponding Society and of
solicitors wi th practising certifi-
cates from both the corresponding
Society and the Society and as
such could not lend any aid to the
interpretation of the sub section.
In the High Court Johnson J. in
his judgment stated:-
''Initially there is no doubt that
M's dishonesty was in his private
capacity and not in his capacity
as a solicitor. In this regard, his
initial interview wi th the Bank
and the request for credit for
himself and his wife for the sale
and purchase of a house was
dishonest, we know that there
was no such intention. However,
when the Bank requested the
undertaking from M at that time
M acted dishonestly by
(1) writing an undertaking on
behalf of M's firm the contents
of which he knew to be false
(2) forging the signature of his
partner which he also knew to
be dishonest.
This he did on behalf of his firm
of which he was a practising
partner, and, in my opinion, it
would be unrealistic to force an
interpretation on the facts in this
case other than that in perpe-
t r a t i ng the falsehoods and
dishonesties in this event that M
was acting and purported to act
and held himself out as acting as
the firm and what was done was
done in the name of his practice".
The Supreme Court came to the
conclusion that Johnson J. was
correct in the decision which he
had reached and the reasons by
which he had reached it. The Court
could see no warrant for seeking to
interpret the sub section concerned
by consideration of other provisions
in the Statute.
In its judgment the Supreme
327