A City law firm shut down by the Solicitors Regulation Authority  (SRA) last month after its conduct had been referred to the regulator by the Court of Appeal has lost its bid to overturn the intervention.
Mr Justice Newey said  the risks of withdrawing the intervention into Neumans outweighed those of continuing it, despite the devastating impact it would have on the criminal law firm.
The intervention followed a referral by the Court of Appeal  to both the SRA and the Director of Public Prosecutions after it ordered the firm and a client to repay interim costs of £500,000, on a joint and several basis, to the Lord Chancellor.
The firm was established in 2006 under a different name, and became Neumans in 2008 with two members, husband and wife Nabeel Sheikh and Sarwa Sabir, owning 50% each. Ms Sabir was away from the business between March 2007 and December 2015 while she had and cared for children.
The firm told the SRA that it “vehemently” denied any suggestion that there was any form of dishonesty or agreement to unlawfully obtain funds from the public purse.
Nonetheless, an SRA regulatory supervisor recommended intervening into the practices of Mr Sheik and Ms Sabir and into the firm, and to refer the two solicitors to a disciplinary tribunal.
An adjudication panel received representations from Neumans’ solicitors, RadcliffesLeBrasseur, and also well-known regulatory solicitor Andrew Hopper QC on behalf of Ms Sabir, while Mr Sheikh resigned from Neumans and from his position as the firm’s compliance officer for legal practice and for finance and administration (COLP/COFA), in a bid to ward off the intervention.
However, the panel resolved to intervene into Neumans as well as Mr Sheikh’s practice, and also to refer him to a tribunal on the basis that there was “reason to suspect dishonesty”.
Though Mr Sheikh’s resignation removed “some risk to the firm and to the public”, the panel noted that he was “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.
“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…
“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.”
In relation to Ms Sabir, the panel said: “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.”
The case before the High Court was that the decision to intervene was fundamentally flawed and that, having regard to the material now before the court, the intervention ought in any event to be withdrawn.
Newey J rejected the suggestion that the SRA did not have the power intervene because the individual in respect of whom the SRA considered that there was reason to suspect dishonesty was no longer a manager.
He said it was “good enough” under the legislation governing interventions that there was reason to suspect dishonesty on the part of someone who was at the time a manager, regardless of whether they remained 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… that it makes sense that the SRA should have powers of intervention in such a situation.”
While the resignation of Mr Sheikh made the decision on withdrawing the intervention “more difficult”, the judge said he would not make such an order.
His reasons included that “Neumans has made common cause with Mr Sheikh” and not sought to distance itself from his conduct at all – he noted that RadcliffesLeBrasseur acted for both Neumans and Mr Sheikh over the intervention.
He continued: “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…
“Mr Sheikh’s resignation as COLP, COFA and member has the air of a last throw of the dice.”
Further, Neumans and Ms Sabir’s evidence highlighted the importance of Mr Sheikh as a rainmaker despite its submission that its future practice was not dependent on a continuing stream of new clients introduced by him.
“These matters raise further questions as to whether there would or could in fact be a complete divorce between Mr Sheikh and Neumans…
“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’.”
The firm said a solicitor and a barrister had agreed to become members with equal voting rights with Ms Sabir, and act as its compliance officers, if the intervention were withdrawn.
However, the judge found a “lack of clarity” as to their roles and interests in the firm. “It is noteworthy that I have not been supplied with even draft documentation.”
Newey J concluded: “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.”