SDT: Swead’s dishonesty stretched across several events
Two directors of a City law firm have been struck off for acting dishonestly in making an unauthorised payment from client account of almost £95,000 to a third party.
The Solicitors Disciplinary Tribunal (SDT) found that James Swead also made untrue statements about his law firm’s borrowing during court proceedings relating to a winding-up petition and agreed terms for a loan to the firm without disclosing material adverse information.
John Szepietowski, another director of AAG Legal Services, later known as Eldons Berkeley, was found to have acted dishonestly over the payment to the third party – the only allegation against him.
Mr Swead, who qualified in 2009, became a director of AAG Legal Services in 2015, which became Eldons Berkeley before it ceased trading in October 2020. He also held the firm’s compliance officer roles.
Mr Szepietowski, qualified in 1995, was a director of the firm from May 2015 to November 2017.
In 2015, AAG took over litigation from a firm, Lorrells, that had closed. Lorrells was acting for the claimant under a damages-based agreement (DBA) and had entered into a deed of assignment under which 90% of the fees it generated would be paid to ‘Person B’, who had backed Lorrells during a period of financial difficulty.
AAG acted on the same basis but when the litigation settled for around £7m a few months later, a third party called Mark Berman claimed a payment of £75,000 for his role in the case, which AAG disputed.
The firm also sought to rely on a written indemnity previously provided by Person B, under which he undertook to indemnify the firm against third-party claims arising in connection with the DBA.
Person B died and AAG was subsequently instructed to act on behalf of ‘Client A’, a company connected with Person B’s family on the sale of a commercial property. This completed in June 2017, with the proceeds kept in the firm’s client account.
Around the same time, Mr Berman issued proceedings and shortly after AAG Legal paid him £94,700 to settle the claim and transferred a further £8,700 to its office account. The money came from the proceeds of the property sale.
The following year, Client A sued AAG over this and the firm’s insurer notified the Solicitors Regulation Authority.
Before the SDT, Mr Swead accepted that use of client money to make the £94,700 payment was wrong and a breach of the accounts rules, but said he did not authorise it.
The SDT said that, while Mr Swead gave evidence to the tribunal “in a calm and measured manner”, it “did not find significant parts of his account to be reliable when tested against the contemporaneous documents”.
His actions following the transfer “were inconsistent with his account that he was shocked by an unauthorised payment” – he did not seek the return of the funds, did not complain to his bank and amended the completion statement sent to Client A to account for the deduction.
He knew what was happening and had acted dishonestly, the SDT concluded.
Mr Szepietowski maintained that he believed the firm was obliged to meet the claim, that payment would be made from the firm’s office account, and that he did not appreciate until later that client account funds had been used.
But the SDT found that aspects of his account were “inconsistent with the contemporaneous documentary record” as well.
While Mr Szepietowski was “the less significant participant”, the SDT concluded that “he nevertheless knowingly participated in facilitating the misuse of those client funds in order to settle a liability of the firm”. This too was dishonest.
If Mr Swead had intended to act on his own, he would not have involved his partner in the payment process.
Mr Swead claimed that the transfer of £8,700 was for costs related to the Berman matter but the SDT rejected this too, finding he had transferred the money dishonestly without authorisation.
Separately, he was found to have misled the court in a witness statement in 2020, after a winding-up petition was issued against the firm, by saying it had not paid off its overdraft, when he knew it had.
Mr Swead accepted “with hindsight” that some of the statements he made were inaccurate but claimed these had not been deliberate.
Finally, he acted dishonestly in agreeing contract terms with a lender to secure a Covid business loan for AAG Legal without disclosing the winding-up petition or the firm’s financial difficulties.
The SDT said Mr Swead’s dishonesty was not confined “to a single act or momentary lapse of judgement but extended across multiple allegations occurring in different factual contexts between 2017 and 2020”.
His misconduct “resulted in the unauthorised loss of a substantial sum of money from Client A’s client ledger” and “extended beyond the misuse of client money and included dishonest conduct towards both the court and a commercial lender”.
Mr Szepietowski’s misconduct “arose from a single short-lived course of conduct” and he was “not the primary architect of the wider circumstances giving rise to the misconduct”.
However, he was an “extremely experienced solicitor” who had “knowingly participated in the unauthorised use of a substantial sum of client money belonging to Client A”.
Mr Swead was struck off and ordered to pay £9,000 in costs, his financial means having been taken into account. Mr Szepietowski was struck off and ordered to pay £39,600 in costs.
Mr Szepietowski has appealed to the High Court against the ruling.
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