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Please note that text in red denotes my comments

A speech in Parliament by a Welsh MP dated 21/10/2003.

This speech has grave implications for professional people who were also involved in the plunder of Freddie Andrews' property.

21 Oct 2003 : Column 208WH

Legal Services (Northern Ireland)
11 am
Mr. Elfyn Llwyd (Meirionnydd Nant Conwy):
From the outset, I should declare an interest in that I was a solicitor for 20 years and have been a member of the Bar for six. In all of those years, I have not come across anything like the case of my constituents Dr. and Mrs. Donnelly of Hengwm, Tal y Bont, Barmouth in my constituency.

The matter arose due to complaints being made against two of the large solicitors firms in Belfast namely McCartan, Turkington, Breen of Chancery house, Victoria street, Belfast and Parnell Kerr Forster of 22 Great Victoria Street, Belfast.

The complaints arose out of their conduct in relation to the acquisition of a limited company, Stagecoach Inn Limited, which I shall refer to as SCIL. It was owned and operated by people in Belfast, and the Stagecoach was one of the best-known public houses in Northern Ireland.

The company's issued share capital was 60,000 ordinary shares at £1 each, of which my constituent had 14,500. In addition to being a shareholder, Dr. Donnelly was also a director of SCIL, being appointed in 1979. The day-to-day management of the licensed premises was undertaken by a Mr. and Mrs. Davidson who were also shareholders of SCIL. Due to difficult trading conditions, a decision was taken during 1984 that SCIL should be sold.

A purchaser, Mr. Conor Kelly, was found and the company's shareholders instructed Messrs Parnell, Kerr and Forster to act on their behalf, and the purchaser also approached them. Mr. Conor Kelly then duly instructed Messrs Heneghan and Company, solicitors, to act on his behalf. Mr Kelly, via his solicitors, negotiated with SCIL's shareholders' solicitors, Messrs McCartan Turkington and Breen, and matters progressed well, with all parties looking towards completion. During the transaction, its nature changed from being a pure sale of the freehold and the premises to a sale of actual shares in the company—a total sale in other words. That indeed happened, and was completed on 1 November 1984.

It was not until about 12 years after completion of the sale that Dr. Donnelly became aware of the identity of the purchaser despite being a vendor of the company. That followed a company search, which revealed the identities of the new directors, who were also purchasers. Dr. Donnelly knew of the transaction as a whole, but did not know the identity of the purchasers. At no time were his views solicited in relation to the terms of the share sale agreement, in particular in relation to price and its ultimate calculation or the mechanism for payment of any consequential liabilities.
More surprisingly, and unknown at the time to my constituent, the purchaser appeared to be a consortium comprised of a number of partners of McCartan, Turkington and Breen—Mr. Turkington and Mr. Breen becoming directors of SCIL—and, incredibly, Parnell Kerr Forster, who were the solicitors acting for the company. Mr. Francis Gerard French of that firm also became a director of SCIL.

The following terms were agreed in the share sale agreement. A notional sum of £225,000 was to be paid to the shareholders, equating to about £3.75 per share. That was payable as follows: first, £15,000 deposit on

21 Oct 2003 : Column 209WH the 12 November 1984;

secondly, the sum of £135,000 on account on completion on 1 November 1984;

thirdly, there was to be subtracted from the notional sum of £225,000 the losses that had occurred within SCIL recorded to 31 August 1984, together with further losses that had occurred between 1 September 1984 and 31 October 1984, as calculated by the auditors, PKF, and certified in audited accounts; and,

fourthly, further sums were to be deducted in respect of fees incurred by J. A. Whelan Best, PKF, and McCartan Turkington Breen, where two of the partners were purchasers.

To facilitate completion of the sale, Dr. Donnelly received a telephone call from Mr. Courtney of PKF indicating that his presence was urgently required in Belfast in connection with matters arising from the proposed sale. I have seen a letter from 2 October 1984 written by Mr. Courtney to Dr. Donnelly and enclosing a copy of a power of attorney, which Dr. Donnelly subsequently executed. A copy of the power of attorney has been made available to my constituent and is dated 29 September 1984. It is signed by Dr. Donnelly, and witnessed by his mother and an Andrew James Wilkinson of PKF. The power of attorney is general and is not limited in scope simply to signing the share sale agreement.

In relation to post-completion matters, in my constituent's letter to the firms on 29 November 1984, he confirmed his telephone conversation the previous day with Mr. Courtney and, in particular, his instructions as to how the proceeds of sale from his shares in SCIL were to be dealt with. Those instructions were as follows: sale proceeds of 12,000 of those shares were to have their cash equivalent remitted to him, and cash proceeds referable to the sale of a second tranche of 2,500 shares were to be invested to provide an income for his mother, by which I understand that he meant that the money was to be invested in trust for her.

Notwithstanding those instructions, Mr. Courtney wrote to my constituent on 21 December 1984 enclosing a schedule setting out how the proceeds of sale had been, or were proposed to be, appropriated. Consideration of that schedule showed that in addition to losses and costs certain debts were also taken into account prior to the distribution being made to my constituent.

It appears that the following amounts were deducted: a Stagecoach/SCIL debt of £27,175, taxation of £17,185, and a bank loan of £14,031. I cannot see any contractual provision contained in the share sale agreement that confirms that those deductions were authorised. At no stage was my constituent consulted and he did not have an opportunity to corroborate the amounts.
In the event, my constituent received from PKF the sum of £12,000, plus £5,000 of bonds, and confirmation that the balance due, the sum of £17,880, was owed to Dr. Donnelly by his mother. It appears that that balance was paid directly to my constituent's mother without any express or implied authority from my constituent to deal with that money in that way.
It would appear that the complaints against both firms arise out of their failure to advise properly in relation to the meaning and implications of the general power of attorney. That pertains particularly to Brian Courtney and the representation of my constituent in relation to the share sale transaction. There was also a

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failure to give any advice in connection with the share sale agreement and, in particular, with potential personal liability, valuation and price per share, the effect of the warranties contained within the agreement, the identification of the purchaser, potential personal liability pursuant to warranties, undertakings concerning competition, and the meaning and effect of confidentiality covenants. Also, there was a failure to give any notice or request any instructions about the appropriation of the proceeds of sale and to act upon my constituent's written instructions concerning how he wished the proceeds of sale to be received and accounted for.

Finally, there were various conflicts of interest including a potential conflict of interest between my constituent and his mother in how the proceeds of sale were to be appropriated; a clear potential conflict of interest in the way in which PKF acted on my constituent's behalf while also apparently acting as expert in the production of completion accounts for the purposes of identifying losses that were to be subtracted from the sale price, given the involvement of a partner as one of the purchasers; and, finally, a failure to give proper advice on how the calculation of such losses was undertaken. There was also a failure to obtain instructions, notwithstanding the existence of a general power of attorney in respect of the apparent change of purchaser.
One of the difficulties that Dr. Donnelly faced was that his mother was suffering from multiple sclerosis, which had been diagnosed in 1977. Her condition had deteriorated. She was unable to draw any of the benefits to which she otherwise would have been entitled because of the capital sum that had been paid over to her without Dr. Donnelly's authority.
Dr. and Mrs. Donnelly have subsequently been in protracted correspondence with the Law Society of Northern Ireland. In a letter dated 1 January 1999, they asked whether the Law Society would say that professional ethics were central to proper standards of behaviour; whether it was professional or ethical for a solicitor in Northern Ireland to act for both owner and purchaser; whether it was professional or ethical for a solicitor in Northern Ireland to act for both vendor and purchaser and also to be involved in the transaction personally; whether it was ethical for a solicitor in Northern Ireland to accept a general power of attorney if he was acting for both buyer and seller and if he himself was one of the purchasers, and not to investigate the provenance of that power of attorney, considering that the document was drafted by an accountant whose partner was also a purchaser, a future shareholder and a witness to the signing of the power. Almost incredibly, the letter did not elicit any action from the Law Society.

In August 1999, my constituent asked the lay observer, Professor Vincent Mageean, to look at the failure of the Law Society to investigate Mr. Turkington and to maintain standards in the profession. He was asked repeatedly to investigate conflicts of interest that the society may have failed to declare, as my constituent felt that the Law Society was protecting Mr. Turkington.
The lay observer stated in his report that he was always given information that he requested from the Law Society. He declared that he had no reason to believe that Mr. Turkington had held any office in the

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society. Two years later, in 2001, we discovered that Mr. Turkington had been a committee member of the Law Society for many years and had been a past president in 1986, just over a year after what has been put forward by my constituent as an alleged fraud. When faced with the evidence, the lay observer wrote that he did not feel that that constituted any form of conflict.

Correspondence continued with the solicitors disciplinary tribunal between 1999 and 2002. The secretary, Donal McFerran, informed my constituent that he needed a copy of the 1980 solicitors practice regulations to draft a formal complaint to the tribunal. Mr. McFerran claimed that none of the lawyers on the tribunal had a copy of the document. One lawyer, Michael Wilson, was about to send a copy to my constituent when Mr. McFerran prevented him from doing so. Mr. McFerran wrote that there is strict impartiality in the tribunal and no connections with the Law Society of Northern Ireland. We later discovered that Mr. Butler was a lecturer and examiner for the society and that the entire tribunal is chosen by it. There is no impartiality whatsoever.

Correspondence continued with the Northern Ireland Human Rights Commission. Two years later, Brice Dickson finally decided that the commission could not help. The fraud squad agreed to investigate the matter if my constituent found a lawyer who was willing to bring a case. The situation is dire and every effort has drawn a blank. An individual, the Law Society of Northern Ireland or the lay observer can refer matters to the solicitors disciplinary tribunal for Northern Ireland. My constituents complained that the individuals and the Law Society saw nothing wrong because they were shot through with conflicts of interest, while the lay observer would not take up the matter.

That leaves my constituents absolutely nowhere after all those years of hard work going from pillar to post. I secured an Adjournment debate similar to this one about 18 months ago. I am not making conspiratorial accusations, but it was disappointing that two days before the debate took place, a Government Minister rang me and said, "Because of the Northern Ireland Assembly, the matter is devolved and is not within the Lord Chancellor's Department", which effectively pulled up the stumps for that debate.That is not a back-door accusation against anyone, least of all the Minister concerned, whose position I fully understood. Following that telephone conversation, I even corresponded with the Deputy First Minister of the Northern Ireland Assembly, but nothing came of it.

I am terribly disappointed on behalf of my constituents. There has been not only misconduct but something worse. We are discussing a group of fairly high-powered lawyers and accountants in Northern Ireland taking proceeds of sale, taking over a company and running a business with no regard for the rights of those to whom the business belonged. That cannot be right. It is nearer fraud than it is a disciplinary offence.

I urge the Minister to do his best to ensure that some justice comes my constituents' way. It has been said that because of the length of time that has elapsed the statute of limitations would probably bar legal actions for recovery of the funds owed. That may or may not be true, but where fraud is involved there is no statute of

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limitations, so the matter is still at large. I contend that one should go to law only when all other avenues have been fully examined. My constituents have examined most of the avenues, but the door has been peremptorily shut in their faces at the end of each and every one of them. I urge the Minister to examine the problem anew. I know that it is fairly new to him and I am not expecting cast-iron guarantees, but I ask him to examine the issue carefully and to liaise with his colleagues in Northern Ireland and the LCD.

I shall conclude with a quotation:

"Steps should be taken to achieve better representation on the Professional Conduct Committee" in Northern Ireland. "Currently it is dominated by the male staff of larger firms in Belfast."
That description of the Law Society of Northern Ireland casts a long shadow over the whole unfortunate affair. The quotation is from the lay observer's 21st annual report 1997–98. That is the same lay observer who has vehemently declined to act in the matter.

11.18 am

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Ian Pearson) :
I congratulate the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) on securing this debate on what all of us in Parliament hope will be a momentous day in Northern Ireland's political history. He outlined a serious complaint made by his constituent relating to a legal transaction conducted by solicitors practising in Northern Ireland. He has done so in a typically cogent and forceful way and I applaud his diligence.

The hon. Gentleman is right to say that the matter is new to me. I cannot comment on the detail of the case. Notwithstanding events occurring across the water, however, what is said and placed on record today will benefit his constituents and keep open the arguments on the complaint.

The hon. Gentleman referred to difficulties encountered with the Law Society of Northern Ireland and the lay observer—both have statutory roles in connection with the regulation of solicitors in Northern Ireland. I shall begin by setting out the arrangements for the regulation of that profession because the regime differs from that operating in other UK jurisdictions.

The relevant legislation is the Solicitors (Northern Ireland) Order 1976, as amended by the Solicitors (Amendment) (Northern Ireland) Order 1989, under which there is self-regulation, with a complaints procedure administered by the Law Society of Northern Ireland. Complaints made to the Law Society are dealt with in the first instance by its secretariat and then by the client complaints committee, formerly known as the professional conduct committee, which investigates the background to the complaint and allegations made about the quality of services provided by a solicitor. The circumstances underlying complaints include undue delay, withholding or loss of documents, bills and accounts, disclosure of information, dissatisfaction with advice and ethics and inappropriate behaviour.
The client complaints committee may issue guidance, directions, admonition or warning, or it may refer a complaint to the solicitors disciplinary tribunal, which

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has extensive powers and a range of sanctions, including admonishing the solicitor, imposing fines, restrictions on practice and suspension, striking off, and ordering payment of costs or restitution. A client or member of the public may also bring a complaint to the tribunal and there is scope for the lay observer to refer complaints to it in certain cases.
I have some direct responsibility for the role of the lay observer, who is appointed under article 42 of the 1976 order, as amended by Article 17 of the 1989 order. The Department of Finance and Personnel makes an appointment after consultation with the Lord Chief Justice of Northern Ireland. It is important to recognise that the lay observer is not a solicitor, barrister, or Government official. He provides independent oversight of the Law Society's handling of complaints and has a monitoring and reporting role. The Department may, after consultation with the Lord Chief Justice, give general directions to the lay observer about the scope and discharge of his functions. The Department does not intervene in his consideration of the complaints handling process in any individual case.

The functions of the lay observer are twofold. First, he reports on the nature of the complaints made to the Law Society of Northern Ireland about the conduct of solicitors and how they are dealt with by it. Those reports are furnished to the Lord Chief Justice, the Department of Finance and Personnel and the council of the Law Society. They are also laid before the Northern Ireland Assembly. Secondly, he examines any written allegation made by, or on behalf of, a member of the public concerning the society's treatment of a complaint about a solicitor, or employer of a solicitor, made to the society by that member of the public or on his behalf.

If, during the examination of any such allegation, it appears to the lay observer that questions arise about the professional conduct of the solicitor and the quality of professional services provided, he may make an application to the solicitors disciplinary tribunal about the solicitor concerned, as the hon. Gentleman outlined. He may do that if he thinks that it would be appropriate for the tribunal to consider the quality of professional services provided, with a view to determining whether it should exercise any of its powers to impose sanctions under article 51A. Sanctions for inadequate professional services relate to the determination of costs and setting time for the completion and rectification of errors, omissions or deficiencies at the expense of the solicitor.

The yearly report of the lay observer provides statistical information about the nature of complaints and their outcomes. In the report for 2002, some 286 complaints were made to the Law Society—a decrease from 309 in the previous year. The report does not deal with the details of any individual complaint. The lay observer does not comment on the merits of individual cases, because his responsibilities are confined to the complaints handling process.
When the report is received it is laid before the Assembly. The council of the Law Society is required to consider any report and notify the lay observer of any action in consequence of the lay observer's comments or recommendations. In addition, substantive responses

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are submitted from the Department. The lay observer assesses those responses and, where appropriate, returns to the issues in his next report and indicates whether he is satisfied. In that way, a measure of transparency and accountability is achieved in the system.

The complaint to which the hon. Member for Meirionnydd Nant Conwy referred, as he fully outlined, involves a transaction entered into in 1984 for the sale of shares in a company, and allegations of conflicts of interests and improper advice arising at that time. As I have suggested, I am unable to comment in detail on the circumstances of an individual case and hon. Members will appreciate that it would be inappropriate for me to do so. I shall therefore outline for the hon. Gentleman the procedures that have been followed to date.

I have been informed that the Law Society's professional conduct committee considered the complaints in 1998. The committee did not accept the arguments and allegations put forward by the complainants and took no further action in relation to the two firms involved. As the hon. Gentleman pointed out, the handling of the complaint was examined by the lay observer in 2000, and after lengthy examination and due deliberation he decided that the Law Society had acted properly and that he would not make an application to the solicitors disciplinary tribunal for its consideration. However, he advised the complainants that they had the right to contact the tribunal themselves directly. He also decided to make some recommendations of a general nature to the Law Society on the subject of client care, which had arisen from his examination of the documents in the case. The complaint was not, in the event, referred to the tribunal by the complainants.

Mr. Llwyd : As a matter of record, it was. I refer to the secretary, Donal McFerran, who said that he did not have a copy of the appropriate regulations under which a complaint should be handled. The tribunal was therefore contacted, but it was not interested in taking the matter forward.

Mr. Pearson : I thank the hon. Gentleman for his comments. I am sure that they will be drawn to the attention of those that need to know. I am also aware that the complainant referred the case to the police, but that no criminal prosecution was brought. Currently, no other legal proceedings are being instituted.

The hon. Gentleman has made some serious allegations and it is important that we consider them further. They also raise a more general issue about regulation of the solicitor profession. It is recognised that there is a need for a review of the system of regulation for the provision of legal services in Northern Ireland. The Department of Finance and Personnel has said in its response to the lay observer's report for 2002 that it would want to explore all of those issues. The best context for doing so would be the devolution of justice functions in Northern Ireland, which would facilitate a thorough evaluation and allow the Northern Ireland Administration to take a comprehensive view of the whole area. Following elections and restoration of the Assembly and the full implementation of the Belfast agreement, that will be possible.
It is true that the system is different in England and Wales, as the hon. Gentleman will know from his background as a solicitor and barrister. The legal

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services ombudsman provides independent supervision of the self-regulatory process. As the hon. Gentleman will be aware, the Department for Constitutional Affairs recently announced proposals to bring into operation provisions in the Access to Justice Act 1999 to establish a legal services complaints commissioner. There are powers in England and Wales that have no parallel with the situation of the lay observer in Northern Ireland. That is something that a devolved Assembly and devolved Ministers will want to pursue in due course and that may well be the best way forward for the hon. Gentleman's constituents.

11.30 am

Sitting suspended until Two o'clock.

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