SOLICITORS DISCIPLINARY TRIBUNAL. IN THE MATTER OF THE SOLICITORS ACT 1974 Case No and

Transcription

1 SOLICITORS DISCIPLINARY TRIBUNAL IN THE MATTER OF THE SOLICITORS ACT 1974 Case No BETWEEN: SOLICITORS REGULATION AUTHORITY Applicant Appearances and CHRISTOPHER ROBIN LANGFORD First Respondent ERIC MICHAEL GUMMERS Second Respondent PAUL FUGLIO GARRARD AMANDINI Third Respondent MARK TIMOTHY JOHNSTONE Fourth Respondent HOWARD KENNEDY LLP (a Firm) Fifth Respondent Before: Mr J. C. Chesterton (in the chair) Ms A. Horne Dr S. Bown Date of Hearing: 29 January 1 February 2018 Richard Coleman QC, of Fountain Court Chambers, Fountain Court, Temple, London, EC4Y 9DH for the Applicant. Gregory Treverton-Jones QC of 39 Essex Chambers, 81 Chancery Lane, London, WC2A 1DD, instructed by Jonathan Greensmith, solicitor of Keystone Law, 48 Chancery Lane, London WC2A 1JF for the First Respondent. Geoffrey Williams QC of Farrar s Building, Temple, London, EC4Y 7BD instructed by Nigel West, solicitor of RadcliffeLeBrasseur, 5 Great College Street, London SW1P 3SJ for the Second Respondent. Jayne Willetts, Solicitor Advocate, of Jayne Willetts & Co Solicitors, The Barn, Woodman Lane, Clent, Worcestershire, DY9 9PX for the Third and Fourth Respondents. Timothy Kendal, counsel, of 2 Bedford Row, London, WC1R 4BU instructed by Ian Ryan, solicitor of Howard Kennedy LLP, No.1 Bridge Street, London SE1 9BG for the Fifth Respondent. Timothy Dutton QC and Craig Ulyatt, counsel, of Fountain Court Chambers, Fountain Court, Temple, London, EC4Y 9DH instructed by Iain Miller of Kingsley Napley LLP, Knights Quarter, 14 St John s Lane, London EC1M 4AJ for the lay client. JUDGMENT

2 2 Allegations 1. The allegations against the First Respondent made by the Solicitors Regulation Authority ( SRA ) were that: 1.1 Between 27 July 2009 and 11 April 2012, he facilitated the receipt of payments into, and caused payments to be made out of, the client account of Howard Kennedy upon behalf of Mr A which were unrelated to any underlying legal transaction and thereby: Acted contrary to guidance note (ix) to Rule 15 of the Solicitors Accounts Rules 1998 ( SAR 1998 ); and Breached Rule 14.5 of the SRA Accounts Rules 2011 ( SAR 2011 ). 1.2 Between 12 April 2012 and 27 January 2015, he facilitated the receipt of payments into, and caused payments to be made out of, the client account of Howard Kennedy upon behalf of Mr A which were unrelated to any underlying legal transaction. At the time that each of those payments were made he knew that its making was prohibited by the SAR He thereby: Breached Principle 2 of the SRA Principles 2011 ( the Principles ) Breached Principle 6 of the Principles Breached Principle 8 of the Principles Breached Rules 14.5 of the SAR Withdrawn 1.4 Withdrawn 2. The allegation against the Second Respondent made by the SRA was that: 2.1 Between 27 July 2009 and 5 November 2012, he facilitated the receipt of payments into, and caused payments to be made out of, the client account of Howard Kennedy upon behalf of Mr A which were unrelated to any underlying legal transaction and thereby: Acted contrary to guidance note (ix) to Rule 15 of the SAR Breached Rule 14.5 of the SAR Withdrawn 3. The allegation against the Third Respondent made by the SRA was that between 28 March 2011 and 28 May 2014 he facilitated the making of payments from the client account of Howard Kennedy upon behalf of Mr A and companies with which he was associated which were unrelated to any underlying legal transaction and thereby: 3.1 Acted contrary to guidance note (ix) to Rule 15 of the SAR Breached Rule 14.5 of the SAR 2011.

3 3 4. The allegation against the Fourth Respondent made by the SRA was that between 28 April 2014 and 28 July 2014 he facilitated the making of payments from the client account of Howard Kennedy upon behalf of Mr A which were unrelated to any underlying legal transaction at the request of the First Respondent and/or Mr Morris and thereby: 4.1 Withdrawn 4.2 Breached Rule 14.5 of the SAR The allegations against the Fifth Respondent made by the SRA were that: 5.1 Between 1 April 2011 and January 2015 payments were received into, and made out of, its client accounts upon behalf of Mr A and companies with whom he was associated which were unrelated to any underlying legal transaction and thereby breached: Guidance note (ix) to Rule 15 of the SAR Rule 14.5 of the SAR From 12 April 2012 until 18 February 2015 it failed to put in place any, or any adequate, measures to prevent the First Respondent providing Mr A with a banking facility through its client accounts and thereby breach and/or failed to achieve: Principle 8 of the Principles; Outcome O(7.2) of the Solicitors Code of Conduct 2011 ( the SCC ); Outcome O(7.3) of the SCC. 5.3 It knew that the First Respondent had committed a serious breach of Rule 14.5 of the SAR 2011 by 11 April 2012 but failed to report that breach to the SRA until 3 February 2015 and thereby breached and/or failed to achieve: Documents Principle 7 of the Principles; Outcome O(10.4) of the SCC. 6. The Tribunal reviewed all the documents submitted by the parties, which included: Notice of Application dated 7 July 2017 Rule 5 Statement and Exhibit AJB1 dated 7 July 2017 Amended Rule 5 Statement dated 19 December 2017 Re-amended Rule 5 Statement dated 31 January 2018 First Respondent s Answer to the Rule 5 Statement dated 15 September 2017 Second Respondent s Answer to the Rule 5 Statement dated 15 September 2017 Third Respondent s Answer to the Rule 5 Statement dated 15 September 2017 Fourth Respondent s Answer to the Rule 5 Statement dated 15 September 2017 Fifth Respondent s Answer to the Rule 5 Statement dated 18 September 2017

4 4 First Respondent s Reply dated 16 October 2017 to the Fifth Respondent s Answer dated 18 September 2017 Applicant s Schedule of Costs dated 22 January 2018 Applicant s skeleton arguments as regards (i) the application for privacy dated 25 January 2018, (ii) the application to strike out the proceedings dated 15 January 2018 and (iii) the substantive hearing dated 26 January 2018 First Respondent s skeleton argument dated 25 January 2018 Second Respondent s outline submissions in respect of the stay applications and outline submissions in respect of the allegations both dated 25 January 2018 Third and Fourth Respondents skeleton argument and note in respect of the stay application both dated 25 January 2018 Fifth Respondent s skeleton argument (undated) Authorities Bundles provided by the parties Strike out application bundle Privacy application bundle Preliminary Matters Application for Hearing to be Heard in Private 7. The Tribunal received an dated 11 January 2018 from Mr Miller who represented the lay client ( Mr A ) whose affairs formed the factual basis of the Applicant s underlying allegations against the Respondents. It was stated that Mr A s sole interest was to ensure that the proceedings were conducted in a manner that did not prejudice him. Mr A s extensive business activities and other sensitivities were such that they could be of media interest. The proceedings related to transactions in his personal and business life. Should those transactions become public during the course of the hearing such that he or members of his family could be identified, there was a real risk to their right to privacy and personal safety. 8. Rule 12 of the Solicitors (Disciplinary Proceedings) Rules 2007 ( SDPR ) provided that: 12(4) Any party to an application who claims to be affected by it may seek an order from the Tribunal that the hearing or part of it be conducted in private on the grounds of (a) (b) exceptional hardship; or exceptional prejudice, to a party, witness or any person affected by the application. 12(6) The Tribunal may, before or during a hearing, direct that the hearing or part of it be held in private if- (a) the Tribunal is satisfied that it would have granted an application under paragraph (4) had one been made; or

5 5 (b) in the Tribunal s view a hearing in public would prejudice the interests of justice. 9. Mr A was clearly a person affected as he was the client to which the matters underpinning the allegations related, and the evidence to be adduced in the hearing included sensitive and confidential information. Should the hearing take place in public with Mr A s identity and the confidentiality of his affairs not sufficiently protected, there would be a breach of his Article 8 rights under the European Convention on Human Rights ( ECHR ). Given the exceptional facts of this case, it was not feasible or practicable to hold parts of the hearing in private. Further, to do so would engage Article 6 in relation to the parties and their ability to have a fair trial. Accordingly, the application was for the entire proceedings to be held in private. Further, a draft of the judgment should be provided to Mr A s representatives enabling representations to be made on the factual content of the judgment so as to ensure that its contents could not be used to identify Mr A. The applications were supported by all Respondents. 10. The Applicant did not object to the applications. The risk of inadvertent disclosure, given the particular nature of this matter was fully recognised. That risk was, of itself, sufficient to justify holding the hearing in private. In pursuit of the allegations, the Applicant would need to refer to details which were the subject of legal professional privilege. The witness statements of Iain Miller provided clear and cogent evidence that there was (i) a substantial risk that Mr A could be identified as a result of a public hearing, and (ii) if he were identified, this would result in an invasion of his right to respect for his family and private life, his home and correspondence, amounting to exceptional hardship or prejudice to the degree necessary to justify a departure from the principle of open justice. Accordingly, in balancing Mr A s rights to privacy with the principles of open justice, the balance came down in favour of a private hearing. To ensure that his privacy was protected following the publication of the Tribunal s judgment, there was no objection to the application that a draft be provided to Mr A s legal representatives. 11. As regards the costs of the privacy application, it had been agreed between the SRA and Mr A s representatives that there should be no order for costs. The Tribunal s Decision 12. It was a fundamental principle of common law that justice should be open. The Tribunal noted that the parties had used their best endeavours to anonymise the papers in this matter so as to try to ensure that Mr A s identity would not become known and his confidentiality would remain intact during a public hearing. The Tribunal considered whether the anonymisation of the papers together with hearing parts of the matter in private would be sufficient to protect Mr A s rights. It was determined that in these particular circumstances the risk to Mr A and his family was so significant that exceptional prejudice would be suffered if he or members of his family were to be identified. Further, the facts in this matter, and the integral role they played in the allegations meant that a hearing part in private and part in public (with the need to continuously switch from private to public) would compromise the smooth running of the hearing such that it would be contrary to the interests of justice and in breach of the parties Article 6 rights. Given those circumstances, the Tribunal found that it was necessary for the matter to be heard in private.

6 6 13. The Tribunal directed that a draft of the judgment be made available to the parties and, exceptionally, to Mr A s legal representatives for representations to be made in relation to any matters which might lead to the identification of Mr A. Such representations were to be made in writing within 72 hours of receipt of the judgment. The Tribunal would thereafter consider any representations made and publish its judgment in the ordinary fashion. Application to Strike out the allegations in relation to the Second, Third, Fourth and Fifth Respondents Witnesses in relation to the Strike Out Application 14. The following witnesses provided statements and gave oral evidence: Paul Millett Former Managing Partner and COLP at the Fifth Respondent Rebecca Atkinson Director of Risk and Compliance at the Fifth Respondent. Christian Shotton Team Leader in the Investigation and Supervision Department of the Applicant. Eric Gummers Second Respondent. Paul Amandini Third Respondent. Mark Johnstone Fourth Respondent. 15. The written and oral evidence of the witnesses is quoted or summarised in the Findings of Fact and Law below. The evidence referred to will be that which was relevant to the findings of the Tribunal, and to facts or issues in dispute between the parties. For the avoidance of doubt, the Tribunal read all of the documents in the case, made notes of the oral evidence, and referred to the transcript of the hearing. The absence of any reference to particular evidence should not be taken as an indication that the Tribunal did not read, hear or consider that evidence. Facts 16. On 3 February 2015, the Fifth Respondent made a self-report to the SRA about the Firm s client account being used as a bank account in breach of Rule Following that report there was an inspection which culminated in a Forensic Investigation Report dated 1 December The Fifth Respondent provided its full co-operation in relation to the investigation, and provided much of the material that was appended to the report. 17. On 11 May 2016, the then Director of Supervision at the SRA ( JDJ ) ed Mr Pardoe (Regulatory Supervisor) and asked for more detail as to when we expect the call with the firm to discuss any RSA offer. Mr Pardoe replied on 12 May 2016 and stated: As I understand the position, any potential RSA with the firm has not been mooted/discussed to date. It is [Mr Shotton s] thought that the firm may suggest a willingness to accept an RSA when I raise the issue of the Partners having seemingly continued to authorise transactions in breach of Rule 14.5 after [the First Respondent] had been told to stop.

7 7 18. Following that exchange of s the SRA arranged a telephone conference with the Firm on 20 May In attendance were Mr Shotton and Mr Pardoe representing the SRA, and Mr Millett, Ms Atkinson and Mr Reilly (the Firm s COFA) representing the Fifth Respondent. During that conference Mr Millett outlined the changes made at the Firm as regards risk and compliance. It was acknowledged by the SRA that there had been a change in the landscape of the Firm and it was mooted that one option open could be a Regulatory Settlement Agreement ( RSA ). When Mr Millett asked for an explanation, it was stated that an RSA would be an acknowledgement by the firm of the technical breach and would mean that the matter could be put behind the SRA and the firm. Further discussion was had in terms of not naming individual partners, the publication of an RSA, likely contribution to costs and other matters. 19. At the end of the conference it was agreed that the Firm would consider the matter and revert to the SRA. 20. On 2 June 2016, Ms Atkinson ed the SRA in the following terms: I write further to our conversation on 20 th May where we discussed entering into a Regulatory Settlement Agreement on the following terms: No individual Partners would be named We will acknowledge the breaches We will pay a contribution towards the costs of your investigation I can confirm on behalf of the firm that we are minded to enter into the agreement and therefore ask if you can send me a draft for us to consider. 21. The SRA acknowledged receipt and stated that it would be in contact in a couple of weeks once we have had the opportunity to consider this. 22. On 18 July 2016, Ms Atkinson chased for a draft of the RSA. On the same date Mr Pardoe replied explaining that, as the SRA was awaiting a response from the First Respondent to its EWW letter, there has been no formal decision made at this stage regarding the most appropriate way on how to take this matter forward with the firm and any members of the firm following our without prejudice discussion regarding the proposed [RSA] of 20 May On 2 September 2016, the SRA ed EWW letters to the Firm in relation to the Second, Third, Fourth and Fifth Respondents. Fifth Respondent s Submissions 24. It was the SRA that requested the telephone conference with the Fifth Respondent in relation to the breaches. Mr Millett confirmed in his evidence that prior to the conference he was unaware of the concept of RSAs, and accordingly would not have arranged a conference to discuss an RSA for the Firm. Mr Kendal submitted that there could be no doubt that it was the settled intention of the SRA to offer the Fifth Respondent an RSA during the conference; that was evident from the internal s of the SRA of 11 and 12 May During the conference, the terms of the proposed

8 8 RSA were discussed and agreed. The agreed terms were reflected in Ms Atkinson s of 2 June At some stage, the SRA decided that an RSA was not appropriate. At the time of the SRA s volte face there were no new facts that were known to either party. The SRA failed to communicate its change in position until the Firm and the individual Respondents received EWW letters dated 2 September Inspection of the SRA s internal documents revealed that on 4 July 2016, it had been decided that an RSA would not be appropriate due to the apparent failure of the firm to have in place adequate controls in order to review payment requests made by [the First Respondent] after it had acknowledged that payments needed to cease. A further document showed that by 8 July 2016, the EWW letter in relation to the Firm had already been prepared. It was clear at that time that the SRA were no longer considering settling matters by way of an RSA. When questioned about Mr Pardoe s of 18 July, in which it was stated that no formal decision had been made, Mr Shotton explained that whilst an EWW had been prepared in relation to the Firm, the SRA was awaiting a response from the First Respondent before making any formal decision, in order to assess whether that response had any impact upon others. As a result no formal decision had been made as to precisely who would be asked to answer formal allegations. 27. Following the sending of the EWW letters, Mr Millett wrote to Mr Pardoe on 7 September 2016, expressing that an RSA had been offered to the Firm, the terms of which had been discussed at length during the conference. He stated that we had an agreement with the SRA as to the way forward subject to agreeing the terms of the RSA and we do expect the SRA to treat us in a consistent manner which allows us to have certainty in our dealings with it. in reliance upon our agreement with you we have notified all relevant stakeholders as to the position. My credibility as this firm s COLP will be affected as will be the SRA s if I now have to advise that the SRA has reneged on what we had previously agreed without a full explanation as to why this has occurred. I would be grateful if you could provide me with that explanation in writing so I may properly consider the position. I would also welcome an explanation as to why no reference to your changed position was made in your to [Ms Atkinson] of 2 September. 28. In an dated 8 September 2016, Mr Pardoe sent Mr Shotton a draft of the letter he intended to send in response. In asking Mr Shotton to consider the draft, Mr Pardoe explained: I am not 100% confident on how to respond to the point raised, given the points raised. I think that this issue does need to be raised given what had been previously discussed and the potential reputational damage/criticism of the SRA if this is taken further. 29. Mr Kendal submitted that the only circumstance where reputational damage could be suffered was if an offer had been made. As to that, there was nothing in the note of the conference that suggested that the offer was conditional. This was a conflict between the parties that should be resolved in the Fifth Respondent s favour, as the contemporaneous documents supported the Fifth Respondent s understanding. The note recorded that, as regards an RSA:

9 9 It was explained that should the firm consider this is not acceptable, proportionate or fair then the SRA may consider the matter further and decide whether to issue a letter raising formal allegations, based around Rule 14.5 and potentially Principle 8. ; and If the Firm did not think an RSA would be appropriate then we would seek further advice to determine whether letters raising formal allegations are sent to individuals. However no view has been taken yet. 30. It was clear from the extracts above that the discussion in relation to any other option was to be considered only in the event that the Firm did not accept the RSA. This supported the contention that an offer of an RSA was made in the conference. By offering to resolve matters by way of an RSA, the SRA had created in the Fifth Respondent a legitimate expectation that the matter was at an end on agreed terms, and that there would be no disciplinary proceedings against the Fifth Respondent as: (i) (ii) (iii) (iv) During the telephone conference that was convened specifically to offer the Fifth Respondent an RSA, Mr Shotton and Mr Pardoe held themselves out as being able to bind the SRA. The Fifth Respondent had accepted the RSA on the terms suggested by the SRA, and the SRA was bound. The SRA undertook to create the written document and provide the same to the Fifth Respondent. The failure of the SRA to communicate its change in position led the Fifth Respondent to believe that the matter was at an end. 31. The Tribunal was referred to R (on the application of B) v NMC [2012] EWHC 1264, in which Mr Justice Lang stated: A substantive legitimate expectation can arise when a lawful promise or practice has induced a legitimate expectation of a benefit with is substantive, not merely procedural. In such a case the Court may decide that to frustrate that expectation is so unfair that to take a new and different course will amount to an abuse of power. 32. At paragraph 42 of the judgment, Mrs Justice Lang quoted the decision of Laws LJ in Nadarajah v Secretary of State for the Home Department [2005] EWCA Civ 1363 where it was stated: a public body s promise of practice as to future conduct may only be denied in circumstances where to do so is the public body s legal duty or is otherwise, to use a now familiar vocabulary, a proportionate response having regard to the legitimate aim pursued by the public body in the public interest.

10 Taking those matters into account, it was submitted that the Fifth Respondent should succeed in its application. Mr Kendal submitted that absent any satisfactory or compelling evidence as to the SRA s volte face the proceedings against the Fifth Respondent were disproportionate and in breach of the legitimate expectation that there would be nonesuch, and amounted to an abuse of process. The Tribunal was invited to stay the proceedings and/or strike out the allegations. The Second Respondent s Submissions 34. Mr Williams QC submitted that whatever promise had been made to the Fifth Respondent contemplated the Second Respondent. He had been made aware that the matters were concluded by Ms Atkinson subsequent to the telephone conference. This had been confirmed by both Ms Atkinson and the Second Respondent when they gave evidence. As regards any acts committed by the Second Respondent to his detriment, it was difficult, given the circumstances, for him to do anything other than be relieved that the matters were concluded. 35. It was clear that the RSA had been accepted by Ms Atkinson, and that her acceptance was on behalf of the Firm and the Second Respondent. It was also clear from the note of the telephone conference that the SRA would only consider other options if the Firm did not accept the offer of an RSA. In the circumstances, if the Tribunal acceded to the Fifth Respondent s application, justice dictated that the Second Respondent was entitled to the same relief. Third and Fourth Respondents Submissions 36. Ms Willetts endorsed the submissions made by the Second and Fifth Respondents. In his evidence Mr Millett confirmed that the RSA contemplated the Third and Fourth Respondents. There was a clear indication in the acceptance of 2 June 2016 that no partners would be named in the RSA, and that it would conclude matters against all of them, other than the First Respondent, who was no longer working at the Firm. Both the Third and Fourth Respondents had, in their oral evidence, confirmed that they had been told that the matter was concluded as far as they were concerned. Both Respondents expressed that they were relieved on receiving that information. 37. Ms Willetts submitted that these proceedings had shone a light on the internal machinations of the SRA, who had failed to respond transparently to s from the Firm as regards the RSA. It was disappointing that the SRA, as a regulator, had toyed with the Firm and even more disappointing that it had not dealt plainly with the Firm. The Applicant s Submissions 38. Mr Coleman QC submitted that the Respondents were entitled to feel disappointed following the SRA s indication that an RSA might be appropriate, and its later change of position. However, no RSA was entered into during the conference on 20 May 2016; at most there was the proposal that an RSA was appropriate. There was no binding RSA in place, nor was there any commitment to a binding RSA; the Respondents could not reasonably have believed that an oral RSA had been entered into on that date.

11 The facts of this matter were nowhere near close to establishing that there had been an abuse of process in this matter such that the proceedings should be stayed and/or the allegations struck out. 40. The Tribunal was referred to the SRA s Policy Statement on the Settlement of Regulatory and Disciplinary Cases that was in force and available on the SRA s website at the time. 41. The Policy Statement provided (amongst other things): Agreements between the SRA and solicitors are not the equivalent of settlement of all or part of a commercial dispute. Agreements are regulatory decisions by the SRA, the terms of which are accepted by the solicitor. There is no compulsion on the SRA or staff to negotiate or enter into an agreement. The existence of negotiations will not generally be permitted to delay formal processes. The terms of any agreement will: be in writing and be agreed by the SRA and the solicitor concerned; state the relevant facts; identify any failings admitted by the solicitor; identify the action the solicitor has taken or has committed to take; identify any sanction imposed by the agreement; be published by the SRA unless expressly stated otherwise in the agreement. 42. These terms were not just a matter of form, as had been suggested by Mr Kendal, but were a matter of substance. Both Mr Millett and Ms Atkinson confirmed that they had not consulted this policy either before or after the telephone conference. 43. The SRA s internal documents evidenced that there was no decision, let alone a considered decision, made to dispose of the matter by way of an RSA, as was demonstrated in the 16 May meeting notes which stated Conference call scheduled to be held with Ms Rebecca Atkinson of Howard Kennedy LLP on 20 May 2016 to discuss proportionate regulatory outcomes and possible RSA. 44. It was acknowledged that there had been a change of position, however, whilst members of the supervision department thought that an RSA was the way forward, this was not the same as a settled decision. It was on that basis that the 20 May telephone conference took place. The discussions in the conference did not amount to an agreement, nor would that be expected; none of the individuals could have expected the regulator to bind itself in a telephone conference of which there was no agreed record. Further, had the Fifth Respondent believed that the discussion had led to a binding agreement, a note would have been taken. Both Mr Millet and Ms Atkinson confirmed that they had made no note of the conference.

12 Mr Coleman QC submitted that to prevent the regulator from having open and frank discussions about the direction of its thinking, but not allowing it to change its mind on further consideration of any matter, would not assist the candid relationship between the regulator and the regulated. 46. An examination of the 20 May conference note displayed obvious gaps: there was no agreement as to costs there was no agreement as to whether a fine would be imposed there was no agreed statement of facts there was no agreement as to what breaches were admitted 47. As regards the purported acceptance in the of 2 June, a proper construction of that showed that Ms Atkinson was keeping the Firm s options open; the RSA would not be agreed until such time as the Fifth Respondent had received and considered a written copy. 48. The change in the SRA s position was not definite until August This was evident on examination of the SRA s internal documents which noted that in July, the possibility of an RSA was still under consideration. It was not until August 2016 that it was decided, (and evident on the face of the documents), that an RSA was considered to be an inappropriate resolution. 49. This change was entirely understandable given the circumstances; significant sums of money went through the Fifth Respondent s client account in breach of the rules. Mr Morris raised this issue in 2011 and 2012, but the Fifth Respondent took no action to prevent further breaches. 50. As regards the application, the Fifth Respondent was attempting to straddle both an abuse of process and legitimate expectation test. This was not a judicial review application, and the proceedings could not be challenged on public law grounds, nor could public law principles be invoked. Accordingly submissions in relation to legitimate expectation were not valid. 51. The circumstances of Re B were entirely different to the present. In that matter the NMC had positively represented that there was no case to answer, as there was no realistic prospect of finding matters proved, and wrote to the appellant in those terms. It later tried to resuscitate the proceedings. In the circumstances the Court determined that there had been an unambiguous representation, devoid of qualification upon which the appellant was entitled to rely. Nothing said by the SRA s officers during the telephone conference could be fairly construed as an unambiguous representation that the Fifth Respondent would not be referred to the Tribunal. It was, at the most, a discussion to consider the possibility of an RSA. 52. Mr Coleman QC submitted that, even in the event that the Tribunal determined that there was an unequivocal representation, none of the Respondents had acted on it to their detriment.

13 Further, if the Tribunal found that there was an unequivocal representation made, upon which the Respondents had acted to their detriment, the continuance of the proceedings at this stage would not amount to an affront to justice as: the SRA was bound to pursue properly founded allegations in the public interest. the officers participating in the telephone conference were not authorised to unequivocally represent that the Respondents would not be referred to the Tribunal. the Respondents had delayed in the making of this application. 54. Whilst it was not accepted that the legitimate expectation test was applicable, Mr Coleman QC submitted that the application would fail that test in any event, as the Fifth Respondent could not have a legitimate expectation that its conduct would not be referred to the Tribunal in the absence of an unequivocal representation to that effect; at best it had a reasonable hope. 55. For the reasons outlined, Mr Coleman QC submitted that the Respondents applications could not succeed. The Tribunal s Findings 56. The Tribunal considered the note of the conference of 20 May The Tribunal noted that during discussions about an RSA, Mr Millett explained that he was not saying yes or no, but if the RSA did not name Partners, the firm may be more amenable to that outcome. It was also noted that, subsequent to Mr Millett describing what he considered to be the Firm s 2 options, it was made clear that the SRA did not wish to sway the thinking, just to highlight the potential options. Mr Shotton explained the range of internal sanctions available. 57. The final matter discussed related to the Second Respondent. Ms Atkinson specifically asked whether the Second Respondent could be included in any proposed RSA. Mr Shotton considered that he could. 58. The Tribunal found that the primary objective of the telephone conference on 20 May 2016 was for the SRA to establish whether the Firm was willing to resolve matters by way of an RSA. The SRA gave a clear indication that, subject to agreeing terms, it was willing to conclude matters by way of an RSA. The Fifth Respondent similarly indicated that it was probably, subject to internal discussion, prepared to deal with the matter in that way. As the SRA was in possession of both the Firm s material breach report, and the Forensic Investigation Report, it was in a position, subsequent to that meeting, to prepare a draft RSA for the Firm to consider. The Tribunal noted that neither Mr Millett nor Ms Atkinson had read the Settlement of regulatory and disciplinary cases Policy Statement following the conference of 20 May Mr Millett and Ms Atkinson both accepted that there was no concluded agreement following the telephone conference as regards the number of breaches to be admitted, the time over which the breaches occurred, the precise figure in terms of any contribution to costs or an agreed statement of facts. In his letter of 7 September 2016, Mr Millett stated: we considered we had an agreement with the SRA as to the way forward subject to agreeing the terms of the RSA. When asked about her understanding of this Ms Atkinson stated that some of the terms had

14 14 been agreed. The Tribunal determined that it was clear from the evidence of Mr Millett, Ms Atkinson and Mr Shotton that not all terms had been agreed. 59. Moreover, the Tribunal did not consider that the of 2 June 2016 was an unequivocal acceptance of the SRA s proposal. Ms Atkinson stated in that that the firm was minded to enter into the agreement and requested a draft for us to consider. The made it clear that the draft would be considered once it was received. This was not an unequivocal acceptance. Instead Ms Atkinson had kept the Firm s options open as regards acceptance, dependent upon the written terms. 60. The Tribunal did not accept that there could have been a concluded RSA that was not in writing; the terms of the Policy Statement were clear on that point. Those terms were a matter of substance and not merely form. Accordingly, it was not possible to have a concluded oral RSA. The Tribunal was sympathetic to the disappointment that was suffered by the Respondents as a result of the SRA s lack of transparency, and its failure to clearly advise of its change of position at the first opportunity. However, that approach was not sufficient for the proceedings to be an affront to justice. There had been no concluded RSA, and no unequivocal representation that there would be no referral to the Tribunal. Accordingly, Re B did not assist the Respondents. Further, as the Tribunal had found that there had been no promise not to refer the Respondents, the decision in Nadarajah was, likewise, of little assistance to them. The allegations had been properly founded, and it was in the public interest for those matters to be pursued. Accordingly, the application to stay the proceedings and/or strike out the allegations failed and the application was dismissed. Application to withdraw allegations 61. The Applicant applied to withdraw the following allegations: 1.3 and 1.4 as regards the First Respondent 2.2 as regards the Second Respondent 4.1 as regards the Fourth Respondent 62. Those allegations were no longer pursued by the Applicant. Each Respondent was making certain admissions; in light of those admissions, it was not deemed to be in the public interest to continue the prosecution as regards those matters. 63. The Respondents agreed that those matters should be withdrawn. 64. The Tribunal granted permission for those matters to be withdrawn. Application to re-amend the amended Rule 5 Statement 65. In his skeleton argument, Mr Coleman QC noted a number of errors contained in the Amended Rule 5 Statement. A Re-amended Rule 5 Statement had been produced which highlighted the changes noted. The further amendments had been agreed by all parties.

15 The Tribunal determined that it was appropriate to allow the Amended Rule 5 Statement to be further amended as the further amendments did not prejudice any party. Accordingly, the application to amend the Amended Rule 5 Statement was granted. Application to amend the Re-amended Rule 5 Statement 67. Mr Coleman QC submitted that, having further examined the Re-amended Rule 5 Statement, the dates contained in the allegations pertaining to the Third and Fourth Respondents were erroneous. It was clear that matters which fell outside of the time period defined in the allegations were relied upon by the Applicant. This was evident from the Applicant s skeleton argument and the schedules contained in the exhibit. 68. Ms Willetts submitted that in so far as the application was to further amend the allegations, this was objected to. It would be wholly unfair to amend the allegations against the Third and Fourth Respondents at the stage when admissions had already been made. 69. The Tribunal agreed with Ms Willetts. It was for the Applicant to set out the Rule 5 Statement with sufficient particularity; it had failed to do so. The Rule 5 Statement in this matter had been amended twice since the matter had commenced. To amend the date range of the allegations after admissions had been made would be prejudicial to the Third and Fourth Respondents. Accordingly, the application to amend the Re-amended Rule 5 Statement was refused. Submission of no case to Answer in relation to allegation Mr Kendal submitted that the Applicant s evidence in regard to allegation 5.3 was misconceived; Mr Morris was not the COLP that regime did not commence until Nor was he the regulatory compliance partner. Further, there was no evidence that Mr Morris was aware between 2012 and 2015 that the First Respondent was continuing to breach the rules. Given that he was not in a compliance role, the knowledge of Mr Morris could not be imputed to the Fifth Respondent. 71. Mr Coleman QC submitted that the submission could not succeed as the conduct of Mr Morris as a partner was attributable to the Fifth Respondent. On the Fifth Respondent s case, no-one could fix the Firm with knowledge of breaches prior to the introduction of the COLP and COFA regime this was clearly not the case. Mr Morris had been instructed by Mr E, on behalf of the Firm, to deal with the issue of the First Respondent s breach of the accounts rules. Given that instruction, his knowledge was the knowledge of the Firm. 72. The Tribunal considered the case of R v Galbraith [1981] 1 WLR 1039 which provided that: (1) If there is no evidence that the crime alleged has been committed by the defendant, there is no difficulty. The judge will of course stop the case. (2) The difficulty arises where there is some evidence but it is of a tenuous character, for example because of inherent weakness or vagueness or because it is inconsistent with other evidence. (a) Where the judge comes to the conclusion

16 16 that the prosecution evidence, taken at its highest, is such that a jury properly directed could not properly convict upon it, it is his duty, upon a submission being made, to stop the case. (b) Where however the prosecution evidence is such that its strength or weakness depends on the view to be taken of a witness s reliability or other matters which are generally speaking within the province of the jury and where on one possible view of the facts there is evidence upon which a jury could properly come to the conclusion that the defendant is guilty, then the judge should allow the matter to be tried by the jury. There will of course, as always in this branch of the law, be borderline cases. They can safely be left to the discretion of the judge. 73. The Tribunal determined that this was not a matter where there was no evidence. Accordingly, the matter fell to be considered under the second limb of the Galbraith test. The Tribunal determined that Mr Morris had been instructed to deal with the payments on the Firm s behalf and his knowledge was thus attributable to the Firm. The sent by Mr Morris to the First Respondent on 11 April 2012 quoted Rule 14.5 and stated: The payments do not relate to a specific underlying transaction nor do they form part of the normal regulated activities of a solicitor. The Tribunal thus determined that the Fifth Respondent was aware of the breaches of the accounts rules by that date. Those breaches were not reported by the Fifth Respondent until 3 February Given the date of knowledge, and the date of the report, the Tribunal determined that the Fifth Respondent had a case to answer in regards to the delay in reporting the misconduct. Accordingly, the Fifth Respondent s submission of no case to answer was dismissed. Factual Background 74. The First Respondent was born in 1946 and was admitted to the Roll in He did not hold a current practising certificate. He was formerly a partner of Howard Kennedy ( the Firm ). On his retirement in 2011 he became a consultant with the Firm. 75. The Second Respondent was born in 1961 and was admitted to the Roll in November The Third Respondent was born in 1955 and admitted to the Roll in The Fourth Respondent was born in 1959 and was admitted to the Roll in Each of them were members of the Firm, and held practising certificates that were free from conditions. 76. On 3 February 2015, Mr Paul Millett, the Firm s COLP, submitted a material breach report in which, amongst other things, it was reported that the Firm s client account had been used as a bank account in relation to substantial payments made on behalf of Mr A. 77. As a result of the material breach report, the SRA commissioned an inspection which resulted in the production of a Forensic Investigation Report dated 1 December The report concluded that there had been substantial payments made from the Firm s client account in breach of Rule 14.5 (or the prevailing rule/guidance at the time) as there was no underlying legal transaction relating to those payments.

17 17 Witnesses 78. None. Findings of Fact and Law 79. The Applicant was required to prove the allegations beyond reasonable doubt. The Tribunal had due regard to the Respondents rights to a fair trial and to respect for their private and family lives under Articles 6 and 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. 80. Guidance note (ix) to Rule 15 of the SAR 1998 provided that Solicitors may need to exercise caution if asked to provide banking facilities through a client account. There are criminal sanctions against money launderers. Following the Tribunal s decision in Wood and Burdett ( ), which was handed down on 23 December 2003, the Guidance note was amended to reflect that decision. In March 2004 the Guidance note stated that: it is not a proper part of a solicitor s everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. Solicitors should not, therefore, provide banking facilities through a client account. It should also be borne in mind that there are criminal sanctions against assisting money launderers. 81. In March 2009, Rule 2(1) of the 1998 Rules was amended to provide that the notes to the rules formed part of the rules and were mandatory. 82. On 6 October 2011 the SAR 2011 came into force. Rule 14.5 provided: You must not provide banking facilities through a client account. Payments into, and transfers or withdrawals from a client account must be in respect of instructions relating to an underlying transaction (and the funds arising therefrom) or to a service forming part of your normal regulated activities. 83. Note (v) to Rule 14 stated that Rule 14.5 reflected the decision of the Tribunal in Wood and Burdett in that it is not a proper part of a solicitor s everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. 84. In the case of Patel v SRA [2012] EWHC 3373 (Admin) it was found that the word instructions in Rule 14.5 meant professional instructions, and that the phrase underlying transaction meant an underlying legal transaction. 85. On 18 December 2014, the SRA issued its Improper use of a client account as a banking facility warning notice which stated (amongst other things): Historically, some solicitors have agreed to receive and hold funds for clients to enable them to pay routine bills and invoices on their clients behalf. This has been predominately for the clients convenience as they may be based abroad or because they are incapacitated so that operating their own bank accounts is problematic.

18 18 In view of technological advancements, in particular the ease of internet and telephone banking, we consider that allowing client account to be used in this way is no longer appropriate. Clients can now operate their bank accounts from their own homes or indeed from anywhere in the world. Allowing clients to hold anonymously what might be significant funds in a client account gives rise to significant risks in relation to potential money laundering or other breaches of the law, such as exchange control consent regulation. The anonymity of client accounts is attractive to criminals. 86. Allegation Between 27 July 2009 and 11 April 2012, the First Respondent facilitated the receipt of payments into, and caused payments to be made out of, the client account of Howard Kennedy upon behalf of Mr A which were unrelated to any underlying legal transaction and thereby acted contrary to guidance note (ix) to Rule 15 of the SAR 1998; and breached Rule 14.5 of the SAR The First Respondent received instructions to make substantial payments in relation to the matter of F Ltd on behalf of Mr A. On one F Ltd matter ledger the Fifth Respondent s client account was credited with 4,739, between 11 October 2010 and 11 April Payments of 3,959, were debited against the same ledger between 10 October 2010 and 27 April On the same matter further credits were received in different denominations on different ledgers. Many of the payments made were authorised by the First Respondent. The ledgers showed that there were numerous payments in respect of salaries, staff bonuses and various other items. None of the payments made related to the professional work of a solicitor; there was no underlying legal transaction The Respondent admitted allegation The Tribunal found that the payments did not relate to any underlying legal transactions and were thus in breach of the SAR 1998 and the SAR 2011, as alleged. Accordingly, the Tribunal found allegation 1.1 proved beyond reasonable doubt on the facts, evidence and the First Respondent s admission. 87. Allegation Between 12 April 2012 and 27 January 2015, the First Respondent facilitated the receipt of payments into, and caused payments to be made out of, the client account of Howard Kennedy upon behalf of Mr A which were unrelated to any underlying legal transaction. At the time that each of those payments were made he knew that its making was prohibited by the SAR He thereby breached Principles 2, 6 and 8 of the Principles and breached Rule 14.5 of the SAR In an of 11 April 2012, Mr Morris advised the First Respondent that Howard Kennedy is not a bank and there is no good reason for continuing to act as one for this particular client. Mr Morris cited Rule 14.5 and paragraph 3.5 of the Law Society Practice Note dated 6 October 2011 and entitled Holding Client Funds. Mr Morris stated that the practice note reflected Guidance note (iv) to Rule He stated:

19 19 It follows that we cannot continue the existing practice of making payments from client account in this manner. It is perfectly possible for this client to operate his businesses through the normal banking system and not to utilise Howard Kennedy as a bank. It may be the case that solicitors for very many years ago (sic) tended to provide services of this nature but matters have moved on and, as noted, it is now enshrined in the Code of Conduct The existing practice needs to cease. I understand that you have requested a 6 or 8 week period of grace within which the client can make alternative arrangements. I am not entirely certain why it will take such a period of time to restructure the position but no doubt there is a rationale. In short, bearing in mind that we are not compliant with the SRA Accounts Rules and the Law Society Practice Note, I am concerned that the position be remedied as soon as possible Despite that , the First Respondent continued to facilitate payment into, and cause payments to be made out of client account. Those payments were unrelated to any legal transactions and in breach of the rules: The type of payments detailed in allegation 1.1 continued to be made on the F Ltd matter, although by July 2012, those payments had mainly ceased. On Mr A s J File, payments were made from August 2012 to August 2014, which were in respect of salaries and social security contributions to a total sum of 766, On Mr A s (P/O K) property purchase file, payments were made for a substantial number of luxury items, services and wages. The value of payments posted to the ledger subsequent to the completion of the purchase of the property was in excess of 9 million In failing to comply with the direction given to him in the of 11 April 2012, the First Respondent had failed to carry out his role effectively and in accordance with proper governance in breach of Principle 8. Further, a solicitor who knowingly breached the professional rules designed to safeguard client money failed to act with integrity, in breach of Principle 2. In knowingly breaching the rules, the trust the public placed in the solicitor and the provision of legal services would necessarily be diminished The First Respondent admitted allegation The Tribunal found that the payments did not relate to any underlying legal transactions and were thus in breach of the SAR 2011 as alleged. Further, in knowingly breaching the accounts rules and failing to comply with the instruction to cease making the payments, the First Respondent s conduct had breached Principles 2, 6 and 8. Accordingly, the Tribunal found allegation 1.2 proved beyond reasonable doubt on the facts, evidence and the First Respondent s admission.

20 Allegation Between 27 July 2009 and 5 November 2012, the Second Respondent facilitated the receipt of payments into, and caused payments to be made out of, the client account of Howard Kennedy upon behalf of Mr A which were unrelated to any underlying legal transaction and thereby Acted contrary to guidance note (ix) to Rule 15 of the SAR 1998 and breached Rule 14.5 of the SAR The Second Respondent had authorised a number of payments on two of Mr A s matters. Those payments related to salaries, staff bonuses and other items, and ran into hundreds of thousands of pounds. None of the payments made related to the professional work of a solicitor; there was no underlying legal transaction The Second Respondent admitted allegation The Tribunal found that the payments did not relate to any underlying legal transaction and were thus in breach of the SAR 1998 and the SAR 2011 as alleged. Accordingly, the Tribunal found allegation 2.1 proved beyond reasonable doubt on the facts, evidence and the Second Respondent s admission. 89. Allegations 3.1 and Between 28 March 2011 and 28 May 2014 the Third Respondent facilitated the making of payments from the client account of Howard Kennedy upon behalf of Mr A and companies with which he was associated which were unrelated to any underlying legal transaction and thereby acted contrary to guidance note (ix) to Rule 15 of the SAR 1998; and breached Rule 14.5 of the SAR The Third Respondent had made or authorised a number of payments on Mr A s matters. In two matters he authorised as many as 195 payments in the total sum of 1,452, None of those payments related to the professional work of a solicitor; there was no underlying legal transaction. Significant further sums were authorised by the Third Respondent on the J and P/O K files which did not relate to any underlying legal transaction The Third Respondent admitted allegations 3.1 and The Tribunal found that the payments did not relate to any underlying legal transaction and were thus in breach of the SAR 1998 and the SAR 2011 as alleged. Accordingly, the Tribunal found allegations 3.1 and 3.2 proved beyond reasonable doubt on the facts, evidence and the Third Respondent s admissions. 90. Allegation Between 28 April 2014 and 28 July 2014 the Fourth Respondent facilitated the making of payments from the client account of Howard Kennedy upon behalf of Mr A, which were unrelated to any underlying legal transaction, at the request of the First Respondent and/or Mr Morris and thereby breached Rule 14.5 of the SAR The Fourth Respondent had authorised payments in relation to one of Mr A s matters which were not related to any underlying legal transaction. The Fourth Respondent admitted allegation 4.2. The Tribunal found that the payments did not relate to any underlying legal transaction and were thus in breach of the SAR 2011 as alleged.

21 21 Accordingly, the Tribunal found allegation 4.2 proved beyond reasonable doubt on the facts, evidence and the Fourth Respondent s admission. 91. Allegation Between 1 April 2011 and January 2015 payments were received into, and made out of, the Fifth Respondent s client accounts upon behalf of Mr A and companies with whom he was associated which were unrelated to any underlying legal transaction and thereby breached Guidance note (ix) to Rule 15 of the SAR 1998; and Rule 14.5 of the SAR Rules 4 and 6 of both the SAR 1998 and the SAR 2011 provided that the entity as well as its principals were strictly liable for breaches of the accounts rules. The Fifth Respondent was a recognised body from 1 April 2011, and had failed to comply with the accounts rules as alleged in the same manner as the other Respondents The Fifth Respondent admitted allegation For the reasons stated above, the Tribunal found there had been no underlying legal transaction relating to the payments made and/or authorised, and those payments were in breach of the accounts rules as alleged. Accordingly, the Tribunal found allegation 5.1 proved beyond reasonable doubt on the facts, evidence and the Fifth Respondent s admission. 92. Allegation From 12 April 2012 until 18 February 2015 the Fifth Respondent failed to put in place any, or any adequate, measures to prevent the First Respondent providing Mr A with a banking facility through its client accounts, and thereby breached and/or failed to achieve Principle 8 of the Principles; and Outcomes O(7.2) and O(7.3) of the SCC Principle 8 required that: you must run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles Outcome O(7.2) required that: you have effective systems and controls in place to achieve and comply with all the Principles, rules and outcomes and other requirements of the Handbook, where applicable Outcome O(7.3) required that: you identify, monitor and manage risks to compliance with all the Principles, rules and outcomes and other requirements of the Handbook, if applicable to you, and take steps to address issues identified 92.4 The question in relation to the propriety of payments was first raised on 31 May In an to the First Respondent of that date, Mr Morris stated that, as regards the requests being made for payment in relation to Mr A s matters: In the first place and foremost, Howard Kennedy is not a Bank. Nevertheless, as I understand the position, it is being requested to act effectively as a Bank in connection with payments in respect of [the relevant files]. I do not understand why we are undertaking this role for this particular client. Subject to your observations, I see no reason why we are acting as a bank

22 In response, the First Respondent stated that work was being undertaken as part of the Firm s general retainer. He also stated that if there was a requirement to change the arrangement, he would need 6 weeks notice to do so. Mr Morris replied on 3 June 2011 and stated, amongst other things: The first question is whether it is appropriate in principle for Howard Kennedy to act as a Bank. I believe that we are in agreement that it is not. The reason for this is that Howard Kennedy in not a Bank but the provider of legal services. The fact that we are not a bank is an elemental matter when reviewing money laundering and risk management obligations. Accordingly it would be most helpful if you could please clarify why we are acting as a Bank for [Mr A]. It has been mentioned to me by a number of my colleagues that they do not understand why he cannot operate his businesses through the normal banking system and why he is therefore directing significant sums of money through Howard Kennedy The First Respondent replied on 8 June He maintained that the matter should not be viewed in isolation as it was part of the general retainer. As regards the continuance of the payments the First Respondent stated: Just let me know if the firm does not wish to continue and I will be able to make other arrangements, but, as mentioned previously, I will need 6 weeks notice to do so The s were forwarded to CE, an equity partner and member of the then management committee, who in an to Mr Morris dated 24 June 2011 stated: Re this boring matter, we discussed this and unless [M/S] think to the contrary, it seems to me that you should be telling [the First Respondent] we decline! 92.8 CE ed the head of finance on 26 August 2011 explaining that Mr Morris had already spoken with [the First Respondent] about this, he will remind him again that we will not be processing these payments in future On 11 April 2012, the described in paragraph 87.1 above, was sent to the First Respondent. On 26 July 2012, the First Respondent requested authorisation for salary payments. He was informed that Mr Morris was unwilling to authorise the payments. After some further correspondence, the First Respondent was informed that the payments would be made on the strict understanding that these two payments will be the last two such payments made through [the Firm s] client account. [Mr Morris] can not authorise any further salary payments or indeed any such payments where [the Firm] can be deemed to be acting as a bank for clients As at 11 April 2012, the Fifth Respondent knew that payments were being made on behalf of Mr A that were in breach of Rule 14.5, and should have put in effective systems and controls to ensure that there were no further breaches. In particular, the Firm should have: informed the authorising partners that payments had been made in breach of the rules and additional scrutiny was necessary in relation to authorisation requests from the First Respondent on the relevant matters. provided the accounts department with clear instructions to refuse the relevant payments or refer them to Mr Morris.

23 23 provided proper training and instruction as regards the use of the client account The Fifth Respondent admitted allegation The Tribunal found that it was clear to the Firm by April 2012, and certainly by July 2012 at the latest, that authorisation for payment was regularly provided in circumstances that breached Rule However, the Firm took no proper steps to ensure compliance with that rule. In failing to take any, or any adequate steps to prevent further breaches of Rule 14.5, the Fifth Respondent had failed to run its business effectively and in accordance with proper governance and sound financial and risk management principles in breach of Principle 8, and failed to achieve Outcomes O(7.2) and O(7.3). Accordingly, the Tribunal found allegation 5.2 proved beyond reasonable doubt on the evidence, the facts and the Fifth Respondent s admission. 93. Allegation The Fifth Respondent knew that the First Respondent had committed a serious breach of Rule 14.5 of the SAR 2011 by 11 April 2012 but failed to report that breach to the SRA until 3 February 2015 and thereby breached and/or failed to achieve Principle 7 of the Principles; and Outcome O(10.4) of the SCC Principle 7 required that you must comply with your legal and regulatory obligations and deal with your regulators in an open, timely and co-operative manner Outcome O(10.4) required that you report to the SRA promptly, serious misconduct by any person or firm authorised by the SRA, or any employee, manager or owner of any such firm (taking into account, where necessary, your duty of confidentiality to your client). The Applicant s Submissions 93.3 The Fifth Respondent, in its answer, did not assert that the First Respondent s misconduct was not serious; there was no denial of the underlying breaches. The point taken by the Fifth Respondent was the attribution of the knowledge of Mr Morris to the Firm As regards the failure to recognise the seriousness of the First Respondent s misconduct, it was no defence to assert that the misconduct was not recognised for what it was. To fall within the ambit of the rule, it was sufficient to show that the Firm knew or ought to have known that the First Respondent s misconduct was serious. Any other construction would undermine the meaning of the Outcome, and would thus undermine the protection it was intended to provide in the public interest The Fifth Respondent knew of the First Respondent s misconduct in April That was not reported to the SRA until 3 February On no account could the delay of almost 3 years be seen to be prompt. The Fifth Respondent s Submissions 93.6 Following the Tribunal s finding, it was accepted that the knowledge of Mr Morris was attributable to the Fifth Respondent. It was clear from Mr Morris s statement that

24 24 he did not consider the First Respondent s conduct to be serious misconduct, and there was no evidence to suggest otherwise. It was noted that the Applicant had not pursued Mr Morris for his failure to report the First Respondent, when he was the person with primary knowledge of the First Respondent s misconduct. In the 2007 Code of Conduct, serious misconduct was defined, and related to criminal offences, fraud and dishonesty. There was no definition of serious misconduct in the 2011 code, however it was reasonable to consider serious misconduct in line with the 2007 definition. Further, the lines as regards the interpretation of breaches of Rule 14.5 were not clearly drawn until the publication of the December 2014 warning notice. It was not until Mr Millett became aware of the misconduct in January 2015 that the Fifth Respondent became under a duty to report. That report was made by Mr Millett in the material breach report sent to the SRA dated 3 February As regards seriousness, the SRA, during the telephone conference, had referred to the breaches as technical breaches. That demonstrated that it was not the SRA s view that the breaches were serious Given the above, the Applicant could not show, to the requisite standard, that the Fifth Respondent knew or ought to have known that the First Respondent s misconduct was serious such that it should have been promptly reported to the SRA pursuant to Outcome O(10.4). The Tribunal s Decision 93.8 The Tribunal considered that the questions it needed to address were: (1) Did the Fifth Respondent have knowledge of the First Respondent s misconduct? (2) Did the Fifth Respondent know, or ought it to have known, that the First Respondent s misconduct amounted to serious misconduct such that the Fifth Respondent was under a duty to report that to the SRA pursuant to Outcome O(10.4)? (3) If the Fifth Respondent was under a duty to report the First Respondent s misconduct, did it do so promptly? 93.9 As regards question 1 the Tribunal determined that the knowledge of Mr Morris was attributable to the Fifth Respondent, particularly when he had been asked to deal with the matter by an equity partner and member of the then management committee, and was reporting back to him by forwarding the chains of discussions with the First Respondent. The attribution to the Fifth Respondent of Mr Morris s knowledge did not require him to hold a particular position in the Firm; it was sufficient that he had been asked, by the Firm (via CE) to deal with the issues. Further, Mr Morris was a partner in the Firm and was thus strictly liable for ensuring compliance with the accounts rules. Accordingly, the Tribunal found that by 11 April 2012, the Firm was aware of the First Respondent s misconduct As regards question 2, the Tribunal determined that in considering whether the Fifth Respondent knew, or ought to have known that the First Respondent s misconduct amounted to serious misconduct, consideration had to be given to the history of the development of Rule 14.5, and the prevailing understating of the

25 25 profession. The Tribunal determined that it was clear from Guidance note (ix) to Rule 15 of the SAR, as clarified by Wood and Burdett that client account should not be used as a banking facility. Rule 14.5 was introduced in The rule was clarified by the decision in Patel which stated that the reference to instructions in the rule meant professional instructions and that an underlying transaction meant an underlying legal transaction. The SRA clarified the import of Rule 14.5 when it issued its warning notice on 18 December It was evident that not every breach of the accounts rules would necessarily be considered as serious misconduct. Whilst it was certainly the current position that breaches of Rule 14.5 could be considered to be serious misconduct, the position prior to the SRA s warning notice of December 2014 was less clear. At that time, serious misconduct as regards the accounts rules would be considered in line with the definition of serious misconduct contained in the 2007 Code of Conduct. The Tribunal determined that whilst the Fifth Respondent had knowledge of the First Respondent s misconduct, it could not be sure, beyond reasonable doubt, that the Fifth Respondent considered that misconduct to be serious misconduct The Tribunal noted that there had been no loss to the client, and the client had made no complaint. All of the payments made were legitimate, in that Mr A was lawfully required to make those payments. Mr A had been the subject of all proper due diligence, and there was no suggestion that any of the risks that Rule 14.5 was intended to prevent in fact existed in this case. In considering the prevailing understanding of the profession at the relevant time, taking into account the historical development of the current understanding of Rule 14.5, and given that there was no loss to the client, the Tribunal could not be satisfied beyond reasonable doubt that the Fifth Respondent ought to have known that the First Respondent s misconduct was serious such that Outcome O(10.4) was engaged Given the findings in relation to question 2, the Tribunal did not find allegation 5.3 proved beyond reasonable doubt; the allegation was accordingly dismissed. The Tribunal s findings meant that it did not need to consider question 3. Previous Disciplinary Matters 94. There were no previous disciplinary matters for any of the Respondents. Mitigation The First Respondent 95. The risks that the rules were introduced to prevent did not materialise in this matter. There was no suggestion of theft of client monies, inadvertent loss to any client, a failure to respond by insurers, a failure to make good any loss by the compensation fund or any suggestion that the monies paid out of the client account were monies where there was any issue in relation to money laundering or tax evasion. The client had undergone all necessary due diligence checks, and it was not part of the Applicant s case that (other than the rule breaches) monies had been improperly paid out. The rules in relation to the use of the client account were controversial and whilst they may have been well known to regulatory lawyers, they were not well known across the industry in general. The First Respondent did not believe, until

26 26 April 2012, that his conduct was in breach of the rules. Historically, some solicitors had agreed to pay bills on their client s behalf as a matter of convenience for their client. The December 2014 warning notice stated that we consider that allowing client account to be used in this way [the payment of routine bills and invoices on behalf of a client] is no longer appropriate. Mr Treverton-Jones QC submitted that the words no longer indicated that there was a time when it must have been considered that to use the client account in that way was not improper. 96. It was important to appreciate that the First Respondent did not try to conceal his actions either prior to, or post April The invoices attached to the payment requests made clear what the payment related to. In May/June 2011, when the issue of the nature of the payments was raised by Mr Morris, the First Respondent told Mr Morris to let him know if the firm does not wish to continue and I will make other arrangements. At that point he was not told by the Firm to stop. During 2012, after the First Respondent had been told to stop making the payments, no-one at the Firm considered that the payments were in breach of Rule Notwithstanding this, the First Respondent accepted that he should have ceased requesting that payments be made. 97. The First Respondent had a very distinguished career in law and was highly regarded. It was a great shame that he found himself before the Tribunal at the end of his career. He apologised to the Tribunal for his misconduct. He had worked for Mr A and his family for over 35 years. The First Respondent accepted that his conduct post April 2012 lacked integrity. He had not caused any loss to his client and nor had he made any financial gain. Whilst the payments requested were in breach of the rules, they were all payments that were legitimately owed by his client. His lack of integrity stemmed from his wish to maintain the convenience for his client that had always been afforded to him. 98. The appropriate sanction was a moderate financial penalty. The Second Respondent 99. The Second Respondent was of exemplary character, had practiced for 32 years and had never been the subject of a complaint from any client. He was a high calibre solicitor specialising in corporate work. He had conducted a large amount of legal work in relation to Mr A. He had co-operated in full with the SRA investigation, and had supported the Fifth Respondent s application to stay the proceedings in a moderate way. As could be seen when he gave evidence, he was an honest and open person who answered questions in a measured way and was not prone to exaggeration. He apologised for his breaches, which were entirely based on the accounts rules; there was no allegation that he had breached any of the core principles. He was strictly liable for his misconduct. The Applicant, in opening the case, had fairly stated that the Second Respondent was unaware that the payments he authorised were improper. There could be no doubt that the Second Respondent did not intend to breach the rules and he had not knowingly done so Mr Williams QC submitted that the issue of providing banking facilities was the most opaque aspect of the SAR. When considering the appropriate sanction, the Tribunal should consider the state of the understanding of the profession at the time of the Second Respondent s conduct, and not view his conduct in light of the present

27 27 understanding of the profession. The guidance at the time that the Second Respondent authorised the majority of the transactions was that contained in Wood and Burdett which referred to money being held in connection with professional work. Even if the Second Respondent had read Wood and Burdett, he would have considered that payment in relation to professional work was not improper. The authorised payments were not unusual, and the Second Respondent always ensured that Mr A had sufficient funds in client account to satisfy the payments. The breaches were historic, made on a strict liability basis, and there had been no repeat; there were no aggravating features. The Second Respondent did not present a risk to the profession, and had caused no reputational damage to the profession. The Third and Fourth Respondents 101. The Third and Fourth Respondents had no connection with the matters in question other than to sign authorisations for payment. In many instances, they were countersigning that which had already been authorised in accordance with the Fifth Respondent s then system. The procedure now was entirely different; fee earners were required to certify that any payment requested related to an underlying legal transaction. In terms of their culpability, the Third and Fourth Respondents were unaware that they were breaching the accounts rules. Prior to the SRA s clarification of the meaning of Rule 14.5, the profession generally was not aware of the remit of that rule. Even had the Third and Fourth Respondents been aware of the case law, as regards using a firm s client account as a bank account, it would not necessarily have translated into everyday practice, and further, would not have been understood by them to mean that they were acting in breach of the rules. The Third and Fourth Respondents were the partners who worked closest in terms of a physical location to those who would request the authorisations; in many regards their misconduct was an accident of proximity. There was no regulatory interest or objective in referring the Third and Fourth Respondents to the Tribunal; the Firm had accepted that it had breached the accounts rules. None of the factors identified in the SRA s Criteria to determine the focus of an investigation document were relevant to either the Third or Fourth Respondent. Further, during its discussion on 20 May 2015 with the Firm, the SRA said that it did not think it was necessary to name any of the partners in the RSA No harm had been caused to Mr A or the public and there was no reputational damage to the profession. No harm had been intended by the Third and Fourth Respondents, nor could any harm have been reasonably foreseen by them. As regards sanction both Respondents were at the bottom of the scale of available sanctions and the Tribunal was invited to make No Order in relation to them both. Any more severe sanction would be unfair and disproportionate. The Fifth Respondent 103. The Fifth Respondent fell to be sanctioned for the matters it had admitted. There were no previous findings against the Firm, and the risks the rules were introduced to militate against did not exist in this case. Enhanced due diligence had been undertaken by the Firm, and there had been no loss, misappropriation or shortfall on the client account. The remediation the Firm had taken had been set out and highlighted to the SRA, such that when it was in discussion with the SRA in relation

28 Sanction 28 to an RSA, the SRA did not suggest that there was any further remediation necessary. The systems and controls put in place ensured that there would be no further breaches of Rule 14.5 as all fee earners were required to confirm that any requested payment related to an underlying legal transaction. The fee earner, a partner in the same team with knowledge of the transaction, and a further partner, preferably from the same team, were all required to sign the payment request form. All partners in the Firm had been written to with an explanation regarding Rule 14.5 and were requested to review all matters to ensure that the client account was not being used as a bank account. Further, all fee earners and accounts staff were required to complete a SAR on-line training course. It was clear from the witness evidence of Mr Millet and Ms Atkinson that the Fifth Respondent took its regulatory responsibilities seriously, and it was of deep regret to the Fifth Respondent that it had appeared before the Tribunal. In considering sanction, the Tribunal was asked to keep in mind that initially matters were to be dealt with by way of an RSA. Mr Kendal submitted that, given the circumstances, the appropriate financial penalty for the Fifth Respondent was within the Tribunal s indicative fine band level 3 or The Tribunal had regard to the Guidance Note on Sanctions (5 th Edition-December 2016). The Tribunal s overriding objective, when considering sanction, was the need to maintain public confidence in the integrity of the profession. In determining sanction, it was the Tribunal s role to assess the seriousness of the proven misconduct and to impose a sanction that was fair and proportionate in all the circumstances. The First Respondent 105. The Tribunal found that the First Respondent s motivation for his misconduct was his desire to keep Mr A happy, by continuing to provide him with services that were in breach of the accounts rules. After the of April 2012, he chose to deliberately and knowingly disregard the instructions received to cease making payments, and to that extent, his misconduct was planned. He was a senior solicitor who was very experienced and trusted. He was in direct control of his conduct. By continuing with his misconduct, the First Respondent had caused harm to the reputation of the profession. Whilst that harm was not intended, it was entirely foreseeable. The Tribunal noted that there was no financial loss suffered by any client or member of the public, and the risks that Rule 14.5 sought to counteract were not present in this case. Having been told that his actions were in breach of the accounts rules, the First Respondent knew that he was acting in material breach of his obligations. The Tribunal did not consider that there were any aggravating factors as regards the First Respondent s misconduct. The Tribunal had regard to the references provided on his behalf, his previous unblemished career and his full co-operation with the SRA. The Tribunal considered that his misconduct was such that a Reprimand was not a sufficient sanction, however it was not so serious that it required his removal from practice for a definite or indefinite period. Accordingly, the proportionate sanction in this matter was a financial penalty.

29 The Tribunal found that the First Respondent s misconduct was serious such that it was at the uppermost end of a Level 3 fine, but was not so serious as to cross into the Level 4 threshold. A fine in the sum of 15,000.00, was appropriate and proportionate in all of the circumstances. The Second, Third and Fourth Respondents 107. The Tribunal found the allegations against the Second, Third and Fourth Respondents proved on a strict liability basis. The Tribunal determined that there had been no intention by any of them to breach the relevant accounts rules, and that they were unaware of their misconduct. The Respondents were not informed by the First Respondent that he had been told that he should no longer request the particular type of payment. Further, the Fifth Respondent had not informed the Respondents, or indeed any of the authorising partners of the breaches or that further requests should not be authorised. The Tribunal did not consider that these Respondents had caused any reputational harm to the profession, and found that there were no aggravating features of their misconduct. The Tribunal noted that they all had previously unblemished careers and had co-operated fully with the investigation. The Tribunal found that the level of seriousness and the culpability as regards these Respondents was so low that it would be unfair and disproportionate to impose a sanction. Accordingly, the Tribunal made No Order in relation to the Second, Third and Fourth Respondents. The Fifth Respondent 108. The Tribunal found that the Fifth Respondent s failure to take any, or any appropriate action when it discovered the rule breaches meant that its level of culpability was high. The Firm was aware of the First Respondent s misconduct, but failed to ensure that it did not continue. It had not informed any of its authorising partners of the misconduct, nor did it put systems in place to prevent further misconduct until much later. This was a serious failing. The inadequacy of the Fifth Respondent s systems enabled the First Respondent to continuously breach the accounts rules and, to some extent, was responsible for the appearance of the Second, Third and Fourth Respondents before the Tribunal. The failings of the Fifth Respondent had caused foreseeable harm to the reputation of the profession. The Fifth Respondent s inaction allowed the breaches to be repeated over a period of time, which meant that very significant amounts of money passed through its client account in breach of the rules. The Tribunal noted the remedial action taken by the Fifth Respondent, such that by May 2016, the Applicant had acknowledged the completely different landscape as regards risk and compliance. The Tribunal also had regard to the fact that the Fifth Respondent had not previously appeared before the Tribunal, and had co-operated fully with the SRA and its investigation. The Tribunal considered that the Fifth Respondent s misconduct was very serious, such that it was in the middle to high range of a Level 4 Fine. The Tribunal took into account the insight displayed by the Fifth Respondent, and the regime it had introduced to ensure compliance. The Tribunal considered that a fine in the sum of 35, was appropriate and proportionate in all the circumstances.

30 30 Costs 109. The quantum of costs had been agreed between the parties. As regards the strike out application, those costs were agreed in the sum of 21, Those costs should be considered in relation to the Second, Third, Fourth and Fifth Respondents. The costs in relation to the substantive hearing were agreed in the sum of 60, Those costs should be considered in relation to all the Respondents Mr Treverton-Jones QC submitted that Mr Coleman QC had been instructed due to the manner in which the Fifth Respondent had conducted its defence. The increase in costs due to the instruction of Mr Coleman QC was entirely as a result of this. The matters in issue between the Applicant and the First Respondent were not complex; the underlying facts were agreed and the only issue was whether his conduct was in breach of the rules as alleged. As to quantum, the First Respondent should not pay more than 20% of the total costs awarded to the Applicant in relation to the substantive hearing Mr Kendal submitted that the Fifth Respondent was before the Tribunal as a result of the First Respondent s conduct. The idea that the other Respondents should be visited with the costs that the First Respondent ought to pay was a novel point. Given the circumstances, it was unrealistic for the First Respondent to only pay 20% of the relevant costs. As regards the costs the Tribunal may determine were appropriate for the Second, Third and Fourth Respondents, the Fifth Respondent indicated that any costs order should be made against the Firm on their behalves. Costs of the Strike Out/Stay Application 112. The Tribunal considered that the quantum of costs applied for by the Applicant were reasonable and proportionate. However, it was the Applicant's lack of transparency in relation to its dealings with the Fifth Respondent that had caused the application to be made. The Tribunal determined that whilst the quantum was reasonable and proportionate, the Fifth Respondent should not be ordered to pay the entirety of the costs of this application, and that the Applicant ought to bear some of the costs. The Tribunal determined that the reasonable amount that the Fifth Respondent should contribute to the costs of the application was 10, Costs of the Substantive Hearing 113. The Tribunal considered that the quantum of costs applied for by the Applicant were reasonable and proportionate. Notwithstanding the admissions made by the Second, Third and Fourth Respondents the Tribunal determined that no costs order should be made against them. The admitted breaches were on a strict liability basis only; the Tribunal found those admissions to be properly made on that basis. These matters could have been dealt with by the Applicant using its internal powers which were sufficient given the nature of the misconduct. The Tribunal noted that each of the Second, Third and Fourth Respondents had denied any wrongdoing in their answer to the EWW letters and had admitted the allegations they faced during the proceedings. However, it was as a result of the Applicant s conduct during the discussion with the Firm and thereafter that led to the matter proceeding in the way that it did. It was disproportionate and unfair for the Second, Third and Fourth Respondents to bear any of the costs in the circumstances.

31