The demise of a fair disciplinary system

The development of the law can be much more haphazard than it appears when we look back. In hindsight, a series of events can look like a straight line leading to an inevitable conclusion. But at the time, for those who lived through it, it was not like that at all. So it is with the transformation of the disciplinary system for solicitors, which has changed hugely in the 30 years during which I have been prosecuting and defending solicitors in disciplinary cases. The result has been to transform a fair and well-tried system to one which, to my mind, is now unfairly weighted against those who are alleged to have transgressed.

When I started acting in solicitors’ disciplinary proceedings in about 1990, all of the serious cases were sent to the Solicitors Disciplinary Tribunal. Back in those early days, costs generally followed the event in the SDT, so that if solicitor respondents were ‘acquitted’ they could usually expect an order that the regulator pay their costs. This situation was, to the best of my recollection, entirely uncontroversial. The ‘conviction’ rate for solicitors brought before the SDT was very high, generally felt to be well over 90%, and so the costs consequences for occasional failures were hardly daunting for the regulator.

Baxendale-Walker

The first move away from what seemed to me to be an entirely sensible system came with the Divisional Court decision in Baxendale-Walker v Law Society [2006] EWHC 643 (Admin). The appellant had been suspended for three years and appealed. The SDT had made an order that the Law Society pay some of his costs to reflect the failure of a particular allegation, and the Society cross-appealed that order. The Divisional Court dismissed the solicitor’s appeal but allowed the Society’s cross-appeal, holding that the principles relating to costs in proceedings brought in the public interest in exercise of regulatory functions differed from those which applied to ordinary civil litigation. In the Court of Appeal, Sir Igor Judge P, upholding the decision of the Divisional Court, stated in a much-quoted passage [2008] 1 WLR 426 at [39]: ‘Unless the complaint is improperly brought, or, for example, proceeds as it did in Gorlov, as a “shambles from start to finish”, when the Law Society is discharging its responsibilities as a regulator of the profession, an order for costs should not ordinarily be made against it on the basis that costs follow the event.’

There is no indication in the judgments in Baxendale-Walker that the judges in either the Divisional Court or the Court of Appeal appreciated that they were altering a long-established practice of the SDT and indeed other regulatory tribunals. As a result of this decision, the Solicitors Regulation Authority came to enjoy an almost total immunity against adverse costs orders in the SDT. I researched this for an appeal in 2016. At that stage there had been only eight cases post-Baxendale-Walker in which costs orders had been made by the SDT against the SRA at the conclusion of a case, and some of these were in very small amounts. 

Insurance position

Until 2010, professional indemnity insurers were obliged under the Minimum Terms and Conditions negotiated by the Law Society (with which all PII policies covering solicitors had to comply) to include cover for solicitors against disciplinary proceedings brought against them. This position changed from 1 October 2010 with the adoption of the Solicitors Indemnity Insurance Rules 2010 (amendment to Appendix 1 clause 1.2(c)). The predictable result was that larger, richer firms obtained cover which included cover for disciplinary investigations and proceedings, while the less well-off did not.  

The effect of these changes was significant.  It became extremely difficult to obtain an order for costs against the SRA when a respondent was ‘acquitted’ and most solicitors were not covered by insurance for their own costs. An ‘acquittal’ therefore came at a high price, and many respondents preferred to try to reach agreement with the SRA, knowing that in commercial terms, that would be a great deal cheaper than fighting and winning. In the Leigh Day prosecution, which failed in the SDT and in the Divisional Court, one of the respondents fortuitously had a ‘key man’ or similar policy of insurance, which covered most of the legal costs and enabled them to fight a case in which the legal costs ran into millions of pounds.

‘Chilling effects’

So what was the justification for the change made in Baxendale-Walker? In the Court of Appeal, Sir Igor Judge P stated in another much-quoted passage at [39]: ‘For the Law Society to be exposed to the risk of an adverse costs order simply because properly brought proceedings were unsuccessful might have a chilling effect on the exercise of its regulatory obligations, to the public disadvantage.’

It does not appear that the court was provided with any statistical information as to ‘conviction’ rates in the SDT before making this pronouncement. As those rates were generally understood to be around the 95% mark at that time, the chilling effect identified by Judge LJ was unlikely ever to eventuate.  

However, the SRA’s virtual costs immunity produced an equal and opposite ‘chilling effect’ to that which concerned the Court of Appeal in Baxendale-Walker. Respondents had to be routinely advised that whatever the merits of their defence, and however unjustified the prosecution against them was thought to be, they would be most unlikely to achieve a costs order in their favour in the SDT. The result was that unless they were at risk of suspension or a striking-off order, there was a powerful commercial incentive to make acceptable admissions, and therefore avoid incurring the irrecoverable costs of contesting the case – even where they believed and/or were advised that they had a good defence. This ‘chilling effect’ was every bit as undesirable and contrary to the public interest as the chilling effect identified by Sir Igor Judge in Baxendale-Walker.

A second ‘chilling effect’ of the decision in Baxendale-Walker is that it left the SRA largely unaccountable for its prosecuting decisions and the manner in which it prosecuted cases.  

A further, perhaps unforeseen, effect of Baxendale-Walker was that henceforth more or less any interlocutory application made by respondents was made at their own expense, because the usual order on such an application would be ‘costs in the case’, which meant that the SRA could rely upon the Baxendale-Walker protection against a costs order at the end of the case.

SRA’s statutory powers

As time went on, various statutory reforms had the effect of tilting the playing field against respondents even further than Baxendale-Walker had done. Unbeknownst to most solicitors at the time, the introduction of alternative business structures involved a completely new disciplinary system. For ABSs, instead of the SDT being the principal disciplinary authority, the SRA itself took over that role, being given powers to fine entities up to £250m, and individuals up to £50m.

At much the same time, the SRA was granted much more limited statutory disciplinary powers over those who worked in conventional law firms. For the first time, it could impose rebukes and fines, limited to £2,000, upon solicitors in those firms.  Whatever purists like me might think about a regulator becoming prosecutor, judge and jury in its own cause, the £2,000 limit made this just about palatable. But it was not long before the SRA started to agitate for an increase in the £2,000 limit, and what the SRA wants from government, the SRA tends to get, eventually. And so it turned out.

Agreed outcomes

Further power was given to the SRA by a system of agreed outcomes which has grown up over the last 15 years or so. Under this system, the parties to disciplinary proceedings in the SDT can negotiate and seek to agree suitable admissions and an appropriate sanction. This agreed position can then be put before the tribunal which will either endorse, or refuse to endorse it. Against the background of the Baxendale-Walker costs protection afforded to the SRA, there was, again, a powerful commercial incentive for respondents to reach agreement with the SRA where this could be achieved, rather than to take their chance before the SDT knowing that, even if successful, they would have to bear their own costs. I well recall a case several years ago in which the SDT refused to endorse an agreed outcome because it considered the proposed penalty too low. The solicitor then contested the case before a different panel of the SDT, and was triumphantly ‘acquitted’.

Flynn Pharma

In May 2020, a bright ray of hope opened up for solicitors destined to be sent to the SDT:  the Court of Appeal gave judgment in the case of Competition and Markets Authority v Flynn Pharma Ltd [2020] EWCA Civ 617. Although it referred to Baxendale-Walker with approval, permission was granted to take the case to the Supreme Court. At last, so I thought, there was a golden opportunity for consideration at the highest level of the principles underpinning costs orders in disciplinary tribunals. It seemed obvious to me that the SRA would intervene in the appeal to argue for the post-Baxendale-Walker status quo, and therefore that the Law Society should also intervene to put the other side of the argument.

With this in mind, having discussed matters with a handful of like-minded defence solicitors, I wrote a Note, in order to set out for the Law Society the disadvantages of the status quo. That Note commenced with the following paragraph: ‘I am writing this Note for the benefit of Law Society personnel who will consider whether to apply to intervene in the Supreme Court appeal in the Flynn Pharma case. I have conducted many dozens of cases in the Solicitors Disciplinary Tribunal on behalf of respondent solicitors, and I believe that the decision in Baxendale-Walker has had disastrous consequences for the proper and efficient regulation of the profession. The Flynn Pharma appeal is an opportunity to explain these to the Supreme Court, and to try to achieve a fairer approach to costs by regulatory tribunals.’

For whatever reason, the Society chose not to intervene in the Supreme Court, and the SRA (which did intervene) therefore had the forensic field to itself. Unsurprisingly in those circumstances, the court upheld Baxendale-Walker (see paragraph 122 of the judgment) and the opportunity to have it overturned, explained, or restricted in scope, has now been lost, probably forever. I do not know why the Society, as trade union of the profession, chose not to represent its members’ interests by intervening in the appeal.

Increase in the SRA’s in-house powers

On 23 May 2022, the Gazette carried an article stating that the SRA was to press ahead with the increase in its fining powers to £25,000. The article stated: ‘On the increase in fining powers, the SRA said cases with fines under £25,000 tend to be straightforward matters which do not merit the time, cost and stress involved in a hearing before the SDT.’

I doubt whether the SDT would agree with this statement. Fines of more than £25,000 by the SDT are still very much the exception rather than the rule. The most recent Annual Report on the SDT website is 2020: of the 38 fines imposed by the tribunal in that year, only 12 exceeded £15,000 and the statistics do not reveal how many of that 12 fell between £15,000 and £25,000. Indeed the government press release in June 2022, approving the increase to £25,000, stated: ‘… nearly 90 per cent of fines currently issued by the tribunal are under £25,000’.

The future

The overall picture provided by this chain of events is, in my view, a bleak and rather sad one. ABSs are subject to a disciplinary system in which the SRA is prosecutor, judge and jury in its own cause, armed with a wide array of statutory powers. For those working in conventional law firms, the regulator now has a power to fine up to £25,000 without having to refer the case to the SDT. Although the press regularly reports the extravagant salaries paid to the gilded youth who become trainees at large firms in the City of London, for the lesser mortals who make up the vast bulk of the profession, £25,000 represents a very significant sum, particularly where there is a costs liability to the regulator on top. The power to fine up to £25,000 is, therefore, a further very powerful tool in the SRA’s regulatory armoury.

With its statutory powers now embedded and Baxendale-Walker now fully enshrined in law, the SRA holds all the aces and many of the other cards in any disciplinary prosecution. It remains to be seen how much work there will be in the future for the SDT, but it is bound to be less than there is at present. I for one shall be rather sad about that, as I am something of a fan of the tribunal. Although its ‘conviction’ rate is inevitably high, in my experience, it discharges its responsibilities fairly and humanely. With two experienced solicitor members on any given panel, it has a much more acute appreciation of the difficulties and dilemmas faced by solicitors in practice than does the SRA. Independent scrutiny of a regulator is always a thoroughly good thing, and often the only effective way that the regulator can be held to account for abuse of its powers. Sadly, such scrutiny will be significantly reduced as a result of the events which I have outlined above. I do not know very much about the disciplinary system operated in-house by the SRA, save that oral  hearings appear to be rare or non-existent.

The legal profession now resembles the financial services industry in having a regulator which acts as prosecutor, judge and jury in its own cause. I find that genuinely surprising in a profession which prides itself on recognising the need for fairness at every stage of a judicial or disciplinary process. But the current regime is here to stay, at least in the short and medium term, and solicitors will have to live under it.

 

Gregory Treverton-Jones QC, a barrister at 39 Essex Chambers, London, specialises in regulatory and disciplinary issues concerning legal professionals. He is co-author of successive editions of The Solicitor’s Handbook