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New Year, new chapter

This year will be the first in quite a few, in which I won’t be acting as part of Leigh Day’s in-house team, advising and supporting colleagues during the SRA’s investigation and prosecution arising out of the Al Sweady Inquiry.  So 2019 represents a new chapter for me and Leigh Day’s Regulatory & Disciplinary team; one in which we are looking forward to helping clients with their regulatory and compliance needs.

The start of a new year, as well as being a good moment to look to the future, is also an opportunity to reflect on the journey leading up to that point.  So at the start of this new year, I’ve been looking back on some of the judicial decisions in the Leigh Day case, because they represent important lessons for legal practitioners as they too look forward.

In this blog, I’ll be looking at the costs decision made in the Solicitors Disciplinary Tribunal (SDT) in December 2017, which is an authority successful respondents can call on, when applying to recover the costs of defending themselves in regulatory prosecutions.  In my next article, I’ll be looking at some of the principles that can be drawn from the High Court’s decision on the appeal of some of the substantive allegations.

Costs in the SDT

In the Leigh Day costs decision, the Tribunal unanimously agreed that the SRA is not in the position of a normal party to litigation because of its statutory duty to regulate the profession in the public interest.  Thanks to that duty, costs do not “follow the event”, meaning that even where the SRA’s prosecution is unsuccessful, costs are not normally awarded against it.  In such cases, the Tribunal will need to look at the SRA’s conduct in bringing the case, to see whether it was “unreasonable” or otherwise justifies a costs order being made against it.

The judgment notes that the SRA referred the Tribunal to authoritative case law1  stating a costs order should not be made against the regulator unless its case is improperly brought or proceeds as a shambles from start to finish2.   The SRA argued that “unreasonable” refers to “manifestly unreasonable” or “perverse” conduct, whilst the respondents maintained it holds no special meaning and the Tribunal needed to consider whether valid criticisms could be made of the regulator’s conduct3

The Tribunal unanimously found there was little evidence the SRA’s investigation had been unreasonable, noting that the SRA is entitled to and should investigate matters of concern to it.  A majority of the Tribunal then decided the SRA had not taken a disproportionate approach in the prosecution stage and that this was the case even where the allegations had been unanimously dismissed, because it had been necessary to “hear the witness evidence, and to consider the scope and extent of the duties contended for”4

In its minority decision, the Tribunal noted that the costs protection afforded to the regulator did not “give it a carte blanche to proceed in any way it wished.  It was important that the regulator acted reasonably and proportionately.”5   The minority did not agree with the majority that because the Tribunal had reached its decision based on the evidence presented at the hearing, this meant an allegation had been reasonably brought.  The minority’s view was that “The crucial question was whether the actions of the Applicant were reasonable based on what the Applicant itself knew at the relevant time.”  

The minority decision points out that “once the investigation had been concluded the Applicant had a duty properly to consider the results.  If, in the light of the responses and evidence it had received, it proceeded with allegations unreasonably or disproportionately then it could no longer expect to be protected for the costs caused.”

Why is the costs decision important?

One of the reasons the Tribunal’s decision on costs in the Leigh Day case is important is that it highlights the costs protection enjoyed by the SRA in the Tribunal.  Even where allegations had been investigated and then prosecuted and ultimately dismissed, the majority decided that no costs should be ordered against the SRA.  This regime is something not all practitioners are aware of.  

The judgment notes that Leigh Day’s costs for the investigation stage, which included responding to the SRA’s requests for information, documents and its allegations, resulted in costs of over £2 million.  Whilst it’s true that the Leigh Day case was particularly complex, every regulatory investigation will have resource implications and practitioners and their firms should consider and make provision for this.  One way of doing that is ensuring they have insurance that covers regulatory investigation and defence costs.  This provides firms with a fund to investigate, respond to and get advice about their regulatory position when they need it.  Having such a fund available can be key to alleviating the financial pressures and emotional stresses that regulatory issues frequently cause.

The judgment also underscores the regulator’s duty to consider the results of its investigations, it clarifies what constitutes unreasonable behaviour by the regulator and that costs protection will fall away where the regulator proceeds with allegations unreasonably or disproportionately, in light of the responses and evidence it receives.  Significantly for successful respondents (whether firms or individuals), the decision makes clear that it is no longer just those SRA cases that are shambolic from start to finish or improperly brought, which will forfeit costs protection in the Tribunal.

The principles emphasised in the costs decision are undoubtedly important ones that practitioners, the regulator and future Tribunal panel members should take note of, as each of them looks forward to their new chapter.

About the author

Emma Walker is an Associate in Leigh Day’s Regulatory & Disciplinary team, acting for professionals who need advice and support with compliance and regulatory matters.  Connect with Emma and the team on LinkedIn and Twitter, or subscribe to receive their quarterly bulletin of commentary and news, by emailing: RDteam@leighday.co.uk.
 
18 January 2019

  1. Baxendale-Walker v The Law Society [2006] EWHC 643 (Admin)
  2. SRA v Leigh Day and others Case No. 11502-2016 [13]
  3. SRA v Leigh Day and others Case No. 11502-2016 [23]
  4. SRA v Leigh Day and others Case No. 11502-2016 [31]
  5. SRA v Leigh Day and others Case No. 11502-2016 [33]

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