The recent decision of the Solicitors Disciplinary Tribunal to dismiss a claim for costs by a successful respondent has sparked a renewed discussion as to whether the ‘starting point’ that the SRA should not be ordered to pay the costs of a failed prosecution remains justifiable.
In our latest news alert, our regulatory and professional discipline partner, Andrew Pavlovic, provides further insight on this issue, following on from his recent comments in The Law Society Gazette.
The Rationale for the ‘Starting Point’
In Baxendale-Walker v The Law Society  1 WLR 426 the Court of Appeal found that in the Solicitors Disciplinary Tribunal costs should not automatically follow the event and that, unless proceedings in the Tribunal had been improperly brought, or had been conducted as a shambles from start to finish, the default or starting position should be that a costs order should not be made against the SRA simply because the prosecution failed.
This position was confirmed in respect of other regulators by the Court of Appeal in Competition and Markets Authority v Flynn Pharma Ltd and other companies  EWCA Civ 617, who found that the starting point is that no order for costs should be made against the Competition and Markets Authority when it is bringing or defending proceedings in the Competition Appeals Tribunal and that, whilst that starting point could be departed from where there was a good reason, the mere fact that the regulator had been unsuccessful was not enough. The Supreme Court granted permission to appeal on this issue in December 2020.
Such decisions are based on a recognition that, when bringing prosecutions, regulators are performing a public function of seeking to uphold and maintain the standards of the profession. It is argued that, if regulators were at risk of adverse costs orders, this may have a “chilling effect” and lead to them bringing less prosecutions, to the detriment of the profession and the public.
Historically, respondent solicitors have struggled to fund legal representation and would often be unrepresented in Tribunal proceedings. However, in recent years the SRA has brought prosecutions against larger firms and/or solicitors acting in those firms, who commonly have relevant insurance policies in place to fund defence costs, leading to more lengthy and protracted proceedings with well-resourced respondents and larger claims for costs.
The Facts in Ellen
The SRA brought proceedings against Ms Ellen and Mishcon de Reya, who she was working for at the time, alleging that Ms Ellen and the firm had caused or allowed the firm to provide banking facilities through its client account, in breach of the Solicitors Accounts Rules 2011 and Principle 8 of the SRA Principles 2011. At the time of the relevant transactions Ms Ellen was a relatively junior solicitor and, accordingly, the relevant transactions required authorisation by the partners at the firm. Ms Ellen denied the allegations.
The Tribunal dismissed the allegations against Ms Ellen. The Tribunal has yet to publish its written reasons for the decision, which will follow in due course, however the reporting indicates the allegations against Ms Ellen failed on the basis that (1) she had not caused the relevant payments to be made, given that they had been authorised by the relevant partner; and (2) she had not allowed the payments to be made, on the basis that she personally did not have the authority to allow them.
Ms Ellen’s legal team claimed her legal costs of £534,000, which were funded by insurers, from the SRA, alleging that the claim made against her was legally and factually flawed. The claim for costs was dismissed. Again, the Tribunal’s reasons for dismissing the claim for costs are yet to be published, however it is understood that the Tribunal have stated that the proceedings were “properly brought” and that there was accordingly no reason to depart from the default/starting position.
Whilst, clearly, the Tribunal’s findings will need to be properly considered, it is not immediately clear how proceedings which failed against a solicitor on the basis that she had not caused or allowed the relevant transactions could be said to have been properly brought.
Is it Time to Reconsider the Present Position?
Given the costs that Ms Ellen’s legal team have incurred to date, they may consider that an appeal of the Tribunal’s decision (which does not require permission) makes sense from a purely commercial perspective. If the Tribunal’s decision is appealed the High Court would be able to consider the position again. Whilst Baxendale-Walker/Flynn Pharma remain binding authorities, the High Court may take a different view as to whether the SRA’s claim was properly brought and/or whether there is a good reason to depart from the starting position.
Those who support the status quo will point to a number of recent cases where the Tribunal has ordered the SRA to pay the costs of failed prosecutions. This includes a very recent case where the SRA agreed to pay a Respondent’s costs of £221,000 when it withdrew its case against an individual a month before trial. Other recent Tribunal decisions to award costs against the SRA have been made where cases have been conducted poorly or where prosecutions were based on errors and misunderstandings on the part of the SRA’s Investigation Officer.
As stated above, it is understood that Ms Ellen’s costs were funded by insurers, and from a public policy perspective some may consider that it is preferable that defence costs are borne by insurers rather than the SRA whose costs are effectively funded by the legal profession. It is possible that the level of costs in this case played a part in the Tribunal’s decision. However Respondents will not always be insurance backed and making a decision based on who is best placed to absorb the costs could be criticised as not being legally sound.
In summary, whilst (in the writer’s view) the starting position remains justifiable, there is an argument that the threshold that the SRA is currently required to meet to avoid an order for costs is too low, and is overly protective of the regulator’s position. This is particularly the case in circumstances where the SRA are now only required to prove their case to the civil standard (balance of probabilities) as opposed to the criminal standard (beyond reasonable doubt) which previously applied.
If you have any questions arising from this alert, or for any other regulatory queries, please contact our Partner, Andrew Pavlovic, who specialises in regulatory and professional discipline issues for law firms and partners, high-net-worth individuals, companies, charities and regulators.
Andrew Pavlovic is recognised by Legal 500 UK 2021 & 2022 as a ‘Rising Star’ in the field of professional discipline, and has substantial regulatory experience, having previously acted for the Solicitors Regulation Authority over several years in complex disciplinary proceedings and subsequent appeals.
CM Murray LLP is Ranked Band 1 and Tier 1 for Partnership Law by Chambers and Partners UK and Legal 500 UK, and is recognised as “one of the legal world’s strongest offerings in this area.”
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