Dentons LLP v SRA Money Laundering Regulations Breach
Summary
Dentons LLP v SRA Money Laundering Regulations Breach
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- Dentons UK and Middle East LLP v Solicitors Regulation Authority Ltd
Dentons UK and Middle East LLP v Solicitors Regulation Authority Ltd
[2026] EWCA Civ 508
Dentons UK and Middle East LLP v Solicitors Regulation Authority Ltd
[2026] EWCA Civ 508
Lord Justice Bean (Vice President, Court of Appeal, Civil Division), Lord Justice Jeremy Baker and Lord Justice Zacaroli:
Introduction
- This case concerns the correct interpretation of Principle 7 of the Solicitors Regulation Authority Principles 2011 (“the SRA Principles”):
“7. You must comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and cooperative manner”
and Outcome 7.5 of the Solicitors Regulation Authority Code of Conduct 2011 (“the SRA Code”):
“You must achieve these outcomes:
….
O (7.5) you comply with legislation applicable to your business, including anti-money laundering and data protection legislation”
for the purposes of establishing whether, in disciplinary proceedings against a solicitors’ firm, any breach of the Money Laundering Regulations 2007 will suffice to give rise to a breach of Principle 7 and Outcome 7.5, or whether the Solicitors Disciplinary Tribunal is entitled to consider the seriousness of the breach of the Money Laundering Regulations 2007 (“the MLRs”).
- The appellant, Dentons UK and Middle East LLP, (“the Firm”), appeals against the decision of Lang J (“the Judge”), [2025] EWHC 535 (Admin), allowing an appeal by the respondent, the Solicitors Regulation Tribunal, (“the SRA”), against the decision of the Solicitors Disciplinary Authority ("the Tribunal”) made on 11 March 2024, to dismiss allegations of breach of Principles 6, 7 and 8 of the SRA Principles and failure to achieve Outcome 7.5 of the SRA Code, notwithstanding that it found that the Firm had breached Regulation 14 of the MLRs.
Factual background
- In 2013, the Firm acquired the London office of an international law firm called Salans LLP (“Salans”), as part of a merger of the international practices of the two firms. Mr Chateau of Salans became vice-chairman of the combined global practice following the merger, but he has never been a member of the Firm, and he has never been regulated by the SRA.
- Client A had been a client of Salans since 2008, and following the merger, the Firm inherited the ongoing relationship with Client A. The client relationship partner for Client A at Salans was Mr Chateau. Following the merger, he remained the client partner who oversaw the client relationship between the Firm (and other offices of the global practice) and Client A.
- Soon after he had become their client, the Firm identified Client A as a politically exposed person due to his role as Chair of a national bank. The Firm also knew Client A had substantial property assets in the UK, structured through trusts and foreign companies. The Firm identified Client A and his associated entities and his country as high risk for money laundering.
- In reliance on internet searches and Mr Chateau’s knowledge of Client A’s employment, the Firm issued an Anti-Money Laundering (“AML”) and risk clearance certificate for Client A, dated 25 April 2014, which stated that Client A’s source of wealth was from his employment.
- On or around 24 July 2014 the Firm obtained an “Intelligence Briefing Note” (“the Intelligence Note”) from a private intelligence agency, KCS, which found that the risks associated with Client A were high. It also expressed the opinion that it was “ supremely unlikely ” that Client A had not benefited from the $1 billion that went missing from the bank while he was Chair.
- In the light of the Intelligence Note, the Firm’s General Counsel provided an opinion in which it was stated that,
“… the risks associated with this client are high. I am concerned he has cleaned his reputation online and I find the reports of his involvement in the kidnapping of his wife to set up a political opponent and the theft of $1b from the bank he was Chair of without personal consequences disturbing. This is clearly a person who is protected by the president and appears to be able to act in a way that would bring swift and permanent consequences to anyone else. I feel these immediate risks are of a different nature to the oligarchs who benefited from perestroika and are now legitimatised to an extent internationally (eg Abramovich), though there are also some of those who because of the way they conduct themselves would not be appropriate clients of the firm. It is not my call to determine the firm’s risk appetite on issues like this but I personally don’t think we should be acting for this individual, in particular on his personal financial affairs.”
- Mr Chateau strongly disagreed with the Intelligence Note, and following consideration by the Firm’s Managing Partner, the Firm again issued an AML and risk clearance certificate for Client A, dated 24 September 2014, which stated that Client A’s source of wealth was from his employment.
- The Firm acted for Client A or his associated entities in 38 matters, including the purchase of a property for nearly £8 million in late 2014 and an aborted purchase in 2015 of another property for €95 million (in respect of which the Firm received into and paid out of client account deposit monies totalling €1 million).
- In 2016, Client A was sentenced in a non-EEA country to 15 years’ imprisonment for various crimes including embezzlement and ordered to pay $39 million to the bank of which he had been Chair. No new matters were taken on for Client A after January 2017. In February 2018, Supperstone J. made an unexplained wealth order in the High Court against Client A’s wife.
- In September 2018, the SRA’s Regulatory Manager made a routine visit to the Firm and was informed of a possible report to the SRA being contemplated in relation to a systems failure concerning Client A. She was informed that the Firm had done some property matters for the client, who had wanted to open a bank in the UK, then later been arrested and convicted. The Firm had continued to do some property work but had flags in place against the client and his companies. In two matters, these flags had not activated (by which time the Firm was acting for liquidators). The National Crime Agency (“NCA”) had been in touch with the Firm, which was co-operating.
- Thereafter, the SRA conducted an investigation into the Firm’s dealings with Client A, following which disciplinary proceedings were commenced against the Firm, in which it was alleged that the Firm, while acting for Client A or associated entities, between approximately 1 May 2013 and 24 January 2017, failed at any time to take adequate measures to establish the source of his wealth and/or funds, and that in failing to do so it:
1.1.1 breached Regulation 14 of the Money Laundering Regulations 2007;
1.1.2 breached all or any of Principles 6, 7 and 8 of the Solicitors Regulation Authority Principles 2011;
1.1.3 failed to achieve Outcome 7.5 under the Solicitors Regulation Authority Code of Conduct 2011.
The statutory framework
- The Law Society is empowered to make rules regulating the professional conduct and discipline of solicitors (s.31(1) of the Solicitors Act 1974), and may also make provision to enable such rules to have effect in relation to recognised bodies, including legal services bodies, through which they may practice, (s.9(2) (f) of the Administration of Justice Act 1985).
- As the Firm is a legal services body (s.9 A of the Administration of Justice Act 1985), it is subject to those rules.
- In accordance with the provisions of section 79(1) of the Legal Services Act 2007, the Law Society has delegated the exercise of those powers to the Board of the SRA.
- On 17 June 2011, the Board of the SRA, in exercise of those powers, made the SRA Principles and the SRA Code, both of which formed part of a wider suite of regulatory provisions which the SRA described as the SRA Handbook (“the Handbook”).
- Paragraph 1 of the SRA Principles provides as follows:
“1.SRA Principles
These are mandatory Principles which apply to all.
You must:
- uphold the rule of law and the administration of justice
- act with integrity
- not allow your independence to be compromised
- act in the best interests of each client
- provide a proper standard of service to your clients
- behave in a way that maintains the trust the public places in you and in the provision of legal services.
- comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner.
- 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.
….”
- Paragraph 2 of the SRA Principles provides as follows:
“2.SRA Principles – notes
2.1 The Principles embody the key ethical requirements on firms and individuals who are involved in the provision of legal services. You should always have regard to the Principles and use them as your starting point when faced with an ethical dilemma.
….
2.3 These Principles:
…..
(b) will be breached by you if you permit another person to do anything on your behalf which if done by you would breach the Principles;
…...”
- Under the heading, “ Mandatory provisions ”, the SRA Code provides as follows:
“The following provisions are mandatory:
the outcomes;
……
The outcomes describe what firms and individuals are expected to achieve in order to comply with the relevant Principles in the context of the relevant chapter….”
- Chapter 7 of the SRA Code is headed “ Management of your business ”. Its introductory paragraphs include the statement, “The outcomes in this chapter show how the Principles apply in the context of the management of your business”, and thereafter provides as follows:
“Outcomes
You must achieve these outcomes:
….
O (7.5) you comply with legislation applicable to your business, including anti-money laundering and data protection legislation;
….”
- The relevant parts of the MLRs provided that,
“Application of the Regulations
- —(1) Subject to regulation 4, these Regulations apply to the following persons acting in the course of business carried on by them in the United Kingdom (“relevant persons”) —
….
(d) independent legal professionals;
…..
(9) “Independent legal professional” means a firm or sole practitioner who by way of business provides legal or notarial services to other persons, when participating in financial or real property transactions concerning—
(a) the buying and selling of real property or business entities;
……
and, for this purpose, a person participates in a transaction by assisting in the planning or execution of the transaction or otherwise acting for or on behalf of a client in the transaction
……”.
14. – Enhanced customer due diligence and ongoing monitoring
(1) A relevant person must apply on a risk-sensitive basis enhanced customer due diligence measures and enhanced ongoing monitoring –
(a) in accordance with paragraphs (2) – (4);
(b) in any other situation which by its nature can present a higher risk of money laundering or terrorist financing.
…..
(4) A relevant person who proposes to have a business relationship or carry out an occasional transaction with a politically exposed person must –
(a) have approval from senior management for establishing the business relationship with that person;
(b) take adequate measures to establish the source of wealth and source of funds which are involved in the professional relationship or occasional transaction; and
(c) where the business relationship is entered into, conduct enhanced ongoing monitoring of the relationship.
(5) in paragraph (4) “a politically exposed person” means a person who is –
(a) an individual who is or has, at any time in the preceding year, been entrusted with a prominent public function by –
(i) a state other than the United Kingdom
….
including a person who falls in any of the categories listed in paragraph 4(1)(a) of Schedule 2….”
- On 21 February 2022, the SRA published guidance concerning the obligation upon firms to report breaches of the Money Laundering Regulations to the SRA, entitled, “ Your obligations to report breaches of the AML regulations”, which under the heading, “ Am I required to report breaches of the Money Laundering Regulations?, stated that,
“You must report serious breaches of the money laundering regulations to us……”.
- The SRA Procedure Rules 2011, (“the Procedure Rules”), which came into force on 6 October 2011, set out the manner in which the SRA administered its disciplinary functions in relation regulated persons, including solicitors and recognised bodies.
- The relevant parts of the SRA Procedure Rules 2011 provided as follows:
“ Rule 1: Interpretation
...
SRA finding is a decision that the SRA is satisfied:
(i) that a regulated person (which for the avoidance of doubt, shall include a solicitor) has failed to comply with a requirement imposed by or made under the SA,[Solicitors Act 1974 ], AJA [Administration of Justice Act 1985 ] or the LSA [Legal Services Act 2007 ];
…..
Rule 2: Scope
2.1 These rules govern the procedure for the SRA to:
give a regulated person a written rebuke;
direct a regulated person to pay a penalty;
….
(e) make an application to the Tribunal.
…..
Rule 3: Disciplinary Powers
3.1 The circumstances in which the SRA may make a disciplinary decision to give a regulated person a written rebuke or to direct a regulated person to pay a penalty are when the following three conditions are met:
the first condition is that the SRA is satisfied that the act or omission by the regulated person which gives rise to the SRA finding fulfils one or more of the following in that it:
…..
(iii) was or was related to a failure or refusal to ascertain, recognise or comply with the regulated person’s professional or regulatory obligations such as, but not limited to, compliance with regulatory requirements imposed by legislation or rules made pursuant to legislation, the SRA, the Law Society, the Legal Ombudsman, the Tribunal or the court;
….
(b) the second condition is that a proportionate outcome in the public interest is one or both of the following:
(i) a written rebuke;
(ii) a direction to pay a penalty; and
(c) the third condition is that the act of omission by the regulated person which gives rise to the SRA finding was neither trivial nor justifiably inadvertent.
……
3.6 Nothing in this rule shall prevent the SRA making an application to the Tribunal in accordance with rule 10.
……
Rule 10: Applications to the Tribunal
10.1 The SRA may make an application to the Tribunal in respect of a regulated person at any time, if the SRA is satisfied that:
(a) there is sufficient evidence to provide a realistic prospect that the application will be upheld by the Tribunal;
(b) the allegation to be made against the person under investigation either in itself or in the light of other allegations is sufficiently serious that the Tribunal is likely to order that the person:
(i) be struck off;
(ii) be suspended;
(iii) be subject to an order revoking its recognition;
(iv) pay a penalty exceeding the maximum that can be imposed from time to time by the SRA; or
(v) be subject to any other order that the SRA is not empowered to make; andit is in the public interest to make the application.
…..”
- By the time the SRA commenced its forensic investigation (in January 2020) the SRA’s relevant Regulatory and Disciplinary Procedure Rules were those dated November 2019 (“the SRA Procedure Rules 2019”). By Rule 1.1, the SRA was required to assess any “allegation” which comes to its attention to decide if it should be considered under Rule 3 (which provides for various sanctions to be imposed by the SRA, or for an application to be made to the SDT in respect of the allegation). An allegation is defined in Rule 1.2 as including one that involves a solicitor having committed “professional misconduct” and one that involves a solicitor having committed or been responsible for a “serious breach” of any regulatory obligation, or various other requirements including those under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
- The SRA’s current Guidance in relation to Issuing Solicitors Disciplinary Tribunal Proceedings, first published on 21 September 2017, explains the approach which the SRA takes when deciding whether to issue proceedings in the Tribunal.
- It reflects the Procedure Rules, in that it acknowledges that,
“The Tribunal imposes disciplinary sanctions after making a finding of misconduct. A finding of misconduct is a finding that there has been a serious breach of our Standards and Regulations which apply to the individuals and firms that we regulate”.
- Therefore, when the SRA decides whether to bring proceedings before the Tribunal, one of its key considerations is whether,
“…the conduct is serious enough for the Tribunal to make an order”.
- Furthermore, the Joint Statement from the Solicitors Regulation Authority and the Solicitors Disciplinary Tribunal, on referrals to the SDT, dated 30 January 2023, states that,
“The SRA investigates complaints against solicitors and law firms. If it finds evidence of professional misconduct, the SRA can take action, including fining individuals and firms. However, in some instances, particularly if the SRA’s view is that the misconduct is so serious it requires a solicitor to be prevented from practising, it will refer cases to be heard before the SDT. Only the SDT can suspend or strike-off solicitors, while it also has unlimited fining powers”.
- The Statement acknowledges that,
“There are also cases that will also be best heard by the Tribunal, irrespective of whether the SRA has relevant sanctioning powers. For example,
…..
A serious failure by a law firm to comply with the regulatory framework resulting in harm to individuals (either clients or employees)
….”
- The SRA’s Enforcement Strategy, updated on 12 May 2025, also makes clear that,
“We focus our action on the most serious issues: our codes of conduct confirm that we will take action in relation to breaches which are serious, either in isolation or because they demonstrate a persistent failure to comply or a concerning pattern of behaviour”.
- The Tribunal has jurisdiction to hear and determine any complaint that a recognised body has failed to comply with any rules made by the SRA under the Administration of Justice Act 1985, and may, under s.9(6) and Schedule 2 paragraph 18(2), if it thinks fit, impose one or more of the following sanctions: (a) an order revoking the body’s recognition; (b) a penalty; and (c) a costs order.
Review of the authorities
- The issue as to the correct interpretation of these and other similar conduct rules has been considered by the courts in a number of previous cases.
- In Sharp v The Law Society of Scotland [1984] SC 129 (“ Sharp ”), the Court of Session was asked to consider the effect of s.20(3) of the Legal Aid and Solicitors (Scotland) Act 1949, which provided that, “ Failure to comply with rules made under this section may be treated as professional misconduct ….”. Those rules concerned accounting practices to which solicitors were required to adhere.
- The Law Society of Scotland had brought proceedings against solicitors for breach of the rules, and the Disciplinary Tribunal had construed s.20(3) to mean that a breach of a rule should be held to constitute professional misconduct unless in exceptional circumstances the solicitor was able to satisfy the Tribunal that all reasonable steps had been taken to prevent it.
- On appeal, the Court of Session held that this was a mis-reading of s.20(3), and that whether a breach of the rules amounted to professional misconduct would depend on the gravity of the failure to comply with the rules. The Lord President, Lord Emslie, expressed the matter in this way,
“ Section 20 (3) means precisely what it says. A failure on the part of a solicitor to comply with a relevant rule may be treated as professional misconduct. The subsection introduces nothing new to the law. Such a failure might have been so treated before it was enacted, and it may well be that the true purpose of the subsection is to draw the attention of practitioners to the importance attached to compliance with the rules. However that may be, whether such a failure should be treated as professional misconduct must depend upon the gravity of the failure and a consideration of the whole circumstances in which the failure occurred including the part played by the individual solicitor in question. We have only to add that the Tribunal may have been encouraged to misconstrue section 20 (3) by the way in which the complaint was framed and by the line taken by the fiscal for the complainers.
The second misdirection may be seen in the following passage in the note—"Mr McEwan invited us to apply ourselves to the questions whether the respondents' conduct was 'disgraceful' or 'dishonourable' but in our opinion those questions should be confined to 'common law' charges of professional misconduct and that following the division contained in Cordery on Solicitors, 6th ed., at pp. 509 to 516, a charge founded on a breach of the accounts rules or other practice rules might be regarded as 'statutory' grounds for misconduct and that in such circumstances somewhat different considerations apply." What these "somewhat different considerations" are the Tribunal does not say, and there is no support whatever to be found in Cordery on Solicitors for the view that "professional misconduct" resting upon a breach of rule is different from "professional misconduct" resting upon what the Tribunal describes as "common law" charges. There are certain standards of conduct to be expected of competent and reputable solicitors. A departure from these standards which would be regarded by competent and reputable solicitors as serious and reprehensible may properly be categorised as professional misconduct. Whether or not the conduct complained of is a breach of rules or some other actings or omissions the same question falls to be asked and answered and in every case it will be essential to consider the whole circumstances and the degree of culpability which ought properly to be attached to the individual against whom the complaint is made”.
- In Wingate & Evans v SRA [2018] EWCA Civ 366; [2018] 1 WLR 3969 (“ Wingate ”), this court dealt with appeals from the Solicitors DisciplinaryTribunal concerning alleged breaches of Principle 2, and the meaning of the phrase, “lack of integrity”. However, in the course of his judgment, Jackson LJ, at [105] and [106], made some observations concerning the operation of Principle 6, as follows:
“105. Principle 6 is aimed at a different target from that of Principle 2. Principle 6 is directed to preserving the reputation of, and public confidence in, the legal profession. It is possible to think of many forms of conduct which would undermine public confidence in the legal profession. Manifest incompetence is one example. A solicitor acting carelessly, but with integrity, will breach Principle 6 if his careless conduct goes beyond mere professional negligence and constitutes “manifest incompetence”; see Iqbal and Libby.
- In applying Principle 6 it is important not to characterise run of the mill professional negligence as manifest incompetence. All professional people are human and will from time to time make slips which a court would characterise as negligent. Fortunately, no loss results from most such slips. But acts of manifest incompetence engaging the Principles of professional conduct are of a different order”.
- In SRA v Leigh Day & others [2018] EWHC 2726 (“ Leigh Day ”), the Divisional Court heard an appeal by the SRA from a decision of the Solicitors Disciplinary Tribunal to dismiss allegations of breach of various rules contained in the Solicitors Code of Conduct 2007 and two of the SRA Principles, namely Principles 5 and 6.
- The main issue which the court had to consider was the extent to which, if at all, the degree of seriousness of a solicitor’s alleged conduct was relevant to the determination as to whether there had been a breach of the rules. The court held that, generally speaking, the degree of seriousness of a solicitor’s alleged conduct was relevant to such a determination.
- In the judgment, the issue first arose in relation to Rule 1.06, which was a precursor to Principle 6, and was dealt with at [102], as follows:
“102. Mr Dutton submitted that the majority erred by applying the wrong test in relation to whether Rule 1.06 was breached: in particular, by asking themselves whether MD’s conduct was “so unreasonable” that it amounted to professional misconduct. He said that was an unwarranted gloss on Rule 1.06. That, in our judgment, is an unsustainable criticism (a criticism we also further discuss below). The majority expressly directed themselves at paragraph 141.91 by reference to Rule 1.06; and in so far as they imported notions of reasonableness that plainly was justifiable, given that this was an issue of professional judgment and professional conduct. In this respect, we also found untenable Mr Dutton’s criticism that reference to “misconduct” distracted attention away from the wording of Rule 1.06. But what, we ask, was this allegation then doing before the Tribunal if it was not an issue of misconduct? It is, overall, plain that issues of seriousness and culpability are relevant to the assessment of whether there had been a breach of Rule 1.03 or Rule 1.06”.
- In relation to Principles 5 and 6, the issue was dealt with between [153] – [162], as follows:
“153. Mr Dutton submitted that the majority erred in their approach to Principle 5 and thereby erred in principle. He said (amplifying arguments that, as already noted, he had also raised in other contexts) that the majority had wrongly introduced considerations of professional misconduct instead of simply focusing on whether or not there had been a breach of Principle 5.
- In this regard, he noted that under s. 31 (2) of the Solicitors Act 1974 any person may make complaint to the Tribunal if a solicitor “fails to comply with [the] rules ” (see also s. 32 (3) for failure to comply with accounts and trust rules). It was further noted, that, by s. 44 D (1), disciplinary powers are conferred on the Law Society where it is satisfied, among other things, that there had been a failure to comply with the Act or rules made under it or (emphasis added) that there has been professional misconduct. As for the Tribunal itself, it is empowered, by s. 47 (2), to “make such order as it may think fit”.
- Given the context of this case, and given the finding that there was no negligence, we found this debate to be somewhat arid – indeed, although argued below, it seemed, with all respect, to have become before us on appeal little more than a means adopted for seeking to generate a purported point of law with the aim of overcoming the conventional difficulties in challenging an evaluative judgment, based on the evidence, of a specialist tribunal.
- As we have had cause to ask rhetorically before in this judgment: what was this particular allegation doing before the Tribunal if it was not a matter of professional misconduct? In truth, if such an allegation under Principle 5 is to be pursued before a tribunal then it ordinarily needs to have some inherent seriousness and culpability. It no doubt can be accepted that negligence may be capable of constituting a failure to provide a proper standard of service to clients. But even so, questions of relative culpability and relative seriousness surely still come into the equation under this Principle if the matter is to be the subject of disciplinary proceedings before a tribunal. We do not, we emphasise, say that there is a set standard of seriousness or culpability for the purposes of assessing breaches of the core principles in tribunal proceedings. It is a question of fact and degree in each case. Whether the default in question is sufficiently serious and culpable thus will depend on the particular core principle in issue and on the evaluation of the circumstances of the particular case as applied to that principle. But an evaluation of seriousness remains a concomitant of such an allegation.
- If authority be needed for such an approach, then it can be found not only in the observations of Jackson LJ (in the specific context of Principle 6) in Wingate and Evans (cited above) but also in the decision of the Court of Session in Sharp v The Law Society of Scotland [1984] SC 129. There, by reference to the applicable Scottish legislation and rules, it was among other things held that whether a breach of the rules should be treated as professional misconduct depended on whether it would be regarded as serious and reprehensible by competent and responsible solicitors and on the degree of culpability: see the opinion of the court delivered by the Lord President (Lord Emslie) at page 134.
- We consider that, though the statutory schemes are by no means the same, the like approach is generally appropriate and required for the English legislative and regulatory regime in the treatment of alleged breaches of the core principles. We appreciate that there may be some breaches of some rules - for instance, accounts rules: see, for example, Holden v Solicitors Regulation Authority [2012] EWHC 2067 (Admin) - which can involve strict liability. But that cannot be said generally with regard to all alleged breaches of the core principles coming before the Tribunal; which in our view ordinarily will involve an evaluative judgment and an assessment of seriousness to be made. All that said, in the present case, we repeat that this debate under Principle 5 is particularly sterile, given that the evaluation of the majority was that AC had not even been proved to be personally negligent, let alone that the negligence was such that it constituted professional misconduct (paragraph 145.34).
….
- Likewise there can be no valid criticism of the majority in their conclusion with regard to the alleged breach of Principle 6. Indeed, it in effect followed from the prior conclusion, open to them, that there had been no negligence, let alone such negligence that it constituted professional misconduct. The error made by AC, whilst certainly unfortunate, overall was properly adjudged not to be sufficiently egregious or inexcusable (cf. also the observations of Jackson LJ in Wingate and Evans, cited above) as to constitute a breach of that Principle. The reasons given by the majority were both entirely sufficient and entirely cogent”.
- In Beckwith v SRA [2020] EWHC 3231 (“ Beckwith ”), the Divisional Court was concerned with an appeal by a solicitor from a decision by the Solicitors Disciplinary Tribunal that he had breached Principles 2 and 6. The grounds of appeal included a submission that before determining that a solicitor was in breach of these Principles, the Tribunal had to be satisfied that the alleged conduct amounted to professional misconduct.
- The court rejected the submission, at [14] – [24], as follows:
“14. The first two grounds of appeal are to the effect that the Tribunal erred in its approach to Allegation 1.2 by not first considering whether the allegation amounted to “professional misconduct” and by not then concluding that the Appellant’s actions did not reach the standard of “professional misconduct”. On the Appellant’s submission the notion of professional misconduct provides both a threshold requirement to weed out complaints concerning matters that are insufficiently serious to be the subject of regulatory sanctions, and also provides a boundary to mark the limits of regulatory incursion into conduct that occurs outside work or otherwise in the course of professional life.
- Although we agree that such limits to the scope of professional regulation by the SRA do exist, we do not consider it is appropriate to identify where those limits are by reference to a notion of “professional misconduct”. The notion that the Tribunal should only deal with allegations which amount to “professional misconduct” has superficial attraction. But on closer consideration, this notion disintegrates. What is or is not professional misconduct depends on the rules of the scheme that applies to the profession in hand. Some schemes may describe prohibited conduct by reference to the phrase “professional misconduct” or other similar words – see, for example, the cases referred to below at paragraphs 19 – 22. In such cases, the relevant regulator or tribunal does have to decide whether the conduct alleged can be described as professional misconduct. But other schemes for regulation may not be formulated in this way; they may describe prohibited conduct in other ways. Where that is so, the only question for the relevant regulator or tribunal is whether or not such conduct has occurred, and if so, what penalty should be imposed. One might describe the product of that process as a finding of “professional misconduct”, but that phrase will be no more than descriptive; it will not identify the relevant standard of behaviour which has caused the penalty to be imposed.
- Put another way, whether or not a notion of “professional misconduct” has any part to play in any particular regulatory scheme will depend on the terms in which that scheme has been made. There is no universal principle.
- So far as concerns this appeal, the scope of regulation by the SRA and the Tribunal must depend on the proper interpretation of the standards set out in the Handbook (i.e. the relevant rules made pursuant to section 31 of the 1974 Act), applied in accordance with the procedural rules made for that purpose. At the relevant time, the material parts of the Handbook for the purposes of the Appellant’s case were the 2011 Principles and the 2011 Code of Conduct (which explains the application of the 2011 Principles); and the relevant procedural rules were the SRA Disciplinary Procedure Rules 2011. The standards in the Handbook were not (and are not now) formulated by reference to any defined notion of “professional misconduct”, whether as a threshold requirement for disciplinary action before the Tribunal or otherwise. Whether misconduct alleged is sufficient to engage the jurisdiction of the Tribunal is addressed by Rule 10 of the Disciplinary Procedure Rules. Under that Rule the SRA is permitted to refer a matter to the Tribunal (“make an application to the Tribunal”) only if it is satisfied, among other matters, that the allegation is sufficiently serious that the Tribunal is likely to make an order striking the solicitor from the role, suspending him from practise, or requiring him to pay a penalty greater than the maximum the SRA has the power to impose.
- It is not for this court either to add to that approach or otherwise to reformulate the statutory scheme which has been made under the 1974 Act. There is no basis in law to interpose any additional requirement into the Handbook to the effect that before the Tribunal could act it had to be satisfied that the conduct which amounted to a breach of one or other of the 2011 Principles also amounted to professional misconduct. And even if that were not so, adding such a requirement would only serve to insert unnecessary uncertainty and complexity. In our view, it is essential that the statutory scheme of regulation made in exercise of the powers under the 1974 Act is construed on its own terms, and not by reference to concepts or formulae that are not part of that scheme.
…..
- The judgment in Bar Standards Board v Howd [2017] 4 WLR 54, although closer to home in that it concerns regulation of barristers, nevertheless falls to be treated in the same way. In that case Lang J proceeded on the basis that the Code of Conduct of the Bar (9th Edition) needed to be understood as including a requirement that allegations of misconduct needed to amount to “professional misconduct”: see her judgment at §§49 – 53. We do not, for the purposes of this appeal need to form any view of whether or not that approach was correct. We only observe that it is notable that the relevant edition of the BSB Handbook only used the notion of “professional misconduct” to distinguish between conduct that could appropriately be addressed by imposition of an “administrative sanction” (defined elsewhere in the BSB Handbook), and conduct that needed to be the subject of proceedings before the Bar Disciplinary Tribunal. This seem to us to make it clear that while the Bar Disciplinary Tribunal’s assessment of the seriousness of conduct it has found proved will always be essential to its decision on the appropriate penalty, that scheme had been formulated without need for any free-standing notion of “professional misconduct”.
- While the merits of the judgment in Howd, on its own terms, do not assist for the purposes of the present appeal, we do consider that the observation we have just made also holds good for the Handbook. The Handbook makes no use of the term “professional misconduct” either as a term of art or as a prescribed standard. Although it is readily apparent from Rule 10 of the 2011 Disciplinary Procedure Rules that some notion of professional misconduct is used to distinguish between those matters that can be addressed by the SRA and those which need to be referred to the Tribunal, it is equally clear that for the purposes of proceedings before the Tribunal itself, there is no free-standing requirement that the Tribunal must first decide whether the conduct alleged amounts to “professional misconduct” before going on to consider the application of any of the principles set out in the Handbook.
- This conclusion is supported by the decision of the Divisional Court in Solicitors Regulation Authority v Day [2018] EWHC 2726 (Admin). The Appellant relies on the judgment in that case as supporting his submission that a discrete requirement that the conduct complained of had to amount to “professional misconduct”. The circumstances in which the allegations in Day’s case arose were complicated; they do not require explanation for the purposes of this judgment. The submission for the SRA in Day was that in dismissing complaints made variously under the Solicitors Code of Conduct 2007 and the Handbook, the Tribunal had, when it came to two of those allegations, incorrectly considered whether or not the conduct complained of amounted to professional misconduct. As to the first relevant allegation (under Principle 6 of the 2011 Principles), the court concluded that the Tribunal’s use of the phrase “professional misconduct” had been no more than a proxy turn of phrase for whether or not the relevant principle had been breached (see the judgment of the court at §102). On the second relevant allegation (under Principle 5 of the 2011 Principles – the obligation to “provide a proper standard of service to your clients”) the court said as follows at §§153,155, and 156 [they then set out those paragraphs, which we have cited above].
- Thus, the judgment in Day lends no support for the Appellant’s first two grounds of appeal in this case. Rather, as that judgment makes clear, the requirement on the Tribunal is to apply the substantive rules made under section 31 of the Solicitors Act 1974, as they exist from time to time. In the present case, the Tribunal made no error by not adding the gloss for which the Appellant contends, and not asking, as a free-standing question, whether what the Appellant had done amounted to professional misconduct”.
The Tribunal decision
- The SRA’s case before the Tribunal was that, in its dealings with Client A, the Firm’s failure to comply with Regulation 14 of the MLRs, automatically constituted a breach of Principle 7 and a failure to achieve outcome 7.5 of the SRA Code. Further, it was also sufficiently serious and sustained to amount to a breach of Principle 6 and/or 8.
- The Firm denied all of the allegations. It was the Firm’s case that, in compliance with the MLRs, it took adequate measures to establish Client A’s source of wealth and funds. Further, and in any event, if the Tribunal found that the Firm was in breach of the MLRs, the Firm’s conduct was not sufficiently serious, reprehensible and culpable to warrant a finding that the Firm breached the SRA Principles or the SRA Code, or the imposition of any sanction.
- The Tribunal, having reviewed the evidence, determined that when considering whether there had been a breach of the MLRs, it was necessary to consider whether the measures taken by the Firm to establish Client A’s source of wealth and source of funds, were satisfactory for the purpose in question, which included a requirement of ongoing monitoring of the situation.
- The Tribunal dealt with the potential relevance of the receipt of the Intelligence Note concerning Client A, at [9.370] as follows,
“9.730 The Tribunal agreed that the relevance of the KCS Report was to the Firm’s duty of ongoing monitoring. The Tribunal noted the inconsistencies within the KCS Report, and the fact that, as submitted by Mr Coleman KC, there was no evidence to substantiate the assertions made therein. The Tribunal also agreed with the submission that the Firm had considered the KCS Report with care, (as was evidenced by the contemporaneous communications) and came to the conclusion that it was able to continue acting. This was a matter of professional judgment, and given the content of the Report, was a judgment that the Firm was entitled to make. To the extent that the SRA relied on the KCS Report as evidence of any breach on the Firm’s part as regards its MLR obligations, those were not accepted by the Tribunal. At most, it was found, the KCS Report might have put the Firm on notice that further enquiries were appropriate. However, as detailed, the Firm considered, in reliance on Mr Chateau, that its obligations in that regard had been satisfied. Further, there was nothing in the KCS Report that cast doubt on what the Firm considered to be Client A’s source of wealth or source of funds”.
- The Tribunal determined that the Firm had not been obliged to seek documentary evidence as to the source of Client A’s wealth, and that the Firm’s omission to do so, did not of itself give rise to a breach of the MLRs.
- However, the Tribunal went on to observe that the guidance made clear that the Firm was required to ask Client A questions in order to satisfy the obligation under Regulation 14, and that where a PEP has a higher than normal risk assessment, obtaining information from an independent source might be appropriate.
- The Tribunal determined that:
“9.374 The Firm relied upon the actions of Mr Chateau as regards establishing sources of wealth and funds. The Tribunal accepted that the Firm had, in good faith, relied on the assertions made by Mr Chateau that Client A’s wealth derived from his business activities prior to the acquisition of his shareholding in the Bank, and subsequently his 30% share in the Bank. However, it was clear that Mr Chateau had failed to ask the relevant questions of Client A in order to satisfy the obligations under Regulation 14. As detailed above, Mr Chateau did not ask Client A questions about his wealth or source of funds as “it is not the culture … because we don’t do that in Europe … this is not something we do”.
9.375 Whilst it might have been plain to Mr Chateau that Client A was wealthy, this was not the same as establishing the source from which that wealth arose. Equally, knowledge that Client A was in funds did not equate to establishing source of funds. And establishing the source from which that wealth and those funds arose was what was required by the MLRs.
9.376 The Firm and the other partners who worked on matters for Client A, had all relied on Mr Chateau to have established source of wealth at the outset of the retainer. That this was the case was clear from the interviews with the matter partners and others at the Firm. That erroneous belief meant, the Tribunal found, that the failure to establish source of wealth endured throughout the retainer, including in relation to the purchase of Property 1 and the aborted Purchase of Property 2”
9.377 In failing adequately (or even reasonably) to establish source of wealth, the Tribunal found that the Firm had breached Regulation 14 as alleged.”
- The Tribunal went on to consider whether, having breached Regulation 14 of the MLRs, the Firm had breached Principles 6, 7 or 8, or Outcome 7.5 of the Code.
- Its reasoning for finding that no such breaches had occurred was set out between [9.379 – 9.382], as follows:
“ 9.379 The Tribunal considered with care the case law that it had been referred to by the parties. The Tribunal did not accept that Principle 7 and Outcome 7.5 were, in effect, strict liability. As had been submitted, if that was the case, every breach that failed to comply with applicable legislation, (no matter how trivial or inadvertent) would amount to a breach of Principle 7 and Outcome 7.5.
9.380 The test to be applied was, as had been submitted, whether the breach was serious, reprehensible and culpable such that it amounted to professional misconduct.
9.381 The Tribunal accepted that whilst the breach was enduring, it had been inadvertent. As detailed above, the Firm had relied on what it was told by Mr Chateau, in the belief that Mr Chateau had complied with Regulation 14. It was plain that the breach was not systemic, indeed, the Firm had been commended by the SRA for its AML systems and controls. Those systems and controls had been deployed by the Firm for each of the Property Transactions. It was clear that the Firm not only had relevant and responsible AML policies in place, but that it enforced those policies.
9.382 The Tribunal found that in all the circumstances, the breach did not amount to a breach of the Principles or Code as alleged; the breach was entirely inadvertent and thus fell within the small category of cases where wrongdoing did not amount to professional misconduct. Accordingly, the Tribunal dismissed allegations 1.2 and 1.3”.
- Having found that there were no breaches of the SRA Principles or the SRA Code, the Tribunal proceeded to dismiss the case against the Firm as follows:
“9.383 As allegation 1.1 was not a stand-alone allegation as regards professional misconduct, (the Tribunal therefore having no jurisdiction in that regard save for its factual findings) the Tribunal dismissed the matter”.
- The Tribunal also refused the SRA’s application for costs, observing, at [16], that it agreed in full with the submissions which had been made to it on behalf of the Firm, which included the submission that the SRA had not followed its own guidance in bringing the prosecution.
The High Court decision
- The SRA appealed to the High Court against the Tribunal’s decision to dismiss the case on the basis that the Tribunal had erred in determining that there had been no breaches of either Principle 7 or Outcome 7.5 of the Code.
- It was submitted that the Tribunal had:
i. misdirected itself that there was an additional or threshold requirement for the SRA to prove i.e. that the Firm’s breach of Regulation 14 of the MLRs was “ serious, reprehensible and culpable such that it amounted to professional misconduct ”.
ii. failed to have regard, or give effect to the wording and purpose of the MLRs, Principle 7 and Outcome 7.5.
- It was submitted that the Tribunal had erred in relying upon Leigh Day to establish that there was an additional requirement to prove that the Firm’s breach of Regulation 14 of the MLRs amounted to a breach of Principle 7 and Outcome 7.5. It was pointed out that Leigh Day concerned alleged breaches of Principle 5 and 6, and that the Tribunal had not mentioned Beckwith in its decision, which it was submitted was authority for the proposition that the Tribunal should not ask itself, as a free-standing, additional or threshold question, whether any factual allegations they found amounted to “ professional misconduct ”. Instead, the Tribunal’s function was to determine whether the Principles or Code had been breached, and there was no additional requirement that such a breach was serious enough to amount to “ professional misconduct ”.
- It was submitted that the Tribunal’s decision was inconsistent with the wording of Principle 7 and Outcome 7.5, which was unambiguous, and required the regulated person to comply with their legal obligations. It was submitted that as the Tribunal had found that the Firm had not complied with its legal obligations by being in breach of Regulation 14 of the MLRs, it followed that the Firm had breached Principle 7 and Outcome 7.5.
- In any event, it was submitted that had there been any ambiguity in the wording of Principle 7 and/or Outcome 7.5, the Tribunal’s approach would undermine the purpose of the MLRs, the SRA Principles and the SRA Code, as the purpose of the MLRs was to detect and prevent money laundering and terrorist financing, whilst the purpose of Principle 7 and Outcome 7.5 was to ensure that law firms took responsibility for complying with anti-money laundering regulations.
- It was submitted that the Tribunal had been wrong to describe the SRA’s approach to Principle 7 and Outcome 7.5, as imposing “ strict liability ”. In the event that the relevant legal and regulatory obligations imposed on a regulated person required a particular mens rea, then the regulated person would only breach Principle 7 and/or Outcome 7.5 where the necessary mens rea was established; whereas, if the relevant legal and regulatory obligations did not require a particular mens rea, only a certain act or omission, then it was Parliament, not the SRA Principles or the SRA Code which had created an offence of strict liability.
- In any event, Regulation 14 of the MLRs could not properly be described as an offence involving strict liability, as it required the Firm to take “ adequate measures ” to establish the client’s source of wealth and source of funds, which called for an objective assessment as to whether the measures were adequate.
- Moreover, given the potential seriousness of money laundering to society, which the MLRs were designed to combat, no breach of the MLRs could properly be described as being “ trivial ” and certainly not one which involved the passing of millions of pounds passing through the Firm’s client account.
- It was submitted that the “ appropriate way ” for a Tribunal to respond to a “ trivial or inadvertent ” breach of other types of legislative or regulatory obligations, such as a solicitor having driven slightly in excess of the speed limit, would be to impose no sanction upon a regulated person who had thereby been found to be in breach of Principle 7. In any event, the regulated person would not be referred by the SRA to the Tribunal, as there would be no realistic prospect of the Tribunal imposing a sanction upon them.
- In the event that the appeal was allowed, the SRA did not invite the court to remit the case to the Tribunal, as it had made all the necessary factual findings. Instead, as the Tribunal had found that the Firm had breached Regulation 14 of the MLRs, it would follow that the Firm had also breached Principle 7 and Outcome 7.5. The only other issues would be whether there was also a breach of Principles 6 and/or 8, what order to make in relation to sanction and costs.
- On behalf of the Firm, it was submitted that the Tribunal had upheld the allegation of breach of Regulation 14 of the MLRs on a much narrower basis that the SRA had alleged, in that the Tribunal had found that the Firm had relied upon Mr Chateau having asked Client A about his source of wealth when unbeknown to the Firm he had not done so; a breach which was both inadvertent and made in good faith.
- Moreover, the breach was not systematic, as the Firm had appropriate AML policies in place and enforced them. No documentary evidence was required to prove Client A’s source of wealth, and the Intelligence Note had been considered with care by the Firm which was entitled to reach the reasonable conclusion that they could continue to act for Client A.
- It was pointed out that the SRA was not seeking to challenge any of the Tribunal’s findings of fact, which it was submitted included the Tribunal’s evaluation that the Firm’s breach of Regulation 14 of the MLRs was not “ serious, reprehensible and culpable such that it amounted to professional misconduct ”.
- Nor was the SRA seeking to challenge the Tribunal’s rejection of the allegations that the Firm had breached Principles 6 and 8.
- It was submitted that the decision in Leigh Day is authority for the proposition that in general, as the SRA Principles and the SRA Code concern the regulation of professional conduct, alleged misconduct will only amount to a breach of the SRA Principles and/or the Code if it is sufficiently serious, reprehensible and culpable to warrant a finding of professional misconduct.
- It was submitted that, properly understood, this approach is in accordance with Beckwith, with the pre-existing common law approach to professional misconduct, and with normal rules of statutory interpretation, as the SRA Principles and the Code are required to be interpreted in accordance with the SRA’s own guidance as to the circumstances in which disciplinary action was justified, which itself involved an assessment of the seriousness of the alleged misconduct.
- It was submitted that in this context, as Principle 7 and Outcome 7.5 form part of the ethical code regulating the professional conduct of solicitors, alleged misconduct would only amount to a breach of Principle 7 and/or Outcome 7.5 if it was sufficiently serious, reprehensible and culpable to amount to professional misconduct.
- Accordingly, it was submitted that the Tribunal had not erred in its approach to the assessment as to whether the Firm was in breach of Principle 7 and Outcome 7.5, and that having found that the Firm’s breach of Regulation 14 of the MLRs was not sufficiently serious, reprehensible and culpable as to amount to professional misconduct, the Tribunal’s decision that the Firm was not in breach of Principle 7 or Outcome 7.5 was correct, and the appeal should be dismissed.
- In the course of her careful judgment, and having reviewed the authorities to which she had been referred, in particular Leigh Day and Beckwith, the Judge concluded that the Tribunal had erred in its approach to the interpretation of Principle 7 and Outcome 7.5, in that beyond establishing that the Firm was in breach of Regulation 14 of the MLRs, there was no requirement for the Tribunal to be satisfied that the breach was sufficiently serious, reprehensible or culpable so as to amount to professional misconduct.
- In allowing the SRA’s appeal against the Tribunal’s decision, the judge explained her reasons for doing so, between [68] – [79], as follows:
“68. In my judgment, following Leigh Day and Beckwith, there is no universal requirement that breaches of the Principles and the Outcomes can only be established where the requirements of seriousness, culpability and reprehensible conduct are met. Such requirements only arise where they are inherent in the rule in question.
- The natural and ordinary meaning of the relevant words in Principle 7, in their statutory context, is that legal and regulatory obligations must be complied with, and there will be a breach of Principle 7 if they are not complied with. Similarly, the natural and ordinary meaning of the relevant words in Outcome 7.5 is that legislation applicable to a business, including anti-money laundering legislation, must be complied with, and there will be a breach of Outcome 7.5 if it is not complied with.
- In this case, for the purposes of establishing a breach of Principle 7 and Outcome 7.5, the only evaluation that was required was whether or not the Firm had complied with Regulation 14 of the MLRs 2007. That required consideration as to whether the Firm had “taken adequate measures to establish the source of wealth and source of funds” (Regulation 14(4)(b)) and whether it had conducted “enhanced ongoing monitoring of the relationship” (Regulation 14(4)(c)). The Tribunal undertook this evaluation and concluded that the Firm was in breach of Regulation 14 because it had failed “adequately or even reasonably” to establish Client A’s source of wealth (Judgment/9.377).
….
- There is a clear contrast between Principle 7 and Outcome 7.5 on the one hand, and Principles 6 and 8 on the other. The SRA rightly conceded in its Reply to the Respondent’s Answer, paragraph 12, that considerations of seriousness were relevant to Principle 6 (public trust) and Principle 8 (effective performance of role). It was inherent in the language and content of Principles 6 and 8 that the Tribunal were able to consider the additional requirements of seriousness, culpability and reprehensible conduct.
- In Leigh Day, the Divisional Court said, at [158], that there may be some breaches of some rules, for instance Accounts Rules, which can involve strict liability. The Accounts Rules 2019 are made pursuant to specific rule-making powers concerning accounts (sections 32, 33A, 34 and 37 of the Solicitors Act 1974, section 9 of the Administration of Justice Act 1985, and section 83(5) (h) of, and paragraph 20 of Schedule 11 to, the Legal Services Act 2007). They are not conduct rules. All of the principals in a firm have joint liability for breaches of the Accounts Rules in order to provide the public with maximum protection in respect of money held by solicitors and firms (see The Professional Conduct and Etiquette of Solicitors (1960), Weston v Law Society, unreported, 29 June 1998, and Holden v Law Society [2012] EWHC 2067 (Admin) at [16] to [20]). 74. 75.
- In disciplinary proceedings, the effect of a breach of Regulation 14 of the MLRs 2007 is comparable to the effect of a breach of the Accounts Rules. The MLRs 2007 were also made pursuant to specific rule-making powers and they are not conduct rules. Whilst Regulation 14 does not create an offence of strict liability, a breach of Regulation 14 is contrary to the professional standards of the profession, without the requirement of any further fault on the part of a firm, and in that sense it applies a strict liability standard. In my view, the MLRs 2007 are another example of the type of rule referred to in Leigh Day at [158] which are an exception to the general rule.
- The rationale of a regulatory provision of this type is helpfully explained by Gould, in Chapter 4. He sets out his overall view in the introduction at 4.1 – 4.2, that a rule breach may justify a significant penalty for the purposes of deterrence and public confidence without the need to show that any individual is culpable or that systems are inadequate. Although he accepts at 4.9 that most rules are drafted in terms which require misconduct in order to be breached, he states as a general proposition that some rules may be breached without the need for fault on the part of the entity or person responsible for compliance with them. He cites Hazelhurst v Solicitors Regulation Authority [2011] EWHC 462 (Admin) which was an appeal against sanctions imposed for breach of the Accounts Rules, in which it was common ground that they were strict liability offences, per Nicola Davies J. at [29], [43]. It was cited with approval in Bass v Solicitors Regulation Authority [2012] EWHC 2012 (Admin). Then at 4.16 to 4.21, Gould argues that a firm’s liability may arise from the breach of rules by an employee, without fault on the part of the firm or its principals, and refers to breaches of the Accounts Rules in support of this view, at 4.16 and 4.17.
- I do not consider that the results of the SRA’s interpretation of Principle 7 and Outcome 7.5 are anomalous or unfair or disproportionate, as Mr Coleman KC submits, but if that is the view of the profession and the regulator, then the solution lies in an amendment to these rules which limits their application to conduct which is considered to be serious, culpable and reprehensible.
- I agree with Mr Coleman KC that the stigma of an adverse disciplinary finding is a serious matter, in addition to a finding of a breach of anti-money laundering legislation. However, the SRA guidance, set out above, indicates that only serious breaches of the anti-money laundering legislation will progress to disciplinary proceedings which is a safeguard against over-zealous enforcement. Trivial breaches will not be prosecuted.
- Mr Coleman KC relies upon the Tribunal’s findings that the Firm’s breach of the MLRs 2007 was inadvertent and committed in good faith. It had mistakenly believed that prior to the merger Mr Chateau had already asked Client A about the source of his wealth (as he ought to have done) when in fact he had not. The Tribunal found that the breach was not systemic; that the SRA had commended the Firm for its anti-money laundering systems and controls which had been deployed for each of the property transactions in issue; and that the Firm not only had relevant and responsible anti money laundering policies in place, but it also enforced them.
- I agree that these were important considerations but in my judgment, they were factors properly to be taken into account by way of mitigation, when determining sanction. They did not justify dismissal of the allegations when there was a clear breach of the MLRs 2007.
….”
- The Judge proceeded to consider what order to make, and determined that the Tribunal’s decision must be quashed, and that the case should be remitted to a freshly-constituted panel for re-consideration. As to the extent of the issues which would have to be determined, the Judge concluded as follows:
“83. It is not possible to preserve some parts of the Tribunal’s decision and not others because of the way in which the decision was drafted, and the extent to which the mistaken approach of the Tribunal influenced the decision as a whole. Therefore the decision will be quashed in its entirety. I note that the SRA may wish to rely on the Tribunal’s factual findings, to avoid unnecessary repetition. It is open to the parties to invite the new panel to proceed on an agreed set of facts, and those can be the facts found by the Tribunal, amended, as necessary. The SRA’s Grounds of Appeal to this Court did not include a challenge to the Tribunal’s decision that there was no breach of Principles 6 and 8, and that issue was not argued before me. If these allegations are pursued by the SRA, they will have to be determined by the new panel. Clearly, the issue of sanction will also have to be re-determined by the new panel, in the light of my judgment and any conclusions on Principles 6 and 8”.
- In so far as costs were concerned, the judge determined that the SRA should be entitled to its costs both of the appeal, and before the Tribunal, as,
“83…….The Tribunal’s decision to make no order for costs was based on conclusions which have been successfully challenged”.
Grounds of appeal and submissions for the Firm
- The Firm appeals, with permission, against the Judge’s decision on the basis of four grounds of appeal:
i. The Judge was wrong to hold that the unchallenged finding of the Tribunal, that the Firm’s breach of the MLRs was not serious, reprehensible or culpable such as to amount to professional misconduct, did not justify the Tribunal’s decision to dismiss the allegation that the Firm had breached Principle 7 and Outcome 7.5;
ii. Alternatively, in the event that the first ground of appeal was dismissed, the Judge was wrong to quash the entirety of the Tribunal’s decision and remit the case to a differently constituted panel for reconsideration and/or the decision was unjust for procedural irregularity;
iii. In any event, the Judge was wrong to include within the scope of the matters remitted to the differently constituted panel, the question whether the Firm had breached Principles 6 and 8 and/or the decision was unjust for procedural irregularity;
iv. The Judge was wrong to determine that the Firm should pay the SRA’s costs of the proceedings before the Tribunal.
- In support of the first ground of appeal, the Firm prays in aid of many of the submissions which had been made on its behalf in the High Court proceedings, in response to the SRA’s grounds of appeal against the Tribunal’s decision.
- In summary, it is submitted that considerations of seriousness, reprehensibility and culpability are, as the Divisional Court held in Leigh Day, inherent in the SRA Principles and the Code, and the Tribunal was entitled to take them into account when applying them to their findings of fact and determining whether breaches of those SRA Principles or Outcomes should be upheld.
- Although it is acknowledged that, exceptionally, there may be rules where liability may be strict, namely the SRA’s accounts rules, those rules are made pursuant to different rule-making powers, and that, unlike Principle 7 and Outcome 7.5, they do not form part of the SRA’s rules regulating the professional conduct of solicitors and firms. Therefore, there is no principled reason for treating Principle 7 or Outcome 7.5 as a further exception to the general rule stated in Leigh Day, as they are part of the SRA’s rules regulating the professional conduct of solicitors and firms.
- It was submitted that in construing the SRA Principles and Code, although the starting point is the natural and ordinary meaning of the words, the presumption in favour of the grammatical meaning may be outweighed by other interpretative factors. It is pointed out that according to Bennion, Bailey and Norbury on Statutory Interpretation (8th ed.) those factors may include the legal context in which the legislative instrument was enacted including the common law, the consequences of adopting a particular construction and whether it will give rise to anomalous results and unjustifiable inconvenience to the persons affected, and the legal policy that the law should be just and that the status or reputation of a person should not be impaired except under clear authority of law.
- It is pointed out that Principle 7 and Outcome 7.5 are part of a set of ethical rules regulating the profession, and that various aspects of the SRA’s own guidance requires the seriousness of the alleged misconduct to be taken into account. At common law, the Court’s inherent jurisdiction to discipline solicitors requires serious misconduct to be established before it is considered to amount to professional misconduct. Moreover, conflating the grammatical meaning of Principle 7 and Outcome 7.5 with the legal meaning would give rise to undesirable consequences, in particular, solicitors and firms would suffer the reputational stigma attaching to findings of professional misconduct, even for trivial offences e.g. road traffic offences.
- In relation to the second ground of appeal, it is pointed out that the SRA had not sought to appeal against the findings of fact made by the Tribunal, and that the SRA had not invited the Judge to remit the case to the Tribunal, as it had made all the necessary factual findings. It is submitted that the extent of the SRA’s criticism of the Tribunal’s decision was that it had wrongly interpreted Principle 7 and Outcome 7.5, in that notwithstanding the Tribunal’s finding that the Firm’s conduct had not been serious, reprehensible or culpable, the Tribunal ought to have found that the Firm was in breach of Principle 7 and Outcome 7.5. In these circumstances, the Judge ought to have limited the granting of relief to overturning the Tribunal’s decision not to find that the Firm was in breach of Principle 7 and Outcome 7.5, and proceeded to consider what if any sanction was required on the basis that the breaches were neither serious, reprehensible or culpable.
- Moreover, it is submitted that the Judge’s decision to remit the case to the Tribunal was vitiated by procedural unfairness, as although the Judge had given the parties the opportunity to make submissions regarding consequential relief, she had not indicated that she was considering departing from the agreed position of the parties that a retrial of the facts was not required. Indeed if the order is maintained, the Firm would argue that it is entitled to challenge the Tribunal’s finding that the Firm was in breach of Regulation 14 of the MLRs.
- Likewise in relation to the third ground of appeal, it is pointed out that not only had the SRA not sought to challenge the Tribunal’s interpretation of Principles 6 and 8, namely that only serious, reprehensible and culpable conduct on the part of the Firm would be sufficient to found a breach of those Principles, but this interpretation had been accepted by the Judge.
- In these circumstances, it is submitted that the judge was wrong to have included within the scope of the issues which were to be remitted to the Tribunal to consider, the issue as to whether the Firm was in breach of Principles 6 and 8. Moreover, as the Judge had not indicated that she was considering including this issue within the scope of the issues which would be remitted to the Tribunal to consider, her decision to do so was vitiated by procedural unfairness.
- In relation to the fourth ground of appeal, it is submitted that as the Judge had remitted the entirety of the case to the Tribunal, it would be open to the Tribunal to find that the Firm was not in breach of any of the matters alleged against it by the SRA. In these circumstances, it would be wrong for the Firm to have to pay the costs of the original Tribunal proceedings, as its decision to dismiss the matters against the Firm would be found to have been correct. Therefore, in the event that the Judge was correct to have ordered the case to be remitted to the Tribunal for reconsideration, the appropriate order for costs would have been for any decision as to costs to be reserved to the Tribunal.
Submissions for the SRA
- The SRA resists the appeal, and submits that the Judge was correct to find that a breach of the Firm’s regulatory obligations, including a breach of Regulation 14 of the MLRs, was sufficient in itself to amount to a breach of Principle 7 and Outcome 7.5, and that there was no requirement for the regulatory breach to be serious, reprehensible or culpable.
- It is submitted that this approach was in accordance with the grammatical meaning of Principle 7 and Outcome 7.5, and that there were no sufficient interpretative factors which ought to have led to any other conclusion, including that contended for on behalf of the Firm, namely that only serious, reprehensible and culpable breaches amounting to professional misconduct would be capable of leading to a breach of Principle 7 and/or Outcome 7.5.
- It is submitted that when it drafted Principle 7 and Outcome 7.5, the SRA was under a statutory duty, pursuant to section 28(2) (b) of the Legal Services Act 2007, to act in a way which it considered the most appropriate for the purpose of meeting the regulatory objectives set out in section 1(1), including the promotion and maintenance of professional principles, and the protection and promotion of the public interest which, in the present case, would include the prevention and detection of economic crime. Furthermore, the SRA was under a statutory duty, pursuant to Regulation 24(1) of the MLRs, to take necessary measures for the purpose of securing compliance with the requirements of the MLRs. It is submitted that these objectives and purpose are advanced by requiring firms to adhere strictly to their legal obligations.
- It is submitted that to seek to import common law concepts of what comprises professional misconduct is not warranted, given the comprehensiveness of the SRA’s Handbook and guidance, of which the SRA Principles and SRA Code form an integral part, and that to do otherwise would have the effect of creating uncertainty and diluting the high ethical standards which they seek to uphold. In this regard it was pointed out that the wider context in which Principle 7 and Outcome 7.5 operate contain various safeguards against their application in an unjust or disproportionate manner, including the fact that Principle 7 does not extend into the private life of a solicitor, and the focus upon serious issues within the SRA enforcement strategy.
- In relation to Leigh Day, it is pointed out that this was a first instance decision which does not bind this court. In any event, the decision had to be understood within the context of the particular Principles which were involved, which did not include Principle 7 or Outcome 7.5. It was pointed out that the Divisional Court accepted that some of rules applicable to solicitors may reflect strict liability. Moreover, it was submitted that, as was recognised in Beckwith, there is no universal requirement that breaches of the SRA Principles could only be established where the requirements of seriousness, reprehensibility and culpability are met and that such requirements only arise whether they are inherent in the rule in question.
- In response to the second ground of appeal, it is submitted that the Judge was correct to find that it was not possible to preserve some parts of the Tribunal’s decision and not others because of the way in which the decision was drafted, and the extent to which the mistaken approach to the interpretation of Principle 7 and Outcome 7.5 influenced the decision as a whole.
- In that regard, it is pointed out that the factors to which the Tribunal has to have regard under the Solicitors Disciplinary Tribunal’s Guidance Note on Sanction, does not align with the concept of serious, reprehensible and culpable breaches. Moreover, the Judge was already in receipt of detailed submissions in relation to consequential relief, such that there was no procedural irregularity arising from the order made by the Judge.
- Likewise with the third ground of appeal, it is submitted that the Judge was correct to include within the issues for redetermination by the Tribunal, the questions as to whether the Firm had breached Principles 6 and 8. As a result of the erroneous approach to Principle 7 and Outcome 7.5, the Tribunal had been led into making factual findings which were not of sufficient relevance to a proper consideration of Principles 6 and 8.
- Finally, in relation to the fourth ground of appeal, it is submitted that even if the allegations against the Firm were to be dismissed by the Tribunal on reconsideration, the original proceedings incurred substantial unnecessary costs due to the erroneous approach to interpretation which had been submitted on behalf of the Firm, which ought to be recoverable from the Firm.
Discussion
- We agree with the Divisional Court in Leigh Day when they rejected the suggestion that there is a set standard of seriousness or culpability for the purposes of assessing a breach of the core Principles in SDT proceedings; that it is a question of fact and degree in each case; and whether the default in question is sufficiently serious and culpable will depend on the particular core Principle in issue. Some of the Principles inherently involve seriousness and culpability, the most obvious is Principle 2, requiring solicitors and firms to act with integrity. Close to this is Principle 6, requiring solicitors and firms to behave in a way that maintains public trust.
- Lang J held that, following Leigh Day and Beckwith, there is no universal requirement that to establish a breach of the Principles the relevant behaviour must be “serious, culpable and reprehensible”, but that “such requirements only arise where they are inherent in the rule in question”. However, she went on to accept the SRA’s submission that the natural and ordinary meaning of the words in Principle 7 is that legal and regulatory obligations must be complied with, and that there will be a breach of Principle 7 (and Outcome 7.5) if they are not. We will refer to this as the grammatical interpretation.
- We were told that the SRA’s skeleton argument before the judge contended that on its proper, grammatical interpretation, Principle 7 included any breach of the law of any kind – for example, a speeding offence. Mr Ozin told us that he had not drafted the relevant skeleton argument, and had not pursued this stance before the judge, conceding (as he did before us) that a minor breach of the law which has nothing to do with being a solicitor is not within the scope of Principle 7.
- But that concession does not narrow the broad reach of the grammatical argument to any great extent. We put the following hypothetical to Mr Ozin. Suppose that a solicitor’s firm owns the office premises from which it practises, and that following a health and safety inspection the premises are found not to be equipped with appropriate firefighting equipment which the employer is required by Regulations to maintain. If the SRA chose to bring a case before the SDT, would the Tribunal (assuming no dispute as to the primary facts) be bound to find a breach of Principle 7 established? Mr Ozin replied that it would. If the grammatical interpretation is correct, then that result would indeed follow from it. Moreover, it seems clear that the SDT, like a judge or bench of justices in the criminal courts, has no power to refuse to hear an allegation on the grounds that it is not sufficiently serious to occupy their time. There is provision under the Tribunal’s Procedure Rules for a solicitor member of the SDT to dismiss an allegation that there is no case to answer (on the lines of the Galbraith test in criminal law but at an earlier stage of the proceedings) but that is a different point.
- We reject the grammatical interpretation of Principle 7, for two reasons: (a) the very substantial departure which it would represent from the common law definition or description of misconduct by a solicitor; (b) the inconsistency of such an interpretation with the SRA’s own Procedural Rules and with section 28(3) of the Legal Services Act 2007.
- A classic and much cited decision of this court is In re a Solicitor [1972] 1 WLR 869. Lord Denning MR said:
“Mr Owen has quoted cases to show that professional misconduct should only be found when the solicitor has been guilty of conduct which is disgraceful or dishonourable and is such as to be condemned by his colleagues in the profession. I do not think that definition is exhaustive. In my opinion negligence in a solicitor may amount to professional misconduct if it is inexcusable and such as to be regarded as deplorable by his fellows in the profession.”
- Lord Denning, having cited the New Zealand Court of Appeal decision of In re M [1930] NZLR 285 – notably, the only authority referred to in the judgments– went on to use the word “reprehensible” (twice) to describe the conduct of the appellant solicitor. The adjectives “inexcusable”, “deplorable” and “reprehensible” were in effect being treated as interchangeable. What we derive from the case is that at common law mere negligence was not enough; there had to be an element of seriousness calling for professional censure.
- Walker v Bar Standards Board was a decision of the Visitors to the Inns of Court (Sir Anthony May, former President of the Queen’s Bench Division, in the chair) considering an appeal by a barrister from a decision of the Bar Standards Board Disciplinary Tribunal. The Visitors were considering paragraph 901.7 of the Code of Conduct of the Bar of England and Wales, which provided that:-
“Any failure by a barrister to comply with any provision of this Code other than those referred to in paragraph 901.1 above shall constitute professional misconduct”
- It was agreed that on a literal interpretation and application of this paragraph, (with the exception of matters referred to in paragraph 901.1 which concerned non-compliance with obligations rendering the barrister liable to a written warning and/or a fixed financial penalty of £300):-
“Any other breach of the Code, however trivial, would constitute professional misconduct. That cannot, in all conscience, be correct. The parties are agreed, and so was the Tribunal, that some modulation of the literal interpretation and effect of these provisions is required. The underlying reason why this is, as we accept, required is because consistent authorities… have made clear that the stigma and sanctions attached to the concept of professional misconduct across the professions generally are not to be applied for trivial lapses and, on the contrary, only arise if the misconduct is properly regarded as serious.”
- Later in the judgment the Visitors, explaining why in their judgment the literal effect of paragraph 907.1 required modification, said that “the reason for this is [that] the concept of professional misconduct carries resounding overtones of seriousness, reprehensible conduct, which cannot extend to the trivial.”
- Mr Ozin is right to say that professional rulebooks, like other secondary legislation, should be interpreted on their own terms, and do not necessarily represent a mere codification of the previous position at common law or under a different set of rules. Nevertheless, it would be very surprising if, after the SRA had replaced the Law Society as de facto regulator of the solicitors’ profession, the inclusion of Principle 7 in the 10 Principles was intended to bring about a radical expansion in the scope of the disciplinary regime. There is no dispute that the common law concept of misconduct by a solicitor was as described by Lord Denning MR in the 1972 case which we have cited: that is to say, a considerable level of seriousness was required. If that position was to be changed, whether in 2007 or 2011, we would have expected it to be much more clearly signposted. Indeed, a radical expansion in the scope of the disciplinary regime to include breaches of any legal or regulatory requirement, with no regard to seriousness, would have been inconsistent with s 28(3) (a) of the Legal Services Act 2007, which instructs approved regulators to have regard to “ the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed”.
- We note also that the SRA Procedure Rules 2019 imposed a threshold condition of seriousness before an allegation of breach of a regulatory obligation required consideration by the SRA (replacing the previous equivalent condition under the 2011 Rules that the breach was neither trivial nor justifiably inadvertent). Further, the 2017 Guidance on the issue of SDT proceedings and the SRA’s 2025 enforcement strategy both refer to seriousness as an important factor. If there was indeed an unheralded expansion on the scope of the regulatory regime in 2011, it was subsequently reversed. We have not been shown any policy documents which would explain either of these apparent changes of direction, if the grammatical argument were indeed correct.
- Having said that, we turn to the two important Divisional Court cases cited to us concerning the interpretation of the SRA Principles.
- The Leigh Day case, from which we have already cited, was a long and factually complex disciplinary case brought against the firm of Leigh Day, its senior partner, Martyn Day, another partner, Sapna Malik, and a solicitor, Anna Crowther, who at the material time had been a trainee. For present purposes it is instructive to focus on the allegation against Ms Crowther of breach of what are now Principles 5 and 6. She had destroyed an original document comprising a hand-written English translation of the Arabic version of a document (known as the OMS Detainee List), which was of evidential significance to the relevant public inquiry. We note the significance of the findings of fact by the majority of the SDT, recorded at paragraph 148 of the judgment of the Divisional Court. First, the original OMS Detainees List was left untouched. Second, before disposing of the manuscript translation (which she described as scruffy and difficult to read), Ms Crowther typed up an exact copy of that translation for the assistance of the Inquiry and which was duly handed over in due course. Third, Ms Crowther had no intention whatsoever of misleading or of depriving the Inquiry of a relevant document. The majority expressly found that Ms Crowther had not been negligent at all, let alone negligent to an extent such as to constitute professional misconduct. They further found that public trust in the profession had not been diminished by the actions of Ms Crowther.
- This was the context in which the Divisional Court made their observations at paragraphs 156-158 of their judgment, which we have cited above. They held that if an allegation of breach of the Principle 5 duty to provide a proper service to the client is to be pursued before a tribunal then it ordinarily needs to have some inherent seriousness and culpability. Mr Ozin accepted that proposition, but pointed out that Principle 5 includes the adjective “proper” – so that, as he put it, “one can see why” the SDT found that some inherent seriousness was involved. This supposed distinction between Principle 5 and Principle 7 takes the grammatical argument to extremes. It would be illogical and anomalous that an allegation of failure to provide a proper standard of service should require some inherent seriousness and culpability if it is to be brought before the SDT, whereas a failure to comply with any legal or regulatory provision, however minor, automatically amounts to a breach of Principle 7 and must be held to be such if the SRA chooses to bring it before the Tribunal.
- It was common ground before the judge that Leigh Day and Beckwith were not in conflict because Beckwith was addressing the argument that there was a threshold requirement of professional misconduct. We agree. In Beckwith the appellant was a partner in the firm of Freshfields Bruckhaus Deringer. He had engaged in sexual activity at the home of a female employee of the firm over whom he was in a position of seniority and authority, in that he was her supervising partner and appraisal partner. This was alleged to be a breach of Principle 2 and of Principle 6. The SDT found that his actions were a breach of both those Principles. The main ground of appeal to the Divisional Court was that the tribunal should first have considered whether the undisputed facts amounted to “professional misconduct”. The court observed at [14] that on the appellant’s submission, the notion of professional misconduct provided both a threshold requirement to weed out complaints concerning matters that are insufficiently serious to be the subject of regulatory sanctions and also “a boundary to mark the limits of regulatory incursion into conduct that occurs outside work or otherwise in the course of professional life”.
- There was no discussion of seriousness in the Divisional Court judgment: nor was any such discussion necessary. A finding by the SDT that a solicitor has breached Principle 2 (the requirement to act with integrity) or Principle 6 (the requirement to behave in a way that maintains the public’s trust) plainly involves an evaluation of seriousness by the Tribunal: see also the decision of this court (cited above) in Wingate, holding that for careless conduct to amount to a breach of Principle 6 it must go beyond mere negligence and constitute manifest incompetence. Mr Beckwith was saying that his actions could not be professional misconduct because they were part of his private life, not his working life. The SDT rejected that argument and the Divisional Court agreed.
- We do not consider that, on its proper interpretation, the judgment in Beckwith provides any support for the argument that an allegation of breach of the SRA Principles does not involve any inherent requirement of seriousness. On the contrary, the court referred at [17] to Rule 10 of the SRA Procedure Rules 2011 and noted that under that Rule the SRA is permitted to make an application to the Tribunal only if it is satisfied that the allegation is sufficiently serious that the SDT is likely to make an order beyond the SRA’s own powers. They then say at [18] that “it is not for this court either to add to that approach or otherwise to reformulate the statutory scheme which has been made under the 1974 Act. There is no basis in law to interpose any additional requirement into the Handbook to the effect that before the Tribunal could act it had to be satisfied that the conduct which amounted to a breach of one or other of the 2011 Principles also amounted to professional misconduct”. [emphasis added]
- The reference to Rule 10 of the SRA Procedure Rules 2011 makes it clear, in our view, that the court in Beckwith was not rejecting the concept of a threshold of seriousness. What they were saying, and said even more clearly at paragraph 22, is that “there is no free-standing requirement that the Tribunal must first decide whether the conduct alleged amounts to “professional misconduct” before going on to consider the application of any of the principles set out in the Handbook.” A further indication of that being the ratio of Beckwith is that the court went on to cite paragraphs 153, 155, and 156 of the Leigh Day decision, apparently with approval, and to say that that decision provided no support for Mr Beckwith’s first two grounds of appeal.
- Neither Leigh Day nor Beckwith is binding on this court. We do not consider that on proper analysis there is any conflict between the two; but, if and to the extent that there is, we prefer Leigh Day.
- Like the Divisional Court in Beckwith we attach importance to the mandatory provision in the SRA Procedure Rules 2011 that the SRA must not refer a case to the SDT unless the allegation is “sufficiently serious” that the Tribunal is likely to make an order that the SRA is not empowered to make itself. Indeed, the SRA is instructed by Rule 3 that it may only make a disciplinary decision itself where a number of conditions are fulfilled, one of which is that the act or omission concerned was neither trivial nor justifiably inadvertent.
- Accordingly, we conclude that there is an inherent requirement of seriousness in considering whether a solicitor’s conduct amounts to a breach of the SRA Principles or the mandatory provisions of the SRA Code. An allegation of a breach of Principle 7 can only be upheld, therefore, if the conduct (the breach of the relevant legal or regulatory obligation) is sufficiently serious.
- That leaves the question as to what is meant by “sufficiently serious”. The Tribunal in the present case used the phrase “serious, culpable and reprehensible”, derived from Sharp v Law Society of Scotland. The question in that case was whether a breach of the accounts rules amounted to professional misconduct for the purposes of s.20(3) of the Solicitors (Scotland) Act 1949. The wording suggests that there are three cumulative requirements. “Culpable” is a word used more by Scots lawyers than by English ones, and it is unclear if, and to what extent, it differs from “reprehensible”. It may be that the two terms were intended to be interchangeable. At any rate, the wording in Sharp should not be treated as a formula, and we do not find it helpful in the context of the scheme provided for in the Handbook. The SRA has chosen to use the word “serious” without elaboration in its rules and guidance, both as a threshold condition for taking any action itself and as part of the threshold for determining whether to make an application to the Tribunal. In deciding whether conduct is sufficiently serious, two factors must be borne in mind. First, this is a threshold for reaching a determination that conduct is sufficiently serious to amount to a breach of professional conduct rules and principles. As was noted in Walker v Bar Standards Board (above) consistent authorities have recognised that there is a stigma attached to findings of professional misconduct, which should be confined to cases regarded as sufficiently serious. Second, the decision is, initially at least, one to be made by the SRA as a specialist body with knowledge and expertise as to the expected behaviour of solicitors. Taking those factors into account, we consider that on any case brought before the SDT the question for it is whether the conduct in question would be considered sufficiently serious by competent and reputable solicitors that it be categorised as professional misconduct.
Conclusion
- It will be seen that our view of the proper interpretation of Principle 7 is closer to that of the SDT than to that of the judge. We are concerned, however, that the Tribunal appears to have applied as a test the formula “serious, culpable and reprehensible” derived from Sharp. That in itself might not be sufficient to uphold the decision of the judge to quash the SDT’s decision, if it was clear that in reality it was doing no more than considering whether the breach was “serious” according to the test we have set out above. We are not satisfied, however, on that point, particularly in view of the apparent incongruity between the findings at paragraphs 9.374-9.377 and the conclusions at 9.378-9.383.
- Mr Chateau had been the client relationship partner for Client A at Salans and remained the client partner after the merger which created the Firm. The Tribunal found that Mr Chateau had failed to ask the relevant questions of Client A about his wealth or the source of his funds in order to satisfy the obligations of Regulation 14 of the MLRs; that the failure to establish source of wealth endured throughout the retainer; and that “in failing adequately (or even reasonably) to establish source of wealth… the Firm had breached Regulation 14 as alleged”. The SDT also found that the Firm and the other partners who worked on matters for Client A had all relied on Mr Chateau to have established source of wealth at the outset of the retainer. No doubt they did. But we have difficulty in understanding why this entitled the SDT to characterise the breach of the MLRs by the Firm as being “entirely inadvertent”, particularly in view of the terms of paragraph 2.3(b) of the SRA Principles quoted above at paragraph 19, unless that was in the context of a applying a test which required something more than seriousness, such as reprehensible or culpable conduct.
- We would therefore uphold, though on an entirely different basis from the judge’s, that part of her order which quashed the SDT’s decision to dismiss the allegation of a breach of Principle 7 and remitted the case to a freshly constituted Tribunal. But we consider that it would be unnecessary and wasteful for the facts to be revisited. The findings of fact made by the first SDT up to paragraph 9.377 of their decision should be preserved. The questions for the new SDT should be these: on the basis of those findings of fact, and applying the test set out above, was the Firm in breach of Principle 7 and Outcome 7.5? If so, what sanction should be applied? We do not accept the suggestion in the second ground of appeal that even if a breach of Principle 7 had been established the inevitable result would be that no sanction should follow.
- The third ground of appeal is separate and can be dealt with succinctly. We would allow the Firm’s appeal against the judge’s decision to remit for rehearing the allegations of breaches of Principles 6 and 8. The Tribunal’s decision to dismiss those two charges was not even the subject of the appeal by the SRA to the High Court.
- The fourth ground of appeal concerned the issue of costs before the SDT and before the judge. It was agreed in the course of the hearing that this could best be dealt with when the parties had our decision on the substantive grounds of appeal. In default of agreement between the parties we invite further written arguments within 14 days on this issue and on the question of costs in this court.
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