Case Update: Findings of dishonesty where dishonesty is not pleaded

30 July 2015

Kiani v Solicitors Regulation Authority [2015] EWHC 1981 (Admin)

Judgment date: 12 June 2015

This was an appeal against a decision of the Solicitors Disciplinary Tribunal (SDT). On 8 and 9 September 2014 the appellant had appeared before the SDT facing eight allegations. Allegations 1.1 to 1.4 alleged breaches of the Solicitors Accounts Rules 1998. Broadly speaking these involved different breaches of the Rules in relation to the operation of the solicitor’s client account and in relation to keeping records of her operation of that account.

Allegation 1.5 was that the appellant had failed to act with integrity contrary to the Solicitors Code of Conduct 2007 Rule 1.02 in relation to two property transactions. Allegation 1.6 was that she had failed to have sufficient regard to her duties under money laundering legislation. Allegation 1.7 was that she permitted money to pass into and out of client account when not accompanied by the conduct of a legitimate underlying legal transaction. Allegation 1.8 was that she failed to act in the best interests of clients.

The appellant admitted allegations 1.1 to 1.4 and denied the rest. The SDT found that allegations 1.5 and 1.6 were proved. They found that allegation 1.7 was proved in part, and that allegation 1.8 was not proved. The SDT decided that the appellant should be struck off the roll of solicitors.

In closing submissions in respect of allegation 1.5, the appellant’s representative had referred to the guidance on integrity which had been adopted previously by the SDT and which was based on the decision in Hoodless and Blackwell v SFA [2003] FSMT 0007:

…that a person lacks integrity if he/she acts in a way which, although falling short of dishonesty, lacks moral soundness, rectitude and steady adherence to an ethical code. For this purpose a person may lack integrity even though it is not established that he/she has been dishonest.

In its judgment the SDT had this to say about one of the two transactions which were the subject of allegation 1.5:

The Tribunal had concluded that the Respondent's actions could not have been more deliberate. She had been intentionally economical with the truth so as to mislead the other firm of solicitors. This showed a lack of integrity on any test and certainly met the test in Hoodless and Blackwell v FSA referred to by the Applicant. It was objectively dishonest.

The SDT had also, when dealing with sanction, referred to one of the two transactions underlying the lack of integrity allegation as involving a "deliberate deceit of the purchaser's solicitors".

On appeal the appellant argued that:

  1. the SDT had found that the appellant had been dishonest despite no allegation of dishonesty and it should not have done so;
  2. the SDT was wrong to find allegation 1.5 (lack of integrity) proved;
  3. the sanction of striking off was wrong

The law

In the High Court Laing J set out the relevant legal principles pertaining to dishonesty. It was common ground between the parties that the correct test to apply was the one in Twinsectra v Yardley [2002] 2 AC 164 (at [27]):

…before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest.

However, Laing J noted subsequent case law’s equivocation about the second element of the test which indicated a growing tendency both to erode the distinction between the two limbs, and to downplay the importance of the second limb of the test.

Laing J noted that the Divisional Court in Singleton v Law Society [2005] EWHC 2915 (Admin) had given guidance about the pleading of allegations of dishonesty. In that case, the solicitor was charged with conduct unbefitting a solicitor, which can be committed with or without dishonesty. No express allegation of dishonesty was made. However, it emerged, on the first day of the hearing, that the SRA contended that he had been dishonest. The appellant did not protest or ask for an adjournment.

The court in Singleton held that the failure expressly to allege or to particularise the allegation of dishonesty was a procedural flaw, noting, (at [13]):

…we conclude that it is unacceptable for the Tribunal to make findings of dishonesty when there has been no documentary pleading of such an allegation in a clear and timeous way.

The High Court’s decision

Laing J enumerated the issues on the dishonesty point as follows:

  1. Whether the SDT investigated or made findings or apparent findings of dishonesty against the solicitor, and if so;
  2. Since the SRA did not plead or argue before the SDT that the solicitor's conduct had been dishonest, whether the SDT was nonetheless entitled to do so, and if not;
  3. What the effect of that conduct is on the judgment of the SDT.

All parties at the SDT had agreed that dishonesty was not supposed to be in play in the case. It was not pleaded and the SRA made it clear that it was not alleging dishonesty at the hearing.  Laing J noted (at [75]):

All of this meant that the SDT should have been extremely careful to avoid any suggestion that dishonesty played any part in its reasoning or findings. In my judgment, the SDT was wrong to have engaged in any reasoning which suggested that it was considering whether or not the solicitor had been dishonest. It should not have considered, or applied, or referred to, any part of the Twinsectra test. It also means that it should not have used words which did, or might, suggest to a person reading the judgment of the SDT that the SDT had found that the solicitor had in fact between (sic) dishonest. But it did all of these things. Insofar as it did so, the decision, in my judgement, is wrong.

The judge found that a reasonable reader of the judgment would conclude that the SDT did consider the issue of dishonesty. This was clear from its explicit finding of objective dishonesty and other language which involved findings of objective dishonesty. Laing J was particularly concerned about the phrase: “intentionally economical with the truth so as to mislead the solicitors”.

None of this was found to be saved by the SDT stating in its decision: “Whilst there is no allegation before the Tribunal of dishonesty...” That clause merely made a factual statement about the state of the pleadings. It did not, in the context of the other language, reassure the careful reader about the SDT’s view of the solicitor’s conduct.

In relation to allegation 1.5, Laing J found there was no basis for the suggestion that the SDT's underlying findings of lack of integrity were undermined by the SDT's error in allowing itself to give vent to its own feelings about the solicitor’s conduct by describing it in terms which went further than the pleaded charges.  That aspect of the appeal did not therefore succeed and the findings of lack of integrity remained undisturbed.

The appeal was allowed insofar as the Judgment includes any finding of dishonesty and insofar as the Tribunal had ordered the Appellant to be struck off.  The case was remitted to a differently constituted tribunal on the issue of sanction only.

This case reminds us that if a disciplinary panel is to make a finding (or apparent finding) of dishonesty then it must be explicitly alleged. Where it is not alleged, but something akin to a lack of integrity is, panels must be very careful not to stray too far into the realm of dishonesty. Where this does happen, simply paying lip service to the fact that dishonesty is not part of the allegation may not save those aspects of the decision from being wrong in law.

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