Charities and internal investigations
Judgement Date: 17 May 2013
High Court holds that means should be taken into account when tribunals consider costs and fines combined.
This case involved an appeal by Mr Matthews (M) against the decision of the Solicitors Disciplinary Tribunal (SDT) in October 2011.
M, a solicitor, admitted and was duly found guilty of two charges contrary to Rules 1.04 and 5.01 of the Solicitors’ Code of Conduct 2007.
One of the charges involved M’s failure to adequately supervise the actions of an employee, Mr Rickaby (R). R was not an admitted solicitor but was taken on by M’s practice in relation to a new area of conveyancing work, of which M had no previous experience.
On investigation, it had been found that the practice was acting for both buyer, borrower and mortgagee in conveyancing transactions. Further, there were sales to a particular body at what appeared to be a discount and then a further sale onto the actual purchaser of the property. A possibility therefore existed that the mortgage company would not be fully aware of the means of the individual who was to be the mortgagee. Although it was not suggested by the SRA that there was in fact any such mortgage fraud, such conduct is not allowed, given the risks that it creates.
There was no suggestion that M was aware of the aforementioned issue, but he was guilty of a failure to supervise R’s actions.
Having been found guilty of the relevant charges, there was a claim by the SRA for costs in the sum of £16,000. Whilst M did not dispute his liability to pay the sum, in light of his financial circumstances (he already had some financial debts), it was requested that any order not be enforced by the SRA without leave of the Tribunal. M’s means were put before the Tribunal. These were limited, not least because as a result of R’s actions and the case before the SDT, M’s practice closed down. M had tried to seek alternative employment, but he suffered bouts of ill health.
The Tribunal made the order for costs but seemingly took into account the SRA’s intention only to enforce if it became appropriate to do so. In addition to costs, the SDT imposed a fine of £5,000.
Subsequently, an enforcement notice was issued against M, which did not appear to conform to the SRA’s previously stated intentions as M had demonstrated his inability to pay.
High Court Hearing
Mr Justice Collins was asked to consider the extent to which an individual’s means can be taken into account in relation to an order to pay a fine and an order to pay costs.
Mr Justice Collins opined that whilst fines and costs are entirely different, a number of authorities have concluded that means is regarded as being relevant to both. He referred specifically to the case of D’Souza v Law Society  EWHC 2193 (Admin). Principally, the facts of the individual case will determine the extent to which means is material.
It was argued on behalf of the SRA was that whilst it is true that means are taken in account separately in relation to costs and in relation to fines, it is inappropriate to take means into account in a combined fashion, with a Tribunal considering the overall financial detriment, rather than the two elements of the burden separately. In other words, a Panel should not weigh means up against both fine and costs added together, but separately.
Mr Justice Collins rejected the SRA’s argument as being illogical, citing paragraph 18 of the D’Souza case. The reason is was an ‘impossible submission’ is that ‘the reason why means are taken into account is because one has to take into account the ability of the individual to pay a particular sum which will comprised by costs and by fine’.
On behalf of M, it was submitted that the £5,000 fine rendered M’s ability to find alternative employment even more difficult, because knowledge by a potential employer of a fine of that amount, where there was a possibility of mortgage fraud, would not make M an appealing candidate.
The SRA submitted that the SDT had borne in mind the possibility of imposing a reprimand rather than a fine, but had properly disregarded that option due to the seriousness of the breach by M.
Mr Justice Collins in considering the determination of the SDT found their reasons for the imposition of a fine rather than a reprimand to be insubstantial. He commented that the decision did not state that the SDT had considered means in assessing the fine to be imposed, or why it regarded that the circumstances of the case could not be met by a reprimand. In short, it was accepted before the SDT that the order for costs would have to be accepted and that the real challenge was that there should be no enforcement without leave. As a result, the SDT was not asked to consider means overall.
Mr Justice Collins stated that;
‘It seems in the circumstances that the Tribunal may have felt able to disregard the amount of costs in considering what the penalty should be. I have no doubt that that was the wrong approach. I am afraid that the decision makes clear that that was the approach the Tribunal adopted. I am entirely satisfied that the overall financial liability is a relevant consideration that must be taken into account in deciding on the appropriate orders, both of costs and of fine, if fine is considered necessary.’
In addition, it was said, there was substantial mitigation in this case. Mr Justice Collins remarked that M’s circumstances, including his inability to find work, should have been taken into account by the SDT in deciding what the appropriate sanction should be.
Mr Justice Collins reiterated the widely held principle that he should only interfere if the SDT was clearly wrong to decide to do as it did, but, they should have taken into account of all of the relevant factors. His view was that the SDT did not do so.
It was ultimately held that in the circumstances of the case the fine of £5,000 when added to the costs was excessive. To remedy the issue, he reduced the totality liability to £5,000, £500 of which was the fine. It was said that the reason for the substantial reduction in the fine was due to M’s means and the damaging effect the proceedings had had on him and his career. In addition it was not suggested that he had himself been guilty of any form of dishonesty in relation to the breaches that had occurred.
This case is a helpful to those involved in cases before regulators who have the power to award costs; the overall financial liability is a relevant consideration that must be taken into account in deciding on the appropriate orders, both costs and fine. Further, the hardship suffered by the practitioner as a result of the proceedings, which often manifests as financial, is always patently relevant when considering penalty.
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