The FCA – Transformation to Assertive Supervision
Decision date: 10 July 2012
Financial penalty reduced by High Court as Solicitors Disciplinary Tribunal fail to address material question of commencement date of the 2007 Rules.
The appellants, Partners (B) in a law firm, appealed a finding that they had breached Rule 5 of the Solicitors Code of Conduct 2007 in relation to supervision of a fixed-share partner (P).
An investigation into the firm in October 2007 brought to light that P had breached the Solicitors’ Accounts Rules by billing residual clients’ accounts as profit costs without authority and transferred sums directly into the office account. No allegation of dishonesty was made against any of the parties. On discovering the breach, the Partners immediately dismissed P, repaid the monies and reported the matter to the Solicitors Regulation Authority.
The matter was before the Solicitors Disciplinary Tribunal where a number of allegations relating to breaches of the Rules were admitted by the parties; however, B disputed that they failed to exercise adequate or appropriate supervision of P. At the conclusion of the SRA case the appellants made a submission of no case to answer, firstly on the basis that P was a Principal of the firm and not an ordinary member of ‘staff’, and secondly on a technical point; the Rules came into force in July 2007 and the Tribunal were therefore precluded from retrospective application of the Rules in relation to the allegation.
The Tribunal rejected the submissions and found the breach of Rule 5 proven, ruling that P was a member of staff and noting that no proper systems were in place to supervise client matters. The tribunal did not address the issue of commencement of the 2007 Rules.
The appeal was upheld by the Court as the Tribunal had failed to answer a material question which centred on the issue of commencement of the 2007 Rules, and as such the allegation was not soundly based in law and the Court quashed its finding. Client file closure procedures were part of what P was asked to do when she commenced employment; any assertion of inadequate instructions on commencement by her supervisors would have been irrelevant as this predated the 2007 Rules. The Panel had needed to identify what exactly it was that B had failed to do that amounted to a failure to ensure proper direction and supervision of clients' matters from the date that the 2007 Rules came into force up to the date that the investigation began.
The Court did reject the submission that P was not a member of ‘staff’ as references in Rule 5.01(1); it was held that the scope of Rule 5.01 stretched to effective management of the firm as a whole, supervision of ‘staff’ being only one element of that.
In relation to the appeal against the financial penalty imposed for the remaining findings, the Court distinguished the case of Hazelhurst v Solicitors Regulation Authority  EWHC 462 (Admin), in stating that even where a breach had occurred and the partners had acted appropriately in reporting the matter, a financial penalty could still be imposed, particularly as in Hazelhurst the Auditors and the Law Society had been deceived. The Court noted that the Tribunal was entitled to form the view that the Partners had not adequately supervised P on her arrival. The Court however reduced the penalty from £10,000 to £5,000.
This case emphasizes the importance within law firms of both formal linear supervision but also arrangements for effective management of a firm as a whole. Further, that tribunals must tackle head on live and material issues that are raised before them.
Skip to content Home About Us Insights Services Contact Accessibility