The FCA – Transformation to Assertive Supervision
The approach to costs amongst regulatory bodies varies and can be a source of some debate. It has also given rise to a growing body of case law, which has seen some further development of late arising from a case originally heard before the Solicitors Disciplinary Tribunal.
Not all regulatory bodies, of course, have the power to award costs. To some extent, the difference in approach tends to be split according to sector, with the health regulators tending not to award costs, whereas, for example, regulators in the legal and financial sectors, in general, do.1 Where the power to award costs does exist, at least two specific points emerge from the recent case law : the question, on the one hand, as to the extent of the disciplinary panel’s obligation to enquire as to the respondent’s means before imposing a costs award and, on the other, whether costs may be awarded against the regulator (as opposed to an individual respondent). These were amongst the points considered by the Administrative Court earlier this year in Solicitors Regulation Authority v Davis.2
Whether a respondent’s financial means are relevant to costs determinations
The Solicitors Regulation Authority (SRA) appealed against the decision of the Solicitors Disciplinary Tribunal (SDT) that there should be no order for costs against two respondent solicitors. The costs order made by the SDT referred to the respondents’ respective financial positions, and it was upon this point that the SRA made their appeal, to the effect that the Tribunal is not entitled to take into account a respondent’s means when making an order for costs. The Administrative Court dismissed the appeal.3
There is an ‘emerging practice’4 for the SDT to consider the means of a respondent solicitor when deciding whether or not to make a costs order following a finding of misconduct. Merrick v The Law Society5 established the basis for this principle, after the High Court overturned a decision of the SDT to make a costs award of £45,000 against the respondent (who had also been suspended for twelve months), without due inquiry into his means. Subsequent decisions have applied the ratio in Merrick, holding that the means of a registrant may be a relevant consideration when calculating the appropriate level of costs.6
Dismissing the appeal in SRA v Davis, Mr Justice Mitting stated that ‘sensible regulatory schemes’ should require the means of an individual against whom an order for costs has been made to be examined, either at the hearing or soon afterwards. The judgment also sensibly suggests that solicitors (and, by extension, other professionals who find themselves before a tribunal with jurisdiction to award costs) should provide evidence of their means in advance of such a decision being taken, should they wish their financial situation to be considered.
Costs orders should not be regarded as part of the sanction made against a respondent found guilty of professional misconduct. Regulatory proceedings straddle the gulf between criminal and civil proceedings: neither of which allow costs to be used as a method of punishing the guilty party. However, the approach taken in criminal trials should perhaps be the model more closely followed by Disciplinary Tribunals. The purpose of an order for costs in criminal proceedings is to ‘compensate the prosecutor and not punish the defendant’,7 a principle which applies equally in the regulatory context.8
The idea of means-testing respondents in disciplinary proceedings was challenged by the SRA in Davis, as placing an unfair burden on those members of the professional body who, through their subscription fees, fund the errant registrant’s hearing. It was suggested that those who find themselves facing a disciplinary tribunal should bear the costs of the hearing in the same way as occurs in civil proceedings, regardless of their means. Equally the point was raised that, if all respondents are to be means-tested before an award is made, this would encourage less scrupulous members of the profession to conceal or misrepresent their financial circumstances. That may be right, but ultimately it will be for the tribunal to determine whether such representations seem accurate and credible, and make their determinations accordingly.
Should respondents been titled to recover costs against the Regulator?
The primary purpose of professional disciplinary proceedings is not to punish but to protect the public, to maintain public confidence in the integrity of the profession and to uphold proper standards of behaviour; so said the Supreme Court opining earlier this year in R (on the application of Coke-Wallis) v Institute of Chartered Accountants in England and Wales.9 Recognising this public interest function, and following the House of Lords decision in Baxendale – Walker v The Law Society, it is now established that costs orders should not be made against a regulator ‘unless a complaint is improperly brought or proceeds as a “shambles from start to finish.”’10 Their Lordships added in that case that, ‘for the Law Society to be exposed to the risk of an adverse costs order simply because properly brought proceedings were unsuccessful might have a chilling effect on the exercise of its regulatory obligations to the public disadvantage.’11 The Baxendale-Walker decision was recently considered and applied in SRA v Davis,12 confirming the ‘settled law’13 that regulators should not be subjected to costs, unless something has gone wrong with the disciplinary proceedings for which they are responsible.
The argument that a regulator should not be penalised for performing a public interest function perhaps has some persuasiveness. Unless the registrant can demonstrate the regulator has acted unreasonably, improperly or in bad faith, then costs against the regulator, the argument goes, are not appropriate. A more flexible approach may sometimes be taken in relation to appeal hearings. Thus, for example, the practice of The Royal College of Veterinary Surgeons which, at appeal stage, has had costs orders made both in its favour,14 and against it.15
The general principle is that costs are an integral part of the determination of civil rights and obligations and their allocation should be fair.16 However, this has not been extended to create a right for respondents to apply for costs against statutory regulators. Indeed, it is settled law that Article 6 of the European Convention on Human Rights does not require that the law provides costs remedies to registrants acquitted in regulatory proceedings. This was tempered slightly in Stankrewicz v Poland,17 where it was held that a prosecuting authority’s immunity from a costs award made against it may violate Article 6(1) where it puts the other party at an undue disadvantage.A detailed evaluation of the factual and legal background, including the cost of, and need for, the respondent’s legal representation needed to be undertaken before deviating from the standard practice on costs orders. However, in practical terms this case was very much decided on its own facts, and may be unlikely to have significant wider impact.
The question of costs in regulatory proceedings gives rise to differing practice and approach. It may be argued that such proceedings, conducted in the public interest, are properly funded, not by costs awards against individuals, but rather by the membership fees or subscriptions of the registrants or members as a whole. The debate is a real one and raises important questions also in relation to fairness and, in particular, equality of arms, including in relation to access to legal representation. It may be, with time, that we will see a convergence of thinking and practice in this area, as has occurred in relation to other aspects of regulatory proceedings- for example, in relation to the question as to the appropriate standard of proof.18
The response of the courts in this area has recently focused on two specific issues, which will be relevant to all regulatory bodies exercising a costs jurisdiction. The courts have considered, firstly, the question as to how regulators should assess the level of costs awards and, in particular, the extent to which they ought to take account of an individual’s financial means. The fact is that most regulatory bodies exercise their jurisdiction in this area by way of some form of summary assessment and without any real detailed analysis of either the costs which have actually been incurred or of affordability to the individual. No doubt a balance is to be struck, recognising the undesirability, from a public interest perspective, of obliging the regulator to engage in a detailed and, in itself, costly assessment exercise.
More widely, the courts have sought to restrict the extent to which a respondent should be entitled to seek costs against the regulator, balancing the public interest in ensuring that the regulatory body is unrestricted in its ability to perform its proper functions, on the one hand, and on the other, the importance of ensuringfairness to individuals involved in its proceedings.
The issues are important and the debate about costs continues. It is unlikely that we have heard the last word from the courts on the subject.
Ben Kemp - Partner
Bethen Lloyd - Legal Assistant
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