Levy v Solicitors Regulation Authority

This is an appeal against an order of the Solicitors Disciplinary Tribunal (“the Tribunal”) of 14 January following a hearing before the Tribunal late last year. The appellant faced allegations of breaches of the Solicitor Account Rules and failing to comply with conditions imposed on his practising certificate. The allegations were admitted save that the Solicitors Regulation Authority (“SRA”) alleged that the Solicitors’ Accounts Rules breaches amounted to a dishonest course of conduct. The Tribunal rejected that allegation but suspended the appellant from practice for a period of 9 months and ordered him to pay costs of £26,000. The suspension from practice was stayed pending appeal by order of Mr Justice Burnett. The appeal is concerned with the sanction imposed by the Tribunal and the order for costs. It is said that it raises general points in relation to the procedures adopted by the Tribunal when penalty is considered and as to the proper approach to costs.

It is as well to refer to the relevant professional rules at the outset. The core duties of solicitors are contained in rule 1 of the Solicitors’ Code of Conduct 2010. These include acting with integrity, acting in the best interests of each client, and not behaving in a way which is likely to diminish the trust the public places in their solicitor or the legal profession: rr. 1.02, 1.04, 1.06. Rule 1 of the Solicitors’ Account Rules 1998 sets out the principles for keeping accounts, including that a solicitor must keep other people’s money separate from money belonging to the solicitor or the practice; keep other people’s money safely in a bank or building society account identifiable as a client account (except when the rules specifically provide otherwise); use each client’s money for that client’s matters only; and establish and maintain proper accounting systems, and proper internal controls over those systems, to ensure compliance with the rules: r. 1(a), (b), (c), (e). Under rule 6, principals in a law firm must ensure compliance with the rules by everyone employed in the practice. Rule 7 imposes a duty to remedy breaches promptly upon discovery, including the replacement of any money improperly withheld or withdrawn from a client account. Rule 19(2) reads as follows:

“… (2) A solicitor who properly requires payment of his or her fees from money held for a client or trust in a client account must first give or send a bill of costs, or other written notification of the costs incurred, to the client or paying party.”

Rule 22 covers withdrawals from a client account. For example, under rule 22(3)(b) office money may only be withdrawn from a client account when it is properly required for payment of the solicitor’s costs under rule 19(2).

The appellant qualified as a solicitor in 1984. He was some 40 years old at the time, having previously worked in business. For the first decade of practice he was a partner in a firm. In 1994 he founded his own practice, Levys Solicitors. At the relevant time he was in partnership with Mark Compton, a salaried partner who dealt with personal injury work. The accounts were administered on a day to day basis by a bookkeeper, Peter Collier. The partnership ended in January 2010 and the appellant became a sole practitioner again. As at 22 November 2010 the firm had a staff of 17, including 4 qualified solicitors, and dealt with criminal work, personal injury, conveyancing, company/commercial and litigation. The firm was about half the size it had been twelve months previously. The firm is recommended in the publication “Legal 500” as a specialist in Revenue and Customs frauds.

In November 2007 the appellant appeared before the Solicitors Disciplinary Tribunal. He faced two allegations, that he had failed to comply with rule 22 of the Solicitors’ Accounts Rules 1998 in that client money was drawn from the client account other than permitted by that rule; and secondly, that he failed to comply with rule 13 of the Solicitors’ Practice Rules 1990, in that the system for supervision and management of the firm was not sufficient to prevent the misconduct of an employee. That employee was William Rosenberg. In February 2003 Mr Rosenberg had been struck off the roll of solicitors. However, some 10 weeks later the Law Society gave the appellant permission to employ Mr Rosenberg as a conveyancer, but subject to conditions as to supervision and Mr Rosenberg not being involved with clients’ moneys or the functioning of the firm’s accounts.

In 2005 an inquiry by one of the Law Society’s investigation officers discovered that Mr Rosenberg had been generating additional bills for clients, which led to a transfer of costs from the client account to the office account. Those transfers were not in respect of the proper payment of the firm’s fees. Mr Rosenberg derived a significant benefit from the unauthorised billing, since he was remunerated by being paid one third of the billing income on such matters. After all of Mr Rosenberg’s files were checked some £34,000 was refunded to clients, although strictly speaking not all of that was owed. Mr Rosenberg left the firm in March 2006.

Before the Tribunal the appellant did not contest the allegations. In its findings it noted that if solicitors employed someone who has been struck off the public was entitled to expect the firm to exercise the highest standard of supervision. A solicitor had clear duties and responsibilities to the public and must ensure that no member of the public was put in danger or that matters handled on a client’s behalf or money held on that client’s behalf were put in jeopardy. Failure to do so brought the profession’s reputation into disrepute: [39]. The appellant accepted that

“his system for supervision and management of his firm had not been sufficient to prevent the misconduct of Mr Rosenberg. As a result there had been a breach of Rule 22 of the Solicitors Accounts Rules 1998 in respect of which [he] had absolute liability”: [40].

The Tribunal continued that the appellant’s failure had been at the serious end of the scale but it gave him credit for his best endeavours to put matters right and to prevent such a situation arising again; for correcting the position at considerable cost to the firm; for admissions; for his good character; and for the excellent testimonials which spoke of his integrity and competence. In its decision handed down in late January 2006 the Tribunal imposed a fine of £7,500. At the time the maximum fine available was £10,000.

In January 2007 the appellant’s practicing certificate for 2006/7 was subject to conditions, including that he should not be the sole signatory to the client account and that he should be co-signatory with a principal solicitor who had been qualified for at least three years. The appellant’s appeal against that decision was dismissed later that year. His practicing certificates for the 2007/8 and 2008/9 years were subject to similar conditions. As a result the appellant instructed the firm’s cashier to contact the two banks at which client’s cheque accounts were held, HSBC and the Royal Bank of Scotland, to change the mandate so that two signatories were required. He had not sought to change the mandates in respect of two other client accounts, which were, in effect, “overflow” accounts for the client account. No cheques could be issued on them and money could only be transferred from them to other client accounts. The mandate in respect of the HSBC account was changed so that two signatories were required. This, for whatever reason, was not done with the RBS account. Between January and September 2008 the appellant signed 7 cheques on the RBS account which were paid with his signature alone.

On 23 November 2010 the appellant appeared before the Solicitors Disciplinary Tribunal on six allegations. This followed an inspection of the books of account and other records of the firm by a forensic investigation officer of the Solicitors Regulation Authority in 2009. The Tribunal’s decision on these matters, handed down in mid January of this year, is the subject of this appeal. The appellant appeared before the Tribunal along with Mr Crompton, but the latter’s separate case is of no concern in this appeal.

The first five of the six allegations were all supported by the facts behind three transfers from the client to the office account in the summer of 2008. (The sixth allegation concerned the RBS bank mandate and the failure to comply with the condition for two signatories on cheques imposed on the appellant’s practicing certificate). The first of the three transfers from the client to the office account related to a client, Mr MP. On 1 July 2008 Mr MP told the appellant that £12,500 would be transferred to the appellant’s client account by a third party as a payment on account of Mr MP’s costs. Without checking that the money was received, or instructing Mr Collier, his cashier, to check, the appellant transferred £12,500 from the client to the office account. The money was never received from the third party. On 1 July a number of direct debits were paid from the office account totalling approximately £12,000. But for the £12,500 transfer the firm would have exceeded its HSBC overdraft limit of £150,000 as a result of the direct debits. On Friday 4 July a payment of £17,000 was received from the Legal Services Commission. The £12,500 payment from office to client account was reversed that same day.

The second transfer founding the first 5 allegations concerned Mr G. As at 31 July 2008 the firm’s office account with HSBC stood several hundred pounds within its overdraft limit of £150,000. A number of direct debits and other payments were to be paid the following day, 1 August, totalling some £5,500. On 1 August 2008, a Friday, the appellant caused £5000 to be transferred from the client account to the office account. He said he was informed by one of the firm’s consultants that a client, Mr G, had paid that amount on account of costs. The effect of the transfer was to ensure that the firm was within its overdraft limit. In fact no such funds were received from Mr G, nor was any bill rendered to him at that time. The entry was reversed on Wednesday 6 August 2008. Again there had been a payment from the Legal Services Commission into the office account.

The third transfer involved a company, KL, which the firm had acted for in a property matter in 2006. At the conclusion of the transaction KL was owed £40,000 but the cheque sent to it in payment of this amount was returned unpaid in July 2006. Accordingly the firm held some £40,000 on its client account. Some two years later the appellant asked his cashier, Mr Collier, to take advice on how to deal with the matter. The advice was that the money should be placed on a designated deposit account until the client could be located. The evidence of the appellant and Mr Collier was that instructions were given to the bank to put the money on deposit but by mistake the bank transferred it on 26 September to the office account. The effect of this was to reduce the firm’s overdraft facility from over £188,000 to within the overdraft limit of £150,000. The £40,000 was then transferred to the client account, not a designated client account, in 2 transactions, the first £25,000, on 30 October. The remainder was not transferred until 17 November 2008. The cheque had been returned to drawer on several occasions, since payment of it would have taken the firm over the £150,000 overdraft limit.

On the back of these 3 transfers from client to office account the first allegation was that the appellant had used client monies for his own purposes in breach of rules 1.02, 1.04 and 1.06 of the Solicitors’ Code of Conduct 2007 and rule 1(a) of the Solicitors’ Account Rules 1998. The appellant admitted the allegation and the Tribunal found it to have been substantiated on the facts. It accepted the appellant’s evidence as true that he was told by Mr MP that the £12,500 was to be paid. The appellant accepted that he should have checked that that payment and Mr G’s payment had been made.

Although it was not necessary to establish dishonesty or recklessness to prove breach of the rules in the first allegation, the second allegation was that the breaches were so committed. The appellant accepted that he was reckless but not that he was dishonest. The Tribunal heard his evidence and that of Mr Collier. It had before it testimonials given on behalf of the appellant and evidence of his charitable works. There was no evidence that until about November 2008 HSBC had vigorously enforced the overdraft limit. In light of all this the Tribunal rejected the allegation of dishonesty.

“39.

In order to have proved its case the Tribunal would have had to be satisfied that the appellant had operated his firm’s office account close to its overdraft limit and had effected transfers from client to office account, whilst knowing that the money purportedly transferred was not there. It would also require the Tribunal to be satisfied that the appellant had lied to the forensic investigation officer, SRA and on oath before the Tribunal. The appellant had admitted that there had been systematic breaches of the Accounts Rules, but it had not been alleged that the systematic failures were dishonest.”

The appellant admitted the third allegation, that the three transfers had constituted a withdrawal of money from the client account other than in accordance with rule 22 of the Solicitors Account Rules. The appellant also admitted the fourth allegation, that in breach of rule 19(2) of the Solicitors Account Rules he transferred monies from the client account to the office account in respect of a payment of fees without delivering a bill of costs or other written notification to the client. The basis of this allegation was that, in a four month period from approximately July to October 2008, the firm operated a system of transfers from the client to office account which did not require bills to be delivered to clients, or even produced, prior to the transfer of funds. Mr Collier would send ledgers with client account balances to the various fee earners, who would mark on them the amount which could be transferred from the client to office account. On the understanding that a bill would be dictated immediately, Mr Collier would add up the figures given by the fee earners and immediately transfer the amount in a batch. However, fee earners did not always complete the bills and there was a delay in issuing bills. In due course, when Mr Collier realised that bills had not been issued, he would transfer sums back from the office to client account until they were. The appellant gave evidence that at the time he believed that this was acceptable so long as a bill was issued in due course. The Tribunal found that the system was inherently and systematically likely to lead to breaches of rule 22 of the Solicitors Account Rules and did lead to such breaches.

From the autumn of 2008 the firm introduced a system in line with the rules whereby fee earners had to send Mr Collier a transfer chit signed by two of the authorised signatories, a signed bill, a letter confirming that the bill had been sent to the client, and a ledger account showing that the moneys had been received.

Allegation 5, that the appellant failed to rectify promptly breaches of the Solicitors’ Account Rules when discovered, contrary to rule 7, was founded on the second KL re-transfer of 17 November 2008, and the transfer in breach of rule 19(2) highlighted in allegation 4. The appellant admitted the allegation, as he did allegation 6, which was the breach of the condition on his practicing certificates, that client account cheques should have two signatories.

Before the Tribunal, mitigation on behalf of the appellant distinguished the previous Tribunal decision, involving Mr Rosenberg, as being concerned with the issue of supervision. Thus, it was said, the previous matter did not aggravate the breaches currently before the Tribunal. It was submitted that the appellant did not represent a risk to the public and that any damage done to the reputation of the profession was not such as to justify interference with his right to practice. The appellant was a good solicitor. The testimonials provided were from QCs, judges and others, demonstrating that he was well respected in the profession in his area of practice. The appellant had learnt a salutary, difficult and expensive lesson. Whilst he had successfully contested the allegation of dishonesty he had admitted serious, underlying breaches, which would not happen again. Any risk to the public was mitigated by the conditions on the appellant’s practising certificate. If the appellant was not able to continue in practice his firm could not continue. It was also submitted on his behalf that it would be possible and proportionate to deal with his breaches by imposing a financial penalty.

In reaching its decision on sanction the Tribunal noted the assurances that the firm had new systems in place; the conditions on the appellant’s practicing certificate; the difficulty of the firm surviving were the appellant not able to continue in practice; that no one was ultimately disadvantaged by the improper transfers; and the testimonials given on his behalf. The Tribunal observed that the appellant’s conduct of his firm’s accounts had very clearly been a shambles. Whilst he had not been dishonest, what he had done was unacceptable to the profession and unacceptable for a solicitor. He knew, as every solicitor should know, that the client account was sacrosanct and could not be touched other than in accordance with the rules. Accordingly, the findings against him, particularly with regard to the Solicitors’ Account Rules breaches, were at the serious end of the scale: para [96]. While the appellant could be given some credit for trying to put matters right and implementing better systems in the firm, these were serious and significant breaches of the Accounts Rules which were vital in the profession: para [97]. The Tribunal then referred to the findings in the previous hearing, handed down just a few months prior to the transactions the subject matter of the present hearing.

“99.

… It should have been very clear to the appellant that his accounts procedures and his management should be in order. Given that [he] had clearly failed to put his firm’s systems in order so soon after the previous Findings against him, the Tribunal could quite properly have little confidence in his ability properly to manage the firm’s accounts.

100.

But for the previous Findings, the Tribunal might have been minded to consider a financial penalty, although the breaches were clearly serious enough that interference with [his] practice could well have been justified in any event. In all of the circumstances, it was appropriate and proportionate to suspend [him] from practice for nine months, as the Tribunal were most concerned that despite the clearly expressed Findings set out in 9750-2007, [he] failed to put his firm’s systems in order. Monies held on clients’ behalf are thus put in jeopardy as per paragraph 39 of the previous Findings.”

An appeal lies to this court from the Solicitors Disciplinary Tribunal as of right, pursuant to section 49 of the Solicitors Act 1974. By section 49(4) this court “shall have power to make such order on an appeal under this section as it may think fit.” An appeal from the Solicitors Disciplinary Tribunal to the High Court normally proceeds by way of review: see CPR rule 52.11(1). The court’s approach to such an appeal is set out in Law Society v Salsbury [2008] EWCA Civ 1285, [2009] 1 WLR 1286. There Jackson LJ (with whom Arden LJ and Sir Mark Potter agreed) said:

“30 … It is now an overstatement to say that “a very strong case” is required before the court will interfere with the sentence imposed by the Solicitors Disciplinary Tribunal. The correct analysis is that the Solicitors Disciplinary Tribunal comprises an expert and informed tribunal, which is particularly well placed in any case to assess what measures are required to deal with defaulting solicitors and to protect the public interest. Absent any error of law, the High Court must pay considerable respect to the sentencing decisions of the tribunal. Nevertheless if the High Court, despite paying such respect, is satisfied that the sentencing decision was clearly inappropriate, then the court will interfere.”

Law Society v Salsbury built on the seminal decision of Sir Thomas Bingham in Bolton v Law Society [1994] 1 WLR 512. It would require a strong case, said Sir Thomas Bingham MR, to interfere with a sentence imposed by a professional disciplinary committee. That body was best placed for weighing the seriousness of professional misconduct. The factors which weighed in mitigation before a criminal court were not to have the same weight before a disciplinary body because the most fundamental object was maintaining the standards of the profession rather than punishing the offender. Members of the public were ordinarily entitled to expect that a solicitor would be a person whose trustworthiness was not, and never had been, seriously in question. A profession’s most valuable asset was its collective reputation and the confidence it inspired.

“[T]he essential issue … is the need to maintain among members of the public a well-founded confidence that any solicitor whom they instruct will be a person of unquestionable integrity, probity and trustworthiness. Thus it can never be an objection to an order of suspension in an appropriate case that the solicitor may be unable to re-establish his practice when the period of suspension is past. If that proves, or appears likely, to be so the consequence for the individual and his family may be deeply unfortunate and unintended. But it does not make suspension the wrong order if it is otherwise right. The reputation of the profession is more important than the fortunes of any individual member. Membership of a profession brings many benefits, but that is a part of the price”: 519 D-E

In Weston v Law Society, 29 June 1998; The Times, July 15, 1998, the Solicitors Disciplinary Tribunal had stuck off a senior partner of a solicitors’ firm for breaches of the Solicitors’ Accounts Rules and conduct unbefitting a solicitor. The allegations were that several transfers had been made from the client account to the office account in order to meet partnership liabilities. The solicitor admitted liability for the breaches in his capacity as equity partner but contended that, having left the financial management of the firm to the other partners and having been unaware of the breaches, the penalty was disproportionate to his culpability. Lord Bingham CJ said that the purpose of the accounts rules was to afford maximum protection to members of the public against the improper use of their funds, and to assure the public of that protection. The importance of the rules placed an onerous duty on solicitors to ensure their observance: 12A-C of the transcript. Lord Bingham CJ then said:

“The position of a partner guilty of non-compliance with the Accounts Rules but without dishonesty will depend on all the circumstances of the case. In this case as it seems to me the tribunal were entitled to bear in mind that this firm was, to Mr Weston's knowledge, in a “parlous financial condition”. He knew of a statutory demand by the Customs and Excise for £60,000. He signed a cheque, jointly with Mr North, in favour of the Customs and Excise for that sum. In fact, as we now know, the payment was made out of funds dishonestly transferred from Mr LTN's estate. That was something which at the time Mr Weston did not know and that is a matter which must be emphasised. But if he had performed his duty under the Accounts Rules it is something of which he would have been aware and something which he would have been able to prevent”: 12F-H.

Lord Bingham added that in speaking of “trustworthiness” in Bolton the court had in mind honesty, but also the duty of anyone holding anyone else’s money to exercise a proper stewardship in relation to it. That was violated if one solicitor with a duty to see that the rules were observed failed to do so. The tribunal had primary responsibility to deal with such matters, and could be expected to be sensitive both to the demands of protecting the profession and to public perceptions. Their ruling would not be disturbed.

At the invitation of Jackson LJ, both parties produced information subsequent to the hearing about the Tribunal’s practice in imposing relatively short periods of suspension. Both parties submitted that the information was of limited interest. The Solicitors Regulation Authority drew firstly on the annual reports of the Solicitors Disciplinary Tribunal. During the years 2005 to 2010 there were 242 suspension orders made of a total of 1532 orders in respect of solicitors appearing before the Tribunal. 73 of the overall total of orders included a costs only order, a case dismissed order or no order at all. During the period of April 2009 to April 2010, 20 solicitors were suspended indefinitely; thirteen solicitors were suspended for one year or more; and eleven solicitors were suspended for less than one year. Secondly, the figures from the Solicitors Regulation Authority itself for the calendar year 2010 showed that there were 217 hearings held by the Solicitor Disciplinary Tribunal and 34 hearings resulted in the suspension of a solicitor. Four of those suspensions related to sole practitioners and ten suspensions related to solicitors stated to be practising on their own account under the style of a named firm. During 2010 the Tribunal ordered suspensions of three months (one solicitor); six months (three solicitors); one year (five solicitors); two years (six solicitors); three years (three solicitors); five years (two solicitors); and an indefinite period (fourteen solicitors). Two of those solicitors suspended for six months were practising as sole practitioners at all material times.

Mr Hopper QC, for the appellant, has analysed the 4 cases in 2010 where suspension of less than a year was imposed. In his submission the cases were either manifestly more serious than the appellant’s or the order would have a more limited impact, or both. In none of the four cases was there a solicitors’ practice at risk by reason of the order. From his great knowledge of the branch of the law, Mr Hopper QC has drawn on 4549 decisions of the Tribunal, mainly from 1989, and found only 53 involving short suspension periods (excluding rather artificial compulsory suspensions by virtue of section 41 of the Solicitors Act 1974, where the suspensions were for weeks or days). He also referred us to the Tribunal’s annual report, which refers to breaches of the Accounts rules accounting for one third of cases and over 47% of the penal orders made by the Tribunal being fines.

In his attractive and cogent presentation of the claimant’s case, Mr Hopper QC focused on two main arguments to support his conclusion that the sanction of nine months’ supervision was wrong. The first was that the Tribunal failed to take account of the enormous ramifications of suspension in this appellant’s case; the second was that it misunderstood and misapplied the findings of the Tribunal in the earlier, the Rosenberg, case.

The first argument encompassed a criticism of the Tribunal’s procedures, not universally, but certainly in this appellant’s case, of not foreshadowing the penalty that it was contemplating, with the result that representations about its adverse effects could not be made. In Mr Hopper QC’s submissions the dishonesty allegation having been successfully defeated – the Tribunal stating that at the hearing – the case became, from the appellant’s perspective, a “typical fines case” in terms of the fault admitted and the penalty which would follow. For the Tribunal to refer to the appellant’s conduct of the accounts as a shambles was a gross exaggeration. Suggesting that the appellant’s breaches were “at the serious end of the scale” meant little when that was also the conclusion in the previous proceedings. Mr Hopper QC highlighted how the appellant tightened up the firm’s account procedures in autumn 2008, unprompted. He had become aware of the pattern of correcting reverse transfers, which identified that something was wrong. That was that fee-earners asserted they were producing bills, but failing to do so promptly. The appellant therefore ensured that bills had first to be produced with the measures outlined earlier in the judgment. By November 2008 all of the matters the subject of complaint, occurring between July and October 2008, had been corrected. That was before he had any inkling of the investigation into his accounts which would follow in January 2009. By the time this matter came before the Tribunal in November 2010 the new and improved accounting systems had been in operation for two years and the corrective measures had been wholly successful. That indicated, Mr Hopper QC submitted, that the appellant is not someone from whom the public needed to be protected.

Thus suspension, as a sanction, would not have been thought to follow. The appellant’s very experienced advocate before the Tribunal (not Mr Hopper QC) could not reasonably have anticipated it. The Tribunal gave no hint that it had suspension in mind when it reserved its judgment. It did not invite representations as to what the consequences of suspension might be which might not be foreseeable by it. Consequently, the devastating consequences for the appellant’s career and family, and indeed the cost to the public purse of transferring to other solicitors the Revenue and Customs fraud cases which he is defending, were not addressed by the Tribunal. The period of suspension is relatively short in the context of the range of periods of suspension which can be and usually are imposed when suspension is the correct order to make. In the appellant’s case, however, it is equivalent to striking him off the roll. A solicitor with a “record” would simply not be employable at the appellant’s age. While his skills in defending very high costs cases involving Revenue and Customs fraud may be marketable in theory, in practice willing employers will be impossible to find given the underwriting market for professional indemnity insurance.

As for his critique of the Tribunal placing incorrect weight on the previous proceedings, Mr Hopper QC emphasised how the breach of the Solicitors’ Accounts Rules in that case involved a situation markedly different from that in the present case. Mr Rosenberg had generated unjustified bills for clients. Although there was breach of the Accounts Rules the thrust of the case against the appellant was inadequate supervision of Mr Rosenberg, quite removed from the situation in the present case. The lesson to be learnt from the Tribunal’s sanctioning in the earlier case was not to employ the likes of Mr Rosenberg. The Tribunal in the present case said that the previous case was only a few months previously, but that was because Mr Rosenberg’s actions between 2003 and 2005 had not been considered by the Tribunal until November 2007. These fundamental misunderstandings of the previous proceedings, which it would not have been thought the Tribunal would make, were an important factor in why suspension had not been anticipated, and why submissions about its severe consequences for the appellant, his family, his firm and the public purse were not made.

In my view it was open to the Solicitors Disciplinary Tribunal to impose a suspension of 9 months in the appellant’s case. In broad terms, although the Tribunal rejected dishonesty on the appellant’s part, Weston v Law Society makes clear that that does not preclude the Tribunal imposing the sanction of suspension on a practitioner for breaches of the Solicitors’ Accounts Rules. Further, the authorities from Bolton v Law Society through to Salsbury v Law Society make clear that this court will accord considerable deference to the Tribunal when it decides, in the appropriate case, that to maintain the high standards of the profession and its reputation with the public the sanction of suspension is justified, even if it results in the solicitor being unable to re-establish his or her practice after the period elapses.

A high standard is set in relation to solicitors’ compliance with the Accounts Rules. That message was reiterated in Weston v Law Society. Rule 1 of the Code of Conduct for solicitors establishes the fundamental principles, which the Solicitors’ Accounts Rules flesh out. Client money is sacrosanct, and a proper stewardship in relation to it is vital. Client money can only be used for that client’s matters. There must be proper systems and controls to ensure compliance with the account rules and it is for a firm’s principals to ensure that. Errors must be promptly remedied. Transfer from the client account to the office account can only be made when properly required for payment of the solicitors’ costs, the firm first notifying the client that payment is to be made from moneys held for the client. No transfer should ever be made from the client account unless a solicitor is satisfied that there are funds to meet it. Each of these simple rules is not merely good practice but is critical to the lawful operation of the client account by any solicitor.

Yet the three transfers founding the allegations against the appellant constituted a use of client money for the firm’s own purpose and a breach of rule 22. As the appellant conceded, the fact that the firm made a transfer in the case of Mr MP and Mr G without checking was reckless. It is simply no answer to say that other funds were available for transfer to the office account. Money can only be transferred to the office account once a bill has been rendered. It is troubling that both Mr MP’s and Mr G’s transfers occurred on the same date in successive months. It would seem that the appellant would have been made aware that the transfer in relation to Mr MP was after a failure to check that the money was actually received, since the transfer was reversed within the week. Yet exactly the same thing occurred on the same day in the following month in relation to Mr G. Albeit that the KL transfer was a mistake, it was not promptly corrected.

Moreover, the breaches involving the transfers have to be seen against the backcloth of the system in operation in the firm in the summer of 2008, when funds were transferred from the client account in batch, not by reference to specific bills, but on an understanding that bills would be rendered. As the Tribunal found that system did not comply with the requirements of rule 19 and was inherently and systematically likely to lead, and did lead, to breaches of rule 22. The Tribunal accepted that it was difficult to be sure how much had been improperly transferred, but concluded that it was clear that a number of reverse postings had been required when the firm’s cashier realised that bills had not been rendered.

All of the breaches of the Solicitors’ Account Rules were admitted, but that does not make them any the less serious. As the Tribunal rightly said the client account is sacrosanct. “Shambles” may have been inapposite as a description of how the firm’s accounts were being operated, but it did encapsulate what the Tribunal properly concluded was quite unacceptable management of the client account. As the Tribunal rightly characterised it, it was behaviour at the serious end of the scale. The appellant had demonstrated a reckless disregard for his obligations as a solicitor. These are onerous obligations, and in this case no one suffered loss, but they are designed in part to protect the profession’s reputation and must be strictly followed.

Procedurally, it is imperative that the Tribunal does not proceed to sanctioning before having decided upon and announced the basis of its findings on the substantive allegations. As a general principle fairness demands that disputed issues which can substantially affect sanctions be resolved and be resolved in a procedurally fair manner, and that parties then be able to address the sanctioning tribunal on the appropriate sanction. An analogy in criminal sentencing is the so-called Newton hearing (R v Newton (1982) 4 Cr App R(S) 388), designed to resolve disputed issues of fact where after a guilty plea all that remains is sentencing. The judge hears evidence and decides the matter to provide a basis for the defendant to make representations and advance mitigation before the court passes sentence. The same approach must be followed by the Tribunal, so that it announces its findings on any matters having a bearing on sanction and then provides ample opportunity for representations to be made on behalf of the solicitor about the sanction to be imposed. There is no need to foreshadow the specific sanction contemplated when it should be within the contemplation of the party given the breaches committed and their context.

In my view there was no breach of these principles in this case. At the hearing on 23 November the Tribunal heard evidence in relation to the allegations, retired, and on returning announced that it had discarded the dishonesty allegation. That, in my view, was the resolution, in a procedurally fair manner, of the key issue affecting sentencing. It then heard mitigation on the appellant’s behalf. Among the submissions advanced were that if the appellant was not able to continue in practice the firm could not continue. The firm’s survival was referred to later when the Tribunal imposed the sanction of suspension. The Tribunal knew about the appellant and his background. It was aware of the nature of the firm, its size and the work it undertakes.

There is now additional information about the impact suspension will have on the appellant personally and his family. This was available at the time of the hearing and in my view could have been advanced before the Tribunal. Given the nature and context of the breaches in this case, and the legal authorities, it simply will not do to contend that this was a “typical fines case”. This was a case where suspension was on the cards. Nor can it sensibly be said that addressing the consequences of suspension would have brought that sanction dangerously to the forefront of the Tribunal’s attention. Mitigating in relation to a more serious, possible sanction, without suggesting it is the outcome expected, is a dilemma which advocates in the criminal courts face, and manage, every day.

It is also clear that the Tribunal was addressed on the appellant’s behalf about the relationship between the Tribunal’s decision on the Rosenberg matter and the allegations he currently faced. The former concerned supervision, it was said, and did not aggravate the current breaches, which involved the account rules. The Tribunal did not accept the submission. In my view the distinction is not as sharp as Mr Hopper QC contends. In broad terms both are indicative of a disregard by the appellant of some of the basic obligations and duties as a solicitor. My expectation would be that a solicitor who had appeared before the Tribunal, and received a very substantial fine in terms of the maximum fixed at that time, would be chastened and more cautious as to his actions, and more mindful of his professional obligations. Again I can detect no flaw in the Tribunal’s approach.

The appellant submits that although successful in defeating the allegation of dishonesty, the Tribunal gave no discount when awarding costs against him. The Tribunal said that while dishonesty had not been proved it had had to be investigated and thus allegation 2 was properly brought. In Mr Hopper QC’s submission the facts of the case were not in dispute and it was by no means a complex matter. The real contest before the Tribunal was in relation to the allegation of dishonesty. The resources and effort committed to the case by the appellant were dictated by the need to meet and defeat that allegation, which would inevitably have led to striking off. The Tribunal found that there was no dishonesty but gave no discount on the costs order against the appellant by reason of that success. The prosecutor had volunteered an unspecified discount, and the appellant’s advocate argued for it. The Tribunal rejected these views, the key reason being that the case had been properly brought.

That phrase, “properly brought”, appeared regularly, Mr Hopper QC said, in cases where the Tribunal declined to reduce the prosecution’s costs in cases which were wholly or partially unsuccessful. He took us to the case of Webster 10469-2010, heard on 20 October 2010. There the Tribunal held:

“The applicant had only proved one of the four allegations brought today and the Tribunal gave careful consideration to the case of Baxendale-Walker v The Law Society [2007] EWCA Civ 233 in relation to the question of costs … Baxendale-Walker v The Law Society stated that a regulator who brought proceedings in the public interest in the exercise of a public function which it was required to perform should be entitled to the costs incurred.”

In other words, submitted Mr Hopper QC, it appears that the Tribunal interprets Baxendale-Walker v The Law Society [2007] EWCA Civ 233; [2008] 1 WLR 426 to mean that if proceedings are “properly brought” that is an argument, indeed a strong argument, for there being no reduction in costs awarded against respondents, even if on one or more issues the disciplinary body is unsuccessful. In Mr Hopper QC’s submission, Baxendale-Walker is authority for nothing of the sort. The solicitor in that case did obtain a discount on the costs to be paid to the Law Society, given his partial success. Moreover, the case was concerned with the principles which apply when a successful respondent solicitor seeks an order for costs against a statutory regulator. Accordingly, the Tribunal’s general approach to costs can be seen to be flawed and to be derived from a misreading of Baxendale-Walker.

In this case, continued Mr Hopper QC, the Tribunal’s reasoning, that it had been reasonable to bring the allegation of dishonesty, was not accepted and was unsupportable on the evidence. It was reasonable to bring such a serious and traumatic allegation only if it could properly be alleged, and it could only be properly alleged if there was a realistic prospect of success. As the Tribunal recorded in its reasons, the Solicitors Regulation Authority could only succeed in the appellant’s case if it could prove that in providing his consistent explanation the appellant was lying. That never offered a realistic prospect of success. If a course of conduct is equally open to two or more interpretations, only one of which is consistent with dishonesty, there is no realistic prospect of proving dishonesty.

In my view the starting point in considering these submissions must be rule 18 of the Solicitors (Disciplinary Proceedings) Rules 2007, which confers a wide discretion on the Tribunal as to awarding costs, even when no allegation of misconduct is proved against a respondent. The ratio of the decision in Baxendale-Walker is contained in the following passage of the judgment, given by Sir Igor Judge P:

“Unless the complaint is improperly brought, or, for example, proceeds as it did in Gorlov, as a “shambles from start to finish”, when the Law Society is discharging its responsibilities as a regulator of the profession, an order for costs should not ordinarily be made against it on the basis that costs follow the event. The “event” is simply one factor for consideration. It is not a starting point. There is no assumption that an order for costs in favour of a solicitor who has successfully defeated an allegation of professional misconduct will automatically follow. One crucial feature which should inform the Tribunal's costs decision is that the proceedings were brought by the Law Society in exercise of its regulatory responsibility, in the public interest and the maintenance of proper professional standards. 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.”

It is clear that the ordinary rule of costs following the event does not apply in disciplinary proceedings. A disciplinary body is not in the same position as a party in ordinary civil litigation. It is acting in the public interest and should not be dissuaded from properly brought proceedings by an adverse costs order. However, it may be that it is appropriate to give a discount on the costs awarded to the disciplinary body when its success is only partial. In Baxendale-Walker the Court of Appeal approved the decision of this court in doing that. In this court Moses LJ (with whom Stanley Burnton J agreed) said that in the circumstances, to reflect the failure of one of the allegations, justice would be done by ordering that the unsuccessful solicitor should not have to pay all the costs. Moses LJ took the view that fairness, properly reflecting the overall justice of the case, would be achieved by an order, not that the solicitor should pay the whole of the Law Society’s costs before the tribunal, but that he should pay 60 percent of them: [2006] EWHC 643 (Admin), [50].

Whether and to what extent the Tribunal should order a discount on the costs awarded to the Solicitors Regulation Authority, where one or more of its allegations is defeated, is very much a matter within its discretion. As Moses LJ observed in Baxendale-Walker this court has none of the advantages which the Tribunal has of assessing the extent to which the appellant should bear the costs of the hearing in the circumstances of the particular case: [49]. There is also the point made by this court in Beresford v Solicitors Regulation Authority [2009] EWHC 3155 (Admin), that appeal courts reopen costs decisions only if plainly wrong: [118]. In my view the Tribunal cannot be said to be plainly wrong. It heard the evidence and decided that it was reasonable for the appellant’s honesty to be investigated. Although ultimately it found that that allegation of dishonesty was not proved, it was entirely appropriate for the Tribunal, seized of all the circumstances, to decide that the appellant should bear all the costs.

In my view the Tribunal was not in error in imposing a sanction of nine months’ suspension in the light of the appellant’s admitted breaches of the accounts rules. That sanction was not disproportionate given the nature and context of those breaches. Neither was it imposed in breach of the rules of fairness, since the Tribunal announced its findings on the crucial issue before it, that of dishonesty, and then heard submissions on the appellant’s behalf as to what consequences should follow. The Tribunal’s decision on costs was open to it, since the ordinary rules as to costs in civil proceedings do not apply in the disciplinary context. I would dismiss the appeal.

I agree.