Fuglers LLP (in association with David Berens&Co) and Others v Solicitors Regulatory Authority
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Popplewell |
| Judgment Date | 05 February 2014 |
| Neutral Citation | [2014] EWHC 179 (Admin) |
| Date | 05 February 2014 |
| Court | Queen's Bench Division (Administrative Court) |
[2014] EWHC 179 (Admin)
The Hon. Mr Justice Popplewell
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
ON APPEAL FROM THE SOLICITORS DISCIPLINARY TRIBUNAL
Royal Courts of Justice
7 Rolls Building, Fetter Lane
London, EC4A 1NL
Miss Alison Foster QC (instructed directly) for the Appellants
Mr Mark Cunningham QC (instructed by Morgan Cole LLP) for the Respondents
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an appeal under Section 49 of the Solicitors Act 1974 against a decision dated 7 January 2013 ("The Decision") of the Solicitors Disciplinary Tribunal ("the Tribunal"). The First Appellant ("the Firm") is a West End firm of solicitors. The Second and Third Appellants are its two equity partners, Mr Fugler and Mr Berens.
The Tribunal found charges of misconduct proved against the Appellants and imposed fines in the following amounts:
The Firm £50,000
Mr Berens £20,000
Mr Fugler £5,000
The Appellants no longer contest the Tribunal's finding of misconduct, but appeal against the fines imposed by way of sanction, which are said to be in error in three ways:
(1) The individual sums are disproportionate and do not reasonably reflect culpability.
(2) Mr Fugler ought not to have been fined at all.
(3) It is wrong to penalise the individual partners so substantially and in addition the Firm.
The Appellants also challenge the Tribunal's award of costs. The Tribunal ordered the Appellants to bear a proportion of the costs of the Solicitors Regulation Authority ("SRA") in the total sum of £56,250, split between the Firm, Mr Berens and Mr Fugler in the same proportions as the fines.
The Tribunal also found charges of misconduct proved against Mr Jacob, who was at the time a salaried partner of the Firm, but has since left. Mr Jacob has not appealed the Decision.
The Appellants
At the material time the Firm comprised five partners, a consultant solicitor, and five assistant solicitors. It handled a significant amount of commercial work and commercial property work, as well as acting on the panel of a professional indemnity insurer and various banks. Its turnover in the past four years was approximately £1 million per year. Mr Fugler and Mr Berens managed the Firm, and were (and remain) the only two equity partners, the other partners being salaried. Both are experienced solicitors. Mr Fugler is 66 and has been a solicitor for 43 years. Mr Berens is 51 and has been a solicitor for 25 years. The Firm, including in particular Mr Berens, had previous experience in acting for footballers and football clubs. This included dealing with insolvency matters for football clubs.
The Charges
The Appellants faced five charges. The first four, which were found proved, were made against each of them in the following terms:
Allegation 1.1: they made improper use of the Firm's client account by using it as a banking facility for a client.
Allegation 1.2: they operated their client account contrary to Rule 15 of the Solicitors' Accounts Rules 1998.
Allegation 1.3: they provided services to a client other than those a recognised body is permitted to provide contrary to Rule 14 of the Solicitors' Code of Conduct 2007.
Allegation 1.4: they acted in a way which was likely to diminish the trust the public placed in them and the profession contrary to Rule 1.06 of the Solicitors' Code of Conduct 2007.
The fifth allegation was made against the two partners and was that they acted recklessly. The Tribunal acquitted the partners on this charge.
The relevant part of Rule 15 referred to in the second charge was Rule 15 note (ix) of the Solicitors' Accounts Rules 1998 which was in the following terms:
"(ix) In the case of Wood and Burdett (case number 8669/2002 filed on 13 January 2004), the Solicitors Disciplinary Tribunal said that it is not a proper part of a solicitor's everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. Solicitors should not, therefore, provide banking facilities through a client account. Further, solicitors are likely to lose the exemption under the Financial Services and Markets Act 2000 if a deposit is taken in circumstances which do not form part of a solicitor's practice. It should also be borne in mind that there are criminal sanctions against assisting money launderers."
The relevant part of Rule 14 of the Solicitors' Code of Conduct 2007 referred to in the third charge was in the following terms:
"(1) The business of a recognised body may consist only of the provision of:
(a) professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions;……."
All the charges arose in relation to the same conduct. The gravamen of the charges was that the Appellants had allowed the Firm's client account to be used by a client of the Firm, Portsmouth City Football Club Limited ("the Club"), as a banking facility over a period between 5 October 2009 and 8 February 2010. During this period the account had been used to receive payments in from the Club and others, and to transfer out many payments to service the Club's day to day trading activities. A total of about £10 million passed through the account in this way over the four month period. The transactions took place via two client ledger accounts which were set up for that purpose. Throughout that period, the Club's banking facilities had been withdrawn by its bank because HMRC had presented a winding up petition on 1 October 2009. Mr Berens was aware of the petition shortly after 5 October 2009. The winding up petition was subsequently withdrawn on 12 November 2009, but a second petition was presented by HMRC on 22 December 2009.
Throughout the period the Club was in a perilous financial state and subject to negotiations for its purchase by a consortium of potential buyers, for whom the Firm was also acting. In February 2010 the Firm ceased to act for the Club and the Club entered a Company Voluntary Arrangement which was formally approved in June 2010. The company, Portsmouth City Football Club Limited, went into liquidation later that year, and the football club continued its activities through another corporate structure.
The Law
The approach to appeals against sanction imposed by a Solicitors Disciplinary Tribunal has been considered in a number of cases including in particular Bolton v The Law Society [1994] 1WLR 512, Salsbury v The Law Society [2009] 1 WLR 1286, and Solicitors Regulation Authority v Anderson [2013] EWHC 4021 (Admin), from which the following principles may be derived:
(1) On an appeal under Section 49 of the Solicitors Act 1974 the court should only interfere if there is an error of law, or a failure to take account of relevant evidence, or a failure to provide proper reasons ( Anderson at [60] per Treacy LJ).
(2) The Solicitors Disciplinary Tribunal, as an experienced body of solicitors, is best placed to weigh the seriousness of the professional misconduct and the effect which their findings and sanctions will have in promoting and maintaining the standards to be observed by individual members of the profession in the future, and the reputation and standing of the profession as a whole (see eg Bolton per Sir Thomas Bingham MR at 516).
(3) Accordingly this court must pay considerable respect to the sentencing decisions of the Tribunal and in the absence of legal error will not interfere unless the sentencing decision was clearly inappropriate ( Salsbury at [30] per Jackson LJ; Anderson at [64] per Treacy LJ). Although it is an overstatement to say that a very strong case is required before the court will interfere ( Salsbury per Jackson LJ at [30]), nevertheless the test is a high hurdle (per Treacy LJ in Anderson at [65]).
There are two aspects of insolvency law which are relevant to the conduct under consideration in the present case. The first is section 127(1) of the Insolvency Act 1986 which provides:
" In a winding up by the court, any disposition of the company's property… made after the commencement of the winding up is, unless the court otherwise orders, void."
The commencement of winding up, which triggers the potential operation of the provision, occurs when a winding up petition is presented, although the invalidity of the disposition which the section provides for only takes effect if a subsequent winding up order is made. The invalidity is subject to the court ordering otherwise, and the court may make such a validation order either retrospectively, or in advance before a disposition is made upon an application by an interested party. It is not uncommon in insolvencies for interested parties to make prospective applications for such validation orders prior to a disposition being made.
The other insolvency aspect of relevance is peculiar to football clubs who are members of the Football League. The Football League itself, and its member clubs, enter into a series of agreements whose effect is what is colloquially known as "the Football Creditor Rule". In briefest summary, the effect is that the revenues of a football club from certain sources, for example from television or the sale of players, is all held by the...
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