Disciplinary Processes and Regulatory Sanctions

The juxtaposition of traditional disciplinary systems and regulatory action is not new. Both the Bar Council and Law Society imposed various penalties and restric­tions on members without applying full disciplinary processes.

While the different approaches associated with each system are complementary, they can also be in conflict. This is demonstrated by the standard of proof required by the SDT (the criminal standard) and that adopted by the SRA in the exercise of its disciplinary powers (the civil standard). Now that the SRA can impose modest fines and even strike a solicitor from the roll, the issue of consistency is raised. Similar problems of consistency arise in relation to the sanctions applicable to regulated per­sons and ABS. There could be problems where a party appeals against a regulatory fine and a different standard is applied.

A. Rules and Principles

The LSB, and others, have encouraged the professions to adopt principles in place of rules when drafting regulatory standards. This shift reflects the ‘more modern’ style of regulation promoted by government. It is also arguable that principles are more flexible and adaptable to the diverse situations that regulators have to deal with. They can apply to organisations and individuals. Because of this flexibility, principles lack specificity. When individuals are charged with disciplinary offences it may be arguable that principles have been broken. It is for this reason, presumably, that the Bar, while adopting the Handbook terminology for their new regulations, retain the rule format in most areas.

One aspect of the argument between the LSB consultants on the cab rank rule and those responding on behalf of the Bar, related to this distinction between rules and principles. The LSB consultant concluded that

[w]hile [the cab rank rule] can be lauded as a professional principle enshrining virtuous values, as a rule it is redundant. We can see no justification for the continuation of the cab rank rule as a rule in the modern, globalised legal services market. By all means the Bar can espouse it as laudable principle but it should not pretend that the rule is significant or efficacious.^[1383]

The proposition that the cab rank rule could be replaced by a principle evoked much discussion in the Bar’s responses. The Bar Standards Board’s respondents were con­fused by the suggestion. They pointed out that whether the cab rank rule became a principle would depend on the form regulatory standards took. If they took the form of rules, then the suggestion that an obligation become a principle might suggest that the intention was to weaken its force. If, however, a code was composed purely of principles, it would matter less. The ‘cab rank principle’ would then still be enforce­able. In fact, they suggested, in a code such as the solicitors now had, principles were more likely to be enforced than outcomes.^[1384]

The Bar Council’s respondent, Sir Sydney Kentridge QC, argued that, in their evaluation of the cab rank rule, the consultants ‘ignore the force of professional tra­dition and in particular that this element in it is inculcated into every Bar student’. Kentridge’s discussion cites Dworkin’s distinction between rules, being applicable in an ‘all or nothing fashion’, and principles, ‘requirements of justice or fairness or some other dimension of morality’.^[1385] On this basis he dismisses the idea that the rule could work as a principle because it would involve, ‘down-grading the cab rank rule to a vaguely desirable principle’.^[1386]

The points made in the Bar consultants’ reports are somewhat supported by the LSB consultant’s report.

Below the surface of the debate about the relevance of the cab rank rule lies an important issue about the nature and use of professional standards. The LSB con­sultants reveal cynicism regarding the effect of professional rules. They also display scepticism about the continuation of professional regulation by rule. They suggest that measures like the cab rank rule were the product of self-regulation and expressive of the ‘regulatory bargain’. Now, they said, we have ‘external regulation... we can ask how many of the rules are still relevant’.^[1387] This suggests that the LSB consultants see the establishment of regulatory arms as a complete break with the tradition of

self-regulation. It may also suggest that they see the LSB as the main player in shaping regulation, rather than simply being overseers of the system.

B. The Burden of Proof in Applying ‘Regulatory’ and

‘Disciplinary’ Sanctions

Although the circumstances in which the power to fine or strike off is different, the underlying principle is still relevant. For example, the SDT can impose an unlimited fine while the SRA can only impose a fine of up to £2000. There are no restrictions on the power of the SDT to strike off whereas the SRA can only do so with the agreement of the solicitor. The SDT needs to see evidence that satisfies it beyond reasonable doubt. The SRA only needs to be satisfied on a balance of probabilities.

The adoption of the civil standard of proof was approved by the SRA Board and incorporated in the SRA Disciplinary Procedure Rules. The Board received a paper containing numerous reasons for the SRA adopting the civil standard in applying its regulatory powers. This raised a number of arguments that have been used since by advocates of the civil standard of proof. They can be broadly grouped under the heading of consumer benefit, proportionality, rigour and flexibility.

i. Case for the Civil Standard

The first argument concerned the impact on consumers of adopting the civil stan­dard. If the SRA were to adopt the criminal standard, more cases would be rejected at an early stage because of lack of proof, or the disproportionate cost of collect­ing proof, to meet that standard. This would reduce public protection and increase frustration with regulation. The SRA and its predecessors had applied the civil standard of proof for many years in exercising regulatory functions, resolving cases more quickly and cost-effectively than the SDT and without significant difficulty or controversy.

The second argument downplayed the significance and impact of the new regula­tory powers. They would only allow the SRA to impose fines of up to £2,000 and publish findings of misconduct resulting in a rebuke. The criminal standard of proof was not appropriate to these relatively minor findings of misconduct. In exercising its powers the SRA would not be putting anyone’s liberty at stake. Further, there was a statutory appeal, as of right, to the SDT against findings that implied serious wrongdoing.

The third argument asserted the robustness of the civil standard of proof. Decisions having a major impact on lives, businesses and livelihoods are taken every day in civil cases applying the civil standard of proof. The civil standard can deal with serious allegations by what the case law refers to as a need for ‘heightened examination’, allow­ing the regulator to ‘look closely into the facts grounding an allegation of fraud before accepting that it has been established’.

The final argument related to the SRA’s increased emphasis on ‘regulation of firms and overall proportionality’. This, it was said, was likely to be facilitated by the new powers being exercisable using the civil standard. It appears that this was shorthand for suggesting that using the civil standard would fit better with OFR, and a focus on firms, rather than individuals.

ii. Case for the Criminal Standard

Most of the arguments for using the civil standard of proof in deciding whether to impose regulatory sanctions are an implicit criticism of using the criminal standard of proof in misconduct cases. The case for using the criminal standard largely rests on the case for consistency in the processes for reaching decisions. It therefore depends, to a large extent, on the use of the criminal standard for the most serious cases in the disciplinary tribunals.

The case for using the criminal standard in the disciplinary tribunals is based on the need to be fair to the accused. Professional practitioners facing charges of misconduct risk losing their reputations, incomes and careers. These consequences are at least as serious as those faced by defendants in criminal courts. In most disputes with profes­sionals, the consequences for consumers are much less serious. The decision to impose a serious sanction on a professional person, the argument goes, should not be taken lightly. It should not be done for the convenience of achieving artificial compatibility between two regimes.

iii. Responses of the Professions

Before coming to a conclusion the SRA Board considered the prospect that the SDT would be applying a higher standard of proof in cases it decided. This would potentially include those cases appealed from SRA decisions taken applying the lower standard. In opting for the civil standard of proof in applying its new regulatory powers the SRA undertook not to use them in cases involving dishonesty.

The SRA Board considered the prospect that the LSB, SDT, SRA and the Law Society would all move to applying the civil standard. This seemed likely when it was revealed that CILEx had adopted the civil standard for disciplinary matters and that the BSB was considering it. The prospect receded when it became clear that the criminal standard would, in fact, be retained for both the SDT and BDT cases.

Retaining different burdens of proof for imposing ‘regulatory’ or ‘disciplinary’ sanctions presents problems. It may encourage appeals from SRA regulatory deci­sions when firms think that their reputation might suffer and the proof of infraction does not reach the criminal standard. The initial application by the SRA to adopt the civil standard in disciplinary matters was initially rejected in 2009 by the Lord Chancellor and the Master of the Rolls.

The Bar saw the difficulty in applying different standards of proof to the same facts. Responding to a consultation by another regulator it responded

[w]hile there remains a line of thought that it may be appropriate to apply a different standard of proof to allegations that amount to criminal behaviour, the BSB recognises the practical problems in applying different standards according to the nature of the allegation/complaint.^[1388] In 2011 the BSB was reported to again be considering a switch to a civil standard of proof in disciplinary matters.^[1389]

When the Bar came to implement its new regulatory regime it also ran into the difficulty of applying different standards of proof to serious and non-serious breaches. It announced that administrative sanctions would apply to breaches of rules that ‘do not amount to professional misconduct’ and that disciplinary action would be reserved for ‘more serious professional misconduct’.^[1390] This appeared to leave professional misconduct that lay between ‘non-serious’ and ‘more serious’ uncovered by either administrative sanctions or disciplinary processes. It is in this grey area where jurisdictional problems are likely to arise.

C. Erosion of Distinctions between Disciplinary Charges

Before the Solicitors’ Code of Conduct 2007, it was understood that misconduct fell into two categories. The first category was a breach of code or other regulation. The second category was ‘unbefitting conduct’. It has been alleged that, since the new code was enacted, all breaches of the code have been prosecuted and the distinction between code breaches and ‘unbefitting conduct’ eroded.^{[1391] [1392] This move was attributed to a desire to ensure that the Solicitors Conduct Rules 2007 created obligations to manage firms effectively.}

The attempt to shift regulation from an individual to a corporate basis was appar­ently reflected in an increase in cases where the SRA charged solicitors for the acts of employees. In Akodu v SRA^vn the Divisional Court overturned a decision of the SDT finding a partner guilty of conduct unbefitting a solicitor for the act of an employee. The employee, a fee earner under his supervision, failed to inform a mort­gagee, a lender client, of a reduction in the price paid for a property by the purchasing client. In the absence of any evidence of personal fault in Akodu, a finding of conduct unbefitting a solicitor could not be sustained purely on the basis that he had been a partner in the firm.

Although the finding was quashed, the order that the appellant pay 40 per cent of the costs was upheld. This was because it could reasonably be said that he had brought the allegations on himself. The case illustrates a contemporary debate about the purpose and scope of disciplinary proceedings. On one hand, there are those who argue that discipline must deal with partners who do not manage others adequately.^[1393] On the other, it is arguable that, in principle, solicitors should not be brought before the SDT for employee infractions over which they had no control.^[1394]

The doctrines of strict and vicarious liability have never applied in disciplinary pro­ceedings. They have always been concerned with personal professional responsibility. Perhaps the power of the SRA to impose sanctions might avoid such cases coming to the SDT in future.

D. Levels of Fine between ‘Regulated Persons’ and ABS

The difference in level of fines the SRA is able to level on regulated persons (£2000), on manager or employees of ABS (£50 million) and on ABS (£250 million), is huge. There will almost certainly be litigation should the SRA attempt to levy such fines at the higher end of the scale. The lack of fairness reflected in this discrepancy is likely to be an argument used by ABS in appealing such fines.

E. Forum Shopping

‘Forum shopping’ is a practice of litigants, initially identified in private international law, seeking to have a case heard in the jurisdiction or court most likely to provide a favourable judgment. ABS can choose any licensing authority to regulate them. This raises the possibility that they will choose regulatory regimes providing the most favourable terms, including the level of fine and the standard of proof required to show breach of licence.

In 2011 the Council for Licensed Conveyancers’ (CLC) applied to become an ABS licensing authority. It proposed using the criminal standard of proof in serious cases, such as those alleging dishonesty. The Legal Services Consumer Panel (LSCP) warned that this would attract ABS looking for a less rigorous regulatory regime and could expose customers of CLC regulated ABS to risk.^[1395] The LSCP suggested that it was ‘surprised’ and ‘disappointed’ that the CLC had responded to ‘informal enquiries’ with a position paper confirming its adherence to the criminal standard.

F. Use of Regulatory Sanctions

i. Diminution of Impact

Abel points out that, in the case of professional disciplinary proceedings, the process is part of the punishment.¹⁸¹ When sanctions are imposed as part of an administrative process they may not have the same impact. Fines, which have long been used as dis­ciplinary sanctions, are an example of this. When imposed by disciplinary tribunals, fines can be seen as one of a range of penalties reflecting the seriousness of misconduct. Fines imposed by regulators might be seen as administrative matters and not a form of serious reprimand.

ii. Regulator Discretion

Whereas disciplinary processes are open, transparent and accountable, administrative processes may be less so. There is no external review of mechanisms such as regulatory settlement agreements. The regulated party has an incentive to agree to the sanction to avoid the disciplinary process. Thereafter, there can be no appeal about the process or fine. The availability of regulatory discretion raises issues about due process and fairness to regulated parties in terms of both the imposition and scale of sanction. For example, solicitors in large firms may be subject to settlement agreements whereas those in smaller firms may be brought before the SDT.¹⁸²

IX.