Scott v Solicitors Regulation Authority [2016] EWHC 1256 (Admin)
In a decisive judgement by Lady Justice Sharp, the High Court has rejected an appeal brought by Robert Franklin Scott against a decision to strike him from the roll in circumstances where he was not found to have acted dishonestly, but nonetheless had acted without integrity. Upholding the Solicitor's Disciplinary Tribunal's finding that S had neither thought nor cared about the rules governing his profession, the Court confirmed that a finding that he lacked integrity could and did justify the most serious sanction available to the SDT even where S had been able to demonstrate that his conduct was not subjectively dishonest.
S, who had been admitted as solicitor in 1992, was the principal in the law firm Key 2 Law LLP ('the firm') and also ran two other companies, Key 2 Claims Ltd ('K2C') and Applied 3D Technologies Ltd ('A3DT'). K2C acted for consumers who were aggrieved with their credit card companies and S employed a consultant, BW, to generate the client base for this company. The expectation was that where the credit disputes could not be resolved by K2C, the firm would act in any litigation. BW was successful in attracting a number of clients to the firm who each paid £300 which was held in the K2C client account.
BW was not employed by the firm and did not act on its behalf, but nonetheless was permitted by S to control the firm's K2C client account ledger. Over a 17 month period, over £500,000 was paid into the firm's client account but rather than providing clients with any services or progress their claims, BW instructed payments be made for a number of other purposes and S authorised these without question.
A3DT was a company set up to attract investment in technology. Investment was sought to fund the creation of a 3D projector, and one investor paid £20,000 to the firm for that purpose. However, BW instructed the money to be paid out to other parties including two private schools, his girlfriend and the firm with no underlying legal transactions.
At the SDT hearing, S stated that he had trusted BW and believed that he beneficially owned both companied and was therefore entitled to use the accounts. He accepted that he did not question BW's requests to the firm's cashier to release the funds to him, all of which he had authorised. The SDT found that BW had no legal standing and the payments out were all improper. It found that the solicitor's conduct was objectively dishonest but because he had been 'in thrall' of BW and believed that BW had been entitled to deal with the monies on client account, the necessary subjective requirement for dishonesty was not met. S was distracted also, the SDT found, by personal problems including alcohol addiction. The SDT concluded however, that S' conduct lacked integrity as he had shown no regard at all for his obligation to protect client money.
On appeal, S submitted that as he had not been found to have acted dishonestly, the SDT should not have reached the conclusion that he had acted without integrity. Furthermore, striking him off was excessively severe and at odds with sanctions handed down in similar cases.
Dismissing the appeal, Lady Justice Sharp said that S had effectively 'handed over' control of receipts and payments to BW who was not a member of the firm, where there was no underlying legal transaction and had allowed the ledger to be used as a banking facility. S' 'unquestioning acceptance' of BW's requests for funds from the client accounts was conclusive evidence that S failed to protect client assets and funds. Whilst the SDT had found that this did not amount to dishonesty, there is an obvious distinction between that and the concept of integrity. As here, the Court found, a person could lack integrity without being dishonest by being reckless as to the use of various client accounts for example. S had not enquired as to the reasons for the improper payments and transfers, had not cared at all about what he was instructed to authorise and had he shown any steady adherence to any kind of ethical code or thought about what was required by the rules governing his profession. The Court held that "[o]n the facts, including the admitted or proven breaches which involved culpability and a consideration of what was in the appellant’s mind at the time, it seems to me that the SDT’s findings of recklessness and lack of integrity were not only justified but inevitable.”
As to sanction, the SDT's conclusion could not be faulted the appeal was dismissed.
The principle of acting "with integrity" is of course fundamental to the codes of many legal and financial professionals Codes of Conduct, such as SRA Principles 2011 “You must act with integrity” (Principle 2) and the FCA’s Statements of Principles “An approved person must act with integrity in carrying out his accountable functions" (Statement of Principle 1). As a concept, 'integrity' has repeatedly been recognised as distinct from 'dishonesty' but not necessarily an alternative, as discussed in SRA v Chan [2015] EWHC 2659 (Admin). A lack of integrity allegation may avoid the need to establish the subjective element of the two stage test for dishonesty and given the outcome in Scott may still result in the most serious of sanctions. It is however interesting to note that the proposed new SRA Code will require solicitors to be both honest and act with integrity.