Skip to main content
Insight

The relevance of state of mind to an allegation of lack of integrity

04/04/2017
Newell-Austin v Solicitors Regulation Authority [2017] EWHC 411 (Admin) As courts and regulators continue to define what it means to act with a lack of integrity, Morris J provides further guidance and some clarity, giving hope to regulatory bodies that a legal definition may be capable of development. At a time when there is a lack of clarity as to the legal test for dishonesty in regulatory cases, an understanding of what amounts to a lack of integrity may be within grasp; in some cases, it may be a preferable charging strategy as it now seems established that any test is solely an objective one.

Newell-Austin v Solicitors Regulation Authority [2017] EWHC 411 (Admin)

As courts and regulators continue to define what it means to act with a lack of integrity, Morris J provides further guidance and some clarity, giving hope to regulatory bodies that a legal definition may be capable of development. At a time when there is a lack of clarity as to the legal test for dishonesty in regulatory cases, an understanding of what amounts to a lack of integrity may be within grasp; in some cases, it may be a preferable charging strategy as it now seems established that any test is solely an objective one.

The Appellant, Ms Newell-Austin, was the sole principal of a law firm. She had wanted to cease practice but did not have the means to purchase the run-off insurance required for closing the practice, and so sought to bring in two associates to work for the firm. 

One of the associates, Mr RA was a Registered Foreign Lawyer (RFL), and the other was a solicitor, Ms NA whom the Appellant met for the first time in a café in a train station. The day after meeting Ms NA, and before Ms NA started working at the firm, the Appellant applied to the SRA for permission for the firm to practise as a partnership, with each of the three as partners.  Mr RA had been working at the Firm for five weeks at the time of the application.

In the application form, the Appellant confirmed that Mr RA as a RFL was not currently facing criminal charges. In fact the week before, Mr RA had been arrested and released on bail in connection with a fraudulent mortgage transaction which had been handled by the Firm.  The Appellant notified the SRA that the Firm had handled a transaction which was the subject of fraud, but made no mention of Mr RA's arrest in connection with the matter.

In other correspondence between the Appellant and the SRA in connection with the partnership application, the Appellant confirmed that Mr RA would be permitted minimal management responsibilities because of his lack of experience, but that he would continue to carry out casework, supervision and promote the firm. In fact, by this time Mr RA was no longer attending the office at the Appellant's request following his arrest, and the Appellant made no mention of the arrest in her correspondence.

Six days after the SRA granted permission to the firm to operate as a partnership, the appellant resigned as partner. The SRA then commenced an investigation into the property fraud, and duly discovered that Mr RA had been arrested in connection with it, and that also the firm had been involved in a number of other fraudulent mortgage transactions. 

The Appellant was charged with allegations of dishonesty and acting with a lack of integrity, and was brought before the Solicitors Disciplinary Tribunal (SDT). Finding that the Appellant had ceded control and acquiesced in the firm's involvement in fraudulent transactions, the SDT considered her conduct to have lacked integrity but that this was not dishonest in itself. Her correspondence with the SRA in relation to Mr RA's management responsibilities had been dishonest however; she knew that full disclosure would have a detrimental effect on the partnership application and therefore she had been deliberately misleading in her correspondence.

On appeal, the Appellant argued (amongst other points) that the SDT erred in failing to take into account her subjective state of mind when it came to determining whether she had lacked integrity. She argued that there is or must be, a subjective element within the test for integrity, mirroring that of the Twinsectra dishonesty test: namely that the defendant must themselves realise that, by the standards of reasonable people, their conduct lacked integrity. 

Morris J considered the cases of Hoodless and Blackwell v FSA [2003] FSMT 007, SRA v Scott [2016] EWHC 1256 (Admin) (which we considered here) and SRA v Chan [2015] EWHC 2569 (Admin) and distilled from those cases, three general principles.  Firstly, integrity connotes moral soundness, rectitude and steady adherence to an ethical code; secondly, an informed tribunal, considering the facts of the particular case, is capable of identifying whether a defendant has lacked integrity, and further analysis of the term does not assist; and finally, the concepts of integrity and dishonesty are not the same, and a defendant may lack integrity but not be dishonest when the individual case is examined.

The Court held that previous case law has settled the position as regards whether the test for determining a lack of integrity requires a subjective limb, and it is clear that the test is objective only. Morris J confirmed that whilst a person's state of knowledge or intention in relation to the underlying conduct which is said to demonstrate a lack of integrity is relevant, there is no requirement to establish that the person must have realised that they had acted in a way that lacked integrity.  To illustrate his point, Morris J offered the example of a solicitor withdrawing money from a client account with the intention of later putting it back; there is no dishonest conduct here, but the solicitor lacked integrity by consciously using client monies in an improper way notwithstanding there was no loss to the client.

In any event, in the present case, Morris J found the Appellant had acted recklessly in recruiting partners to the firm in the 'highly unorthodox' way that she did, and in failing to control unadmitted members of staff, she turned a blind eye to the obvious risks of her actions. Although she may not have intended to act without integrity, her conduct had been highly risky and failed to show any regard to her clients' interests, and accordingly the SDT had more than a sufficient foundation for finding that she had lacked integrity. 

As to dishonesty, although there was no positive duty on the Appellant to notify the SRA of the arrest of Mr RA, her decision to withhold the information about his arrest and the real reason he was not in a position of management was deceitful and designed to conceal the fact of his arrest.

Charging a lack of integrity is specifically provided for in the enforcement strategies of the SRA and FCA, but this is not the case for other regulatory bodies with Codes of Conduct which do not reference acting with integrity as a requirement for professional practice. Whether regulators would need to amend their Codes and enforcement policies to charge conduct lacking integrity has not yet been tested, but it is easy to see why it may be attractive; a charge that a professional person has lacked integrity due to their reckless or grossly negligent behaviour, without having to prove a particular state of mind can obviate a potentially significant evidential hurdle for the regulatory that is otherwise required by an allegation of dishonesty.

Sign up to our email digest

Click to subscribe or manage your email preferences.

SUBSCRIBE