All I want for Christmas is…increased fining powers and a high degree of costs immunity

Guest article written by Tim Barr at Womble Bond Dickinson

First published: 23 August 2022

It may not feel like Christmas at the moment but the Solicitors Regulation Authority (SRA) may disagree in light of two recent regulatory developments. 

First, it has been granted a 1150% increase in its fining powers (from £2,000 to £25,000) for law firms and individual solicitors, which has taken effect from 20 July 2022. Secondly, the Supreme Court has recently ruled that, save in exceptional circumstances, the SRA should retain its protected costs position when it fails to successfully prosecute a solicitor in disciplinary proceedings. Tim Barr, a partner in WBD's insurance disputes team, considers how these developments will impact the legal profession and its professional indemnity insurance inside and outside of the Christmas period.

SRA fines

In order to protect the public, the SRA regulates solicitors' conduct and investigates almost 2000 cases against solicitors annually.  It undertakes around 120-130 prosecutions a year[1] and it issued over 250 fines last year.  Until very recently, disciplinary matters requiring fines over £2,000 were referred to the independent Solicitors Disciplinary Tribunal (SDT) for determination.  However, following a recent consultation and changes to the legislation, the SRA is now able to impose fines of up to £25,000. As c.90% of all fines issued by the SDT in the last c.7 years are reported to be under £25,000[2], the SRA's regulatory oversight has significantly expanded to all but the most serious of misconduct issues.

SRA costs protection

The SRA has enjoyed a protected costs position since the 2007 Court of Appeal decision of Baxendale-Walker v The Law Society [2007] EWCA Civ 233.  This means that a solicitor is unlikely to be awarded his/her costs when successfully defending disciplinary proceedings brought by the SRA unless the SRA has acted unreasonably or the solicitor has suffered substantial hardship.  We need look no futher than the recent 2021 case of Liz Ellen to show the significant financial impact this can have on a solicitor.  Ms Ellen was practising as a junior sports lawyer at Mishcon de Reya when she was alleged to have allowed improper payments through the firm’s client account.  Despite being cleared of misconduct, Ms Ellen was unable to recover the £534,000 in costs that she incurred in defending the SDT proceedings because the SDT found that the SRA's case had not been improperly brought[3]. 

The Supreme Court has recently affirmed the SRA's protected costs status in Competition and Markets Authority v Flynn Pharma Ltd & Anor [2022] UKSC 14. The SRA intervened in that case to support the CMA which argued that a public body that has been unsuccessful in bringing or defending proceedings in the exercise of its statutory function should have costs protection.  The Supreme Court ruled against the CMA but held that the SRA's position was different.  As part of Lady Rose's lead judgment, she stated "I recognise the importance of the Baxendale-Walker authority for the continued proper function of the SRA and I do not regard this judgment as casting any doubt on the correctness of that decision." 

Professional Indemnity Insurance (PII) may not help

As a matter of public policy, the Minimum Terms and Conditions of Professional Indemnity Insurance (MTC) do not cover any fine imposed on a solicitor by the SRA/SDT as any such fine is intended to act as a personal sanction to deter misconduct in the profession.

In addition, there is no cover under the MTC for defence costs in relation to disciplinary proceedings before the Solicitors’ Disciplinary Tribunal.[4] Accordingly, in circumstances where solicitors may well not recover their costs from the SRA (even if they successfully defend prosecution), there is a significant costs exposure to solicitors defending disciplinary proceedings, especially when a solicitor may also be held responsible to pay the SRA's own costs of the proceedings.

It is therefore not uncommon for individuals to represent themselves while others have sought pro-bono assistance and/or crowdfunding; the case of junior solicitor Claire Matthews being a recent high-profile example. 

We are aware that some PII insurers do go beyond the MTC and offer defence costs for disciplinary hearings, but the position differs considerably across the market and the cover is usually limited. It is an issue that firms need to investigate with their broker.

Equality of arms?

The challenging costs environment for solicitors defending disciplinary sanction is not new.  In that regard, unless the conduct in question is particularly serious, it may come as a relief to some of the profession that the SRA's increased fining powers will reduce the prospects of a solicitor having to defend his/her position through to a costly SDT final hearing.  As the SRA have highlighted, it will also hopefully result in shortening the average time taken for cases to be resolved.

However, one could question whether (disciplinary) justice will prevail in light of these recent changes.  These factors combined mean that for many law firms and individuals, it may be more attractive to agree outcomes and accept fines even where there has been no misconduct in order to manage the financial risks.  According to the SDT, it heard 68 cases in 2020.  Of these two were withdrawn by the SRA, eight were found not proved for all respondents and a further case was found not proved for only some respondents – this amounts to roughly 1/6th of cases which would have had a different outcome had they not been tested by the SDT. 

The principle of equality of arms is key to the concept of a fair trial and many solicitors may feel that the current disciplinary environment is imbalanced in favour of the SRA.  As someone recently commented, if the choice is between accepting a £20,000 fine with minimal costs, or going to a contested tribunal hearing that will cost significantly more to defend, there may be no choice at all.

 Authored by:

Tim Barr Partner, Womble Bond Dickinson (UK) Email Tim Barr

This article has been written by Womble Bond Dickinson (UK) LLP (Womble Bond Dickinson) and the opinions and views stated in this article are those of Womble Bond Dickinson  and not Howden Insurance Brokers Limited (“Howden”). Howden is an insurance broker and is not authorised or regulated to advise on Solicitors Regulation Authority (SRA) regulatory developments. Howden shall not (i) owe or accept any duty, responsibility or liability to you or any other person; and (ii) be liable in respect of any loss, damage or expense caused by your or any other party’s reliance on this article.