Patel v SRA

The Divisional Court dismissed an appeal under section 49 of the Solicitors Act 1974 against a Solicitors Disciplinary Tribunal decision fining the appellant. The court applied the principle from Wood and Burdett, embodied in the accounts guidance and later rule 14.5 of the SRA Accounts Rules, that a solicitor must not provide banking facilities through a client account unless movements relate to instructions about an underlying legal transaction or to services forming part of the solicitor's normal regulated activities.

The Tribunal was entitled to find that the appellant had permitted his client account to be used as a banking facility for transactions (notably with two dealers, "B and M") where there was no underlying legal transaction and where the appellant's role was custodial and administrative rather than legal. The appeal was therefore dismissed and the penalty and costs upheld.

Background and parties:

• The appellant, a solicitor practising as Alliance Solicitors, held a client account titled "German Autos" for a client company Club SYR Ltd ("Club") whose principal was Mr Yap. Investors, including two car dealers described as B and M and other investors, paid moneys into that account in connection with a scheme to import and sell cars.
• The Solicitors Regulation Authority (SRA) investigated following an inspection and a forensic report showing large turnover through the account. The SRA charged the appellant with permitting his client account to be used where there were no underlying legal transactions and the Solicitors Disciplinary Tribunal found the allegation proved in respect of the B and M transactions and fined the appellant and ordered costs.

Nature of the application: The appellant appealed under section 49 of the Solicitors Act 1974 seeking to overturn the Tribunal's finding and sanction.

Issues framed by the court:

• Whether the Tribunal was entitled to apply the principle from Wood and Burdett to conclude that use of the client account as a banking facility amounted to misconduct where there was no underlying legal transaction;
• How rule 14.5 of the SRA Accounts Rules and the earlier note to rule 15 should be construed — whether movements on a client account must relate to an underlying legal transaction or to any underlying transaction or service;
• Whether the appellant's custodial/administrative activities (checking invoices, sending funds to manufacturers, drafting some joint venture agreements for some investors) amounted to legal work sufficient to permit the account's use.

Court's reasoning and decision:

• The court reviewed the development of the principle in Wood and Burdett and subsequent Tribunal decisions and the evolution of the accounts rules culminating in rule 14.5 of the SRA Accounts Rules 2011.
• The court rejected the appellant's argument that the rule permits use of a client account merely because there is some non-legal underlying transaction. The wording and context show that movements must relate to instructions concerning an underlying legal transaction or to services that form part of normal regulated legal activities (the latter measured by the regulatory regime and the Legal Services Act 2007, section 12).
• Applying those principles, the court concluded that in respect of the B and M matters there was no underlying legal transaction: the appellant's role was custodial and administrative, not legal. The account was used as a banking facility and that use was prohibited by the principle in Wood and Burdett and contrary to rule 14.5's prohibition.
• The court therefore found no basis to interfere with the Tribunal's findings, the fine or the costs order and dismissed the appeal.

Context and implications: The court emphasised the legitimacy of the Tribunal applying and developing standards of professional conduct where necessary to protect client money and professional reputation and noted that some services such as acting as escrow or executor may fall within recognised professional activities, but the facts here fell outside that scope.

The appeal is dismissed. The Tribunal was entitled to apply the Wood and Burdett principle and to conclude that the appellant had permitted his client account to be used as a banking facility where there was no underlying legal transaction; movements on a client account must relate to an underlying legal transaction or to services forming part of normal regulated legal activities, and the appellant's role in the B and M matters was custodial/administrative rather than legal.

Appeal to the Divisional Court under section 49 of the Solicitors Act 1974 from a decision of the Solicitors Disciplinary Tribunal (hearing before the Tribunal on 12 May 2012).