Fuglers LLP v Solicitors Regulatory Authority

The appellants appealed under section 49 of the Solicitors Act 1974 against sanctions and costs imposed by the Solicitors Disciplinary Tribunal. The Tribunal found that the firm and two equity partners had allowed the firm’s client account to be used as a banking facility in breach of Rule 15 note (ix) of the Solicitors’ Accounts Rules 1998 and Rule 14 and Rule 1.06 of the Solicitors’ Code of Conduct 2007, and imposed fines and an award of costs. The court applied the established standard of appellate review to sanction decisions (interference only for error of law, failure to take account of relevant evidence or failure to give proper reasons) and reviewed whether the Tribunal had erred in fact or law.

The court concluded the Tribunal’s finding of misconduct and assessment of seriousness were open on the evidence. Although the Tribunal made a minor error in describing the absence of any reference to the Football Creditor Rule in an interview transcript, that error did not make the sanctioning decision perverse. Applying the three-stage approach to sanction (assess seriousness; keep sanction purposes in mind; select appropriate sanction) the court accepted the Tribunal’s reasoning that the conduct was very serious because of the scale (£10m passed through the account), the conscious role of a partner in operating the account as a banking facility, the insolvency context and the section 127 risk. The fines and costs were not shown to be clearly inappropriate and the appeal was dismissed.

Background and parties: The appeal arose from a Tribunal decision dated 7 January 2013. The First Appellant was Fuglers LLP; the Second and Third Appellants were the two equity partners who managed the firm. The Solicitors Regulation Authority was the respondent. The Tribunal found breaches of Rules governing client accounts and conduct by permitting the firm’s client account to be used as a banking facility for Portsmouth City Football Club Limited over a four month period, through which approximately £10 million passed.

Nature of the claim / relief sought: This was an appeal under section 49 of the Solicitors Act 1974 against the level and apportionment of fines (£50,000 on the firm, £20,000 on Mr Berens, £5,000 on Mr Fugler) and an order for costs (£60,000 reduced from the SRA’s claim). The appellants did not challenge the Tribunal’s findings of misconduct but contended the sanctions were disproportionate, that Mr Fugler should not have been fined, and that individuals should not be fined over and above the firm.

Issues framed by the court:

• Whether the Tribunal made an error of fact in finding the Football Creditor Rule was not in the respondents’ minds when the transactions occurred;
• Whether the Tribunal adopted the correct approach to sanction and gave adequate reasons, including proper assessment of culpability, harm and mitigation;
• Whether the fines and costs imposed were disproportionate or otherwise clearly inappropriate.

Court’s reasoning: The court accepted that the Tribunal’s finding that the Football Creditor Rule was not in mind involved an error of fact to the extent based on a misread transcript, but concluded the finding was open on the evidence and in any event the Tribunal had addressed the alternative hypothesis. The court set out the correct three-stage approach to sanction (assess seriousness; keep the sanction’s purposes in mind; choose an appropriate sanction) and emphasised factors of culpability and harm including reputational harm and the risk created by section 127 of the Insolvency Act 1986. The Tribunal’s detailed findings — that the client account was used for ordinary trading payments unconnected to legal transactions, that a partner actively made commercial decisions and that the conduct risked depriving creditors and engaging section 127 — supported its conclusion that the breaches were very serious. Mitigating features (experience, cooperation, absence of previous disciplinary history, absence of recklessness) were considered but did not render the fines excessive. The Tribunal’s discretion on costs was exercised within its wide remit and was not upset.

Result: The appeal was dismissed and the Tribunal’s orders on fines and costs were upheld.

The appeal is dismissed. The court held that, applying the high threshold for interference with disciplinary sanctions, the Tribunal’s findings on misconduct, its assessment of seriousness and the sanctions imposed were open on the evidence and not legally flawed. A minor factual error about whether the Football Creditor Rule was expressly mentioned did not render the decision perverse, and the Tribunal properly balanced aggravating and mitigating factors and lawfully exercised its discretion on costs.

Appeal from the Solicitors Disciplinary Tribunal decision dated 7 January 2013 to the High Court (Administrative Court) under section 49 Solicitors Act 1974; neutral citation of this judgment [2014] EWHC 179 (Admin).