Baker Tilly UK Audit LLP & Ors v Financial Reporting Council & Ors

Disciplinary guidance must be read with the governing scheme. The evidential and public-interest tests are sequential. Once there is a realistic prospect of a finding of misconduct, a formal complaint should usually follow unless contrary public-interest factors clearly outweigh those favouring delivery. The listed factors must be weighed qualitatively, rather than counted. Paragraph 12(1)(f) concerns a significant degree of misconduct involving failure to act with professional competence or due care. It is an aggravating factor with additional presumptive force, not a threshold below misconduct. The guidance was lawful and the decision to proceed was rational.

The appellants, an audit firm and two individuals, challenged the Financial Reporting Council Executive Counsel’s decision to deliver a Formal Complaint concerning alleged audit failings. They argued that paragraph 12(1)(f) of the Guidance on the delivery of Formal Complaints was unlawful because its reference to a non-trivial failure to act competently did not correspond with misconduct under the Accountancy Scheme. Singh J dismissed the judicial review claim: [2015] EWHC 1398 (Admin). The appeal concerned the proper construction of paragraph 12(1)(f) and the legality of the Executive Counsel’s reasoned decision.

1. Disposition. The appeal was dismissed. The result was unanimous, although the judges differed materially on the construction of paragraph 12(1) of the Guidance on the delivery of Formal Complaints.
2. Sequential tests. Sales LJ, whose reasoning was adopted by King LJ, held that the Evidential Test and Public Interest Test are separate and sequential. The public-interest assessment proceeds on the footing that there is a realistic prospect of an Adverse Finding, including misconduct as defined by the Accountancy Scheme.
3. Public-interest assessment. Once the Evidential Test is satisfied, paragraph 11(2) creates a usual presumption in favour of delivering a Formal Complaint. That presumption is displaced only if contrary public-interest factors clearly outweigh those favouring delivery. Paragraphs 12 and 13 identify illustrative factors. Paragraph 11(4) requires a careful qualitative assessment, not a numerical counting of factors.
4. Meaning of paragraph 12(1)(f). Paragraph 12(1)(a)–(f) identifies aggravating factors relating to the gravity of the alleged misconduct. They may have additional presumptive force beyond the general presumption in paragraph 11(2). In paragraph 12(1)(f), non-trivial means significant. The provision addresses a degree of misconduct significantly greater than the basic level required to satisfy the definition of misconduct, involving failure to act with professional competence or due care, or conduct capable of discrediting the profession.
5. Lawfulness of the decision. The guidance was capable of a practical and coherent interpretation and was not unlawful. The Executive Counsel applied the correct misconduct definition, considered the seriousness and consequences of the alleged failings and the delay, and reached a rational conclusion. The challenge to the reasoned decision therefore failed. The alternative-remedy ground did not arise.
6. Separate reasoning. Arden LJ agreed with the result but considered that paragraph 12(1) listed examples of misconduct rather than aggravating factors and imposed no additional significance threshold. She left open a possible issue concerning the effect of contrary factors where no aggravating features existed. King LJ expressly preferred Sales LJ’s construction.

• Court of Appeal (Civil Division). Appeal from the Administrative Court dismissed: [2017] EWCA Civ 406.
• Administrative Court, Queen’s Bench Division. Singh J dismissed the judicial review claim concerning the Guidance and the Executive Counsel’s decision: [2015] EWHC 1398 (Admin).