“Accusation without evidence” – tribunal slams SRA prosecution

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SDT: SRA’s conduct justified costs order

The Solicitors Disciplinary Tribunal (SDT) has castigated the Solicitors Regulation Authority (SRA) for prosecuting a law firm and two partners based on “accusation without evidence”.

It appeared that, “having formulated an initial view”, the SRA’s forensic investigation officer, Rachel Gibson, “built her case on what she perceived to be the law”.

However, in a case over the alleged use of central London firm Teacher Stern’s client account as a banking facility, the SRA failed to provide “any rule, statute or decided case which supported Ms Gibson’s view” that it was wrong to make the payments.

Rather, they were made to entities connected to the client, were “within the scope of the retainer/agreements” and made for “legitimate purposes”. The allegations were all dismissed.

The case against Teacher Stern, corporate partner Claire Rollo and property partner Sacha Rifkin – who was the relationship partner – followed a self-report of “historical matters” by the firm in 2020.

The firm had advised its borrower client on the issue of loan notes under a subscription agreement. Its Euro client account received payments from the lender and paid out as instructed. There were 45 payments totalling over £19m and spanning 28 months between 2014 and 2016.

Ms Gibson spent almost the whole of 2021 conducting the investigation but the SDT found that “no part” of the SRA’s case had been proved to the civil standard.

These were complicated transactions for longstanding clients carried out by lawyers who were “well practised and skilled in their work”. It was agreed that they raised “no obvious red flags regarding fraud and money laundering, and no immediate cause for concern”.

The SDT found that, on her own account, Ms Gibson had not conducted an in-depth investigation because it had been a self-report.

“These were complex matters going back many years, yet [Ms Rollo] was given very little time to review the material before being asked questions in interview,” it observed. Mr Rifkin, meanwhile, was not interviewed at all.

It was “notable”, the SDT went on, that when Ms Rollo was able to properly review the detail and serve her answer, the SRA withdrew the majority of the impugned transactions from the allegations – but failed to review the remaining transactions as a result.

“This appeared to be the hallmark of the [SRA’s] case: accusation without evidence. In the case of [Ms Rollo], and perhaps all the respondents, it had had the effect of effectively reversing the burden of proof when as a matter of law, neither she nor the other respondents had been required to prove anything.”

The SRA’s case largely rested on an email in which Ms Rollo said “the amount of work we have to do like this is getting painful! it’s like being a bank for all our clients”.

This was “nothing more than a venting of her frustration at the administrative burden of complying with many requests to make payments”, the SDT found.

But the SRA “had taken her words far too literally, magnified it out of proportion and had then placed an overly simplistic and sinister interpretation upon them”.

The payments, the SDT concluded, were “evidently” connected to underlying legal transactions and the firm and lawyers were undertaking normal regulated legal activities.

The starting point on costs when an allegation is dismissed is no order and the SRA – which did not seek its costs of £68,000 – argued that this should be the order here.

But the SDT found there was good reason to award costs against the SRA, citing the inadequate investigation, its failure to review the strength of the case, and revisions to the allegations up to the last minute, which the tribunal said was “particularly unimpressive”.

As a result, even at the evidence stage of the proceedings, “it was not clear to the tribunal whether certain allegations and breaches of the principles were still being pursued”.

The firm and lawyers “were fortunate to have able counsel to protect their position. The tribunal noted with concern what injustice may have resulted in a similar situation where respondents were not represented”.

Nonetheless, the SDT considered that the case had been properly brought but “gone severely off track at the substantive hearing”.

It therefore ordered costs only from the point on the first day when the SRA was given time to review its case. “This had been a strong signal… yet it persisted with the prosecution despite clear indications that its case was weak, if not fatally flawed.”

This had been “a serious error of judgment” which served to increase costs unnecessarily. The costs will be subject to a detailed assessment.