SRA: Section 43 troubles
There is “some uncertainty” as to whether non-lawyer partners of alternative business structures (ABSs) can be banned from working in the profession, the Solicitors Regulation Authority (SRA) has admitted.
The case where the issue came up also led to the regulator deciding it should not have sought a ban in any case.
The Solicitors Disciplinary Tribunal (SDT) said in a recent ruling that it accepted the SRA’s arguments that section 43 orders could not be used against non-lawyer managers of ABSs.
Referring to section 43 of the Solicitors Act 1974, the order is frequently used to ban non-lawyers from working for law firms in the future, unless the SRA decides otherwise.
However, section 43 refers only to a ‘recognised body’ – the official name for a traditional law firm – and not to a ‘licensed body’, the name for an ABS.
Revoking the order it had made in April 2017 [1] against Steven Nacarlo, a partner at SBW Lawyers in St Helens, the SDT said that a £5,000 fine also imposed on him was “inappropriate” as well, because the power in the Administration of Justice Act 1985 also “did not apply to the respondent as a non-lawyer manager of a licensed body”.
In April 2017, the SDT approved an ‘agreed outcome’ the SRA had reached with Mr Nacarlo and the two solicitor partners of SBW, Alasdair James Brown and Patricia Rosaleen Scully.
The trio admitted retaining unpaid professional disbursements totalling £37,250 in the office account of the personal injury firm for more than two working days, breaching the Solicitors Account Rules and SRA Principles.
Mr Brown and Ms Scully were fined £10,000 each and Mr Nacarlo £5,000. All three were ordered to pay £15,000 in costs on a joint and several basis. Mr Nacarlo was additionally made subject to the section 43 order.
A spokesman for the SRA said: “Immediately following the tribunal hearing and its decision to grant the section 43, we identified some uncertainty as to whether section 43s can be made against non-lawyer managers of licensed bodies [the formal name for ABSs].
“While applying for the section 43 may not have been the best way to achieve this outcome, it has allowed us to consider how we best exercise our powers for cases of this kind in the future.
“This case has highlighted that while we clearly have powers to act on issues of this kind, there is some uncertainty about the use of section 43 in these circumstances.”
As a result, the SRA made a regulatory settlement agreement (RSA) with Mr Nacarlo instead. Under it, Mr Nacarlo accepted a £5,000 fine and a £5,000 costs order.
However, the SRA did not seek to replicate the effect of the section 43 order in the RSA. A spokesman said it had decided that a ban would have been disproportionate, especially when the two solicitors were not.
But he did not explain why it had pushed for the section 43 in the first place, nor what steps the SRA might take to close this hole in its powers.
The SDT also varied its original costs order, so Ms Scully and Mr Brown were ordered to pay £10,000, rather than £15,000, on a joint and several basis.