High Court: second successful SRA appeal
The High Court has overturned a decision by the Solicitors Disciplinary Tribunal [1] (SDT) to clear a solicitor who borrowed money from the controversial Axiom Legal Financing Fund of charges of misconduct – five months after a ruling that cleared two other solicitors who took an Axiom loan was also reversed.
It said the SDT now needed to sanction Jason Roy Monteith Libby for undermining the trust and confidence that the public has in solicitors.
On the upside for Mr Libby, the Divisional Court also quashed the tribunal’s ruling that he should pay the Solicitors Regulation Authority (SRA) £46,000 in costs.
As in previous cases, the central issue before the SDT was Mr Libby’s use of the £456,108 he drew down from his £3m facility before Axiom was shut.
The litigation funding agreement he signed said the money should only be used to cover disbursements in relation to specific claims, but instead he – like the others before him – used most of it for general practice funding.
The SDT found that, by doing so, Mr Libby had not acted without integrity and had not acted knowingly or recklessly.
The SRA did not challenge this, but it contended on appeal that the tribunal did not address the question of whether he had failed to show the care and attention expected of a reasonably competent solicitor in dealing with the use of the money and thereby behaved in a way which undermined the trust the public places in a solicitor and in the provision of legal services – in breach of principle 6 of the SRA principles.
Lord Justice Lindblom and Mr Justice Lewis agreed that the SDT had erred in this way; had it considered the issue, “the only conclusion that the tribunal could reach” was that Mr Libby had failed to show the care and attention required.
The obligations of a solicitor, the judges said, extended beyond ensuring probity and integrity. “They can extend to ensuring that a solicitor demonstrates the degree of competence called for in a solicitor in circumstances involving the handling of money belonging to others…
“The public would expect a solicitor borrowing hundreds of thousands of pounds from a third party to demonstrate reasonable care and attention in ensuring that the monies were used in accordance with the agreement intended to regulate the loan.
“The public would expect a solicitor to make sure that he properly understood, and acted in accordance with, a signed agreement entered into for the purpose of regulating the loan.
“The public could not be expected to have confidence in the solicitor’s handling of their own affairs if, in the context of the firm’s affairs, the solicitor borrowed large sums of money for his firm, and then failed, through carelessness, to ensure that the monies were properly used.”
It ordered the matter to be remitted to the tribunal “to determine the appropriate sanction”.
However, the court rejected two other grounds of appeal, most notably the SRA’s contention that the SDT had erred in concluding that Mr Libby was not on notice that there was a risk that Axiom’s investment manager might have been acting fraudulently (no finding of fraud or wrongdoing has actually been made).
A significant feature of the Axiom scheme was that for every sum drawn down by a firm, they had to pay a ‘facilitation fee’ of half of that amount to the investment manager, which was added to their borrowing.
But the court said: “There is a world of difference between a bad bargain and a bargain that is so obviously flawed as to give rise to a suspicion of fraud or wrongdoing.
“We would not regard the fact that the transaction would involve the payment of a large facilitation fee by [Mr Libby] in respect of any sums he borrowed as an indication that the transaction involved fraud or serious wrong doing on the part of the investment manager.
“The same is true, in our judgment, of the fact that the investment manager did not insist upon [him] following the correct procedure in relation to the borrowing that the firm undertook.”
Costs do not follow the event in the SDT and there is a public interest aspect to the SRA’s work in bringing cases. In making the costs order, the tribunal said the case had been “very properly brought”.
But the court ruled that the tribunal had erred: “The fact that the proceedings were properly brought provides a justification for not making the authority liable for the respondent’s costs, as they brought the case as a regulator and acting in the public interest.
“That would, not of itself, justify ordering that a respondent who successfully resisted all the allegations should be ordered to pay the costs…
“The fact is that the tribunal found all the allegations unproven. There is no other factor justifying the imposition of costs.”
That one part of one allegation was to be remitted to the SDT did not alter the position, the judges said, as that charge was “not the central thrust” of the SRA’s case against Mr Libby. As a result, the court set aside the costs order.
Late last year, Mr Justice Holman overturned a separate SDT ruling [2] that had cleared two partners of another law firm in a similar case involving Axiom. They were remitted to the SDT, which last month [3] suspended one for three months and fined the other £12,000.