Summary of Opinion
Factual and Procedural Background
Company A (the Firm) acquired the London office of Company C as part of an international merger. Attorney Chateau of Company C remained the client relationship partner for Client A but was not a member of Company A or regulated by Company B. Company A identified Client A as a politically exposed person and assessed him and associated entities as high risk for money laundering.
Company A issued AML/risk clearance certificates in 2014 stating Client A's source of wealth as employment. On 24 July 2014 Company D produced an intelligence report indicating high risk and expressing opinions adverse to Client A. Company A's General Counsel advised against acting for Client A, but the Firm's managing partner and Attorney Chateau opposed that view and Company A continued to act.
Company A acted on multiple matters for Client A, including property transactions. Client A was later convicted in a non-EEA state (2016). The Regulator's routine visit in 2018 led to an investigation and disciplinary proceedings alleging that, between 1 May 2013 and 24 January 2017, Company A failed to take adequate measures to establish source of wealth/funds, in breach of Regulation 14 of the Money Laundering Regulations 2007 (MLRs), and that such failures breached Principles 6, 7 and 8 of the SRA Principles 2011 and Outcome 7.5 of the SRA Code 2011.
The Tribunal found Company A in breach of Regulation 14 but dismissed allegations under Principles 6, 7, 8 and Outcome 7.5 on the basis the breach was inadvertent and not amounting to professional misconduct. The Regulator appealed to the High Court. Judge Lang allowed the appeal, holding that breaches of Regulation 14 can amount to breaches of Principle 7 and Outcome 7.5 without a separate requirement of seriousness, quashed the Tribunal's decision and remitted the case to a freshly constituted panel. Company A appealed to the Court of Appeal.
Legal Issues Presented
- Whether a breach of Regulation 14 of the Money Laundering Regulations 2007 will automatically give rise to a breach of Principle 7 and Outcome 7.5 (i.e. whether any breach suffices), or whether the Tribunal must consider the seriousness/reprehensibility/culpability of the breach before finding a breach of Principle 7 and Outcome 7.5.
- Whether the High Court was correct to quash the Tribunal's decision in its entirety and remit the case to a freshly constituted Tribunal, including whether Principles 6 and 8 should have been remitted.
Arguments of the Parties
Company B's Arguments (the Regulator)
- Principle 7 and Outcome 7.5 require compliance with legal and regulatory obligations; non-compliance with Regulation 14 therefore constitutes a breach of Principle 7 and Outcome 7.5 without an additional requirement of seriousness.
- The grammatical meaning of Principle 7/Outcome 7.5 supports that any failure to comply with applicable legislation is a breach.
- Policy and statutory duties (Legal Services Act 2007; Regulation 24(1) MLRs) and the regulatory objectives support strict adherence to legal obligations; importing a common-law threshold of "professional misconduct" would undermine regulatory purpose.
- The High Court's quashing of the Tribunal decision and remit were appropriate because the Tribunal misinterpreted Principle 7/Outcome 7.5.
Company A's Arguments (the Firm)
- The Tribunal correctly treated the seriousness, culpability and reprehensibility as relevant when deciding whether a breach of Regulation 14 engages Principle 7 and Outcome 7.5, consistent with Leigh Day and Beckwith.
- Principles regulating professional conduct ordinarily require an evaluation of seriousness before a finding of professional misconduct is made; trivial or inadvertent breaches should not attract the stigma/discipline of professional misconduct.
- The Tribunal's factual findings that the breach was inadvertent, made in good faith, and not systemic justified dismissal under Principles/Outcome; Judge Lang erred in quashing the entire decision and remitting issues not appealed by the Regulator (Principles 6 and 8).
- If the case is remitted, costs orders should not require Company A to pay the Tribunal's original costs because the original dismissal may prove correct on rehearing.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Sharp v The Law Society of Scotland [1984] SC 129 |
Whether breach of rules should be treated as professional misconduct depends on gravity and whole circumstances. |
Viewed as authority that seriousness/culpability matter; cited in discussion of threshold for misconduct. |
| Wingate & Evans v SRA [2018] EWCA Civ 366; [2018] 1 WLR 3969 |
Interpretation of Principle 6: misconduct requiring manifest incompetence beyond ordinary negligence. |
Used to explain that Principle 6 involves seriousness and manifest incompetence; informs distinction between Principles. |
| SRA v Leigh Day & others [2018] EWHC 2726 |
Degree of seriousness is relevant to determining breaches of certain Principles (e.g. 5 and 6). |
Adopted as influential precedent that many breaches require assessment of seriousness; Court of Appeal aligns with Divisional Court's approach. |
| Beckwith v SRA [2020] EWHC 3231 |
Rejected notion that tribunal must first decide whether conduct amounts to "professional misconduct" as a free-standing threshold; interpretation depends on scheme. |
Considered; Court distinguished its ratio and reconciled with Leigh Day, concluding no free-standing threshold but that seriousness can be inherent in particular principles. |
| Holden v Solicitors Regulation Authority [2012] EWHC 2067 (Admin) |
Accounts rules can involve strict liability. |
Cited as example of rules outside conduct principles where strict liability applies; used to compare with MLRs. |
| Bar Standards Board v Howd [2017] 4 WLR 54 |
Discussion of "professional misconduct" in BSB Code; not determinative here but illustrative. |
Referenced in considering whether professional rulebooks may require concepts of professional misconduct; Court noted differences in schemes. |
| Hazelhurst v Solicitors Regulation Authority [2011] EWHC 462 (Admin) |
Accounts Rules treated as strict liability offences. |
Used to support view that certain regulatory rules may impose strict liability without individual fault. |
| Bass v Solicitors Regulation Authority [2012] EWHC 2012 (Admin) |
Accounts rules and strict liability; sanctioning context. |
Cited in support of strict-liability examples. |
| In re a Solicitor [1972] 1 WLR 869 |
Common-law approach: negligence may amount to professional misconduct if inexcusable/deplorable; misconduct implies seriousness. |
Invoked to show historical common-law threshold of seriousness for professional misconduct. |
| Walker v Bar Standards Board |
Modification of literal interpretation where literal words would classify trivial breaches as professional misconduct; stigma attached to misconduct. |
Applied to justify that literal readings of codes must be modulated to avoid trivial cases attracting severe stigma. |
| In re M [1930] NZLR 285 |
Referenced in relation to In re a Solicitor and definition of misconduct. |
Cited as antecedent authority supporting seriousness requirement. |
Court's Reasoning and Analysis
The Court of Appeal analysed (a) the wording of Principle 7 and Outcome 7.5; (b) the statutory and procedural framework (including the SRA Procedure Rules and Rule 10 threshold); and (c) the authorities on whether seriousness is required to establish breaches of professional conduct rules.
The court rejected a purely grammatical interpretation that any breach of law automatically constitutes a breach of Principle 7 without regard to seriousness, for two main reasons: (1) such an interpretation would be a substantial departure from the common-law understanding of professional misconduct; and (2) it would be inconsistent with the SRA's own procedural rules and legislative context (including provisions requiring the SRA to target sufficiently serious matters).
The court endorsed the proposition from Leigh Day that whether alleged conduct amounts to a breach of the core Principles is a matter of fact and degree and that some Principles inherently involve considerations of seriousness (e.g. Principles 2 and 6). The court concluded there is an "inherent requirement of seriousness" in considering whether conduct amounts to a breach of the SRA Principles or the mandatory provisions of the Code: an allegation under Principle 7 can only be upheld if the breach is "sufficiently serious" that competent and reputable solicitors would categorise it as professional misconduct.
Applying that test to the Tribunal's reasoning, the court found inconsistency between the factual findings (the Tribunal found a breach of Regulation 14 up to paragraph 9.377) and the Tribunal's later conclusion that the breach was "entirely inadvertent" and not professional misconduct. The Court of Appeal considered the Tribunal appeared to apply a Sharp-derived three-part formula ("serious, culpable and reprehensible") which was unhelpful and left uncertainty whether it had properly applied the appropriate "sufficiently serious" test.
The court therefore held that the Tribunal's decision to dismiss the Principle 7/Outcome 7.5 allegation could not be upheld on the record. It considered the Tribunal's factual findings up to paragraph 9.377 should be preserved and that the new Tribunal should determine, on those findings, whether the Firm breached Principle 7 and Outcome 7.5 under the Court of Appeal's "sufficiently serious" test and, if so, what sanction to apply.
On remittal scope, the court allowed Company A's appeal against Judge Lang's order insofar as she had remitted the dismissed findings on Principles 6 and 8; those findings were not the subject of the Regulator's High Court appeal and should not have been remitted.
Holding and Implications
Holding: The Court of Appeal (Judges Bean, Baker and Zacaroli) concluded that an allegation under Principle 7 (and Outcome 7.5) requires the breach of the relevant legal or regulatory obligation to be "sufficiently serious" for it to amount to a breach of the Principle. The Tribunal's decision dismissing the Principle 7/Outcome 7.5 allegation is quashed and that part of the decision is remitted to a freshly constituted panel to determine, on the Tribunal's factual findings up to paragraph 9.377, whether the Firm breached Principle 7 and Outcome 7.5 applying the "sufficiently serious" test. The Court of Appeal allowed the Firm's appeal against remittal of the dismissed allegations under Principles 6 and 8 and discharged remittal on those points. Costs issues were reserved for further submissions.
Implications: The decision clarifies that (i) Principle 7/Outcome 7.5 are not to be read as imposing automatic liability for any regulatory breach; rather, an evaluative threshold of sufficient seriousness applies; (ii) certain statutory or rule-based obligations (e.g. some accounts rules or comparable regulatory rules) may operate as exceptions where strict liability principles apply; and (iii) factual findings of the Tribunal up to a specified point may be preserved and applied by a new panel in determining liability and sanction. No new broad rule expanding disciplinary scope beyond the "sufficiently serious" threshold was created.