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Susanna Heley

Partner, RadcliffesLeBrasseur

No equality of arms

No equality of arms


The hostile costs environment is unfair to solicitors facing regulatory investigation and SDT proceedings, says Susanna Heley

The hostile costs regime is a particularly striking feature of proceedings in the Solicitors Disciplinary Tribunal (SDT).

This has developed from the general view that in the world of regulation we should follow the principles that the polluter pays; and the regulator should not be deterred from pursuing borderline cases for fear of an adverse costs order.

The costs protection afforded to the Solicitors Regulation Authority (SRA) as prosecutor in the SDT can be difficult to overcome. Public policy demands that a case brought by the SRA should have been improperly brought or a shambles from start to finish before an adverse costs order against it can be justified.

In practice, this means there is a presumption that a solicitor has done something to catch the attention of the regulator, therefore it is a reasonable starting point to expect that solicitor to pay the costs of investigating and prosecuting misconduct. Solicitors challenging costs claimed against them are in a weak position.

This is straightforward where a solicitor admits, or is found to have committed, misconduct. There would seem to be no error of principle that a solicitor must pay the resultant costs.

Where allegations against a solicitor are found not proved in their entirety, the solicitor cannot usually expect to recover their own costs. They may be able to persuade the SDT that they should not have to pay the SRA’s costs but there is no guarantee of that.

The SRA has, on occasion, been awarded its costs in cases where it has failed to prove a single allegation. In fairness to the SRA, those cases are rare.

As a matter of principle, one might take the view that there is nothing to argue here; that the regime is designed on public policy grounds and any unfairness is entirely justified. But principle is only part of the story.

The origins of the current regime are traced back to a High Court decision in Baxendale Walker v The Law Society [2006] EWHC 643. This decision set the framework for the protection afforded to the SRA at a time when insurance cover to defend SDT proceedings was part of the minimum terms and conditions (MTC) for solicitors’ professional indemnity insurance.

Equality of arms was not a significant concern at that time. Cover for the costs of defending disciplinary proceedings was removed from the MTC in 2010 and solicitors promptly began to find themselves unable to afford their own representation.

Many did not realise that defence costs were uninsured through the MTC and few obtained separate insurance cover to bridge the gap.

Solicitors otherwise facing bankruptcy as a result of an inability to meet costs awards were offered a ray of light in the case of D’Souza v The Law Society [2009] EWHC 2913 (Admin).

The court determined that the SDT should take into account the ability of a solicitor to meet both financial sanctions and costs orders.

That general proposition has since been restricted such that solicitors wanting to have their means taken into account must file a statement of means. In practice, solicitors will need to have very restricted income and no significant assets if they are to persuade the SDT not to award costs.

The regime is, as a whole, heavily weighted in favour of the SRA. That weighting is further compounded by the practice of the SDT in summarily assessing costs in almost every case.

This diverges from the practice of the High Court which routinely orders detailed assessment for cases lasting more than a day. The process of summary assessment is, in some ways, easier for a solicitor who has already faced a long and stressful disciplinary process.

A final outcome, including as to costs, is often a relief as it brings the stress of uncertainty and involvement in adversarial proceedings to an end. But it also means the SDT is routinely taking costs decisions based on very limited and summary information.

The SRA claims costs for its investigation work and its legal costs. On occasion, the legal costs may be dwarfed by the investigation costs. Often, the claim for investigation costs consists of a single timesheet generically describing work done as site visits and work on documents, with little further breakdown.

The SDT can usually be persuaded to make adjustments to costs claimed but, absent particular objections from respondents, it is relatively rare for major reductions to be made save where the SDT takes the view (as it occasionally does) that the costs claimed as a whole are excessive.

It is not the SRA’s practice to explain to the SDT how long it spent reviewing files or accounts records which did not raise any issue. Nowhere in any of the documents routinely filed by the SRA with the SDT is there any detail of time spent reviewing matters which were conducted properly. Indeed, these are simply not mentioned in any report prepared by SRA investigators.

Where the SRA offers an apportionment of time either between issues or between respondents, it is usually on a best estimate basis and often conducted several years after the event, sometimes by people with no direct personal knowledge of the investigation.

This is not to say the SRA is acting in any way improperly. In most straightforward cases the issue of costs is usually a minor point and costs are frequently resolved by agreement where parties are represented.

However, the increased reporting of cases brought by other regulators brings to light a dramatic disparity between the costs claimed by the SRA and the costs claimed by other regulators; which tend to be an order of magnitude lower in comparable cases (if they are claimed at all).

The effect of the SDT’s approach to costs is the absence of a consistent or effective oversight by any external body as to the costs which the SRA incurs in investigating and prosecuting misconduct.

Summary assessment offers limited opportunity to understand how and why substantial costs have been incurred. Neither the SDT nor the SRA has followed the practice of some other regulators in suggesting appropriate levels of costs within its guidance.

This is not a new issue but one which ought to be of increasing concern to the profession in light of the rise of the agreed outcome. Many solicitors struggle to afford representation at the SDT; few can face the costs claimed by the SRA with equanimity.

Drawing lessons from the part 36 regime in civil proceedings, we know what a powerful incentive costs consequences can be to force parties to settle civil claims.

Despite that, we take no steps to protect solicitors accused of misconduct from the increased pressure which is created by the expectation that they will have to pay the SRA’s costs, come what may. It is easy to see how solicitors may be tempted to accept an agreed outcome to mitigate the costs of a contested hearing, even where misconduct has not occurred.

The costs pressure imposed by the current regime could cause or contribute to injustice and not just because we have created a system which has no regard for equality of arms.

Now that the SRA and the SDT have revised their rule books, maybe the question of costs can be added to the agenda as an item for reconsideration.

Susanna Heley is a partner at RadcliffesLeBrasseur