"Largest ever" SDT fines upheld at High Court
11 February 2014 | By Kate Beioley
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The High Court has upheld a Solicitors Disciplinary Tribunal (SDT) decision to fine a West End firm for misconduct after letting Portsmouth Football Club use its bank account while under winding up proceedings.
Mayfair firm Fuglers and its two managing partners were hit with the largest-ever fines imposed by the SDT, for enabling the club to avoid HMRC sanctions and breaking the Solicitors’ Code of Conduct.
Fuglers and partners David Berens and Bryan Fugler were fined £75,000 and ordered to pay costs of £56,250 split between them. Upholding the fines, Mr Justice Popplewell said the sanction was fair and possibly did not go far enough.
He said: “In my judgment the misconduct is properly to be characterised as serious. It was sufficiently serious to justify a sanction which sends a clear message, so as to deter similar conduct by anyone in the future, that permitting a client account to be used as a banking facility in this way and on this scale is not misconduct of a technical kind, but misconduct which has the potential to cause real and substantial damage to the profession and its members.
“It was sufficiently serious that the tribunal might reasonably have considered imposing a suspension.”
The firm had landed itself in hot water for letting the club make use of its account for £10m of trades between October 2009 and February 2010. Its own bank account had been withdrawn after a winding-up petition was brought by HM Revenue & Customs (HMRC). Popplewell J said: “The club was in a perilous financial state”.
Popplewell J said: “It is objectionable in itself for a solicitor to be carrying out or facilitating banking activities because he is to that extent not acting as a solicitor.”
He added: “In my view it is for these reasons that irrespective of a risk of the abuse of the account for money laundering, providing banking facilities through a client account is objectionable per se.”
The appellants came in for more criticism as the partners had been involved in making decisions over who should be paid.
According to the judgment, Cunningham said allowing the club to use the account meant that ”substantial sums were paid to some whilst very substantial debts owed to others were not paid”.
The club paid back shops and landlords but did not pay back the £11m owed to HMRC.
The issue was made worse due to the risk of insolvency, according to Popplewell J. He said: “In such context, to allow a client account to be used as a banking facility is objectionable for several reasons. In the first place, it allows the client to achieve that which the client will normally be unable to achieve from any bank.”
The appellants argued that neither Fugler nor Berens was guilty of reckless behaviour and that neither had been conscious of any risks which they had unreasonably run. Foster also submitted that the SDT had not adequately set out its reasoning for reaching the conclusions over the sanction.
The judge disagreed, saying: “If there was to be no suspension, a very substantial fine was called for to mark the seriousness of the misconduct and in order to send a message to the profession in relation to the use of client accounts, which is a matter of central importance in the regulation of solicitors’ conduct.”
He dismissed the appeal in its entirety, saying Foster “did not identify any error of principle in the exercise of the discretion, or any factors which the tribunal erroneously took into account or failed to take into account.
“There are therefore none of the circumstances in which this court can interfere with the exercise of a discretion by a tribunal which was well placed to make the relevant assessment after conducting a four day hearing.”