The news this week that the Solicitors Disciplinary Tribunal (SDT) has fined Lord Locke an unprecedented £500,000 for breaches of the SRA Code follows the nearly as eyewatering fine of White & Case for £250,000 in the summer.
Both cases are a huge step change from previous fine levels which have typically never exceeded £50,000. In both cases the fine was negotiated with the SRA and put to the SDT as an agreed outcome. In the case of Locke Lord an initial agreement between the SRA and the firm was of a fine of £250,000. This was increased by agreement to £500,000 when the SDT indicated it should be higher. These two cases have raised the tariff for all large law firms who are the subject of a SRA investigation.
In the past, all cases before the SDT where a respondent admitted the allegations would follow the same pattern. The case would be put to the SDT on an agreed basis by the SRA at a public hearing but without a penalty being suggested. The respondents would mitigate and the SDT alone would decide what penalty to impose. Both parties would be uncertain as to outcome, the reasons, and what might be said in open court and how that might be reported in the press.
More recently, the SRA has in some cases presented the SDT with agreed outcomes at a hearing. Sometimes these have been accepted by the SDT but, on occasion, the tribunal has felt unable to agree. Some SDT members have been sceptical about agreed outcomes partly because of under prosecution concerns, and partly because statutory powers rest with the SDT. However the informal agreed outcomes practice was put on a more formal footing by amendments to the SDT’s case management practice direction with effect from 1 September 2016, which also allowed for the case to be determined on the papers.
It is clearly advantageous for both law firms and the SRA to reach agreement on both outcome and not have a hearing. Uncertainty is removed. However, the dynamic of agreed outcomes is that the harder the law firm negotiates, the less likely the SRA or the SDT is to accept the agreement. This perhaps explains the huge fines that White & Case and Locke Lord were willing to pay. This process has also resulted in a step change in the level of fines. Under the old system firms received smaller fines.
So we now have a new norm. The White & Case and Locke Lord fine levels have raised the bar for everyone. The SRA will consider them a new benchmark against which future similar cases should be measured and will rely on them in negotiations and before the SDT. Law firms need to be aware that big fines are now very much on the agenda and that should give pause for thought as to how firms deal with the SRA and manage risk.
Iain Miller is a legal services regulatory partner at Kingsley Napley