SRA should keep costs protection, Supreme Court rules

The Supreme Court has made clear that the Solicitors Regulation Authority (SRA) should continue to receive costs protection as a default position when it brings prosecutions.

The ruling came despite the court’s decision today in Competition and Markets Authority v Flynn Pharma & Anor that the competition watchdog should not enjoy costs protection.

Effectively, justices ruled that the SRA’s position as a regulator funded by the legal profession sets it apart from other public bodies with a statutory function – so for the SRA the status quo should remain.

The SRA had intervened in the case in support of the CMA and to ensure that the approach adopted in Walker-Baxendale should remain. That case established that the solicitors’ regulator should not have to pay the costs of an unsuccessful prosecution brought in good faith.

Lady Rose, giving the lead judgment in Flynn Pharma, recognised the importance of Walker-Baxendale for the continued proper functioning of the SRA and stated that ruling against the CMA did not alter that position.

Lady Rose said:

“[The CMA] is in a very different position from a local authority or other licensing authority. In its written intervention, the SRA points out that it undertakes about 120-130 prosecutions a year. It is funded predominantly by practising certificate fees and other fees paid by the solicitors’ profession.

“Although, following Baxendale-Walker, it is not usually subject to an adverse costs order where the solicitor is successful, it does usually recover its costs from the unsuccessful solicitor when the disciplinary tribunal upholds the complaint.

“These costs can be considerable and if they were not recovered by the SRA from the unsuccessful solicitor, the costs would have to be borne by the profession.”

In the Flynn Pharma case, the drug companies involved successfully challenged the CMA’s decision to fine them for breaches of the Competition Act. The Competition Appeal Tribunal had also made an order that the CMA pay the appellants a proportion of their costs of the appeal. The Court of Appeal set aside this costs ruling, ordering that there be no order as to costs.

In the Supreme Court’s judgment, justices ruled there was no generally applicable principle that public bodies should enjoy a protected costs position when they lose a case. If there was a risk that adverse costs orders would prevent public bodies bringing cases, that had to be determined on the facts and circumstances of how the prosecution was handled.

But the crucial distinction between the positions of the CMA and SRA – buried on paragraph 122 of the Supreme Court judgment – will come as a relief for the solicitors’ regulator.

In its written submission, the SRA said the approach of Baxendale-Walker was wrongly characterised as giving it ‘immunity’ from adverse costs orders. This was because costs could still be awarded if the SRA acted unreasonably, or the solicitor suffered substantial financial hardship.

It continued:

“A defensive mindset towards prosecution decisions will undoubtedly lead (as compared with the current state of affairs) to the SRA declining to take, or being unduly keen to compromise, disciplinary action, for fear of adverse costs orders. This is bound to lead to disciplinary cases not being pursued, which result in persons or firms continuing to operate (and thereafter causing loss to clients) that would have been avoided had earlier action been taken.”

The SRA said today (25 May):

“We welcome the certainty the judgment brings. The Supreme Court recognised the importance of the existing case law to the way we work, having noted the volume of cases we bring each year, and that we are funded predominantly by practising certificate fees.”

Following the ruling, regulation expert Greg Treverton-Jones QC, co-author of the Solicitor’s Handbook, commented:

“I was very surprised that the Law Society did not apply to intervene in the appeal in order to put before the Supreme Court the other side of the argument to that advanced by the SRA.

“Some of the practical effects of the Baxendale-Walker decision are arguably contrary to the public interest as being unfair to solicitor respondents.

“I think that the Supreme Court would have been assisted by knowing about this. I know that efforts were made to persuade the Law Society to intervene. I do not know why the Society declined to do so.”