SRA DISCLOSURE FAILURES (Part 1) – the SRA caught wanting!


25 Jun SRA DISCLOSURE FAILURES (Part 1) – the SRA caught wanting!

In two cases recently the Solicitors Regulation Authority (SRA) were on the wrong end of judicial disapproval of their approach to disclosure.  Both cases were before the Solicitors Disciplinary Tribunal (SDT).  In both cases the SRA’s failure to disclose relevant material was central to the allegations that they had brought.  This post considers the first of those cases, heard over many weeks in 2014 and decided in 2015.

For some reason, it appears that, frequently, the SRA fails properly or adequately to apply to itself Practice Direction No. 2 (see here) which provides:

“Where directions are sought as to disclosure or discovery of documents, the Tribunal will adopt the view that material should be disclosed which could be seen on a sensible appraisal by the Applicant:-

(i) to be relevant or possibly relevant to an issue in the case;
(ii) to raise or possibly raise a new issue whose existence is not apparent from the evidence the Applicant proposes to use, and which would or might assist the Respondent in fully testing the Applicant’s case or in adducing evidence in rebuttal;
(iii) to hold out a real (as opposed to a fanciful) prospect of providing a lead on evidence which goes to (i) or (ii)”.

Case 1

I was the defence barrister for the Third Respondent. He faced a number of allegations relating to the implementation of Stamp Duty Land Tax (SDLT) mitigation schemes. He had acted as the conveyancing solicitor for the purchaser and for the lender where there had been a mortgage in relation to a number of high-value house purchases. The mortgage lenders were all members of the Council of Mortgage Lenders (CML) and the Third Respondent was thus subject to their rules – the Council of Mortgage Lenders’ Handbook (CMLH). The CMLH makes no mention of SDLT mitigation schemes. The SRA alleged, inter alia, that the Third Respondent had failed to disclose a material fact to a lender client – namely that a SDLT mitigation scheme was being employed by a purchaser client. The SRA alleged that this was a material matter that the lender would require to know about and that the Third Respondent was in breach of the Code of Conduct as a consequence of his alleged failure to disclose it to the lender.

The SRA forensic investigation officer, Mr Babra, gave evidence in the case. He was asked whether he had spoken to any of the lenders to obtain their view on “materiality” and whether they required disclosure of the implementation such a scheme. He said that one lender (not involved in any conveyance in this case) had raised an issue in relation to SDLT mitigation. However, the forensic investigation officer failed to mention that immediately before the commencement of the hearing of the case he had been in correspondence with the CML and had written to them in the following terms:

“Finally, Counsel has requested that I ask you if any of your members would be willing to provide a statement on their views in respect of solicitors disclosing the use of SDLT schemes when also acting for the lender.”

The CML replied to him as follows:

“…I confirm we are considering an amendment to the CML Lenders’ [sic] Handbook on SDLT avoidance schemes. The draft amendment is being considered by stakeholders and I have attached the current draft for information. It does not, at the moment, require solicitors to report such a scheme to the lender unless it has the features as described in the amendment.”

That email attached the following draft amendment to the CMLH:

“Where you are dealing with the transfer of a property pursuant to a stamp duty land tax avoidance scheme, you do not need to advise us or provide us with details of the scheme unless the effect of the scheme is to alter or reduce the price actually paid for the property…”

Amazingly, the forensic investigator, despite having been questioned by me about the attitude of the CML never mentioned this exchange in his evidence. (He was of course re-called for more robust cross-examination!).  Moreover, and more worryingly, the SRA – who had been in possession, obviously, of this correspondence – never disclosed it to the Third Respondent. Its existence only came to light thanks to the dogged persistence of the Third Respondent himself who had pursued a Freedom of Information Request and even then it was only provided after the officer had concluded giving his evidence.

The SDT criticized the forensic investigation officer in the following terms:

“138.41 The Tribunal considered carefully all the evidence it had heard in relation to the SDLT mitigation schemes. Dealing firstly with the evidence given by Mr Babra, the Tribunal was somewhat surprised that Mr Babra did not make any reference to the exchange of emails that had passed between him and the Council of Mortgage Lenders only a few days before he had given his evidence to the Tribunal in January 2014. This was crucial evidence relevant to the specific issues that he had been cross-examined on. Mr Babra’s responses in May 2014 to questions about these important emails were guarded and rather unhelpful to the Tribunal in determining the issue regarding proposed changes to the CMLH. It was unfortunate that Mr Babra had been unable to recall these emails when giving his evidence in January 2014.” (for full judgement see here)

The Third Respondent was acquitted of all the charges against him – including the charge relating to failing to disclose matters to his client. Those acquittals were based upon the merits of the case and not a “non disclosure” technicality. However, the “suppressed” material was directly relevant to the issues. It undermined the SRA’s case. It ought to have been disclosed. It ought to have persuaded the SRA they had no case on the issue.

Many will think that this woeful neglect of their disclosure duties brings the role of the SRA into disrepute. The time is rapidly approaching when failure to disclose material as important as this ought to lead to a strike out of that particular charge. Only then, probably, will the SRA understand that their disclosure failures are potentially capable of both undermining the rule of law and serving to diminish confidence in the SRA’s regulatory function.

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