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Lack of integrity not like dishonesty, court rules

Sole practitioner failed to properly control staff and misled SRA

10 March 2017

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‘Lack of integrity and dishonesty are not synonymous,’ the High Court has made clear as it upheld a tribunal decision to strike off a sole practitioner who had unknowingly handed her firm over to fraudsters.

‘Integrity connotes moral soundness, rectitude, and steady adherence to an ethical code,’ Mr Justice Morris said in Newell-Austin v Solicitors Regulation Authority [2017] EWHC 411 (Admin). ‘By contrast with the test of dishonesty, the test of “lack of integrity” is an objective test alone. A distinction must be drawn between subjective knowledge of the facts of the underlying conduct.’ Unlike dishonesty, the judge went on, ‘there is no requirement that a solicitor must “subjectively” realise that his conduct lacks integrity’.

Deirdre Newell-Austin was looking to cease practice in 2013 but could not afford the run-off cover. In April of that year, she applied to the SRA for permission to practise as a partnership. Her partners would be a registered foreign lawyer who had started working at the firm the previous month and a solicitor she had only just met for coffee – a recruitment process the tribunal described as ‘highly unorthodox’.

Permission was granted in June and Newell-Austin resigned as a partner in July. Less than a month later, the SRA intervened in the firm on grounds of suspected dishonesty after it emerged that it had been involved in several fraudulent transactions.

While the application was being processed, one of the prospective partners was arrested – and later released on bail – in connection with a fraudulent mortgage transaction relating to a property where the firm had acted for the vendor. He had not returned to the firm after that.

More fraudulent mortgage transactions took place subsequently. Claims were later made against the firm but its insurers declined cover because the claims arose out of dishonest conduct which the partners had committed or condoned.

As at 16 February 2015 the statutory compensation fund had paid out more than £2.8m in respect of six mortgage frauds, with other claims against the fund still outstanding. Newell-Austin was struck off in October 2016 and ordered to pay £85,000 in costs.

In its ruling the Solicitors Disciplinary Tribunal made a number of findings against Newell-Austin, both in terms of lack of integrity and dishonesty. In relation to the new partners, it said, she had not been dishonest but had acted without integrity. The new partners ‘were not properly vetted and were recruited not for their skills and abilities but simply to make up the numbers so as to allow the firm to obtain open market insurance’.

In addition, the tribunal said, Newell-Austin ‘failed to properly control the unadmitted members of staff and turned a blind eye to the obvious risks of her actions’, and the steps she took after finding out about the mortgage fraud arrest were ‘woefully short of what she ought to have done’. Further, it added, ‘she no longer had control of the practice and proper oversight of the transactions’ and had compromised her independence.

The tribunal made separate findings of dishonesty in relation to Newell-Austin’s failure to notify the SRA about the arrest and the partner’s exclusion from the firm’s office. She had been ‘consciously deceitful’, it said, ‘as she was aware that this may have a detrimental effect on the application for authorisation’.

Upholding the tribunal’s decision in respect of the mortgage frauds, Morris J said: ‘These findings are more than a sufficient foundation for the tribunal’s conclusion that the appellant’s conduct lacked integrity.

‘Further, the tribunal plainly took account of the appellant’s state of knowledge. It cannot be said that she was unaware of the primary facts found. What is more the tribunal made express findings, that the risks of her actions (in recruiting partners in the way she did and for the purpose she did, and in failing to control unadmitted members of staff) were obvious and that she turned a blind eye to those risks.

‘This was a finding of recklessness on her part, and sufficient basis for a finding of lack of integrity. In addition, she failed to consider the risks to client monies, once she became aware of the [first instance of mortgage] fraud.’

The court also refused permission for other grounds of appeal.

 

Jean-Yves Gilg is editor in chief at Solicitors Journal

jean-yves.gilg@solicitorsjournal.co.uk | @jeanyvesgilg

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Regulation Risk & Compliance Professional indemnity Property Conveyancing

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sole practitioner run-off cover mortgage fraud lack of integrity dishonesty