SDT: Edward James Williams, Stephen John Williams, Patricia Carter and David Charles Maxwell Kennedy
- Application 10858-2011
- Hearing 2 July 2012
- Reasons 27 July 2012
The SDT ordered that the first respondent (admitted 1998) should pay a fine of £5,000; that the second respondent (admitted 1973) should pay a fine of £5,000; that the third respondent (admitted 1979) should pay a fine of £10,000; and that the fourth respondent (admitted 1992) should pay a fine of £10,000.
The respondents had failed to pay the premium due for indemnity insurance for the indemnity year 2010/2011 to Capita (which manages the assigned risks pool on behalf of the Solicitors Regulation Authority) within the prescribed period for payment; they had failed to pay the run-off premium to Capita within the prescribed period for payment; and they were in policy default in breach of rule 16.2 of the Solicitors Indemnity Insurance Rules 2010.
The SDT considered that allegations concerning non-payment of ARP premiums were serious. The SDT noted that, as the applicant accepted, the ARP could be a rather blunt instrument. In particular, premiums payable to the ARP, and run-off cover premiums, were based on the firm’s turnover in the relevant period and not on any assessment of risk or the likely cost of potential claims against the firm. Nevertheless, the ARP scheme was as it was and there was an obligation on firms, and their principals, within the scheme to pay the premiums as calculated. An application could be made for a waiver, but the obligation remained, unless and until a waiver was granted.
In considering the appropriate sanction, the SDT had been asked by the applicant to take into account the following factors: (a) the amount of the premium; (b) the steps taken by the respondents in dealing with Capita; (c) the respondents’ dealings with the SRA; (d) the contributions made towards the premium, if any; and (e) the particular facts of the case. The SDT had been told that the present case involved the largest ARP and run-off premiums in respect of which there had been default on record. No payments had been made towards the total due of just under £2m.
Those factors would tend to place the case at the most serious end of the spectrum, but the SDT had to consider the particular facts and the background to the default, which in the present instance included some quite exceptional circumstances.
The SDT accepted that the respondents were honest and decent solicitors, who had attempted to act with integrity and in the best interests of their clients. For the reasons explained more fully below, they could be viewed as unfortunate and innocent parties who had been left to deal with difficulties caused or contributed to by some of their former partners. The respondents had, rightly, acknowledged that they were responsible for the defaults alleged, and their admissions were to their credit. The background events which had led to the firm entering the ARP were exceptional. It was not a situation in which a firm had been badly run as a whole, nor had there been any negligence or prior professional misconduct on the part of the respondents.
The SDT accepted the account of the history, as given by the respondents in evidence, and which was unchallenged by the SRA. The SDT was satisfied that the respondents had tried to act with integrity in dealing with the administration of the firm and the transfer of client matters. Their reliance on their bank, rather than taking steps to clarify the position or take independent advice or research the ARP was naive. However, the SDT considered that while the respondents had not turned their minds properly to insurance issues, they had not deliberately avoided the problem. The SDT was satisfied that the firm’s clients had been protected in that the handover of files and storage of files/documents had been arranged in an orderly manner.
The respondents had taken the responsible step of notifying any and all potential negligence claims to RSA, the previous professional indemnity insurer, to minimise the exposure of the ARP. The firm had been in the ARP for a short period and so far as was known few if any claims had been made against it. The SDT was satisfied that the respondents had not appreciated that they would be liable for almost £2m in insurance premiums to the ARP. The respondents had been placed in a difficult position by their former partners, who had since left and had thus avoided the very significant financial losses and liabilities that the respondents had incurred.
The SDT noted that from the summer of 2010 the firm had to a large extent been managed financially by the bank and/or its on-site representatives. The respondents had been led to believe that essential business expenses would continue to be met: insurance is an essential business expense. The respondents had been unaware for some time that the premium had not been paid.
While the SDT noted that the size of the premium in the present case was very large, that alone could not be the determining factor – whether or not a waiver were in due course granted. The respondents had initially not acknowledged their liability to pay, but had now done so. The SDT was satisfied that they had co-operated with the SRA. No payments had been made towards the premium. In that respect, the SDT noted that all of the respondents had suffered significant financial losses as a result of the closure of the firm and its administration. The most significant factors in determining sanction in the present case were the quite exceptional background circumstances, as set out above.
The respondents were not personally culpable for those circumstances, although they were responsible for non-payment of the insurance premiums. They had tried to protect their clients. Had they been personally culpable, the sanction would have been more severe. However, in all of the circumstances, a financial sanction was appropriate and proportionate.
The SDT was aware that compared to the size of the unpaid premium, any financial sanction it imposed could appear to pale into insignificance. However, the circumstances were unusual and the SDT was satisfied that a fine of £10,000 for each respondent would adequately reflect the degree of default in respect of their professional obligations: the fault lay in failing to pay, not solely related to the amount of the payment.
The SDT noted, however, that the financial circumstances of the first and second respondents were particularly difficult, and their present income was not as high as that of the third and fourth respondents. While all respondents, as members of the firm at the relevant time bore equal responsibility, the SDT could apply the principles set out in Frank Emilian D’Souza v Law Society  EWHC 2193 (Admin) to take into account the particular hardship which would occur to the first and second respondents if they were fined the same as the other respondents. The respondents were each ordered to pay costs of £856.