Interventions

Interventions

Interventions

intervention and SRA

Introduction

An intervention is one of the most drastic steps which the Solicitors Regulation Authority (SRA) can take and has the effect of freezing the firm’s bank accounts, and of dealing with client files in such a way that they are either returned to the clients or forwarded to another firm to be dealt with. Although the SRA are always keen to stress that an intervention is not a take-over or a closing down of a firm, to all practical intents and purposes that is what it amounts to.

The SRA perceive an intervention to be a very distinct action – it is a step which is taken to protect the interests of clients and to ensure that client moneys are not misapplied. A good description of the purpose of an intervention was given by Mr Justice Neuberger in the case of Kevin Dooley -v- The Law Society (Unreported, 15 September 2000)

“The purpose of intervention is to allow the Law Society to protect the public interest against the activities of dishonest or incompetent solicitors and to avoid possible financial defaults by solicitors.”

Protection of the public is achieved initially by the vesting practice monies in the SRA and by the SRA taking possession of the practice documents (which includes client files and documents) prior to distribution. This is done through the auspices of an intervention agent who will normally be a solicitors practice in the locality of the firm being intervened in.

The SRA stress that an intervention is not a disciplinary outcome but a protective response to perceived circumstances which could be potentially detrimental to clients.

Forms of intervention

There are effectively two forms of intervention:

  • A full intervention – which has the consequence of closing down the firm intervened in, and
  • A limited intervention – often referred to as a section 44B inspection – which empowers the SRA to inspect documents as part of the disciplinary process.

We will deal only with the full intervention in this item.

Power to intervene

The power to intervene is recognised by the courts as being a drastic one and a step which should not be undertaken lightly by the regulator. Quoting again from the case of Kevin Dooley v The Law Society, there is a need to:

“carry out a balancing exercise between the need in the public interest to protect the public from dishonest solicitors and the inevitably very serious consequences if the intervention continues.”

A full and clear discussion of the issues involved in determining whether an intervention is appropriate can be found in Holder v The Law Society [2003] EWCA Civ 39 (24 January 2003).

The power to intervene arises under a number of statutory provisions, depending upon the nature of the practice being intervened in. These are:

  • Solicitors’ practices – section 35 and Schedule 1 of the Solicitors Act 1974 (as amended);
  • Registered European lawyers – section 35 and Schedule 1 of the Solicitors Act 1974 as applied by the European Communities (Lawyers Practice) Regulations 2000 (ECR 2000);
  • Registered foreign lawyers – Schedule 1 of the Solicitors Act 1974 as applied by paragraph 5 of Part II of Schedule 14 of the Courts and Legal Services Act 1990);
  • Recognised bodies – Schedule 1 of the Solicitors Act 1974 as applied by paragraphs 32-35 of Schedule 2 of the Administration of Justice Act 1985).

Before the SRA can intervene it must apply a two stage test:

  1. are there grounds for an intervention?
  2. if there are, is it necessary to intervene to protect the public?

Both parts of the test must be capable of being satisfied before the intervention can proceed.

An intervention can normally only take place following the decision of the intervention panel – of which more later.

The grounds for an intervention – solicitor or REL

The grounds upon which an intervention can take place in the practice of a solicitor or REL are set out in Part 1 of Schedule I of the Solicitors Act 1974 and are:

  • suspicion of dishonesty on the part either of the solicitor or of an employee of the solicitor or of a PR of a deceased solicitor in connection with the solicitor’s practice;
  • undue delay by PRs of a deceased solicitor;
  • the solicitor has failed to comply with the Solicitors’ Accounts Rules, the Solicitors’ Code of Conduct or the Solicitors’ Indemnity Insurance Rules;
  • the solicitor has been adjudged bankrupt or made an arrangement with creditors;
  • the solicitor has been committed to prison;
  • being a sole solicitor he is incapacitated by illness or accident to such an extent that he cannot attend his practice;
  • the solicitor lacks the capacity (within the meaning of the Mental Health Act 2005) to act as a solicitor and powers under that Act have been exercised against him;
  • the solicitor has been struck off or suspended from practice;
  • a sole solicitor has abandoned his practice;
  • a sole solicitor is incapacitated by age to such an extent as to be unable to attend to his practice;
  • a sole solicitor is acting as such within 18 months of an intervention on the grounds of dishonesty;
  • a person has acted as a solicitor at a time when he did not have a practising certificate which was in force;
  • a solicitor has failed to comply with a condition on his practising certificate to the effect that:
    • he may only work in approved employment,
    • he may only work as a member of an approved partnership,
    • he may only work as as an officer of a body recognised by the Council of the Law Society under section 9 of the M1 Administration of Justice Act 1985,
    • he may only work in any specified combination of those ways.

If the power of intervention arises from more than one of these grounds then all of the grounds must be included in the reasons given for the intervention. Note, however, that the existence of one or more of the grounds listed above exists does not automatically result in an intervention – the second part of the test must still be satisfied, namely that it is necessary to intervene to protect the public. It should also be noted that the intervention takes place into the practice of a solicitor – not necessarily in a solicitors’ practice. Thus, for example, where it is possible to distinguish, an intervention may take place only into the practice of two out of three partners. This is fairly rare however and in most cases the intervention will lead to the closure of the whole practice.

The grounds for an intervention – RFL

So far as an intervention into a multi-national law firm is concerned (i.e. one in which there are registered foreign lawyers (RFLs)), you should note that the grounds for the intervention are slightly different from those set out above. The grounds in relation to a multi-national law firm are set out in para 5 of Schedule 14 to the Courts and Legal Services Act 1990. This provides that the grounds for the intervention are:

  • there is a suspicion of dishonesty on the part of the RFL, or on the part of an employee of the multi-national partnership;
  • in the case of a RFL who has died, there is a suspicion of dishonesty on the part of his personal representative;
  • the RFL has failed to comply with rules made under section 32 or 37(2)(c) of the Solicitors Act 1974 – i.e. in relation to the Solicitors’ Accounts Rules and Solicitors’ Indemnity Insurance Rules;
  • a bankruptcy order has been made against the RFL or he has made a composition or arrangement with his creditors;
  • the RFL has been committed to prison in any civil or criminal proceedings;
  • powers under the Mental Health Act have been exercised in respect of the RFL;
  • the name of the RFL has been struck from the register or his registration has been suspended or cancelled;
  • the RFL has purported to act as a member of a multi-national partnership at a time when he was not registered;
  • the RFL has failed to comply with any condition, subject to which he is registered.

Note that, where notices are served (see below) the notices served on an RFL will be different from those served upon a solicitor or REL and the notices served on a RFL who is a director, member or shareowner in a recognised body will need to be different.

The grounds for an intervention – incorporated practices

The grounds for intervening in an incorporated practice are set out in para 32 of Schedule 2 to the Administration of Justice Act 1985. Those grounds are:

  • the recognised body has failed to comply with any rules applicable to it by virtue of section 9 of this Act – Solicitors Code of Conduct, Solicitors Accounts Rules etc.;
  • a person has been appointed receiver or manager of property of a recognised body;
  • a winding-up order or an administration order has been made or a resolution for voluntary winding-up has been passed; or
  • there is a suspicion of dishonesty on the part of any officer or employee of a recognised body in connection with that body’s business or in connection with any trust of which that body is or formerly was a trustee.

Again be aware of the need for the SRA to have served the appropriate notices upon the appropriate people.

Notice of an intervention

If a power to intervene has arisen as a result of a suspicion of dishonesty the reason for that suspicion is often not provided to the solicitor and he or she may not be given an opportunity to provide an explanation concerning those suspicions before the intervention takes place. The solicitor’s only remedy is to apply to the High Court to have the intervention decision overturned.

However, where the intervention is in respect of a breach of the SRA Accounts Rules, SRA Indemnity Insurance Rules or the SRA Code of Conduct then an advance notice must be served by the SRA stating that intervention powers have arisen. The notice period need not be long and no minimum period is set out in the legislation. The SRA may, if the solicitor responds to the notice, agree to enter into a regulatory settlement whereby the practice is closed and other steps are taken.

The Lawyers Defence Group has substantial experience of closures in these circumstances and may be able to assist you in avoiding a costly intervention. However, bear in mind that a voluntary closure is going to give rise to the need for professional indemnity run-off cover which is a cost which may be avoided if the firm were to be intervened in.

Note that different notices need to be served according to whether it is a solicitor, REL, RFL or recognised body. Note also that notice will be served upon the solicitors’ bank, where known, requesting that cheques drawn on any affected account not be honoured and simply returned marked to the effect that the firm is subject to an intervention.

The decision to intervene

Decisions to intervene in a firm are normally taken by a panel at the SRA. Usually the whole panel will be involved in reaching that decision other than in emergency situations.

Once the decision to intervene has been made, the bank accounts will be frozen and, if a notice is to be given, the notice sent out. If there is a concern that vital information may be destroyed the SRA will undertake a “walk-in” intervention – usually on the day the decision is made. If the intervention is not a “walk-in” then a date for the intervention will be set, usually in conjunction with the practice who is acting as the intervention agent for that area and who will normally be appointed to deal with the practical aspects of the intervention. The intervention officer will also inform the Compensation Fund (in case there is a shortage on the client account at the intervened in firm) and will let other relevant parts of the SRA know that the firm has closed.

What happens during an intervention?

On the day of the intervention, the intervention agent will go to the offices of the intervened in solicitor and take over the accounts and papers. The agent will explain to the solicitor that the files, documents and monies of the firm have vested in the SRA and will ensure that the solicitor is aware that there is a right to contest the intervention (this will be covered shortly) and, if the solicitors practising certificate is to be suspended, the effect of this.

The agent will then arrange for the firm’s papers and files to be scheduled prior to taking clients instructions as to how they are to be dealt with and transfer the bank account to the control of the SRA. Note that whilst neither the agent nor the SRA will take on the running of any of the client matters they will attempt to identify those matters which are urgent and which are likely to require immediate attention and will focus their activities on these.

Documents and money taken from the firm will be kept safe until they can be returned to their owners, which may not be straightaway if:

  • the accounts have not been kept properly;
  • money has gone missing, or
  • the SRA have not been able to contact the clients.

Consequences of intervention

Aside from the obvious consequences of an intervention such as closure of the practice and the distribution of files, a number of other consequences arise.

The first is that the solicitor’s practising certificate may be suspended. Section 15(1A) of the Solicitors Act 1974 provides:

(1A) Where the power conferred by paragraph 6(1) or 9(1) of Schedule 1 has been exercised in relation to a solicitor by virtue of paragraph 1(1)(a)(i), (c)(so far as it applies to rules made by virtue of section 32) or (e) of that Schedule, the exercise of that power shall operate immediately to suspend any practising certificate of that solicitor for the time being in force.

in other words the practising certificate will be suspended if the SRA has reason to suspect dishonesty, there have been accounts rule breaches or the solicitor has been committed to prison, unless the SRA take the view that under section 15(1B) the certificate is not to be suspended.

A further consequence of intervention is that the solicitor intervened in becomes liable for the costs of the intervention. These can be considerable and most solicitors who are in a position to avoid an intervention should think seriously about doing so. A solicitor who has been intervened in may continue to raise bills and pursue costs, but any sums recovered will vest in the SRA and be used to offset the intervention costs incurred. Any costs incurred are recoverable from the solicitor as a debt.

That debt can be settled either in one lump sum, if the SRA agree, by instalments and you can pay by credit card (where a charge of 1.75 per cent is made) or if paying instalments, by standing order.

Note however that if the SRA do not receive satisfactory proposals from you as to payment, they will take enforcement action to recover the costs.
If one of the reasons for the firm having been intervened in was dishonesty or that clients money was not being correctly applied, then a further consequence of an intervention could be that claims will be made against the compensation fund.

Finally there may a need for the solicitor intervened in to be referred to the Solicitors Disciplinary Tribunal.

Challenging an intervention

Whilst a solicitor cannot make an internal appeal to the SRA against a decision to intervene, once the intervention decision has been made the solicitor can appeal to the High Court for the decision to be withdrawn.

This application must be made within 8 days of the service of the intervention notice or of the walk-in where notice is served. This 8 day limit is a statutory time limit and cannot be extended by the court or waived by the SRA.

This is the only remedy open to the solicitor (other than judicial review of some of the decisions taken in connection with the intervention) – even if the intervention arose as the result of negligence on the part of the SRA.

Provided that time permits, it is also possible to apply for an injunction to prevent the intervention from taking place prior to the challenge being heard – but clearly the court will be reluctant to grant this where it feels that there is a serious public interest argument in favour of intervention.

It is probably worth mentioning that successful intervention challenges are not a common occurrence!

More information about interventions

If you have received a notice that your practice is to be intervened in, or if you are aware of circumstances which might lead to an intervention being imminent, then you should contact the Lawyers Defence Group as a matter of urgency.

Not only can we put you in contact with someone who will be able to guide you through the process and ensure that the intervention itself is as untraumatic as it is possible for it to be, but if we are involved at an early enough stage we may be able to assist you in agreeing with SRA that there should be voluntary closure of your practice – thus avoiding the potentially excessive intervention agents charges which you would otherwise have to bear.

Contact Us

If you have been, or believe that you are about to be, intervened in, contact the Lawyers Defence Group as a matter of urgency by:

  • telephoning during office hours – 0333 888 4070,
  • requesting a call-back using the call-back request form to the right,
  • telephoning our out of hours number (but please only in an emergency – for example when someone has been arrested or you believe that your firm might be about to be intervened in) 07952 861 868,
  • emailing us at help@lawyersdefencegroup.org.uk, or
  • writing to us at one of the addresses at the bottom of this web page.
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