Lack of integrity

Two judges in the Administrative Court have recently reached conflicting decisions on the issue of whether integrity is synonymous with dishonesty and so cast doubt on the legal test to be applied by regulators in considering allegations of lack of integrity. The requirement to act with integrity is a feature of most professional codes of conduct but few contain much, if any, guidance on what this means. The concept has, however, been considered by the courts in the context of appeals from regu

Background

The early cases arise from the Financial Services and Markets Tribunal in a number of matters involving financial advisers.  The starting point is Hoodless & Blackwell v FSA (2003) which described the test as follows:  "In our view "integrity" connotes moral soundness, rectitude and steady adherence to an ethical code. A person lacks integrity if unable to appreciate the distinction between what is honest or dishonest by ordinary standards".  This was, therefore, a purely objective test and differed from the dishonesty test, which in the regulatory context, required both that the conduct in question is dishonest by the standards of reasonable and honest people and that the respondent must have realised that his or her conduct was dishonest by those standards (the Twinsectra test).

The Hoodless definition was adopted by the Tribunal in subsequent cases. However, at the same time many also cautioned against attempting to formulate a comprehensive test for integrity, which was described in Vukelic v FSA (2009) as "a concept elusive to define in a vacuum but still readily recognisable by those with specialist knowledge and/or experience in a particular market".

A similar approach has been adopted in cases before the Administrative Court involving solicitors. For example, In SRA v Chan (2015) Lord Justice Davis shied away from defining integrity, stating "In my view, it serves no purpose to expatiate on its meaning. Want of integrity is capable of being identified as present or not, as the case may be, by an informed tribunal or court by reference to the facts of a particular case".

That sentiment was approved in Scott v SRA (2016), where Lady Justice Sharpe found in any event that the appellant lacked integrity on either the Chan or the Hoodless approaches and also confirmed that a lack of integrity and dishonesty are not synonymous terms.

The position appeared, therefore, to be reasonably settled. However, two contrasting judgments in recent months concerning allegations of lack of integrity in solicitors' cases have created uncertainty as to the correct test to be applied.

Deirdre Newell Austin v SRA (2017)

Ms Newell-Austin was the former sole principal of Austin Law. In early 2013, she wanted to cease practice but could not afford the run-off cover. She took on 2 new partners, one solicitor and one Registered Foreign Lawyer, who were recruited in highly unorthodox circumstances, and applied for permission to practise as a partnership. She also employed a number of non-admitted members of staff, to whom she effectively ceded control of the practice.

Shortly after, it came to light that the firm had acted for the purported seller in a fraudulent conveyancing transaction. One of the intended new partners was arrested and interviewed by the police in connection with the transaction and, although he was not charged with any offence, Ms Newell-Austin excluded him from the office from that point. She did not, however, inform the SRA, who was still dealing with the partnership application.

The partnership was granted authorisation on 26 June 2013. One week later, Ms Newell-Austin resigned from the practice.

Three days after Ms Newell-Austin's resignation, the SRA was alerted to concerns about a conveyancing transaction undertaken by the firm, following which it intervened in the practice. It soon came to light that the firm had been involved in a number of fraudulent conveyancing transactions between April and July 2013.

The SRA successfully prosecuted the three partners, who were all struck off.

As far as Ms Newell-Austin was concerned, the SDT alleged that she had acted without integrity in relation to two of the allegations against her, namely:

1. that she had permitted or acquiesced in the firm's involvement in the fraudulent conveyancing transactions; and
2. that she had failed to carry out her role in the conduct and supervision of the firm effectively and, in particular, had failed to supervise the non-admitted members of staff and had allowed improper withdrawals from client account.

She was also alleged to have acted dishonestly in relation to the first allegation, but not the second.

The SDT found that Ms Newell Austin had acted without integrity in relation to both of these allegations. However, while her actions fell woefully short of what she ought to have done, she was not found to have acted dishonestly because the SDT was not satisfied beyond reasonable doubt that reasonable and ordinary people operating ordinary standards would find her actions to have been dishonest. The objective limb of the Twinsectra test was therefore not satisfied.

Ms Newell-Austin appealed against the SDT findings that she had lacked integrity. She claimed that the Tribunal had applied the wrong test by failing to give proper consideration to her intentional state of mind. She also suggested that the finding that she had failed to act with integrity was inconsistent with the finding that her conduct did not amount to objective dishonesty.

Mr Justice Morris reviewed the authorities and concluded as follows:

1. The following principles can be derived from the cases regarding the meaning of lack of integrity:
   • Integrity connotes moral soundness, rectitude and steady adherence to an ethical code.
   • No purpose is served by seeking to expatiate on the meaning of the term. Lack of integrity is capable of being identified as present or not by an informed tribunal by reference to the facts of a particular case.
   • Lack of integrity and dishonesty are not synonymous. A person may lack integrity even though not established as being dishonest.
2. The legal test for dishonesty in SDT proceedings is the combined test in Twinsectra: namely the conduct must be found to be dishonest by the standards of reasonable and honest people and the respondent must have realised that by those standards his or her conduct was dishonest. By contrast, the test for lack of integrity is purely objective and there is no requirement that the respondent must subjectively realise that his or her conduct lacks integrity. This is consistent with the passage in Hoodless (approved by Scott) stating that "a person lacks integrity if unable to appreciate the distinction between what is honest or dishonest by ordinary standards". It is inherent in that analysis that there is no requirement that the person himself must have an appreciation of the lack of integrity.
3. However, a person's state of knowledge or intention in relation to the underlying conduct is a relevant consideration in assessing whether he or she lacked integrity. At one end of the scale, there can be no lack of integrity if a person is not aware of the relevant conduct. At the other extreme, actual knowledge and recklessness, in the sense of being aware that the conduct posed a risk and consciously taking it, will be highly likely to give rise to a finding of lack of integrity. However, lack of integrity does not necessarily involve risk taking and there is no requirement of any recklessness.

It appeared, therefore, that the approach to be taken on cases involving lack of integrity had been confirmed and that no doubt remained that this was a purely objective test.  This potentially left the door open to the SRA to rely on allegations of lack of integrity instead of (or in addition to) dishonesty in order to circumvent the obvious difficulties in proving the subjective element of the dishonesty test. While a finding of a lack of integrity does not carry with it the near inevitability of striking off, it is still open to the SDT to strike off in serious cases involving lack of integrity and, therefore, this approach would ultimately be likely to improve the SDT's chances of securing that outcome in appropriate cases. Therefore, the pursuit of allegations of a lack of integrity rather than dishonesty, which already appeared to be finding favour with the SRA in recent times, seemed likely to continue.

John Michael Malins v SRA (2017)

However, doubt has now been cast on this in the judgment of Mr Justice Mostyn handed down subsequently in the John Michael Malins case.

Mr Malins acted for the claimant in a building dispute.  He obtained an ATE policy for his client but failed to serve the appropriate notice on the defendant's solicitors, as a result of which the premium would not be recoverable from the defendant.

On discovering his error, Mr Malins created a backdated notice of funding and a covering letter, which he sent to the defendant's solicitors and then relied on and/or allowed others in his firm to rely on in seeking to recover the ATE premium from the defendant in settlement negotiations.

The SRA alleged before the SDT that Mr Malins had acted dishonestly regarding the deployment of the documents but not in their creation, in relation to which he was accused of acting without integrity but not dishonestly. The SDT found Mr Malins guilty of all the charges and struck him off the Roll. His appeal against those findings was successful.

In contrast with the earlier decisions, Mr Justice Mostyn found that:

1. Dishonesty and lack of integrity are the same; and
2. Both require to be proven to the same standard, including the subjective element.

He concluded that the approval by Sharp LJ in Scott of the Hoodless definition meant that the legal and dictionary definitions of the words honesty and integrity are aligned and synonymous. This explained why the SRA principles do not additionally require a solicitor to act with honesty:  because it is the same thing as integrity. Mostyn J also found that want of integrity and dishonesty must be proved to the same standard.

Behind this decision appears to have been a concern that the SRA might, by relying on lack of integrity rather than dishonesty, avoid the strict requirements regarding both pleading and proving dishonesty. Thus, he stated that if an objective test were to be applied, "the SRA could side-step the requirement of proving the subjective element of dishonesty in any case by the simple expedient of charging the same facts as want of integrity". 

Comment

So where does this leave us on understanding the meaning of "integrity" in the context of disciplinary matters?

We understand that an application to appeal the Malins judgement has been filed. In the meantime, faced with these two contradictory decisions in judgments handed down approximately one month apart, there must be uncertainty as to how the SDT will approach allegations of lack of integrity  and which of these two approaches will be preferred.

There may well also be implications in terms of how the SRA will frame its allegations. If the Malins decision is preferred, it will no longer be open to it to take the easier route of alleging lack of integrity rather than dishonesty and, given the alignment of these two concepts, the concept of "lack of integrity" would appear to have no real relevance in disciplinary proceedings. In those circumstances, it is possible that the SRA will look for some other approach to try to find a way around the difficulty of proving dishonesty.

Authors: James Preece and Anne Marie Morgan Barrett