In Fuglers LLP and others v Solicitors Regulatory Authority5 the High Court provided guidance on whether, when operating its client account, a firm was acting in its capacity as a “solicitor”. The case has ramifications for law firm insurers faced with claims that firms “wrongfully” paid money out of client account.
The minimum terms provide cover in relation to “any civil liability to the extent that it arises from private legal practice in connection with the insured firm’s practice”. The definition of “private legal practice” provides cover for “professional services provided by the firm” subject to various prescribed “carve outs”, for example providing services without remuneration to friends.
In this case, Fuglers allowed its client account to be used by Portsmouth City Football Club (the Club) between 5 October 2009 and 8 February 2010, with around £10m passing through the client bank account. During that period the Club’s banking facilities had been withdrawn due to two winding-up petitions presented by HMRC in October 2009 (later withdrawn in November 2009) and again in December 2009. In an appeal from the Solicitors Disciplinary Tribunal, the firm challenged the sanctions imposed on the basis that the work conducted related to their conduct as solicitors and accordingly could not be said to have been an improper use of their client account.
The appeal turned in part on the application of rule 15 note (ix) of the Solicitors Accounts Rules. The firm argued that rule 15 did not define banking facilities and the transactions carried out were ancillary to its work as the firm was acting where its knowledge and expertise was required in deciding who could be paid when; the firm was deciding based on the application of insolvency law applicable to football clubs who to pay first. The quirk in this case being that football clubs pay certain creditors, for example players, before other creditors.
The High Court upheld the Solicitors Disciplinary Tribunal decision comparing the firm’s actions with that of a bank: “… it is objectionable in itself for a solicitor to be carrying out or facilitating banking activities because he is to that extent not acting as a solicitor. If a solicitor is providing banking activities which are not linked to an underlying transaction, he is engaged in carrying out or facilitating day to day commercial trading in the same way as a banker … This is all the more so if the solicitor is not merely allowing the client to use the client account to pay trade debts, but is himself involved in directing the payment of creditors and making decisions as to who to be paid … that is not an activity for which a solicitor is qualified or regulated …”.
Although the decision is fact specific, the case has a more general application. For example, if a firm is acting for a company in an acquisition and is asked to discharge some trade debts out of the sale proceeds – does this not fall within the definition of “private legal practice”? What if a firm is acting for an insolvency practitioner and pays out creditors – does this fall outside of “private legal practice”? If “he is not acting as a solicitor” when disbursing funds then presumably he will not be undertaking “private legal practice”?