Editors' Blog

SRA has nothing to shout about as M&S saga ends with a whimper

Posted 3/08/2007 by Deal Comment

It was a confident press release sent out by the Solicitors Regulation Authority (SRA) yesterday following the long-anticipated end to Freshfields Bruckhaus Deringer’s M&S conflicts saga.
 
“City law firm fined for misconduct” it announced, with subsequent crowing about ensuring that firms large and small will be “properly regulated”.
 
How ironic that the body makes these claims after all that has happened. By any measure, the Law Society/SRA’s handling of the case has been poor. After all, the case, which began way back in 2004, was hardly ambiguous. A Court of Appeal ruling had already found that Freshfields had acted in a conflict and barred the firm from representing Philip Green on his £9bn M&S bid (though the tribunal heard that the firm still billed Green more than 4,000 hours for the job).
 
Even so, the Law Society took nearly two months to start its own inquiry – and then only reluctantly swung into action after internal pressure to act.
 
The Law Society’s regulatory arm, which morphed along the way into the SRA, then spent no less than three years to bring the case to the tribunal, when the vast majority of its investigations – according to the body’s own figures – resolved within 12 months, with 50% dealt within the first three months.
 
To be fair, Freshfields was reckoned to be a tricky customer to investigate, though some of the law firm’s initial bravado evaporated over the months as it became clear that the regulator, however ambivalently, was committed to seeing the case through.
 
Aside from struggling to elicit information from Freshfields, the SRA was also hampered by its own rules which state that it can only pursue individual lawyers and not firms – a rule that make it very difficult to police the institutional behaviour of large firms.
 
Even so, Freshfields was keen to secure a settlement – a move which had been unsuccessful until recently.
 
One senior lawyer at the firm said that recent case law had given the magic circle firm a magic bullet. It is thought to have determined that a bona fide error of judgement cannot lead to a misconduct charge.
 
This apparently undermined one of the SRA’s central arguments and is understood to have led to the agreement to drop its case against UK corporate head Tim Jones on the basis O’Brien would accept his own charges.
 
So, despite a three-year process, the SRA then dropped some of the accusations on Friday (27 July), just days before the hearing.
 
At the tribunal, the body then came under criticism from the Solicitors Disciplinary Tribunal for, at the 11th hour, changing the basis of a case that the tribunal had already agreed to hear.
 
Of course, the SRA will be happy to have secured a fine against O’Brien. A success says the body, but a £9,000 fine plus £50,000 costs for a senior lawyer in which top partners earn over a £1m will cause a few smirks around the City.
 
The bottom line – and one which is privately conceded by partners within Freshfields – is that the fine is too low, especially when dealing with top City lawyers.
 
Yet, it is possible to feel sorry for O’Brien and Freshfields, since the foot-dragging pace of the investigation left a cloud hanging over the firm’s head for three years.  O’Brien in particular, who could possibly have been senior partner of Freshfields by now but for M&S, has paid a far greater cost than yesterday’s fine.
 
One defence for the SRA is that the need to regulate the City firms is less urgent than when the case began in 2004. The Law Society has since gone through a major overhaul – splitting its regulatory and representative functions. Likewise, the publicity surrounding the case and the revised conflict rules introduced in 2006 means that the rough and ready procedures that once prevailed in the City now have much more rigour.
 
But the memory of the Freshfields/M&S saga is not likely to have anything to do with the relatively gentle punishment of O’Brien and much more to do with the brand damage suffered by the firm as a result of a drawn-out process.
 
This magazine has been a consistent critic of City firms’ slapdash approach to conflicts, but effective regulation should be about reasonably timely and proportionate sanctions. It should not be about imposing severe reputational damage as a kind of collateral fall-out because the process takes so long.
 
In a second statement following the hearing, an SRA spokesman admitted: “We do try to process cases as expeditiously as possible; unfortunately we do not always succeed.”
 
It doesn’t sound quite as good, but at least it’s honest.
 
paul.hodkinson@legalweek.com