The High Court is set to rule on a defining challenge to the powers of the Solicitors Regulation Authority (SRA) after London libel firm Carter Ruck and British businessman Mohamed Amersi contested whether the legal regulator can compel the disclosure of legally privileged material during its investigations into professional misconduct. Without this essential investigatory power, which ensures the regulator is not dependent on a waiver from the client who holds the privilege, the SRA’s ability to regulate law firms and solicitors will be severely stifled.
The backstory
In 2023, the SRA launched an investigation into Carter-Ruck relating to alleged misconduct between 2021 – 2022. This followed a high-profile case which saw the libel firm pursue successive data protection and libel claims on behalf of Amersi against former MP Charlotte Leslie in 2021. A major political donor, Amersi alleged that Leslie had defamed him in due diligence memos she prepared for associates of the Tory party – a claim that was struck out with sharp words by the judge in charge of media law claims in England and Wales.
The judge did not consider it necessary to rule on whether Amersi’s claim was an abuse of process in order to throw out the claim. Still, he commented that there were “several aspects” of Amersi’s conduct that gave “real cause for concern as to…whether his pursuit of these proceedings has been genuinely to seek vindication rather than some other impermissible collateral purpose(s)” and whether the proceedings were conducted at proportionate cost. Leslie subsequently lodged a complaint with the SRA alleging that Carter-Ruck “knowingly conducted a series of abusive legal cases” on behalf of Amersi.
To get its investigation into the firm underway, the SRA served Carter-Ruck with three notices under s.44B of the Solicitors Act 1947. This provision empowers the SRA to require a lawyer to hand over information and documents which they consider necessary for investigating alleged professional misconduct. However, Carter-Ruck refused to hand over this material on the basis that their former client did not waive his privilege, and instead went on to bring the current legal challenge.
A regulator on the ropes
Carter-Ruck has opted to go on the offensive at a time when its conduct has caught the regulator’s eye in relation to complaints about Strategic Lawsuits Against Public Participation (SLAPPs). In a separate case, the SRA pursued enforcement action against a Carter-Ruck partner for allegedly making an improper threat of legal action on behalf of OneCoin, a $4 billion crypto fraud. The SRA’s case was tossed out by the Solicitors Disciplinary Tribunal at a preliminary stage, with the Tribunal finding that the fact that OneCoin was a fraudulent enterprise was not apparent to the partner at the relevant time. This bruising loss left the regulator on the receiving end of the partner’s £1 million claim for costs.
This follows a series of high-profile losses for the SRA on other cases arising from SLAPP complaints. At the same time, the SRA is facing censure and enforcement action from the Legal Services Board – the body tasked with overseeing all legal regulators – for the SRA’s regulatory failings which contributed to the collapse of two law firms.
Does legal privilege shut out the regulator?
In refusing to hand over material requested by the SRA for its current SLAPP investigation, Carter-Ruck and Mohamed Amersi argue that a s.44B notice does not give the regulator the power to compel the production of privileged information as presumed by the SRA.
Legal professional privilege enjoys special status as a fundamental right. It exists to protect the secrecy of communications between lawyers and their clients which have the dominant purpose of seeking or providing legal advice or dealing with litigation.
Carter-Ruck argues that privilege – which belongs to a client, not their lawyer – stops the legal regulator from looking at their communications with Amersi. However, this position sits uneasily with the reality that the SRA – and its predecessors – have a longstanding practice of routinely examining privileged material as part of their investigations.
The claimants’ argument narrowly focuses on the wording of the statute: the statute does not expressly give the regulator the power to override privilege; and that in the absence of express wording, Parliament would not have intended to override a fundamental right to confidentially communicate with their lawyers.
The claimants also argue that intrusive powers to compel the disclosure of privileged information would infringe on their client’s right to privacy. This means that if the legislation is not clear, the ambiguity should be resolved in their favour because the courts have a duty to interpret legislation in a way that is compatible with human rights, so far as this is possible.
The regulator fights to retain its teeth
Pushing back against this interpretation, the SRA argues that the earlier wording of the statute, as originally enacted, shows Parliament did intend the regulator to have this power. The SRA argues that a client’s right to legal professional privilege and the regulator’s power to view privileged information are both critical to the sound administration of justice.
On the one hand, a client must be able to speak to their lawyer without fear of these communications being disclosed if they are to be effectively advised and represented. On the other hand, the SRA must be able to look behind privilege to properly regulate lawyers and uphold the high ethical standards needed to maintain public trust in the legal profession.
On this view, facilitating access to justice and maintaining public trust in the legal profession ultimately serve the same public policy – the administration of justice. The SRA’s consideration of privileged material for a limited regulatory purpose is therefore consistent – not in conflict – with the public interest that underpins legal privilege.
Beyond this, the SRA highlighted the practical utility of this power, arguing that it is essential to fulfill their role to investigate and secure evidence of professional misconduct by law firms and individual solicitors. Our court monitoring work bears this out, showing these powers are crucial if the SRA is to be more than a paper tiger.
Marking a firm’s anti-money laundering homework
In many cases we’ve followed, it’s clear the regulator has needed to access privileged material to determine whether there is a case to answer for a breach of anti-money laundering (AML) rules. The AML rules require lawyers to carry out a risk-based approach to due diligence, adopting more stringent checks on clients who present greater risk factors. Looking at privileged communications is often crucial for understanding what a firm knew about a client when assessing their risk for due diligence. Otherwise the SRA would only be examining a superficial account of which AML checks were carried out without seeing the full picture of a client’s risk profile. Without that, it is very difficult to establish what should have happened as part of adequate due diligence.
For example, in the SRA’s case against Dentons UK and Middle East LLP for a failure to adequately establish the client’s source of wealth, the client in question had not waived legal privilege during the SRA’s investigations or subsequent proceedings. Nevertheless, the SRA obtained and relied on privileged correspondence and also examined tax advice given to the client in order to understand the firm’s knowledge of the client’s wealth.
It is striking that the SRA’s biggest ever fine for AML breaches – £500,000 against Clyde & Co – also followed an investigation in which a client had not waived legal privilege. Although Clyde & Co admitted the breaches, the SRA would have relied on s.44B to examine privileged information during its investigation, and this privilege was preserved when the material was disclosed in anonymised form before the Solicitors Disciplinary Tribunal.
Examining privileged material is a crucial power which allows the SRA to pick up on the mistakes, negligence or wilful blindness that cause lawyers to fall short of their AML obligations. Without the power to compel privileged documents, the regulator would be investigating with one hand tied behind its back.
Uncovering the strategy behind litigation
Similarly, the SRA’s ability to investigate and take action in response to complaints about SLAPPs will be severely stifled without the power to look at privileged communications between lawyers and clients. It is only by looking at these exchanges – the instructions given by a client and the legal advice given by their lawyer – that the SRA can establish whether litigation was brought or threatened for an improper purpose of bullying critics into silence. Given a SLAPP complaint often turns on whether a lawyer acted as a ‘gun for hire’, the client – as the person giving the orders – is highly unlikely to waive privilege.
Looking at privileged communications and legal advice is the most direct and reliable way for the regulator to gain an insight into the strategy and intentions of the solicitor who issues a legal threat or claim. A claim may outwardly bear some hallmarks of a SLAPP, but internal privileged communications will usually form the foundation of the SRA’s case when alleging improper conduct of litigation, as demonstrated by the cases against Gill and Hutchings.
In pursuing its case against Claire Gill for making an ‘improper threat of litigation’ on behalf of OneCoin, the SRA relied on numerous emails between Gill and her clients to establish the intention behind the letter sent. The Solicitors Disciplinary Tribunal ruled that the so-called ‘iniquity exception’ applied because Carter-Ruck was instructed in furtherance of fraud. This exception – which stops privilege being used to conceal criminality – meant that these communications were no longer privileged. Notably, this came following a case management hearing, but for the case to progress to this stage the SRA relied on their powers to compel privileged information in the initial investigation.
Similarly, the SRA’s case against media lawyer Christopher Hutchings relied on privileged communications on his proposed litigation strategy. Ultimately, the Solicitors Disciplinary Tribunal found that Hutchings – who was accused of threatening a journalist with the misleading assertion that there was a strong contempt of court case against them – did not commit any misconduct.
This case is particularly interesting because it demonstrates that privileged material not only forms the bedrock of the SRA’s investigation into complaints about abusive litigation – it is often essential for the lawyer to advance an effective defence. In Hutchings’ case, the Tribunal placed significant weight on the evidence of ‘Counsel L’, whose anonymised advice was protected by legal privilege.
What’s at stake?
This challenge has not only come at a critical time for the SRA – it also comes as the Financial Conduct Authority (FCA) gets ready to take over as a new AML super-regulator for the legal, accountancy and trust and company services sectors.
As the government sets out its plans for this major shake-up of AML supervision in primary legislation which is currently before parliament, now is the time for proactive steps to secure effective powers for regulators tasked with oversight of the legal profession. This court challenge by Carter-Ruck and Amersi is a big wake-up call that these powers need to be spelled out in black and white. Even if this case is resolved in the SRA’s favour, it will leave the FCA without the essential powers needed to regulate lawyers effectively for compliance with their AML obligations.
It’s clear that the power to compel privileged information is crucial for the SRA to do its job effectively. This power is especially important for enforcing AML rules, but has also been a vital tool for investigating other forms of professional misconduct that are equally important for the wider public to feel the benefits of a functioning regulatory system.
So while the outcome of this particular legal challenge may be uncertain, there should be no doubt that Parliament needs to step in to give both the SRA and the FCA clear statutory powers. Only then will a power that has been assumed for decades be foolproof from future challenges.
