Negligence in Regulatory Investigations

Author:Mr James George
Profession:Herbert Smith
 
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Will circumstances ever arise where a regulated person is

able to succeed in a negligence claim against a regulator? This issue was

recently considered in the case of Miller v Law Society (The

Times, 3 June 2002), in the context of an allegedly negligent

investigation of a solicitor's practice.

The decision in Miller v Law Society

Mr Miller was a solicitor in sole practice. In August 1996, the Law

Society appointed an investigating accountant to inspect Mr Miller's

accounts. The accountant reported that the books did not comply with the

Solicitors Accounts Rules.

In October 1997, the Law Society intervened in Mr Miller's practice,

with the result that his funds were vested in the Society and his

practising certificate suspended. Under the Solicitors Act 1974, Mr Miller

had 8 days in which to give the Society 48 hours' notice and then issue an

application in the High Court to challenge the intervention. He failed to

do so.

The Solicitors Disciplinary Tribunal subsequently found that Mr Miller

had failed to keep proper accounts and had used client funds for the wrong

purposes. He was suspended from practice and ordered to pay the costs of

the investigation.

Mr Miller did not dispute the disciplinary findings, but when the Law

Society sought to enforce the costs order he raised a counterclaim for

damages. He alleged that the investigating accountant had been negligent

in conducting his investigation and preparing his report, which led the

Society to intervene in Mr Miller's practice and prevent him from carrying

on his business. The main issue for the judge was whether the

investigating accountant could owe Mr Miller any duty to take care in

conducting his investigation and preparing his report.

The judge noted that two consequences might follow from an adverse

report by an investigating accountant: the Law Society could intervene in

the solicitor's practice, in which case the solicitor could challenge the

decision in the High Court; and the Society could bring proceedings in the

Solicitors Disciplinary Tribunal, which the solicitor could defend. Thus

the accountant's investigation was part of ìa unitary and indivisible

statutory processî which provided the solicitor with adequate remedies.

The judge therefore held that a private law action could not be used to

challenge either the Law Society's decision to intervene or the process

leading to that decision. The scheme of investigations and interventions

under the Solicitors Act gave rise to issues in public law only, and

private law claims in negligence should not be allowed to ìintrude into

this exclusively public law fieldî.

Although the outcome in this case appears correct, the judge was not

referred to a number of important cases in which the...

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