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Deeming clauses

Short cuts in disciplinary charging and the long road to the Supreme Court
R (On the application of COKE-WALLIS)
-v-
INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES [2011] UKSC 1 (Lord Clarke)

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This short article expands on the brief note of this case at paragraph 4.30 of the fifth edition.
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1. Regulators should learn from the Institute of Chartered Account’s experience that taking shortcuts in the investigative and charging stage of disciplinary proceedings can give rise to serious complications.

2. It is not uncommon for regulators to charge defendants with a substantive offence of misconduct and also in a separate charge rely on a conviction for a criminal offence based on the facts underlying the regulatory offence. Many regulators have provisions within their disciplinary rules that a conviction is conclusive proof of the underlying facts. Following the decision of the Supreme Court regulators and prosecutors will have to exercise caution when deciding whether and how to prosecute defendants with both the underlying offence and any “criminal conviction” charge which relies on the same facts, and may have to revise their disciplinary rules.

THE BACKGROUND FACTS

3. The Appellant, a Chartered Accountant, was ordered by the Jersey Financial Services Commission to cease to take on any company trust business and to commence an orderly winding up of the company’s affairs. The Commission further directed that no records or files in respect of the companies or any customer shall be removed from the offices of the companies. The Appellant failed to comply with this direction and was arrested leaving the country in possession of documents relating to that order on a later date. The Appellant and his wife were charged with the offence of failing to comply with the direction and were both convicted under the relevant provisions of Jersey’s criminal law. The Appellant was convicted and fined in respect of that offence, sought leave to appeal but was refused.

4. Thereafter the Institute of Chartered Accountants preferred a complaint against the Appellant relying on the fact of the Appellant’s conviction before the Jersey Criminal Court. That allegation was dismissed on a technicality by the Tribunal because they could not be satisfied that the offence in Jersey gave rise to a like offence triable on indictment in the United Kingdom. The Investigation Committee of the ICAEW brought a second complaint before a differently constituted tribunal. At a preliminary the Appellant submitted that the second complaint should be summarily dismissed on the ground that the same complaint had already been dismissed. The Appellant’s case was that the first and second complaints made the same allegation and that the second complaint should be dismissed on the grounds of autrefois acquit or res judicata or that it should be dismissed or stayed on the grounds that the second complaint was an abuse of process. The Tribunal dismissed the application. The Appellant sought judicial review of that decision on the basis that the Tribunal had erred in law and that it should have summarily dismissed the second complainant on the grounds advanced before it.

5. Owen J dismissed the application for judicial review, but Sullivan LJ granted permission to appeal to the Court of Appeal. The Court of Appeal dismissed the appeal. The Appellant then lodged a petition for permission to appeal to the Supreme Court, but before it could be determined a disciplinary tribunal of the ICAEW heard the second complaint at a hearing which the Appellant chose not to attend. The Tribunal found the complaint proved, ordered that the Appellant be excluded from membership of the Institute and made an order of costs against him. Permission to appeal to the Supreme Court was subsequently granted and the sanctions imposed by the Tribunal were suspended pending the outcome of this appeal.
6. The Supreme Court stated that all the grounds in the proceedings depended to a greater or lesser extent upon a comparison of the complaints and that the resolution of the issues between the parties as to the correct comparison between the two complaints depends at least in part upon the true construction of the relevant Byelaws (Byelaws 4 and 7 of the Institute).
7. The Institute submitted that the Byelaws provided for two completely different charges. The first was pleading guilty to or being convicted of an indictable offence of the kind identified in Byelaw 7(1) and the second was being guilty of the underlying conduct (as identified in Byelaw 4(1)(a) namely “any act or default likely to bring discredit on himself, the institute or the profession of accountancy”). The Supreme Court agreed with the Court of Appeal below that the discreditable conduct alleged in the first complaint was the Jersey conviction which was both conclusive evidence of the discreditable conduct and the discreditable conduct itself. Byelaw 4(1) identifies the “occurrences giving rise to liability” to disciplinary action. The only relevant occurrence here was that the Appellant had “committed any actual default likely to bring discredit on himself, the Institute or the profession of accountancy”. In the Court’s opinion if the occurrence relied upon could not be found in Byelaw 4, then the complaint must fail. There is nothing, the Court held, in Byelaw 4(1)(a) which supported the conclusion that such a conviction is itself an act or default of the kind specified. Moreover, such conviction is not one of the circumstances identified in Byelaw 4(1)(e) which are limited to circumstances set out in Byelaw 4(2). The Byelaws could have included a conviction as one of those circumstances but they did not. The Court was unable to find any other provisions within the Byelaw that could fill that lacuna. In short, the Court found that there was nothing in the Byelaws which provided that a qualifying conviction itself amounted to the discreditable conduct. It was simply conclusive proof of discreditable conduct namely the conduct underlying the basis of the conviction.

8. The Court did not read the first complaint as meaning that the conviction was the act complained of as being contrary to Byelaw 4(1)(a). The act complained of was the failure to comply with the direction based on the removal of documents and the like by hiding them in the car and trying to take them off the island. On a fair view therefore of the first complaint the act complained of as a breach was not being convicted but failing to comply with the direction. That was by definition precisely the same complaint as was advanced by the Institute in the second complaint. It was therefore submitted on behalf of the Appellant that the consequence of that was that the second complaint must also be dismissed either on the basis of autrefois acquit or on the basis res judicata.

Autrefois Acquit/Res Judicata

9. In the opinion of the Court if the Appellant could not succeed on the basis of res judicata he would not succeed on the basis of autrefois acquit. The Court therefore turned its attention to res judicata. Referring to the 4th Edition of Spencer Bower and Handley on res judicata (2009) the Court stated that res judicata can either give rise to a cause of action estoppel or to an issue estoppel. In this case the Appellant relies upon the cause of action estoppel which is concisely defined in the relevant provisions of the book at paragraph 1.06 as “If the earlier action fails on the merits a cause of action estoppel will bar another”.

10. Referring to Thrasyvoulou v. Secretary of State for Environment [1990] 2 AC 273 where an issue estoppel was held to arise out of the determination of a planning application, the principle was help to apply to public law proceedings (per Lord Bridge). The House of Lords stressed in that case that the importance of the res judicata principle in terms which in the Supreme Court’s opinion applied equally to the cause of action estoppel and to issue estoppel. The Supreme Court held that the Institute was a public body (see Andreou v. Institute of Chartered Accountants in England and Wales [1998] 1 All ER 14).

11. Having examined the Tribunal hearings of the Institute with some care, the Supreme Court concluded that the essential question was whether the decision was final and on the merits. In the decision of the Court the answer was that it was both. It was plain from the transcript of the hearing to which the Court referred that the Institute based its case on Byelaw 7(1) which made the Jersey conviction conclusive evidence of a breach of Byelaw 4(1)(a) provided that the Jersey offence corresponded to one which is indictable in England and Wales. Although it could have done, it did not put its case in any other way. The Supreme Court stated that the Institute could have relied upon the findings of fact as prime facie evidence of the facts under Byelaw 7(3)(b) or it could have relied upon the underlying facts themselves. All the relevant evidence was available to it. It did not, however, choose to do so nor did it apply for an adjournment in order to do so once the initial charge had been dismissed.

12. In evidence before the Court it was plain that a conscious decision was taken to rely only upon the Jersey conviction by the Institute. In her witness statement, Tracey Owen, head of legal services in the Institute’s Professional Standards Directorate said that the investigation case manager proceeded on an assumption that there was a corresponding offence in England and that Byelaw 7(1) would apply. She added that, to the extent that the issue was considered at all, the case manager would not have been inclined to proceed with a detailed and lengthy investigation gathering witness statements from officials in Jersey “when he had the option of relying just on the fact that Mr Coke Wallis had been convicted”. In its written case the Institute relied upon that evidence in support of the submission that the Institute’s investigation committee considered that the case could be dealt with most economically and efficiently by framing the complaint by reference to byelaw 7(1) “rather than reference to the Appellant’s underlying conduct, which would have involved a time consuming and resource intensive process of gathering witness statements from officials and police officers in Jersey and potentially arranging the attendance of witnesses at a hearing”. The submission added that that “shortcut” proved not to be possible because there was no corresponding indictable offence in England and Wales. The Supreme Court was inclined to uphold the strict principles of res judicata and referred expressly to the decision of the House of Lords in Workington Harbour and Dock Port v. Trade Indemnity Company Limited (No.2) [1938] 2 All ER 101 in which the action failed upon the basis of res judicata because once an initial action had failed on a technical defect in a certification relating to a bond; the Plaintiffs subsequently brought a second action relying not upon that bond and certificate but upon the underlying facts of the certificate which they asserted amounted to breaches of the contract and thus triggered liability under the relevant bond. Lord Atkin described the position thus “reluctant, however, as a judge may be to fail to give effect of the substantial merits, he has to keep in mind principles established with the protection of litigants from oppressive proceedings. There are solid merits behind the maxim nemo bis vexari debet pro eadem causa.” Having reached the conclusion that all the constituent elements of cause of action estoppel were established on the facts of this case, the Supreme Court held that the principles of res judicata must be upheld and therefore that the appeal succeeded.

13. Lord Phillips considered the proposition which was followed by the ICAEW that, given the disciplinary context, the Supreme Court should in some way recognise the public interest exception to the strict application of the doctrine of cause of action estoppels. Lord Phillips said that circumstances might give rise to a trigger for this exception in circumstances where the safety of the public was at risk, as for example in the case of doctors. Lord Clarke saw force in the introduction of such a principle, but however concluded that it would be essentially a matter for Parliament not for the courts through legislation to enact such a provision. He referred to Parliament’s decision to give healthcare regulators the right to refer to the High Court decisions in disciplinary proceedings of the self-regulatory body such as those identified within the Act (e.g. GMC, GDC etc.).

14. The Supreme Court expressed no view under the abuse of process head having already allowed this appeal on the basis of res judicata. The court therefore allowed the appeal on the ground that the second complaint made was in essence the same complaint as the first and that the dismissal of the first complaint, which was a final determination of the first complaint on the merits, made the second complaint res judicata such that the Institute was not entitled to make or proceed with the second complaint.

Comment

15. Regulators will have to look at their disciplinary provisions where similar circumstances apply in particular regulatory environments. It is a common prosecutorial shortcut (driven often by practical expediency) to frame a charge based on the core facts and also upon a criminal conviction of a defendant based upon those underlying facts. Regulators should be wary of doing so in view of the risk that a technical acquittal of one charge may give rise as it did in this case to the assertion of res judicata in relation to the other, simply based upon the choice about how the charge is framed. In most circumstances, this can be avoided by relying on the conviction in relation not to the mere fact of discreditable conduct, but to proving the underlying facts. (Institute Bye-law 7(3)) Alternatively, regulators should consider a enacting an express provision that the fact of a conviction constitutes discreditable conduct (epithet misconduct), which the Institute’s rules signally failed to do.
AC
5/2/12

 

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