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England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Baker Tilly UK Audit LLP & Ors, R (On the Application Of) v Financial Reporting Council & Ors  EWHC 1398 (Admin) (19 May 2015)
Cite as:  EWHC 1398 (Admin)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen on the application of (1) Baker Tilly UK Audit LLP
(2) Richard Hamilton King
(3) Steven Laurence Railton
|- and -
|(1) Financial Reporting Council
(2) Financial Reporting Council Conduct Committee
(3) Executive Counsel to the Financial Reporting Council
Michael Fordham QC and Jason Pobjoy (instructed by Herbert Smith Freehills) for the Defendants
Hearing dates: 24 and 25 March 2015
Crown Copyright ©
Mr Justice Singh :
The Financial Reporting Council
"The FRC is an independent regulator and has a diverse range of responsibilities and functions which together serve to promote high quality corporate governance and reporting in the UK to foster investment. It does so by setting the framework of codes and standards for the accounting, auditing, actuarial and investor communities, and by overseeing the conduct of professionals working in these areas. "
Factual background to the present case
The Accountancy Scheme
"An act or omission or series of acts or omissions, by a Member or Member Firm in the course of his or its professional activities (including as a partner, member, director, consultant, agent, or employee in or of any organisation or as an individual) or otherwise, which falls significantly short of the standards reasonably to be expected of a Member or Member Firm or has brought, or is likely to bring, discredit to the Member or the Member Firm or to the accountancy profession."
"A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee: -
(i)(a) the matter raises or appears to raise important issues affecting the public interest in the United Kingdom ('the first criterion'); and
(b) there are reasonable grounds to suspect that there may have been Misconduct ('the second criterion'); "
"In deciding whether a matter satisfies the first criterion, the Conduct Committee shall, amongst other things, consider whether it appears to give rise to serious public concern or to damage public confidence in the accountancy profession in the United Kingdom. The Conduct Committee shall also be entitled to consider all the circumstances of the matter including, but not limited to, its nature, extent, scale and gravity."
"In considering whether there are reasonable grounds to suspect that there may have been Misconduct by a Member or Member Firm, regard shall be had in particular to any law, whether statutory or otherwise, or regulation of any sort, and to any charter, bye-law, rule, regulation or guidance."
"A Member or Member Firm shall be liable to disciplinary proceedings under this Scheme if, following an investigation, the Executive Counsel considers:
(i) that there is a realistic prospect that a Disciplinary Tribunal will make an Adverse Finding against a Member or Member Firm; and
(ii) that a hearing is desirable in the public interest."
"Where a Participant is conducting an investigation into the conduct of a Member of Member Firm of which the Conduct Committee is aware, or the Conduct Committee otherwise becomes aware of matters relating to the conduct of a Member or Member Firm, and in either case the Conduct Committee is of the opinion that the criteria at paragraph 5(1), taking account of the considerations in paragraph 5(2), have been met, the Conduct Committee may decide that the matter shall be dealt with by the FRC in accordance with this Scheme."
" Where the Conduct Committee decides, pursuant to para 6(8), that it is not appropriate for the matter to be dealt with by the FRC in accordance with this Scheme, it shall advise the relevant Participant of that decision, giving its reasons, so that that Participant can decide whether it should investigate, or continue to investigate, that matter."
"(i) for the purposes of exercising its powers under para 6, the Conduct Committee and the Executive Counsel on its behalf, has power to require any Participant to provide to the Executive Counsel such documents or other information in its possession, or under its control, as the Conduct Committee or the Executive Counsel, as the case may be, shall reasonably think fit and as the Participant can lawfully provide.
(ii) the power in para 7(1)(i) shall include the power to require the Participant to: -
(a) permit the inspection and taking of copies of the documents or other information; and
(b) supply copies of such documents or other information at its own expense to the extent that is reasonable in all the circumstances."
"(i) If, following his investigation, the Executive Counsel considers that: -
(a) there is a realistic prospect that a Disciplinary Tribunal will make an Adverse Finding against a Member or Member Firm; and
(b) a hearing is desirable in the public interest, the Executive Counsel shall notify the Member or Member Firm concerned of his intention to deliver a Formal Complaint to the Conduct Committee.
(ii) The notice sent in accordance with para 7(10)(i) shall:
(a) be accompanied by a draft of the Formal Complaint that he proposes to deliver to the Conduct Committee; and
(b) invite the Member or Member Firm to make written representations to him within the period of eight weeks from the date on which the notice is sent to the Member or Member Firm. "
"If, the Executive Counsel:
(i) Having reviewed any representations received for the purposes of para 7(10), still considers that:-
(a) there is a realistic prospect that a Disciplinary Tribunal will make an Adverse Finding against a Member or Member Firm; and
(b) a hearing is desirable in the public interest;
he shall deliver a Formal Complaint against the Member or Member Firm to the Conduct Committee."
"If at any stage during or following an investigation, the Executive Counsel considers: -
(i) that there is no realistic prospect that a Tribunal will make an Adverse Finding against a Member or Member Firm; or
(ii) a hearing is not desirable in the public interest;
he shall inform the Conduct Committee of his decision, together with the reasons for that decision, and the Conduct Committee shall notify the Member or Member Firm and the Participants of the decision."
"After hearing the Formal Complaint, the Disciplinary Tribunal shall, in relation to the Member or Member Firm which is subject of the Formal Complaint, either: -
(i) make an Adverse Finding in respect of some or all of the alleged Misconduct or failures to comply with the Member's or Member Firm's obligations under paras 14(1) or 14(2) forming the subject matter of the Formal Complaint, or
(ii) dismiss the Formal Complaint."
The Guidance on the delivery of Formal Complaints
"In applying the public interest test the Executive Counsel should be especially mindful of four points:
- All cases covered by this guidance are necessarily public interest cases, that is, they raise or appear to raise important issues affecting the public interest. This is underscored by paragraphs 5(1) and 5(2) of the Scheme. Paragraph 5(1) echoes paragraph 24(2) of Schedule 10 of the Companies Act 2006. Paragraph 5(2) requires the Conduct Committee to consider, amongst other things, whether the matter appears to give rise to serious public concern or to damage public confidence in the UK accountancy profession as well as all the circumstances of the matter including its nature, extent, scale and gravity. The Executive Counsel is required to ask a slightly different question: whether a hearing (rather than an investigation) is "desirable in the public interest". Following his investigation, he is likely to answer that question by reference to more information than was available to the Conduct Committee.
- A Formal Complaint satisfying the evidential test should usually be delivered to the Committee unless contrary public interest factors clearly outweigh those favouring delivery.
- There is an alternative means of disposal under the Scheme whereby the Executive Counsel may agree terms of a settlement, for consideration by Settlement Approvers in accordance with paragraph 8 of the Scheme. Entering into settlement discussions is at the sole discretion of the Executive Counsel, and, in considering whether this would be appropriate, he must have regard to the public interest. Where terms of a settlement cannot be agreed, or are not approved by Settlement Approvers, the Executive Counsel shall proceed to deliver the Formal Complaint in accordance with paragraph 7(11) of the Scheme.
- The application of the public interest test is not simply a matter of comparing the number of factors on each side. The Executive Counsel must carefully and fairly weigh each factor, and then make an overall assessment. No single factor or combination of factors is necessarily determinative."
"The following are examples of public interest facts favouring delivery of a Formal Complaint to the Conduct Committee:
- The gravity of the alleged misconduct and/or breach of obligation. It is likely that a hearing is desirable in the public interest where there is evidence that the alleged misconduct:
(a) involved acts of dishonesty or of a criminal nature, or otherwise casts doubt on the integrity of the Member or Member Firm;
(b) involved a failure to comply with a requirement to cooperate with the FRC pursuant to paragraphs 14(1) or 14(2) of the Scheme;
(c) was pre-meditated, repeated or systemic;
(d) involved abuse of a position of authority or trust;
(e) casts doubt on the objectivity of the Member or Member Firm;
(f) involved a non-trivial failure on the part of the Member or Member Firm to act with professional competence or due care, or otherwise involved action that could discredit the profession.
- The gravity of the actual or potential consequences of the alleged misconduct and/or breach of obligation.
- There is a real risk of repetition.
- Public confidence in:
- the accounting profession;
- financial reporting;
- corporate governance; and/or
- the Scheme.
could be undermined if the alleged misconduct and/or breach of obligation were not pursued before a Disciplinary Tribunal.
- The disciplinary record, before the FRC or otherwise, of the Member or Member Firm. The worse the record is, and the greater the similarity of the previous misconduct, the stronger the public interest will be in proceeding. Conversely, if the Member or Member Firm has already been excluded or had his/its licence or registration withdrawn and the new allegation is relatively minor, there may be little public interest in proceeding.
- There is a need to deter future misconduct and/or breach of obligation and to send a signal to the profession and the public, thereby protecting and promoting high professional standards."
"The following are examples of factors which indicate that a hearing may not be desirable in the public interest:
- The Member is very elderly or is (or was at the time of the alleged misconduct and/or breach of obligation) suffering serious physical or mental ill health and
- no longer practises; and
- is unlikely to resume practice.
- Even if the Formal Complaint is upheld, a Disciplinary Tribunal would probably impose no, or only a nominal or minimal, sanction (such as a token or small fine).
- The loss and harm, or potential loss and harm, were minor, and the misconduct was inadvertent.
- There has been long delay between the alleged misconduct and/or breach of obligation and the likely date of a hearing before a Disciplinary Tribunal, unless
- the alleged misconduct and/or breach of obligation is serious; and/or
- there is good reason for the delay (such as it has been caused or contributed to by the Member or Member Firm or the alleged misconduct and/or breach of obligation has come to light only recently or the complexity of the investigation or the existence of other proceedings or investigations by another prosecuting authority, regulatory or adjudicatory body)."
The accountants' professional bodies and standards
"(a) A member, relevant firm or registered student shall, subject to bye-law 11 be liable to disciplinary action if:
(i) he or it, whether in the course of carrying his or its professional duty or otherwise, has been guilty of misconduct;
(ii) in connection with his or its professional duties, he or it has performed his or its work, or conducted himself or itself, or conduct his or its practice, erroneously, inadequately, inefficiently or incompetently; "
"A member or provisional member shall be liable to disciplinary action under these by-laws in any of the following cases whether or not he was a member or provisional member at the time of the occurrence giving rise to that liability
a) if in the course of carrying out professional work or otherwise he has committed any act or default likely to bring discredit on himself, the Institute, or the profession of accountancy;
(b) if he has performed his professional work or the duties of his employment, or conducted his practice, inefficiently or incompetently to such an extent, or on such a number of occasions, as to bring discredit on himself, the Institute of the profession of accountancy; "
The process in the present case
"As set out more particularly below, the allegations of Misconduct relate to opinions issued by the Respondents in respect of the financial statements of TES and SEV dated 21 July 2008, and the consolidated financial statements of Tanfield Group dated 21 April 2008, for the year ended 31 December 2007. In each case the Respondents issued an unqualified (i.e. 'clean') audit opinion. Whilst the evidence does not demonstrate that the financial statements were materially misstated, it is the Executive Counsel's case that the Respondents:
a. failed to obtain sufficient appropriate audit evidence to support their conclusion that no material error existed;
b. failed adequately to review the audit documentation and to discuss the audit evidence so as to be satisfied that sufficient appropriate audit evidence had been obtained; and
c. failed in relation to post balance sheet events to perform sufficient appropriate audit procedures."
"As set out more particularly below, the allegations of Misconduct relate to opinions issued by the Respondents in respect of the financial statements of TES and SEV dated 21 July 2008, and the consolidated financial statements of Tanfield Group dated 21 April 2008, for the year ended 31 December 2007. In each case the Respondents issued an unqualified (i.e. 'clean') audit opinion. It is the Executive Counsel's case that the Respondents:
a. failed to obtain sufficient appropriate audit evidence to support their conclusion that no material error existed, in particular in the context of their work on Inventories and Trade Receivables;
b. failed adequately to review the audit documentation and to discuss the audit evidence so as to be satisfied that sufficient appropriate audit evidence had been obtained;
c. failed in relation to post balance sheet events to perform sufficient appropriate audit procedures; and
d. failed to obtain sufficient appropriate audit evidence in relation to Inventories and Trade Receivables in order to express an unqualified audit opinion on the financial statements."
"Between 26 November 2007 and 22 July 2008, in relation to the engagement of Baker Tilly to act as auditor of the financial statements of Tanfield Group, TES and SEV for the year ended 31 December 2007 the Respondents failed to obtain sufficient appropriate audit evidence of the existence and valuation of Inventories, thereby:
(i) Failing to comply with the requirements of paragraph 2 of ISA 500 and paragraph 21 of ISA 220; and/or
(ii) Failing to act in accordance with the Fundamental Principle of Profession Competence and Due Care of the Code of Ethics of ICAS, ICAEW and ACCA.
The TES Stocktake Existence of Inventories
1. In relation to the TES stocktake on 20 December 2007 the Respondents failed to obtain sufficient appropriate audit evidence of the existence of Inventories in that:
a) no, or no sufficient, audit evidence was obtained for the existence of Work in Progress and Finished Goods;
b) at the Tanfield Lea Estate site the Respondents carried out a test for the existence of raw materials which was inadequate and insufficient in that they:
i) identified a sample size for testing without reference to their assessment at the planning stage, as recorded in the Key Issues Tracker, that there was a significant risk in respect of existence of Inventories;
ii) tested for the existence of raw materials on the basis of an insufficient sample size, namely a count of five line items from physical inventory to listing and a further count of five line items from listing to physical inventory;
iii) indentified errors in 7 out of 10 of the items tested and assessed a net error rate in the value of the items tested of 9% but failed sufficiently to evaluate and document whether the identified errors were isolated and therefore failed to consider whether it was appropriate to extrapolate using the net error rate of 9% revealed within the sample, over the entirety of the population being tested;
iv) used the net error rate of 9% to extrapolate across the entirety of the population being tested despite it being inappropriate to do so;
v) failed properly to consider their further actions and conclusions once they had identified the high levels of errors in the sample tested. "
"I am instructed to provide my opinion on whether the conduct of Baker Tilly and/or any individual member of the firm, fell significantly short of the standards reasonably to be expected of a Member or Member Firm in that audit of Tanfield Group and the Subsidiaries for the years ended 31 December 2007 and 2008."
"In my opinion, the Auditor's conduct fell significantly short of the standards reasonably to be expected in the following areas in relation to ISA 500 (Audit evidence): [these are then specified in bullet points]."
Other failings are then set out at para 9.3.
"I consider that for the year ended 31 December 2007 the insufficient audit evidence in relation to the Tanfield Group and subsidiaries' balances for Inventories and Trade Receivables should have led the Auditor to qualify its opinion with a limitation in scope statement in its Auditor's report with respect of these areas. Further, I do not consider that it is now possible to determine if the accounts were materially misstated based on the evidence retained on the audit file."
Authorities on the meaning of "misconduct"
"(1) Misconduct is of two principal kinds. First, it may involve sufficiently serious misconduct in the exercise of professional practice such that it can properly be described as misconduct going to fitness to practise. Second, it can involve conduct of a morally culpable or otherwise disgraceful kind which may, and often will, occur outwith the course of professional practice itself, but which brings disgrace upon the doctor and thereby prejudices the reputation of the profession.
(3) Conduct can properly be described as linked to the practice of medicine, even though it involves the exercise of administrative or managerial functions, where they are part of the day to day practice of a professional doctor. These include functions such as proper record-keeping, adequate patient communication, proper courtesy shown to patients and so forth. Usually a failure adequately to perform these functions will fall within the scope of deficient performance rather than misconduct, but in a sufficiently grave case, where the negligence is gross, there is no reason in principle why a misconduct charge should not be sustained.
(7) Deficient performance or incompetence, like misconduct falling within the first limb, may in principle arise from the inadequate performance of any function which is part of a medical calling. Which charge is appropriate depends on the gravity of the alleged incompetence. Incompetence falling short of gross negligence but which is still seriously deficient will fall under section 35C(2)(b) rather than (a).
(10) Accordingly, action taken in good faith and for legitimate reasons, however inefficient or ill-judged, is not capable of constituting misconduct within the meaning of section 35C(2)(a) merely because it might damage the reputation of the profession. "
"The concept of deficient performance was introduced by the Medical (Professional Performance) Act 1995. Until then the power to take action in relation to a person's registration was limited to cases of serious professional misconduct, the commission of criminal offences or serious impairment of fitness to practise by reason of ill health. Whilst some acts of incompetence could be brought within the scope of misconduct, not all could. The 1995 Act was intended to fill that lacuna, as the Registrar made clear in her decision in this case. In fact as initially drafted, the focus of this provision was not on competence as such but rather on the related but distinct concept of 'past professional performance', as the Privy Council pointed out in Krippendorf v General Medical Council  1 WLR 1054. As the facts of that case demonstrated, this could sometimes cause difficulties in effectively regulating lack of competence. However, there is now a definition of professional performance in section 55 of the 1983 Act which states that it 'includes a medical practitioner's professional competence.' It appears, therefore, that all aspects of competence may now be the subject of investigation in the fitness to practise procedures."
"A person's fitness to practice shall be regarded as 'impaired' for the purposes of this Act by reason only of
(b) deficient professional performance;
(c) a conviction or caution in the British Islands for a criminal offence, or a conviction elsewhere for an offence which, if committed in England and Wales, would constitute a criminal offence;
(d) adverse physical or mental health; or
(e) a determination by a body in the United Kingdom responsible under any enactment for the regulation of a health or social care profession to the effect that his fitness to practice as a member of that profession is impaired, or a determination by a regulatory body elsewhere to the same effect."
"The expression 'serious professional misconduct' is not defined in the legislation and it is inappropriate to attempt any exhaustive definition. It is the successor of the earlier phrase used in the Medical Act 1858 (21 & 22 Vict. c. 90) 'infamous conduct in a professional respect', but it was not suggested that any real difference of meaning is intended by the change of words. This is not an area in which an absolute precision can be looked for. The booklet which the General Medical Council have prepared, 'Professional Conduct and Discipline: Fitness to Practice' (December 1993), indeed recognises the impossibility in changing circumstances and new eventualities of prescribing a complete catalogue of the forms of professional misconduct which may lead to disciplinary action. Counsel for the doctor argued that there must be some certainty in the definition so that it can be known in advance what conduct will and what will not qualify as serious professional misconduct. But while many examples can be given the list cannot be regarded as exhaustive. Moreover the Professional Conduct Committee are well placed in the light of their own experience, whether lay or professional, to decide where precisely the line falls to be drawn in the circumstances of particular cases and their skill and knowledge requires to be respected. However the essential elements of the concept can be identified.
Serious professional misconduct is presented as a distinct matter from a conviction in the British Islands of a criminal offence, which is dealt with as a separate basis for a direction by the committee in section 36(1) of the Medical Act 1983. Analysis of what is essentially a single concept requires to be undertaken with caution, but it may be useful at least to recognise the elements which the respective words contribute to it. Misconduct is a word of general effect, involving some act or omission which falls short of what would be proper in the circumstances. The standard of propriety may often be found by reference to the rules and standards ordinarily required to be followed by a medical practitioner in the particular circumstances. The misconduct is qualified in two respects. First, it is qualified by the word 'professional' which links the misconduct to the profession of medicine. Secondly, the misconduct is qualified by the word 'serious'. It is not any professional misconduct which will qualify. The professional misconduct must be serious. The whole matter was summarised in the context of serious professional misconduct on the part of a registered dentist by Lord Mackay of Clashfern in Doughty v. General Dental Council  A.C. 164, 173:
'In the light of these considerations in their Lordships' view what is now required is that the General Dental Council should establish conduct connected with his profession in which the dentist concerned has fallen short, by omission or commission, of the standards of conduct expected among dentists and that such falling short as is established should be serious. On an appeal to this Board, the Board has the responsibility of deciding whether the Committee were entitled to take the view that the evidence established that there had been a falling short of these standards and also entitled to take the view that such falling short as was established was serious.'
In the present case the critical issue is whether, if there was misconduct, the misconduct was 'professional misconduct'. As counsel for the General Medical Council pointed out it is not simply clinical misconduct which is in issue. Professional misconduct extends further than that. So it is not simply misconduct in the carrying out of medical work which may qualify as professional misconduct. But there must be a link with the profession of medicine. Precisely what that link may be and how it may occur is a matter of circumstances. The closest link is where the practitioner is actually engaged on his practice with a patient. Cases here may occur of a serious failure to meet the necessary standards of practice, such as gross neglect of patients or culpable carelessness in their treatment, or the taking advantage of a professional relationship for personal gratification."
"It is settled that serious professional misconduct does not require moral turpitude. Gross professional negligence can fall within it. Something more is required than a degree of negligence enough to give rise to civil liability but not calling for the opprobrium that inevitably attaches to the disciplinary offence. Having formed their own view of the evidence, their Lordships do not hold that any of the findings of the PCC on the detailed allegations were wrong, but they consider that in the context of the treatment of this particular patient the specific shortcomings established against the appellant vary in gravity. The core and most serious shortcoming was summarised by the PCC as failure to ensure that the state of the patient's oral health was appropriate in view of the ambitious treatment plan. That is covered specifically by charge (a) as to the period after December 1994 and charge (b)(i). It was an elementary and grievous failure warranting the description of serious professional misconduct. The Board does not consider that in this case the other charges that have been established come within that description, either individually or collectively. Some or all of them may well have constituted simple professional negligence, and they are part of the setting in which the seriousness of the appellant's conduct has to be judged; but the findings directly related to oral health are dominant."
"It is also common ground that serious professional misconduct for this purpose may take the form, not only of acts of bad faith or other moral turpitude, but also of incompetence or negligence of a high degree: see Preiss v General Dental Council . It may also be professional misconduct where, as here, a medical practitioner, purporting to act or speak in such expert capacity, goes outside his expertise. Whether it can properly be regarded as 'serious' professional misconduct, however, must depend on the circumstances, including with what intention and/or knowledge and understanding he strayed from his expertise, how he came to do so, to what possible, foreseeable effect, and what, if any, indication or warning he gave to those concerned at the time that he was doing so."
"(1) Mere negligence does not constitute 'misconduct' within the meaning of section 35C(2)(a) of the Medical Act 1983. Nevertheless, and depending upon the circumstances, negligent acts or omissions which are particularly serious may amount to 'misconduct'.
(2) A single negligent act or omission is less likely to cross the threshold of 'misconduct' than multiple acts or omissions. Nevertheless, and depending upon the circumstances, a single negligent act or omission, if particularly grave, could be characterised as 'misconduct'.
(3) 'Deficient professional performance' within the meaning of 35C(2)(b) is conceptually separate both from negligence and from misconduct. It connotes a standard of professional performance which is unacceptably low and which (save in exceptional circumstances) has been demonstrated by reference to a fair sample of the doctor's work.
(4) A single instance of negligent treatment, unless very serious indeed, would be unlikely to constitute 'deficient professional performance'.
(5) It is neither necessary nor appropriate to extend the interpretation of 'deficient professional performance' in order to encompass matters which constitute 'misconduct'."
"23 In my judgment, the starting point for interpreting the Osteopaths Act 1993 must be the language of the Act itself. Although one notes that 'unacceptable professional conduct' has the definition in section 20(2): 'conduct which falls short of the standard required of a registered osteopath', there is an unhelpful circularity to the definition. Indeed one might not unfairly comment that the statutory definition adds little clarity. The critical term is 'conduct'. Whichever dictionary definition is consulted, the leading sense of the term 'conduct' is behaviour, or the manner of conducting oneself. It seems to me that at first blush this simply does imply, at least to some degree, moral blameworthiness. [Speaking for myself I am not at all sure that that follows from the dictionary definition but this may be immaterial in the present context]. Whether the finding is 'misconduct' or 'unacceptable professional conduct', there is in my view an implication of moral blameworthiness, and a degree of opprobrium is likely to be conveyed to the ordinary intelligent citizen. That is an observation not merely about the natural meaning of the language, but about the likely effect of the finding in such a case as this, given the obligatory reporting of the finding under the Act.
24 In my view, this starting point receives support rather than otherwise from the carefully specified use to which the code of practice may be put under section 19(4) of the 1993 Act. Breach of the code of practice may be established, and may be significant, without making out 'unacceptable professional conduct'. It must be the case that a breach of the code of practice may also be relevant to a finding of professional incompetence, as opposed to unacceptable professional conduct. No single instance of negligence or unacceptable care would be sufficient to found a conclusion of 'professional incompetence'. Hence, for both purposes a breach of the code of practice is a starting point and is relevant, but cannot be definitive or indeed even raise a presumption that 'professional incompetence' or 'unacceptable professional conduct' is made out."
The Disciplinary Tribunal
"Before we can make a finding that the Respondents or either of them are guilty of misconduct and make a finding adverse to them we have to be satisfied not only that there has been a departure from the conduct reasonably expected of a Member or a Member Firm but that that departure has been significant. Whether that departure is significant is a matter for our judgment. A trivial departure will not suffice. We have to be satisfied before we reach a conclusion that there has been such a departure, that the Executive Counsel has proved that no reasonable accountant would have acted in the way that the Respondents have acted."
"We accept the Respondents' contention that for the Respondents to be guilty of misconduct and to have acted in a way that no reasonable professional would have acted the conduct would have to amount to more than mere carelessness or negligence and has to cross the threshold of real seriousness. It is not sufficient for the Executive Counsel to prove that the Respondents failed to act in accordance with good or best practice or that most or many members of the profession would have acted differently. The conduct has to be more serious than that."
"Under the Scheme and the Regulations with which we are concerned we are satisfied that no element of moral blameworthiness or opprobrium is required for a Member or Member Firm to be guilty of misconduct. If a Member is inefficient or incompetent either in what he does or fails to do, he can be guilty of misconduct. In the various decisions in relation to Accountants disciplinary matters there does not seem to be any suggestion that there has to be a requirement of moral blameworthiness or opprobrium before a finding of misconduct can be made. If there is an element of moral blameworthiness or opprobrium it may be difficult to say that there has not been misconduct."
"It is, however, sufficient if the Executive Counsel proves on the balance of probability that the Respondents fell below the standards reasonably expected of a professional accountant."
"It is common ground between the parties that whether or not Mr Newsham fell significantly sort of the standards reasonably to be expected of him is a matter for the Tribunal to decide. Expert evidence was led before us in which views were advanced both for Executive Counsel and for Mr Newsham as to whether or not such a significant failure had taken place. We have, however, reached our own conclusions in respect of the appropriate standard to apply. In so doing we have had regard, of course, to the Fundamental Principles and to the relevant Standards which are of general application. We have been careful to apply the relevant Standards which would have been of application at the time of the alleged misconduct, which occurred over 5 years ago."
"Our view is that this was plainly negligent and careless, and our assessment is that Mr Newsham failed to carry out his planning obligations adequately. We view this as a serious matter which set the scene for the audit. However, applying the principles we have quoted from the Deloitte decision, our unanimous view is that while the shortcomings are undoubtedly serious, on balance we do not consider that the threshold into significance was crossed."
"We consider this was negligent, careless and serious such that it fell significantly short of the standards reasonably to be expected of a Member. Accordingly we find misconduct "
The Claimants' grounds of challenge
The Claimants' first submission: lawfulness of the Guidance
The Claimants' second submission: the approach to "the evidential test"
"constitutes robust and credible evidence, capable of proving misconduct to the required standard."
The Claimants' third submission: the approach to the "public interest test"
Relevance of the pending proceedings before the Disciplinary Tribunal
" We start however by expressing our full agreement with the proposition that judicial review of a decision to prosecute is an exceptional remedy of last resort, for all the reasons which Lord Bingham and Lord Walker identify in para 14."
"It is well established that a decision to prosecute is ordinarily susceptible to judicial review, and surrender of what should be an independent prosecutorial discretion to political instruction (or, the Board would add, persuasion or pressure) is a recognised ground of review: Matalulu, at pp 735736; Mohit v Director of Public Prosecutions of Mauritius  1 WLR 3343, paras 17, 21. It is also well established that judicial review of a prosecutorial decision, although available in principle, is a highly exceptional remedy. The language of the cases shows a uniform approach: 'rare in the extreme' (R v Inland Revenue Comrs, Ex p Mead  1 All ER 772, 782); 'sparingly exercised' ( R v Director of Public Prosecutions, Ex p C  1 Cr App R 136, 140); 'very hesitant; (Kostuch v Attorney General of Alberta (1995) 128 DLR (4th) 440, 449); 'very rare indeed' (R (Pepushi) v Crown Prosecution Service  Imm AR 549, para 49); 'very rarely': R (Bermingham) v Director of the Serious Fraud Office  2 WLR 635 , para 63. In R v Director of Public Prosecutions, Ex p Kebilene  2 AC 326, 371, Lord Steyn said:
'My Lords, I would rule that absent dishonesty or mala fides or an exceptional circumstance, the decision of the Director to consent to the prosecution of the applicants is not amenable to judicial review.'
With that ruling, other members of the House expressly or generally agreed, at pp 362, 372, 376. The Board is not aware of any English case in which leave to challenge a decision to prosecute has been granted. Decisions have been successfully challenged where the decision is not to prosecute (see Mohit  1 WLR 3343, para 18): in such a case the aggrieved person cannot raise his or her complaint in the criminal trial or on appeal, and judicial review affords the only possible remedy: see R (Pretty) v Director of Public Prosecutions (Secretary of State for the Home Department intervening)  1 AC 800, para 67, and Matalulu  4 LRC 712 , 736. In Wayte v United States (1985) 470 US 598, 607, Powell J described the decision to prosecute as 'particularly ill-suited to judicial review'. The courts have given a number of reasons for their extreme reluctance to disturb decisions to prosecute by way of judicial review. They include
(i) 'the great width of the DPP's discretion and the polycentric character of official decision-making in such matters including policy and public interest considerations which are not susceptible of judicial review because it is within neither the constitutional function nor the practical competence of the courts to assess their merits' (Matalulu  4 LRC 712 , 735, cited in Mohit  1 WLR 3343, para 17);
(ii) 'the wide range of factors relating to available evidence, the public interest and perhaps other matters which [the prosecutor] may properly take into account' (counsel's argument in Mohit, at para 18, accepting that the threshold of a successful challenge is 'a high one');
(iii) the delay inevitably caused to the criminal trial if it proceeds ( Kebilene  2 AC 326, 371; Pretty  1 AC 800, para 77);
(iv) 'the desirability of all challenges taking place in the criminal trial or on appeal': Kebilene, at p 371; and see Pepushi  Imm AR 549, para 49. In addition to the safeguards afforded to the defendant in a criminal trial, the court has a well-established power to restrain proceedings which are an abuse of its process, even where such abuse does not compromise the fairness of the trial itself: R v Horseferry Road Magistrates' Court, Ex p Bennett  1 AC 42. But, as Lord Lane CJ pointed out with reference to abuse applications in Attorney General's Reference (No 1 of 1990)  QB 630, 642: 'We would like to add to that statement of principle by stressing a point which is sometimes overlooked, namely, that the trial process itself is equipped to deal with the bulk of complaints which have in recent Divisional Court cases founded applications for a stay.'
(v) The blurring of the executive function of the prosecutor and the judicial function of the court, and of the distinct roles of the criminal and the civil courts: R v Humphrys  AC 1, 24 , 26, 46, 53, Imperial Tobacco Ltd v Attorney General  AC 718, 733, 742, R v Power  1 SCR 601, 621623, Kostuch 128 DLR (4th) 440, 449450 and Pretty  1 AC 800, para 121."
"30 It is common ground in these proceedings that the Director is a public official appointed by the Crown but independent of it. He is entrusted by Parliament with discretionary powers to investigate suspected offences which reasonably appear to him to involve serious or complex fraud and to prosecute in such cases. These are powers given to him by Parliament as head of an independent, professional service who is subject only to the superintendence of the Attorney General. There is an obvious analogy with the position of the Director of Public Prosecutions. It is accepted that the decisions of the Director are not immune from review by the courts, but authority makes plain that only in highly exceptional cases will the court disturb the decisions of an independent prosecutor and investigator: R v Director of Public Prosecutions, Ex p C  1 Cr App R 136, 141; R v Director of Public Prosecutions, Ex p Manning  QB 330, para 23; R (Bermingham) v Director of the Serious Fraud Office  QB 727 , paras 6364; Mohit v Director of Public Prosecutions of Mauritius  1 WLR 3343, paras 17 and 21 citing and endorsing a passage in the judgment of the Supreme Court of Fiji in Matalulu v Director of Public Prosecutions  4 LRC 712 , 735736; Sharma v Brown-Antoine  1 WLR 780 , para 14(1)-(6). The House was not referred to any case in which a challenge had been made to a decision not to prosecute or investigate on public interest grounds.
31 The reasons why the courts are very slow to interfere are well understood. They are, first, that the powers in question are entrusted to the officers identified, and to no one else. No other authority may exercise these powers or make the judgments on which such exercise must depend. Secondly, the courts have recognised (as it was described in the cited passage from Matalulu v Director of Public Prosecutions)
'the polycentric character of official decision-making in such matters including policy and public interest considerations which are not susceptible of judicial review because it is within neither the constitutional function nor the practical competence of the courts to assess their merits.'
Thirdly, the powers are conferred in very broad and unprescriptive terms.
32 Of course, and this again is uncontroversial, the discretions conferred on the Director are not unfettered. He must seek to exercise his powers so as to promote the statutory purpose for which he is given them. He must direct himself correctly in law. He must act lawfully. He must do his best to exercise an objective judgment on the relevant material available to him. He must exercise his powers in good faith, uninfluenced by any ulterior motive, predilection or prejudice. In the present case, the claimants have not sought to impugn the Director's good faith and honesty in any way."
" The objection to the principle formulated by the Divisional Court is that it distracts attention from what, applying well-settled principles of public law, was the right question: whether, in deciding that the public interest in pursuing an important investigation into alleged bribery was outweighed by the public interest in protecting the lives of British citizens, the Director made a decision outside the lawful bounds of the discretion entrusted to him by Parliament."
"I would rule that absent dishonesty or mala fides or an exceptional circumstance, the decision of the Director to consent to the prosecution of the Applicants is not amenable to judicial review. The effect of the judgment of the Divisional Court was to open the door too widely to delay in the conduct of criminal proceedings. Such satellite litigation should rarely be permitted in our criminal justice system."
" A mistaken view of the law upon which a proposed prosecution is based will not constitute a ground for judicial review in connection with the institution of a prosecution. The appropriate forum for determining the correctness of the prosecutor's view is the Court in which the prosecution is commenced. Where a complaint is particularised in such a way as to raise the question of law for determination it may be struck out or where an indictment does the same, the indictment may be quashed. Such an error of law does not fall within the category of an error of law which goes to the DPP's powers to prosecute.
Where the DPP decides to discontinue a prosecution on the basis of a mistaken view of the law then, by definition, there is no court proceeding within which that view can be tested and it may be a stronger case for review can be made. In R v DPP, ex p Kebeline  3 LRC 377 at para 420, Lord Steyn stated, as a general principle, that in the case of a decision not to prosecute, judicial review is available. His Lordship cited R v DPP, ex p C  1 Cr App R 136 observing that 'in such a case there is no other remedy'. That, however, was a case in which the Crown prosecutor, acting on behalf of the DPP in making the decision not to prosecute, had failed to comply with the settled policy of the DPP set out in a Code for Crown Prosecutors issued by the DPP pursuant to s10 of the Prosecution of Offences Act 1985. It was nevertheless accepted by the Divisional Court in that case that the power to review a decision of the DPP not to prosecute was to be sparingly exercised. "
"There is no doubt that any Tribunal has the power to stay its proceedings if there has been an abuse of its process."