THE EXPENSIVE PURSUIT of Margaret May, ex-CIMA council member recently found guilty of misconduct, has highlighted the issue of indemnity and risk for institute office holders.
May claims she was eligible for indemnity under the institute’s bylaws, which effectively insures officers against any loss incurred in the course of their duties.
However, this cover only applies when duties are “carried out in good faith”, and when the loss is not due to individuals’ “own wilful default”.
Moreover, CIMA maintained the indemnity should never apply in disciplinary hearings, even if the council member was found not guilty.
All institute office holders are potentially affected by this spat. Should they be worried about prohibitive legal costs in the event of a conduct dispute with their professional body?
Members of other institutes cannot be sure whether they would receive the same treatment as CIMA doled out, but it is clearly an important question.
May was accused of misrepresenting the outcome of an executive committee meeting. In such cases, the issue of whether or not the misrepresentation was deliberate would be crucial in establishing whether the accused would qualify for indemnity.
If the misrepresentation was found to be deliberate, this would come under the heading of “wilful default” and leave the officer stranded without insurance.
Bringing a case against an officer means the institute believes him or her to be guilty, and by extension, that the individual has little hope of receiving indemnity unless the case is thrown out.
An institute would struggle to pursue an officer for wilful misconduct while granting them indemnity against itself, meaning any case would have to reach a full conclusion before the issue was resolved.
With CIMA arguing indemnity should never apply in officers’ misconduct cases, May had to prove not only that she was not guilty, but also that CIMA’s interpretation of the bylaws was incorrect if she was to qualify for cover.
The outcome was a professional conduct hearing lasting seven days – a potentially daunting prospect for any officer in a similar situation.
At the end of her tribunal, May was £41,000 out of pocket. The fact that she lost means without a successful appeal, she will never see that money again.
CIMA ordered May to pay costs of £55,000, pushing her total expenses close to £100,000 – and all for a fight over a few emails.
CIMA has never pursued a case against one of its own council members before.
Les Smith, director of strategy and governance at the ICAEW, said he has never seen a comparable action in 20 years.
This means the situation is without precedent and and there is no way to say for certain how indemnity functions when the guarantor is effectively providing insurance against its own actions.
Smith said the issue might need to be defined in court to establish the rights of each party. Again, this would entail the accused paying legal costs up front in the hope of eventually recovering them.
For other council members, this case highlights a worrying potential risk. If they are accused of misconduct and denied indemnity, they could be forced to agree to sanctions – effectively a guilty plea – or front the cost of clearing their name.
Some observers have argued this could affect the way officers discharge their duties and make challenging an institute too risky.
May said she was “disappointed” with the misconduct finding and confirmed she will pursue the case through appeal and judicial review if necessary.
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