Accountancy’s regulator the Accountancy and Actuarial Discipline Board had to
pay £1m in costs to PricewaterhouseCoopers and others after losing its Mayflower
case – a case in which I acted for former Mayflower finance director David
Donnelly.It now proposes to set up a huge barrier that will mean it will not pay
out to successful defendants unless they can prove misfeasance.
Regulators have statutory responsibilities for bringing disciplinary
proceedings to supervise the proper discharge by those they regulate of their
professional obligations, which is in the public interest.
Accordingly, they are not in the same position as ordinary litigants who
chose to sue and it is pretty settled law (most recently, Court of Appeal in
Baxendale – Walker  EWCA Civ 233) that the normal ‘costs follow the event’
approach to costs does not apply in disciplinary proceedings brought by a
But what the courts have made clear is that by bringing and pursuing
proceedings, the regulator must act ‘honestly, reasonably, properly and on
grounds that reasonably appear to be sound’.
In the case of Gorlov (2001) EWHC Admin 200, Mr Justice Jackson awarded
Gorlov his costs against the ICAEW because, although its conduct was honest and
well-intentioned, it was misguided and the proceedings it brought ‘were a
shambles from beginning to end’.
In the Mayflower case, the costs order was made because it held that it was
unreasonable for the AADB to have pursued its complaints against PwC and
Donnelly after they had served their defence evidence. The proposed changes
would make the AADB more protected in terms of adverse costs orders than the
regulators of other professions and ignore what the Court of Appeal has ruled is
appropriate to determine the issue.
If the AADB leaves the rules as they stand, then if disciplinary proceedings
are brought and pursued reasonably, even if they are unsuccessful there will be
no automatic assumption that it will have to pay a successful defendant’s costs.
The fact that the AADB is a regulator and that the defendant has been
successful are just two factors to be considered by the tribunal in its overall
discretion as to costs. But if the AADB is successful in amending its rules,
then it will be free to act unreasonably, without any fear of costs unless it is
found guilty of misfeasance.
Will Twidale is a partner at Farrer & Co
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