SDT finds solicitor breached rules in £75k escrow scheme; dishonesty not proved on fees
The Solicitors Disciplinary Tribunal (SDT) has ruled that Tom Jenkins Merralls, a sole practitioner, breached multiple rules after allowing more than £75,000 in client funds to be deducted during hundreds of diamond escrow transactions.
Merralls, admitted as a solicitor in 2003, ran his Bromley-based practice TJM Law as a recognised sole practitioner. The SRA began investigating his conduct in 2013 following concerns over his involvement in high-yield investment schemes.
The tribunal, chaired by Mr J. P. Davies with Mr I. R. Woolfe and Mr P. Wyatt, sat across hearings in July and November 2015. It heard that Merralls acted as an escrow holder in at least 392 transactions, with over £5m moving through the client account. Fees totalling a minimum of £75,960 were taken without proper bills or cost notifications.
Embed from Getty ImagesThe SDT found breaches of the SRA Accounts Rules 2011, including:
- Failure to ensure compliance with the rules (Rule 6).
- Failure to remedy breaches once discovered (Rule 7.1).
- Transferring client money to office account without first issuing a bill (Rule 17.2).
The tribunal said these actions created a client account shortage which Merralls failed to correct. However, it did not find dishonesty proved in relation to these withdrawals. While describing his ignorance of Rule 17.2 as “startling”, the panel accepted it could not be sure Merralls was consciously aware of the breach.
Merralls was also found to have failed to provide basic client-care information, such as regulatory status, complaints procedures and costs details. This breached Principles 4, 5 and 6 and Outcomes O(1.7), O(1.9), O(1.10) and O(1.13) of the SRA Code of Conduct 2011.
The tribunal concluded that Merralls had allowed his firm’s client account to be used as a banking facility, in breach of Rule 14.5 SAR 2011, with corresponding failures under Principles 2, 3, 6 and 8. It noted that the escrow agreements expressly disclaimed legal advice, leaving no underlying legal transaction to justify use of the client account.
Concerns were heightened after the SRA’s September 2013 Warning Notice on high-yield investment fraud, which advised solicitors not to become involved in schemes promising unusually high returns. Despite this, Merralls continued processing escrow transactions, taking further fees of over £12,000 after the notice was issued.
The tribunal also examined his conduct after SRA intervention began. By March 2014, Merralls had created a limited company, TJM Law Ltd, and continued escrow activity through it while still using a solicitor’s client account. Allegations that he misled the SRA about whether such work had ceased were contested, but the panel found his explanations inconsistent and unsatisfactory.
The SDT heard evidence from SRA forensic investigator Gary Page, who confirmed that at least five investors reported difficulty recovering funds or returns that did not match their outlays. One investor had been promised a 15% return. Witness evidence suggested clients believed they were protected because their money passed through a solicitor’s account.
In its findings, the tribunal emphasised that solicitors must not provide banking facilities and must act with full transparency. It found Merralls’ breaches serious, reflecting failures of governance and a disregard of regulatory warnings, but dishonesty was not established in respect of fee withdrawals.
The SRA had already intervened in the practice on 10 July 2014, with costs exceeding £100,000. Compensation Fund payments of more than £44,000 were made to clients.
The tribunal noted Merralls’ concession that he ought to have raised invoices and provided clear cost information, but it rejected his argument that escrow arrangements were an acceptable “side business” outside normal legal practice.
In conclusion, the SDT found that Merralls breached multiple SRA rules and principles in connection with over £75,000 taken from client funds and his involvement in diamond-related investment schemes. The panel reiterated that solicitors bear strict responsibility for compliance with the Accounts Rules, and cannot excuse failures by claiming ignorance of basic requirements.