The Solicitors Regulation Authority has become involved in what is understood to be the first legal action by a law firm against a self-styled in-house 'whistleblower'.
London firm Maitland Hudson last week started an action against former compliance officer Peter Dempsey over the removal of 28,000 documents he passed on to the regulator.
The High Court heard that in July 2013 Dempsey raised concerns about the firm with the SRA, HM Revenue & Customs and the City of London Police.
He further contacted the SRA after being notified of the claim and the regulator applied to intervene in proceedings.
An SRA spokesman said: 'The purpose of the SRA application is to assist the court by providing objective information about the regulatory regime for solicitors and about the public interest importance of the free flow of information to the SRA to enable the SRA to regulate effectively.'
Maitland Hudson maintains it has done nothing unlawful and merely wants to retrieve documents which may contain personal information or information about clients in France, where the firm has an office. The firm's lawyers said Dempsey's continued possession of the documents allowed him to go on a 'fishing expedition' for information.
In his witness statement, Dempsey said the public issues at stake in proceedings were of the 'highest importance' and he had merely attempted to fulfil his professional and regulatory obligations.
'The regulatory system for solicitors is largely dependent on a "spy in the cab" system of compliance officers being the eyes and ears of the SRA within the firms that they work,' he said.
'If those officers do not enjoy legal protection when they do their job, particularly because if they do not they face sanctions by the SRA, then the whole system of self-regulation risks breaking down.'
Dempsey, who now works for London firm Cubism Law, was supported in court by the whistleblowing charity Public Concern at Work.
His lawyers were due to speak in court after the Gazette went to press. They were set to argue that Dempsey's actions were 'telling anyone who would listen' about what he believed to be unlawful activities.
The Law Society has said it is watching developments in the case 'with interest' and considering their implications for the role of the compliance officer for finance and administration (Cofa).
Since January 2013 every firm has had to appoint an SRA-approved Cofa. SRA guidance states the Cofa has a key role in ensuring that suitable systems and controls are in place, in recording breaches, and in reporting material breaches to the SRA.
The issue of whistleblowing within a law firm came up earlier this year when international firm Clyde & Co settled a long-running dispute with former partner Krista Bates van Winkelhof.
The Supreme Court ruled in May that she was a 'worker' for the purpose of employment legislation and was therefore entitled to protection under whistleblowing laws.