DA Vinci Invest Ltd v The Financial Conduct Authority
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs |
| Judgment Date | 17 January 2017 |
| Neutral Citation | [2017] EWCA Civ 93 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 January 2017 |
| Docket Number | A3/2015/3916 |
[2017] EWCA Civ 93
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
(CHANCERY DIVISION)
(Mr Justice Snowden)
Royal Courts of Justice
Strand
London, WC2A 2LL
Lord Justice Briggs
A3/2015/3916
Dr M Peglow (instructed by Da Vinci Invest Ltd) appeared on behalf of the Applicant
Mr S Pritchard (instructed by Legal Group, Enforcement Division) appeared on behalf of the Respondent
This is an appeal from the order of Snowden J, sitting in the Chancery Division in the High Court, made on 6 November 2015. He ordered that Da Vinci Invest Limited ("DVI") must pay a penalty of £1.46 million as a sanction for market abuse committed by individuals trading on its behalf, and along with other defendants was jointly and severally liable for the FCA's costs of the proceedings. The judge made an order for an injunction, which is not being actively challenged on this appeal.
DVI is the only party to what are multi-party proceedings seeking permission to appeal, so I will limit myself solely to matters affecting DVI.
Patten LJ refused the written application for permission to appeal in April 2016 and this is DVI's renewed oral application. It is supported by a helpful supplemental skeleton from Dr Peglow and opposed by a respondent's 3-page statement, both of which I have read, and Dr Peglow has amplified his supplemental submissions orally this morning.
The factual and legal background to this appeal is complex, and is set out in full in the judgment of Snowden J. It can be briefly summarised as follows. DVI is a company which is in the business of investment and fund management. In 2010, it was approached by three traders called Mr Banya, Mr Brad and Mr Pornye (who were the fourth, fifth and sixth defendants at first instance, and I will call them "the traders"). These traders had met at Swift Trade, another investment company for which they worked until 2007, when their accounts were suspended on suspicion that they had engaged in an abusive market practice called layering.
It was agreed that the traders would, on behalf of DVI, in its name and for its risk and reward, trade in a particular type of derivative investment called CFDs. DVI's capital would be used to make the trades (including any provision of margin) and, although DVI would bear any losses and be entitled to any profits as against the entities with which it was dealing as principal, any profits would internally be split 50/50 as between DVI and the traders. Goldman Sachs agreed to provide the direct market access services which would enable the traders to trade on DVI's behalf on the markets themselves without having to go through a broker intermediary.
The traders began trading in CFDs on behalf of DVI in August 2010, and did so profitably. In December 2010, BATS informed the FCA that it had detected unusual market activity on the part of Goldman Sachs. Later that month, Goldman Sachs reported itself, identifying DVI as responsible for potential market abuse. Almost immediately afterwards, Goldman Sachs summarily terminated its business relationship with DVI.
In 2011, Mr Banya and Mr Pornye reached an agreement with another DMA provider, SunGuard, which allowed them to continue to trade on behalf of DVI's I think now dissolved sister company, Da Vinci Invest Pte Limited, which was the second defendant in the first instance proceedings, and trading started again, albeit for a fairly brief period, in February 2011.
Snowden J found, and it is not challenged on this appeal, that throughout these periods of trading the traders were engaged in layering, the same practice for which the traders had been suspended from Swift Trade. Layering involves repeatedly manipulating the price of shares traded in an exchange by placing large orders at prices unlikely to result in trades which nonetheless create the false appearance of shifts in supply and demand, thereby enabling a trader to buy shares at a lower price when the market falls or sell them at a higher price when the market rises, before cancelling the original large orders. It is clear from recent authority (in particular 7722656 Canada Inc (t/a Swift Trade) v FSA [2013] Lloyd's LR (FC) 381) that layering constitutes market abuse for the purposes of section l18(5) of the Financial Services and Markets Act 2000 (" FSMA"). FSMA is the domestic legislation which gives effect to the UK's EU law obligations contained in the (recently repealed and replaced) Market Abuse Directive.
Following several further reports of potential market abuse, the FSA commenced a formal investigation into the defendants in May 2011. This investigation culminated in the issue of proceedings in July, with the Authority applying to the court to impose a financial penalty on the defendants, and to grant injunctions restraining them from engaging in particular kinds of activity. The application was made pursuant to sections 381 and 129 of FSMA.
I granted an initial without notice freezing injunction at the very outset of those proceedings but Dr Peglow has been kind enough to indicate that he takes no objection at all to me hearing this appeal since that did not involve me making any determination on the merits of anything and especially none of the points which arise on appeal.
The case came before Snowden J for determination in May 2015. The issues before the learned judge were: i) whether, and if so on what basis, the FCA was entitled to invoke the jurisdiction of the court under sections 381 and 129 of FSMA; ii) whether the activities of the traders could be attributed to DVI and Mineworld; iii) whether market abuse had in fact occurred, and; iv) if so, whether it was appropriate for final...
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