R (L) v Westminster City Council (MIND and another intervening)
| Jurisdiction | England & Wales |
| Judge | Lord Sumption,Lord Kerr,Lord Mance,Lord Clarke,Lord Carnwath,Lord Neuberger,Lady Hale |
| Judgment Date | 09 May 2013 |
| Neutral Citation | [2013] UKSC 27,[2013] UKSC 11 |
| Date | 09 May 2013 |
| Court | Supreme Court |
Lord Neuberger, President
Lady Hale
Lord Mance
Lord Clarke
Lord Sumption
Appellant
Richard Handyside QC
Tamara Oppenheimer
(Instructed by Barclays
Bank plc Legal Services)
Respondent
Nicholas Vineall QC
James Purchas
Adam Temple
(Instructed by the
Financial Services
Authority Legal
Department)
Heard on 12 and 13 December 2012
Lord Mance (with whom Lord Neuberger, Lady Hale, Lord Clarke and Lord Sumption agree)
The issue on this appeal is whether and if so in what circumstances the Financial Services Authority ("FSA") should, as a condition of obtaining a freezing injunction under section 380(3) of the Financial Services and Markets Act 2000 (" FSMA") and/or section 37(1) of the Senior Courts Act 1981("SCA"), be required to give to the court a cross-undertaking in damages in favour of third parties affected by the injunction. The answer I would give is that there is no general rule that an authority like the FSA acting pursuant to a public duty should be required to give such an undertaking, and that there are no particular circumstances why it should be required to do so in the present case.
The issue has been argued as a matter of principle between the FSA and Barclays Bank plc ("Barclays"), a potentially affected third party. However, a brief statement of the background is appropriate.
On 20 th December 2010 proceedings were commenced by the FSA against three defendants (Sinaloa Gold plc, a person or persons trading as PH Capital Invest and a Mr Glen Lawrence Hoover) on the basis that (a) Sinaloa was promoting the sales of shares without being authorised to do so and without an approved prospectus, contrary to FSMA sections 21 and 85, (b) PH Capital Invest and Mr Hoover were knowingly engaged in this activity, and (c) PH Capital Invest was as an unauthorised person carrying on regulated activities in breach of FSMA section 19 in various other respects.
Sinaloa Gold plc had six bank accounts at Barclays, in respect of all of which Mr Hoover was the sole authorised signatory.
Before issuing these proceedings, the FSA had on 17 th December 2010 obtained without notice an injunction freezing the defendants' assets under sections 380(3) FSMA and/or 37(1) SCA. Barclays were notified of the order on 20 th December 2010, and the injunction was continued by David Richards J at a hearing on notice on 31 st December 2010.
As originally issued, Schedule B to the injunction, headed "Undertakings given to the Court by the Applicant", read:
"(1) The Applicant does not offer a cross-undertaking in damages.
….
(4) The Applicant will pay the reasonable costs of anyone other than the
Respondents which have been incurred as a result of this order including the costs of finding out whether that person holds any of the Respondent's assets and if the court later finds that this order has caused such person loss, and decides that such person should be compensated for that loss, the Applicant will comply with any order the court may make." (italics added)
By the time the injunction was continued, the possible inconsistency between paragraphs (1) and (4) was observed, and the FSA was required to agree to add at the end of paragraph (1) the phrase "save to the extent provided in paragraph (4) below", without prejudice to its right to apply to vary paragraph (4).
On 12 th January 2011 the FSA applied to have the words which I have italicised in paragraph (4) removed. Barclays intervened to oppose the application, which was refused by HHJ David Hodge QC on 25 th January 2011 [2011] EWHC 144(Ch). On 18 th October 2011 the Court of Appeal reversed his decision and ordered a cross-undertaking in the terms of paragraph (4) without the italicised words [2012] Bus LR 753. The effect was to preserve the undertaking in respect of costs incurred by third parties (which the FSA did not dispute), but to eliminate any requirement that the FSA give an undertaking in respect of losses incurred by third parties. Barclays now appeals by permission of this Court.
The FSA is governed by FSMA. Schedule 1 to FSMA makes provision about its status, including an exemption from liability in damages (paragraph 12 below). The FSA was given general functions which in discharging it must, so far as is reasonably possible, act in a way which is compatible with defined regulatory objectives and which it considers most appropriate for the purpose of meeting those objectives: FSMA, section 2(1) and (4). Its general functions include making rules, preparing and issuing codes, giving general guidance and determining general policy and principles by reference to which to perform particular functions. The regulatory objectives include maintaining market confidence in the UK financial system (section 3), protecting and enhancing the stability of the UK financial system (section 3A, as inserted by section 1(3) of the Financial Services Act 2010), securing the appropriate degree of protection for consumers (section 5) and reducing the extent to which it is possible for a business carried on by a regulated person or in contravention of the general prohibition to be used for a purpose connected with financial crime (section 6).
Section 19 in Part II of FSMA prohibits any person from carrying on, or purporting to carry on, a regulated activity in the UK unless authorised (under sections 40 to 43 in Part IV) or exempt. This is the "general prohibition", for contravention of which penalties are set by section 23. Section 21 contains specific restrictions on financial promotion, including communicating an invitation or inducement to engage in investment activity in the course of business, with penalties for contravention being set by section 25. Section 85 prohibits dealing in transferable securities without an approved prospectus.
Section 380(3) provides that, if, on the application of the FSA or the Secretary of State, the court is satisfied that any person may have contravened, or been knowingly concerned in the contravention of, a relevant requirement "it may make an order restraining … him from disposing of, or otherwise dealing with, any assets of his which it is satisfied he is reasonably likely to dispose of or otherwise deal with". A relevant requirement includes "a requirement which is imposed by or under this Act" (section 380(6)(a)) and so includes the requirement under section 19 to be authorised or exempt before carrying on a regulated activity.
Under Part IV of FSMA, permission may be given subject to such requirements as the FSA thinks appropriate (section 43), which may include an "assets requirement" prohibiting the disposal of, or other dealing with, any of the permitted person's ("A's") assets or their transfer to a trustee approved by the FSA (section 48(3)). Under section 45(4), the FSA may on its own initiative vary a previously included Part IV permission to include an assets requirement. Under section 48(4) and (5), if the FSA imposes an assets requirement and gives notice to any institution with which a person ("A") keeps an account, the notice has the effect that (a) the institution does not act in breach of any contract with A in refusing any instruction from A in the reasonably held belief that complying would be incompatible with the requirement and (b) if the institution complies with the instruction, it is liable to pay to the FSA an amount equal to that transferred from or paid out of A's account. In relation to authorised persons, the FSA thus enjoys a right to impose a freezing order without going to court and without any occasion arising on which a cross-undertaking could be required of it.
The FSA also enjoys an exemption from liability in damages, set out in paragraph 19 of Schedule 1 to FSMA:
"(1) Neither the Authority nor any person who is, or is acting as, a member, officer or member of staff of the Authority is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of the Authority's functions.
(2) Neither the investigator appointed under paragraph 7 nor a person appointed to conduct an investigation on his behalf under paragraph 8(8) is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of his functions in relation to the investigation of a complaint.
(3) Neither sub-paragraph (1) nor sub-paragraph (2) applies-
(a) if the act or omission is shown to have been in bad faith; or
(b) so as to prevent an award of damages made in respect of an act or omission on the ground that the act or omission was unlawful as a result of section 6(1) of the Human Rights Act 1998."
Paragraph 19(1) of Schedule 1 would protect the FSA, if it was, for example, the subject of a claim by A on whom it had imposed an assets requirement under section 45(4), by an institution to which it had notified the imposition of such a requirement under sections 48(4) and (5) or by any other third person. Paragraphs 7 and 8 of Schedule 1 require the FSA to establish a scheme for the independent investigation of complaints against it (other than complaints more appropriately dealt with in another way, e.g. by referral to the Upper Tribunal under the appeals procedure contained in Part IX of FSMA or by the institution of other legal proceedings), and the issue and, where appropriate, publication of reports on such complaints.
The issue now before the Supreme Court raises for consideration: (a) whether and how far the position of the FSA, seeking an interim injunction pursuant to its public law function and duty, is to be equated with that of a person seeking...
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