Hobbs v Financial Conduct Authority
| Jurisdiction | England & Wales |
| Judge | Sir Stanley Burnton,Lord Justice Ryder,Lord Justice Rimer |
| Judgment Date | 29 July 2013 |
| Neutral Citation | [2013] EWCA Civ 918 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2013/0157 |
| Date | 29 July 2013 |
[2013] EWCA Civ 918
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
[2012] UKUT B25 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rimer
Lord Justice Ryder
and
Sir Stanley Burnton
Case No: A3/2013/0157
Andrew Hunter QC (instructed by the Financial Conduct Authority) for the Appellant
Ben Jaffey (instructed by Wilmer Cutler Pickering Hale & Dorr LLP) for the Respondent
Introduction
In August 2007 the respondent, Mr David Hobbs, was a proprietary trader employed by Mizuho International plc. He conducted trading in LIFFE (London International Financial Futures and Options Market) coffee futures and associated derivatives, such as call and put options. The appellant, the Financial Conduct Authority ("the FCA", or "the Authority") investigated his trading on 15 August. It proposed to make a prohibition order on him pursuant to sections 56 and 57 of the Financial Services and Markets Act 2000 (" FSMA" or "the Act") on the basis that he had engaged in market abuse. It served on him a warning notice in accordance with section 57(3). Having considered his response, the Authority decided that his conduct had indeed constituted market abuse within the meaning of section 118 of the Act. It decided to impose a large financial penalty on him and to impose on him a prohibition order pursuant to section 56 of the Act on the ground that he was not a fit and proper person. It served on him a decision notice dated 23 July 2010 in accordance with section 57(3) and (4).
Mr Hobbs referred the matter to the Upper Tribunal. It allowed his reference. It decided that his trading did not amount to market abuse. Much of the Authority's case relied on recorded telephone conversations between Mr Hobbs and Mr Andrew Kerr, a broker employed by Sucden Ltd. Paragraphs 240 to 243 of the Tribunal's decision are as follows:
Mr Hobbs' conversations with Mr Kerr
240. That leaves us finally to consider what Mr Hobbs was doing in the various telephone conversations if he was neither engaged in a strategy to confuse Mr Kerr nor detailing how he intended to "do the ultimate" or abuse the coffee futures market. In our judgment, having considered all the evidence, and in particular all the transcripts, is that this was, as Mr Hobbs himself described it when interviewed by the Authority, "trader bravado". We have concluded, after much consideration, that these were merely fantasies intended to portray Mr Hobbs as a "player" or big fish in the coffee futures market. The modus operandi of Mr Hobbs was to remain on the telephone with his broker even when little or no activity was taking place. The conversations were, in our view, often mindless and illogical. That, we consider, was the quality of Mr Hobbs' descriptions of "doing the ultimate"; it was a mere fantasy, concocted for no reason other than to fill the time available by making himself feel important.
241. As we have described, despite our finding in his favour on the reference before us, Mr Hobbs emerges from these proceedings with very little credit. We have already referred to the unsatisfactory nature of the evidence he gave to us. We have, as we have described, found that his assertions that he was engaged in a strategy of confusion were false. That is a serious matter. We can only surmise as to why, in the light of our own findings, Mr Hobbs thought fit to develop and persist with such a story. We can only think that he did so as a desperate attempt to explain what he feared might otherwise be inexplicable, namely what we have concluded, on balance, were his rambling and nonsensical conversations with Mr Kerr. That was a grave error. Not only did it cast Mr Hobbs in a poor light. It could very easily have led to his words being taken completely at face value, with a different conclusion to this reference.
Determination
242. Taking all the evidence into account we have reached the conclusion that the Trade was carried out for legitimate reasons and in conformity with accepted market practices on the coffee futures market. We are not satisfied that the Authority has made out its case against Mr Hobbs on market abuse. We find, accordingly that Mr Hobbs did not engage in market abuse within s 118(5) FSMA.
243. The Authority's case on whether Mr Hobbs was a fit and proper person for the purpose of s 56 FSMA rested on a combination of his alleged conduct in committing market abuse and then lying about it. We have found that Mr Hobbs' assertions that he was engaged in a strategy of confusion were false, but that he was not engaged in market abuse. In those circumstances, we are not satisfied that the Authority has made its case that Mr Hobbs is not a fit and proper person.
244. For these reasons we have concluded that the appropriate Direction to the Authority is to take no action against Mr Hobbs.
Following the Tribunal's issuing of its decision on 22 November 2012, on the same day the Authority published the result on its website. It added:
The FSA confirms that, following the Tribunal's decision and in accordance with its direction, it is discontinuing its action against Mr Hobbs in relation to this matter.
Mr Hobbs saw that statement and concluded that the Authority's proceedings against him were at an end. However, on 27 November that sentence was removed from the website.
On 6 December 2012 the Authority applied to the Tribunal for permission to appeal to this Court. The Authority did not seek to challenge the Tribunal's finding that Mr Hobbs had not been guilty of market abuse, but it contended that he was nonetheless not a fit and proper person by reason of his conduct towards Mr Kerr and his lying during the investigation of his trading, referred to in paragraph 243 of the decision, and that the Tribunal had wrongfully failed to consider whether that conduct of itself showed that he was not such a person.
On 2 January 2013 the Tribunal refused permission to appeal. It accepted that the Authority had raised an arguable point of law, but found that it had discontinued its proceedings against Mr Hobbs.
Lewison LJ subsequently granted the Authority permission to appeal, and later refused to set his permission aside.
It follows that there are essentially 4 issues on this appeal:
(1) Did the Authority discontinue its proceedings against Mr Hobbs with the result that it was and is not entitled to pursue its appeal?
(2) If the answer to (1) is No, did the Tribunal consider whether Mr Hobbs had been shown not to be a fit and proper person to carry out trading by reason of his conduct towards Mr Kerr and his lying during the investigation of his trading and before the Tribunal itself?
(3) If the answer to (2) is No, was there an error of law on the part of the Tribunal?
(4) If the answer to (3) is Yes, what order should be made by this Court?
The statutory framework
Prohibition orders are the subject of section 56 of the Act:
(1) The FCA may make a prohibition order if it appears to it that an individual is not a fit and proper person to perform functions in relation to a regulated activity carried on by—
(a) an authorised person,
(b) a person who is an exempt person in relation to that activity, or
(c) a person to whom, as a result of Part 20, the general prohibition does not apply in relation to that activity.
(1A) ….
(2) A "prohibition order" is an order prohibiting the individual from performing a specified function, any function falling within a specified description or any function.
(3) A prohibition order may relate to—
(a) a specified regulated activity, any regulated activity falling within a specified description or all regulated activities;
(b) all persons falling within subsection (3A) or a particular paragraph of that subsection or all persons within a specified class of person falling within a particular paragraph of that subsection.
(3A) …
(4) An individual who performs or agrees to perform a function in breach of a prohibition order is guilty of an offence and liable on summary conviction to a fine not exceeding level 5 on the standard scale.
(5) …
Section 57, so far as relevant, is as follows:
(1) If a regulator proposes to make a prohibition order it must give the individual concerned a warning notice.
(2) The warning notice must set out the terms of the prohibition.
(3) If a regulator decides to make a prohibition order it must give the individual concerned a decision notice.
(4) The decision notice must—
(a) name the individual to whom the prohibition order applies;
(b) set out the terms of the order; and
(c) be given to the individual named in the order.
(5) A person against whom a decision to make a prohibition order is made may refer the matter to the Tribunal.
…
Section 389 of the Act is as follows:
(1) If the Authority decides not to take —
(a) the action proposed in a warning notice, or
(b) the action to which a decision notice relates,
it must give a notice of discontinuance to the person to whom the warning notice or decision notice was given.
(2) …
(3) A notice of discontinuance must identify the proceedings which are being discontinued.
Discontinuance
The Upper Tribunal Judge, Judge Berner, gave the following reasons for his decision that the Authority had discontinued its proceedings against Mr Hobbs:
9. The difficulty for the Authority, and which I regard as insurmountable, is that what is in issue is not whether the Authority gave proper notice of discontinuance to Mr...
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