John Page v Champion Financial Management Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Simon Picken |
| Judgment Date | 06 June 2014 |
| Neutral Citation | [2014] EWHC 1778 (QB) |
| Docket Number | Case No: HQ13X00142 |
| Court | Queen's Bench Division |
| Date | 06 June 2014 |
[2014] EWHC 1778 (QB)
Mr Simon Picken QC
(sitting as a Deputy Judge of the High Court)
Case No: HQ13X00142
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Dermot Woolgar (instructed by Fenchurch Law Ltd) for the Claimant.
Nigel Burroughs (instructed by Hewitsons LLP) for the Fifth Defendant.
Hearing date: 14 May 2014
APPROVED JUDGMENT
Mr Simon Picken QC:
Introduction
Does a default judgment obtained against one defendant (defendant A) preclude another defendant in the same proceedings (defendant B) from advancing, by way of defence to a claim against it (defendant B), a case which is inconsistent with the default judgment which has been obtained (against defendant A)?
This is the question of principle which arises in the present case. I say right away that it is not the question which was framed by Master Yoxall, on 17 January 2014, as the preliminary issue which was listed to be tried. That preliminary issue was described as being "as to the operation and effect of section 39 of the Financial Services and Markets Act 2000".
Mr Woolgar, on behalf of the Claimant, described this formulation of the preliminary issue, accurately in my view, as having been only intended to 'signpost' the issue to be tried. The parties were agreed before me that, as the existing formulation did not really capture the essence of what is in dispute between them, the preliminary issue should be amended in the manner suggested by the Claimant's solicitors, Fenchurch Law Ltd ("Fenchurch"), in a letter to Hewitsons LLP ("Hewitsons"), the Fifth Defendant's solicitors, dated 14 April 2014. Fenchurch proposed a revised wording as follows:
"the issue between the Claimant and the Fifth Defendant as to the effect of the default judgment against the First Defendant, and the operation and effect of section 39 of the Financial Services and Markets Act 2000, on the right of the Fifth Defendant to defend the claim against it on the grounds that the First Defendant was neither negligent nor guilty of any breach of contract".
Having listened to the parties' submissions, it seems to me that this reformulation is sensible and I propose to proceed in this judgment to determine the preliminary issue as so adapted rather than the preliminary issue which was directed by Master Yoxall. The revised preliminary issue entails what I have described as the question of principle above – a question on which, counsel told me, there is no authority, certainly no authority where the question has been the subject of full argument.
Relevant background
Before coming on to consider the parties' respective submissions in relation both to the question of principle which I have identified, and an application by the Fifth Defendant to set aside the default judgment obtained against the First Defendant, I should firstly set out some background and deal also with the procedural history of the proceedings. I do this by relying quite heavily on the contents of the two skeleton arguments, although I have also myself been through the underlying material. I start by briefly addressing Section 39 of the Financial Services and Markets Act 2000 (" FSMA") and the relevant regulatory regime under that Act.
Under Section 19 of FSMA, by virtue of what is known as the "general prohibition", no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he or she is either an authorised person or an exempt person. Under Section 23(1), it is a criminal offence to act in breach of Section 19. The Financial Conduct Authority (the "FCA") is empowered under Part 4A of FSMA to permit persons to carry on regulated activities following receipt of an application for permission from that person. If permission is given, then, the applicant becomes an "authorised person" under FSMA. Section 22(1) stipulates that an activity is a regulated activity if it is an activity of a specified kind which is carried on by way of business and if it relates to an investment of a specified kind. Activities are of a specified kind if they are specified in the Financial Services and Markets Act (Regulated Activities) Order 2001 (the "RAO").
It is common ground that the specified activities relevant in the present case are: (i) arranging deals in investments (a specified activity under Article 25 of the RAO); and (ii) advising on investments (a specified activity under Article 53). It is also not in dispute that, in the present case, the Claimant's investments in a film partnership called The Scion Films Sale and Leaseback Sixth LLP ("Scion") and in a recording artist partnership called Stocksearch: The Mike Stock Recording Artist Development Fund 3 LLP ("Stocksearch") constitute collective investment schemes within the meaning of Section 235 of FSMA, and that "units" in a collective investment scheme are specified investments by Article 81 of the RAO. It follows, therefore, as Mr Woolgar explained, and which Mr Burroughs did not dispute, that: (i) making arrangements for another person to purchase an investment in a collective investment scheme, or advising on the purchase of such investments, are all specified activities; (ii) where such activities are carried out by way of business, they are regulated activities; and (iii) any person carrying on these activities must be either authorised or exempt.
It is well known that many investors purchase investments through intermediaries, which carry out regulated activities not because they are authorised but because they are exempt. As Mr Burroughs put it, the intermediary or appointed representative regime is a way by which individuals or small firms who or which would otherwise find it difficult to obtain authorisation under FSMA can nevertheless provide financial services; in essence, they take advantage of the authorisation granted to an authorised person, but are not themselves directly regulated. Specifically, intermediaries need not be authorised, provided the following requirements of Section 39(1) of FSMA are satisfied. Section 39(1) provides:
"(1) If a person (other than an authorised person) –
(a) is a party to a contract with an authorised person ("his principal") which –
(i) permits or requires him to carry on business of a prescribed description, and
(ii) complies with such requirements as may be prescribed, and
(b) is someone for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing,
he is exempt from the general prohibition in relation to any regulated activity comprised in the carrying on of that business for which his principal has accepted responsibility."
By virtue of Section 39(2), an intermediary who is exempt as a result of Section 39(1) is known as an "appointed representative". Since in the present case there was an agreement in place between the First and Fifth Defendants which meets the requirements of Section 39(1), an agreement dated 12 November 2003 which appears to have been duly notified to the FCA's predecessor, the Financial Services Authority (the "FSA"), it follows that at all material times the First Defendant was the Fifth Defendant's appointed representative. It follows, too, as Mr Burroughs readily accepts, that the Fifth Defendant (as the First Defendant's principal) has full responsibility in law for all the acts and omissions which the First Defendant (as the Fifth Defendant's appointed representative) committed or omitted in carrying out its business as the Fifth Defendant's authorised representative. This is because Section 39(3) provides as follows:
"The principal of an appointed representative is responsible, to the same extent as if he had expressly permitted it, for anything done or omitted by the representative in carrying on the business for which he has accepted responsibility."
Responsibility under Section 39(3), which covers both civil and criminal liability, means that a claimant has the ability to pursue both the authorised representative and the principal – in this case, both the First Defendant and the Fifth Defendant. As Mr Burroughs neatly put it, Section 39(3) prevents an authorised representative from 'falling through the net', so that there is no regulation of his activities by the FCA, achieving this by making the principal responsible for the authorised representative's actions and enabling the principal to be sanctioned if its authorised representative fails to meet the requirements only indirectly imposed on the authorised representative.
Mr Burroughs cited, as an example, the FSA rules in force in August/September 2006 when the allegedly negligent advice was given by the First Defendant to the Claimant in the present case. Section 138 of FSMA provided that the FSA had power to make rules applying to authorised persons with respect to the performance of regulated activities. In pursuance of that power, the FSA issued the Conduct of Business Rules (the "COBR", replaced by the Conduct of Business Sourcebook, the "COBS", on 1 November 2007). As the COBR (and COBS) apparently only apply to authorised persons, and not also to appointed representatives, a customer could not complain to the authorised representative (the financial adviser with which the customer has had his or her dealings) if the authorised representative breached, for example, the 'know your client' rules or the 'suitable advice' rules. What Section 39(3), however, allows the customer to do is to hold the principal (in the present case, the Fifth Defendant) responsible for such breaches on the...
To continue reading
Request your trial
-
Adva Optical Networking Ltd and Another v Optron Holding Ltd Rotronic Instruments (UK) Ltd (Third Party/Respondent)
...presently stand, Rotronic do not need, and which is contrary to Rotronic's primary case. Unlike the situation in John Page v Champion Financial Management Limited and Others [2014] EWHC 1778 (QB), this is not a situation in which a default judgment against defendant A might impact on the n......
-
FXF v English Karate Federation Ltd
...Sales. See Dalton v. Gough Cooper & Company Ltd [2014] EWHC 1556 (QB) at [62], and Page v. Champion Financial Management Ltd [2014] EWHC 1778 (QB) at [94]–[97]. Denton (2014) 38 Denton was concerned with relief from sanctions in three cases where either the rules or the court orders thems......
-
The Federal Republic of Nigeria v Tibit Ltd
...such judgment. Rule 12.9(2)(a)(i) of the Civil Procedure Rules 2000 applied; John Page v Champion Financial Management Limited et al [2014] EWHC 1778 (QB) applied; Otkritie International Investment Management Ltd v Urumov [2012] EWHC 890 (Comm) applied; Crown Aluminium Limited v. Northern......