R (Davies) v Financial Services Authority
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Carnwath,Lord Justice Kennedy |
| Judgment Date | 30 July 2003 |
| Neutral Citation | [2003] EWCA Civ 1128 |
| Docket Number | Case No: C1/2003/0019 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 2003 |
[2003] EWCA Civ 1128
Lord Justice Kennedy
Lord Justice Mummery and
Lord Justice Carnwath
Case No: C1/2003/0019
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE ADMINISTRATIVE COURT
MR JUSTICE LIGHTMAN
MR MICHAEL BELOFF QC & MR PUSHPINDER SAINI (instructed by Denton Wilde Sapte) for the Appellants
MR JAVAN HERBERG (instructed by the Financial Services Authority) for the Respondent
This is an appeal from the refusal of Lightman J on 18 December 2002, after an inter partes oral hearing of a renewed application, to grant permission for judicial review of warning notices given to the applicants by the Financial Services Authority (the Authority) under s 57 of the Financial Services and Markets Act 2000 (the 2000 Act). Laws LJ granted permission to appeal. The issue on the appeal is whether Lightman J was right in holding that the grounds on which the applicants sought judicial review were unarguable. His judgment is reported at [2003] 1 WLR 1284.
The Financial Services Authority
The appeal raises some points of practical importance on the exercise of the regulatory powers of the Authority and the appropriate procedures for challenging its decisions and actions. It is the first occasion on which the Court of Appeal has had to consider the points.
The Authority is the independent, non-governmental regulator of the financial services industry under the 2000 Act. It is required to discharge its statutory responsibilities in accordance with the provisions of the 2000 Act and its Handbook of Rules and Guidance.
The Authority must maintain arrangements designed to enable it to determine whether persons, on whom requirements are imposed by or under the 2000 Act, are complying with them. There is a general prohibition on a person carrying on a regulated activity in the United Kingdom, unless he is an authorised person or an exempt person. The Authority has powers of authorisation, supervision and enforcement. It has defined, regulatory objectives: market confidence, public awareness, the protection of consumers and the reduction of financial crime. (It is not alleged that the applicants have been involved in criminal activities). The Authority, which is responsible for maintaining confidence in the financial system, must act compatibly with its objectives and in a way which it considers most appropriate for the purposes of meeting them.
The Authority has disciplinary powers. It may use them to take action against a person, who appears to the Authority to be guilty of misconduct. There is a time limit for taking action. The Authority may not take action under those powers after the end of two years from the date on which it first knew of the misconduct, unless proceedings in respect of it against the person concerned were begun before the end of that period.
The Authority also has specific powers to make orders (prohibition orders) prohibiting an individual from performing functions. If the Authority proposes to make a prohibition order, it must first give the individual concerned a warning notice setting out the terms of the prohibition. If the Authority then decides to make a prohibition order, it must give the individual concerned a decision notice setting out the terms of the order. There is nothing to prevent any person who would be affected by the Authority's decisions from corresponding with or making representations to the Authority.
A person against whom a decision to make a prohibition order is made may refer the matter to the Financial Services and Markets Tribunal (the Tribunal). The Authority also has power to vary or revoke a prohibition order. If it refuses to do so, the applicant may refer that matter to the Tribunal.
The Tribunal is independent of the Authority. Its function is to hear and determine references from decisions of the Authority. The Tribunal conducts a de novo review of the matters referred to it. It may consider evidence whether or not it was available to the Authority at the material time. It may decide points of law, including disputes about the limits of its own jurisdiction and the lawfulness of the decisions and actions of the Authority.
A party to a reference may (with permission) appeal to the Court of Appeal on a point of law arising from the decision of the Tribunal disposing of the reference. The prohibition notice is not enforced pending the determination of the Tribunal or of the Court of Appeal. The 2000 Act is silent on the availability of judicial review of the decisions and acts of the Authority.
The Application
The applicants wish to challenge, by way of judicial review, the lawfulness of the decision of the Authority under s 57 of the 2000 Act to issue warning notices to them. In the notices the Authority, acting through its Regulatory Decisions Committee, warned the applicants of its proposals to make prohibition orders against them under s 56 of the 2000 Act on the ground that they are not fit and proper persons to perform specified functions relating to regulated activities. The application was issued on 6 September 2002.
The Background Facts
The applicants were formerly employed by Brandeis (Brokers) Limited (BBL), a ring dealing member of the London Metal Exchange (the LME). In late 1997 one of BBL's largest customers, Mr Herbert Black, made serious complaints against BBL about the mispricing of Mr Black's accounts and customers and the misuse of confidential information by its employees. In early 1998 BBL reported the complaints to the Securities and Futures Authority (the SFA). At that time the SFA was the self-regulatory organisation responsible for the regulation of its member firms operating on the LME. It had been established under the Financial Services Act 1986 (the 1986 Act).
The SFA had power to institute proceedings if a registered person committed an act of misconduct, or if he ceased to be a fit and proper person. The SFA conducted its own investigations into the conduct of the applicants. On 31 July 2001 it started proceedings against the applicants. (The Authority had power to make a disqualification direction under s 59 of the 1986 Act against an individual, who was not a fit and proper person, but it did not see occasion to do so while the SFA was proceeding with its charges). Before the SFA proceedings were determined and before any substantive hearing had taken place, the 2000 Act came into force. It replaced the 1986 Act. The SFA ceased to have any jurisdiction to proceed with its charges. Accordingly the proceedings were discontinued. In December 2001 the regulatory jurisdiction of the SFA over its member firms operating on the LME passed to the Authority. There were no relevant transitional provisions enabling the Authority to be substituted for the SFA in the existing proceedings.
The Authority was unable to use its powers to take disciplinary proceedings against the applicants for misconduct under s 66 of the 2000 Act, as the two-year time limit imposed by s 66(4) had expired. The investigations by the predecessor SFA had started four years previously.
On 24 June 2002 the Authority issued the warning notices against the applicants under s 57 of the 2000 Act. The Authority warned them that it proposed to make prohibition orders against them under s 56 of the 2000 Act on the grounds that they were not fit and proper persons to perform certain functions relating to regulated activities.
The Statutory Provisions
The arguments on the appeal turn principally on whether the Authority was acting lawfully in seeking to use its powers against the applicants under s 56 of the 2000 Act when, as is agreed, it was no longer entitled to use its powers against them under s 66. It is accordingly necessary to set out the provisions of those sections. The disciplinary powers conferred on the Authority by s 66 provide that:
"(1) The Authority may take action against a person under this section if-
(a) it appears to the Authority that he is guilty of misconduct; and
(b) the Authority is satisfied that it is appropriate in all the circumstances to take action against him.
(2) A person is guilty of misconduct if, while an approved person-
(a) he has failed to comply with a statement of principle issued under section 64; or
(b)hehasbeenknowinglyconcernedinacontraventionbytherelevantauthorisedpersonofarequirementimposedonthatauthorisedpersonbyorunderthisAct
(3)IftheAuthorityisentitledtotakeactionunderthissectionagainstaperson,itmay-
(a) impose a penalty on him of such amount as it considers appropriate; or
(b) publish a statement of his misconduct.
(4) The Authority may not take action under this section after the end of the period of two years beginning with the first day on which the Authority knew of the misconduct, unless proceedings in respect of it against the person concerned were begun before the end of that period.
(5) For the purposes of subsection (4)-
(a) the Authority is to be treated as knowing of misconduct if it has information from which the misconduct can reasonably be inferred; and
(b)proceedingsagainstapersoninrespectofmisconductaretobetreatedasbegunwhenawarningnoticeisgiventohimundersection67(1).
(6) " Approved person " has the same meaning as in section 64.
(7) "Relevant authorised person", in relation to an approved person, means the person on whose application...
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