Securities and Investments Board v Scandex Capital Management A/S and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HOBHOUSE,LORD JUSTICE MILLETT,LORD JUSTICE OTTON |
| Judgment Date | 16 December 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J1216-5 |
| Docket Number | CHANI 97/1096/B |
| Court | Court of Appeal (Civil Division) |
| Date | 16 December 1997 |
[1997] EWCA Civ J1216-5
Lord Justice Hobhouse
Lord Justice Millett
Lord Justice Otton
CHANI 97/1096/B
CHANI 97/1480/B
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MR JUSTICE CARNWATH)
Royal Courts of Justice
Strand
London WC2
MR A STEINFELD QC and MR C HARRISON (Instructed by Messrs Edwin Coe, London, EC2A 3TH) appeared on behalf of the Plaintiff.
MR P GRIFFITHS (Instructed by Messrs Stephenson Harwood, London EC4A 8SH) appeared on behalf of the Second Defendant.
JUDGMENT
( As approved by the Court)
For the reasons given in the judgment handed down, the appeal will be allowed and the cross-appeal will be dismissed. Subject to submissions of counsel the case will be remitted to the Chancery Division for further consideration.
This appeal and cross-appeal raise three short and discrete points under the Financial Services Act 1986 ("FSA"). The first is whether a belief on the part of a person concerned in carrying on by a company of an investment business in the United Kingdom that the company is authorised under the law of a country which is a member of the EEA to carry on investment business that country affords him an arguable defence to an allegation that he has been knowingly concerned in a contravention of Section 3 of the FSA. The second is whether the Court has jurisdiction to make an order for interim payment against such a person. The third, which is only pursued by Mr Bartholomew-White if the first is decided in his favour, is whether the Judge was precluded by RSC Order 62 Rule 8(3) from making an order for immediate taxation and payment of the Plaintiffs' costs.
The Proceedings
On 19th December 1996 the Appellant The Securities and Investment Board ("SIB"), now the Financial Services Authority, applied for summary judgment against the Respondent Mr Bartholomew-White and the First Defendant Scandex Capital Management A/S ("Scandex") for relief arising out of alleged breaches of the FSA. Scandex is in liquidation, and its liquidator has consented to judgment on the principal issues raised by SIB's claim. On 2nd July 1997, after two hearings each leading to a considered judgment, Carnwath J ruled that the Respondent had no arguable defence to certain of SIB's claims and granted consequential declarations. These included a declaration that he had been knowingly concerned in the contravention by Scandex of Section 3 of the FSA in respect of each transaction of investment business entered into by Scandex in the United Kingdom. He granted ancillary relief, including orders for accounts and inquiries, but dismissed SIB's application for an order for interim payment by the Respondent of the sum of £627,522.83, holding that he had no jurisdiction to make an order for interim payment. But for what he perceived to be a want of jurisdiction, the Judge would have ordered the Respondent to pay into Court on account of his liabilities the sum of £470,642.12. That sum represented 75% of the amount which the Judge accepted was shown by the evidence to be the prima facie amount of the Respondent's liabilities. He ordered the Respondent to pay the SIB's costs, such costs to be taxed and paid forthwith.
The SIB appeals from the Judge's refusal to make an order for interim payment. The Respondent cross-appeals from the Judge's ruling that he had no arguable defence to the charge that he was knowingly concerned in the contraventions in question, and from the order for immediate taxation and payment of SIB's costs.
It is appropriate to deal with the cross-appeal first, as this is concerned with liability.
The Facts
For present purposes the facts lie in a very small compass and can be briefly recounted as follows. Scandex was incorporated under Danish law on 1st September 1995. The Respondent was a shareholder of Scandex and its managing director.
Prior to 1st January 1996 there was no legislation in Denmark which regulated the carrying on of investment business in that country. In December 1995 the Danish legislature implemented the provisions of the European Council Directive on investment services (93/22/EEC) by enacting for the first time legislation to regulate the carrying on of investment business in Denmark. The legislation contained requirements for authorization and provision for investor protection, and came into force on 1st January 1996. As from that date it was unlawful for a person to carry on investment business in Denmark without having obtained prior authorization from the Danish financial services regulator (Finans). Under transitional provisions, however, persons who were already carrying on investment business prior to 1st January 1996 and who applied for authorization before 30th June 1996 could continue to offer those services without prior authorization until their application was determined or 1st January 1997, whichever was the earlier.
On 28th December 1995 Scandex submitted an application to Finans for authorization to carry on investment business in Denmark. There is some doubt on the evidence whether in fact Scandex began to trade before 1st January 1996 so as to be able to take advantage of the transitional provisions of the Danish legislation, but the Judge appears to have accepted that there was sufficient evidence that this was the case for the purpose of an application for summary judgment.
By the beginning of April 1996 at the latest Scandex was sending letters in standard form signed by or on behalf of the Respondent offering investment services to investors in the United Kingdom. Scandex had not and never has applied for authorization under the FSA to carry on investment business in England. Instead it relied on its entitlement to carry on such business lawfully in Denmark until the determination of its application to Finans. On 26th April 1996 SIB wrote to the Respondent and warned him that Scandex was carrying on business in contravention of the FSA. Despite this Scandex continued to offer investment services in the United Kingdom. Finans eventually refused authorization on 30th September 1996.
In the proceedings SIB allege that Scandex carried on investment business in the United Kingdom in contravention of Section 3 of the FSA, and that the Respondent was "knowingly concerned in the contravention" within the meaning of Section 6(2) of the FSA. In the course of his first judgment given on 26th March 1997 the Judge held that it was necessary to show that the Respondent was
"aware not only of the facts giving rise to the contravention, but also that it involved such contravention."
This led him to hold that, while there was no doubt that the Respondent was aware of the position after he was put on notice by SIB's letter of 26th April 1996, there was a triable issue whether he had the requisite knowledge before then.
In his second judgment the Judge reconsidered the matter and came to the conclusion that the Respondent was at all times fully aware of all the facts which made the carrying on of investment business in the United Kingdom a contravention of the FSA, that he was to be taken to know the law, and that any mistake which he may have had as to the effect in England of Scandex' ability to carry on investment business lawfully in Denmark under Danish law was a mistake of English law and was as such irrelevant. He accordingly varied the relevant declaration so as to extend it to the period before 26th April 1996 as well as after it.
The Respondent appeals from that decision. He submits that he has raised a triable issue, viz. whether he had an honest belief that Scandex was at the material time authorised to carry on investment business in Denmark and so exempt from the requirement to obtain similar authorization in England. If so, he submits, he did not know that the Danish transitional provisions did not have the effect of authorising Scandex to carry on investment business in the United Kingdom. This, it is submitted, was a mistake of Danish law and not English law, and as such was a mistake of fact and not one which should be dismissed out of hand on the ground that "everyone is bound to know the law."
The United Kingdom legislation
Section 3 of the FSA provides that no person shall carry on investment business in the United Kingdom unless he is an authorised person under Chapter III or an exempted person under Chapter IV of the Act. The Respondent does not contend that Scandex was an exempted person under Chapter IV or that he ever thought that it was. The question at issue is concerned with the effect of his alleged belief that it was an authorised person under Chapter III.
Section 6(2) gives the Court power, if satisfied on an application by the Secretary of State (now SIB) that a person has entered into any transaction in contravention of Section 3, to order that person and any person who appears to the Court to have been knowingly concerned in the contravention to take such steps as the Court may direct for restoring the parties to the position in which they were before the transaction was entered into.
It is to be observed that it is...
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