Securities and Investments Board v Pantell S.A. (No. 2)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SCOTT,LORD JUSTICE STEYN,LORD JUSTICE NEILL |
| Judgment Date | 12 June 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J0612-1 |
| Docket Number | 92/0513 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 June 1992 |
[1992] EWCA Civ J0612-1
Lord Justice Neill
Lord Justice Scott
Lord Justice Steyn
92/0513
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(SIR NICOLAS BROWNE-WILKINSON V.-C.)
Royal Courts of Justice
MR JONATHAN SUMPTION Q.C. and MR LESLIE KOSMIN, instructed by Messrs Barlow Lyde & Gilbert, appeared for the Appellants (Third, Fourth and Fifth Defendants).
MR DAVID OLIVER Q.C. and MR THOMAS LOWE, instructed by Messrs Booth & Blackwell, appeared for the Respondent (Plaintiff).
This is an appeal from the refusal of the Vice-chancellor, Sir Nicolas Browne-Wilkinson (as he then was) to strike out the relief claimed in the action by the plaintiff, the Securities and Investments Board, against the third, fourth and fifth defendants. The appeal, brought with the leave of the Vice-chancellor, raises a question as to the nature and extent of the restitutionary relief that may be obtained by the Board under sections 6(2) and 61(1) of the Financial Services Act 1986 against a firm of solicitors who acted for a person carrying on an unauthorised investment business.
For the purposes of the striking-out application the facts alleged by the Board in its statement of claim must be assumed to be correct. For present purposes, the assumed facts are relatively straightforward.
From about April 1988 to March 1989 the first defendant, Pantell S.A., a company incorporated under the laws of Switzerland, carried on an unauthorised investment business in the United Kingdom. It was neither an authorised person under Chapter III of the 1986 Act nor an exempted person under Chapter IV. In the course of carrying on this investment business Pantell S.A. distributed a series of advertisements in order to persuade persons in the United Kingdom to purchase shares in European American Corporation Inc., a company incorporated in Utah, U.S.A., ("Euramco"). These advertisements contained a number of false and misleading statements. In addition, salesmen acting for Pantell S.A. made unsolicited telephone calls to persons in the United Kingdom in order to persuade them to purchase Euramco shares. As a result of these misleading advertisements and unsolicited telephone calls a number of individuals in the United Kingdom over the period July 1988 to March 1989 purchased Euramco shares. The allegations in the statement of claim do not make it clear who was the vendor of the Euramco shares that were purchased by the United Kingdom investors. The vendor may have been Pantell S.A. The vendor may have been Swiss Atlantic Holdings Limited, a U.K. company, on whose behalf Pantell S.A. was, under an agreement dated 1st March 1988, authorised to sell Euramco shares to the investing public on a commission basis. Or the vendor may have been the second defendant, also called Swiss Atlantic Holdings Limited, a company incorporated in the British Virgin Islands on 23rd September 1988 and to which company all the assets of the United Kingdom Swiss Atlantic Holdings Limited had, following an agreement of 26th October 1988, been transferred. Or it may have been that the shares were not purchased but were subscribed for and were issued to the investors by Euramco. The statement of claim does not make clear the route or routes by which the U.K. investors acquired their shares. This uncertainty is of relevance to some of the issues that arise on this appeal.
The fifth defendants are a firm of solicitors. The third defendant is, or was the partner in charge of the fifth defendants' London office. The fourth defendant is, or was, an assistant solicitor at the fifth defendants' London office. It is alleged in the statement of claim that at all material times since in or about 1988 the fifth defendants were retained and acted for, inter alia, Pantell S.A. and both of the Swiss Atlantic Holdings Limited companies.
The carrying on by Pantell S.A. of an unauthorised investment business in the United Kingdom was a contravention of section 3 of the 1986 Act. The publishing of misleading advertisements was a contravention of section 47 of the Act. Moreover the advertisements had not been approved by an authorised person. This was a contravention of section 57 of the Act. The purchase or sale or issue to subscribers of shares in consequence of unsolicited telephone calls was a contravention of section 56 of the Act.
The Act not only imposes criminal sanctions for contraventions of its various provisions but also provides remedies for investors who enter into share transactions as a result of the contraventions. The remedies provided by the Act fall into three categories. There are provisions enabling investors to recover loss they have suffered as a result of entering into the share transactions. There are provisions enabling the contravenor to be stripped of the profit made out of the transactions and for the profit to be distributed among the investors. And there are provisions of a restitutionary character designed to restore the respective parties to the share transactions to their former positions.
The present case is concerned with the restitutionary provisions contained in the Act. But it is necessary to refer also to the provisions dealing with the recoupment of losses and the disgorging of profits in order to enable the restitutionary provisions to be construed in the context of the Act as a whole.
Section 5 of the Act provides remedies for individual investors who have entered into investment agreements with persons carrying on unauthorised investment businesses.
Subsection (1) provides that any such agreement "shall be unenforceable against the other party [i.e. the investor]; and that party shall be entitled to recover any money or other property paid or transferred by him under the agreement, together with compensation for any loss sustained by him as a result of having parted with it". The subsection combines, therefore, a restitutionary remedy and a compensatory remedy.
Subsection (3) gives the court a discretion to refuse to allow restitution if certain specified conditions are satisfied.
Subsections (4) and (5) provide as follows:
"(4) Where a person elects not to perform an agreement which by virtue of this section is unenforceable against him or by virtue of this section recovers money paid or other property transferred by him under an agreement he shall repay any money and return any other property received by him under the agreement.
(5) Where any property transferred under an agreement to which this section applies has passed to a third party references to that property in subsections (1), (3) and(4) above shall be construed as references to its value at the time of its transfer under the agreement."
The restitutionary and compensatory provisions of section 5 do not in terms identify the person or persons against whom the remedies are available. But it is difficult to see how the section 5 restitutionary remedy could be available against anyone other than the other party to the transaction in question or the party to whom, under the transaction in question, the investor's money or property had been paid or transferred. Whether the compensatory remedy available "together with" the restitutionary remedy, could be obtained against an accomplice who was neither a party to the transaction nor a person to whom money or property of the investor had been transferred is equally doubtful. These difficulties do not, however, have to be resolved on this appeal.
The second comment to be made on section 5 is that subsection (5), in allowing financial restitution to be substituted in certain circumstances for restitution in specie, indicates that, in general, restitution in specie is contemplated. It would not, in my opinion, be open to an investor to retain the purchased shares and, under section 5, to claim back the purchase money less the financial value of the retained shares.
Section 6 of the Act provides remedies which may be invoked by the Secretary of State or, by delegation from the Secretary of State, by the Securities and Investments Board. The section is dealing with contraventions or apprehended contraventions of section 3, i.e. the carrying on of an unauthorised investment business.
Subsection (1) enables the Secretary of State, or the Board, to obtain an injunction to restrain apprehended contraventions of section 3.
Subsection (2) contains the critical provision so far as the present case is concerned. It provides a restitutionary remedy in the following terms:
6(2) "If, on the application of the Secretary of State, the court is satisfied that a person has entered into any transaction in contravention of section 3 above the court may order that person and any other 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."
A number of comments may be made on this provision. First, the restitutionary remedy is expressed to be available not only against "that person", i.e. the contravenor of section 3 or perhaps an associate of the contravenor, but also against "any other person…knowingly concerned in the contravention". The criteria to be applied in order to determine whether a person was "knowingly concerned" are not specified.
Second, the discretion of the court, "…such steps as the court may direct for restoring the parties…" etc., is conferred in very wide terms. Contrast the more restricted remedy given to investors by section 5.
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