T v Financial Conduct Authority
| Jurisdiction | England & Wales |
| Judge | Mr Justice Swift |
| Judgment Date | 24 February 2021 |
| Neutral Citation | [2021] EWHC 396 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/3094/2020 |
| Date | 24 February 2021 |
[2021] EWHC 396 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Swift
Case No: CO/3094/2020
The Queen on application of
Saima Hanif & Ravi Jackson (instructed by Keystone Law) for the Claimant
Monica Carss-Frisk QC & Ajay Ratan (instructed by The Financial Conduct Authority) for the Defendant
Hearing dates: 20 and 22 January 2021
Approved Judgment
A. Introduction
The First Claimant challenges the decision of the Financial Conduct Authority's Regulatory Decisions Committee (“the FCA” and “the RDC”, respectively) to refuse his application to stay disciplinary proceedings (referred to before me as “the RDC proceedings”). The decision challenged is set out in an email sent on 13 July 2020.
The RDC proceedings have progressed so far as a Warning Notice issued by the FCA on 4 June 2020. The FCA's interest in the Claimants' conduct appears to have arisen in or about August 2015 following information supplied to it by the Danish Customs and Tax Administration (the Skatkeforvaltningen, “SKAT”). The Warning Notice was issued by the FCA under section 387 of the Financial Services and Markets Act 2000 (“ FSMA”).
Under the scheme set out in that Act, following service of a Warning Notice the recipient is allowed a period to reply in writing. The Notice served on the First Claimant permitted 14 days for a reply, the minimum period permitted under FSMA. Thereafter, the RDC decides whether or not to issue a Decision Notice under section 388 FSMA. RDC cases are considered by a panel of three members of the RDC. Members of the RDC are drawn from business consumer and financial services backgrounds. Each panel will include either the Chairman of the RDC or one of the Deputy Chairmen of that committee. The RDC panel decides the cases before it on the basis of written and/or oral representations which are received at a meeting of the panel. The procedures followed by the RDC are set out in the FCA's Decision Procedure and Penalties Manual. The process is structured but, it is fair to say, relatively informal. If a Decision Notice is issued the decision may be referred to the Upper Tribunal. The referral is by way of rehearing. If either there is no referral, or the referral is unsuccessful, the FCA then issues a Final Notice under section 390 FSMA.
The Warning Notice issued against the First Claimant rests on allegations arising out of his involvement when Chief Executive of the Second Claimant in a dividend arbitrage equity trading strategy (which I will refer to as “the Withholding Tax Rebate Strategy”). It is alleged that this strategy had as its purpose that false claims would be made to SKAT for rebates of a tax payable under the Danish Withholding Tax Act (“Withholding Tax”). Withholding Tax is payable by shareholders on dividends paid by Danish companies. In certain circumstances foreign shareholders are entitled to a rebate of Withholding Tax. The Withholding Tax Rebate Strategy involved claims for rebates by US-based pension funds. These matters have led SKAT to commence proceedings in the Commercial Court. In those proceedings SKAT contends that the Withholding Tax Rebate Strategy was a plan that rebates be claimed by people who neither met the requirements under Danish Law for ownership of the relevant shares nor, again under the requirements of the Danish Law, could be treated as having received dividends. In the Commercial Court proceedings SKAT contends that the Withholding Tax Rebate Strategy operated in breach of the requirements of Danish Law and that it operated in breach of the terms of the Denmark-US Double Taxation Treaty. The First Claimant's contention in this application for judicial review is that what remains of the RDC proceedings – namely the process of written representations in response to the Warning Notice and the process before the RDC itself – should be stayed pending resolution of the proceedings SKAT has commenced in the Commercial Court.
The case against the First Claimant in the RDC proceedings is summarised between paragraphs 2.3 and 2.16 of the Warning Notice. That part of the Warning Notice is set out in the Annex to this judgment. For reasons I will explain below, the Annex will remain confidential; it will not be made public unless and until the court so directs. In summary it is contended that the First Claimant's involvement with the Withholding Tax Rebate Strategy amounted to conduct that was “dishonest and lacked integrity” and therefore was in breach of Principle 1 of the FCA's Statements of Principle for Approved Persons. Principle 1 is a requirement that approved persons “must act with integrity in carrying out … accountable functions” (i.e., functions relating to the carrying out of regulated activities). It is well established that the requirement to act with integrity referred to in Principle 1 includes, though is not limited to, a requirement to act honestly.
The Commercial Court proceedings comprise five claims commenced by SKAT between 4 May 2018 and 26 June 2020; the Second Claimant is a defendant to certain of the claims; in total there are some 100 defendants to these claims. SKAT's case is that between August 2012 and July 2015 the defendants either assisted in or procured the making of applications for refunds of Withholding Tax and did so on the basis of false representations that the applicants for the refunds owned relevant shares in Danish-registered companies and had beneficially received dividends paid in respect of those shareholdings. SKAT contends these applications were made as part of a fraudulent strategy. Various causes of actions are relied on: there is a claim in conspiracy; equitable claims to the effect that any rebates paid were held on constructive trust for SKAT; a claim in restitution for monies paid by reason or mistake and/or fraudulent misrepresentation; and a claim in negligence. SKAT's claim is for damages and/or repayment of approximately DKK 11 billion, equivalent to £1.3 billion.
The First Claimant is not a party to the SKAT claims. However, part of SKAT's pleaded case against the Second Claimant is that the “knowledge, acts and intentions” of the First Claimant should be attributed to the Second Claimant because, at the material time, the First Claimant was the sole shareholder in and director of the Second Claimant. In this way the First Claimant's conduct will be directly in issue in the SKAT claims.
The SKAT claims are being managed by two judges of the Commercial Court. Orders have been made for a trial of preliminary issues referred to as the “Validity Trial”. That trial is listed for hearing for 6 weeks between October and December 2021. The Validity Trial will address a number of issues which are central to the defendants' defences to SKAT's claim including:
(1) whether the Withholding Tax Rebate Strategy, criticised by SKAT as fraudulent, was in fact consistent with an established market practice;
(2) whether SKAT was aware of that market practice;
(3) what, under Danish Law, were the requirements for a valid refund application so far as concerns an applicant's liability to tax under the Withholding Tax Act, and whether the requirement that an applicant had received a dividend entailed that the applicant had to have owned shares in the company that made the payment, and if so the meaning of ownership for that purpose;
(4) the meaning of the requirements applicable under the Denmark-US Double Taxation Treaty;
(5) was there any principle that the provisions of the Double Taxation Treaty could not be relied upon to secure a favourable tax position that was contrary to the purpose and object of the Treaty, and if so, what criteria determine whether a transaction falls into that class.
It is apparent from the Warning Notice that these issues will also be central to any conclusion reached in the RDC proceedings as to whether or not the First Claimant acted in accordance with the requirements of Principle 1.
B. Should the hearing for this application for judicial review take place in public or in private?
When granting permission to apply for judicial review Wall J made orders for the anonymity of the Claimants and, pursuant to CPR 5.4C, restricting access of non-parties to documents on the court file. At the beginning of the hearing before me Ms Saima Hanif who appears for the Claimants (together with Mr Ravi Jackson) applied for an order that the hearing take place in private. The FCA through its counsel, Ms Carss-Frisk QC and Mr Ajay Ratan, remained neutral on this application. I refused the application for the following reasons.
The application was made on reliance on CPR 39.2(3). By that provision a hearing or part of it must be heard in private if the court is satisfied that one or more of the matters listed at CPR 39.2(3)(a) – (g) applies and “that it is necessary to sit in private to secure the proper administration of justice”. The application relied on matter (a) that publicity would defeat the object of the hearing; matter (c) that the hearing involves confidential information and publicity would damage confidentiality; and matter (g) that there is some other reason such that a hearing in private is necessary to secure the proper administration of justice.
I do not consider that the Claimants' reliance on CPR 39.2(3)(g) adds anything material to their application. None of the points advanced by the Claimants falls outside either matter (a) or matter (c).
I...
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...ECJ (GC)Pearce v Ove Arup Parnership Ltd [2000] Ch 403; [2000] 3 WLR 332; [1999] 1 All ER 769, CAR (T) v Financial Conduct Authority [2021] EWHC 396 (Admin); [2021] 1 WLR 3246R (Western Sahara Campaign UK) v Revenue and Customs Comrs (Case C-266/16) EU:C:2018:118; [2018] 3 CMLR 15, ECJ (GC)......
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Skatteforvaltningen (Danish Customs and Tax Divisions) v Solo Capital Partners LLP (in special administration)
...ECJ (GC)Pearce v Ove Arup Parnership Ltd [2000] Ch 403; [2000] 3 WLR 332; [1999] 1 All ER 769, CAR (T) v Financial Conduct Authority [2021] EWHC 396 (Admin); [2021] 1 WLR 3246R (Western Sahara Campaign UK) v Revenue and Customs Comrs (Case C-266/16) EU:C:2018:118; [2018] 3 CMLR 15, ECJ (GC)......