The Financial Conduct Authority v Julien Grout
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Moylan,Lord Justice Longmore |
| Judgment Date | 31 January 2018 |
| Neutral Citation | [2018] EWCA Civ 71 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2016/3173 & A3/2016/3173(C) |
| Date | 31 January 2018 |
[2018] EWCA Civ 71
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
JUDGE TIMOTHY HERRINGTON & MARK WHITE (MEMBER)
Royal Courts of Justice
Strand, London, WC2A 2LL
THE RIGHT HONOURABLE Lord Justice Longmore
THE RIGHT HONOURABLE Lord Justice Moylan
and
THE RIGHT HONOURABLE Lord Justice Newey
Case No: A3/2016/3173 & A3/2016/3173(C)
Mr Paul Stanley QC (instructed by Financial Conduct Authority) for the Appellant
Mr Richard Lissack QC, Mr Farhaz Khan & Mr Simon Paul (instructed by Signature Litigation LLP) for the Respondent
Hearing date: 16 th January 2018
Judgment Approved
See Order at bottom of this judgment.
Introduction
This appeal is a pendant to the case of Macris v Financial Conduct Authority [2017] UKSC 19; [2017] 1 WLR 1095 in which sub-sections 393(1) and (4) of the Financial Services and Markets Act 2000 as amended by the Financial Services Act 2012 fell to be construed. That Act provides for warning notices or decision notices to be given to a person or firm under investigation by the Financial Conduct Authority (“the FCA”) if it is minded to take (or decides to take) action against a firm or individual authorised to conduct investment activities. Sub-section 393(1) provides:-
“If any of the reasons contained in a warning notice to which this section applies relates to a matter which – (a) identifies a person (“the third party”) other than the person to whom the notice is given, and (b) in the opinion of the regulator giving notice, is prejudicial to the third party, a copy of the notice must be given to the third party.”
Sub-section 393(4) makes identical provision for a decision notice. The purpose of this procedure is to enable a person so identified and so prejudiced to make representations to the FCA or, as the case may be, the Upper Tribunal before a final decision is made.
In 2012 Mr Macris was the international chief investment officer and head of a London unit in JP Morgan Chase Bank NA (“the Bank”), called the chief investment office (“CIO International”). In that capacity he managed a portfolio of credit instruments called the synthetic credit portfolio (“the SCP”). By the end of the year 2012 the SCP had managed to lose US$6.2 billion and the FCA conducted an investigation. In the course of that investigation the FCA issued a warning notice, a decision notice and a final notice containing criticisms of the Bank's conduct in relation to the SCP under six heads:-
“(i) the employment of a high risk trading strategy;
(ii) a failure to properly vet and manage that trading strategy;
(iii) a failure properly to respond to information which should have alerted the Bank to the risk which was present in the SCP;
(iv) a failure properly to value the Bank's positions within the SCP;
(v) mismarking of the SCP; and
(vi) a failure to be open and co-operative with the Authority about the extent of the losses generated by the SCP as well as other serious and significant issues regarding the risk situation in the SCP.”
The warning and decision notices were materially identical to the final notice and I shall just refer to “the Notice”. In Mr Macris' case the question arose whether the reasons in the Notice related to a matter which identified Mr Macris for the purpose of the FCA being required to give him a copy of the Notice and allow him to make representations about it to the Upper Tribunal, as sub-sections 393 (9) and (11) of the Act entitled him to do. The Notice did not identify Mr Macris by name or job title but there were many references to “CIO London Management”. Although he was not the only manager in CIO International in London, he maintained that those active in the market would have known that it referred to him. He relied for this purpose (inter alia) on evidence from a senior sales representative dealing in credit instruments for another bank in London who said he knew that Mr Macris was the head of CIO International and did not share his responsibilities with others. He also relied on a US Senate sub-committee report on the Bank's losses in the SCP which identified him by name.
This court, in a decision of 19 th May 2015 given by Gloster LJ (with whom Patten LJ and I agreed), held that the correct test for the required identification in section 393 of the 2000 Act was to ask whether the words used were
“such as would reasonably … lead persons acquainted with the claimant/third party, or who operate in his area of the financial services industry, and therefore would have the requisite specialist knowledge of the relevant circumstances, to believe … that he is a person prejudicially affected by matters stated in the reasons contained in the notice.”
Applying that test, this court held (see [2015] EWCA Civ 490; [2016] 2 All ER 265) that the Notice identified a person other than the Bank and that Mr Macris was a person so identified by the phrase CIO London Management. The court therefore upheld a decision of the Upper Tribunal to that effect.
The Notice did not refer only to CIO London Management but also referred to “traders on the SCP” sometimes prefaced by the definite article. The appendix to the Upper Tribunal determination in the present case brings together the numerous such references made in the FCA's Notice and the determination itself summarises the findings of market misconduct against the traders on the SCP. They include mismarking by the traders (with the knowledge of SCP management), concealing losses from CIO Management and subverting the Bank's valuation control processes.
No doubt encouraged by the decision of this court in relation to Mr Macris, one of the four traders in the SCP has now asserted that he also is identified in the Notice published by the FCA and he relies on similar evidence to that relied on by Mr Macris particularly the US Senate sub-committee report in which he is named as the one of the two main traders responsible for the mismarking of deals done, the concealment of the losses from senior CIO Management and the subversion of the Bank's valuation processes. He also relies on press reports in English newspapers preceding the date of the Notice (18 th September 2013), the existence of a US Department of Justice indictment and a Securities and Exchange Commission complaint against him (both of which were abandoned four years later). Before us, Mr Grout applied to admit further press reports and documentation said to identify Mr Grout but they were “only more of the same” and would be unlikely to affect the result.
The Upper Tribunal held a preliminary hearing on the question whether Mr Grout was identified in the Notice and, applying the test set out by this court in the Macris case, determined on 7 th July 2016 that he was and, since he was prejudiced, should have been sent a copy of the FCA's Notice and now had the right to make submissions to the Upper Tribunal.
All this happened before the Supreme Court held on 22 nd March 2017 that the test stated by this court in Mr Macris' case was incorrect. The right approach to the question of identification was that it had to be apparent from the Notice itself that it applied to only one person who had to be identified from information which was either in the Notice or publicly available elsewhere and then only if it enabled one to interpret the language of the Notice. It was impermissible to resort to additional facts to make it apparent from those additional facts that they referred to the same person. Moreover the relevant audience was the public at large not some specially knowledgeable section of the public. This approach would appear to exclude evidence from market participants and evidence of the findings of US Senate sub-committee which, although available on the internet, would only be known to persons with knowledge of the market and not to members of the public generally.
The submissions
Mr Paul Stanley QC for the FCA submits
i) the decision of the Upper Tribunal, based as it is on the erroneous decision of this court in Macris, cannot stand; and
ii) on the facts as found by the Upper Tribunal, it is clear that Mr Grout was not “identified” for the purposes of section 393(1) and that this court should so declare.
Mr Richard Lissack QC for Mr Grout contends that the decision of the Upper Tribunal is still correct notwithstanding that it applied the wrong test in law. The matter had to be approached in two steps:-
i) a decision whether the Notice used a person's name or a synonym and in the case of a synonym whether the Notice referred to one person only; and
ii) a decision, if a synonym was used, whether information in the Notice itself or publicly available elsewhere identified that particular person.
In the present case Mr Lissack submitted in relation to the first stage
i) the phrase “traders on the SCP” or “the traders on the SCP” was a synonym for or, at least, included Mr Grout, since it was a collective term which must include individuals;
ii) in any event any isolated reference in the Notice to the activities of a particular trader sufficed, with publicly available information, to identify Mr Grout;
iii) references in the Notice to the mental states of the traders inevitably referred to individual SCP traders which, with the publicly available information, identified Mr Grout; and
iv) any other interpretation would infringe Mr Grout's rights under Article 8 of the European Convention on Human Rights since a person's reputation was part of his private life.
In relation to the second stage he referred to the contemporaneous newspaper articles which referred to...
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The Court looks again at the rights of third parties identified in FCA notices
...recent case of FCA -v- Grout [2018] EWCA Civ 71, the Court of Appeal confirmed the restrictive approach to third party rights pursuant to FCA notices previously laid down by the Supreme Court in Macris -v- FCA [2017] UKSC 19. We previously reported on the Macris decision on its way to the S......