The Financial Conduct Authority (A Company Ltd by Guarantee) v Avacade Ltd ((in Liquidation)) (trading as Avacade Investment Options)
| Jurisdiction | England & Wales |
| Judge | Stephen Houseman |
| Judgment Date | 07 August 2020 |
| Neutral Citation | [2020] EWHC 2175 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2017-002628 |
| Date | 07 August 2020 |
[2020] EWHC 2175 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Stephen Houseman QC
(sitting as a Deputy Judge of the High Court)
Case No: HC-2017-002628
Mr Adam Temple for the Claimant
Mr Steven McGarry (instructed by Zakery Khub Solicitors) for the Second to Fourth Defendants
Hearing date: 31 July 2020
Draft Judgment provided on 5 August 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Stephen Houseman QC (sitting as a Deputy Judge of the High Court):
INTRODUCTION
This judgment deals with two of the matters before the court at a hearing conducted remotely on Friday 31 July 2020. The remaining matters were dealt with in separate oral rulings at the conclusion of the hearing on the basis that there would subsequently be a single composite order made on all matters consequent upon issuance of this reserved judgment.
The hearing itself was, in effect, an adjourned consequentials hearing relating to a substantial (118 page) written judgment issued by Mr Adam Johnson QC (sitting as a Deputy Judge of the High Court) on 30 June 2020 with neutral citation number [2020] EWHC 1673 (Ch) (“ 30 June Judgment”). That judgment followed a nine day trial in January-February of all but one of the issues in dispute in these proceedings as identified in a List of Issues agreed by the parties and with the court at the Pre-Trial Review in December 2019 (“ LOI”). The order for a split trial had been made by Master Clark at the Case Management Conference in August 2018. The precise terms of the split between so-called ‘First Trial’ and ‘Second Trial’ featured in the parties' submissions at the present hearing, as explained further below.
At a post-judgment hearing on 14 July 2020, pursuant to directions made on 8 July, the trial judge recused himself from further involvement in these proceedings — save for the orders made by him on that occasion, which included a series of final declarations consequent upon the 30 June Judgment (“ 14 July Declarations”) and refusal of permission to appeal. The trial judge gave his reasons for recusal in an ex tempore judgment during the hearing on 14 July 2020.
Through correspondence and draft orders provided on 17 June 2020, i.e. in response to receipt of the draft version of what became the 30 June Judgment and in anticipation of the consequentials hearing, the Claimant (“ FCA”) sought amongst other things (1) substantial interim restitution orders as against all five defendants and (2) final injunctions as against the Second to Fifth Defendants. But for the recusal of the trial judge, those matters would have been dealt with at the original consequentials hearing on 14 July 2020. In the event, they were adjourned to the present hearing together with questions of costs.
As regards the five defendants: the Second to Fourth Defendants (“ AA”, “ CL” and “ LL”, respectively; together, “ Represented Defendants”) were represented through solicitors and counsel before me; neither the First Defendant (“ Avacade”) (now in liquidation) nor the Fifth Defendant (“ Mr Fox”) were represented or provided any substantive response to the relief sought by FCA. Mr Fox indicated that he had no comment on either of the draft orders provided at the time by FCA. Avacade, CL and Mr Fox were not represented and did not appear at or in the First Trial.
Despite the absence of any direction or permission to such effect, the Represented Defendants served additional evidence after the 14 July hearing in the form of a tenth witness statement of LL dated 24 July 2020 (“ Lummis 10”) and Exhibit LEL 10. Comprised within Exhibit LEL 10 is an affidavit of an employee of HMRC, Parmjit Cheema, dated 29 November 2019 which relates to separate proceedings involving CL and LL arising out of the tax treatment of an Employer Financed Retirement Benefit Scheme (“ EFRBS”) formerly operated by or through Avacade. The Represented Defendants relied upon this exhibited affidavit to undermine FCA's application for an interim restitution order based upon or referable to “ profits appearing to the court to have accrued” to CL or LL within the meaning of section 382 of the Financial Services and Markets Act 2000 (“ FSMA”). They relied upon Lummis 10 to demonstrate that the making of a substantial interim restitution order would be prejudicial to them in terms of insolvency/bankruptcy and stifling their ability to defend these proceedings any further, including pursuit of any (application for permission to) appeal in respect of the 30 June Judgment and 14 July Declarations.
FCA did not object to this late and unsolicited evidence. Nor did FCA object to the late filing of the Represented Defendants' skeleton argument for the present hearing in breach of the direction made at the 14 July hearing. The court accepted an apology and explanation for the late skeleton argument provided by counsel for the Represented Defendants. FCA filed a short supplemental skeleton to deal with points raised, including by reference to new evidence, in the Represented Defendants' late skeleton argument.
Through their skeleton argument, if not before, the Represented Defendants also sought a stay of execution of any interim restitution order and costs orders made by the court at the present hearing. The basis for seeking a stay of execution was two-fold: first, that an appeal had good prospects of success despite the trial judge's refusal of permission on 14 July 2020; secondly, that compliance with or enforcement of such order(s) in the meantime would stifle their ability to (seek permission to) pursue an appeal. (I refer to such application and any contingent appeal for convenience as the “ Proposed Appeal”). In making my determination as to costs of the proceedings at the conclusion of the present hearing, I refused a stay of execution of the costs orders made against the Represented Defendants. I do not repeat the reasons for that refusal. I address below the separate question of stay of execution of any interim restitution orders by reference to the Proposed Appeal.
Finally, as regards the form and basis of relief sought, FCA clarified its position during the course of the hearing in two main ways. As regards the interim restitution order, a series of alternative cases were articulated through variants shown in a revised draft order provided at the request of the court during the hearing, to which objection was taken at the hearing and in a subsequent letter to me dated 5 August 2020 from the Represented Defendants' solicitors. As regards the final injunction, it was clarified that the jurisdictional basis for an injunction against CL, LL or Mr Fox would (have to) be s.37 of the Senior Courts Act 1981 (“ SCA”), rather than s.380 FSMA — which would apply only to AA — as explained further below. FCA also offered an undertaking relevant to the application for a stay of execution pending the Proposed Appeal.
RELEVANT BACKGROUND
There is a great deal of background which potentially impinges upon the two matters I have to decide. This is hardly surprising in circumstances where the proceedings have progressed through a substantial trial culminating in a detailed written judgment running to 118 pages concerning multiple contraventions of FSMA as well as the Financial Services Act 2012 (“ FSA”).
As set out in the 30 June Judgment, and summarising as briefly as possible for present purposes, the two corporate defendants (Avacade and AA) were found to have contravened a number of statutory provisions through promotion of investment products held in self-invested personal pensions (known as ‘SIPPs’) which were targeted at retired individuals with existing pension plans; whilst the three individual defendants, who were (save for Mr Fox in respect of AA) directors of both companies at all material times, were found to have been knowingly concerned in the respective contraventions.
By way of further detail and using paragraph numbers in the 30 June Judgment where appropriate for cross-referencing:
(i) During the period between sometime in 2010 and about August 2013, Avacade (a) made investment-related arrangements and advised on investments in contravention of s.19 FSMA, (b) made financial promotions — through its website and by calling investors — in contravention of s.21 FSMA, and (c) made false or misleading positive statements — including as to the relative or absolute risk profile of investments — in contravention of s.397 FSMA and (since 1 April 2013) s.89 FSA, as recorded in paragraph 1 of the 14 July Declarations.
(ii) Avacade's activities led to 1,943 investors transferring a total of about £87m of pension funds into SIPPs of which £68m was placed into investment products from which Avacade received commissions and/or fees (paragraphs 5 & 473(i)). Avacade received commissions/fees ranging between 6.3% and 20.3% (paragraph 166) and amounting in total to £10.621m (paragraphs 167–168).
(iii) During the period between about August 2013 and June 2016, AA (a) made investment-related arrangements and advised on investments in contravention of s.19 FSMA, (b) made financial promotions — through its website, an investment handbook and by calling investors — in contravention of s.21 FSMA, and (c) made false or misleading positive statements —...
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The Financial Conduct Authority (A Company Ltd by Guarantee) v Avacade Ltd ((in Liquidation)) (trading as Avacade Investment Options)
...Johnson QC (Sitting as a Deputy High Court Judge) [2020] EWHC 1673 (CH) Stephen Houseman QC (Sitting as a Deputy High Court Judge) [2020] EWHC 2175 (CH) Royal Courts of Justice, Strand, London, WC2A 2LL Before: Sir Geoffrey Vos, MASTER OF THE ROLLS Lord Justice Peter Jackson and Lord Justic......
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