The Financial Conduct Authority (a company Ltd by guarantee) v 24HR Trading Academy Ltd
| Jurisdiction | England & Wales |
| Judge | Jonathan Richards |
| Judgment Date | 25 March 2021 |
| Neutral Citation | [2021] EWHC 648 (Ch) |
| Date | 25 March 2021 |
| Docket Number | Case No: BL-2020-000644 |
| Court | Chancery Division (Patents Court) |
[2021] EWHC 648 (Ch)
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Rolls Building
Fetter Lane
London, EC4A 1NL
JUDGE Jonathan Richards
Sitting as a Deputy Judge of the High Court
Case No: BL-2020-000644
Philip Hinks and William Day (instructed by The Financial Conduct Authority) for the Claimant/Applicant
Jonathan Lennon (instructed by Rahman Ravelli Solicitors) for the Defendants/Respondents
Hearing date: 11 March 2021
Draft judgment circulated:18 March 2021
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
In this summary judgment application, the Financial Conduct Authority (the “FCA”) seeks relief against 24HR Trading Academy Limited (the “Company”) and against Mr Maricar pursuant to s380 and s382 of the Financial Services and Markets Act 2000 (“ FSMA”).
The FCA's claims arise from two activities that the Defendants engaged in. First, either the Company, or Mr Maricar have, since 2017, sent “Signals” over social media. The proper characterisation of these Signals is disputed, so I will describe them neutrally as containing details of transactions in contracts for differences, spread betting contracts, and options (to which I will refer using the umbrella term of “CFDs”) relating to foreign exchange (“FX”), that Mr Maricar considered to be advantageous. Second, again described neutrally, the Defendants put clients in touch with two FX brokers: AvaTrade EU Ltd (“AvaTrade”) and Vantage Global Prime Pty Ltd (“Vantage FX”).
The FCA assert that these activities involved the Defendants carrying on, by way of business, the regulated activities of (i) advising on investments within article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the “RAO”) and (ii) arranging deals in investments within article 25 of the RAO, in breach of the general prohibition set out in s19 of FSMA. They also assert that both Defendants have communicated invitations or inducements to engage in investment activity in breach of s21 of FSMA.
The FCA therefore seeks:
i) declarations accordingly;
ii) an order under s382 of FSMA for restitution of £530,695 plus interest consisting of some of the profit which has accrued to the Defendants as a result of the alleged contraventions of FSMA; and
iii) final injunctive relief under s380 of FSMA prohibiting the Defendants from repeating their contraventions of FSMA.
The Regulatory Landscape
The General Prohibition
Section 19 of FSMA sets out a general prohibition (the “General Prohibition”) on persons carrying out, or purporting to carry out, specified “regulated activities” in the United Kingdom without being an “authorised person” or an “exempt person”. It is common ground that neither the Company nor Mr Maricar is an authorised person or exempt.
Section 22 sets out the scope of regulated activities as follows:
“An activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and (a) relates to an investment of a specified kind; or (b) in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind.”
The activities that are “specified” for these purposes are set out in RAO. Article 25 of the RAO specifies the activity of “making arrangements” as follows:
“(1) Making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite a particular investment which is … (b) a relevant investment … is a specified kind of activity.
(2) Making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments falling within paragraph (1)(a), (b), (c) or (d) (whether as principal or agent) is also a specified kind of activity.”
By Article 26 of the RAO the following arrangements are excluded from the scope of Article 25(1), though not from Article 25(2):
“arrangements which do not or would not bring about the transaction to which the arrangements relate”
Article 53 of the RAO also provides for “advising” to be a specified kind of activity as follows:
“Advising a person is a specified kind of activity if the advice is:
(a) given to the person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor; and
(b) advice on the merits of his doing any of the following (whether as principal or agent):
(i) buying, selling, subscribing for, exchanging, redeeming, holding or underwriting a particular investment which is a security, structured deposit or a relevant investment…”.
The regulated activities of both “advising” and “making arrangements” apply to specified “investments” only. No argument has been raised to the effect that the CFDs referred to in the Signals were anything other than specified “investments”.
Restrictions on financial promotion
As well as the General Prohibition, FSMA also contains specific restrictions on financial promotion. Section 21(1) provides as follows:
“A person … must not, in the course of business, communicate an invitation or inducement to … engage in investment activity.”
Section 21(2) contains an exception to the prohibition applicable to authorised persons and situations where the content of the communication is approved by an authorised person which is not applicable in the circumstances of this case.
Section 21(8) defines “engaging in investment activity” to include:
“…entering or offering to enter into an agreement the making or performance of which by either party constitutes a controlled activity”
The concept of controlled activities is defined in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”). One such controlled activity is, by Article 4 and paragraph 3 of Schedule 1 of the FPO:
“Buying or selling … contractually based investments.”
A “contractually based investment” for these purposes includes the CFDs referenced in the Signals (see paragraphs 21 and 23 of Schedule 1 to the FPO).
The Court's powers if there is a breach of regulatory requirements
Section 380 permits this court to grant an injunction restraining a person from breaching regulatory requirements with s380(1) providing:
“1) If, on the application of the appropriate regulator or the Secretary of State, the court is satisfied—
(a) that there is a reasonable likelihood that any person will contravene a relevant requirement, or
(b) that any person has contravened a relevant requirement and that there is a reasonable likelihood that the contravention will continue or be repeated,
the court may make an order restraining (or in Scotland an interdict prohibiting) the contravention.”
A “relevant requirement” for these purposes includes any requirement imposed by or under FSMA. (s380(6)(a)(i) and s283(9)(a)(i)). Accordingly, it is common ground that the requirements imposed by s19 and s21 of FSMA are both “relevant requirements”.
Section 382(1) of FSMA deals with, among others, restitution orders, providing as follows:
“(1) The court may, on the application of the appropriate regulator or the Secretary of State, make an order under subsection (2) if it is satisfied that a person has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement, and—
(a) that profits have accrued to him as a result of the contravention; or
…
(2) The court may order the person concerned to pay to the regulator concerned such sum as appears to the court to be just having regard –
(a) in a case within paragraph (a) of subsection (1), to the profits appearing to the court to have accrued;”
The principles to be applied on an application for summary judgment
It was common ground that this court has, by CPR 24.2, the power to give summary judgment against the Defendants and so to grant the FCA all or any of the remedies that they seek. That power can be exercised if the court considers that the Defendants have no real prospect of defending the FCA's claim, or any issue raised in that claim.
I have applied the following principles when deciding whether to give summary judgment:
i) The question is whether the Defendants have a “realistic”, as opposed to “fanciful” prospect of success. That requires the defence to carry some degree of conviction. It needs to be more than merely arguable.
ii) I should not conduct a “mini-trial”. Accordingly, I should be wary of deciding genuinely debatable questions of fact. That does not mean, though, that I should accept everything that the Defendants say at face value as it is possible that there is no real substance in factual assertions they make, particularly if they are contradicted by contemporaneous documents.
iii) When reaching my conclusion, I should take into account not only the evidence placed before me on the application for summary judgment, but also evidence that could reasonably be expected to be available at trial.
iv) Accordingly, I should hesitate about granting summary judgment now, even if there is no obvious current conflict of fact, where there are reasonable grounds for...
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