Financial Services Authority (A Company Limited by Guarantee) v John Martin & Adrian Sam & Co (2005)
The Financial Services and Markets Act 2000 (Transitional Provisions and Savings) (Civil Remedies, Discipline, Criminal Offences etc.) (No. 2) Order 2001 reg.2(4) should be construed as providing that no person could be subject to an order under the Financial Services and Markets Act 2000 s.380(2) by reason of pre-commencement conduct in breach of the Financial Services Act 1986 s.3, unless that breach had involved entry into a transaction, regardless of whether the person against whom the order was sought had himself entered into the transaction.
The appellants (M and F) appealed against two orders for payment of money to the respondent FSA pursuant to the Financial Services and Markets Act 2000 s.380(2). M had been a partner in F, a firm of solicitors. A client (W) had carried on investment business in the United Kingdom for which he was not authorised, contrary to the Financial Services Act 1986 s.3. W obtained customers' agreement to purchase shares in companies at a price quoted by him and to pay the price to F's client account. W then bought the shares for half that price. The scheme collapsed. F sought directions as to the distribution of the money remaining in its client account, and was subsequently dissolved. The FSA considered that M and F had been knowingly concerned in the contravention of s.3 of the 1986 Act. It therefore sought the orders under s.380(2) of the 2000 Act for payment of money to distribute to W's customers as steps the court could order to remedy the contravention. The 2000 Act had come into force after the scheme collapsed. By virtue of the Financial Services and Markets Act 2000 (Transitional Provisions and Savings) (Civil Remedies, Discipline, Criminal Offences etc.) (No. 2) Order 2001, s.3 of the 1986 Act was to be treated as a relevant requirement for the purposes of s.380(2) of the 2000 Act. Under reg.2(4) of the Order, no order could be made under s.380(2) of the 2000 Act in relation to contravention of a requirement imposed by s.3 of the 1986 Act unless the court was satisfied that the person concerned had contravened that requirement by entering into a transaction. M and F argued that (1) s.380(2) of the 2000 Act did not confer jurisdiction on the court to make restitutionary orders, such as those under s.382, as opposed to corrective orders; (2) the payment orders made by the judge were not authorised by s.380(2) of the 2000 Act as they were not directed to requiring them to take steps to remedy the contravention of s.3 of the 1986 Act by W; (3) the payment orders were precluded by reg.2(4) because there was no allegation or finding that they had entered into any transaction that contravened s.3 of the 1986 Act.
(1) The statutory test for the exercise of the jurisdiction conferred by s.380(2) of the 2000 Act was that the order sought should require the person concerned to take a step or steps to remedy the contravention. It was true that the provision appeared under a part headed "injunctions" and beside a sidenote to that effect. Those headings and sidenotes could be contrasted with those applicable to s.382, namely "restitution orders". Similarly, the explanatory notes drew a distinction between the provisions describing one as "corrective" and the other as "restitutionary". However, whilst such headings and notes were material to issues of construction, it was of lesser significance than other parts of the relevant Act, R v Montila (Steven William) (2004) UKHL 50 , (2004) 1 WLR 3141 considered. Moreover, it was clear from authority that the two remedies might overlap and that the powers conferred by s.6(2) and s.61(1) of the 1986 Act were wide and should not be cut down judicially, SIB v Pantell SA (No 2) (1992) 3 WLR 896 applied, Securities and Investments Board v Scandex Capital Management (1998) 1 WLR 712 considered. In those circumstances, it was not right to construe s.380(2) and s.382 of the 2000 Act as mutually exclusive and it was possible for the facts of a given case to come within both. There was no reason to think that in such circumstances Parliament had intended that only one of two statutory remedies should be available. (2) The contravention was the conduct of investment business in the UK by W without being either authorised or an exempted person. The facts found proven demonstrated a number of transactions that fitted into the definition of investment business contained in s.1 and para.12 of Sch.1 of the 1986 Act and the contraventions therefore included them. The payment orders had been made to reimburse or mitigate the effects of the contraventions. It followed that they were steps directed towards remedying the contraventions. (3) The payment orders were not precluded by reg.2(4) of the Order. The intention behind the Order was to enable the new regulatory powers to be exercised in relation to conduct occurring under the 1986 Act and to ensure that the wider powers under the 2000 Act were limited in relation to pre-commencement activities so that no one would be in jeopardy under it for prior conduct in a way that he would not have been under the 1986 Act. That intention would be achieved if the words "the person concerned" referred to the contravener rather than the person against whom the order was sought. It was a legitimate, fair and natural reading of reg.2(4) of the Order to construe it as providing that no person could be subject to an order under s.380(2) of the 2000 Act by reason of pre-commencement conduct in breach of s.3 of the 1986 Act, unless that breach had involved entry into a transaction, regardless of whether the person against whom the order was sought had himself entered into the transaction.
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25 Nov 2005
Court of Appeal
Sir Andrew Morritt C, Longmore LJ, Lloyd LJ
LTL 25/11/2005 : Times, December 7, 2005
Nicholas Peacock QC