FSA v Martin.doc

此文档收集于网络，如有侵权，请联系网站删除Financial Services Authority v Martin and anotherCOURT OF APPEAL (CIVIL DIVISION)2005 EWCA Civ 1422, 2006 2 BCLC 193HEARING-DATES: 12 OCTOBER, 25 NOVEMBER 200525 NOVEMBER 2005CATCHWORDS:Investment business - Unauthorised investment activity - Being knowingly concerned in contravention of Act - Person concerned - Solicitors firm involved in unauthorised share-selling scheme by off-shore client - Statutory rescission order made against partner and firm - Whether corrective and restitutionary orders could be made in the same case - Whether defendants persons concerned in unauthorised transactions - Financial Services Act 1986, s 3 - Financial Services and Markets Act 2000, s 380(2) - Financial Services and Markets Act 2000 (Transitional Provisions and Savings) (Civil Remedies, Discipline, Criminal Offences etc) (No 2) Order 2001, SI 2001/3083, reg 2(4).HEADNOTE:The first defendant was one of two partners in the second defendant, a firm of London solicitors. In 2000 W, a client of the firm living in Spain, set up a share-selling scheme by which unsolicited calls were made to potential investors in the United Kingdom with a view to persuading them to invest in the shares of four companies. W was not authorised to carry on investment business within the United Kingdom or Spain. Potential investors were told that Ws only profit would be 8% of any increase in value of the shares. Investors were required to transfer the purchase price for the shares to the client account of the second defendant, the shares were then purchased for half the quoted price using the money paid by the investor, and the surplus, after payment of the firms costs and charges, was remitted to W. Remittances were often made to W before the shares had been acquired which led to a shortfall in the firms client account of over 100,000 owed to investors who had paid for but not received shares. The scheme collapsed in 2001 and the Financial Services Agency (the FSA) brought proceedings against the defendants alleging that they had been knowingly concerned in contraventions of provisions of the Financial Services Act 1986 by W including s 3, namely carrying on investment business without being authorised. The FSA sought orders pursuant to s 380(2) of the Financial Services and Markets Act 2000 (which came into force on 1 December 2001), which empowered the court to order any person who appears to have been knowingly concerned in a contravention of the Act to take such steps as the court may direct to remedy the contravention. The defendants contended that they were not knowingly concerned in any contravention of the 1986 Act by W and that an order could not be made under s 380(2) against a person who merely knew of or was concerned in a contravention of the Act by another. The FSA applied for summary judgment under CPR Pt 24 on the grounds that the defendants had no real prospect of successfully defending the claims against them. The judge held that it was indisputable that W had contravened s 3 of the 1986 Act, and that the defendants had been knowingly concerned in that contravention, since they had been actively involved in key elements of the administration of the scheme and had provided the veneer of propriety and respectability to it. The judge made an order under s 380(2) requiring the defendants to pay to the FSA (i) 101,391 to compensate investors who had paid for shares but never received certificates and (ii) 258,000 to compensate investors who had paid more for their shares than the amount paid by W. The defendants appealed against the order, contending that s 380(2) did not confer jurisdiction to make financial or restitutionary rather than injunctive orders, that the judge had no power under s 380(2) to make the order because it was not directed to requiring the defendants to take steps to remedy Ws contravention of s 3, and that reg 2(4) of the Financial Services and Markets Act 2000 (Transitional Provisions and Savings) (Civil Remedies, Discipline, Criminal Offences etc) (No 2) Order 2001, SI 2001/3083 (the transitional provisions order), which stated that no order could be made under s 380(2) in relation to a contravention of s 3 unless the court was satisfied that the person concerned contravened s 3 by entering into a transaction, precluded the making of an order against the defendants because the person concerned who had entered into the unauthorised transactions was W, not the defendants.Held - The appeal would be dismissed for the following reasons-(1) Having regard to the width of the powers in s 380(2) of the 2000 Act in relation to a contravention of s 3, the court had jurisdiction to make both corrective and restitutionary orders in the same case, since the two types of order were not mutually exclusive, and therefore the steps required to be taken to remedy a contravention could include making restitution to investors. Furthermore, the monetary orders made by the judge were steps directed to the remedying of Ws contravention of the Act. (See 19-23, 31, 58 post.)Securities and Investments Board v Pantell SA (No 2) 1993 BCLC 146 and Securities and Investments Board v Scandex Capital Management A/S 1998 1 All ER 514 applied.(2) Although the expression the person concerned in reg 2(4) of the transitional provisions order was ambiguous and could refer to either the person against whom the order was sought or the person whose contravention gave rise to the application, it was a legitimate, fair and natural reading of reg 2(4) to construe it as providing that no person could be subject to an order under s 380(2) by reason of conduct which was a breach of s 3 of the 1986 Act prior to the commencement of the 2000 Act on 1 December 2001 unless that breach involved entry into an unauthorised transaction, regardless of whether the person against whom the order was sought had himself entered into the transaction. Moreover, the contrary reading would mean that the transitional provisions order, which was intended to enable the new regulatory powers to be exercised in relation to conduct occurring under the old Act, would have had the result of preventing those powers from being exercised in relation to conduct where the powers under the old Act could have been exercised. Accordingly, the person concerned in reg 2(4) should be read as referring to the contravener rather than the person against whom the order was sought, with the result that the precondition for making an order under s 380(2) against a person, whether he was the contravener or merely a person knowingly concerned, was that the contravener had contravened s 3 by entering into an unauthorised transaction. Accordingly, reg 2(4) did not prevent the court from making an order under s 380(2) requiring the defendants to return moneys paid by the investors under the relevant transactions. (See 28, 31, 44, 46, 56-58 post.)Decision of Judge Alton (2005 1 BCLC 495) affirmed.CASES-REF-TO:R v Montila 2004 UKHL 50, 2005 1 All ER 113, 2004 1 WLR 3141, PC.Securities and Investments Board v Pantell SA (No 2) 1993 BCLC 146, 1993 1 All ER 134, 1993 Ch 256, 1992 3 WLR 896, CA.Securities and Investments Board v Scandex Capital Management A/S 1998 1 All ER 514, 1998 1 WLR 712, CA.INTRODUCTION:AppealJohn Martin and Adrian Sam & Co, solicitors, appealed against the order made by Judge Alton (sitting as a judge of the High Court) on 10 January 2005 (2004 EWHC 3255 (Ch), 2005 1 BCLC 495) ordering the appellants to pay to the respondent, the Financial Services Authority, (1) by way of final order the sum of 101,391 for distribution to certain named investors and (2) by way of interim order the sum of 258,000 for distribution to other named investors who had invested in four companies as the result of contraventions of the Financial Services Act 1986 by a client of the appellant firmCOUNSEL:Charles H Joseph for Mr Martin.; Carl Fain for the firm.; Nicholas Peacock for the Financial Services Authority.JUDGMENT-READ:Cur adv vult 25 November 2005. The following judgments were delivered.PANEL: SIR ANDREW MORRITT C, LONGMORE AND LLOYD LJJJUDGMENTBY-1: SIR ANDREW MORRITT C.JUDGMENT-1:SIR ANDREW MORRITT C.1 This appeal from the order of Judge Alton, sitting as a deputy judge of the Chancery Division, made on 10 January 2005 (2004 EWHC 3255 (Ch), 2005 1 BCLC 495), brought with the permission of Jacob LJ, concerns the proper construction and application of s 380(2) Financial Services and Markets Act 2000 (the 2000 Act). That sub-section provides:If on the application of the Authority or the Secretary of State the court is satisfied-(a) that any person has contravened a relevant requirement, and (b) that there are steps which could be taken for remedying the contravention, the court may make an order requiring that person, and any other person who appears to have been knowingly concerned in the contravention, to take such steps as the court may direct to remedy it.The authority referred to is the Financial Services Authority (the FSA), the claimant in this action and respondent to the appeal.2 At all material times down to its dissolution in June 2002 the second defendant (the firm) was a firm of solicitors comprising two partners, the first defendant, Mr John Martin and Mr Adrian Sam. One of the clients of the firm was Mr Steven Wilkinson. Mr Wilkinson lived in Spain but, from August 2000 to September 2001, carried on an investment business in the United Kingdom in the names of Apex Equities and Great British Investors for which he was not authorised under Financial Services Act 1986 (the 1986 Act) or any equivalent in Spain.3 Such business involved Mr Wilkinson, by himself or his agents, making contact with individual residents in the United Kingdom and inviting them to buy shares at specified prices in one or more of four companies, Bioqual Inc, Commercis, Global Online India and Advanced Technology Group Ltd. Such individuals were invited to pay the purchase price to the firms client account. They were told that the certificates would be sent to them by the relevant companys registrars and that the remuneration of Mr Wilkinson would be limited to 8% of any subsequent increase in the price of the shares. As and when an individual agreed to buy shares in the relevant company at the price quoted by Mr Wilkinson and paid the price to the firms client account Mr Wilkinson would then buy such shares at half that price with money paid to him from the firms client account. Thus the relevant individual paid twice as much as he need. In some cases the individual received the appropriate share certificates, in others he did not. Some but not all of the difference was paid by the firm to Mr Wilkinson from the client account and has not been recovered. The scheme collapsed in September 2001. The firm sought the directions of the court as to the distribution of the money remaining in its client account and was dissolved on 1 June 2002.4 In the meantime, in December 2001 the 2000 Act, which superseded the 1986 Act, came into operation. On 10 June 2003 these proceedings were commenced by the FSA against Mr Martin and the firm claiming what was described as a remedial order pursuant to s 380(2) Financial Services and Markets Act 2000. In paras 4 to 50 of the particulars of claim the nature of Mr Wilkinsons investment business was alleged in detail. In paras 51 to 55 the FSA averred that such business contravened the provisions of s 3 the 1986 Act and involved false statements and misleading advertisements in contravention of ss 47 and 57 the 1986 Act respectively. In para 56 the FSA averred that Mr Martin and the firm were each knowingly concerned in the contraventions by Mr Wilkinson of ss 3, 47 and 57 the 1986 Act. Schedule A to the claim form set out details of the investors who had responded to Mr Wilkinsons invitations. There were 84 of them. In total they had paid to the firms client account 933,819.5 On 27 August 2003 Mr Martin served a defence in which, amongst other things, he averred that s 380(2) of the 2000 Act did not entitle the court to make a remedial order in respect of knowing involvement in a breach of s 3 the 1986 Act. Nevertheless, by an application notice issued on 10 June 2004, the FSA sought summary judgment on the whole of its claim against both Mr Martin and the firm pursuant to CPR r 24.2. That is the application which came before Judge Alton on 20 and 21 December 2004. In her judgment she concluded (para 24) that there was clear evidence that Mr Wilkinson had contravened the provisions of s 3 the 1986 Act and (paras 33-49) that Mr Martin had been knowingly concerned in that contravention. However, she considered that Mr Martin and the firm had real prospects of defending the comparable allegations in relation to contraventions of ss 47 and 57. She also considered (para 56) that there were steps which might be taken to remedy the contravention of s 3 the 1986 Act by way of what she described as statutory rescission. In relation to the question of construction raised by Mr Martin in his defence she held (para 62) that it was appropriate to decide it on an application for summary judgment and concluded that the court had jurisdiction under s 380(2) to make an order against a person knowingly concerned in relation to a contravention of s 3 the 1986 Act and that such an order should be made in this case against both Mr Martin and the firm.6 There was a further hearing on 10 January 2005 at which the judge heard argument as the form of order she should make. In the event she made a declaration to the effect that both Mr Martin and the firm had been knowingly concerned in the contravention of s 3 the 1986 Act by Mr Wilkinson, as pleaded in para 6 of the particulars of claim, accepted undertakings from Mr Martin in lieu of an injunction and, pursuant to s 380(2) of the 2000 Act 2000, ordered Mr Martin and the firm to pay to the FSA-(1) by way of final order the sum of 101,391 for distribution to the investors identified in Part A of the Schedule to the order, and(2) by way of interim order the sum of 258,000 for distribution to the investors identified in Part B of the Schedule.The investors identified in Part A were those individuals who paid for shares but never received the certificates. The sum of 101,391 represents the balance due to them after the money remaining in the firms client account had been distributed among them. The investors identified in Part B received the shares they paid for. The sum of 258,000 represents the excess purchase price paid by them over what Mr Wilkinson had paid for the same shares.7 Mr Martin and the firm claim that the judge was wrong to have made those monetary orders against them. To explain their submissions and my conclusions it is necessary to set out the legislative background in some detail.8 The essential starting point is the 1986 Act by which the financial services sector was first regulated. By s 1 and Sch 1 the terms investment and investment business were defined. Section 1(3) provided that-For the purposes of this Act a person carries on investment business in the United Kingdom if he . (b) engages in the United Kingdom in one or more of the activities which fall within the paragraphs in Part II of that Schedule and are not excluded by Part III or IV of that Schedule and his so doing constitutes the carrying on by him of a business in the United Kingdom.The first activity specified in Part II of the Schedule is:12. Buying, selling, subscribing for or underwriting investments or offering or agreeing to do so, either as principal or as an agent.Section 3 provided:No person shall carry on, or purport to carry on, investment business in the United Kingdom unless he is an authorised person under Chapter III or an exempted person under Chapter IV of this Part of this Act.Section 4 provided that any such contravention constituted an offence. Section 5 provided that the agreements to which it applied should be unenforceable and entitled the innocent party to any such transaction to recover any money or property paid or transferred by him under such a transaction. Section 6(1) conferred jurisdiction on the court to grant an injunction restraining the contravention of s 3.9 Section 6(2) provided:If, on the application of the Secretary of State, the court is satisfied that a person has entered into a transaction in contravention of s 3 above the court may order that person and any other person who appears to the court to have been knowingly concerned in the contravention to take such steps as the court may direct for restoring the parties to the position in which they were before the transaction was entered into.Sub-sections (3) to (7) conferred further powers enabling the court to require a person who had contravened s 3 to pay into court such sums as might represent the profit to that person or loss to others from such contraventions.10 Chapter 5, headed Conduct of Investment Business, contained s 47, which dealt with misleading statements and practices, and s 57, which imposed restrictions on advertising. So far as material s 61 provided:If on the application of the Secretary of State the court is satisfied . (c) that any person has contravened ss 47 or 57 and that there are steps that could be taken for remedying the contravention, the court may . make an order requiring that person and any other person who appears to the court to have been knowingly concerned in the contravention to take such steps as the court may direct to remedy it.11 Thus it is apparent that in the 1986 Act there were two tests, that contained in s