The High Court has held in R (C) v Financial Services Authority [2012] EWHC 1417, that decision notices issued by the FSA's Regulatory Decisions Committee can be quashed on judicial review where the reasons given by the RDC are inadequate. That is the case notwithstanding that the recipient of the decision notice could refer its case to the Upper Tribunal for a rehearing.

Key points

  • The claimant successfully argued that the FSA had acted in breach of its statutory duty by issuing him with a decision notice that failed to give adequate reasons explaining why his representations had been rejected, or why he had lost.
  • The case demonstrates that judicial review in the High Court is available even where a statutory route of appeal exists, if (as in this case) that statutory appeal would not provide a suitable alternative remedy in the circumstances of the case. Whether an alternative remedy is suitable will depend on the nature of the wrong alleged, and the nature of the statutory appeal.
  • The law on alternative remedy remains unchanged. This case provides clarification that the simple existence of a statutory appeal on the merits does not, of itself, preclude judicial review.

Background

The claimant had been subject to an investigation conducted by the FSA's Enforcement Division. Enforcement's case against him had been heard by the FSA's Regulatory Decisions Committee ("RDC"), which is independent from the Enforcement Division, and exists to decide what action the FSA should take against the subject of the investigation.

Following written and oral submissions from the claimant and Enforcement, the RDC issued the claimant with a decision notice alleging that he had breached the FSA's Statements of Principle for Approved Persons, and fined him £100,000. The claimant had available a statutory route of challenge to the decision notice, in the form of a reference of his case to the Upper Tribunal. Such a reference would involve a complete re-hearing of evidence and arguments relevant to the claimant's alleged misconduct.

However, the claimant instead brought judicial review, on the grounds that the decision notice constituted a breach by the RDC of its statutory duty (under section 388(1)(b) FSMA) to give reasons for its decisions.

The statutory duty to give reasons

The Court followed leading case law in finding that the statutory duty (which was simply to give "reasons") required proper, adequate reasons to be given. Those reasons must enable the reader to understand why the matter was decided as it was and what conclusions were reached on the principal important controversial issues. The decision should inform the unsuccessful party as to why he has lost and (in general terms) why his submissions were not accepted.

The degree of detail required of the decision-maker in giving reasons depends entirely on the context. In addition, a challenge to the adequacy of reasons given will only succeed where the aggrieved person can demonstrate that he has been substantially prejudiced as a result.  

Breach of duty by the FSA

The Court found that, whilst the RDC had attempted to summarise the representations made by the claimant on the main disputed issues, it failed to give any explanation for why those representations had been rejected. The decision notice also failed to identify why the RDC preferred (without giving reasons) to take action against the claimant on the basis of certain facts and matters that had been conceded by Enforcement to be incorrect. Those failings left the claimant unable to understand why his submissions were not accepted, or why he had lost.

Those failings caused prejudice to the claimant as he was unable to make an informed decision as to whether it would be in his interests to refer his case to the Upper Tribunal, given the risks (of more severe findings and increased penalty) involved with such a reference, even ignoring the associated cost of doing so.

During the course of argument the FSA sought to distinguish between a case in which no reasons are given for a decision (in which circumstances it was conceded that judicial review should be allowed), and one in which, as here, inadequate reasons are given. The Judge held that there was no difference in principle between those two scenarios, and that equal prejudice could be caused by reasons that were inadequate, as by an absence of reasons.

Alternative remedy

The FSA argued that judicial review should be refused because those in the position of the claimant have available to them an alternative remedy in the form of a reference to the Upper Tribunal. The FSA thereby sought to apply the principle that judicial review should only be available as a remedy of last resort.

Central to this issue was the question of whether that statutory route of challenge was suitable to address the complaints made by the claimant regarding the decision notice. The Judge held that on the facts of the case it was not. The wrong alleged was a breach of statutory duty to give reasons, and the Upper Tribunal had no jurisdiction to ensure the FSA's compliance with that duty.

In reaching this view the Judge noted that the Upper Tribunal's function is to hold a complete rehearing of the issues in the case. As the Upper Tribunal itself has stated, the reasons given in relation to those issues by the RDC in its decision notice are not a relevant consideration that the Upper Tribunal takes into account.  It was also clear that the Upper Tribunal could not require the RDC to give adequate reasons in the decision notice, therefore it was not capable of providing a remedy for the breach of statutory duty.

Comment

This case helps to clarify the circumstances in which public law remedies may be sought notwithstanding a full statutory right of appeal. The Judge was keen to emphasise that lawful decision notices can only be challenged by the recipient by way of a reference to the Upper Tribunal. Therefore allowing judicial review of this decision notice does not undermine the statutory regime under FSMA.

Nor, contrary to the FSA's concern, would a successful "reasons-based" judicial review open the floodgates to unmeritorious judicial review challenges. The Judge noted that reasons-based challenges must be treated with caution, as they are frequently made as disguised challenges to the substance of a decision. However, the FSA (or indeed any other public body subject to such a duty) can easily avoid reasons-based challenges by giving full and proper reasons for its decisions.

One might also ask how this decision will be considered outside the immediate context of the FSA's disciplinary process. The Judge's reasoning was that the issue of alternative remedy must be approached by considering the suitability (for remedying the alleged wrong) of any statutory route of challenge.  The Judge cited several other leading judicial review cases as holding a common theme – judicial review had been correctly refused because the statutory remedy in question had been suitable in each case. This case was different and exceptional because the particular facts of the case rendered the statutory appeal route unsuitable. This meant that the claimant had no alternative remedy, and was therefore not prohibited from bringing a challenge by way of judicial review.  

Footnote regarding privacy

The case was heard in private, with anonymity granted to the claimant. This was because the decision notice had been issued prior to recent amendments to FSMA, and therefore under a regime whereby such notices are confidential. Privacy was therefore required so as not to frustrate the purpose of the relief sought, by making public the substance of a notice that the claimant alleged to be unlawful.

The full judgment is available here.

R (C) v Financial Services Authority [2012] EWHC 1417