The Court of Appeal, in two recent judgments arising out of the same appeal, has set out important guidance in relation to a number of issues that can arise in cases where the Financial Conduct Authority (FCA) exercises its regulatory and disciplinary functions.
The background to the case was an investigation by the – as it then was - Financial Services Authority (FSA) into the conduct Christopher Willford, who had been Group Finance Director at Bradford & Bingley plc. The investigation concerned events in mid-May 2008 when Bradford and Bingley had announced a rights issue. Within a couple of weeks of that announcement, the bank had been forced to issue an updated trading statement which amounted to a profits warning and which had the consequence that the rights issue was largely unsuccessful. In essence, the issue being investigated was whether Mr Willford should have done more to ensure that he was fully aware of, and had properly assessed, the bank’s financial position prior to the announcement of the rights issue.
In summary, the FSA’s disciplinary procedure operates in stages:
- The first stage, after the investigation, is the delivery by the Enforcement Division to the Regulatory Decisions Committee (RDC) of a report with a recommendation that a Warning Notice be issued.
- Stage 2 is the formal issue of a Warning Notice (which includes the proposed penalty). The subject of the Warning Notice then has the opportunity to make written representations followed by an oral hearing before the RDC.
- The RDC then either formally discontinues the process or issues a Decision Notice. The final stage is for the Decision Notice to be referred to the Upper Tribunal (Tax and Chancery Chamber).
In Mr Willford’s case, the procedure had been followed up to the Decision Notice stage at which point he brought a challenge by way of judicial review, asserting that the Decision Notice contained insufficient reasons to enable him to decide whether or not to refer the matter to the Upper Tribunal.
The statutory regime applicable to FSA investigations at the time prohibited the FSA from disclosing the existence of an investigation, its progress or its outcome until it had reached a conclusion and even then only if the outcome is some form of sanction (the position is now different – section 391(1ZB) FSMA 2000). On the back of that, and on the basis that if his judicial review challenge were successful and if he was then able to persuade the RDC to discontinue the process the FSA would be prohibited from disclosing his identity, Mr Willford sought anonymity in the proceedings. That claim succeeded at first instance but was rejected in the first of the Court of Appeal judgments (1). The Court of Appeal applied a test of whether it was “strictly necessary in the interests of justice” to anonymise its judgments in order to protect Mr Willford’s identity and readily concluded that it was not. In doing so it relied on the fact that there was no positive evidence that Mr Willford would suffer significant harm if his identity was revealed (although it was accepted that there might be some damage to his professional reputation) and on the fact that Mr Willford, in choosing to bring judicial review proceedings, had “brought the matter into a public forum where the principle of open justice applies”. Although the effect of the Court of Appeal’s ruling is not to impose an absolute bar on anonymity in proceedings such as these, it comes very close to it – it would take a truly exceptional set of facts in order to reach the “strictly necessary in the interests of justice” threshold.
The next significant issue, dealt with in the second of the Court of Appeal judgments (2), was whether judicial review was in fact available at all to challenge the Decision Notice. It is a well-established public law principle that where a claimant has an alternative remedy, then other than in exceptional circumstances he will be required to use that remedy rather than be permitted to bring judicial review proceedings. The issue in Mr Willford’s case was whether his right to refer the Decision Notice to the Upper Tribunal for redetermination was an adequate alternative remedy. It was argued that it was not, because of the nature of the challenge: the Upper Tribunal on a referral would not consider the adequacy of the reasons given in a Decision Notice but rather would look at the matter afresh so the alleged unlawfulness would not be addressed. Added to this, it was said, was the fact that Mr Willford needed to have adequate reasons in order to be able to decide whether or not to refer the case to the Upper Tribunal. These points were rejected. In part this was because the Court of Appeal considered that in fact the reasons given in the Decision Notice were adequate, and in particular sufficient to enable Mr Willford to take an informed decision on whether or not to refer the case. More broadly, the Court of Appeal looked at the statutory scheme, the integral role of the Upper Tribunal within it and what it regarded as the “real issue” underpinning the whole process – “whether Mr Willford’s conduct fell short of that which was to be expected of him”. Viewed through that lens, judicial review would not provide a “remedy of real importance” that was not otherwise available to Mr Willford.
The Court of Appeal’s decision makes it clear that judicial review of the FCA disciplinary process will only be available in limited circumstances. It was conceded by the FSA that in some circumstances – if the FSA was acting maliciously or failed to give any reasons for a decision at all – that judicial review could be appropriate. It is likely that in practice the Administrative Court will entertain claims alleging something falling a little short of those extremes, but will need a highly convincing explanation as to why the Upper Tribunal cannot provide, in substance, an adequate remedy.