On 30 July 2024, the Court of Appeal dismissed an appeal by the Financial Conduct Authority's ("FCA") against a decision by the Upper Tribunal (the "Tribunal") in which the FCA were ordered to pay a portion of the costs of two individuals, Thomas Seiler and Louise Whitestone, following the FCA's handling of the Seiler, Whitestone & Raitzin Tribunal case.
Background and facts
Seiler, Whitestone & Raitzin v FCA
The underlying Tribunal case will likely be familiar to readers but, by way of summary, the case concerned arrangements entered into by Julius Baer and individuals connected with the Yukos Group ("Yukos") in 2010 and 2011 which allowed for the payment of fraudulent commissions on Forex transactions to individuals connected with Yukos.
In the Decision Notices, which were the subject of the individuals' references, the FCA had decided that each of the individuals lacked integrity in that they had recklessly disregarded the risks that individuals connected with Yukos were misappropriating company funds.
After a four-week hearing between December 2022 and January 2023, the Tribunal found that the FCA had not made out its case on any of its allegations against the individuals and that none of them had acted recklessly and with a lack of integrity. It unanimously allowed all three references.
The Tribunal's decision included excoriating criticisms of the FCA's approach to the investigation and the proceedings, including in respect of their failure to gather relevant documents, their errors of disclosure and their approach to potentially relevant witnesses.
For further details on the Seiler, Whitestone, Raitzin v FCA case, please see our article here and the Tribunal's decision here.
The Tribunal's costs decision
Following the success in the Tribunal, Mr Seiler and Mrs Whitestone applied to the Tribunal for costs against the FCA – pursuant to The Tribunal Procedure (Upper Tribunal) Rules 2008 10(3)(d) and (e) – on the basis that (a) the Decision Notice, upon which the reference was made, was unreasonable; and (b) the FCA acted unreasonably in their conduct of the proceedings.
On 9 November 2023, the Tribunal made a rare order that the FCA pay a portion of Mr Seiler and Mrs Whitestone's costs on the basis that the FCA acted unreasonably in respect of three issues:
- Their failure to call material witnesses: The Tribunal criticised the FCA's "feeble" attempts to call certain potentially relevant witnesses and that the FCA should have sought directions from the Tribunal as to whether certain other potentially relevant witnesses should have been called to give evidence.
- Their inclusion of an allegation in the Decision Notice which had not been put to Mr Seiler in his Warning Notice: The Tribunal found that the RDC should not have considered, nor should they have made findings on, revised allegations in respect of one of the Forex transactions that had not been previously included in Mr Seiler's Warning Notice.
- Their refusal (1) to respond to Mr Seiler's request for clarification in respect of the FCA's position on what other individuals knew about various Forex transactions; and (2) to answer certain other requests for details of its investigation: The Tribunal found that it would have been assisted had the FCA given a more positive response to Mr Seiler's requestions for clarification. Further, the FCA refused to provide details of its investigation, following repeated requests from Mr Seiler, on the basis that it had complied with its disclosure obligations and the request was disproportionate. The Tribunal found that the FCA's "confidence was misplaced" and it was clear from the witness statement of one of the FCA case team that there were "significant gaps and flaws in the investigation."
The Tribunal made it clear that in light of the serious criticisms of the FCA's conduct of the case, both Mr Seiler and Mrs Whitestone would have been entitled to the whole of their costs were it not for the "restrictive nature of the costs regime" in the Upper Tribunal.
The FCA's appeal to the Court of Appeal
Grounds and findings
The FCA sought permission to appeal the Tribunal's 9 November 2023 costs decision on the basis that the Tribunal had erred in its findings in respect of the three issues set out above. Permission to appeal was granted by the Court of Appeal on issues one and three, but issue two was refused.
The FCA's appeal therefore proceeded on two grounds:
Ground one: The Upper Tribunal erred in finding that the FCA acted unreasonably in failing to call material witnesses. As to this:
- The FCA's argument was essentially that the Tribunal's costs decision placed a burden on the FCA to (1) "call witnesses that it cannot proffer as witnesses of truth" and; (2) where potential witnesses are abroad, "invite the Tribunal to use potential powers to summon [those] witnesses" in order to avoid a finding of unreasonableness for costs purposes.
- The Tribunal had indeed criticised the FCA for not bringing the issues around one particular witness to their attention and for not taking reasonable steps to obtain relevant witness evidence from those witnesses who were abroad. However, the Court of Appeal observed that the Tribunal's criticisms were based on the particular facts of this case and disagreed that the Tribunal's findings on the witness issues placed a burden on the FCA to act in any particular way. As a result, the majority found that the Tribunal was entitled to conclude that the FCA had acted unreasonably in this respect and that there had been no error of law or false premise in the Tribunal's findings. Ultimately, the Court of Appeal was satisfied that the Tribunal's findings were justified and fell within the range of findings open to it.
Ground two: The Upper Tribunal erred in finding that the Authority had acted unreasonably by (1) refusing to respond to Mr Seiler’s request for clarification; and (2) refusing to answer certain other requests for details of its investigation. As to this:
- The Court of Appeal agreed with the Tribunal that Mr Seiler's requests were relevant to the issue of whether he had been reckless and lacked integrity and therefore held that the Tribunal was right to conclude that the FCA acted unreasonably in refusing to respond to those requests. The Court of Appeal concluded that the Tribunal was not imposing a duty on the FCA to respond to all such requests for information when they arise in other cases. They accepted that, in some cases, parties may tactically deploy requests for information to overburden opponents, but on the facts of this case, the requests for further information could have provided great assistance to the case.
Elisabeth Laing LJ, in her dissenting judgment, found that the Tribunal had erred in principle in criticising the FCA for not calling witnesses who did not support their case and that Mr Seiler's request for information had no bearing on whether he lacked integrity.
The Court of Appeal's overarching observations
There were two particularly interesting overarching observations made by the Court of Appeal in its decision:
- The FCA is not an ordinary litigant in civil proceedings and should not be treated as such. The FCA argued that it should be treated as if it were a litigant in ordinary civil proceedings, meaning it is free to run its case in the way it did in the Tribunal and that, as such, the Tribunal's decision on the FCA's refusal to respond to requests for information and its decision on which witnesses to call, amounted to an error of law. The Court of Appeal disagreed and found that proceedings before the Tribunal are not "normal litigation", in part because in non-disciplinary references the Tribunal cannot substitute its own decision for that of the FCA's and because the Tribunal and the FCA "are engaged in a joint enterprise in the public interest" to uphold the rule of law.
- Appeals of a Tribunal decision can only be on a point of law and the Court of Appeal will not intervene on findings of fact. The Court of Appeal said that generally speaking it is reluctant to interfere with the conclusion of the court or tribunal below on findings of fact and, in the case of the Tribunal specifically, statute expressly precludes an appeal on anything other than a point of law. The Court of Appeal ultimately concluded that the Tribunal is best placed to determine whether the FCA has acted unreasonably in the conduct of an investigation and/or subsequent Tribunal proceedings – not least because it will have undertaken a detailed evaluation of the facts – and therefore the Tribunal's decision on the FCA's unreasonableness could not be considered an error of law.
It is safe to say that the Tribunal's costs decision, and the Court of Appeal's associated dismissal of the FCA's appeal of that decision, will have an impact on the way the FCA runs its current and future enforcement cases. In particular, to avoid a repeat of the criticisms levelled against it by the Tribunal, the FCA may now be more inclined to adopt a belt and braces approach to the calling of potential material witnesses, which could result in the FCA seeking guidance from the Tribunal and/or the other parties to the proceedings in respect of which witnesses should be called. These issues will no doubt play out in the many high-profile references to Tribunal scheduled to take place in the next 12 months.