Financial Services Authority v Martin & Anor [2005] EWCA Civ 1422

[2005] EWCA Civ 1422Case No A3/2005/0118
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
HER HONOUR JUDGE ALTON QC
SITTING AS A HIGH COURT JUDGE
HC03C02126
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 25th November 2005
Before
THE CHANCELLOR OF THE HIGH COURTLORD JUSTICE LONGMORELORD JUSTICE LLOYD
Between
THE FINANCIAL SERVICES AUTHORITYClaimant/ Respondent(1) JOHN MARTINDefendants/Appellants(2) ADRIAN SAM & CO. (a Firm)Appellant
Mr Nicholas Peacock (instructed by Ashurst Morris) for Claimant/RespondentMr Charles H. Joseph (instructed by James S Barnett) for 1st Defendant/AppellantMr Carl Fain (instructed by Richard Rooney & Co.) for 2nd Defendant/AppellantHearing Hearing dates : 13th October 2005
JudgmentThe Chancellor :
[1]This appeal from the order of HH Judge Alton, sitting as a deputy judge of the Chancery Division, made on 10th January 2005, brought with the permission of Jacob LJ, concerns the proper construction and application of s.380(2) Financial Services and Markets Act 2000 (“FSMA”). That subsection provides:
“(2) 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 (“FSA”), the claimant in this action and respondent to the appeal. (a) that any person has contravened a relevant requirement, and (b) that there are steps which could be taken for remedying the contravention,[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”). 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 (“FSA 1986”) 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 Firm’s client account. They were told that the certificates would be sent to them by the relevant company’s 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 Firm’s client account Mr Wilkinson would then buy such shares at half that price with money paid to him from the Firm’s 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 1st June 2002.[4]In the meantime, in December 2001 FSMA, which superseded the FSA 1986, came into operation. On 10th 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 paragraphs 4 to 50 of the particulars of claim the nature of Mr Wilkinson’s investment business was alleged in detail. In paragraphs 51 to 55 FSA averred that such business contravened the provisions of s.3 FSA 1986 and involved false statements and misleading advertisements in contravention of ss.47 and 57 FSA 1986 respectively. In paragraph 56 FSA averred that Mr Martin and the Firm were each knowingly concerned in the contraventions by Mr Wilkinson of ss.3, 47 and 57 FSA 1986. Schedule A to the claim form set out details of the investors who had responded to Mr Wilkinson’s invitations. There were 84 of them. In total they had paid to the Firm’s client account £933,819.[5]On 27th August 2003 Mr Martin, served a defence in which, amongst other things, he averred that s.380(2) FSMA did not entitle the Court to make “a remedial order in respect of knowing involvement in a breach of s.3 FSA 1986”. Nevertheless, by an application notice issued on 10th June 2004, FSA sought summary judgment on the whole of its claim against both Mr Martin and the Firm pursuant to CPR Rule 24.2. That is the application which came before HH Judge Alton on 20th and 21st December 2004. In her judgment she concluded (paragraph 24) that there was clear evidence that Mr Wilkinson had contravened the provisions of s.3 FSA 1986 and (paragraphs 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 (paragraph 56) that there were steps which might be taken to remedy the contravention of s.3 FSA 1986 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 (paragraph 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 FSA 1986 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 10th 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 FSA 1986 by Mr Wilkinson, as pleaded in paragraph 6 of the Particulars of Claim, accepted undertakings from Mr Martin in lieu of an injunction and, pursuant to s.380(2) FSMA 2000, ordered Mr Martin and the Firm to pay to 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 Firm’s 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 FSA 1986 by which the financial services sector was first regulated. By s.1 and Schedule 1 the terms “investment” and “investment business” were defined. S1(3) provided that “For the purposes of this Act a person carries on investment business in the United Kingdom if he – [(a)..] (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.” S.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.”
S.4 provided that any such contravention constituted an offence. S.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. S.6(1) conferred jurisdiction on the court to grant an injunction restraining the contravention of s.3. [(a)..] (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.”[9]S.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 section 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.”
Subsections (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 – [(a) and (b)] (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.” [(a) and (b)] (c) that any person has contravened [ss. 47 or 57] and that there are steps that could be taken for remedying the contravention,[11]Thus it is apparent that in FSA 1986 there were two tests, that contained in s.6(2) in relation to a contravention of s.3 and that contained in s.61(1) in relation to contraventions of ss.47 and 57. The former required the order to be “for restoring the parties to the position in which they were before the transaction was entered into”. The latter was directed to an order requiring a person “to take such steps as the court may direct to remedy [the contravention]”.[12]The FSMA superseded FSA 1986 with effect from 1st December 2001. By virtue of Regulation 2 Financial Services and Markets Act 2000 (Transitional Provisions and Savings)(Civil Remedies, Discipline, Criminal Offences ETC.)(No.2) Order 2001 SI 2001 No.3083 (“the Transitional Provisions Order”) any requirement, condition or prohibition imposed before the commencement of the FSMA, by, inter alia, s.3 FSA 1986 is to be treated as a relevant requirement for the purposes of section 380(2) and section 382 FSMA. Regulation 2(2) provided that in relation to any such contravention before the commencement of the FSMA s.380(2) should take effect subject to the provisions of paragraphs (4) to (6) and section 382 subject to the provisions of paragraphs (7) to (12).[13]I have set out the provisions of s.380(2) in paragraph 1 of this judgment. It appears in Part XXV headed “Injunctions and Restitution” and against a sidenote “Injunctions”. Subsection (1) authorises the Court on the application of either FSA or the Secretary of State to grant injunctions to restrain contraventions of any relevant requirement. Subsection (3) authorises the Court on the like application to restrain a person who may have contravened any relevant requirement from disposing of his assets. Subsection (5) provides that:
“In subsection (2) references to remedying a contravention include mitigating its effect.”
In subsection (6) “Relevant requirement” is defined in relation to an application by FSA as “a requirement – (i) which is imposed by or under this Act; or (ii) which is imposed by or under any other Act and whose contravention constitutes an offence which the Authority has power to prosecute under this Act;” (i) which is imposed by or under this Act; or (ii) which is imposed by or under any other Act and whose contravention constitutes an offence which the Authority has power to prosecute under this Act;”[14]S.382 also appears in Part XXV and under a heading and beside a side note “Restitution orders”. It enables the Court, on the application of FSA or the Secretary of State to make an order under subsection (2):
“if it is satisfied that a person has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement, and – (a) that profits have accrued to him as a result of the contravention; or (b) that one or more persons have suffered loss or been otherwise adversely affected as a result of the contravention.”
Subsection (2) enables the court to make orders directing “the person concerned” to pay to the FSA “such sum as appears to the court to be just having regard to “the profits appearing to the court to have accrued”, “the extent of the loss or other adverse effect” or to both as the case may be. (a) that profits have accrued to him as a result of the contravention; or (b) that one or more persons have suffered loss or been otherwise adversely affected as a result of the contravention.”[15]The Explanatory Notes accompanying the bill preceding FSMA, on which counsel for the appellants relied, drew a clear distinction between the injunctions authorised by s.380 and the restitution orders provided for by s.382. The former was described as a corrective power the latter as restitutionary.[16]The relief sought by FSA in this action was specifically sought under s.380(2) and not s.382. This is because Regulation 2(8) of the Transitional Provisions Order precluded an order under s.382 in relation to a contravention of s.3 FSA 1986 “solely on the ground that a person has been knowingly concerned in such a contravention by another”. Regulation 2(4) of the Transitional Provisions Order provides that:
“No order may be made under section 380(2) in relation to a contravention of a requirement imposed by section 3 of the Financial Services Act unless the court is satisfied that the person concerned contravened that requirement by entering into a transaction.”
[17]In these circumstances the appellants make three points. They contend that(1) s.380(2) does not confer jurisdiction on the court to make restitutionary rather than corrective orders;(2) the payment orders made by the judge were not authorised by the subsection as they were not directed to requiring Mr Martin or the Firm to take steps to remedy the contravention of s.3 by Mr Wilkinson;(3) the payment orders were precluded by Regulation 2(4) of the Transitional Provisions Order because there is no allegation or finding that either Mr Martin or the Firm contravened the requirement of s.3 by entering into a transaction.[18]The Firm also contends that the judge was wrong in principle to make an order against the Firm because its only effect is to impose liability on Mr Sam who, it is agreed, was not knowingly concerned in any of the contraventions by Mr Wilkinson.[19]I will deal with those submissions in that order. The statutory test for the exercise of the jurisdiction conferred by s.380(2) is that the order sought should require the person knowingly concerned in the contravention to take a step or steps to remedy the contravention. It is true that the provision appears in a part of the FSMA headed “injunctions” and beside a sidenote to the same effect. Those headings and sidenotes may be contrasted with those applicable to s.382, namely, “Restitution orders”. Similarly the explanatory notes drew a distinction between the two provisions describing the one as “corrective” and the other as “restitutionary”. All such headings and notes are material to the issues of construction, see R v Montila [2005] 1 AER 113, 124 paras 34-36. But, as the Privy Council pointed out in those paragraphs, such material is of lesser significance than other parts of the relevant Act.[20]In both SIB v Pantell [1993] Ch. 256, 276 and SIB v Scandex Capital Management [1998] 1 WLR 712, 723 and 726 this court pointed out that the powers conferred by s.6(2) and 61(1) were wide and should not be cut down judicially. Further, as Scott LJ pointed out in Pantell at page 277, the two remedies might overlap. Notwithstanding the headings and notes to which I have referred I do not think that it would be right to construe s.380(2) and s.382 as mutually exclusive. It is possible for the facts of a given case to come within both. There is no reason to think that in cases where they do Parliament intended that one only of the two statutory remedies should be available.[21]This leads to the second submission summarised above. In Pantell, at page 279, Scott LJ pointed out that the power then to be found in s.61(1) FSA 1986 had two preconditions to be satisfied before it could be exercised, namely(1) a relevant contravention and(2) steps intended to and reasonably capable of remedying that contravention. The test for the exercise of the power in s.380(2) is the same as that formerly found in s.61(1) (rather than s.6(2)) and, in my view, is subject to the same pre-conditions.[22]The second submission for Mr Martin and the Firm is that the second precondition is not satisfied. They point out that the contravention relied on as satisfying the first condition is the conduct of investment business in the United Kingdom by Mr Wilkinson without being either authorised or an exempted person. They contend that such a contravention exists whether or not any actual transactions of buying or selling take place. Accordingly, they submit, neither monetary order made by the judge in this case is capable of being a step to remedy that contravention.[23]I am unable to accept this submission either. The definition of investment business contained in s.1 and paragraph 12 of Schedule 1 FSA 1986 includes “Buying, selling, subscribing for or underwriting investments or offering or agreeing to do so, either as principal or as an agent.” Further the facts alleged and proved to the satisfaction of the judge demonstrated a number of such transactions. Thus the contraventions included those transactions. The order of the judge for payment of £101,391 was made for the purpose of reimbursing those who had paid for shares they had not received. As such it was, in my view, a step directed to the remedying of the contravention. Similarly the order for payment of the sum of £258,000 was designed to mitigate the effect of the contravention on those who received their shares by repaying to them the excess over the true market price which they had paid into the Firm’s client account.[24]So I turn to the third submission made on behalf of Mr Martin and the Firm. This depends on the proper construction of Regulation 2(4) of the Transitional Provisions Order which I have quoted in paragraph 16 above. Counsel for Mr Martin and the Firm submit that “the person concerned” for the purposes of that provision is the person against whom the order is sought, namely Mr Martin and the Firm. As there is no allegation or proof that either of them entered into any transaction which contravened s.3 FSA 1986 no order can be made against them under s.380(2). There is a potential ambiguity here because the phrase “the person concerned” is used in other parts of the Transitional Provisions Order in precisely the sense for which Mr Martin and the Firm contend. I refer to paragraphs 2(3)(n),(o) and (p), 2(5),(6) and (10). The phrase is used in the same sense in s.382(2).[25]Counsel for FSA disputes this construction. He points out that s.6(2) FSA 1986 authorised orders for “restoring the parties to the position in which they were before the transaction was entered into”. He suggests the remedy afforded by s.6(2) FSA 1986 was transaction based and that Regulation 2(4) of the Transitional Provisions Order was designed to avoid any suggestion that s.380(2), which is not so based, was retrospective in its effect. Accordingly, he submits, the phrase “the person concerned” is referring to the contravener, Mr Wilkinson, who, it cannot be doubted, did enter into a number of relevant transactions.[26]The judge accepted the argument of counsel for FSA. As she pointed out in paragraph 68, if that argument were not accepted “the powers of the court against those knowingly concerned where section 3 contraventions were concerned, previously to be found in s.6(2) would be totally removed.” She found that the power remained as a consequence of the combined effect of section 380(2) and the regulations.[27]At the conclusion of the hearing I preferred the submissions for Mr Martin and the Firm for a number of reasons. First, the limitation in Regulation 2(4) is on orders “made under section 380(2) in relation to a contravention of a requirement imposed by s.3..”. The contravention was by Mr Wilkinson but the restriction is in respect of any order which might be made “in relation to” it. Thus the natural meaning of the subsequent reference to “the person concerned” is to any person against whom an order in relation to such a contravention may be made. So read it includes a “person knowingly concerned” in the contravention by Mr Wilkinson, namely Mr Martin and the Firm. Second, the submission for FSA involves attributing to the phrase “the person concerned” a different meaning in the context of Regulation 2(4) to the consistent meaning it seemed to bear in all the other contexts to which I have referred in paragraph 24 above. Third, if the purpose of Regulation 2(4) is as Counsel for FSA suggests then a similar limitation on the application of s.382 might have been expected; but there is none. Fourth, paragraph 2(8) of the Transitional Provisions Order precludes any order under s.382(1) “in relation to a contravention of [s.3] solely on the ground that a person has been knowingly concerned in such a contravention by another”. If there can be no such liability under s.382 I can see no reason why there should be one under s.380(2). Accordingly the point which appealed to the judge appeared to me to have the opposite effect.[28]Since then I have had the benefit of the further researches carried out by Lloyd LJ. Having considered them and having considered his reasoning I am satisfied that my prima facie view was wrong. For the reasons he gives I would reject the third point made on behalf of Mr Martin. In the result I would dismiss the appeal of Mr Martin.[29]Counsel for the Firm submits that the judge erred in principle in making an order the only effect of which was to cast liability on one, Mr Sam, who could not have been rendered liable personally because he had not been knowingly concerned in the contravention of s.3 by Mr Wilkinson. The judge was well aware of the point because she referred to it expressly in paragraphs 82 and 83. She concluded that Mr Sam was liable for the acts and defaults of Mr Martin within the scope of the partnership business. She considered that:
“If, as I have concluded, it is appropriate to make an order against the first defendant, it must be equally appropriate to make such an order against the second defendant, even if it means that Mr Sam, as the only other partner must take personal liability.”
[30]As Longmore LJ observed in the course of the argument, and counsel for FSA accepted, it might be thought to be unnecessary to make any order against the Firm because all partners therein would be liable for the acts of Mr Martin within the scope of the partnership business. Be that as it may the making of the order cannot constitute any error in principle so as to justify this court interfering with the exercise by the judge of her discretion to make it. Accordingly I would dismiss the appeal of the Firm also. Lord Justice Longmore[31]I agree with the Chancellor’s conclusions on the first two points set out in paragraph 17 and also agree with Lloyd LJ’s conclusion on the third point. Accordingly I also would dismiss these appeals. Lord Justice Lloyd[32]I agree that these appeals should be dismissed.[33]As my Lord, the Chancellor, has shown, the conduct of Mr Wilkinson, which gave rise to the losses suffered by investors, occurred while the Financial Services Act 1986 (“FSA”) was in force, ending some few months before it was repealed. That conduct undoubtedly contravened the provisions of FSA section 3, and could have led to sanctions under section 6 of that Act against Mr Wilkinson and also against persons knowingly concerned in the contravention, as Mr Martin has been found to have been. Before any proceedings could be taken, however, FSA was repealed and replaced by the Financial Services and Markets Act 2000 (“FSMA”), with its different and broader approach to regulation. If the Appellants’ submissions are correct, a power which the court possessed, to impose a sanction on Mr Martin under FSA section 6(2) in relation to Mr Wilkinson’s contraventions in 2000-1, ceased to be exercisable on 1 December 2001, when FSMA came into force. If Mr Wilkinson’s conduct had taken place after 1 December 2001, or had continued until after that date, the court would have had power to make various orders against Mr Martin under FSMA. The Transitional Provisions Order appears to be intended to preserve the court’s powers in relation to conduct before the commencement date of FSMA, though with safeguards against retrospective operation. If the Appellants are right, the Order has failed to achieve this objective in the case of contraventions of FSA section 3 as regards persons knowingly concerned in the contravention.[34]FSA section 3 imposed a prohibition on persons carrying on investment business unless authorised or exempt. The definition of investment business was such that a contravention might involve entering into transactions, or it might not. Section 6 provided for various sanctions. i) Section 6(1) enabled the court to grant injunctions to restrain future contraventions of the section, of any kind. Such orders, necessarily, were against a person who had contravened or was likely to contravene the section. ii) Section 6(2) applied only if there had been a contravention which comprised or included entering into a transaction. It enabled the court to make orders requiring persons to take steps for restoring the parties to the position in which they were before the transaction was entered into. Such orders might be made against the contravener or against a person knowingly concerned in the contravention. iii) Section 6(3) to (7) applied if a person had carried on investment business in contravention of section 3 and either that person had accrued profits, or investors had suffered loss or been otherwise adversely affected, as a result of the contraventions. They enabled various orders to be made, but only against the contravener, not against persons knowingly concerned. The orders might provide for the person in question to be ordered to pay a sum which appears to be just having regard to the profits, the losses or other adverse effects, or both. I do not need, for present purposes, to go into the consequential provisions made in the later sub-sections.[35]As my Lord has shown, FSA section 61 gave the court other powers by way of sanctions for different contraventions, including of sections 47 and 57. Again they fell into three categories. i) Under section 61(1) the court might grant an injunction restraining apprehended future contraventions. ii) Under the same sub-section, if a contravention had occurred and there were steps that could be taken for remedying it, the court might make an order requiring the contravener and any person knowingly concerned in the contravention to take such steps. iii) Under sub-sections (3) to (7), if profits had accrued to a person, or if investors had suffered loss or other adverse effects, as a result of his contravention, the court might make an order requiring him to pay sums by reference to the profits, the loss or other adverse effect or both.[36]It is not necessary to consider further the power to grant injunctions. The two other sets of provisions, under each section, are relevant. In the present case the only proved breaches are under FSA section 3. If time had permitted before the repeal of FSA, the relevant regulator under FSA (the Securities and Investments Board) could have applied to the court for the section 6(2) power to be exercised against Mr Wilkinson, who had entered into transactions in breach of section 3, and also against Mr Martin, who had been knowingly concerned in the contravention of the section. It could alternatively have applied under section 6(3), but in that case only as against Mr Wilkinson, since that provision did not extend to persons knowingly concerned. In either instance, the court could have directed a payment such as Judge Alton did in fact direct in the present case.[37]By way of comparison, since contraventions of sections 47 and 57 were also proved on the part of Mr Wilkinson, the court could also have been invited to exercise its powers under section 61. If Mr Martin had been proved to have been knowingly concerned in those contraventions, the power under section 61(1) could have been used to make an order against him as well as against Mr Wilkinson. Alternatively the power under section 61(4) could have been used to make an order, but only as against Mr Wilkinson.[38]If Mr Wilkinson’s conduct had taken place after the commencement of FSMA, or in part after that date, the Claimant (“the Authority”) would have been able to apply to the court for the exercise of different powers, namely those under FSMA sections 380 and 382. As my Lord has pointed out, there is an overlap between those provisions, as there was between the different powers under both section 6 and section 61 of FSA. The power under section 380 could be used against Mr Wilkinson and also against Mr Martin, as having been knowingly concerned, to take steps to remedy the contravention. Those steps could include the payments required by Judge Alton’s order. The power under section 382 could also be exercised, on the footing that profits had accrued as a result of the contravention or that one or more persons had suffered loss or been adversely affected as a result of it. If the power were to be exercised on the basis of profits having accrued, they must have accrued to the person against whom the order is sought (referred to as “the person concerned”). The section allows orders to be made against the contravener and against a person knowingly concerned. There would be no difficulty in making an order against the latter on the basis of loss or adverse effects suffered by investors, whereas if the order were sought against a person knowingly concerned on the basis of profits alone (perhaps a rather unlikely situation) it would be necessary to show that profits had accrued to that person as a result of the contravention, and the amount of those profits would be a relevant factor for the court in deciding the sum which he ought to be ordered to pay.[39]Thus, if the conduct, or some of it, had occurred after the commencement of FSMA, the Authority, as the new regulator, could have sought orders such as it obtained from Judge Alton under section 380(2) against Mr Martin, as well as against Mr Wilkinson. It could also have sought orders under section 382 against Mr Martin that he pay a sum of money. It would, on the facts, have been sufficient for the Authority to rely on the loss suffered by the investors, so that it would not have been necessary to identify what, if any, profits had accrued to Mr Martin as a result of the contravention.[40]The Transitional Provisions Order is one of many made under FSMA sections 426, 427 and 428(3). Section 426 enables a Minister to make by order “incidental, consequential, transitional or supplemental provision” for the purposes of or in consequence of the Act. Section 427 applies to transitional provisions made under section 426. Such an order may, in particular:
“make provision about the effect of requirements imposed, liabilities incurred and any other things done before commencement, including provision for and about investigations, penalties and the taking or continuing of any other action in respect of contraventions”
[41]Article 2 of the Transitional Provisions Order treats requirements, conditions and prohibitions imposed before commencement by or under certain specified provisions as “relevant requirements”, contravention of which brings into play sections 380 and 382. Article 2(3) lists the requirements, conditions and prohibitions in question. They include FSA section 3, and various other provisions of that Act including sections 47 and 57. They also include other provisions whose subject matter is within the scope of FSMA but had not been governed by FSA, such as the Banking Act 1987 section 3 (unauthorised acceptance of deposits). Three of the subparagraphs use the phrase “the person concerned”.[42]By virtue of article 2(2) the operation of paragraph (1) is subject, as regards section 380, to paragraphs (4) to (6) and, as regards section 382, to paragraphs (7) to (12). Paragraphs (4), (5), (6), (10), (12) and (13) all use the phrase “the person concerned”. As my Lord has pointed out, the Authority could not use section 382 against Mr Martin in the present case, because paragraph (8) excludes the use of that section under the Transitional Provisions Order “solely on the ground that a person has been knowingly concerned in such a contravention by another”. That reflects the fact that, under FSA, the corresponding provisions, section 6(3) and section 61(3), were only available against the contravener.[43]The critical paragraph is (4):
“No order may be made under section 380(2) in relation to a contravention of a requirement imposed by section 3 of the Financial Services Act unless the court is satisfied that the person concerned contravened that requirement by entering into a transaction.”
[44]That reflects the limited scope of FSA section 6(2) which only applied if a person had entered into a transaction in contravention of section 3 but, as shown above, allowed orders to be made not only against that person but also against another person if knowingly concerned in the contravention. The phrase “the person concerned” is ambiguous. The question is whether it means the person against whom the order is sought or the person whose contravention gives rise to the application.[45]The context of the Transitional Provisions Order is that it applies to the regulation of activity in various financial markets where the system of regulation is changed by the new Act, but the need for regulation is continuous and the conduct which needs to be subject to regulatory powers includes conduct which occurred under the old Act. That being so, it seems to me that the natural starting point is to assume that the legislative intention behind the Transitional Provisions Order was, on the one hand, to enable the new regulatory powers to be exercised in relation to conduct occurring under the old Act and, on the other hand, to ensure that the wider powers under the new Act are limited in relation to pre-commencement activities so that no-one would be in jeopardy under the new Act for prior conduct in a way in which he would not have been under the old Act.[46]That intention would have been achieved, in circumstances such as this case is concerned with, if the reading which Judge Alton gave to the paragraph is correct, namely that the “person concerned” in paragraph (4) means the contravener rather than the person against whom the order is sought.[47]The same phrase is used elsewhere in article 2, so that it is natural to consider those uses to see whether they throw light on the meaning of the phrase in paragraph (4). Although attention was drawn, during the hearing, to the other uses of the phrase, they were not examined in detail in argument. Having looked at them and their respective contexts since the hearing, I find nothing in them that supports any reading other than that favoured by the judge.[48]Not surprisingly, each is influenced by the particular statutory context of the particular provisions whose transitional effect is in question. Thus, two of them, namely paragraphs (6) and (10), come from the Banking Act 1987, under which section 3 prohibited the unauthorised taking of deposits. If that section were contravened, each of sections 48 and 49 of that Act contained provision for remedial orders. Section 48 corresponded, to an extent, to FSA section 6(2), allowing orders, both against the contravener and against a person knowingly concerned, to repay the deposit. Section 49 was similar to section 6(3), allowing the making of restitutionary orders, but only against the contravener. Both were subject to a special proviso which is reflected in the later part of paragraphs (6) and (10). In the latter case, since paragraph (8) means that an order can only be made against the contravener, the question would not arise, but in paragraph (6) the “person concerned” must mean the person against whom the order is sought. That reading, however, has a quite different effect as compared with reading “the person concerned” in the same way in paragraph (4), because it does not preclude the possibility of making an order against a person knowingly concerned, or limit the scope of the section to the contravener. It assumes that an order can be made against both, but preserves the effect of section 48(2) as to the considerations to which regard is to be had in deciding whether any, and if so what, order should be made.[49]A number of other occurrences of the phrase in article 2 derive from the former provisions as regards authorisation by virtue of membership of self-regulating organisations (SROs), recognised professional bodies (RPBs), recognised investment exchanges (RIEs) and recognised clearing houses (RCHs). Persons who were subject to the rules of these bodies were authorised to carry on investment business, so that breaches of section 3 did not arise. However, other breaches might occur giving rise to the possibility of sanctions under section 61: see section 61(1)(a)(iv). That section also contained a special provision, in section 61(2), such that the court’s powers could not be invoked in relation to a contravention of the rules of the relevant body unless it appeared that that body was unable or unwilling to take appropriate steps itself to restrain the contravention or to require the “person concerned” to take remedial steps.[50]Article 2(5) of the Transitional Provisions Order carries forward the provisions of section 61(2) as a limit on the retrospective effect of the Order, as regards RPBs, RIEs and RCHs. In that context, no doubt, as in section 61(2), the person concerned can only be a person who is subject to the rules of the relevant body. Thus, unless a person knowingly concerned in the contravention is also subject to those rules, the body will be able to require only the contravener to take remedial steps. Since the court’s power under section 61(1) did extend to persons knowingly concerned, it may be that, in a case where such a person was subject to the authority of the relevant body, section 61(2) and, in turn, paragraph (5) should be read so that the “person concerned” included both the contravener and the person knowingly concerned in the contravention. It is unnecessary to decide whether that is so.[51]The use of the phrase in paragraph (3)(n) and (p) and, by reference to paragraph (3)(q), in paragraph (13)(a) has a different purpose. Here it is used in order to identify what are the “relevant requirements” imposed by virtue of membership of, or being subject (regardless of membership) to the rules of, a given type of body, including, in paragraph (13), which of the rules of a relevant body are relevant requirements. For this purpose it is necessary to refer to the person whose subjection to the rules provides the necessary link with the process of regulation. In itself, it seems to me that these occurrences of the phrase are neutral on the question of construction arising from paragraph (4).[52]If, however, it were suggested that these uses of the phrase “the person concerned” mean that, in the case of a contravention of one of the relevant requirements to which FSA section 61 used to relate, on the part of a person who is authorised by virtue of, for example, membership of an RPB, an order can only be made against the contravener, and not against a person knowingly concerned in the contravention, that would produce the same anomaly as does the reading of paragraph (4) contended for by the Appellants, namely that orders which would have been possible under section 61(1) against a person knowingly concerned (albeit subject, where relevant, to section 61(2)) before FSA was repealed, and which would be possible under section 380 in relation to contraventions after commencement, cannot be sought after commencement as regards pre-commencement conduct.[53]The phrase also occurs in paragraph (3)(o), which reflects the special provisions made in Schedule 11 of FSA for the regulation of friendly societies. These provisions include paragraph 22 which corresponded to section 61(1) and permitted sanctions against both the contravener and a person knowingly concerned in the contravention. For the reasons set out in the last two paragraphs, it seems to me that the “person concerned” in this context can be construed as doing no more than identify the person whose actual or possible contravention gives rise to possible sanctions under section 380. If it were construed as limiting those sanctions to the contravener, it would produce a similarly anomalous result to that for which the Appellants contend in the present case.[54]There is only one other occurrence of the phrase in article 2, namely in paragraph (12)(b)(i). That is a quite different context. Clearly there it does mean the contravener. Because of the effect of paragraph (8) the relevant provision cannot be applied, as regards pre-commencement conduct, to a person knowingly concerned but only to the contravener. This is therefore neutral.[55]It seems to me, therefore, that, insofar as the other uses of the words “the person concerned” in article 2 are of any assistance, they tend to support, rather than to undermine, the judge’s reading. They show that in some cases the phrase is used in the same way as in, and in a similar context to, paragraph (4), so that, if the judge’s reading of paragraph (4) is wrong, there would be other instances of the same anomaly, but not if the judge is right: see paragraphs 49 to 52 and paragraph 53 above. They also show that, where the phrase does clearly have a different meaning, this is accounted for by the different statutory context and effect: see paragraph 48 and paragraph 54 above.[56]Having reviewed the broader textual context of paragraph (4) in that way, and reverting to its particular purpose by way of regulating the transitional effect of section 380(1) in carrying forward the provisions of section 6(1) as it had applied to pre-commencement conduct, it seems to me that the judge’s reading is correct. The alternative reading gives rise to an inexplicable anomaly. It would limit the effect of the Transitional Provisions Order in a way which seems to me to make no sense, and which would mean that that Order does not carry into effect the purpose which it seems to me lay behind it, as indicated in paragraph 45 above.[57]As regards the factors mentioned in paragraph 27 of my Lord’s judgment, I would make the following points. i) First, it seems to me that it is a legitimate, fair and natural reading of paragraph (4) to construe it as providing that no person may be subject to an order under section 380(2) by reason of pre-commencement conduct in breach of section 3 unless that breach involved entry into a transaction, regardless of whether the person against whom the order is sought himself entered into the transaction. ii) Secondly, for the reasons set out above, at some length, I consider that the inference to be drawn from the other uses of the words “the person concerned” elsewhere in article 2 favours the judge’s reading, insofar as they are at all analogous in context. iii) Thirdly, there was no need to limit the application of section 382 by reference to entry into a transaction because section 6(3), unlike section 6(2), was not limited to cases of contraventions of section 3 involving entry into a transaction. iv) Fourthly, the point of paragraph (8) is that section 6(3) and section 61(3), to which section 382 is equivalent, were not available against a person knowingly concerned, whereas section 382 is available against such a person. Paragraph 2(8) was therefore necessary to preserve that limitation.[58]For those reasons, I would reject the Appellants’ construction of article 2(4) and, taking that together with the reasons set out in the judgment of my Lord, the Chancellor, on the other points in the case, I would dismiss the appeals of Mr Martin and of the Firm.

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