The Financial Conduct Authority v Macris [2015] EWCA Civ 490

[2015] EWCA Civ 490Case No A3/2014/1378
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
JUDGE TIMOTHY HERRINGTON
FS/2013/0010
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Tuesday 19 th May 2015
Before
LORD JUSTICE LONGMORELORD JUSTICE PATTENLADY JUSTICE GLOSTER
Between
THE FINANCIAL CONDUCT AUTHORITYAppellantMACRISRespondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Paul Stanley QC (instructed by The Financial Conduct Authority) for AppellantMr Javan Herberg QC (instructed by Clifford Chance Llp) for RespondentHearing Hearing dates: Thursday 11 December 2014Further written submissions received 5 May 2015
Judgment

Introduction

[1]This is an appeal by the appellant, the Financial Conduct Authority (“the Authority”), against a decision by the Upper Tribunal (Tax and Chancery Chamber) ("the Upper Tribunal") promulgated on 10 April 2014. By its judgment ("the judgment") the Upper Tribunal judge The judge was Upper Tribunal Judge Herrington, who for many years before his judicial appointment, was the Chair of the Authority’s Regulatory Decisions Committee (“RDC”), responsible for the issue of the Authority’s warning and decision notices and who accordingly had specialist experience in this field. (“the judge”) decided, in the context of a preliminary issue determined in accordance with Rule 5(3)(e) of the Tribunal Procedure (Upper Tribunal) Rules 2008, that the respondent to this appeal, Achilles Macris ("Mr Macris") was identified in certain notices given by the Authority on 18 September 2013 to JPMorgan Chase Bank, N.A. (“the Firm”) .[2]The issue in the appeal is whether the notices identified Mr Macris for the purposes of section 393 of the Financial Services and Markets Act 2000 (“the Act”) in which case the Authority ought to have given Mr Macris third party rights under section 393 of the Act.

Background

[3]On 18 September 2013 the Authority gave a warning notice ("the Warning Notice"), a decision notice ("the Decision Notice"), and a final notice ("the Final Notice") to the Firm and on 19 September 2013 the Final Notice was published. These notices (collectively "the Notices") notified the Firm that the Authority had decided to impose on it a financial penalty of £137,610,000 as a result of large losses incurred in a trading portfolio managed by the Firm for J P Morgan Chase & Co (“the Group”). The losses were stated to have amounted to US $6.2 billion by the end of 2012 and were reported by the press as the “London Whale” trades.[4]The Firm is a wholly owned subsidiary of the Group. The Firm operated the Chief Investment Office, principally in both London and New York. The Synthetic Credit Portfolio (“SCP”) was a trading portfolio within the CIO’s London operations, whose trading related to credit instruments, especially credit default swap indices. The Notices related to trading conducted by SCP traders. They focused in particular on events in late 2011 and early 2012, and on decisions taken during that period which resulted in huge losses.[5]Mr Macris had a role in the management structure of the SCP. His job title was International Chief Investment Officer. He was approved by the Authority under Section 61 of the Act to hold the Controlled Function CF 29 (significant management) at the Firm from 1 November 2007 to 13 July 2012. He was based in London. He reported directly to CIO Senior Management in New York, namely Ina Drew, who was the Global Chief Investment Officer. She reported to Jamie Dimon, Chairman and Chief Executive of the Group. Mr Macris was also responsible himself (with one other) for the Foreign Exchange Capital Hedging portfolio. Two other senior CIO managers based in London (namely the CIO International Chief Financial Officer and the CIO International Chief Operating Officer) reported directly to both CIO Senior Management in New York (namely the CIO Global CFO and CIO Global COO respectively) and to Mr Macris. Apart from Mr Dimon (who was mentioned by name in the Notice), none of these people was referred to by name in the Notice.[6]Other managers reported to Mr Macris. Among them was Mr Javier Martin-Artajo, who was both responsible for the SCP and was regional head of the Europe, Middle-East and Africa region, and also held the title of global head of credit and equity.[7]For a considerable period before the Notices were issued against the Firm, Mr Macris had been under investigation by the Authority relating to his management actions concerning the SCP. In that connection, he was first interviewed on 9 January 2013 but the recording of that interview was faulty, so it was necessary to interview Mr Macris again on 20/21 March 2013. However, at the time of both these interviews, he was not under investigation for having failed to deal with the Authority in an open and co-operative way, or for having failed to disclose to the Authority any matters of which it would reasonably have expected notice. He was not asked detailed questions about those matters in interview. The Authority specifically stated (in its letter of 24 July 2013) that, to the extent that he was asked for “information regarding his involvement with the FCA and other regulators during the March Interview”, this was “in the context of the investigation into [the Firm], and were not specifically targeted at any aspect of the investigation into Mr Macris.” The Authority stated in the correspondence that “in the future we may interview Mr Macris again, at which time he will have an opportunity to answer any further questions that may be put to him in relation to our concerns in this area”. Ibid.[8]The need to ask questions in relation to “this area” arose because, subsequent to his March interviews, the Authority had widened the scope of its investigation into Mr Macris. On 23 July 2013, it served a Notice of Change of Scope of Investigation In fact, it appears that the new ground was added on 11 July 2013. , which added a new ground of investigation, relating to a potential breach of Statement of Principle 4 of the Authority's Statements of Principle for Approved Persons (dealing with regulators in an open and cooperative way and disclosing appropriately any information of which the regulator would reasonably expect notice).[9]The prospective further interview, which might have given Mr Macris the opportunity to answer the Authority’s concerns, did not take place. But as late as 7 August 2013, the Authority confirmed by letter that it "had not made any findings as to whether Mr Macris has breached Statement of Principle 4".[10]On 16 September 2013, Mr Macris decided to take the initiative himself. He voluntarily provided the Authority with a written explanation of the matters that the Authority had previously identified as prompting the expansion of its investigation into his conduct.[11]Two days later, the Authority promulgated the Notices relating to the Firm. The Authority did not suggest in evidence that it had considered the material supplied by Mr Macris before promulgating the Notices relating to the Firm. Other than by acknowledging its receipt, the Authority did not attempt to seek to engage with Mr Macris in relation to the material which he had provided.[12]All three Notices are, so far as relevant, in identical terms. For the purposes of the appeal reference was made to the wording of the Final Notice. Save where it is relevant to refer specifically to the Warning Notice, the Decision Notice or the Final Notice, I shall simply refer to "the Notice".[13]Paragraph 4.3 of the Notice described the management structure of the Firm in the following terms:
“CIO operates within the Firm in both New York and London. The traders on the SCP were managed by SCP management, which in turn were managed by CIO London management. CIO London management represented the most senior level of management for the SCP in London, reporting directly to CIO Senior Management in New York, which in turn reported to Firm Senior Management. CIO also had its own Risk, Finance and VCG functions, which were control functions relevant to the SCP and other portfolios within CIO. The wider control functions within the Group included Internal Audit, Compliance and the Group's Audit Committee. …”
[14]As the judge said in paragraph 14 of the judgment: “The Final Notice contains a definitions section in paragraph 3. "CIO" is defined as the Chief Investment Office of the Bank, "SCP" is defined as the Synthetic Credit Portfolio, the "Firm" is defined as JP Morgan Chase Bank NA and the "Group" is defined as JP Morgan Chase & Co, the parent company of the Bank. The terms "SCP management", "CIO London management”, "CIO Senior Management" and "Firm Senior Management" are not defined. These terms do not in fact refer to any particular body that can be identified in the Bank's corporate structure chart. Mr Macris contends that the term "CIO London management" has been intentionally employed by the Authority to refer to him, specifically and uniquely and does so consistently throughout the Notice. The Authority has not denied that, although Mr Stanley Leading counsel for the Authority, Mr Paul Stanley QC. contends that as the question to be determined is whether Mr Macris has been identified in the Final Notice it is irrelevant to ask the question as to who the Authority had in mind when referring to this term, although Mr Stanley submits that each of the terms used in paragraph 4.3 are deliberately vague and could consist of one or more people.” [My emphasis.][15]As the judgment set out at paragraph 11, the Notice contained criticisms of the Firm’s conduct as to the trading activities and management of the SCP under broadly six heads as follows: i) the employment of a high risk trading strategy; ii) a failure to properly vet and manage that trading strategy iii) a failure properly to respond to information which should have alerted the Bank to the risk which was present in the SCP; iv) a failure properly to value the Bank's positions within the SCP; v) mismarking of the SCP; and vi) a failure to be open and co-operative with the Authority about the extent of the losses generated by the SCP as well as other serious and significant issues regarding the risk situation in the SCP.[16]Mr Macris took the view that the Authority, in promulgating the Warning Notice, Decision Notice and Final Notice had included reasons which identified him and were clearly and obviously prejudicial to him and which he had had no opportunity to contest. Accordingly he referred the matter to the Tribunal under s 393(11) of the Act. The investigation by the Authority against Mr Macris continues.

The scheme of the Act

[17]Section 393 of the Act is designed to give third parties certain rights in relation to warning and decision notices given to another person in respect of whom the Authority is taking regulatory action. Where a warning notice has been given, section 393(1) provides that a third party prejudicially identified in the Notice must be given a copy of the notice by the Authority, unless (which is not the case here) he has been given a separate warning notice in respect of the same matter. He must also be given a reasonable period within which he may make representations to the Authority.[18]Section 393 of the Act provides as follows:
“(1) If any of the reasons contained in a warning notice to which this section applies relates to a matter which— (a) identifies a person (“the third party”) other than the person to whom the notice is given, and (b) in the opinion of the regulator giving the notice, is prejudicial to the third party, a copy of the notice must be given to the third party. (2) Subsection (1) does not require a copy to be given to the third party if the regulator giving the notice — (a) has given him a separate warning notice in relation to the same matter; or (b) gives him such a notice at the same time as it gives the warning notice which identifies him. (3) The notice copied to a third party under subsection (1) must specify a reasonable period (which may not be less than 14 days) within which he may make representations to the regulator giving the notice. (4) If any of the reasons contained in a decision notice to which this section applies relates to a matter which— (a) identifies a person (“the third party”) other than the person to whom the decision notice is given, and (b) in the opinion of the regulator giving the notice, is prejudicial to the third party, a copy of the notice must be given to the third party. (5) If the decision notice was preceded by a warning notice, a copy of the decision notice must (unless it has been given under subsection (4)) be given to each person to whom the warning notice was copied. (6) Subsection (4) does not require a copy to be given to the third party if the regulator giving the notice — (a) has given him a separate decision notice in relation to the same matter; or (b) gives him such a notice at the same time as it gives the decision notice which identifies him. (7) Neither subsection (1) nor subsection (4) requires a copy of a notice to be given to a third party if the regulator giving the notice considers it impracticable to do so. (8) Subsections (9) to (11) apply if the person to whom a decision notice is given has a right to refer the matter to the Tribunal. (9) A person to whom a copy of the notice is given under this section may refer to the Tribunal— (a) the decision in question, so far as it is based on a reason of the kind mentioned in subsection (4); or (b) any opinion expressed by the regulator giving the notice in relation to him. (10) The copy must be accompanied by an indication of the third party’s right to make a reference under subsection (9) and of the procedure on such a reference. (11) A person who alleges that a copy of the notice should have been given to him, but was not, may refer to the Tribunal the alleged failure and— (a) the decision in question, so far as it is based on a reason of the kind mentioned in subsection (4); or (b) any opinion expressed by the regulator giving the notice in relation to him. (12) Section 394 applies to a third party as it applies to the person to whom the notice to which this section applies was given, in so far as the material to which access must be given under that section relates to the matter which identifies the third party. (13) A copy of a notice given to a third party under this section must be accompanied by a description of the effect of section 394 as it applies to him. (14) Any person to whom a warning notice or decision notice was copied under this section must be given a copy of a notice of discontinuance applicable to the proceedings to which the warning notice or decision notice related.”
[19]In many cases the warning notice is separated temporally by many months from the decision notice and the final notice. The procedural stages are that the Authority (through the RDC)(a) serves a warning notice setting out the action which the Authority is minded to take and the reasons for it;(b) having received written and (usually) oral representations (from the subject(s) of the notice and/or anyone accorded third party rights) the Authority (through RDC) promulgates a decision notice setting out the action to be taken and reasons for it; and(c) after the time for referring the decision notice to the Tribunal has expired (or, in the event of a case having been referred, after the Tribunal has directed what the contents of the final notice should be) promulgates the final notice. See s.387 of the Act in relation to warning notices; s.388 in relation to decision notices, and s.390 in relation to final notices.[20]In a case which is settled at a sufficiently early point, the three stages may, as here, properly be telescoped (subject to any third party rights issues). In this case, it was common ground that the Notices were all given and adopted on the same day as a result of an agreed settlement between the Authority and the Firm reached under Stage 1 (the earliest stage) of the Authority's executive settlement procedures, attracting a 30% discount on the financial penalty otherwise payable and agreeing not to exercise its right to refer the Decision Notice to the Tribunal. Mr Paul Stanley QC, leading counsel for the Authority, accepted that, even if it the Authority had been required to serve a copy of the Warning and Decision Notices on Mr Macris, that would not have prevented the Firm from being entitled to have taken advantage of the Stage 1, 30% discount option, although it might have delayed the decision from becoming final at such an early stage.

The judgment

[21]The evidence before the judge, and his approach to it, was summarised by him in paragraphs 50 – 54 of the judgment as follows:
“50. As I have previously concluded, it is permissible at this stage, having found that a particular individual has been "singled out" to refer to external sources to confirm the identity of the individual "singled out". As I have stated previously it is not a question of whether any particular type of reader could identify the individual concerned but simply whether there is information in the public domain that incontrovertibly links the description in the Final Notice to Mr Macris. 51. In my view the evidence on this aspect compellingly points to the conclusion that the individual "singled out" is Mr Macris. The evidence consisted of witness statements from Mr Macris himself, but also from Mr Jorge Villon, a former employee of the CIO in London who worked with Mr Macris in the CIO with Mr Macris, and Mr Didier Chapet, who worked at another major financial institution in the City of London who undertook business with the CIO and knew how its organisation and structure operated. This evidence was unchallenged, the Authority not wishing to cross-examine the witness concerned. Mr Macris's own evidence confirms that he was the most senior person in CIO in London, reporting to the global head of CIO, Ina Drew in New York, who is the most senior management figure in CIO and who reported directly to Jamie Dimon, the Chairman and Chief Executive Officer of JP Morgan Chase & Co. 52. This evidence is consistent with the various organisational charts of the Bank's Chief Investment Office to which I was referred. The charts show this office's organisation and reporting lines with an individual in each box and their direct reports. At no point is there any reporting to a collection of individuals. 53. There is also evidence independent of Mr Macris and those who have been associated with him. As Mr Macris describes in his witness statement, the "London Whale" incident was the subject of an in-depth investigation by a committee of the U.S. Senate, culminating in a public hearing at which Mr Macris was named and a written report (the "PSI Report") which is accessible on the internet and which contains many references to him. Mr Macris exhibited the PSI Report to his witness statement, and it is clear that it included references to communications involving Mr Macris which were referenced in the Final Notice as having been made or sent by "CIO London management". For example, the quote attributed to an "individual at the Investment Bank" set out in paragraph 4.101 of the Final Notice and quoted in paragraph 15 above, appears verbatim in the PSI Report, in the context of a conversation reported between Mr Macris and the same individual. As Mr Macris states in his witness statement any reader of the Final Notice can simply cross-refer to passages in the PSI Report to confirm the identification of him made in the Final Notice. 54. It follows from my reasoning on the approach to be taken that the evidence submitted by the Authority, in the form of a witness statement from its employee, Ms Michelle Poku, to the effect that the press had not worked out the identity of Mr Macris themselves until prompted by him, is not relevant to the questions I have identified.”
[22]Having referred to two cases where the Upper Tribunal's predecessor, the Financial Services and Markets Tribunal, had considered the meaning of section 393, namely Sir Philip Watts v FSA (FIN/2004/0024) and Jan Laury v FSA (FIN/2007/0005), and having stated that the true purpose of section 393 was to give third parties whom the Authority was proposing to criticise the opportunity to answer those criticisms before they were published, the judge went on to articulate what he regarded as the correct approach to the determination of the question as to whether there had been identification as follows: “39. In the light of these principles in my view the correct approach to be taken in order to establish whether Mr Macris has been identified in the Final Notice through the description “CIO London management” is to answer the following questions:(1) Are the references in the Final Notice to CIO London management references to an individual, ascertained by reference solely to the terms of the Notice itself?(2) If so, can those references be regarded as referring to anyone other than Mr Macris? 40. For the purpose of answering the second question above recourse may be made to external material to confirm that the individual identified in the Final Notice by the description could in fact only be Mr Macris, that second stage being no different to the situation envisaged in Watts where an individual is referred to in the notice as, for instance, the "chairman of the company".[23]The judge applied that test to the Notice and the evidence before the Tribunal, and concluded that "the individual identified in the Final Notice as CIO London management cannot be anyone other than Mr Macris" and that, accordingly, he was entitled to third party rights under section 393. See the judgment at paragraphs 42–54. The judge granted permission to appeal in relation to the sole question whether the Upper Tribunal had had erred in law in adopting the test set out in paragraphs 39 and 40 of the judgment. He refused permission to appeal in relation to the questions raised by the Authority of the application of the law to the facts, namely:(a) whether the references to “CIO London management” in the Notice were in fact references to an individual, and(b) if so, whether those references could be regarded as referring to anyone other than Mr Macris. The Authority sought permission from the Court of Appeal to appeal on these wider grounds; see the Authority’s Notice of Appeal at paragraphs 9-13. Permission was granted by Sir Timothy Lloyd by order dated 2 July 2014.

The issues arising on the appeal

[24]It was common ground that: i) the Warning and Decision Notices were notices to which section 393 applied; ii) none of the Notices referred to Mr Macris by name; iii) the Authority did not treat Mr Macris as a third party for the purposes of section 393, and did not accord him third party rights thereunder; iv) if, contrary to the Authority's contentions, the Warning or Decision Notices identified Mr Macris for the purposes of section 393, the Notice was prejudicial to Mr Macris because it included serious criticisms and accordingly he was entitled to refer the Notice to the Upper Tribunal so far as it concerned him.[25]The essential question in this appeal is therefore whether or not, for the purposes of section 393 See sections 393(1) and (4). , “any of the reasons contained in [the Notice] relates to a matter which … identifies Mr Macris”.

The Authority’s submissions

[26]The following is a summary of the submissions made by Mr Paul Stanley QC, leading counsel on behalf of the appellant Authority, in support of the Authority's argument that the Notice had not identified Mr Macris for the purposes of section 393.[27]First, Mr Stanley submitted that the two stage test formulated by the judge at paragraphs 39 and 40 of the judgment was wrong as a matter of law because the test prescribed by the statute was a unitary test. The judge was wrong because: i) Section 393 applied where any of the “reasons contained in a decision notice … relates to a matter which … (a) identifies a person”. That language made it clear that the identification must be found entirely in the notice (including its reasons) and not externally to the notice. ii) The Authority accepted (as it had in Watts) that identification need not necessarily be by name. If, for instance, the decision referred to the “Chairman of the company” (which was regarded as an example, but not the only possible instance, of such identification), that would be sufficient. But that did not mean, as the judge thought, that this recognised that “reference to external sources will be necessary to confirm the identity of an individual who has been identified in the notice, using the example of a person referred to by job title”; see paragraph 30 of the judgment. But that was not so. Titles such as “Chairman” (or “President of the USA”, “Prime Minister”, “Master of the Rolls”) functioned as proper nouns. They constituted, as such, identification in themselves, and not by reference to external sources. This was the conclusion of the Tribunal in Laury v FSA. Properly understood, such references did not involve the use of external material. If the Tribunal in Watts and Laury intended them to be so understood, then those decisions were incorrect, because the conclusion was inconsistent with the fundamental point correctly decided there. iii) Moreover, even if reference to external material were properly contemplated by the “job title” examples, it was external material of a quite different sort from that envisaged by the judge here. The reader who saw a reference to “the Chairman of the Board” knew both that an individual was being referred to and, with precision, exactly where to look to find who that individual is. The reference was, in terms of the notice itself, unambiguous and unequivocal. This was quite different from the process envisaged by the judge where, having identified that an individual is referred to (e.g. “a senior manager”) the Tribunal was permitted to look to an entirely undefined body of external material to see whether any conclusion as to the identity of that individual could be reached. iv) Thus a third party could not be “identified” for these purposes by words (such as a description of their job or status) that required any “decoding”, even if those words would inevitably be published to persons equipped to “decode” them, who would immediately know the identity of the person referred to under the description in question – or even if the general public was equipped to “decode” them. v) Although purportedly accepting that starting point, the effect of the judge’s test was quite different: his test asked not whether a notice (including its reasons) “identifies” a person, but rather whether it “criticised an individual”. If the notice in question did criticise an individual (even in terms which were completely anonymous), the judge’s test looked outside the notice for evidence enabling an identification to be made or refuted. vi) That subverted the fundamental point identified in Watts. The question posed by the judge was not, in substance, whether the notice (read as a whole including its reasons) identified a person, but rather whether it referred to a person who was in some way identifiable from external material. That was not the statutory test. vii) The judge incorrectly identified the purpose of section 393 in paragraphs 33 to 36 of his judgment. He characterised that purpose as being “to give third parties whom the Authority is proposing to criticise the opportunity to answer those criticisms before they are published”. But that gave no weight to the requirement, plainly present in the statute, that the notice “identifies” the person. If the object of the section were to give an individual rights, merely because he was to be criticised, then it would be irrelevant whether the notice identified him or not. viii) The true purpose of section 393, which could be traced to authorities such as Re Pergamon Press [1971] Ch 388, was to ensure the fair treatment of the reputation of third parties by the Authority. Such fair treatment was not intended to include giving rights of representation to those who might be linked to findings made by the Authority by readers of a notice as a result of speculation and/or material put into the “public domain” (whatever that might mean) by those other than the Authority. ix) The mischief at which section 393 was aimed was not “prejudgment” by the Authority, but the prejudicial expression of a conclusion regarding an identified third party. As the Tribunal put it in Laury:
“Fairness does not require third party rights to be accorded where the identification of the individual arises externally to the notice.”
At paragraph 13(2) of the judgment, where in fact the Tribunal was summarising the conclusion reached in paragraph 52 of the Tribual’s decsion in Watts. x) The judge, having set out his view of the purpose went on to say:
“… it is not acceptable to say that because the individual referred to cannot be easily established by reference to external sources, therefore ordinary readers of the notice will not be able to see that he has been criticised and therefore his rights can be dispensed with.”
There were three things wrong with this statement: a) It substitutes for the statutory test (“identifies”) a different test (“referred to”). b) If the individual in question could not be easily established by reference to external sources, an ordinary reader would not be able to see that the particular individual had been criticised. They could see that someone had been criticised; but they could not say of any putative subject of the criticism whether it was that person. c) In any event, even if they could, that would be a process which could take place only by reference to external material, and not by reference to the matter of the notice and its reasons. There were three things wrong with this statement: xi) Both parts of the judge’s test gave rise to practical difficulty, although the difficulties were more acute in relation to the second part of the test. xii) At the first stage, it would often not be possible to describe misconduct with any meaningful degree of particularity without making references that were clearly singular (e.g. to “a trader”, or simply to “a person”). That would satisfy the judge’s test. xiii) Still greater difficulty arose at the second part of the test. The judge did not identify the range of external “public domain” material that might be relevant, and he proposed no test by which it could be identified. It apparently included: a) Material internal to a firm, such as organisational charts (whether or not they were referred to in the Notice). b) The views of an undefined set of individuals, including those with knowledge of the firm’s operations, such as former employees and trading partners (as the witnesses were here, who in fact appear to have had an incomplete knowledge at best). c) Material available on the internet, such as the written report of the US Senate (the “US Senate Report”) to which the judge referred. xiv) Moreover, the judge’s judgment wrongly assumed that this material should be considered in detail (for instance, in the comparison that he suggests the reader should make between the US Senate Report’s factual findings and various parts of the Notice in order to identify the maker of particular communications referred to in both). xv) Nor did the second limb of the test say (or the judgment otherwise explain) who was the notional reader carrying out this exercise. The judge appeared to regard the question as being whether it was clear to the Tribunal, on the material that was available to it at the time it took its decision. xvi) That was a wrong approach. The decision whether or not to give an individual a warning notice or a decision notice had to be taken by the Authority in advance; it was not taken (and could not be taken) on the basis of evidence subsequently put before the Tribunal. The test adopted by the Upper Tribunal (a) gave no clear or workable guidance to the Authority as to the inquiries that it would have to make in order to make that decision and (b) gave no clear and workable guidance to the Authority as to the standard to be applied. The second limb did not specify what would happen if information became available between the adoption of a warning notice and a decision notice, or between the adoption of a decision notice and its publication as a final notice. The judge himself placed reliance on material that was not available (on any remotely realistic basis) to the Authority when it took its decision. Application of the judge’s test would apparently require the Authority to consider the career history, colleagues, and professional or personal acquaintances of the person concerned in order to consider what conclusions they would draw. xvii) Further, in practical terms, it would often be very hard for the Authority to be certain that, if an individual were “referred to” (however anonymously) in a notice that he/she would not be identifiable from external material at least to well-informed insiders. The correct test had to be one that enabled the Authority to know with reasonable certainty, and without undue expenditure of resources, whether a particular person was entitled to rights under section 393. xviii) Accordingly the test adopted by the learned Judge was incorrect because: i) Section 393 required, fundamentally, that the identification be made in the notice and its reasons. The judge’s test did not satisfy that requirement – it was too wide, vague, and unconstrained. ii) If, contrary to that submission, recourse to material outside the notice were permissible, such recourse was limited to material that: (a) would be immediately apparent to the general reader (that is, the reader with a general understanding of financial affairs but without specific or special knowledge of the underlying facts of the matter to which the notice and its reasons relates); (b) was publicly and widely available, and (c) unambiguously lead to the identification of a particular individual as being mentioned in the notice. xix) Had the correct test been adopted, the proper conclusion would have been that Mr Macris had not been identified in the Notice: a) The Notice neither named him nor referred to him by job title. b) The references in the Notice to “CIO London management” would not be understood by the general reader (with the knowledge set out above) to be to Mr Macris, much less would they do so unequivocally or unambiguously. c) The material on which the judge relied for his contrary conclusion was not material that ought to have been taken into account.

There were three things wrong with this statement:

[28]Second, Mr Stanley submitted that, even if the judge’s test had been correct, his application of it was not. In this context he submitted: i) The first limb of the Tribunal’s test was:
“Are the references in the Final Notice to “CIO London management” references to an individual, ascertained by reference solely to the terms of the Notice itself?”
As to that first limb, the judge was wrong to conclude on his construction of the Notice referred to an individual and that the first limb of the test was satisfied. That was because: a) The expression “CIO London management” used in the Notice did not in itself carry any implication that a particular individual was being referred to. The term “management” was abstract and impersonal, and not suggestive that any individual was in view. b) The judge’s conclusions (at paragraph 45 of the judgment) as to how, in his view, a “corporation” would use the expressions “managed” and “reported”, and the contrast he drew with the expression “responsible” were simply wrong. c) There was no reason why the reader of the Notice would have assumed from the references to management and reporting that “CIO London management”, which was described not as a person but as a “level of management”, constituted a particular individual, and further the same particular individual in all instances where the term was used. d) The judge gave undue weight to isolated references to “CIO London management” sending an email or leading a meeting. As a matter of practical reality, a reader would understand that these are actions which might well be done, perhaps by an individual, but on behalf of a group, or by one or more individuals who belonged to a group, and could in those circumstances be so described. e) In general terms, the references to “CIO London management” were impersonal, including references in the plural: paragraphs 4.20 (“SCP management proposed a strategy … which they believed”). ii) The second limb of the judge’s test asked whether, assuming that an individual was “referred to”, “those references [can] be regarded as referring to anyone other than Mr Macris?” That test was so broad, and so vague, as to provide no workable standard. Even if reference to external material were permissible, the material relied on by the Judge was too broad. In particular: a) The views of two witnesses who gave statements as to the conclusions they in fact drew were, properly considered, irrelevant. b) It was unrealistic to regard a report such as the US Senate Report as forming part of the matrix of fact against which the ordinary reader (that is, the reader with a general understanding of financial affairs but without specific or special knowledge of the underlying facts of the matter to which the notice and its reasons relates) would approach the Notice. c) The Firm’s regulatory organisational charts did not unequivocally point to Mr Macris as “CIO London management”. Two witnesses accepted that there were other individuals who couldhave been “colloquially” described as “CIO London management”. Someone with knowledge of the internal organisational structure of the Firm would have known that Mr Macris was not the only senior manager based in London who reported to CIO Senior Management in New York – so did the London-based CFO and COO. d) In terms of the relevant category of general reader, the judge ought to have taken into account the fact that, until Mr Macris himself decided to publicise his own reference to the Tribunal, no publication had identified Mr Macris as being the person criticised in the passages of the Notice of which he complained. Mr Stanley referred in this context to the statement issued by Mr Macris to the press when he made his referral to the Upper Tribunal.[29]In conclusion Mr Stanley submitted that Mr Macris had not been identified in the Notice and accordingly had no relevant right under section 393. Accordingly the appeal should be allowed.

Mr Macris’ submissions

[30]Mr Javan Herberg QC, leading counsel on behalf of Mr Macris, submitted in summary as follows: i) The judge’s formulation of the test was a correct one. Contrary to the Authority’s submissions it was a unitary test which reflected the relevant wording of FSMA. It was a workable test and did not give rise to the practical difficulties suggested by the Authority. ii) Mr Macris’ case, with which the learned judge agreed on the facts, was that by choosing to separate out its criticisms of management to that level of detail, From paragraph 4.3 and from other paragraphs in the Notice. the Authority achieved a level of “granularity” whereby(a) it was clear that, by the phrase “CIO London management”, a particular person was being singled out, not a collective, so that an identification was made in the Notice; and that(b) by reference to material external to the Notice that person was indeed Mr Macris. iii) Indeed, for an important constituency within the market including those who dealt with the CIO as counterparties, there would not even be any need to refer to extrinsic material. iv) As the judge noted, there was no definition in the legislation of what amounted to an “identification” of a person for the purposes of section 393. The decision in Watts offered some guidance and support for the judge’s approach, although there were significant factual differences between this case and Watts. v) The interpretation of section 393 propounded in Watts was consistent with the approach of the judge. He found (as was common ground) that to obtain third party rights, a person must be identified and criticised in the Notice, not in the wider (external) “matter” to which the reasons relate. Judgment, paragraphs 26 to 27; see further his explanation of Laury at paragraphs 28-9. Thus if (here) the criticisms in the Notice were merely of the Firm, but externally to the Notice there had been strong commentary that the matters complained of were the responsibility of Mr Macris, that would not suffice. Again, criticism at the corporate level cannot per se be imputed to any individual, however senior. vi) But that was not the position here. Mr Macris (as the judge found) was identified (and criticised) in the Notice because references to “CIO London management” could only be understood, given the description of that term in the Notice, as a reference to a single individual filling that role. The case was therefore unlike Watts on two counts: first, the identification was made in the Notice (“CIO London management”) and secondly, the criticism of Mr Macris (i.e. the failures of “CIO London management”) was also set out in detail in the Notice. vii) There was no difficulty in the practical requirement that the Authority should go on to consider, by reference to external material, whether it would be possible for others to put a name to the person whom the Authority has singled out and criticised. The Authority’s complaint that the judge’s approach, as set out at paragraph 40, required the Authority potentially to consider external material that was of uncertain and wide ambit was misplaced. A notice would necessarily be drafted (even in a settlement case) after a detailed investigation into the facts, so that the Authority would, typically, be well aware of the pool of potential material. viii) There was no warrant in the legislation for the Authority’s approach (advanced as part of its alternative case) that a reference to external material should only be permissible if it was to: “a clearly circumscribed set of material (e.g. material whose existence would be immediately apparent to the ordinary reader of the notice [who is “not the man on the Clapham Omnibus”, but who “can be assumed to have some knowledge of financial affairs, and to know where to find, for instance, company accounts”] and would be accessible without difficulty) and “to a clear standard”... ” ix) The imprecision of such a test would also give rise to difficult questions of application. But more fundamentally, the proposed test highlighted wider flaws in the Authority’s approach. x) It was easy to lose sight of the fact that the Authority did intend to single out Mr Macris, in adopting the term “CIO London management”, and did intend to criticise him personally, although the investigation in to his conduct was and is ongoing and he had not had a fair hearing as to the allegations. In such circumstances it was inappropriate for the Authority to suggest that it might have been difficult for them to appreciate that Mr Macris would be recognised by others as having been singled out. xi) The judge’s application of both limbs of the test was unimpeachable as a matter of law, and provides confirmation that the test is workable and fair. There was accordingly no error of law against which the Authority could appeal. No appeal lay against the judge’s evaluation of the facts.

Post-hearing submissions

[31]After the hearing, and before circulation of the draft judgments, the court invited further submissions from counsel for the parties on the question whether any analogy might be drawn between the proper test for “identification” in the FSMA context and the test for identification as applied in the context of defamation proceedings. The court referred the parties to what it regarded as the potentially relevant paragraphs in Gatley on Libel and Slander, 12th Edition (2013) which had not previously been cited by counsel in argument. Further written submissions were received by the court on 5 May 2015, for which the court is grateful.[32]In summary, Mr Stanley’s submissions for the Authority were that, despite some points of contact, the test used for the purposes of libel proceedings to determine whether a statement is defamatory ‘of’ or ‘of and concerning’, or whether it ‘refers to’, an individual claimant did not answer the question whether ‘any of the reasons contained in [a notice] relates to a matter which identifies’ a particular person for the purposes of section 393 of the Act. He submitted that the latter was a narrower test by design and that the statutory language and context made it inappropriate to apply the approach taken in libel proceedings to section 393. In libel, the relevant question was whether the words in question were published ‘of the plaintiff’ or ‘of and concerning’ him or her: see Gatley, paragraph 7.1, and the quotations there given; Morgan v Odhams Press Ltd [1971] 1 WLR 1239, 1252B per Lord Morris; and 1263G per Lord Donovan. Another way in which that question had been framed, notably in Morgan, was whether the publication ‘refers’ to the claimant: see e.g., Lord Reid at 1242. In contrast, section 393 required the Authority to consider whether the reasons in the notice ‘relates to a matter which identifies a person’. This should not be regarded a synonym; the libel authorities showed that it was not. In Morgan, at 1242E–G, Lord Reid drew a distinction between the question whether a publication ‘identifies’ someone, and the question whether it “refers to him”. Thus the test in the law of libel (‘Does the article refer to a particular person?’) was different and wider than the ordinary meaning of the statutory language of section 393, which did precisely ask whether the relevant statement ‘identifies’ a particular person. Had that test been applied in Morgan, it would not have been satisfied,[33]On the other hand, Mr Herberg for Mr Macris submitted that such an analogy could usefully be drawn and it supported Mr Macris’ case. He pointed to the fact that the law on defamation provides the primary common law means for defending reputation. As was the Authority’s own case in these proceedings, section 393 of the Act was similarly concerned with the protection of the reputation of third parties, although Mr Macris’ case was that section 393 was additionally concerned to provide third parties with an opportunity to answer criticisms that were made against them. A claimant was identified by allegedly defamatory words for the purposes of the law on defamation (i.e. those words count as being “of” the claimant) where “the words might be understood by reasonable people to refer to the claimant”: see Gatley, paragraph 7.1; see also Knupffer v London Express Newspapers [1944] AC 116 at 119). Where the words were published to persons who have special knowledge, the question whether the claimant has been identified is decided by reference to “what reasonable persons possessing that knowledge would understand by them” (Gatley, paragraph 7.1 and 32.19).[34]Mr Herberg further submitted that a claimant in defamation proceedings could only sue in respect of words that identified him as an individual, i.e. were such that “a reasonable reader could conclude that the claimant as an individual was pointed at” (Gatley, paragraph 7.9, citing Knupffer v London Express Newspapers. In this sense, the words in question must serve to “single out” the claimant – the same touchstone put forward for Mr Macris, and approved by the judge below at paragraph 38 of his judgment. A defamation claimant could not sue in respect of words that were directed at a group of which he was a member unless it was clear that the words referred to him as an individual. Whether this was so (i.e. whether words that on their face refer to a group serve to levy individual criticism at the claimant) was again a question of fact and a matter of evidence (see Le Fanu v Malcolmson (1848) 11 HLC 637, cited in Gatley paragraph 7.9). It was therefore unnecessary in the context of section 393 for the claimant to be identified by name or by any other explicit means. Rather than any particular form of expression being necessary, the focus was on how the words used would or might be understood by persons to whom they are published.

Analysis and conclusions

[35]On their wording, the provisions of section 393(1) and 393(4) are, in my judgment, straightforward if somewhat linguistically cumbersome. They define a “third party”, who is entitled to third party rights under the section, as: i) a person other than the person to whom a warning or decision notice is given; ii) whom “a matter” “identifies”; iii) where the "matter" in question is: a) something to which any of the reasons in a warning or decision notice "relates"; and b) in the opinion of the regulator is prejudicial to the third party.[36]The issue in this case is whether the "matter" "identifies" Mr Macris. The word "identifies" is an ordinary English word which, in the absence of any express or implied provision in the statute, should be given its ordinary meaning. There is no dispute that, if the "matter" indeed identifies Mr Macris, the "matter" is prejudicial to him.[37]Before I turn to consider the meaning of "identifies" in the context of section 393, I address the other relevant requirement of the section, namely whether the "matter" in question is something to which any of the reasons in a warning or decision notice "relates".[38]There is no doubt that the reasons given in the Notice for the imposition of the financial penalty on the Firm, namely the Firm’s failings under the headings of:
"SCP trading strategy", "
Mismarking the SCP's positions and market misconduct", "Review of the SCP's valuations" and "Failure to be open and co-operative" See paragraphs 2.1 to 2.25 of the Notice where a summary of the Authority's reasons are set out. , "relate to” a "matter", or, in this context, to "matters" which are compendiously set out in the Notice: see paragraphs 4.1 to 4.147 of the Notice under the heading “Facts and Matters” and also paragraphs 5.1 to 5.14 under the heading “Failings”. There is no issue in the present case as to whether any of the reasons contained in the Notice "relate[d]" to relevant "matters"; it was common ground that they did so. Having said that, I would agree with the view expressed by the Tribunal in Watts in paragraph 49(1) of its judgment that the "matter" in question has to be referred to in the relevant notice, although, unlike the Tribunal in that case, I would not use the term “defined”.[39]The relevant paragraphs of the Notice, which comprise the "matters" which have to be considered in context as to whether they "identify" Mr Macris, are set out in the appendix to this judgment. In addition, it is relevant that the Notice did not define "CIO London management", as was clear from paragraph 14 of the judgment quoted above.

The correct approach to the issue of identification

[40]Whether the relevant “matters” “identify a person” for the purposes of section 393 is in one sense a unitary question. But I agree with the judge’s approach At paragraph 39 of the judgment. , that logically the first stage of the identification process is to ask whether the relevant statements in a notice said to “identify” the third party (here the references to “CIO London Management” As before the judge (see paragraph 14 of the judgment), before us the Authority did not deny Mr Macris’ assertion that the term "CIO London management" had been intentionally employed by the Authority to refer to him, specifically. and to what it allegedly did, or failed to do) are to be construed in the context of the notice alone, and without recourse to external material, as referring to “a person” (whether individual or corporate entity) other than the person to whom the notice had been given. That is because the statutory language clearly requires the relevant matters to “identify” – i.e. specify – “a person”, not simply facts from which it could be inferred that a particular person was being criticised – for example, criticism of the corporate entity which was the recipient of the notice from which it could be inferred that the chairman of the company was also being criticisied . That proposition was accepted by Mr Herberg on behalf of Mr Macris. It was also the approach – correctly in my view – adopted by the Tribunal in Watts and Laury.[41]It was – at least to a certain extent – common ground that to be “identified” for the purposes of section 393 it was not necessary for a person to be referred to in the notice expressly by name. As I have set out above At paragraph 27(ii). , Mr Stanley accepted that that an individual person could technically be identified in a notice (strictly in “matters” in a notice) by reference to his title such as “chairman”, office, job description, or other designation – where (according to Mr Stanley) such designation was “equivalent to a proper noun”; or where, even if reference to external material were necessary to ascertain who held that particular office, it was “external material of a quite different sort from that” envisaged by the judge. Mr Stanley submitted that that was because “the reader who sees a reference to “the Chairman of the Board” knows both that an individual is being referred to and, with precision, exactly where to look to find out who that individual is”. Mr Stanley did not, however, attempt to define such material, or explain whether, for example, it was limited to company information filed at Companies House, or as stated in the company’s latest set of audited accounts, or otherwise.[42]Thus the critical issue between the parties was to the extent to which, if at all, at the second stage of the process of identification, it was legitimate to have regard to external material to identify the “person” referred to in the notice, and, if so, by reference to what information.[43]A useful parallel as to what is normally regarded as necessary in common English usage to amount to the "identification" of an individual in a written or oral statement is to be found in the authorities relating to defamation proceedings. Thus paragraphs 7.1, 7.2 and 7.3 of Chapter 7 of Gatley, under the chapter heading “IDENTITY OF THE PERSON DEFAMED” so far as material state as follows In all cases the bold text represents my emphasis. :
“SECTION 1. REFERENCE TO THE CLAIMANT 7.1 Words must be published ‘‘of the claimant’’. To succeed in an action of defamation the claimant must not only prove that the defendant published the words and that they are defamatory: he must also identify himself as the person defamed. ‘‘No writing whatsoever is to be esteemed a libel unless it reflects upon some particular person."1 “It is an essential element of the cause of action for defamation that the words complained of should be published ‘of 2 the plaintiff’.’’3 There is no cause of action, for instance, if words are defamatory of the claimant’s relatives, unless they reflect on the claimant.4 It is usually clear enough that the words are published of the claimant because he is named in the statement and the defendant intends to refer to him, but neither of these elements is necessary.5 The question in all cases is whether the words might be understood by reasonable people to refer to the claimant, subject to the qualification that where the words are published to persons who have special knowledge the issue will be decided by reference to what reasonable persons possessing that knowledge would understand by them.6 ………. 1 Hawk. P.C. Bk. 1, c.28, para.6, s.9. 2 Or ‘‘of and concerning’’. 3 Knupffer v London Express [1944] A.C. 116 HL at 120. 4 See para.7.13, below. 5 D publishes material which would be defamatory of C but C cannot be identified from it. C identifies himself as the subject to others. No actionable publication about C: Scelfo v Rutgers University 282 A.2d 445 (NJ 1971). Cf. Craven v Hidding [2004] TASSC 247 (prior identification). 6 See para.7.3, below. 7.2 Claimant need not be referred to by name. The test is whether the claimant may reasonably be understood to be referred to by the words. Thus, e.g. it is sufficient if he is described by a nickname,9 his initial letters,10 by photograph, drawing or caricature,11 his office,12 or by the first and last letter of his name,13 or even by asterisks,14 or blanks,15 or if he is referred to under the guise of an allegorical, historical, fictitious or fanciful name,16 or by means of a description of his status,17 physical peculiarities,18 or by a recognisable likeness 19 or caricature 20 or his residence,21 the places which he has visited on his travels,22 his products 23 or, indeed, if he is not mentioned at all; there need be no ‘‘peg or pointer’’ for his identification in the words complained of themselves.24 Thus if there is a statement that X is illegitimate that is a sufficient reference to X’s mother 25; and where statements suggested that a man was married to, or free to, marry Y, C, his real wife, could sue on the basis that the statements cast a slur upon her.26 ‘‘The test of whether words that do not specifically name the claimant refer to him or not is this: Are they such as reasonably in the circumstances would lead persons acquainted with the claimant to believe that he was the person referred to?27 That does not assume that those persons who read the words know all the circumstances or all the relevant facts. But although the claimant is not named in words, he may, nevertheless, be described so as to be recognised; and whether that description takes the form of a word-picture of an individual or the form of a reference to a class of persons of which he is or is believed to be a member, or any other form, if in the circumstances the description is such that a person hearing or reading the alleged libel would reasonably believe that the plaintiff was referred to, that is a sufficient reference to him.’’28 ………. 9 Every Evening Printing Co. v Buller, 144 F. 916 (CA 3 1906). 10 Roach v Garvan (1742) 2 Atk. 469; O’Brien v Clement (1846) 16 M. & W. 159; Hellar vBianco 244 P.2d 757 (Cal., 1952) (Christian name and telephone number). 11 Tolley v J.S. Fry & Sons Ltd [1931] A.C. 333, 100 L.J.K.B. 328 HL. 12 Thus, a reference to the President of the United States or the managing director of a named company would usually be sufficient to identify the current holder as the person referred to. 13 Hurt’s Case (1714) Selwyn’s N.P. (13th edn) 989. 14 Bourke v Warren (1826) 2 C. & P. 307. 15 Levi v Milne (1827) 4 Bing. 195. 16 R. v Clerk (1729) 1 Barn. 304. More difficulty arises where the claimant adopts a pseudonym and his real identity is not known. …… 17 Grant v Cormier-Grant (2001) 56 O.R. (3d) 215, Ont. CA. 18 J’Anson v Stuart (1787) 1 T.R. 748. 19 Dwek v Macmillan Publishers Ltd [2000] E.M.L.R. 284 CA (book); Dojas v TCN Channel Nine Pty Ltd [2001] NSWCA 398 (telecast). 20 Louka v Park Entertainments, 1 N.E.2d (Mass., 1936). 21 ‘‘The man who lives in that house is a paedophile’’ is actionable by the occupier even if he is a recluse whose name is unknown: Channel 7 Sydney Pty Ltd v Parras [2002] NSWCA202. 22 Harrison v Smith (1869) 20 L.T. 317. 23 Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) Inc. [2002] FCA 860. 24 Morgan v Odhams Press Ltd [1971] 1 W.L.R. 1239 HL; Sandison v Malayan Times [1964] M.L.J. 332. See para.7.3, below. 25 Morgan v Odhams Press Ltd [1971] 1 W.L.R. at 1243. See also Cassidy v Daily Mirror [1929] 2 K.B. 331 at 338–339, per Scrutton L.J; Hodgkins v Corbet (1722) 1 Stra. 545: Anderson v Stewart (1851) Up.Can.Q.B. 243; Solomon v Simmons, The Times, April 10, 1954. See also para.7.13, below. 26 Cassidy v Daily Mirror [1929] 2 K.B. 331 CA; Hough v London Express [1940] 2 K.B. 507 CA. ….. 27 Hence the fact that a mistake is obvious may prevent the reasonable reader drawing this conclusion: Landsman v Tonawanda Pub Corp, 558 N.Y.S.2d. 80 (1992). 28 Per Isaacs J. in David Syme v Canavan (1918) 25 C.L.R. 234 at 238; Lawrence v Newberry (1891) 64 L.T. 797; Shah v United African Press [1961] E.A. 93; Raul Amon International Pty Ltd v Telstra Corp Ltd [1998] 4 V.R. 798 Vict. CA……. ….. 7.3 Statement capable of referring to the claimant. The issue of identification is to be decided on the same principles as those which govern the question of whether the words are capable of a defamatory meaning.36 Where the claimant is expressly identified by name, it is not necessary to produce evidence that anyone to whom the statement was published did identify the claimant. The question is not whether anyone did identify the claimant but whether persons who were acquainted with the claimant could identify him from the words used.37 …….. Where the claimant is referred to in an indirect way or by implication it will be a question of degree how far evidence will be required to connect the libel with him.40 At one extreme, if there is a libel on ‘‘the Prime Minister’’ that officer does not need to produce witnesses to testify that they know who he is.41At the other extreme, the claimant may only be identifiable by reason of extraneous facts which are not generally known, in which case there is no actionable publication unless it is shown that the words were communicated to persons with such knowledge.42 Even in the latter type of case, however, it is not enough that the recipients of the statement did understand it to refer to the claimant: the issue is whether reasonable people with their knowledge would so understand it.43 36 See paras 3.16, above, 32.18ff, below. This is to be inferred from the speeches in Morgan v Odhams Press [1971] 1 W.L.R. 1239 especially at 1243, 1264, 1269–1270. See also, Islam Expo Ltd v Spectator (1828) Ltd [2010] EWHC 2011 (QB) per Tugendhat J. at [6]; Tilbrook v Parr [2012] EWHC 1946 (QB) per Tugendhat J. at [9].……. 40 For evidence on the reference issue, see generally paras 32.18–32.24, below. 41 Consolidated Trust v Browne (1948) 49 S.R. (N.S.W.) 86 at 91; Cross v Denley (1952) 52 S.R. (N.S.W.) 112 at 116. Cf. Bonighton v Nationwide News Pty Ltd [2006] ACTSC 7. 42 See para.32.19, below. See also para.26.26, below. For an example of such a case where the claim was dismissed as having no reasonable prospect of success, see Mosley v Focus Magazin Verlag GmbH [2001] EWCA Civ 1030. 43, Morgan v Odhams Press [1971] 1 W.L.R. 1239. See para.32.19, below.”
[44]Paragraphs 32.18 and 19, which deal with the evidence required to prove identification of the claimant at trial, are also relevant. In so far as material they state as follows Again, in all cases the bold text represents my emphasis. :
“SECTION 4. IDENTIFICATION OF CLAIMANT 32.18 Introduction. ‘‘The plaintiff to succeed in the action must prove a publication of and concerning him, and if he does not satisfy the onus of proof which is on him in this respect there is no cause of action.’’71 In other words, the claimant must prove that he was the subject of the libel. ……….. 32.19 Claimant not expressly named.73 Where the claimant is named in the libel no difficulty will usually arise. …..However where the libel does not ex facie refer to the claimant, e.g. where he is described by his initial letters, or by a nickname, or by a fictitious name,76 or by the name of another, extrinsic evidence must be given ‘‘to connect the libel with the [claimant]’’,77 evidence from which it would be reasonable to deduce that the defamatory words ‘‘implicated’’ the claimant.78 For this purpose witnesses can be called to testify that they understood, from reading the libel in the light of the facts and circumstances narrated and described, and their acquaintance with, and knowledge of, the claimant, that he was the person referred to.79 In Morgan v Odhams Press the plaintiff, who complained about an article in a newspaper which stated that a named woman had been kidnapped by members of a dog-doping gang and kept in a house near Finchley, was able to prove it referred to him by calling evidence of various people who at the material time had seen the woman, who had been staying at the plaintiff’s flat in Willesden (some three miles from Finchley), in company with the plaintiff, and who had read the article and understood it to refer to the plaintiff.80 Even if the witnesses are accepted as honest witnesses, their evidence is not conclusive. The test is an objective one, whether on the evidence an ordinary sensible man would draw the inference that the words referred to the claimant, and the tribunal of fact is entitled to form its own opinion about this.81 Where the identity of the claimant would be known only to those with knowledge of special circumstances it is necessary for the claimant to prove that the words were published to persons with such knowledge,82 though in certain circumstances this could be a matter of inference.83 It is immaterial that the persons who identified the claimant as the subject of the libel did not believe it to be true.84 71 Per A. L. Smith M.R. in Sadgrove v Hole [1901] 2 K.B. 1 at 4; cited by Lord Donovan in Morgan v Odhams Press [1971] 1 W.L.R. 1239 at 1263. See Ch.7, above. 73 See para.7.2, above. 76 … 77 Fournet v Pearson (1897) 14 T.L.R. 82; and see Lawrence v Newberry (1891) 64 L.T. 797. In Budu v BBC [2010] EWHC 616 (QB), the claimant failed to adduce any evidence that readers of an article archived on the BBC website, which contained no express reference to him, would have understood that he was referred to. 78 Morgan v Odhams Press Ltd [1971] 1 W.L.R. 1239 at 1263. In Channel Seven Sydney v Parras [2002] NSWCA 202, it was held that where the defamatory material did not refer to the plaintiff by name but to his business, evidence that it was understood to refer to the plaintiff and not just to his business was required. However, it was also held that where the business of a corporate plaintiff is described (e.g. hotel, night club) it is sufficient to prove that some recipients of the defamatory publication knew who the owners of the business were even though they were unaware of the company’s formal title. 79 Broome v Cosden (1845) 1 C.B. 728; Hulton v Jones [1909] 2 K.B. 404; [1910] A.C. 20; Cassidy v Daily Mirror [1929] 2 K.B. 331; Youssoupoff v Metro-Goldwyn- Mayer Pictures Ltd(1934) 50 T.L.R. 581 CA; Hough v London Express [1940] 2 K.B. 507; Morgan v Odhams PressLtd, above. 80 The House of Lords, reversing the Court of Appeal, found that it would not have been unreasonable for a hypothetical sensible reader who knew the special facts to infer that the article referred to the plaintiff. 81 Morgan v Odhams Press Ltd, above, at 1245. 82 Bruce v Odhams Press Ltd [1936] 1 K.B. 697; Consolidated Trust Co. Ltd v Browne (1948) 49 S.R. (N.S.W.) 86, where the statement was defamatory of the (unnamed) owners of a building but the action failed for want of any evidence that the statement had been published to any persons who knew the claimants to be the owners. 83 Where a photograph of the claimant taken 20 years ago was published in a book and a national newspaper it could be inferred that some readers of the book and newspaper would have been old friends and acquaintances of the claimant who would have recognised him from the photograph: Dwek v Macmillan Publishers Ltd [2000] E.M.L.R. 284 CA. But no inference could be drawn where publication of the words complained of was in a German magazine with a small English circulation and the matters relied upon to prove identification of the claimants not expressly named were the contents of articles in English newspapers: Mosley v Focus MagazinVerlag GmbH [2001] EWCA Civ 1030. 84 Morgan v Odhams Press, above, at 1252.”
[45]In my judgment, subject to one important exception, which I discuss below, there is no reason why the approach to determining the question whether a “matter” “identifies” a person for the purposes of section 393 of FSMA should be any different in principle from the approach to the question whether an allegedly defamatory statement, which refers to an individual person, whether, for example, by his office,or by the first and last letter of his name, or by means of a description of his status or otherwise (for example, by a pseudonym) identifies a claimant in defamation proceedings. The wording of section 393, whether construed on its own, or in the context of FSMA, does not require the word “identifies” to have any special or limited meaning. As I have already said, it is clear that it is has to be the "matter" or "matters" referred to in the relevant notice which “identifies” the third party. But, as in the defamation cases, that does not mean that the third party has to be mentioned by name. As long as the relevant description in the “matters” (whether by reference to an office, a job description, or simply “Mr X”) can properly be construed as a reference to an individual person, i.e. a “he” or a “she” (or, if a corporate entity, an “it”), then it seems to me that the correct test for identification is the simple objective one applied in the defamation cases adapted for the purposes of this case, viz:
“Are the words used in the “matters” such as would reasonably in the circumstances lead persons acquainted with the claimant/ third party, or who operate in his area of the financial services industry, and therefore would have the requisite specialist knowledge of the relevant circumstances, to believe as at the date of the promulgation of the Notice that he is a person prejudicially affected by matters stated in the reasons contained in the notice?”
[46]My one proviso to the approach that an analogy can be drawn with that in defamation proceedings, is that I would agree with Mr Stanley’s submission, that, given the requirement in the statutory language of section 393 of there having to be a specific reference to “a person” in the “matter” to which the reasons relate, the approach in the type of case, in the defamation context, where there may, by implication, be a defamatory reference to a claimant, simply as a result of what is generally said in a statement, notwithstanding that there is no separate reference to a specific person in the alleged defamatory statement, is not sufficient in the context of section 393 to amount to identification.[47]The distinction is well illustrated by the case of Morgan v Odhams Press Ltd [1971] 1 W.L.R. 1239. In that case, Lord Reid (who, with Lord Morris of Borth-y-Gestand Lord Pearson was in the majority) said at 1243:
“The question of how words should be read in libel cases was discussed in Lewis v. Daily Telegraph Ltd. [1964] A.C. 234 and I shall not repeat what was said there. We have to consider how "ordinary sensible men" (per Lord Devlin at p. 286) would understand the words. So here the judge had to consider how ordinary sensible men, having the special knowledge proved, could understand the words complained of. But the Court of Appeal imposed a farther, to my mind artificial, limitation -- "There must be some key or pointer in the article itself indicating that it refers to the plaintiff" [1970] 1 W.L.R. 820, 828. "There must be some words, some initials, some asterisks, some reference or other to him, such that the pleader can insert in these days, as he always did in the old days, the key words in brackets '(meaning thereby the plaintiff)'" (p. 829). "There must be something in the article which pointed to the plaintiff" (p. 831). "... the court must be satisfied that there is something in the article itself to serve as a peg upon which to hang the alleged identification of the plaintiff as the person referred to -- something, in other words, which expressly or by implication points to the plaintiff" (p. 832). In my view, the second of these quotations cannot possibly be right. Suppose a statement that X is illegitimate, and an action by X's mother. It seems to me obvious, and counsel did not contend otherwise, that if the statement is untrue, the law could not deny an action to the mother. But there is no word after which the pleader could insert (meaning thereby X's mother). Then I ask what kind of peg, key or pointer would be sufficient. Suppose the statement is that "X was murdered at 10.5 p.m. -- we know the time because his watch was smashed at that time and we know it was accurate -- and at 10.10 a man believed to be the murderer was heard running on the pavement outside the house." The plaintiff left a party in the next door house at 10.10 and ran to catch a bus and he brings an action. Is "a man" a sufficient peg? The pleader could add (meaning thereby the plaintiff). Or suppose the statement was "A man wearing a hat and a dark overcoat believed to be the murderer was seen ..." Is that a sufficient peg? Or "a tall man with a limp was seen ..." Is that sufficient? Just how much particularity must there be?”
[48]To similar effect were the speeches of Lord Morris of Borth-y-Gest at 1252 – 1254 (who nonetheless held that there was a sufficient pointer), and that of Lord Guest (in the minority on a different point) at 1259. The latter said:
“The necessity for a "key or pointer" in the publication itself referring to the plaintiff cannot be justified, if extrinsic evidence is admissible to connect the plaintiff with the words of the article. It is undoubted that extrinsic evidence is admissible to import a defamatory meaning to words otherwise innocent. Likewise extrinsic evidence is admissible to connect the plaintiff with the person referred to in the article. This is clearly shown by the cases of Cassidy v. Daily Mirror Newspapers Ltd. [1929] 2 K.B. 331 and Hough v. London Express Newspaper Ltd. [1940] 2 K.B. 507. In Cassidy the newspaper published a picture of Mr. Cassidy with Miss X with the caption "Mr. Cassidy the race horse owner and Miss X whose engagement has been announced." Mrs. Cassidy was not mentioned in the paper. But she, who was known as the lawful wife of Mr. Cassidy, was held to have been libelled by the picture and caption, the innuendo being that for Mr. Cassidy to be engaged he must have been living in sin with Mrs. Cassidy who could not be his wife. A similar situation occurred in Hough. There is, however, an observation by Lord Goddard L.J. [1940] 2 K.B. 507, 515, where he poses the question "Might reasonable people who know the special circumstances understand them in a defamatory sense?"”
[49]By contrast, in the section 393 context, the mere fact that a statement criticising a corporate recipient of a notice might be read by persons in the relevant financial market as criticising by implication the chairman or chief executive officer of that company, or a particular employee, as casting a slur upon them, would not be sufficient to make such a person a “third party” for the purposes of section 393. Indeed that was the situation in Watts. In other words, for the purposes of section 393 there has to be some sort of "key or pointer", as referred to by the Court of Appeal in Morgan, in the statement contained in the “matters” in the notice. But once it is held that the “matter” indeed contains a "key or pointer" to a separate person, other than the recipient of the notice, by whatever description, then, in my judgment, one applies the simple objective test to which I have already referred, namely that “succinctly expressed” See per Lord Morris of Borth-y-Gest in Morgan v Odhams Press Ltd [1971] 1 W.L.R. 1239 at 1263. at 1253. by Viscount Simon L.C. in his speech in Knupffer v. London Express Newspaper Ltd. [1944] A.C. 116 when he said, at p. 119: “Where the plaintiff is not named, the test which decides whether the words used refer to him is the question whether the words are such as would reasonably lead persons acquainted with the plaintiff to believe that he was the person referred to."[50]Although, on the facts of the particular case, the judge reached the correct conclusion that the “matters” in the Notice identified Mr Macris, in my view, he nonetheless went wrong in his articulation of what he regarded as the relevant tests in paragraphs 39 and 40 of his judgment. That was because he did not relate the second stage of such tests to what, objectively, persons acquainted with the claimant/third party, or who operated in his area of the financial services industry, might have reasonably known as at the date of the promulgation of the Notice. In my judgment, there cannot be ex post facto unlimited reference to external material to identify the third party. It follows that, for example, I consider that the statement contained in paragraph 50 of the judgment that: “…it is not a question of whether any particular type of reader could identify the individual concerned but simply whether there is information in the public domain that incontrovertibly links the description in the Final Notice to Mr Macris.” stated the test too broadly. In addition that statement fails to limit the relevant information to that which objectively would be known by persons acquainted with the third party, or persons operating in the relevant area of the financial services market.[51]The objective test, which I have formulated, clearly limits external material to what, objectively, persons acquainted with the claimant/ third party, or persons operating in the relevant area of the financial services industry, might reasonably have known as at the date of the promulgation of the relevant notice. That is a workable test. As Mr Herberg submitted, by the time the Authority served the Notice it would have been well aware of the information publicly available to the relevant sector of the market. It follows that I reject Mr Stanley’s arguments to the contrary that, only if Mr Macris could have been identified from the “matters” exclusively contained in the Notice, would he have been “identified” for the purposes of section 393. I reject that approach. It is not consistent with the language of the Act or with the ordinary every-day meaning of the word “identifies”. It is also unrealistic because, in effect, it pays no regard to knowledge which persons acquainted with the third party, or persons operating in the relevant area of the financial services market, might well have over and above the information which they read in the notice, which necessarily would contribute to their ability to identify the third party. If, as Mr Stanley submitted, the purpose of the third party procedure is to ensure the fair treatment of the reputation of third parties by the Authority, then in my view it is unrealistic to disregard what already is known to the market over and above the information stated in the notice. Mr Stanley’s approach would require the court to perform the artificial task of asking the wholly hypothetical question whether, putting on one side the knowledge available to the market, the third party could be identified by what was stated in the notice alone.

Application of the test to the facts

[52]But the judge was in my judgment clearly right to conclude as he did, as a matter of fact, that the “matters” in the Notice “identified” Mr Macris. First, on any basis, on a proper construction of the wording of the relevant paragraphs of the Notice, the reference to “CIO London management” was in context clearly a reference to a particular individual, and not to a body of people. Whilst for my part I would not adopt the judge’s reasoning at paragraph 45 of his judgment as to how, in his view, a “corporation” would use the expressions “managed” and “reported”, to support his conclusion, nonetheless I accept Mr Herberg’s submissions that the judge was clearly correct in answering the first question which he posed (viz. “were the references in the Final Notice to CIO London management references to an individual, ascertained by reference solely to the terms of the Notice itself?”) in the way which he did. It follows that I reject Mr Stanley’s submissions to the effect that the expression “CIO London management” was abstract and impersonal, and not suggestive that any individual was in view. That approach is wholly to disregard the use of the phrase “CIO London management” in its context.[53]Furthermore, on the evidence before him, not merely as contained in the witness statements adduced on behalf of Mr Macris, but also as to matters publicly available as at the date of the promulgation of the Notice, including the US Senate Report, which expressly referred to Mr Macris by name See paragraph 53 of the judgment. , the judge would have been entitled to conclude, on an objective basis, that persons acquainted with Mr Macris, or who operated in his area of the financial services industry, would reasonably have been able to identify Mr Macris from the statements made in the Notice. That is sufficient to support the judge’s conclusion, as expressed in paragraph 55 of the judgment, that Mr Macris had been identified in the Notice. Contrary to the judge’s view, as expressed in paragraph 55, it might indeed have been a relevant factor for consideration, in the application of the test which I have formulated, that, on the evidence submitted by the Authority, the press had not worked out the identity of Mr Macris themselves until prompted by him. Nonetheless, the judge, had he applied the objective test I have formulated, would have been entitled to conclude on the evidence before him, that despite the fact that the press had not previously latched on to the matter, the relevant sector of the financial market would nonetheless have appreciated that it was Mr Macris who was identified in the Notice as “CIO London management”.[54]In this context, the reference to “external material” (for example in paragraph 40 of the judgment) has the potential to give rise to confusion. There is a real distinction (as the judge recognised) between the first stage of the process, viz. the ascertainment that there is indeed a reference in the relevant notice itself, by whatever description, to a specific person (other than the corporate, or other, recipient of the notice); and the information which objectively an acquaintance / market participant might reasonably have known as at the date of the promulgation of the relevant notice to identify the third party, e.g. the name of the actual person who discharged the office of “managing director” or “CIO London management”, or who was the “Mr X” as described in the notice, which necessarily might well be information that was external to the notice itself.

The previous Tribunal cases

[55]The facts of the previous cases considered by the Upper Tribunal, namely Watts and Laury, supra, were very different from those of the present case. In the event I have derived little assistance from those decisions, which are in any event not binding on us.[56]Watts concerned a situation where the regulator issued agreed notices against the corporate body, Shell (following a “concertinaed” process Watts, para 8. ), but did not afford third party rights to an individual (Sir Philip Watts, the Chairman of Shell at the relevant time). He claimed that he was prejudicially identified. In contrast to the present case, the criticisms in the Shell notices were all made “at the level of corporate personality, and [were] not made of individuals whether singularly or collectively” (see paragraph 56 of the judgment). Sir Philip Watts’ case was not that the Shell notices picked him out and criticised him. Rather, he said that he was entitled to the statutory rights of a third party if he was identifiable “by reference to publicly available sources as the individual responsible for the matters complained of”. He argued: “... [I[f the FSA chooses to make critical findings against a company, it must accept that it is thereby making critical findings against the person or persons known to be responsible for the conduct which the Authority is impugning” (paragraph 45). “The Applicant’s case is that contemporaneous press reports show that the failings alleged in the decision notice issued to Shell were attributed to him, and that is how informed people would have understood the position at the time” (paragraph 51).[57]The Tribunal rejected this approach. It held that there was no identification of Sir Philip Watts in the notice itself, as was effectively conceded: see paragraph55. The criticisms had been made purely at the level of corporate personality: (i.e. of Shell) and not of individuals whether singularly or collectively: see paragraph56. Criticisms at the corporate level could not be imputed to an individual, however senior.[58]The Tribunal correctly accepted, however, (at paragraphs 57 and 58) that identification of a particular individual in the relevant notice might take place other than by an express naming of him. It accepted, for example, that identification could occur by a reference in the notice to job description, by some collective reference to particular officers of the company, or otherwise. But that was not the situation in Watts where there had been no such identification in the relevant notice and the Tribunal’s views were thus obiter. Thus while I agree, for example, with the Tribunal’s conclusion in Watts that the identification has to be in the notice itself In the same way that a libel claimant can only sue in respect of a published statement. , its statement in paragraph 52 that “We do not think that fairness requires third party rights to be accorded where the identification of the individual concerned arises externally to the notice…” has to be approached with some caution as to its precise meaning or extent. In the light of the Tribunal’s acceptance in Watts that a third party might be identified other than by being expressly named in the notice, it was necessarily accepting that some recourse could be had to external knowledge or material.[59]For similar reasons the decision in Laury was of little assistance. The Tribunal in that case likewise found that there was no identification of any particular individual in the notice, whether by job description or otherwise and that the relevant criticisms were purely on a corporate basis. Again there was no consideration of what I regard as the correct approach to the question of what amounts to identification.

Conclusion

[60]For the above reasons, whilst I do not consider that the judge adopted the correct test for resolving the issue of identification for the purposes of section 393, nonetheless he clearly reached the right conclusion on the evidence before him, or at least would have done so had he applied what I regard as the appropriate test.

Disposition

[61]Accordingly, I would dismiss this appeal.[62]I agree.[63]Mr Macris has invoked section 393(11) of the Financial Services and Market Act 2000 (“the Act”) alleging that he should have been given a copy of the notices served on JP Morgan by the Financial Conduct Authority (“the Authority”) on 18th September 2013. Those notices were severely critical of JP Morgan’s Chief Investment Office (“the CIO”) in London and New York particularly in relation to the trading and management of a trading portfolio known as the Synthetic Credit Portfolio (“the SCP”) which came within the CIO’s London operations. Those criticisms related to, inter alia, the employment of a high risk trading strategy which was not properly vetted or managed, the failure to alert JP Morgan to the risk present in that strategy or to value its position in relation to the SCP and a failure to be open and co-operative with the Authority when it interested itself in the matter.[64]Mr Macris was JP Morgan’s International Chief Investment Officer and as such had an important managerial role in the CIO. He takes the view that the notices served by the Authority criticise him and are thus prejudicial to him and he wishes to exercise what have been called “third party rights” by making his own representations to the Authority in relation to the notices. This is permitted by section 393 (11) of the Act only if he was entitled to be given a copy of the notices. Pursuant to sections 393(1) and (4) he was only entitled to be given such copies if the reasons contained in the notice related to a matter which “(a) identifies a person (“the third party”) other than the person to whom the decision notice is given, and (b) in the opinion of the regulator giving the notice is prejudicial to the third party.”[65]The question for the Upper Tribunal was therefore whether Mr Macris was identified in the notices. The notices did not identify him by name; they only referred to “CIO London management”. But it is accepted that a person can be identified for the purposes of sections 393(1) and (4) of the Act otherwise than by name.[66]Once it is accepted that a person may be identified otherwise than by naming him, the question whether the reasons contained in a decision notice relate to a matter which identifies such person is largely, if not entirely, a question of fact. But to the extent that it is a question of law, I agree with the test proposed by my Lady in paragraph 45 of her judgment. I also would dismiss this appeal. Appendix 1 – The relevant “matters” contained in the Notice which Mr Macris contends identify him:
"2.21 In the first half of 2012 the firm failed to open and co-operate with the Authority about the extent of the losses as well as other serious and significant issues regarding the risk situation in the SCP, and on one occasion (by virtue of the conduct of CIO London Management) deliberately misled the Authority. 4.3 The Firm is a wholly owned subsidiary of the Group. CIO operates within the Firm in both New York and London. The traders on the SCP were managed by SCP management, which in turn were managed by CIO London management. CIO London management represented the most senior level of management for the SCP in London, reporting directly to CIO Senior Management in New York, which in turn reported to Firm Senior Management. CIO also had its own Risk, Finance and VCG functions, which were control functions relevant to the SCP and other portfolios within CIO. The wider control functions within the Group included Internal Audit, Compliance and the Group's Audit Committee." 4.101 In mid-March 2012, as the SCP failed to reduce its [Risk Weighted Assets] CIO London management suggested offsetting some of the risk of the positions either with the Investment Bank or a third party. This was a cause for concern to traders on the SCP, who were aware that the Investment Bank was counterparty to some of their positions. SCP management explained in an email to CIO Senior Management the belief that the settling of these positions with the Investment Bank would cause a "permanent loss" to the SCP of around $350 million, because each side of the trade would have to agree a price. This email should have caused CIO Senior Management to seek to understand whether there was a price variance within the Firm of around $350 million (where the SCP and the Investment Bank held the opposite sides of the same trades) and if so, the reason for the variance. However CIO Senior Management missed this opportunity to seek further information, believing the matter to relate to paranoia about the Investment Bank. CIO London management contacted the Investment Bank to complain about the allegation of leaking prices. On hearing the allegations an individual at the Investment Bank immediately identified that there might be a mismarking issue at the heart of the dispute saying: "what I see is an accusation that the Investment Bank, with someone leaking the position of CIO, is acting against CIO [and] mismarking the books to damage CIO"
He noted that if CIO's allegation was true he would need to "fire a lot of people" and stated that he would ask his senior valuation team "to take a look [at] the marks and see if there is anything that is being done inappropriate". This reaction should have prompted CIO London management to make sure CIO's house was in order from a marking perspective. A logical inference to be drawn from the situation, if the Investment Bank's marks were correct, was that the mismarking problem may lie with CIO. However CIO London management did not take further action, assuming that the problem lay with the Investment Bank. 4.102 Following the publication of the Wall Street Journal article on 6 April 2012, the Firm's Senior Management requested a "full diagnostic" on the SCP by Monday 9 April. CIO London management informed CIO Senior Management that they were unsure how big the losses in the SCP might be at the end of the second quarter, because the figure was "highly dependent on the marks". CIO Senior Management were later told by SCP management that the losses should not exceed $200 million "if we exclude very adverse marks to our book". This email should have heightened CIO Senior Management's focus on how the SCP was being marked because it highlighted the subjectivity in the SCP's marking process given the nature of the instruments and reminded CIO Senior Management of how crucial the marks were to the SCP's profitability or lack thereof. Failure to be open and co-operative with the Authority 4.135 This section (paragraphs 4.135 to 4.147) sets out the facts and matters relevant to the Firm's relationship with the Authority. In particular, the Firm did not provide relevant information to the Authority during the first half of 2012 and (by virtue of the conduct of CIO London management) the Authority was deliberately misled on one occasion. 4.137 On 28 March 2012, the Firm attended a quarterly supervisory meeting with the Authority. The meeting was attended by various CIO personnel, including SCP management and CIO London management. The SCP was discussed with the Authority as part of a dialogue regarding CIO's London business as a whole. 4.138 When discussing the SCP, those at the meeting did not inform the Authority that: (a) CIO Senior Management had ordered traders on the SCP to stop trading: SCP management and CIO London management had received notification by email of this on 26 March 2012. (b) The SCP had increased significantly in notional size: information provided to the Authority which dealt with portfolio changes contained no data about the substantial changes in the size of the SCP. Both SCP management and CIO London management had received an email on 27 March 2012 setting out that the total notional size of the SCP on 26 March 2012 was $131 billion. (c) The SCP had suffered $298 million of losses in the year to date: information provided showed year to date losses of $170 million for February 2012 month-end. SCP management and CIO London management had received an email on 27 March 2012 indicating that the estimated losses on the SCP to date were in fact $298 million, a figure which already exceeded the year to date losses provided to the Authority by $128 million and the estimated losses provided for March month-end by $70 million. (d) The SCP had breached its [Credit Spread Widening] and [Value at Risk] risk limits in the first quarter of 2012: SCP management and CIO London management were aware of these breaches in advance of the meeting. (e) The reduction in [Value at risk] for the SCP was due extensively to the new [Value at Risk] model: information provided indicated a reduction in average daily mark to market [Value at Risk] for CIO from approximately $92 million in January to $48 million by 16 March 2012. The Authority were not informed that the change in [Value at Risk] methodology for he SCP was the main driver of the reduction. 4.139 The Authority expected pro-active notification of these matters as part of its on-going supervisory relationship with the Firm and the Firm was obliged to provide it under Principle 11. The Firm's representatives failed to notify the Authority of these matters in the period from January 2012 and in particular at the meeting on 28 March 2012. 4.140 On 10 April 2012, the Firm, based on information provided by CIO London management instigated a discussion with the Authority as a result of the article in the Wall Street Journal. The discussion was initiated by an email stating, inter alia: "We use credit-related instruments to hedge [CIO's portfolios] against a stress credit environment. The activity noted in the story is simply a balancing of those credit-related investments to reduce the impact of our hedge". 4.141 In continuation of that discussion, at 5pm the same day, there was a conference call with the Authority which CIO London management led. The participants on the call gave the Authority the following information: (a) There had been no material changes to the SCP since the meeting on 28 March 2012. (b) The newspaper articles did not recognise that the SCP's position in the IG9 index were part of a larger position that was "broadly a hedge of the firm's exposures outside CIO". (c) [Value at Risk] had been reduced from $115million in the first quarter of 2009 to $58 million in April 2012, in part as a result of the IG9 positions in the SCP. Yet again, those at the meeting did not explain that part of this reduction was attributable to a change in [Value at Risk] calculation methodology. 4.142 The Authority was not informed that: (a) The SCP had suffered adjusted losses of $705 million in the first quarter of 2012: CIO London management had received an email dated 9 April 2012 providing them with updated loss figures. (b) The SCP was expected to lose a significant amount of money that day, such that it would push the year to date losses in the portfolio beyond $1 billion: CIO London management had received this information from traders on the SCP orally prior to the call. (c) The SCP was currently in breach of its stress loss limits; CIO London management was notified of these breaches by email on 4 April 2012. (d) The SCP was considered by CIO London management to be "in crisis mode" and parts of the SCP's trading strategy had resulted in the SCP having "almost total loss of hedging effectiveness". 4.143 The Authority considers that the tone of the call was deliberately reassuring; CIO London management must have appreciated that by not providing the information set out above, the message delivered to the Authority was not an accurate reflection of the state of the SCP. As a result the Authority has concluded that (by virtue of the conduct of CIO London management) the Authority was deliberately misled by the Firm. 5.10 Between January 2012 until 2 July 2012 the Firm breached Principle 11 by failing to deal with the Authority in an open and co-operative way (see paragraphs 4.135 to 4.147). In particular the Firm: (a) should have proactively notified the Authority as problems arose within the SCP. On 28 March 2012 the Firm provided incomplete information to the Authority regarding the SCP. (b) by virtue of the conduct of CIO London Management deliberately misled the Authority about the situation within the SCP on 10 April 2012. (c) did not inform the Authority of the details of significant and serious problems and events in relation to the SCP until 14 May 2012. (d) did not inform the Authority of the fact of its extensive valuation reviews until 2 July 2012. 6.32 The Authority also considers that the following factors are relevant: (a) Whether the breach had an adverse effect on markets and, if so, how serious that effect was. This may include having regard to whether the orderliness of, or confidence in, the markets in question has been damaged or put at risk (DEPP 6.5A.2G(6)(f)). Failure to be open with the Authority and to disclose properly matters of which the Authority would expect notice undermines the Authority’s ability to effectively supervise the markets and to meet its objectives. (b) The nature of the rules, requirements or provisions breached (DEPP 6.5A.2G(7)(a)). The regulatory regime necessarily relies on firms being open and co-operative. Principle 11 is therefore fundamental to the effective functioning of the regulatory system. (c) The frequency of the breach (DEPP 6.5.2G(7)(b)). The Firm failed to be open and cooperative with the Authority through its repeated actions over a six month period. (d) Whether the firm’s senior management were aware of the breach (DEPP 6.5A.2G(7)(d)). CIO London management were aware of the events and problems with the SCP, aware of the message being passed to the Authority, and were directly involved in deliberately misleading the Authority on 10 April 2012.

Cited in 6 later judgments