Amro International SA & Anor, R (on the application of) v The Financial Services Authority & Ors [2009] EWHC 2242 (Admin)

Case No CO/9131/2009

[2009] EWHC 2242 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

THE ADMINISTRATIVE COURT

Venue Royal Courts of Justice

Date Wednesday, 25th August 2009

Strand

London WC2A 2LL

B e f o r e:

MR JUSTICE COLLINS

Between

THE QUEEN ON THE APPLICATION OFClaimant

AMRO INTERNATIONAL SAClaimant

CREON MANAGEMENT SAClaimant

Between

THE FINANCIAL SERVICES AUTHORITYDefendant

BETH CONNELLDefendant

PATRICIA SENRADefendant

GOODMAN JONES LLPInterested Party

Computer-Aided Transcript of the Stenograph Notes of

WordWave International Limited

A Merrill Communications Company

165 Fleet Street London EC4A 2DY

Tel No: 020 7404 1400 Fax No: 020 7831 8838

(Official Shorthand Writers to the Court)

Mr Andrew Hunter (instructed by Messrs Mishcon de Reya Solicitors) appeared for 1st Claimant

Mr Andrew George (instructed by the Financial Services Authority) appeared for 1st Defendant

J U D G M E N T

[1]MR JUSTICE COLLINS: This claim is listed before me as a rolled up hearing. I decided at the outset that it was sensible to grant permission because there was clearly an arguable case. The defendants did not dissent from that. Accordingly, I granted permission. I abridged or avoided all procedural steps thereafter, save that the claimant gave an undertaking to pay the relevant fee, which I believe is £180, which is normally payable on the grant of permission.

[2]The two claimants are what are described as financing companies which make capital investments in or lend money to businesses. In the case of Amro, the first claimant, it is incorporated in Panama and in the case of Creon, the second claimant, in the British Virgin Islands. Financing is provided in some instances through what are called Special Purpose Vehicles (SPVs) and some 100 or so of these, which are usually companies registered in the Virgin Islands, have been used. A company called Rhino Advisors Incorporated, a New York corporation, has acted as investment adviser for the claimants. Rhino had as an employee until 2002 a Mr Andreas Badian and, until 2003, his brother Thomas. In June 2002, the Securities and Exchange Commission (SEC), the regulatory body in the United States which is concerned with inter alia ensuring that manipulation of trading in stock, and so of the market, is prevented, commenced an investigation into Rhino's activities. In particular, there were allegations of manipulation of shares in companies to which Amro or Creon had made advances on Rhino's advice, the manipulation involving, it was alleged, short selling.

[3]These investigations resulted in action against Rhino in respect of only one advance to a Pennsylvania company called Sedona in March 2001. In February 2003, proceedings were brought by SEC against Rhino and Thomas Badian. Those were settled by payment of $1 million and submission to an injunction prohibiting them from such activities in the future.

[4]The investigation continued until 2004 and the SEC then informed Andreas Badian that proceedings would be issued against him in connection with the Sedona transactions. It was not until 3rd April 2006 that the relevant claim was lodged in the United State District Court for the Southern District of New York. This claim was against Andreas Badian and six others, who were said to have been parties to the unlawful short selling arrangements. I shall go into more detail in due course.

[5]The claim has been managed by the judge of the court and discovery has been an issue. The SEC has had to ask for a number of extensions of time within which they should conclude the necessary discovery process. On 18th February 2009, the judge gave leave for an extension of time for non-expert discovery until 15th August 2009, that being an order which was apparently agreed to by all the parties. But he said, when giving his approval:

"I grant this consent motion and I adopt paragraphs 1 through 4 as my final amended scheduling order. It is extremely unlikely that I will grant any further extensions; this case focuses on events that occurred in 1999 to 2002."

[6]On 24th July 2009, a further extension until 31st August was sought by the SEC on the basis that they were having difficulty in being able to obtain a deposition from an individual called Robert Charron and so more time was needed to enable that deposition to be produced. Mr Charron was involved with Rhino. He had in fact made a statement in 2003, no doubt in connection with the original claim against Mr Thomas Badian and Rhino. What Mr Charron stated in that was that Rhino had been formed in January 2000 and had served as the investment adviser for Amro and Creon; indeed, those were its only two clients. He then indicated what Rhino was entitled to receive by way of fees in relation to its dealings. He was himself responsible for incorporating Rhino in January 2000 and was initially the sole director and shareholder. On 14th January 2000, Thomas Badian was elected president and Mr Charron secretary. Two days later he was removed as secretary in favour of Thomas Badian. Andreas was an employee of Rhino between 30th June 2000 and 30th April 2001 and thereafter, from 1st September 2001 until the date of Mr Charron's statement, which was May 2003, he was listed as a trader and Thomas was listed as president from 13th January 2000 until, according to the statement of Mr Martin made in connection with these proceedings recently, the present date, so Thomas Badian remained an investment manager. I was told that by "the present date" was meant when Mr Charron made his statement in 2003.

[7]Mr Charron responded to the question asking him to identify all persons or entities that "are or have been investors in, shareholders of, partners in or owners of Amro or Creon", that the sole shareholder of Creon was Neil Galloway and the shareholders were two individuals called Pablo J Espino and Adelina M de Estribi respectively. However, in the course of his statement in 2003 it is right to note that Mr Charron had said as follows:

"We have inferred from questions raised by the Staff that there may be a concern about the source of funds for Amro and Creon. In fact an overseas family trust in which Thomas Badian has a beneficial interest, provided funding of $13.8 million for Amro and Creon from an overseas account that he controls. All money held by Amro and Creon came either from the initial $13.8 million loan from the family trust or from the proceeds of financing transactions and trading activities by Amro and Creon at the direction of Rhino."

Thus there was available to the SEC from an early stage some indication that the Badians through a family trust, or certainly Thomas Badian through a family trust, may have had some interest in Amro and Creon. However, as we shall see, that is not a matter that was specifically raised in the claim which was made by the SEC in April of 2006.

[8]On 24th July of this year, the SEC wrote to the FSA, who is the first named defendant in this claim, asking for assistance in producing documents from a London firm of accountants, Goodman Jones, who were said to have documents relevant to SEC's claim. Goodman Jones acted for the claimants and had had some documents relating to deals involving Rhino. In due course, the request was made to Goodman Jones. I will come to that shortly. The request for assistance by the SEC was by letter of 24th July 2009. It set out the description of the claim and the complaint made and what it sought were the following documents:

"All documents that relate to Rhino Advisers Inc, ('Rhino'), Amro International SA ('Amro'), Creon Management SA ('Creon') and/or their Special Purpose Vehicles, identified in Exhibit A to this letter [that is to say the hundred or so firms] for the earlier of the dates of Amro's incorporation or January 1, 2000 through the present, including, but not limited to: (a) All documents that reflect the legal and/or beneficial owners, and the persons who funded and/or directed their activities; (b) All memorandum or correspondence related to Rhino, Amro, Creon and/or their Special Purpose Vehicles; and (c) Bank, brokerage and/or depository accounts records of the Amro and/or Creon and/or their Special Purpose Vehicles (including, but not limited to opening account documents, monthly account statements, cancelled cheque, deposit slips, and/or wire transfers) in which any of them or persons affiliated with them had signatory or trading authority and/or in which any of them had a legal or beneficial interest."

Effectively, that covered virtually all documents relating to Creon or Amro or Rhino which may have been in the possession of Goodman Jones between January 2000 and July 2009, a period of some nine and a half years. I was told that the volume of such documents was some 20 boxes and it is obviously an exceedingly wide request.

[9]Following the request, there was some communication with the SEC because the FSA were not originally satisfied that the documents that were requested fell within the scope of the claim which was being made by the SEC and thus they wondered whether it would be appropriate for them to agree to obtain them or to ensure that they were obtained. They received responses which satisfied them that they were. Obviously it will be necessary to go into that in due course but, to take the narrative on, Goodman Jones were asked first whether they would be able to produce the relevant documents within the short timescale that was demanded because it was said that they must be produced by 15th August because of the likelihood, as was then thought, that the judge would not extend time further. They agreed that, although there was a large volume of documents, it would be possible physically for them to be produced within that short timescale. They were further asked whether they would voluntarily produce the documents. That inevitably they refused because clearly the documents that they possessed were confidential and they would need the consent of their clients in order to disclose them to third parties. It should have been obvious to the FSA that Goodman Jones could not properly produce these documents voluntarily and thus it would be necessary, if they were to pursue the matter, to do it through their compulsory powers. This they decided to do and on 3rd August they decided to assist by the appointment of inspectors and those inspectors are named as the second and third defendants. On 4th August, a notice was sent to Goodman Jones demanding production of the documents and the demand was in the terms that I have already indicated.

[10]It is those two decisions that are under attack in this claim. It is said that the FSA were acting unlawfully in agreeing to appoint inspectors in order to obtain the documents through their compulsory powers and it is further said that the notice was in any event far too wide and unspecific and the extent of the requirement was therefore beyond the powers granted to the FSA by the relevant statute.

[11]Those powers are contained in the Financial Services and Markets Act 2000, specifically in part 11 of that Act ("the 2000 Act"). Section 165 contains the FSA's power to require information. "(1) The Authority may, by notice in writing given to an authorised person, require him(a) to provide specified information or information of a specified description; or

(b) to produce specified documents or documents of a specified description. Section 168 permits the appointment of persons to carry out the investigations. Section 169 is the section which deals with investigations in support of overseas regulator. The heading is "Investigations et cetera in support of overseas regulator". Section 169 (1) provides:

"(1) At the request of an overseas regulator, the Authority may (a) exercise the power conferred by section 165; or (b) appoint one or more competent persons to investigate any matter. (2) An investigator has the same powers as an investigator appointed under section 168(3) (as a result of subsection (1) of that section)."

Subsection (4) provides: "(4) In deciding whether or not to exercise its investigative power, the Authority may take into account in particular (a) whether in the country or territory of the overseas regulator concerned, corresponding assistance would be given to a United Kingdom regulatory authority; (b) whether the case concerns the breach of a law, or other requirement, which has no close parallel in the United Kingdom or involves the assertion of a jurisdiction not recognised by the United Kingdom; (c) the seriousness of the case and its importance to persons in the United Kingdom; (d) whether it is otherwise appropriate in the public interest to give the assistance sought." (a) to (d) in subsection (4) are not exclusive because they are merely particular matters that the authority may take into account and obviously the authority has a discretion as to whether they will in any given case decide to act in support of an overseas regulator.

[12]Then sections 170, 171 and 172 are material in considering conduct of investigations generally and they are applicable to an investigation resulting from an agreement to support an overseas regulator just as for domestic investigations. Section 170(7) enables the investigating authority to control by direction to an investigator the scope of the investigation, the period during which it is to be conducted, its conduct and its reporting, and may in particular by subsection (8) confine the investigation to particular matters or extend it or require particular steps to be taken. Section 171 provides by subsection (1) that an investigator may require any person to attend or otherwise to provide such information as he may require but section 171(2) provides:

"(2) An investigator may also require any person to produce at a specified time and place any specified documents or documents of a specified description."

[13]Subsection (2) is directed at anyone: it is not limited to a person subject to the investigation or connected with a person subject to an investigation, and thus enables relevant documents to be obtained from, for example, accountants or others, such as banks, who may hold them on behalf of or because they are material to a particular client. But subsection (3) provides:

"A requirement under subsection (1) or (2) may be imposed only so far as the investigator concerned reasonably considers the question, provision of information or production of the document to be relevant to the purposes of the investigation."

It is the reasonable view of the investigator that matters. It may turn out that the document is not relevant but that does not mean that there is no power to require its production, provided that at the time that the requirement was made the investigator reasonably considered that it was relevant to the purposes of the investigation.

[14]There are additional powers provided by section 172 which provides by subsection (2) that an investigator may also require a person who is neither the subject of the investigation nor a person connected with the person under investigation to attend before the investigator or (and this is the relevant bit) "otherwise provide such information as the investigator may require for the purposes of the investigation". Subsection (3) provides:

"A requirement may only be imposed under subsection (2) if the investigator is satisfied that the requirement is necessary or expedient for the purposes of the investigation."

[15]It is to be noted that subsection (2) of section 171 specifically refers to production of documents which must be specified documents or of a specified description, whereas 172 deals with the provision of information. I suppose it may well be said that production of a document may also be the provision of information, the information being the information contained in the document, but I would have thought that, when one is dealing with production of documents, the natural reading of the provisions of the Act mean one goes to section 171(2) rather than to section 172(2). However, since documents such as are in involved in this case are confidential documents, it seems to me that it is implicit, even if one does not specifically go to section 172(3), that it would not be appropriate to require their production unless indeed that was necessary or expedient for the purposes of the investigation. The word proportionate has been used and it is, as I understand it, accepted that the test that the FSA gives itself is one of proportionality when it is concerned with documents that are otherwise confidential, and it seems to me that that is a proper approach to be adopted when one looks at the provisions of the Act overall. Thus, I do not think that it is right to adopt a technical approach to these provisions of the Act. It seems to me that the approach which I understand to be that adopted by the FSA is indeed a correct one.

[16]The appointment of the inspectors on 3rd August was pursuant to section 169(1)(b), the request of an overseas regulator, and the reasons given are these:

"Investigators have been appointed in order to assist the SEC with its ongoing civil action [and that is then identified]. This action involves fraudulent and manipulative trading in the common stock of Sedona Corporation contrary to the general antifraud provisions contained in section 17(a) in the Securities Act of 1933 and section 10(b) of the Securities Exchange Act of 1934 [those two being of course United States statutes]."

Thus it is made clear that the investigators are there to assist the SEC with its ongoing civil action and that is the scope of their functions and, in the context of this case, what that effectively meant was that they were not exercising what one would perhaps normally think of as investigative powers, but were merely seeking to obtain the documents that the SEC said were required for the purposes of their claim. For reasons which will become apparent in due course, that in itself is not something that is prohibited by the Act. Action in support of a claim such as this by an overseas regulator is in my view properly within the scope of section 169. That it was not was a point which was originally apparently being made by the claimants. However, in the course of his refined argument, and the matters were fully before the claimants, it was, as I understand it, not seriously contended that it was not possible as a matter of statutory power to assist a foreign regulator in pursuing a claim, if pursuing the claim was a means whereby the foreign regulator was able to exercise its regulatory functions in order to achieve the results which they wanted to achieve. However, it will be necessary to consider whether the fact that it is in support of a specific claim is a matter which can be said to control the scope of the relevant investigation in the particular circumstances.

[17]As I have already indicated, the initial request came on 24th July. It referred to the claim and that must therefore be the starting point. The claim itself was, as again I have already stated, lodged on 3rd April 2006. The relevance of that is that there is, as I understand it, a five year limitation upon certainly much of the claim that could be made and, since the activities in question concerned an advance to Sedona in March 2001, it was necessary to institute proceedings by 2006.

[18]The nature of the claim is of importance. I have before me what is described as the complaint, which is the equivalent of what in this country would be a pleading, and, under the heading "Nature of the Action", paragraph 1, so far as material, states as follows:

"1. This action involves fraudulent and manipulative trading in the common stock of Sedona Corporation (Sedona), a Pennsylvania software company. Defendant Andreas Badian and others, acting for Rhino Advisors, Inc. (Rhino), and unregistered investment adviser firm, used 'short' selling to manipulate Sedona's stock price downward to favor the financial interest of Rhino's client, Amro International, SA. (Amro). Under an agreement with Sedona, Amro loaned Sedona $2.5 million, which was consideration for Sedona's promise to pay Amro $3 million approximately four months later. The agreement permitted Amro to concern Sedona's debenture debt to shares of Sedona's stock when pre-established conversion dates occurred. The agreement operated to give Amro more shares of Sedona the lower its share price round the times of the conversion dates. To preclude Amro from manipulating Sedona's share price, the agreement prohibited Amro from short selling Sedona's stock."

There is a footnote which explains what is involved in short selling. I do not think I need read that. It goes on:

"Notwithstanding this prohibition, Badian engaged in a scheme of extensive short selling of Sedona's shares in violation of this agreement and federal securities laws. This conduct operated as a fraud on Sedona and the market for Sedona's shares. Defendants Jacob Spinner, Mottes Drillman and Jeffrey 'Danny' Graham assisted Badian in carrying out is scheme. They executed manipulative trades through accounts they controlled at Defendant Pond Equities and another broker, Refco Securities. 1. Badian illegally directed defendants Spinner, Drillman and Graham to sell short massive amounts of Sedona stock with 'unbridled levels of aggression', intending to 'clobber' Sedona's stock price until it 'collapsed'. These three individuals concealed Amro's identity from the market, which permitted them to create the false appearance that individual investors were selling large amounts of Sedona's stock. During March 2001, Badian directed trading in Sedona which comprised approximately 40% of all trading in the stock. During that period, Sedona's share price dropped from an average of $1.43 a share before March 1, 2001, to an average of $.75 per share by March 23, 2001."

Then allegations are made against Pond Equities and its President and compliance officer. There is then an indication as to who the defendants are. Badian, it is said, is an Austrian national residing in New York and:

"At all times relevant to this complaint, Badian worked for Rhino Advisors, Inc, an unregistered investment adviser."

Amro is said to have been a "Panamanian corporation headquartered in Zurich, Switzerland" which "provides convertible and equity line financing to companies in need of capital. Paragraph 19, there is a reference to Thomas Badian, who was Rhino's president and controlled its operations, and it is said his brother Andreas assisted Thomas with its operations and in paragraph 20 it goes on:

"On February 27, 2003, the Commission filed a settled civil action in this Court against Rhino Advisors and Thomas Badian for their roles in the scheme to manipulate the price of Sedona's stock. 21. On 7th March, 2003, this Court entered a final judgment against Rhino and Thomas Badian. The judgment enjoined them from further violations of the anti-fraud provisions of federal securities laws; it required them to pay a penalty of $1 million dollars; it required Rhino to respond to an order that the Commission issued to it pursuant to Section 21(a) of the Exchange Act; it required Rhino to hire an independent consultant to review its compliance policies and procedure; and it required Rhino to implement the independent consultant's recommendations."

[19]Then it sets out what are described as "Relevant Facts". "Background": it is alleged that Andreas worked for Rhino, reported to his brother, Rhino's president, and that Rhino arranged for clients to provide financing to public companies that had difficulty securing more conventional financing due to their financial condition, and then it goes on: "In November 2000, Rhino helped its client Amro enter into a Convertible Debentures and Warrants Purchase Agreement (the 'Agreement') with Sedona." and that provided the $2.5 million, and the point was that the lower Sedona stock price was during the five-day period prior to Amro's exercise of its conversion rights, the more shares Amro would receive on conversion and thus there was the prohibition in the agreement on Amro making short sales of Sedona's stock. It was said that the defendants Spinner and Drillman executed the purchase and sales of Sedona shares at Refco, which was the company, together with Pond, which was dealing with the allegedly unlawful transactions.

[20]There is nothing in any of the following factual observations which indicates or suggests that Amro, let alone Creon, which is not even mentioned in the claim, were themselves involved in the illegality of the relevant transactions, nor is it explicitly asserted that Amro knew of the short selling which led to the more profitable acquisition of the shares on conversion. It may be said that it could be implicit in the claim that Amro knew what was going on and thus were themselves involved, but, as I say, that was not necessarily the case and it certainly is not spelt out as being the case. Nor is it suggested in any of the facts asserted or made or the claim made or any of the claims for relief that Mr Badian had a direct interest of any sort, either personally or through his family, in Amro or in the amounts that Amro were making by way of profit.

[21]That such an assertion of fact was not made was of importance when one considers that one of the items of relief which were sought were orders that the defendants disgorge all profits and proceeds that they had received as a result of their conduct as described in the complaint with prejudgment interest. One would have thought that, if it was part of the claim, that Mr Badian had made a profit through Amro, that allegation would have been made because it was clearly material to the claim for disgorgement of profits. However, as I say, it was not.

[22]The letter of request of 24th July referred to the complaint and set the matter out in these words:

"As alleged in the SEC's complaint, this action involves fraudulent and manipulative trading in the common stock of Sedona Corporation ('Sedona'), a Pennsylvania software company. Defendant Andreas Badian ('Badian') and others, acting for Rhino Advisors, Inc ('Rhino'), an unregistered investment adviser firm, used 'short' selling to manipulate Sedona's stock price downward to favor the financial interest of Rhino's clients, Amro International SA ('Amro'), Creon Management SA ('Creon') and related Special Purpose Vehicles ('SPV') identified in Exhibit A to this letter. Under an agreement with Sedona, Amro loaned Sedona $2.5 million, which was consideration for Sedona's promise to pay Amro $3 million approximately four months later. The agreement permitted Amro to convert Sedona's debenture debt to shares of Sedona's stock when pre-established conversion dates occurred."

And then they refer to the prohibition against short selling and go on to say that it was alleged that Badian engaged in a scheme of extensive short selling in violation of the agreement, that the other defendants assisted him through accounts controlled at Pond Equities and Refco and the individuals concealed the identity of Amro and Creon from the market, which permitted them to create the false appearance that individual investors were selling large amounts of Sedona's stock. It went on:

"The SEC Staff has discovered documents indicating that Goodman Jones served as the accountants for Rhino and the funds it advised, including Amro, Creon, and the SPVs. We are seeking the FSA's assistance in obtaining the production of documents from Goodman Jones because we believe that they are necessary to assist us in our prosecution of this case. The documents sought from Goodman Jones will show the identity of the owners of Amro, Creon, and the SPVs and the roles of those entities and their owners in the alleged fraud to manipulate Sedona's stock price."

They pointed out that the SEC had been ordered to complete discovery by August 30th and they did not believe that an additional extension of time was possible. They then identified the very wide scope of the request.

[23]Not surprisingly, and perfectly properly, the FSA had concerns as to whether the request was consistent with the scope of the claim and so a telephone call was made by the relevant employer of the FSA to the requesting authority. I have a note of that call and what is said in it, as far as material, is as follows:

"In particular, the FSA wanted to discuss the scope of the request and the relevance of information requested. In particular, the FSA could not understand the relevance of the information requested about Creon and a number of SPVs, as they were referenced in the SEC's publically available complaint. The FSA wanted to discuss the following areas of concern with the SEC: 1. How are Goodman Jones related - who are their clients? 2. Who are Creon and what is their involvement as they are not mentioned in the SEC complaint? 3. How are the SPVs related? 4. Why is the timeframe so wide considering conduct in question was prior to 2003?"

This is recorded:

"The SEC explained that the fraudulent action by Andreas Badian as contained in the SEC's request was not an isolated incident and that Andreas Badian and other members of the Badian family had been involved in repeated fraudulent and manipulative practices. The SEC explained that Creon was an organisation that had been identified during discovery which has the same status as Amro and appeared to be involved in the same manipulative transactions. The SEC believe that both Amro and Creon are ultimately owned by members of the Badian family and that Andreas Badian personally profited from the manipulative trading in question. "

AB [that is one of the callers on behalf of the FSA] explained the scope of the request was problematic on two grounds: 1. Logistical -- can GJ reasonably produce the information in such a short period of time. 2. Process under FSMA - the FSA needs to be able to prove request is reasonable and necessary in the circumstances." So clearly they took the view that the section 172 provision was in play:

"AB asked whether it was possible the scope of the request in order to obtain correspondence related only to transactions. AB explained that the FSA can only for what is relevant and necessary and that as the request stands, it is not clear what the links are or the relevance/necessity of the information sought."

The reply was the SEC did not view the request as unreasonable:

"Explained that Badian had done the same thing with other transactions and under US laws, 'pattern and practice' could be used as evidence to show a guilty mind. The interest in Creon and the SPVs is to show a course of behaviour and highlight that Badian had acted in a fraudulent way on a number of occasions and may himself have personally benefitted from the manipulative trading in question."

[24]They confirmed they would send correspondence confirming this and that they did by means of an email on 28th July 2009, in which they said as follows:

"1. Creon and Amro were both managed by Badian's company and engaged in what appears to be the same fraudulent conduct. They both used the same source of funds for their business. 2. The Special Purpose Vehicles operated to conceal the action of Amro and Creon. 3. The correspondence sought in Item 'b' concerning Amro, Creon and the SPVs should show who was directing their activities, the source of their funding, the nature of their operations, and the distribution of profits from illegal conduct. The bank records sought in Item 'c' should document the flow of funds into and out of accounts in the name of Rhino, Amro, Creon, and the SPVs. They should also help establish the extent to which Defendant Badian profited from the fraudulent activities of these entities in which he participated."

That was a reference to documents other than those from Goodman Jones. They went on. "The documents that the Commission seeks from Goodman Jones go to the heart of the allegations in the Complaint. Those documents will help establish the following: 1. Who owns and financed Amro's activities? 2. Who owns and financed Creon's activities? 3. How did Amro and Creon initially fund the transactions that gave rise to the allegations in the Complaint? 4. How Amro and Creon initially funded similar transactions? 5. How Amro and Creon earned money from such transactions? 6. To which banks or other depository institutions did Amro and Creon send the earnings or profits from those transactions? 7. Whether any of those earnings are traceable to the funds expended for the benefit of Defendant Badian? Our goal is to show a 'pattern of practice' or a 'course of conduct' on the part of Defendant Badian. Such a showing finds support in the law of evidence applicable to this case. Our US Federal Rule of Evidence 404(b) permits a proponent to show 'other crimes, wrongs or acts [to show] proof of motive, opportunity, [or] intent' to engage in the conduct of which a civil Complaint alleges. Correspondence developed in this litigation reveals that Goodman Jones was intimately involved in maintaining the books and records of Rhino, Amro, Creon and the SPVs. Those documents too will help prove the allegations in the Commission's Complaint."

[25]The FSA then considered the matter and produced, as I gather is normal practice, a written document setting out the matters that they had to take into account and identifying the powers and constrictions under those powers and decided that, as a result of the clarification, they were able to accede to the request from the SEC. They took the view that it was a matter which they ought to pursue in order to co-operate with the SEC and they were persuaded that the scope of the request was not too wide and so it was proper to comply with it in support of the claim being made by the SEC against Badian and others in New York.

[26]But it is to be noted that what was being requested was material which it was said would show that Amro and Creon were themselves knowingly involved in the unlawful practices in question and an attempt to show that Badian or his family were behind Creon and Amro. I should say that it is denied on behalf of the claimants that Badian or his family were ever directors, ever officers, employees or investors in either of the claimants and the suggestion that they were effectively running Amro was entirely wrong.

[27]I should say too that Mr Badian has put in a defence in the New York action denying any wrongdoing of any sort by him, but there does appear to be on the face of it, from extracts that I have seen, some fairly powerful evidence against him in what he has said in some emails and what he is reported to have said to some other persons. Whether that will in the end establish the claim I do not know, but it is also of course noteworthy that his brother Thomas and Rhino have been prepared to consent, it seems, to judgment in the terms that I have already indicated. That, of course, does not mean that Andreas was himself also guilty but it may make his task the more difficult.

[28]It is submitted on behalf of the claimants that there has been a change of approach or change of the reasons why this documentation is considered to be necessary. It is clear that it was not until a late stage that the suggestion that the material from early 2000 to date was relevant was made. I say that because a subpoena was issued against Rhino on 18th June 2009 and that contained a requirement to produce documents and those documents included:

"All documents that relate to Rhino Advisers Inc., Amro International SA ('Amro'), Creon Management SA ('Creon') and/or their Special Purpose Vehicles identified in Answer No 1 and Attachment A to Rhino Advisers Inc's 21(a) Report filed with the Security and Exchange Commission and sworn to on May 6, 2003, provided to and/or prepared by Goodman Jones Chartered Accountants [and their address is given] including, but not limited to, bank, brokerage and/or depository accounts in any of the Amro and/or Creon or their Special Purpose Vehicles names, in which any of them had signatory or trading authority, and/or in which any of them had a legal or beneficial interest, that were open for the period from July 1, 2000 through December 31, 2001."

[29]Now this, as I say, was 18th June 2009. Any sensible reading of that requirement shows that it was to be limited to documentation covering the period July 2000 to December 2001. That was a not at all surprising limitation period because it covered the Sedona transactions and it did not at that stage go further and require the documentation after December 2001. It is, on the face of it, to say the least curious that even at that late stage, this being a month before the 24th July letter, the SEC did not apparently take the view that it was appropriate to seek the documentation going up to 2009 and it is not altogether surprising that that should be the case when one bears in mind the claim which was settled in 2003 and the injunction accepted by Rhino and Thomas then. The suggestion that there have been other transactions which were dishonest in the same way as those involving Sedona is one which, in relation to events after 2003, is somewhat curious and certainly unparticularised.

[30]There has been produced a statement on behalf of the FSA by Mr Martin. I am referring to the second witness statement which is dated 24th August and in it he says this in relation to pattern or practice:

"The FSA understood at the time of the request that the SEC's primary purpose in seeking the Goodman Jones material was to establish whether or not the Badian family benefitted from trading carried out by Amro and Creon and/or the SPVs in connection with Sedona. The FSA also understood that the SEC would be interested in material (if any) which shows, in addition, that the Badian family benefitted from other activities carried out by Amro and Creon and/or the SPVs. Mr Guido [that is the gentleman involved with SEC] has recently informed the FSA that audio tapes obtained by the SEC from one of the brokers contain conversations about short sales of stocks other than Sedona, including conversations that suggest that the brokers viewed a major part of the Badian trading strategy to be an aggressive illegal short strategy. Mr Guido advises that these comments are not limited to Sedona or Amro. Mr Guido also informs me that spreadsheets which were originally withheld from the SEC and only produced in [April] 2008 after the Court ordered their productions show short sales of between 20 and [30] stocks and that the information available to the SEC indicates that the Badian family's scheme involved other stocks and the use of Amro, Creon and a number of their SPVs to secretly engage in the illegal short sales of many stocks in addition to Sedona. Mr Guido has also informed me that in early 2000 the brokers acting in the relevant transactions were instructed to copy all documents to Goodman Jones and that it is therefore reasonable to conclude that the Goodman Jones files contain the only complete picture of the activities of Amro, Creon and the SPVs and, in particular, the distribution of funds to and from those entities."

[31]The first point to make is that the spreadsheets were apparently in the SEC's possession in April 2008 and the subpoena to Rhino was June 2009 and this request was July 2009. It is necessary to ask the question what on earth were they doing between April 2008 and July 2009 if they thought that they had material which was relevant and which showed other instances by Amro and Creon, and of course by Badian, of the short selling which was in issue. No explanation has been given. The second point is that all this information was not available to the FSA at the time they made their decisions, it is information that has been provided subsequently, and, thirdly, it is not entirely clear from what Mr Martin says but it seems likely, in context, that the other transactions to which reference is made are transactions which occurred before 2003. So the suggestion that there is a need for production of the relevant documents after 2003 in support of a suggestion of misconduct which can be prayed in aid is one which appears decidedly suspect.

[32]Clearly the suggestion that the Badian family is behind Amro is one of which the SEC was aware from Mr Charron's statement of May 2003. If that was a part of their claim they should have included it in that claim in April 2006 and it is, to say the least, extraordinary that it was not until July 2009 that that allegation was sought to be pursued as a basis, indeed as the basis, in the initial request for requiring the disclosure from Goodman Jones. There has been no suggestion that the claim is to be amended or that permission has been sought to do so in order to enable these allegations to be made.

[33]I have said that the claimants have submitted that there has been a change of approach in the suggestion that they were relevant to misconduct in addition to that alleged in the claim, which was admissible under the relevant federal rules. I do not think there is any question of a change. It seems to me that what has been happening here is that at the very last moment the SEC are trying to bolster their case and clarifying the reasons why they are seeking this material. It is not so much, as I say, a change but an attempt to justify the claim which they are making. It does not make it any better for that but I would not regard it as a charge.

[34]Mr George has submitted that, certainly so far as the ascertainment of whether Mr Badian profited as being behind Amro and Creon is concerned, that is something which is material to the Sedona case. Documents held by the accountants may indicate that proceeds went to the Badian family or that the Badian family were in some way involved with Amro would be material to that allegation. So it might if that allegation had been made. It has not been made, at least not explicitly: it has only been raised very much at the last moment. Mr George submits too that I should not assume that the SEC has been dilatory. It is not a question of assuming it, it seems to me to cry out from the history of this matter. The SEC has had the relevant information, so far as the Badian family's alleged involvement with Amro and Creon is concerned, since May 2003. They have had the spreadsheets and the suggestion of other unlawful activity since at least April 2008 and probably earlier (although they did not have the spreadsheets, they certainly had the allegation). They had investigated the matter carefully in 2000 through to 2004 and as a result of those investigations they had decided that the only action that they could take was action in relation to the Sedona transaction. They did not take proceedings against Mr Andreas Badian until April 2006, which appears to have been very much at the last moment available to them. That action has now been going for over three years. They have had to require extensions of time in order to complete discovery and in February of this year the judge made it clear that he had virtually got to the end of his tether and was not likely to give them any further extensions and it was not until less than a month before the final extension expired that they seek this extended disclosure. All that shows clearly in my judgment that the SEC's actions have not been as speedy as they should have been and the FSA has been asked to help them pick up the pieces at the very last moment.

[35]That is, of course, a matter relied on by the claimants. They also make the point that what is happening here is a use of the FSA to produce for the SEC discovery of documents for their claim and it is said that this is to bypass the protection that is normally available through the Hague Convention which provides for judicial imput both in the United States and in this country to applications of this sort for discovery. It so happens that there is a possibility of compulsory powers being used through the FSA and that, it is said, is a misuse of the powers.

[36]While I do not think, and I will deal with the legislation in a moment, that that in itself, that is to say the fact that this is an assistance for a civil claim, means that the FSA should not have agreed to assist, it is a factor which may have some relevance and should be taken into account. It is said too that this was contrary to the SEC's own manual, that indicates that investigators should not make use of compulsory powers in order to obtain documents in this sort of situation.

[37]But, having seen the manual, it seems to me to be plain that that is not a prohibition as such, it is merely an indication that there is a danger in doing it because the judge may then decide that the discovery was not one which would mean that the documents could be produced in evidence and so it was a warning to avoid it in case. As it happens, there has been an application by Mr Badian to the judge to prevent the discovery which is being sought but that has failed and I am told that decision is under appeal but as yet it is not known what the decision will be. Obviously, if on appeal the decision is that it should not have happened, all this will come to an end, inevitably, but as things stand it seems to me that that is a matter really for the United States court to decide as to whether it is an appropriate matter. Nonetheless, it is a factor and, when one couples that with the knowledge that what is here being suggested is that it will be alleged that Amro and Creon, who are not parties to the SEC claim, have actually been guilty themselves of unlawful conduct, then one appreciates the importance of ensuring that they are not prejudiced is one of the factors to be taken into account, because, on the face of it, not being parties, they would have no right to defend themselves against the allegations and might be faced with findings made in their absence that they were indeed involved in these practices and that is something which, certainly from the point of view of a domestic court, would be regarded as unfair. Indeed, if one looks at this from the point of view of a domestic court, it is questionable whether an application of this sort would be permitted if the claim had not been made and there was in effect no material other than possible suspicion which was relied on to justify the claim being made.

[38]I have referred to the legislation. It is obvious that when it talks about investigation it conjures up a situation which is not that involved here, because an investigation would normally be a regulator endeavouring to discover whether an individual had been guilty of any particular unlawful conduct and an investigator would be seeking to discover material which might or could support that assertion. If one looks at the wording of section 169(4)(b), one sees that it talks about whether the case concerns a breach of the law and so on. I asked in the course of argument what "the case" meant in that context, what was covered by "the case". Here, it seems to me, the case is no more than that discovery requested is being sought. But whether that involves the assertion of a jurisdiction not recognised by the United Kingdom is a possible question. On the whole, I think it probably is limited to jurisdiction to deal with a matter rather than whether a particular action should or should not be taken in the course of proceedings. That is to say whether discovery would be granted in an equivalent situation is not a matter of jurisdiction.

[39]So, as it seems to me, as a general approach there is nothing in the Act which prevents this particular sort of co-operation. Indeed, as Mr Martin makes clear, it is of vital importance that co-operation is maintained because regulation of markets and of business activities is something which, even if it does not in a specific case have a direct connection with this country, is capable of affecting us all. One only has to look at the present situation and the banking crisis, which to an extent seems to stem from the failure of proper regulation in the United States, to see how there can be a serious knock-on effect and thus, as I say, the co-operation with overseas regulators is of vital importance.

[40]This is a matter which Mr Martin emphasises in his statement. There is a specific agreement with the United States and there is a general agreement which is known as the IOSCO Multinational Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, introduced in May 2002. That followed the events of 9/11 and is of course wider than merely covering regulation, but it also is material to that and one of the points made is that the information received as a result of any request must be kept confidential by the receiving state, or rather by the receiving body, and can only be used for the purposes for which it is provided. Furthermore, one of the provisions in I think the UK/US agreement is that the requesting body's application is not to be disclosed to any party unless such disclosure is essential in order to achieve the result of the request or the requesting body agrees that such disclosure can be made. That is material in this case because one of the complaints is that there was a failure to inform or to consult with the claimants. It is said that they could and should have been asked whether they consented to any disclosure of this information. Furthermore, they ought to have been informed before they were, because it was not until the weekend of 8th/9th August that information was given to them which led to these proceedings, that this request had been made.

[41]I understand entirely why the information was not passed on because of the terms of the agreement in question. However, it does seem to me that, in the context of this case, since no-one could conceivably suggest that Goodman Jones were likely to do anything which should not have been done, and they could have and would no doubt have agreed not to pass on any of the documents until the matter was sorted out, in those circumstances any dangers of failing to notify Creon or Amro would not exist. Obviously one could think of situations where there would be a risk in informing individuals, that there might be destruction of documents or whatever, but that seems to me not to have been the position here. However, that in itself does not seem to me to be a basis for finding against the FSA in the circumstances of this case.

[42]I come back then to the powers. It seems to me that where, as here, the request for assistance is based, as it was, and indeed the appointment of inspectors makes this clear, on the need to assist in the claim, then the nature of that claim becomes of fundamental importance. It is all very well for the SEC to say that they should be allowed to produce the evidence of other misconduct and to say that they are now alleging that Creon was involved and Amro was involved because Badian was himself, or through his family, effectively the owner of, or heavily involved in, the claimant companies. Those are not allegations which are contained in the claim and, as it seems to me, in those circumstances it is wrong for the FSA to agree to go beyond what is actually covered by the claim. It is particularly the case where, as here, the claim is made for such a wide variety of documentations.

[43]Mr Hunter submits that they have not been specified within the meaning of the legislation. Certainly "specified" can include a wide identification of documents but here there is indeed a scope for wondering precisely how far this went and, indeed, Goodman Jones themselves raised queries as to the extent to which they were bound to give discovery. But, more importantly, these, as I say, are sought in order to try to identify unlawful activities by, among others, Amro and Creon, who are thus being dragged in, without any right to defend themselves. It seems to me in those circumstances that the FSA could not have done other than decided that it was not necessary or indeed proportionate for the wide scope of discovery that was sought to be agreed to.

[44]One of the submissions made by Mr Hunter was that there was an obligation to consult the claimants in the circumstances and an obligation not only to consult them but to make further enquiries of the SEC. It seems to me that there is no obligation to consult the claimants. At most, it may have been appropriate to have asked them, having of course sought the SEC's agreement to this, whether they would consent to the production of the documents in the sense of permitting Goodman Jones to provide them or any of them. It seems to me that in the circumstances there was no real risk of any dissipation or destruction or loss of relevant documents. So that is as far as any discussion with, or any information to, the claimants is concerned.

[45]So far as questioning the SEC is concerned, it would, I am satisfied, place an intolerable administrative burden on the FSA if they were required to satisfy themselves in all cases as to the correctness of what they were being asked to investigate or the basis upon which the investigation was asked for. They are entitled generally to rely upon the information given to them by the foreign regulator and, in cases other than those such as this which rely on support from an individual court case, normally they will be told, I imagine, why it is that the information is sought, or rather that the investigation is sought, because the allegations are whatever they are and the regulator in question is pursuing the relevant enquiries. As I say, as a general proposition, it seems to me that such an investigation will be an endeavour to find evidence, that is what an investigation is all about, based upon allegations which may in the end turn out to be without foundation but which are taken seriously and properly taken seriously by the foreign regulator.

[46]The circumstances here were such as did mean that the FSA thought it right to make some enquiries and that was because the request made did not seem to be consistent with the case which they were being asked to support. Those enquiries made were properly made and it seems to me the FSA adopted entirely the right approach. When, however, they received that information, for the reasons that I have given I do not think that they were justified in giving the assistance that was sought, but I do not think equally that it was necessary for them to make yet further enquiries in order to see precisely upon what the allegations were based. They were faced with what was requested, they knew that it was a request made very much at the last minute (that was obvious from the timing) and they knew the extent of the request and of the documents that they were being asked for. But, as I say, I do not think that there was any specific duty to make further enquiries. It may be that, if they still thought in terms of accepting the request or possibly accepting the request, they should have followed it further, but that was only if they sought to justify agreeing to the request.

[47]In those circumstances, I am satisfied that the claim to that extent succeeds, and I say to that extent because I recognise, indeed it is clear, that some discovery will indeed be proper and, provided that that discovery was limited to the Sedona transaction or relevant to the Sedona transaction, then there could be no objection to it.

[48]Mr Hunter, I have received your observations on that aspect. Mr George, I am not sure whether I have seen yours yet.

[49]MR GEORGE: My Lord, no. We waited -- we meant no offence -- to hear the judgment, lest we made, as it were --

[50]MR JUSTICE COLLINS: In that case, the sensible thing is for me to hear some argument, if there is argument, about what order I should make in those circumstances. Broadly, as I have indicated, I am with the claimants but I think that there is scope for, whether by voluntary agreement or by compulsion, it does not seem to me to matter --

[51]MR GEORGE: My Lord, may I take instructions, having heard the judgment, as to the position we would adopt, but perhaps I could ask my Lord for this indication: perhaps the fundamental disagreement between my learned friend and I on these observations will be whether we are entitled to documents in relation to Creon and its SPVs. My Lord is well aware of the argument: you know, they are not mentioned in the complaint, on the other hand we say that is a different order to the pattern and practice. It is Sedona based.

[52]MR JUSTICE COLLINS: I think that probably the answer to that is no, because they have not included Creon. It does not actually matter for their purposes, I would have thought, because, if their case is that he is behind Amro and Amro provided the money, it does not matter if Creon did too.

[53]MR GEORGE: Well, my I asked for that indication to decide whether -- to what extent to push against a closed door or to what extent an open door.

MR JUSTICE COLLINS: By all means.

[55]MR GEORGE: But I could take instructions. It would probably assist in deciding whether there is any substantive argument and we are very grateful for my Lord for agreeing to hear it if there is not.

[56]MR JUSTICE COLLINS: OK. Well, do you want to do that now?

[57]MR GEORGE: Yes, if I may. It will only take --

MR JUSTICE COLLINS: Yes, assume I am not here.

[59]MR HUNTER: Well, my Lord, I was going to suggest perhaps that we might benefit from just a few minutes to discuss --

[60]MR JUSTICE COLLINS: Yes, by all means. It is simply that -- actually, I could do something in the meantime, so I will disappear then. Well, if I come back in about ten minutes or so.

[61]MR HUNTER: That would be suitable. May I just mention one point before my Lord rises, which is that, during the course of my Lord's judgment --

MR JUSTICE COLLINS: I am sure I said many things that were wrong.

[63]MR HUNTER: You summarised the claimant's position about who owns Amro, Creon and the hundred companies or so in -- using quite broad language. What I need to make clear is that our position is set out in the witness evidence. What I said yesterday is our position is that set out in Mr Hancock's statement at paragraph 60.

[64]MR JUSTICE COLLINS: Well, as I understood what Mr Hancock says, he says that Badian has nothing do with --

[65]MR HUNTER: He mixes -- he deals with Andreas Badian and Thomas Badian. What I also said was it remains the case we are happy to answer questions about the ownership and funding of my clients. We said that yesterday. We have not had the questions and I am not going to do it in this court, because it is in public at the minute, otherwise I --

MR JUSTICE COLLINS: No, of course.

[67]MR HUNTER: But I just want to make it clear that the position is that set out in paragraph 60.

[68]MR JUSTICE COLLINS: Well, I thought that I said correctly, did I not, that your case was neither of the Badians had anything to do with your client.

[69]MR HUNTER: Well, the position is that -- it is set out in paragraph --

MR JUSTICE COLLINS: Which of Mr Hancock's paragraphs?

[71]MR HUNTER: Paragraph 16.2 and 16.3.

[72]MR JUSTICE COLLINS: That is in tab 6? (pause) He is not a director, officer, employee or investor in either of the claims.

[73]MR HUNTER: Yes, that is our position.

[74]MR JUSTICE COLLINS: Well, that is what I thought I -- well, all right, I put it broadly as nothing to do with.

[75]MR HUNTER: Yes.

MR JUSTICE COLLINS: But is that not effectively what has been said?

[77]MR HUNTER: My Lord, without going into the details, which we are quite happy to go into --

MR JUSTICE COLLINS: When it comes to correcting the judgment, I will use the wording of --

[79]MR HUNTER: I am very grateful.

[80]MR GEORGE: My Lord, the only other matter was -- my Lord made a reference to present dates in Mr Martin's statement.

MR JUSTICE COLLINS: Yes, it was not entirely clear to me --

[82]MR GEORGE: I did and I apologise. I probably did not make it clear that my learned friend had expressly asked me to do it. That is the date of Mr Charron's statement rather than --

MR JUSTICE COLLINS: It was back in 2003.

[84]MR GEORGE: Exactly. So that is what that particular --

[85]MR JUSTICE COLLINS: It is my fault. I had forgotten whether that was made clear in argument. If it was I apologise but if it was not you can understand my --

[86]MR GEORGE: Absolutely, my Lord. Just to be clear.

[87]MR JUSTICE COLLINS: All right. Well, look, I will come back in about -- I will not be precise, probably about ten minutes or so. (A short break)

MR JUSTICE COLLINS: Have you had long enough?

[89]MR HUNTER: Yes, I am very grateful, my Lord.

[90]MR JUSTICE COLLINS: That is all right. I am sorry to be bit later than I said. Yes, what do you want me to do?

[91]MR GEORGE: My Lord, before dealing with the question of permission to appeal, my learned friend and I have reached an accommodation, that is a document that is prepared to provide voluntarily -- or, to be accurate, Amro is prepared to undertake to instruct Goodman Jones to provide -- and we both accept that if Goodman Jones raise practical problems then --

MR JUSTICE COLLINS: Well, there is a representative of Goodman Jones here, is there not?

[93]MR GEORGE: I am not sure there has been, my Lord.

[94]MR JUSTICE COLLINS: I thought there was someone here -- I was told that there was someone here on behalf of Goodman Jones observing, but I was obviously wrongly informed.

[95]MR HUNTER: If it was me that said that then I apologise. There are other people observing but they do not appear to be from Goodman Jones.

[96]MR JUSTICE COLLINS: I do not imagine there is any problem because -- I cannot believe there could be, because it is your confidentiality that matters.

[97]MR HUNTER: Yes. I think what we had in mind is that neither of us have any idea how long it would take Goodman Jones to extract the documents. Only Goodman Jones will know that.

[98]MR JUSTICE COLLINS: Yes, but, I mean, all that I think can be suggested is they please do it as quickly as they can.

[99]MR HUNTER: Yes.

[100]MR GEORGE: My Lord, the amendment we have made to my learned friend's observation, if my Lord has it,(1) and

(2) are as they are, but there is an additional (3): "the allegation that the alleged open 'scheme of extensive short selling of Sedona shares' was engaged in by Mr Andreas Badian".

[101]MR JUSTICE COLLINS: Right. Well, can I leave it to you to -- I do not know, what is the best form in which that can be done? Recorded as an undertaking or what?

[102]MR GEORGE: My Lord, recorded as an undertaking, in my Lord's order.

[103]MR JUSTICE COLLINS: So what I will say is that the order of the court will be to allow the claimant's claim, to quash the two orders subject to an undertaking in the terms that you have indicated.

[104]MR GEORGE: My Lord, yes, and I can see no --

[105]MR JUSTICE COLLINS: As long as we have caught the details of the undertaking. That I think is the appropriate way, is it not, of dealing with relief?

[106]MR HUNTER: My Lord, yes. If it is helpful, we could prepare a minute of order.

[107]MR JUSTICE COLLINS: Yes, if you would. Yes, we do have an associate here. I can never see over the --

[108]MR GEORGE: My Lord, the other connected matter is, before I make any application for permission to appeal, it is accepted that, for a short period whilst there may be a possibility of an appeal, or a possibility of the SEC asking for a fresh decision to be made on a different basis, that the document which Goodman Jones had prepared relating to everything, as it were, that they would have handed over today, if we had succeeded, should be preserved, although obviously not provided to us, and --

MR JUSTICE COLLINS: Well, that is reasonable.

[110]MR GEORGE: -- we are also -- and what we still suggest is the order for the interim will direct Goodman Jones to preserve for six weeks, but the FSA have liberty to apply should there be any circumstances --

MR JUSTICE COLLINS: Again, I am quite happy with that, subject to --

[112]MR HUNTER: My Lord, yes.

MR JUSTICE COLLINS: Again, if you want that recorded, then --

[114]MR GEORGE: My Lord, yes. Those instructing me will inform Goodman Jones, as soon as this hearing is over, that that has been agreed. It should not be in any way controversial, but just to make sure the position is preserved.

MR JUSTICE COLLINS: Before we come to leave to appeal, costs?

[116]MR HUNTER: Yes. My learned friend ought to know what he is applying for permission to appeal against. We do make an application for a costs order.

MR JUSTICE COLLINS: Well, I do not think you can resist that, can you?

[118]MR GEORGE: Well, my Lord, I would make one sentence, that, as my Lord said, they succeeded --

MR JUSTICE COLLINS: Not wholly.

[120]MR GEORGE: Not wholly, and, my Lord, a figure of 75 per cent I concede without reservation. I do invite my Lord -- as my Lord knows, costs often do reflect issues and partial success.

MR JUSTICE COLLINS: More so nowadays than they used to.

[122]MR GEORGE: Indeed, my Lord.

MR JUSTICE COLLINS: I mean, some of their arguments I have not accepted.

[124]MR GEORGE: My Lord, yes, and indeed the original -- and obviously in an urgent case, with the evidence coming all the time, I entirely accept matters will change, but certainly the relief has been granted on a narrower basis than many arguments which were put forward.

MR JUSTICE COLLINS: Well, slightly narrower, but essentially they got what they wanted.

[126]MR GEORGE: Yes, relief, although it is slightly narrow, but many of the arguments have not succeeded. But I am not sure there is much more I can say other than 75 per cent is just, in my submission, my Lord.

[127]MR HUNTER: Well, my Lord, we say we have entirely succeeded and in fact, if at any stage, either pre-action or during the protocol procedure, we had been asked whether we would be prepared to consent to a limited category, we would have done, and so we have entirely succeeded in this application.

[128]MR JUSTICE COLLINS: I think the point that has been made is that not every argument you have raised has found favour.

[129]MR HUNTER: Well, yes, I suppose there are one or two that did not, but they have no impact in my submission on the overall costs nor on the result.

[130]MR JUSTICE COLLINS: No, I think that is probably right. It was a day case anyway. No, I think, I am afraid, Mr George, that you must pay the lot.

[131]MR GEORGE: I am grateful, my Lord.

MR JUSTICE COLLINS: Be the subject of detailed assessment if not agreed.

[133]MR GEORGE: I am grateful, my Lord.

[134]In relation to permission to appeal, we do ask for permission and I would state very briefly -- my Lord has obviously given the judgment and is very aware and will have formed a view on it, and in my submission this is an important claim, it relates to an important issue, and my Lord's judgment is focused very particularly on the circumstances in which the FSA is asked for assistance in the context of a pre-existing civil claim.

[135]MR JUSTICE COLLINS: Yes. It occurs to me, sorry, before you go on, that one thing that I forgot to deal with, and should have done, should have mentioned, was the argument of the need to consult. I think I had better say a few words about that because that is of some importance. So can I add to the judgment: [amendment made to judgment]

[136]Yes, sorry, I should have dealt with that, but I hope that I make it clear that I am not accepting that there is a burden upon the FSA.

[137]MR GEORGE: I am grateful, my Lord. The ground on which, or the principal ground on which, I would ask for permission to appeal is that the effect of my Lord's judgment, in circumstances where the assistance is predicated upon the pre-existing civil action, is -- and this is in my submission an arguable point that the Court of Appeal it is right should consider -- is effectively that assistance must be limited to the issues that are pleaded and an analysis of the pleaded claims, and I have particularly in mind the issues in relation to Creon and the SPVs, where, in my submission, it is at least arguable that those were matters of detail, as it were. OK, they were not mentioned in the particular complaint but that my Lord has adopted, in my respectful submission, too narrow an approach and too constricting an approach to the effect of a pleaded claim or, to put it another way, the restriction on what would otherwise be permissible under the investigatory regime, as it were, which my Lord's judgment imposes because of the existence of a civil claim, is one that extends beyond --

[138]MR JUSTICE COLLINS: Yes, I am not sure it is purely because of the existence of a civil claim but it is also that this is actually, undoubtedly, the obtaining of discovery through compulsory means, which is not impossible, but is a factor, I think, which is of considerable importance.

[139]MR GEORGE: My Lord, and it is that considerable importance, as it were, that I also pray in aid, as it were, in relation -- it is certainly not a majority of cases will have a pre-existing civil claim, but there is obviously a central importance in considering what effect that existence of that civil claim has in relation to the effects of disclosure and in particular to what extent one is confined specifically, with great specificity, to the terms of the pleadings.

[140]MR JUSTICE COLLINS: Yes, it may be that all that is needed is to say, well, look, are you intending to amend and you seek leave to amend to raise these issues which are not in your claim. There is no suggestion in this case that there was any amendment that was being requested. Indeed, it was their case they did not need to amend, as I understand it, to --

[141]MR GEORGE: Well, my Lord has the 404 point, that in a sense that, as it were -- my Lord's judgment is my Lord's judgment and in my submission it raises that interesting, important and, in my submission, arguable claim as to the effect which --

MR JUSTICE COLLINS: Yes, but it would all be a bit too late, would it not?

[143]MR GEORGE: Well, my Lord, that is the second point I was going to the make, but I make this submission, and my Lord has just given the judgment: it may well be -- in my submission permission should be granted on its merits, as it were. Obviously --

MR JUSTICE COLLINS: I take that point.

[145]MR GEORGE: -- if, having taken instructions -- I will not use the phrase throw in the towel -- then obviously we would not trouble anyone any further but at this stage I cannot undertake, as it were, that we would not, or would not be asked to, try and interest the Court of Appeal on an urgent basis or to seek to persuade an American court thereafter that, if we are -- if any delays are caused by us, as it were, successfully challenging an appeal and we were successfully to challenge it, that may or may not justify an American court. But I cannot at this stage, so I understand that may end it, but in my submission, from my Lord's point of view I ask permission. It should really be considered on the merits --

[146]MR JUSTICE COLLINS: That I entirely accept. Is there any other case equivalent to this which has considered the proper approach?

[147]MR GEORGE: My Lord, as I understand it, no. My Lord was referred to the Fieldglen case, which related to a tangential matter, and I accept probably plainly correct and a commentary upon section 171, but probably my Lord would not need that assistance. But, subject to that, this important area of the co-operation between international and regulators, and the quite extensive statutory scheme which my Lord has cited in his judgment, and has been referred to, has not yet been considered, this is the first time it has been considered, and in particular, of course, this very interesting and potentially significant issue about the interplay between the investigatory power and, to the extent that it can be said to be different, or should adopt different considerations, assistance for a pre-existing civil enforcement proceeding.

MR JUSTICE COLLINS: Yes.

[149]MR GEORGE: So in my submission, for its importance and arguability, I would invite my Lord to grant permission and not to take into account the fact our instructions may be that we are unable to --

[150]MR JUSTICE COLLINS: That I accept. I think it is not, or should not be, a material consideration, otherwise that will apply whether or I grant leave or I do not grant leave. You can always go to the Court of Appeal.

[151]MR GEORGE: My Lord, yes.

[152]MR HUNTER: My Lord, three observations about that. First of all, as to the alleged legal point, in my submission, there is no tenable or alternative construction of section 171(3). My Lord is absolutely right that, when one asks "what does reasonably considers the production of the document to be relevant to the purposes of the investigation" mean, in a context where the investigation is defined by reference to a case, that it can only mean reasonably considered relevant to the pleaded case. The alternative --

[153]MR JUSTICE COLLINS: Not necessarily the pleaded case, because if it is said that, look, we know what the pleaded case is, but actually our case is wider than that and we are going to be able, because of United States law, to pursue that wider case, then you can give us the necessary disclosure.

[154]MR HUNTER: Perhaps I can put it this way, the case based on the pleading --

MR JUSTICE COLLINS: Yes, I mean --

[156]MR HUNTER: But what exactly the alternative analysis is has never been clear and in my submission there is not a point of law here, it is perfectly obvious that that is the right answer, and there is no real --

[157]MR JUSTICE COLLINS: Well, I like to think I was right but I am conscious that the Court of Appeal does not always agree.

[158]MR HUNTER: Well, Mr George has not identified an alternative proposition for which to contend. So we say there is not a real prospect of any success on that supposed legal point.

[159]Two other points. The second point is this, that this is an extraordinary fact specific case. My Lord has made lots of findings of fact about the way in the SEC has conducted itself.

MR JUSTICE COLLINS: I am not sure -- their findings, I mean, they leap out the pages, as it were.

[161]MR HUNTER: Indeed, and in my submission it is inconceivable that, given those facts, there could be any different result in the Court of Appeal. The third point is this, the --

[162]MR JUSTICE COLLINS: I think all you are really saying is on the face of it you have merits on your side, but law and merits do not always coincide.

[163]MR HUNTER: Well, I think what we would say is that we clearly have law and merits, the law being the first point.

[164]The last point is this, that there was advanced an alternative ground, which was the specification point, and that has not been addressed and there is, in my submission, no prospect of challenging of that. These were not documents properly specified.

[165]MR JUSTICE COLLINS: Yes. I did not think it was necessary to go into that in any depth.

[166]MR HUNTER: My Lord, those are the points. In my submission, if Mr George is really going to pursue this, and he may decide better of it, then the right place and way for him to do that is to make his application for permission to the Court of Appeal.

[167]MR GEORGE: My Lord, in my submission, the relevant legal argument is around section 171(3). It is an important provision, without judicial consideration:

"A requirement under subsection (1) or (2) may be imposed only so far as the investigator concerned reasonably considers the question, provision of information or production of the document to be relevant to the purposes of the investigation."

[168]MR JUSTICE COLLINS: Yes, but I mean the marrying of 172 and 171 is, in relation to production of documents as to whether they are information, a little grey.

[169]MR GEORGE: My Lord, yes.

[170]MR JUSTICE COLLINS: You clearly, judging by your internal documents, took the view that it was the question of reasonable and necessary that was material.

[171]MR GEORGE: My Lord, yes. As a matter of statutory construction, that may well have been -- and obviously the FSA is entitled to take such things into the consideration in any event, but there is a separate statutory construction point about to what extent section 172 comes into play at all when section 171 is, as it were, necessary for the --

[172]MR JUSTICE COLLINS: It is not as clear as it might have been in the statute, but I think -- well, you know what I think.

[173]MR GEORGE: But, secondly, my Lord, and my Lord has dealt with this in his judgment, the question relevant to the purposes of the investigation, and my Lord has dealt with, well, what is the investigation in these purposes, and, to take one view, if the investigation is into the availability and existence of the documents which the American regulator has asked for, then by definition these are relevant --

MR JUSTICE COLLINS: Well, that is --

[175]MR GEORGE: -- and necessary. On the other hand, to the extent that which is reasonably relevant to the case which the SEC is, if I can put it neutrally, seeking to pursue in the pre-existing civil claim, well it is in my submission nonsense to suggest that there is no alternative claim. There are clearly important issues of construction as to whether that is the pleaded case, and my learned friend originally wished to jump on here, as it were, and that was his primary submission, it is the pleaded case and nothing more. There is an alternative and my learned friend moved into this, as it were, in debate, alternative to the pleaded case and perhaps matters supported by a drafted, if not permission granted, application to amend and a third alternative, and this is where in my submission we would, on the fact of this case, have been moved into play, matters where the SEC are stating this is the additions or these are the amplifications to the case which we intend to run.

[176]Now, my Lord, without going back into the facts of this particular case, in my submission, there is a range of meanings of that particular construction, all related to that central issue of you have a pleading, you have a pleaded case, now to what extent can you go beyond that, to what extent are you tied to that, and it is important and in a sense virgin, prior to my Lord delivering this judgment, statutory regime.

[177]MR JUSTICE COLLINS: Well, I accept that the point is of some importance to the FSA and the correct approach is of importance. I think the facts of this case point clearly in one direction, but that does not mean that the decision is necessarily going to be the same, having regard to the statutory provisions. In all the circumstances, I am persuaded that this is a matter which, were it not for the question of timing, would certainly be appropriate for consideration by the Court of Appeal if a claim were pursued, if an appeal were pursued. I do not think it is right to take the view that the possibility, possibly even probability, that time will have expired by the time the Court of Appeal reached any decision if permission is granted is a consideration that ought to weigh with me in deciding whether to give permission and so I am prepared to give permission to appeal in all the circumstances. (pause)

[178]I am just ascertaining when a the transcript could be available. I am told beginning of next week.

[179]MR GEORGE: I am grateful, my Lord.

[180]MR JUSTICE COLLINS: So I am in next week, in this jurisdiction, and I will -- all I can promise, I think, is that you will have a corrected transcript by the end of next week.

[181]MR GEORGE: I am grateful my Lord. I do not think there is any application I can may make for judicial request for the transcript to be expedited, so far as it is within my Lord's power.

[182]MR JUSTICE COLLINS: That is what I have just done. So, as I say, you should get it, I hope, before the end of next week, but certainly by the end of next week.

[183]MR GEORGE: I am grateful.

[184]MR JUSTICE COLLINS: All right. You can try and persuade the Court of Appeal.

[185]MR GEORGE: I am very grateful, my Lord, and we are grateful for the fact that the court has fitted in this application.

[186]MR JUSTICE COLLINS: All right. Yes, and thank you incidentally for the agreed bundles. Actually you can prune them to some extent, because there is a bit of duplication, is there not?

[187]MR GEORGE: Yes, my Lord.

[188]MR JUSTICE COLLINS: And I suspect you will please the Court of Appeal if you prune them as much as you can.