AAI Consulting Ltd & Ors v The Financial Conduct Authority [2016] EWHC 2812 (Comm)

[2016] EWHC 2812 (Comm)Case No CL-2015-000820
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Rolls Building, 7 Rolls Building, Fetter LaneDate 07/11/2016
London EC4A 1NL
Before
MR CHRISTOPHER BUTCHER QC(Sitting as a High Court Judge)
Between
AAI Consulting Limited & othersClaimantThe Financial Conduct AuthorityDefendant
Mr Stewart Ford represented the First ClaimantThe Fifth Claimant appeared in person for in personMr Laurence Rabinowitz QC & Ms Anna Boase (instructed by Dentons UKMEA LLP) for DefendantHearing Hearing dates: 19 & 20 October 2016
Judgment ApprovedMr Christopher Butcher QC :
[1]An application is made by the Defendant (“the FCA”) for summary judgment in respect of the whole of the claim against it pursuant to CPR Part 24.2, and/or that the whole of the Claimants’ Particulars of Claim (“PoC”) should be struck out under CPR 3.4(2)(a) and/or (b). If these applications are not successful, the FCA applies for security for costs.[2]In response, and in circumstances described below, the First Claimant has recently applied to stay the action.

Introduction and background

[3]The Claimants’ claims arise out of an investigation carried out by the FCA’s predecessor, the Financial Services Authority (“the FSA”), into a regulated company called Keydata Investment Services Ltd (“Keydata”) which resulted in its being placed into administration on 8 June 2009.[4]Keydata was incorporated in England and Wales and was an authorised person with permissions under Part IV of the Financial Services and Markets Act 2000 (“FSMA”) to carry on certain regulated activities. Keydata designed, packaged and sold investment products to retail investors via independent financial advisers in the following way:(1) The underlying investments were portfolios of US life settlement policies. These policies were acquired and held by Luxembourg special purpose vehicles (“SPVs”), namely SLS Capital SA (“SLS Capital”) and Lifemark SA (“Lifemark”).(2) SLS Capital and Lifemark issued bonds (the “SLS Bonds” and “Lifemark Bonds” respectively). These securities were acquired and held within Keydata wrappers.(3) These Keydata products included: (i) The “Secure Income Bond”, (“SIB”, of which there were four issues, SIB 1-4). SIB 1-3 were underpinned by investment in SLS Bonds, and SIB 4 in Lifemark Bonds. (ii) The “Secure Income Plan”, (“SIP”, of which there were thirteen issues, SIP 1-12 and 14). These were underpinned by investment in Lifemark Bonds. (iii) The “Defined Income Plan”, (“DIP”), a new product which was underpinned by investment in Lifemark Bonds.[5]In addition, Keydata also provided administration services for other major financial institutions.[6]From December 2007, Keydata was under investigation by the Enforcement division of the FSA. The FSA considered that that investigation had revealed breaches of a number of FSA requirements, and also a failure to ensure that products complied with Individual Savings Account (“ISA”) requirements.[7]Specifically, to qualify for ISA status:(1) the relevant securities must have been listed on a recognised stock exchange; and(2) as at the date when the securities were first held, the terms on which they were issued must not have required or permitted repayment or redemption within five years of that date. In fact it transpired that the SIB and SIP products did not comply with these rules in that: (1) SIB 1-3 were invested in SLS Bonds which were not listed on the Luxembourg (or any) stock exchange. (2) SIB 4 and SIP 1-12 and 14 were invested in Lifemark Bonds which were listed on the Luxembourg stock exchange, but not from the date on which they were first held.[8]In June 2009, the FSA took action relating to Keydata, which consisted of two nearly simultaneous steps. Thus:(1) It removed Keydata’s permission to take on new business through an “Own initiative variation of permission” (“OIVOP”); and(2) It applied for an order placing Keydata into administration, on grounds of insolvency and on just and equitable grounds.[9]On 13 November 2009, the Financial Services Compensation Scheme (“FSCS”) declared that Keydata was ‘in default’. The FSCS has subsequently paid out over £330 million to Keydata customers, funded by levies on other investment firms.[10]The administrators of Keydata concluded that there were no funds within Keydata to pay a dividend to preferential or unsecured creditors. The administration ended on 27 March 2014, and Keydata was dissolved on 2 July 2014. Enforcement action against Keydata was, in consequence, discontinued. The FCA proceeded with enforcement action against Keydata’s senior management.[11]The founder of and principal individual behind Keydata was Stewart Ford (“Mr Ford”). Keydata was a wholly owned subsidiary of Keydata UK Ltd, a Scottish company. Mr Ford was the majority shareholder and a controller of Keydata UK Ltd. He was also a director and the chief executive of Keydata.[12]Mr Ford was made bankrupt in Scotland on 4 July 2013. He has since been discharged from bankruptcy. His trustee in bankruptcy has assigned Mr Ford’s causes of action against the FCA to a company incorporated in Scotland, namely the First Claimant.[13]Mr Ford and three other members of Keydata’s management (Mark Owen (“Mr Owen”), who is the Fifth Claimant and was former sales director of Keydata; Craig McNeil, former finance director; and Peter Johnson, former compliance officer), were the subject of investigation by the Enforcement division of the FSA from September 2008 onwards. In October 2010, the proposed enforcement action resulting from the investigation was referred to the Regulatory Decisions Committee (“RDC”) of the FSA. On 26 October 2010 the RDC issued Warning Notices in relation to Mr Ford and others.[14]The proceedings before the RDC were held up between November 2010 and February 2014 as a result of judicial review proceedings brought by Messrs Ford, Owen and Johnson, which resulted in the Warning Notices having to be amended and considered by a differently constituted panel of the RDC.[15]From February to November 2014, the RDC considered the matter and heard evidence and submissions, and ultimately issued Decision Notices to Mr Ford, Mr Owen and Mr Johnson on 7 November 2014. These Decision Notices were published on 26 May 2015. The Decision Notices were to the effect that each of these individuals had failed to act with integrity and had misled the FSA on a number of occasions in relation to the performance of certain Keydata investment products. Each of Mr Ford, Mr Owen and Mr Johnson referred his Decision Notice to the Upper Tribunal: Tax and Chancery Chamber. Mr Johnson has subsequently withdrawn his reference but each of Mr Ford and Mr Owen, and the FCA, will present their cases in those proceedings (“the Upper Tribunal proceedings”), which are ongoing. The Upper Tribunal may uphold, vary or cancel the FCA’s decisions.

The Bringing of the Action

[16]Mr Ford first intimated claims against the FCA in mid-2014. On 26 May 2015 the FCA was invited to enter into a standstill agreement, to which it did not agree. On 5 June 2015 the Claim Form was issued, shortly before the sixth anniversary of Keydata’s administration order.[17]Under cover of a letter dated 2 October 2015, the Claim Form and the PoC were served on the FCA. The Claimants invited the FCA to agree to a stay of the High Court proceedings pending resolution of the Upper Tribunal proceedings. The FCA declined to agree, contending that the Upper Tribunal proceedings concerned the conduct of Mr Ford and others rather than the alleged conduct of the FSA and were not relevant to the High Court action, and that any further delay would be likely to prejudice the FCA’s position, in particular given that the claims related to events which occurred over 6 years ago.[18]On 4 November 2015, the FCA served on the Claimants a Request for Further Information (“RFI”) under CPR Part 18. It was detailed, and comprised 122 requests. The Claimants asked for more time to respond than the 21 days proposed, to take account of the availability of counsel and to accommodate the possible need to produce amended Particulars of Claim. It was agreed that the Claimants would respond to the RFI by 30 November 2015 and that, on that basis, the parties would seek the court’s consent to a related extension of the time for service of the FCA’s Defence to 29 January 2016.[19]In the event the Claimants did not respond to the RFI on 30 November 2015, and did not seek more time in which to do so. Instead, on 3 December 2015, their solicitors wrote repeating their earlier request for a stay, and indicating that the Claimants would not incur costs in responding to the RFI until the FCA had responded to that request. On 10 December 2015 the FCA stated that it was proceeding on the basis of the Claimants’ case as originally pleaded, and reserving the right to apply to strike out the claim or for summary judgment, without further notice. It also indicated that it did not agree to the request for a stay.[20]The FCA proceeded to issue its application to strike out and/or for summary judgment on 15 January 2016.

The Claim made

[21]The Claim Form as originally issued named 7 Claimants. Mr Johnson, originally the 6th Claimant, and Mr McNeil, originally the 7th Claimant, were removed from the Claim Form before it was served. It also named 3 Defendants, the second Defendant being PriceWaterhouse Coopers LLP (“PWC”), and the third Defendant being an employee of PWC, Mr Schwarzmann. The claims against the second and third Defendants have since been discontinued.[22]The Brief Details of Claim given in the Claim Form were in these terms:
“The Claimants claim against the First Defendant and its servants or agents for damages (including interest), aggravated damages and exemplary damages for misfeasance in public office arising from the First Defendant’s investigation into Keydata Investment Services Ltd resulting in the company being placed into administration on 8 June 2009. The Claimants claim against the Second Defendant and its servants or agents and the Third Defendant for damages (including interest) negligence and/or breach of duty arising from the production of a solvency report on Keydata Investment Services on 5 June 2009. The Claimants claim against all three Defendants and their servants or agents for damages (including interest) arising out of acts pursuant to a conspiracy entered into by the Defendants for the purpose of injuring Keydata Investment Services Ltd and the Claimants in relation to the winding up of Keydata Investment Services Ltd.”
[23]The claim thus brought against the FCA was two-fold: first, that the FCA was guilty of misfeasance in public office; and secondly that the FCA had entered into a conspiracy with PWC and one of its employees.[24]The PoC contain 67 paragraphs. The following are amongst the salient features of the PoC.(1) Paragraphs 1 to 4 introduce the First to Fourth Claimants. It may be noted that they do not include Keydata. The First Claimant is said to be “the assignee of the causes of action of [Mr Ford] which assets were purchased from his trustee in bankruptcy”. The Second Claimant is said to have “owned the global distribution rights for Lifemark”; the Third Claimant to have “had arrangements with the brokers who provided the life settlement policies to Lifemark”; and the Fourth Claimant to have been “involved in the marketing and management of Lifemark”. After paragraph 4, there is no further mention of the Second to Fourth Claimants in the PoC.(2) Paragraph 5 introduces the Fifth Claimant, Mr Owen. After paragraph 5 there is no further mention of Mr Owen save in paragraph 61.2, where it is alleged that he lost his job when Keydata was closed.(3) Paragraph 9 states that the claims “arise from the unlawful investigation and subsequent closure of [Keydata] in June 2009”. Paragraph 10 goes on to allege:
“10. The Claimants’ claims are for substantial damages arising from the following: 10.1 The way in which the investigation by the First Defendant was conducted; 10.2 misfeasance in public office in that the First Defendant’s officers had an ulterior motive in the closure of Keydata; … 10.4 a conspiracy to injure.” (4) In paragraphs 11-23 there appears what is called “Factual Background”
. The allegations in these paragraphs embrace the following matters: (i) That the FSA intervened with HMRC to prevent the adoption of a process of ‘simplified voiding’ which, it is said, would have resulted in a full and final resolution of the issues which had been identified of non-compliance with ISA requirements. This intervention is said to have been “arbitrary, unjustified and contrary to the stated statutory objectives as set out in the FSMA” (paragraph 11). (ii) That the FSA decided in or around April 2009 to close Keydata down, without giving it any opportunity to respond to the FSA’s concerns. This was “to fulfil a political agenda and had nothing to do with the furtherance of the statutory objectives of the FSMA” (paragraph 12). In paragraph 14 it is alleged that “There was therefore an ulterior motive to their actions from 2009 onwards and which ulterior motive amounted to bad faith on the part of the Investigation Team and therefore the First Defendant”. (iii) That the FSA engaged PWC to prepare a Solvency Report on Keydata in order to support the FSA’s application for Keydata to be put into liquidation. It is alleged that the FSA’s Investigation Team ought to have known that PWC had a conflict of interest, in that it was likely to benefit if Keydata was placed in administration or liquidation (paragraph 22). It is also alleged that the FSA improperly instructed PWC to assume for the purposes of the report that Keydata’s statutory authorisations had been removed by an OIVOP; that such an OIVOP could only have been imposed in the manner proposed by the FSA if Keydata was already insolvent; that Keydata was not already insolvent; but that the supposed insolvency based on the assumption of an OIVOP was used to justify the making of an OIVOP. It is alleged that “The only way to advance the FSA’s ulterior motive was to secure a solvency report based upon a set of circumstances engineered to achieve a pre-determined conclusion. This amounted to what can only be described as a staggering abuse of power by the FSA and its Investigation Team.” (paragraph 15) It is further alleged that the draft Solvency Report was presented to the court on 8 June 2009 as a final report, when it was not and in circumstances where the Investigation Team knew that it had serious deficiencies (paragraph 18). (iv) It is said that the FSA thus “deliberately and maliciously targeted both Mr Ford and Keydata …” (paragraph 19). In paragraph 21 it is alleged that the Investigation Team’s “ulterior motive” in relation to Keydata “was to demonstrate the effectiveness of the FSA as a ‘robust’ regulator in the wake of the financial crisis of 2008”. (5) In paragraphs 24-30, under the heading “The First Defendant’s Unlawful Acts” it is again alleged that the FSA’s actions were motivated by a desire to demonstrate the effectiveness of the FSA, and were thus “politically motivated” (paragraphs 24-25). In order to achieve these aims both Mr Ford and Keydata had been intentionally targeted (paragraph 24). It is said that the members of the Investigation Team “either knew that the ulterior motive for their interventions made their conduct unlawful or were recklessly indifferent as to the legality of their actions” (paragraph 26). In paragraph 28 it is alleged that the Investigation Team “acted in the full knowledge that their unlawful acts would likely cause injury to both Mr Ford and to the Ford Family Trusts or were recklessly indifferent to the legality of their actions…”. (6) In paragraphs 31-32, under the heading “Misfeasance in Public Office” it is alleged that the actions of the FSA were “wrongful and … represented an abuse of office”, and that they were done “in bad faith”, for “improper and/or collateral motives” which included a desire to target Keydata and Mr Ford, and a desire to demonstrate the effectiveness of the FSA. (7) In paragraphs 56-60 there are allegations of a “Conspiracy to Injure”. It is alleged that the FSA conspired with PWC and Mr Schwarzmann to produce “an incomplete, hasty and inaccurate” Solvency Report. The predominant purpose of the FSA in doing this was “to close down Keydata”, and the predominant purpose of PWC was to achieve its own appointment as administrator of Keydata. They accordingly combined together to achieve the result the FSA intended with resulting benefits to both parties “all to the injury of Keydata, Mr Ford and the other Claimants”. (8) At paragraphs 61-66 there is a plea of Loss and Damage. Paragraph 61 alleges that “the Claimants” have suffered loss and damage as follows: (i) the closure of Keydata, a company said to have been worth well in excess of £100 million in June 2009, (ii) Mr Owen lost his job, (iii) Mr Ford lost income from Keydata when the company was closed, and (iv) the Claimants, including Mr Ford, suffered damage to their reputations and employment prospects. In paragraph 63 it is said that the Claimants intend to claim aggravated/exemplary damages. In paragraph 64 it is said that the “the total amount claimed by the Claimants is £112m plus interest…” and “Therefore the aggregate amount of the claims of the Claimants (which re Mr Ford would include the Ford Family Trusts) is £462m plus interest (which sum includes the £112m).” At paragraph 65 there is a claim for interest, which as of 25 May 2015 was said to amount to about £171 million.

The Evidence on the Summary Judgment / Strike Out Application

[25]As already stated, the FCA issued its application for summary judgment or the striking out of the claim on 15 January 2016. It was supported by a Witness Statement of Richard Caird, a partner of Dentons UKMEA LLP (“Dentons”), dated 14 January 2016 (“Caird 1”).[26]At paragraphs 33-91 of Caird 1 appears an account of the FSA’s investigation of Keydata, starting from December 2007, and in particular of the events of March to June 2009. In paragraphs 93-97 Caird 1 seeks to identify the key factual allegations upon which the Claimants’ case was based “without prejudice to the FCA’s position that the claims cannot properly be understood without a response to the RFI”. At paragraphs 98-122 Caird 1 considers these key factual allegations in turn and contends that they can be dismissed on a summary basis.[27]In brief summary, what Mr Caird says in those paragraphs is as follows:(1) The first group of factual allegations concern the FSA’s dealings with HMRC. Mr Caird states that Keydata’s ISA Compliance issue was a very serious one, in that products had been sold to many thousands of retail investors which were ISA ineligible and thus ineligible for the associated tax relief. Such breaches were theoretically capable of repair under HMRC’s simplified voiding procedure; but such a procedure was available only where the breach had been inadvertent, not where it had been knowing or careless. Furthermore, there were practical obstacles to the remedying of Keydata’s breach. At paragraph 101 Mr Caird says “When told the full picture, HMRC concluded that Keydata’s breach was neither one off nor inadvertent; they also concluded that it could not be remedied. Accordingly, simplified voiding was not a solution available to Keydata.” The FSA’s intervention directly with HMRC had not been in order “to deliberately prevent Keydata from reaching an agreement with HMRC, but to ensure that HMRC had all of the relevant information”. The FSA had taken legal advice before doing so, and was, “carefully considered, justified and consistent with the FSA’s objectives.” (paragraph 102).(2) The second group of factual allegations concern the closure of Keydata. Mr Caird states that it is incorrect to say that the FSA ‘decided to close down’ Keydata in April 2009. No decision was taken until June 2009: a preliminary decision on 1 June and a final decision on 5 June. He states “The FSA’s actions were not driven by any ulterior motive but a desire to protect Keydata’s existing and potential future customers.” He states that it is incorrect to suggest that FSA gave Keydata no opportunity to respond to the FSA’s concerns: there were meetings with Keydata on 1 and 2 June 2009; and that between 3 and 5 June 2009 the FSA put its plans on hold whilst it considered, and ultimately rejected, Keydata’s alternative proposals. He states that the FSA gave a great deal of consideration to the potential consequences of closure of Keydata; and that its focus was on the interests of consumers. It was concerned that when news of any closure of Keydata to new business became public there would be a “run” on the investments which would be to the detriment of existing customers.(3) The third group of factual allegations concern the Solvency Report. Mr Caird states that the FSA had taken no decision to close Keydata at the time it instructed PWC to prepare the Solvency Report. It had done so because it had genuine concerns about the solvency of Keydata and considered that the court might be assisted by an expert report on that issue. A finding of insolvency was not pivotal: it would have been open to the FSA to apply to appoint a provisional liquidator on the basis that it was just and equitable to do so, whether or not Keydata was insolvent. PWC had no conflict of interest: insolvency practitioners regularly prepare reports on the solvency of an entity where there is a prospect that they may be appointed as liquidator, but as regulated professionals, they are not permitted to take into account the possibility of earning fees in any conclusions they reach. The Solvency Report itself contained a covering letter which stated that it was a “draft”, and it was not presented to the court as anything other than it was stated in the report to be.(4) The fourth group of factual allegations concern the OIVOP. Mr Caird states that it is the case that the FSA instructed PWC to prepare the Solvency Report on the assumption that the OIVOP was in place. This assumption was realistic and appropriate; but, in any event, was not the cause of PWC’s finding of insolvency. Furthermore, it was not the case that an OIVOP could only have been imposed if Keydata was insolvent: it could be, and was, imposed on the basis that it was desirable to protect the interests of consumers or potential customers, and that Keydata appeared not to satisfy the “suitability” threshold for authorisation, quite apart from its also appearing not to satisfy the “adequate resources” threshold.(5) The fifth group of factual allegations involve the alleged bad faith on the part of the FSA. In relation to these Mr Caird states: “there is absolutely no evidence to support the allegation that the FSA, in the way it dealt with Keydata, was motivated by a political agenda to show the effectiveness of the FSA as a robust regulator after the 2008 financial crisis. Nor are there any facts from which an inference to that effect could be drawn. Nor, it is to be noted, have the Claimants identified any such evidence.” (paragraph 117) At paragraph 120 Mr Caird pointed out that the Claimants had not identified the individuals who were alleged to have acted with an improper motive; and stated that there had been many individuals involved in making supervisory and enforcement decisions about Keydata. And at paragraph 121 he states that there “is again no evidence whatsoever that the FSA deliberately and maliciously targeted Mr Ford, nor are there any facts from which such an inference could be drawn”.[28]At paragraphs 123-142 of Caird 1 appear “Grounds for Strike Out”. These will be considered in more detail when I deal with that aspect of the FCA’s application.[29]On 7 October 2016 the FCA served a further Witness Statement from Mr Caird in support of its summary judgment/strike out application (“Caird 3”). This included a “procedural update”. The following significant matters were recorded:(1) That after the service of the application the Claimants had engaged with the FCA as to the fixing of the application. As a result of the Claimants’ decision to instruct counsel who had no availability for 5 months, it was impossible to have the matter listed for April 2016, as the FCA had sought. Instead, on 7 March 2016, the application was fixed for 19 and 20 October. (These are the dates on which it was, in the event, heard.)(2) After 7 March 2016 the Claimants had failed to engage with the FCA in respect of the application. They had not served any evidence. On 5 May 2016, Dentons had written to the solicitors on the record for the Claimants, Rollingsons, referring to the fact thatno evidence had been received, and that the due date in accordance with section F6.3 of the Admiralty and Commercial Courts Guide and Practice Direction 58 paragraph 13.2 had passed. No response had been received to this letter.(3) On 7 June 2016 Dentons had sent an email to Rollingsons, again pointing out that no evidence had been served, and that it was assumed that the Claimants did not propose serving any evidence. That email was not acknowledged or replied to.(4) On 16 September 2016 Dentons had written again to Rollingsons, drawing attention to the relevant rules; explaining that the FCA was committed to the determination of the applications on 19 and 20 October 2016; stating that the FCA would prefer not to have to argue that any evidence served should be excluded; and requesting that if the Claimants wished to rely on any evidence in response, it should be served by no later than 23 September 2016.(5) There was no response to this letter. On 7 October 2016, however, Rollingsons wrote to Dentons indicating that they had applied to be removed from the record in respect of these proceedings.[30]Caird 3 set out further information in relation to the Upper Tribunal proceedings. In particular:(1) Mr Johnson had, at a CMC in the Upper Tribunal on 14 January 2016, accepted that his conduct had fallen below the standard to be expected of him as compliance officer of Keydata, reflecting a lack of experience and professional judgment. On 17 May 2016 Mr Johnson had withdrawn his reference to the Upper Tribunal and on 19 May 2016 the FCA had issued a Final Notice in respect of his conduct.(2) Extensive disclosure had been given by the FCA to Mr Ford and Mr Owen in the Upper Tribunal proceedings. This included 387 items disclosed by the FCA on 29 April 2016, and of which copies were provided to Mr Ford on 22 June 2016, comprising secondary disclosure; 355 items copies of which were provided to Mr Ford on 6 September 2016, comprising further disclosable material identified by the FCA, as well as material obtained from third parties including HMRC; and 154 items disclosed by the FCA on 29 September 2016, comprising material exhibited to the witness evidence served by the FCA on that date.(3) On 9 August 2016 Mr Ford asked the FCA to consent to documents which had been disclosed to him in the course of the Upper Tribunal proceedings being used in these proceedings, and stated that the First Claimant intended to amend the PoC. Ultimately the FCA agreed to disclose in these proceedings the documents which Mr Ford identified, which date from the period 12 December 2008 to 29 June 2010, and deal with the FSA’s communications with HMRC. They include letters and emails and internal FSA notes of calls and meetings between members of the FSA’s investigation team and HMRC.[31]The Claimants have not served any evidence subsequently on the FCA’s applications.

The First Claimant’s application for a stay

[32]On 14 October 2016 the First Claimant issued an application for a stay of the present proceedings pending the determination of the Upper Tribunal proceedings.[33]This application was supported by a witness statement of Mr Ford (“Ford 1”). In Ford 1, Mr Ford stated that he had not been given disclosure of all the documents which he had been seeking from the FCA. It was also said, however, that the material which had been disclosed “includes evidence of the FSA’s unlawful conduct in its dealings with Keydata” (paragraph 28). It was said that “examples” of this material were exhibited to Ford 1. This included some 300 or so pages, representing part of the documentation which had first been disclosed in the Upper Tribunal proceedings, and then been disclosed in these proceedings, as set out above.[34]By a second witness statement of Mr Ford (“Ford 2”) dated 16 October 2016, Mr Ford exhibited a number of further documents which, he said, evidenced that “the FSA decision to close down Keydata was pre-determined from at least March, 2009”; that “Keydata and its management were denied any right of reply”; and “the extent of collaboration between the FSA and PWC in the manufacture of the alleged insolvency of Keydata”. The documents included various of Mr Ford’s own submissions to different audiences, including a press release, an open letter to PWC, and a 35 page “Case Summary” dated 16 October 2016.[35]The FCA put in evidence in opposition to the application to stay, in the form of Mr Caird’s fourth witness statement (“Caird 4”). Caird 4 stated that it was without prejudice to the FCA’s objection to the late service of the stay application and of Ford 1 and 2. Caird 4 went on to make the following principal points:(1) That this application to stay was the fourth such request made by one or more of the Claimants. On the making of such a request in December 2015, the Claimants had threatened to apply to Court for a stay if one were not agreed, but did not actually do so.(2) The FCA considered that there were six powerful reasons why a stay should be refused, including that the allegations were very serious, were “hopeless on the merits”, related to events which occurred a long time ago, and that the stay application was “plainly a last minute tactic” to try to avoid the hearing of the FCA’s applications.(3) It was inaccurate for Mr Ford to suggest that there had been any non-compliance by the FCA with any disclosure obligations. On the contrary, Mr Caird’s evidence was that the FCA had been required to make secondary disclosure in the Upper Tribunal proceedings by list on 29 April 2016, and had done so on that date. Further disclosure had been produced, including items provided to the FCA after 29 April 2016. The FCA considered that its secondary disclosure in the Upper Tribunal proceedings was complete. In particular, all communications between the FSA and HMRC in respect of Keydata had been disclosed.

The hearing on 19 and 20 October 2016

[36]At the hearing, the FCA was represented by Laurence Rabinowitz Q.C. and Anna Boase. Mr Ford appeared and made submissions on behalf of the First Claimant pursuant to an authority from that company. He also asked for permission to make submissions on behalf of the Second to Fourth Claimants, though he accepted that there was no formal resolution by any of them for him to do so. In the event he made no discrete submissions on their behalf. Mr Owen appeared in person. He confined himself to adopting Mr Ford’s submissions.[37]It was the position of the FCA that the stay application should be heard only after the hearing of its application for summary judgment and/or for the claim to be struck out. Given, however, that a large part of Mr Ford’s case as to why there should not be such orders was that the action should be stayed, I considered it appropriate that I should hear the arguments on both the FCA’s summary judgment/strike out application and the stay application together.

The elements of the wrongs alleged

[38]There was no dispute before me in relation to the elements of the torts alleged in the Claimants’ claim, namely misfeasance in public office and conspiracy.[39]As to the former, as was said by HH Judge Keyser QC, sitting as a Judge of the High Court, in Perma-Soil UK Ltd v Williams [2016] EWHC 1087 (QB) at [23]:
“The unlawful purported exercise of a power by a public officer or body will not generally give rise to a private right of action, even if the inevitable consequence of the unlawful conduct will be harm to a third party; any remedy will be in public law – for example, a quashing order. However, the tort of misfeasance in public office covers the case where a public officer misuses his powers in bad faith for purposes other than those for which the powers were conferred.”
[40]The elements of the tort were set out in the speech of Lord Hope in Three Rivers District Council v Bank of England (No. 3) [2003] 2 AC 1 at [42] as being:(1) An unlawful act or omission done or made in the exercise of power by a public officer;(2) The act or omission must have been done or made with the required mental element;(3) The act or omission must have been done or made in bad faith;(4) The claimant must have a sufficient interest to sue the defendant;(5) The act or omission must have caused the claimant to suffer loss.[41]As to the first element (unlawful act), the relevant principles are as follows:(1) Where the defendant is a public body, the act must be an exercise of a public power done by an employee or other person for whom the defendant is vicariously liable.(2) The defendant’s act does not itself have to be tortious or actionable. But it must be an unlawful act, in the sense that it is contrary to the law for the defendant to have done what it did. There must be unauthorised or forbidden conduct (per Lord Hobhouse in Three Rivers (No. 3) at [167].[42]As to the second and third elements (the required mental element and bad faith):(1) Where a claim is brought against a public body, it is necessary to show that the mental element was possessed by an identifiable human agent (London Borough of Southwark v Dennett [2007] EWCA Civ 1091 at [21]).(2) If the unlawful act is a decision taken by more than one officer of the defendant, it is necessary to show that all the decision makers had the requisite mental element (Jones v Swansea City Council [1990] 1 WLR 1453 at 1474G).(3) The state of mind of the defendant’s officer as to the validity of the act, and its effect on the claimant, must be in one of two forms.(4) One is so-called “targeted malice”. For this form to be made out, the officer must have engaged in conduct for an improper or ulterior motive, and the conduct must have been specifically intended to injure the claimant or a class of people including the claimant (per Lord Steyn in Three Rivers (No. 3) at 191 E-F).(5) The second is where the officer acts knowing that he has no power to do the act complained of and that the act will probably injure the claimant (per Lord Steyn in Three Rivers (No. 3) at 191 E-F).(6) In relation to the second form, it is sufficient to show that the officer was subjectively reckless as to the legality of the act and as to its effect on the claimant (per Lord Steyn in Three Rivers (No. 3) at 192G – 193D).[43]As to the fourth element (sufficient interest):(1) A claimant must have a sufficient interest to found a legal standing to sue, but does not have to satisfy a requirement of proximity.(2) A claim may be brought by a person within an identified class of persons, even if their precise identities were not known to the defendant (per Lord Steyn in Three Rivers (No. 3) at 193E-H).[44]As to the fifth element (causation of loss): the claimant must prove that he has suffered loss (Watkins v SSHD [2006] 2 AC 395 at [23]), and that the loss was caused by the defendant’s unlawful act or omission (Three Rivers (No. 3) at 194 B-C and per Lord Hope at [42]).[45]The second tort, that of conspiracy, has two forms, namely conspiracy to use unlawful means and conspiracy to injure. They have two elements in common, namely(1) a combination or understanding between two or more people, each of whom must be an individual or a legal entity; and(2) the causation of pecuniary damage to the claimant. In relation to the second of these two elements (damage), it has been held that damages for injury to reputation are not recoverable in a claim for conspiracy (Lonrho plc v Fayed (No. 5) [1993] 1 WLR 1489 at 1496C-D, 1509A-D).[46]As to the first form of the tort, conspiracy to use unlawful means, this “is actionable where the claimant proves that he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so” (Kuwait Oil Tanker Co. Sak v Al-Bader [2000] 2 All ER (Comm) 271 at [108]). In this regard:(1) The conspirators must intend to injure the claimant, but that need not be their predominant purpose (Lonrho plc v Fayed (No. 1) [1992] 1 AC 448 at 465H-466A per Lord Bridge of Harwich).(2) “Unlawful means” are not confined to actionable civil wrongs. The phrase extends to criminal conduct at common law or by statute even if it is not in itself actionable in civil litigation: Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174.(3) Breach of a statute only amounts to “unlawful means” for these purposes where either (i) upon a proper construction the statutory obligation or prohibition was imposed for the benefit or protection of a particular class of individuals of which the claimant was one, or (ii) the statute created a public right, and a member of the public suffers particular damage other and different from that suffered by the rest of the public (Lonrho Ltd v Shell Petroleum (No. 2) [1982] AC 173 at 185 per Lord Diplock).[47]As to the second form of the tort, conspiracy to injure, this “is actionable where the claimant proves that he has suffered loss or damage as a result of action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him, where the predominant purpose of the defendant is to injure the claimant” (Kuwait Oil Tanker Co. Sak v Al-Bader [2000] 2 All ER (Comm) 271 at [108]). In this regard:(1) The object or purpose of the combination must be to cause damage to the claimant. It is not sufficient that the combiners acted knowing that damage to the claimant will follow (Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 at 444-445). Malevolence, however, is not required (Crofter at 471 per Lord Wright).(2) Where the conspirators have more than one purpose, their predominant purpose must be to injure the claimant (Cofter at 445). The predominant purpose must be shared: it is not sufficient that one participant has the object of causing injury to the claimant if the others do not (see Clerk & Lindsell on Torts (21st ed) 24-112). Should there be summary judgment? The test for summary judgment

Should there be summary judgment?

[48]Under CPR Part 24.2 “The court may give summary judgment against a claimant … on the whole of a claim … if(a) it considers that (i) the claimant has no real prospect of succeeding on the claim … and(b) there is no other compelling reason why the case … should be disposed of at trial.”[49]A “real prospect of succeeding” means that the prospect of success must be realistic rather than fanciful. The case must carry some degree of conviction. (ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472 at [7-8]). If there are significant issues of fact between the parties, the court is in no position to conduct a mini-trial and should not seek to do so: summary judgment must be refused. “However, that does not mean that the court has to accept without analysis everything said by a party in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporary documents. If so, issues which are dependent upon those factual assertions may be susceptible of disposal at an early stage so as to save the cost and delay of trying an issue the outcome of which is inevitable…” (ED&F Man Liquid Products v Patel at [10]).[50]If a party wishes to challenge an assertion that it has no real prospect of success it must do something more than say that evidence currently unavailable might turn up before the trial. This issue was considered by Briggs J in Lexi Holdings v Pannone [2009] EWHC 2590 (Ch) at [4]-[5], where he said:
“[4] The particular aspect of the court’s approach to summary judgment applications about which submissions were made to me concerns what is sometimes labelled Micawberism. Put shortly, the principle is that, in order to challenge an assertion that a party has no real prospect of success, or of successfully defending, in relation to a claim or issue, it is necessary to do more than say that some evidence currently unavailable might turn up in time for the trial. The party facing the summary judgment application must, whether by evidence or submission, persuade the court that there is a sufficient prospect that material will become available in time for trial so as to afford the defendant the real prospect of a successful defence. [5] This principle long pre-dates the Civil Procedure Rules, but a recent expression of it may be found in the judgment of the Court of Appeal in ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725, at paragraph 14, in relation to the question whether material not currently available might lead to a different construction being placed upon the contract sued upon: ‘Sometimes it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial. In such a case it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful prospect of success. However, it is not enough to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.’” ‘Sometimes it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial. In such a case it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful prospect of success. However, it is not enough to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.’”

Application to the present claim

[51]As I have already set out, the FCA, in Caird 1, put in detailed evidence in relation to its application for summary judgment. It has not been answered by any evidence served in the context of that application. Indeed, no evidence was adduced which addressed the summary judgment application. Caird 1 is thus uncontradicted by evidence. There is no question of a “mini trial”.[52]Furthermore, this is a case in which the allegations which are made against the FSA concern decisions which were taken by a number of different individuals, some at high levels within the organisation, on the basis of written papers in which the arguments for the course adopted were set out. The events involved the participation of PWC, of external and internal lawyers for the FSA, and communications with HMRC and HM Treasury. In the circumstances, a case that the FSA was acting in bad faith to injure the claimants or in the knowledge that what was being done was unlawful, or that there was an unlawful conspiracy, is on the face of it a surprising one. If such a case is to survive an application for summary judgment, it is particularly necessary for the Claimants to put before the court some evidence or material which indicates that despite its apparently surprising nature, it has a real prospect of success. That has clearly not been done here in the context of the FCA’s application, in relation to which the Claimants have not put in any evidence.[53]I should, however, add that, even though it was not adduced in relation to the summary judgment application, and did not respond to it, I looked at the material which was adduced by the First Claimant in support of its application to stay, to see whether any of that material indicated that there was a real prospect of the claims succeeding. In my judgment none of that material, and in particular none of the contemporary documentation exhibited to Ford 1 to which Mr Ford drew attention, demonstrated that there was such a prospect. I considered that all that material was consistent with a regulator which was acting in what it considered to be the best interests of consumers and in pursuance of its statutory responsibilities. Insofar as Mr Ford’s evidence and submissions were to the effect that evidence might become available which would support his case, they did not persuade me that there was a likelihood of supportive material emerging which would afford the Claimants a realistic prospect of success on the causes of action which they have pleaded. These submissions appeared to amount to Micawberism of the type referred to in Lexi Holdings v Pannone. In reaching this conclusion I took into account both the extent and nature of the disclosure which had already been provided in this litigation and the contents of Caird 3.[54]Given the above, I do not consider that it is necessary to seek to make findings as to all the aspects of the FSA’s dealings with Keydata which have been referred to. In relation to the five groups of allegations which are identified in Caird 1, it suffices to say the following:(1) As to the first, nothing in the communications of the FSA with HMRC which I have seen or as to which there is evidence indicated that the FSA or its relevant employees were doing other than what they considered to be their job, and responsibility, faced with what are undisputed ISA Compliance issues. In this regard it is significant that the FSA took legal advice before its communications with HMRC in March 2009. I also consider it to be of some significance that there was no indication in the material I have seen that HMRC considered that there was anything untoward in what the FSA did.(2) As to the second: (i) The material which I have seen does not support the case that a decision was actually made by the FSA to make a variation of permission, or to seek the winding up of Keydata, until June 2009. Nor does it support the case that Keydata was given no opportunity of addressing the FSA about its concerns. (ii) What the evidence I have seen indicates is that a meeting of the FSA’s Executive Committee (“ExCo”) took place on 1 June 2009 specifically in order to discuss Keydata. At that point it was decided that it was appropriate to seek to stop Keydata taking on any new business either by a VVOP (a Voluntary variation of permission) or by OIVOP if necessary; that Keydata’s management should be removed; and that either a provisional liquidator or administrator should be appointed, subject to further work exploring these options. The FSA met with Keydata’s management and Withers LLP, which was acting for Keydata in relation to the FSA’s investigations, on 1 June and 2 June 2009. At the first of these meetings, the FSA gave to Keydata a copy of its Preliminary Investigation Report and the FSA’s intentions were explained. At the second of those meetings Keydata proposed an alternative package of measures, which the FSA considered and subsequently rejected. On 3 June 2009 HMRC communicated to Allen & Overy LLP, which was advising Keydata in relation to the ISA compliance issues, with a copy to the FSA, that it did not consider simplified voiding to be appropriate, and that it was not possible to remedy the ISA breaches whilst having the investments mature on the original maturity dates. On 5 June 2009, the FSA investigation team met with Jon Pain, Managing Director of Retail Markets and Lesley Titcomb, Director of Small Firms and Contact division, and it was decided to seek the approval from the Chairman of the RDC for an application to court for a provisional liquidator, and an urgent OIVOP. The consent of the Chairman of the RDC to the making of an ex parte application to court for a provisional liquidator was given on 5 June 2009, and the OIVOP was decided on by Ms Titcomb on the same day pursuant to the procedure in FSA Handbook, DEPP 3.3.1G and 3.4.3G.(3) As to the third and fourth, the material I have seen has not provided a basis for considering that the FSA was acting otherwise than in good faith in commissioning the Solvency Report or in the instructions which it gave to PWC as to the basis on which it should be produced. That material indicates that PwC did as it was instructed to do, and has not revealed any basis for what would be a serious, and on its face surprising, allegation that PWC intended to injure the Claimants. Furthermore, the evidence indicated that a finding of insolvency was not essential to the appointment of a provisional liquidator or the making of an OIVOP.(4) As to the fifth, I have simply not seen any material which indicates that the FSA or its employees were motivated by a political agenda or were maliciously targeting or intending to injure Keydata or Mr Ford, as opposed to acting in what they considered to be a proper pursuit of the FSA’s statutory role. I have also seen no evidence that any of the FSA’s employees were conscious or reckless that they were doing anything that they had no power to do. Whether or not the FSA’s conduct was the best course available in the circumstances, whether or not it was the conduct of a competent regulator, and whether or not the FSA as an institution was, as Mr Ford suggested, “useless”, are matters on which I do not have to form any view, and have not done so. The causes of action relied upon by the Claimants do not depend on such matters, but on the type of conduct, with concomitant mental elements, which I have referred to when considering the requirements of the wrongs alleged, above. As I have said, I have seen no evidence showing that.[55]Accordingly I consider that it has not been shown that the Claimants have any realistic prospects of success on the causes of action which they have pleaded and relied upon. Nor do I consider that there is any other compelling reason why the case should proceed to trial. I therefore find that there should be summary judgment in favour of the FCA.

Should the PoC be Struck Out?

[56]Given my decision in relation to summary judgment it may not strictly be necessary for me to address whether the PoC should be struck out. I was, however asked to state my conclusions on that part of the FCA’s application and will do so.

The test for strike out

[57]CPR Part 3.4(2) provides, in part: (2) The court may strike outa statement of case if it appears to the court –(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim;(b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings…

Application to this case

[58]I consider that the FSA is correct to submit that the PoC does not plead a complete and viable cause of action in either misfeasance or conspiracy.[59]In particular, I consider that the PoC has the following deficiencies:(1) The First Claimant brings a claim for damage to the reputation and employment prospects of Mr Ford. Any such claim would have been personal to Mr Ford, and on the unchallenged evidence as to Scottish law which I have seen, would never have vested in his trustee in bankruptcy. It cannot therefore have been assigned by his trustee in bankruptcy to the First Claimant.(2) The PoC does not plead the factual or legal relevance of the business relationship said to have existed between the Second, Third and Fourth Claimants and Lifemark, and does not articulate any connexion between them and the FSA’s conduct towards Keydata. It is not apparent from the PoC what claims these Claimants make or on what basis.(3) The allegations of bad faith, which are an essential element of a claim of misfeasance, are inadequately particularised. Allegations of bad faith and malice should be fully and precisely particularised, and the basis for any inferences properly set out. Here, the PoC does not identify the officers at the FSA who are alleged to have acted in bad faith, or what facts form the basis of the inference of bad faith on the part of any specific individuals. Because of this all five Claimants’ claims in misfeasance are deficient and embarrassing.(4) There is no pleading either of an intention on the part of the FSA to injure the Second to Fifth Claimants, or that the FSA knew that its actions were likely to injure those Claimants, or a class which included them. This means that the Second to Fifth Claimants do not plead viable claims in misfeasance.(5) There is no pleading of all the necessary elements of the tort of conspiracy, whether of unlawful means conspiracy or a conspiracy to injure. As to a conspiracy to use unlawful means there is, in particular, no proper plea of a combination or understanding between the FSA and another person, and no basis on which the OIVOP and administration application amounted to ‘unlawful means’. As to a conspiracy to injure, there is a failure to give particulars of any combination or understanding; it is unclear what acts are alleged to have been done pursuant to the combination; the FSA’s predominant purpose is not alleged to have been the causing of injury to any of the Claimants, but the closure of Keydata; and there is no allegation of a single predominant purpose shared by all the conspirators.(6) There is no plea of what loss and damage each Claimant has suffered, or on what basis. There is no breakdown or calculation of the £462 million claimed.[60]In many cases it is appropriate, if there are deficiencies in a pleading, to give the relevant party an opportunity to amend, rather than strike it out. I do not consider that the present is such a case for two reasons. In the first place, the Claimants were given an opportunity to put right the deficiencies in the PoC, if they could, a considerable time ago. The matters which needed to be addressed were identified in the RFI, and also in Caird 1, but the Claimants did not provide any answer to the RFI, and, despite the length of time which has elapsed, have put forward no amendments. Secondly, because there is no reason to believe that, even if given more time, the Claimants would be able to plead a case which would put right all or most of the defects. As I have already said in the context of summary judgment, I have seen no material which suggests that the Claimants can put forward a viable case of the commission of either of the two torts alleged.[61]Accordingly I consider that the Particulars of Claim should be struck out under CPR 3.4(2)(a) and/or (b).

The First Claimant’s application to stay

[62]Mr Ford argued strenuously in favour of the application that there should be a stay of these proceedings. His primary position was that he sought that the court should stay this action until the Upper Tribunal proceedings had been finally determined. In the alternative, he argued that it should at least be stayed until, as he put it, the FCA had fully and properly discharged its secondary disclosure obligations in the Upper Tribunal proceedings, including any disclosure that might be ordered by the Upper Tribunal at a CMC scheduled for 2 December 2016.[63]Mr Ford argued that if the present proceedings were not stayed, that was unfair and oppressive, because he, an unrepresented litigant, was having to deal with three sets of proceedings (these proceedings, the Upper Tribunal proceedings and the First Claimant’s claim in the High Court against Robert Rakison and Maguire Woods London LLP for alleged fraudulent misrepresentation and conspiracy to defraud).[64]I was not persuaded that there are any grounds which justify any stay of these proceedings which would have the effect that the FCA’s application for summary judgment or a strike out should not be heard and determined now. I can see that, if I am wrong in relation to my decisions on that application, it is open to question as to whether it would be appropriate for the present action, on the assumption that it continued, to continue simultaneously with the Upper Tribunal proceedings. On the basis of my decision on the FCA’s application this issue does not, however, arise.[65]My reasons for deciding that there are not sufficient grounds for any stay of these proceedings which would have the effect that I should not determine the FCA’s summary judgment and strike out application are as follows:(1) It is the Claimants who bring the present proceedings. In them, allegations are made of dishonesty and serious misconduct by the FSA and its employees, some 7 years ago. The FCA has a legitimate interest in those claims being determined as soon as that can fairly be done.(2) Further, I do not consider that there is any unfairness in proceeding with the FCA’s application now. It is one which was issued a considerable time ago. The Claimants have had since January to prepare for this application. If an application for a stay was to have been made, it should have been made long before it was. While Mr Ford has, since 7 October 2016, been unrepresented, he had solicitors on the record in these proceedings before that date. More specifically, the failure to respond to the RFI dates back to November 2015, and the FCA’s application was issued in January 2016. At those points Mr Ford had the benefit of legal representation.(3) Mr Ford has, in any event, shown himself to be highly articulate and capable of advancing his case. For the purposes of the hearing before me, he produced, in addition to Ford 1 and Ford 2, a 35-page Case Summary. I consider that he was able to and did make such points as could be made in opposition to the FCA’s application and in support of a stay.(4) I do not accept that the possibility of further disclosure in the Upper Tribunal proceedings justifies a stay of these. As I have already said, the Claimants in these proceedings have already had a considerable volume of disclosure, which is something which is not ordinarily available to a party facing an application for summary judgment. That disclosure does not, in my view, demonstrate a real prospect that there is further material which would mean that the Claimants’ case had more than a fanciful prospect of success.(5) A stay pending the determination of the Upper Tribunal proceedings would be one of lengthy and at present unknown duration. Furthermore, those proceedings do not have the same focus as these. Those proceedings are concerned with the conduct of Mr Ford and Mr Owen. They do not involve a consideration of the type of allegations made against the FSA in the PoC in these proceedings. The limited degree of potential overlap has already been established in the decision of Upper Tribunal Judge Berner of 1 February 2016 ([2016] UKUT 0041 (TCC)), paragraphs 22-24.(6) Finally, my assessment of the weakness of the case made in the PoC is an additional factor against the grant of a stay.[66]Accordingly, I refuse a stay of these proceedings.

Conclusion

[67]For the reasons given above, I give summary judgment in favour of the FCA. I also strike out the PoC. I refuse a stay of the proceedings. The FCA’s application for security for costs does not arise.

Cited in 10 later judgments

and 1 more case