This article was first published on Lexis®PSL Financial Services on 19 February 2019. Click for a free trial of Lexis®PSL."
Alistair Burns v The Financial Conduct Authority  UKUT 0019 (TCC)
What are the practical implications of this case?
Judge Timothy Herrington awarded the Applicant his costs up to the point at which the Authority conceded an issue on limitation. The Judge found that the Authority’s decision and conduct in relation to the issue were unreasonable. This decision confirms that the Upper Tribunal can and will make orders for costs where conduct, during investigations and enforcement proceedings, fall below the standards that should reasonably be expected.
What was the background?
The Applicant was a holder of the CF 1 (Director) controlled function at TailorMade Independent Limited (TMI). TMI carried on business as an independent financial adviser.
The Authority, by way of a decision notice dated 22 July 2016, imposed a financial penalty of £233,600 on the Applicant and made an order prohibiting him from performing any senior management function and any significant influence function in relation to any regulated activity carried on by an authorised person, exempt person or exempt professional firm. This decision was in respect of two matters, advice (the advice issue) and a failure to disclose conflicts of interest (the conflict issue).
During proceedings before the Authority’s Regulatory Decisions Committee (RDC) the Applicant argued that a financial penalty in respect of the advice was time barred. The RDC found against the Applicant in that respect.
In filing his Reply to the Statement of Case, the Applicant further contented that any financial penalty in relation to the conflict issue was also time barred.
The Authority reappraised its approach to the limitation on the advice and conceded the issue. The Authority subsequently filed an Amended Statement of Case seeking a reduced financial penalty of one half of the amount originally sought, reflecting a financial penalty only in respect of the conflict issue.
In a decision dated 31 July 2018 the Tribunal found against the Applicant on the conflict issue and limitation, imposing a financial penalty of £60,000 and confirming the decision to prohibit him from performing any significant management or significant influence function.
The Applicant made an application for costs in the sum of £130,000. These included costs incurred during the Authority’s regulator proceedings as well as the proceedings in the Tribunal. He contended that the decision notice and the Authority’s conduct in relation to the proceedings were unreasonable in respect of the manner in which it dealt with the advice limitation issue and its disclosure obligations.
What did the Tribunal decide?
The Judge had regard to Section 29 of the Tribunals, Courts and Enforcement Act 2007 and in particular the Tribunal discretion when it comes to awards of costs. The Judge also had regard to the Tribunal Procedure Upper Tribunal) Rules 2008. In summary the Judge would have to find that the Authority acted unreasonably and that the RDC's decision was unreasonable.
Guidance on whether the decision of the RDC was unreasonable was taken from Baldwin v FSA (5 April 2006). Notably a decision may be wrong without being in the slightest degree unreasonable and proceedings before the RDC are administrative rather than judicial.
Guidance on whether a party has acted unreasonably was taken from HMRC v Jackson Grundy  UKUT 0180 (TCC).
The Applicant submitted that material was deliberately withheld from him and that such information should have led the Authority to the conclusion that the advice issue was time-barred. He contended that had the fine been appropriately reduced at the relevant time, he would have settled the dispute and thus avoided the proceedings. He further alleged that the Authority colluded with the RDC to change the basis of the allegations in an attempt to avoid the time barring issue and withheld information which led to an unreasonable decision being issued by the RDC.
The Applicant also submitted that the Authority conceded the advice limitation issue unreasonably late and that the revised penalty sought of £116,830 was unreasonable having regard to the ultimate penalty of £60,000.
The Authority opposed these submissions. It was further submitted that material replied upon by the Applicant, relating to settlement discussions, was privileged and that he therefore had no entitlement to costs prior to the commencement of the proceedings in the Tribunal.
The Judge directed that it was not open to the Applicant to refer to the substance or documents relating to the settlement discussions (following Birss J in PAG). The Judge also ruled that he had no power to award costs in respect of any of the Authority's regulatory proceedings of the investigation which preceded the proceedings in the Tribunal, aside from those costs which are incidental to the proceedings.
The Applicant gave oral evidence on which he was cross-examined, particularly in relation to his state of mind and whether he would have continued with his reference had the Authority dealt with the advice limitation issue differently.
On the facts and evidence before the Judge he concluded he had jurisdiction to make a costs order in favour of the Applicant on the basis that the RDC's decision as regards to the advice limitation issue was unreasonable. In particular the conclusions as to why the advice limitation issues did not arise were unreasonable.
The Judge also found that the Authority acted unreasonable in the conduct of the proceedings by not addressing the advice limitation issue in its statement of case. It followed that the Judge found that he had jurisdiction to make a costs order in favour of the Applicant.
The Judge found that the revised penalty sought of £116,830 did not amount to unreasonable conduct. The Tribunal differed from the Authority as to the seriousness of the conflict of interest issue as opposed to the advice issue and reduced the penalty for that reason. But in seeking a penalty of £116,830 the Authority had not acted unreasonably.
The Judge accepted that the Applicant genuinely believed he would have settled the proceeding had the authority acted reasonably. However that question is hypothetical and the evidence demonstrated that the Applicant wished to contest all the other issues which he had set out in his reference notice. Furthermore the Applicant made no attempt to settle the proceedings before or after the Authority made its concession on the advice limitation issue. Therefore there was no case for the Applicant to be awarded any part of his costs incurred after the Authority made its concession on the advice limitation issue and the usual position of there being no costs order should apply in relation to all the proceedings after that time.
Despite a final attempt by the Authority to persuade the Judge not to exercise his discretion in making a costs order, the Judge elected to do so and made it quite clear that in doing it would send out an important message to the Authority that it is imperative that all subjects of investigation and enforcement proceedings should be treated fairly and reasonably. In this case the Authority had fallen below the standards that should reasonably be expected of it.
The Judge proceeded to summarily assess the Applicant's entitlement to costs and the sum of £4,440.55 was awarded.
Court: Upper Tribunal, Tax and Chancery Chamber
Judge: Judge Timothy Herrington
Date of judgment: 26 January 2019