COSTS – FS&MA 2000 Sch 13 paragraph 13 – Test of reasonableness - Whether
costs to be awarded under paragraph 13(2) on ground that decision of FSA was
unreasonable – No – Whether relevant conduct under paragraph 13(1) limited to
conduct in the course of the proceedings – No – Whether costs to be awarded under
paragraph 13(1) on ground of unreasonable conduct prior to proceedings - No
FINANCIAL SERVICES AND MARKETS TRIBUNAL
Case No FIN/2005/0011
(1) TIMOTHY EDWARD BALDWIN
(2) WRT INVESTMENTS LIMITED
FINANCIAL SERVICES AUTHORITY
Tribunal: Andrew Bartlett QC (Chairman)
N W Douch
T C Carter
Sitting in public in London on 22 March 2006
Date of written decision: 5 April 2006
For the Applicants Jason Mansell
For the Respondent James Eadie
© CROWN COPYRIGHT 2006
1. The applicants were accused of market abuse. After a three day hearing we
decided in favour of the applicants that they were not guilty of market abuse
and that no penalty should be imposed. Our written reasons were issued on 24
2. We reserved any possible arguments on costs for later consideration. The
applicants have now sought an award of costs in their favour.
THE POWER TO AWARD COSTS
3. The Tribunal’s power to award costs is contained in the Financial Services and
Markets Act 2000 Schedule 13 paragraph 13:
“(1) If the Tribunal considers that a party to any proceedings on a
reference has acted vexatiously, frivolously or unreasonably it may order
that party to pay to another party to the proceedings the whole or part of
the costs or expenses incurred by the other party in connection with the
(2) If, in any proceedings on a reference, the Tribunal considers that a
decision of the Authority which is the subject of the reference was
unreasonable it may order the Authority to pay to another party to the
proceedings the whole or part of the costs or expenses incurred by the
other party in connection with the proceedings.”
4. This statutory wording gives rise to a number of questions. In particular, it is
not immediately clear whether the vexatious, frivolous or unreasonable
conduct referred to in paragraph 13(1) is limited to conduct during and in
connection with the proceedings on the reference. If so, such conduct would
not include the making of the decision which precedes the reference. On that
basis, the purpose of paragraph 13(2) would be to extend the Tribunal’s
powers. If, on the other hand, the conduct in paragraph 13(1) may include
conduct prior to the reference, the purpose of paragraph 13(2) would be to
make explicit that one of the circumstances in which costs may be awarded is
where the FSA’s decision was unreasonable. We refer to these issues further
5. The appropriate test of unreasonableness also requires to be mentioned. Before
us both counsel made reference to ‘Wednesbury unreasonableness’. This was
an allusion to Associated Provincial Picture Houses Limited v Wednesbury
Corporation  1 KB 223, CA. A decision is ‘Wednesbury unreasonable’
if it is “so unreasonable that no reasonable authority could ever have come to
it”: see per Lord Greene MR at  1 KB 230. This test was formulated for
the purpose of determining whether a public authority had acted outside its
6. Mr Eadie reminded us of Lord Diplock’s vivid explanation, in Council of
Civil Service Unions v Minister for the Civil Service  AC 374, 410, that
“applies to a decision which is so outrageous in its defiance of logic or of
accepted moral standards that no sensible person who had applied his
mind to the question to be decided could have arrived at it.”
As was said by Lord Greene MR in the Wednesbury case itself, the
Wednesbury test requires that a decision
“must be proved to be unreasonable in the sense that the court considers it
to be a decision that no reasonable body could have come to. It is not what
the court considers unreasonable, a different thing altogether”  1
KB 230 [emphasis added in final sentence].
7. We do not consider that reference to the Wednesbury test is appropriate,
helpful or conducive to clarity in the present context. The Tribunal, unlike the
court in the Wednesbury case, is expressly directed by paragraph 13 to make
its own judgment of what is reasonable: “(1) If the Tribunal considers that a
party … has acted … unreasonably” … (2) If … the Tribunal considers that a
decision of the Authority … was unreasonable”.
8. We were also referred to Secretary of State for Education and Science v
Tameside Metropolitan Borough Council  AC 1014, HL. That case was
concerned with the lawfulness of the Secretary of State’s approach to deciding
whether a local education authority was acting unreasonably. The issues were
far removed from the nature of the exercise which we have to undertake under
paragraph 13. We derive from this authority only a reminder that judging
whether something is reasonable or unreasonable is wholly distinct from
judging whether it is right or wrong: a decision may be wrong without being in
the slightest degree unreasonable.
9. The application for costs was based primarily on paragraph 13(2), on the basis
that the FSA’s decision was unreasonable, with paragraph 13(1) as a fall-back.
THE APPLICATION UNDER PARAGRAPH 13(2)
10. The FSA’s powers in relation to market abuse extend over the population as a
whole, not just the regulated sector. Mr Mansell’s submissions commenced
with an emphasis on the unfairness to the applicants of having had to expend
considerable sums in order to defend themselves against an unjustified
allegation of market abuse, and on the hardship which Mr Baldwin has
suffered both financially and personally as a result of the allegation. Whilst we
have every sympathy with these concerns, our ability to redress them is
constrained by the terms of paragraph 13. The Tribunal has no general power
to award costs to exonerated parties. The hardship suffered by Mr Baldwin
might impel us towards exercising our discretion in his favour, but the
discretion only arises if we first find that there was unreasonableness in the
11. The central thrust of Mr Mansell’s submissions on behalf of the applicants was
that the decision was unreasonable because the Authority had not fairly
assessed the available evidence. His most forceful points were that the
investigation team had wrongly characterised Mr Nolan’s evidence as
consistent, had unfairly criticised Mr Baldwin’s evidence as ambivalent, and
had not seen the significance of the peculiarity that a telephone call which was
said to have been initiated by Mr Baldwin as a routine call had supposedly
been made from an untraceable telephone; perhaps most strangely of all, the
team had not considered the possibility that Mr Nolan was mistaken about the
telephone call, having considered only the possibility of deliberate invention.
At the conclusion of the investigation, no hard evidence of the telephone call
having been found, the team had expressed themselves to be “surprised and
frustrated” at their inability to find telephone record evidence, without
appreciating that their very surprise ought perhaps to have prompted a
reconsideration of their firm belief in Mr Baldwin’s guilt.
12. Mr Eadie’s riposte on the facts was that if (which he did not accept) the
approach or reasoning of the investigation team were relevant and were
defective, any such defects were cured by the proceedings before the
Regulatory Decisions Committee. The team correctly identified to the RDC
that the central issue was whether the RDC accepted the evidence of Mr Nolan
or the evidence of Mr Baldwin. Moreover, the possibility of mistake, as an
explanation of Mr Nolan’s evidence concerning the telephone call, was
expressly raised in the representations made to the RDC on Mr Baldwin’s
behalf, and was expressly considered by the RDC in the Decision Notice.
13. To support the conclusion that the FSA’s decision was not unreasonable, Mr
Eadie observed that the Tribunal had expressed the view, in response to a
proposed submission of no case to answer, that there was no clear cut defect in
the Authority’s case (paragraph 28 of our decision), that the Tribunal’s
assessment of Mr Baldwin’s live evidence had been pivotal to the Tribunal’s
decision (paragraph 29), and that the Tribunal had acknowledged in its reasons
the various points in support of Mr Nolan’s account and the Authority’s case.
In summary, the Tribunal had faced the same question as the RDC – whether
to believe Mr Nolan or Mr Baldwin – and, with the aid of a full hearing over
three days, with live evidence and cross-examination, having weighed up the
points made on both sides, had arrived at a different answer. That did not
demonstrate that the decision of the RDC was unreasonable.
14. Mr Eadie submitted that, since it was the RDC who made the decision which
was alleged to be unreasonable, we should concentrate on the conduct of the
RDC, not the conduct of the investigating team. Mr Mansell countered that the
decision was a decision of the FSA and that it was wrong to divide up the FSA
for this purpose into its constituent parts. Moreover the RDC’s decision was in
any event based on the material supplied to it by the investigating team.
CONCLUSIONS UNDER PARAGRAPH 13(2)
15. Under paragraph 13(2) we are required to focus on the decision itself. In our
judgment the right approach is to ask ourselves whether we consider that the
Authority’s decision was unreasonable, given the facts and circumstances
which were known or ought to have been known to the FSA at the time when
the decision was made. In taking this approach, we remind ourselves that the
process leading to the FSA’s decision was not a full judicial hearing of the
kind conducted by the Tribunal. As the Tribunal said in the case of Legal and
General Assurance Society Ltd: “When dealing with a large volume of
regulatory matters informally and speedily, FSA should not be expected or
compelled to follow procedures, or express its conclusions, as required of a
court” (paragraph 29).
16. Applying this approach, we do not find ourselves able to conclude that the
Authority’s decision was unreasonable.
17. At heart the decision turned on whether Mr Nolan’s or Mr Baldwin’s evidence
concerning the disputed telephone call was to be preferred. We have been
troubled by some features of the reasoning disclosed by the Decision Notice,
in particular the somewhat optimistic description of Mr Nolan’s evidence as
consistent and clear (paragraph 25 of the Notice) and the failure to address
expressly the possible significance of Mr Metcalfe’s evidence in putting the
relevant call in September rather than in July. But the assessment of Mr
Nolan’s evidence was to a considerable extent a matter of judgment, and we
are conscious of the very minor role which the evidence of Mr Metcalfe
played in our own decision (paragraph 61 of the Tribunal’s decision).
Recalling our own thought processes, until we had heard Mr Baldwin give
evidence and be cross-examined, we were unsure what our decision should be.
While it is clear to us that the Authority’s decision was wrong, we do not find
ourselves able to say that it was unreasonable, given the facts and
circumstances known (or which ought to have been known) to the Authority at
18. That conclusion means that the application fails under paragraph 13(2).
THE APPLICATION UNDER PARAGRAPH 13(1)
19. Mr Mansell relied in the alternative on the conduct of the investigating team as
unreasonable under paragraph 13(1). Such reliance was with limited
enthusiasm, because of the possibility that paragraph 13(1) was to be
construed as applying only to conduct during and in connection with the
proceedings on the reference.
20. Mr Eadie submitted that the terms of paragraph 13(2) were critical to the
proper construction of paragraph 13(1), and that paragraph 13(1) read in its
context was limited to conduct within the proceedings following a reference.
The essence of his argument was that the very existence of paragraph 13(2)
indicated that there was an implied limitation on paragraph 13(1) which
prevented it from applying to the FSA’s decision (made prior to the
commencement of the reference).
21. We do not find this argument compelling. It could equally be the case that
paragraph 13(2) was inserted out of a desire, in the face of concerns about the
extent of the Authority’s powers, to highlight that there could be a sanction in
costs if the FSA’s decision was unreasonable.
22. We are not aware of any binding authority directly in point. In Cartiers
Superfoods Ltd v Laws  IRLR 315 the relevant rule in a different
statutory context referred to awarding costs where a party had acted
frivolously or vexatiously, and the Employment Appeal Tribunal took account
of pre-proceedings conduct. The statutory wording was not identical to that
used in paragraph 13(1), and there was no equivalent of paragraph 13(2). The
rule was later changed to refer expressly to “conduct in bringing or conducting
the proceedings”, as considered in Davidson v John Calder  ICR 143.
This express limit was continued in the Employment Appeal Tribunal Rules
1993. Other procedural rules for tribunals have used a variety of verbal
formulae: for example, the Competition Commission Appeal Tribunal Rules
2000 rule 26(2) (expressly referring to conduct in relation to the proceedings),
the Special Educational Needs Tribunals Regulations 1994 regulation 34(1)
(referring to acting frivolously or vexatiously, without any express limitation),
and the Special Commissioners (Jurisdiction and Procedure) Regulations 1994
regulation 21(1) (referring to wholly unreasonable actions in connection with
the hearing in question).
23. Given the range of formulae which the draftsman could have used, we
consider that, if there had been an intention to limit the conduct referred to in
paragraph 13(1) to conduct in the course of the proceedings, the statutory
wording would have said so expressly. We therefore conclude that under
paragraph 13(1) we are entitled to take account of conduct which took place
before the reference was made and the proceedings commenced.
24. We have reached this conclusion without any consideration of the material
from Hansard which was placed before us de bene esse.
25. We do not consider that paragraph 13(1) is ambiguous or obscure. If we are
wrong about that, and the meaning proposed by Mr Eadie on behalf of the
FSA is a serious contender, then we are entitled to have regard to Hansard
under the rules in Pepper v Hart  AC 593, 634. In Committee the
Secretary of State explained at some length the thinking behind the
Government’s amendment which became paragraph 13. The original wording
in the Financial Services and Markets Bill had contemplated a very broad
discretion as to costs. It is clear that an aim of the amendment was to limit the
power to award costs because of a fear that it could be an undue deterrent to
applicants. We infer that a considered choice was made concerning the precise
extent of the limit to be imposed, and we note that the promoter of the Bill did
not choose to express the limit by reference to conduct during the proceedings.
It is also apparent from the Minister’s remarks that the aim of the text that
became paragraph 13(2) was to make it explicit that one of the circumstances
in which costs might be awarded was when the Tribunal considered that the
FSA’s decision giving rise to the reference was unreasonable. There is no
suggestion that this was an extension to the scope of the power in paragraph
13(1). Accordingly, if it is permissible for us to take account of Hansard, we
arrive at the same conclusion as before.
26. This conclusion does not mean that conduct prior to the proceedings is
necessarily relevant to the incidence of costs. In our judgment, to be relevant
under paragraph 13(1), it must have some bearing on the proceedings. It
follows from the very nature of the decision to be taken on costs that our
judicial discretion must be exercised on the basis of facts connected with or
leading up to the proceedings, as contrasted with conduct wholly unconnected
with the proceedings.
27. Taken analytically item by item, and with the wisdom of hindsight, it might be
possible to characterise some of the elements of conduct which we have
referred to at paragraph 11 above as unreasonable. But we think it is important
in this case to keep in mind also the broader picture and not to over-emphasize
the significance of any individual feature of the investigation. We also remind
ourselves again that a wrong view or approach is not necessarily an
unreasonable view or approach. Within the bounds of reasonableness, prior to
the Tribunal hearing more than one assessment of Mr Nolan’s evidence was
possible. Albeit with some hesitation, we do not find the actions which
constituted the investigation to have been unreasonable.
28. Moreover, there is force in Mr Eadie’s submission that, as regards the
reasonableness of the Authority’s conduct, the defects in the investigation
were cured by the deliberations of the RDC, who expressly addressed the
possibility of mistake and had to make a not altogether easy decision between
two conflicting accounts of the material facts. While the investigation was part
of what led to the proceedings, it was the RDC’s decision which was critical.
Having found that the Authority’s decision was not unreasonable in the
circumstances identified in paragraph 17 above, we do not consider it would
be right on the present facts to award costs against the Authority on the basis
of the criticisms of the investigation which preceded that decision.
29. Accordingly the application under paragraph 13(1) also fails.
30. We should not wish it to be thought that we intend to lay down any general
rule to the effect that no award of costs will be based on conduct prior to the
FSA’s decision, where the decision itself was reasonable. There may very well
be cases where the nature of such conduct and its significance in relation to the
proceedings would justify such an award.
31. Our decision is unanimous.
Andrew Bartlett QC