Case No: C3/2010/1783 & 1784
Neutral Citation Number: [2011] EWCA Civ 74
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM UPPER TRIBUNAL 
(TAX AND CHANCERY CHAMBER)

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday 13th January 2011

Before:

LORD JUSTICE LLOYD
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Between:

	(1)	Andrew Greystoke
(2)	Atlantic Law LLP
	
Appellants	
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The Financial Services Authority	

Respondent	

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(DAR Transcript of 
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The First Appellant appeared in person.

The Respondent did not appear and was not represented.

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Judgment

Lloyd Justice Lloyd:

1.	This is the oral renewal of an application for permission to appeal by Mr Andrew Greystoke on behalf of himself and also on behalf of a solicitor's practice, Atlantic Law LLP, of which he is, as I understand it, the sole principal.  The appeal is from a decision of the Financial Services and Markets Tribunal, HHJ Mackie QC presiding, given on 11 May 2010.  The appeal is only on a point of law, as Mr Greystoke accepts; originally that was the effect of Section 137 of the Financial Services and Markets Act 2000 (FSMA), now replaced by Section 13 of the Courts Tribunals and Enforcement Act 2007.

2.	The Financial Services Authority (“the FSA”) gave notices on 14 May 2009 under FSMA.  The first imposed a penalty of £200,000 on Atlantic Law for breach of the principles for business and of the conduct of business rules in the FSA's regulatory rules, in particular 3.8.4R(1) and 3.12.6R(2).  The second imposed a penalty of £200,000 on Mr Greystoke himself for breaches of the principles and for being knowingly concerned in Atlantic Law's breaches of the conduct for business rules, and the notice in addition prohibited him from performing any function in relation to any regulated activity carried on by an authorised person under the Act and withdrew approval to him to perform control functions.

3.	Mr Greystoke contends that the penalties will make both himself and Atlantic Law insolvent.  He tells me that Atlantic Law is already subject to a corporate voluntary arrangement and that unless the penalty is lifted he faces certain bankruptcy.  He contends that the penalties and for that matter a prohibition order are wrong in principle and that the penalty is wrong both in principle and in amount.  There is no reason to suppose that he can possibly pay the penalty which, in effect, amounts to a £400,000 penalty on him.  In respect of Atlantic Law that may be comprised within the CVA, but at any rate even if the penalty on him personally is only £200,000 he cannot pay it, and that will mean that he will be made bankrupt. Even if he is not made bankrupt the prohibition order will make him unable to carry on his profession.  He submits that the penalties are therefore disproportionate, the financial penalty in amount and the prohibition order as being indefinite.

4.	His contention, both in his appellant's notice and documents in support and in his submissions this morning, has focused primarily on the penalty, but it is also his submission that the finding of liability was wrong in law, and I shall touch on that in due course. 

5.	The case arises from the approval by Atlantic Law of financial promotions on behalf of four unauthorised Spanish companies who targeted United Kingdom private investors, the first of them in point of time being a company called Price Stone SL.  I need not refer to the particular companies in any detail. 

6.	The relevant obligation under the conduct of business rules is first, as I say, in Rule 3.84(1); that requires that a firm must be able to show that it has taken reasonable steps to ensure that a non-real time financial promotion is clear, fair and not misleading.  The FSA contended and the tribunal accepted that Atlantic Law had not taken reasonable steps to ensure that in relation to these four Spanish companies.  Secondly, Rule 3.12.6 (2) is as follows: 

"A firm must not communicate or approve a specific non real time financial promotion which relates to an investment or service of an overseas person, unless... 

(2) the firm has no reason to doubt that the overseas person will deal with private customers in the United Kingdom in an honest and reliable way."

7.	The promotions in question targeted investors on the share register of United Kingdom companies offering a free research report on the company and inviting the investor to authorise telephone contact with the promoting company in respect of other possible investments.  As and when telephone contact was so authorised, this led to the hard selling of high risk illiquid shares, and substantial losses were shown to have resulted from the sales which were made in consequence of that hard sell.  The FSA, as I say, gave its notices.  Atlantic Law and Mr Greystoke, as they were entitled to, referred those notices to the tribunal, and the tribunal hearing was therefore not an appeal but was a full first instance hearing with evidence, that being plainly required in order to satisfy, so far as necessary, Article  6 of the European Convention on Human Rights.

8.	The tribunal referred, and Mr Greystoke has referred, to the decision of the Court of Appeal on an appeal from the tribunal by the FSA in the case of Financial Services Authority v Fox Hayes [2009] EWCA Civ 76.  That decision is of course binding on this court.  

9.	The relevant promotions in the present case which were approved were in 2005 to 2007, and I should say that it is an important point in Mr Greystoke's submissions that one distinction of fact between the present case and that of Fox Hayes is that in Fox Hayes the firm of solicitors of that name approved not only the position of the overseas companies conducting the promotions but also the documentation in relation to the particular promotions.  In the present case Atlantic Law approved the companies but had nothing to do with the documentation in relation to the particular promotions.  As I say, the earliest promotions and approvals relevant for present purposes were in 2005; there was a previous history but that is not directly relevant.  One of Mr Greystoke's complaints is that the FSA was unhelpful.  He puts it rather higher than that; he says that they were in breach of a duty to him because the FSA, as time went on, came to know that there was reason to be concerned about the conduct of these four Spanish companies in respects of which he was at the time unaware.  He contends that the regulator in such a situation is under an obligation to warn relevant regulated persons, that it could and should have come to him and that that would have given him, and therefore Atlantic Law, a first knowledge that they had any substantial sense of anything being amiss as regards the conduct of these four Spanish companies.  

10.	The Court of Appeal touched on this point in Fox Hayes at paragraphs 40-41, where, starting at paragraph 40, the court, consisting of Longmore LJ, Wilson LJ and Lawrence Collins LJ, as he then was, said this: 

"At various points in the Tribunal's determination, express or implicit criticism is made of the conduct of the FSA in failing to give guidance as to the meaning of the rules or assistance to Mr Jones when he asked for it."

And the FSA complained about that.  At paragraph 41 the court said this: 

"If and to the extent that the Tribunal used this criticism of the FSA's conduct to justify their conclusions that the promotions were clear, fair and not misleading and that there was no reason to doubt the honesty and reliability of the overseas companies, I would accept that the FSA's appeal in respect of the Tribunal's criticism would be largely justified. Even if the basic findings of fact underlying the criticisms are correct, I do not think it would be right to say that the FSA should be criticised.  Regulators may often find themselves in a somewhat difficult position when they are expressly asked to supply for advice or guidance.  It cannot be a legitimate criticism of a regulator that he decides not to give advice or guidance. It is the duty of the authorised person to comply with any relevant rule not the duty of the regulator to advise whether conduct of a particular kind does or does not constitute compliance with or contravention of a rule."

11.	The comments of Longmore LJ continue, but I do not need to quote them all. In the present case it is not a case of Mr Greystoke or Atlantic Law asking for guidance, but it is said that the FSA knew of complaints and ought to have made him aware.  That, in my view, is not a correct proposition.  The responsibility lies on the firm to use due diligence to satisfy itself that the relevant matters are in order, and it seems to me that it is reasonably plain from the findings of the tribunal (which Mr Greystoke accepts he is unable to challenge) that Atlantic Law did very little in this respect.  I have in mind paragraphs 24-25, 28-29 and 31-41, summarised at paragraph 66 of the tribunal's decision.  Mr Greystoke was also, as it seems to me, fairly criticised by the tribunal for not making attendance notes (see paragraph 68) and it has to be said that at paragraph 69-74 he is found not to be a credible witness.  

12.	The tribunal held that the breach of rule 3.8.4 was plainly made out, since Atlantic Law had taken no steps to ensure that the promotions were clear, fair and not misleading.  It held that the purpose of the Spanish companies in seeking approval must have been obvious (see paragraph 75-81 of their decision).  As regards rule 3.12.6, the misleading nature of promotion itself gave reason to doubt whether the overseas companies would deal properly with investors, and that is quite apart from the rather doubtful and questionable history of Mr Mauerberger, a person with whom Atlantic Law dealt (see paragraphs 83 to 85 of the tribunal's decision).  

13.	The tribunal held that Mr Greystoke and Atlantic Law were reckless in the relevant respects because they knew or suspected that no reasonable steps had been taken by Atlantic Law to satisfy themselves and that there was doubt that the companies would deal honestly and reliably with investors, but they nevertheless proceeded with the approvals.  The tribunal considered that the diligence had been superficial and inadequate (see paragraphs 92 and 94 and 95) and that it followed that Mr Greystoke lacked integrity (see paragraph 96).  As I say, the sanctions which were imposed were a prohibition order under Section 56 of the Act and the withdrawal of approval under Section 63 and then the financial penalty.  So far as the penalty is concerned, an important feature in the context and in Mr Greystoke's arguments is the statement of policy published by the FSA, as required by the Act in the Decision Procedure and Penalties manual (known as “DEPP”).  As I have said, the penalties were £200,000 for each of Atlantic Law itself and Mr Greystoke personally.  The issue, as Mr Greystoke submits, is that given both penalties are in effect imposed on Mr Greystoke himself and that he cannot pay the full amount, not even the full amount of one of the two penalties, he submits that the penalties should be no more than £50,000.  He made submissions on his behalf to the tribunal, which addressed the point at paragraphs 107-110.  

14.	At 107 it is recorded that Mr Greystoke himself had been declared bankrupt in 1996, on which he was discharged three years later, but since then it is said that he has had no interest in any real property and does not own a car or other valuable assets.  He owns shares in a variety of small companies of little value or a value difficult to quantify.  Both he and Atlantic Law are said to be entirely dependent on his wife for support.  Atlantic Law owes her £650,000, and he had a guaranteed borrowing in the amount of £50,000.  He has no sources of income other than what he used to receive via Atlantic Law and what he receives directly or indirectly from his wife and from offshore companies owned by her.  

15.	The FSA's position was that a real lack of the possibility of financial support on the part of Atlantic Law and Mr Greystoke had not been substantiated, but the tribunal recorded that Mr Greystoke was entitled to say that his wife was not obliged to disclose to them evidence, even though she appeared to be the source of his income and was supporting him and his professional practice.  They said: 

"We therefore have no verifiable evidence of the Applicants’ real financial situation and less material than would generally be before a court in similar circumstances. We recognise that there is a possibility that imposition of financial penalties of the range fixed by the RDC may result in the insolvency of the Applicants and in Atlantic Law going out of business. The decision as to payment of these and other debts is it seems dependent on whether Mr Greystoke's wife chooses to lend more money."

16.	At the heart of one aspect of Mr Greystoke's submissions on penalty is part of paragraph 6.5.2(5)(b) of DEPP, which starts: 

"The purpose of a penalty is not to render a person insolvent or to threaten the person's solvency. Where this would be a material consideration, the FSA will consider, having regard to all other factors, whether a lower penalty would be appropriate."

It goes on, not so relevantly for present purposes.  Mr Greystoke submits that in the light of that guidance it is simply wrong, unprincipled and, to say the least, disproportionate to impose a penalty which is known to be something which the person subject to the penalties cannot pay.  The tribunal addressed this point at paragraph 110 as follows: 

"The fact that the purpose of imposing a financial penalty is not to bring about insolvency does not mean that the Tribunal cannot and should not fix a penalty which may have that unfortunate result. Victims of boiler room schemes have to take the financial consequences of the losses perpetrated upon them. Those who help cause those losses do not deserve special protection. The need for the seriousness of breaches of the rules to be publicly recognised may outweigh the potential consequences for individuals. In our view it does so in this case. It would send out the wrong message for the Tribunal not to impose a substantial financial penalty."

They then referred to what was said in the Fox Hayes case about the amount of penalty, and they go on: 

“But it is our duty to impose a suitable penalty, not extrapolate in detail from the facts of other cases. Having regard to the gravity and consequences of the breaches in this case but also giving some recognition to the Applicants’ financial position, the right course is neither to increase nor decrease the penalty imposed by the RDC.” 

They therefore left the penalty in place.

17.	Thus the decision of the tribunal, on the evidence that it heard, was first of all the result of a fact-finding exercise, which cannot be challenged unless it were to be said that there was no evidence on the basis of which any given finding could be made; and, secondly, the result of the exercise of a discretion as to penalties in relation to which all relevant factors were expressly borne in mind and which can therefore only be challenged as being perverse.  The grounds of appeal relate primarily to the question of penalty, although not exclusively so, and Mr Greystoke has addressed the question of penalty rather more in the course of his admirably succinct and focussed oral arguments this morning, though not neglecting the issue of liability.

18.	The principal points on liability are, as it seems to me, two.  One is the matter that I have already dealt with, which is what he submits is the obligation of the regulator to inform the regulated person about concerns in relation to a regulated person's conduct or the conduct of persons whom it and the regulated person has to make to be given approval.  As I have said, that seems to me not to be tenable.  The second is that he submits that the Fox Hayes decision made new law.  He says that until that decision of the Court of Appeal it was not the understanding of anyone in the relevant market, including the regulator, that the mere issue of a document in relation to an offshore company was itself a hook to trap the unwary investor.  It seems to me that that argument is not one which can stand a reasonable prospect of success on appeal, both because of the binding effect of Fox Hayes and also because, if that were said to be a change in the law, it seems to me that it is extremely difficult to contend that that actually represents a change in the law as opposed to an interpretation, an application of the law principally set out in the relevant rules of the FSA to particular facts.  It may be, as Mr Greystoke says, that Fox Hayes, being a particularly egregious case for a number of reasons that do not feature in his case, made the position rather plainer than it had previously been, but I cannot accept that there is any arguable point of law as to the finding of liability on the part of the tribunal.  As Mr Greystoke himself concentrated on penalty, it seems to me that he is right to do so.

19.	However, if one considers the points on penalty it is clear that the tribunal did take into account the relevant factors.  In his second ground of appeal he says the tribunal failed to pay any proper regard to the passage that I have cited from DEPP, but it is plain that they did have regard to that factor; and, although there was no evidence before me that Mr Greystoke himself had the means to pay, the references that I have already quoted to his dependence on his wife and the absence of any evidence as to his wife's position, means or attitude seem to me to make the tribunal perfectly entitled to take the view that the position in that respect was uncertain; but even if it was the position that neither he nor Atlantic Law could pay, that was not a reason which was determinative against the imposition of penalties of the kind that the RDC had fixed, and the other grounds of appeal relating to the amount of the penalty seem to me to be along the same lines.

20.	Then, as I have mentioned, the grounds of appeal raise the attack on Fox Hayes as a challenge to the effect of that as a change of law.  I have addressed that point already.  I have to say that I am not convinced by Mr Greystoke's argument in that respect.  A number of the grounds of appeal, and many supplementary points made in the letter of 6 December of last year in support of the appeal, relate to matters of fact not arising, as I understand it, from the evidence before the tribunal -- that is something which is not legitimate since the appeal is only on a point of law.  It seems to me that while I perfectly accept, as the tribunal did, that Atlantic Law's position and that of Mr Greystoke is distinguishable from that of Fox Hayes on the facts, it was in some respects less bad in that there was no secret commission or use of the client account; equally there were respects in which it was worse in that Fox Hayes was a firm which really had no business entering this market at all because of its lack of experience, whereas Mr Greystoke has a great deal of experience, and it seems to me the tribunal was entitled to take the view that he ought to have known better and that his failures were more serious in that respect, though not in others, than that of Fox Hayes.  

21.	I should also say that Mr Greystoke has put before the court a number of arguments relating to other determinations in relation to other disciplinary processes, but I have not considered those because, as the tribunal said, this is not a question of extrapolating from other cases; this is a question of considering whether the tribunal approached the case on a proper basis, having regard to the relevant factors and the facts before it.  As it seems to me, there is no reasonable prospect that Mr Greystoke and Atlantic Law will succeed in the challenge in this court to a tribunal's conclusion, and accordingly I will dismiss the application for permission to appeal.

Order:  Application refused