First-tier Tribunal (General Regulatory Chamber)

Appeal number:    CMS/2016/0001

 

 

 

 

FIRST-TIER TRIBUNAL

GENERAL REGULATORY CHAMBER

CLAIMS MANAGEMENT REGULATION

 

 

	ELKADOR FINANCE LIMITED	Appellant
	- and -
	THE CLAIMS MANAGEMENT REGULATOR	Respondent

 

 

 

 

 

Sitting in Chambers on 23 February 2018

 

 

 

 

 

 

© CROWN COPYRIGHT 2018

RULING ON TURNOVER FROM REGULATED ACTIVITY

FOR THE TWELVE-MONTH PERIOD UP TO

11 JANUARY 2016 AND REMITTAL TO

CLAIMS MANAGEMENT REGULATOR

 

 

Background

1.        On 13 March 2017, the Tribunal issued its DETERMINATION in respect of the Appellant’s appeal against the decision of the Claims Management Regulator (“CMR”) dated 4 May 2016, that it had failed to comply with the terms of its authorisation and the imposition of a financial penalty of £315,000 payable by 1 June 2016.  The Tribunal’s Decision followed an oral hearing at which both parties were represented and at which the Tribunal heard oral evidence and submissions.

2.        The appeal was allowed in part.  The Tribunal concluded that (a) the Appellant was in breach of the terms of its authorisation; (b) that a financial penalty was warranted; (c) that a “nature” score of 2 and a “seriousness” score of 4 was appropriate, making a total score of 6, which would result in a penalty band of 5-8% of turnover; but (d) that it needed additional evidence in order to determine the correct turnover period and amount to which the penalty band should be applied. 

3.        The Tribunal issued Directions in order to obtain further evidence about the Appellant’s turnover from regulated activity for the period of twelve months ending on 11 January 2016.

4.        Since that date, the Tribunal has considered evidence provided by the Appellant and by the CMR.  The parties agreed to a final determination of the question of relevant turnover and penalty on the papers and without convening a further oral hearing.

5.        We understand from the CMR that the Appellant is now in liquidation.  No one has contacted the Tribunal about the implications of that on behalf of the Appellant.  The CMR has told us, and we accept, that no further submissions will be made by or on behalf of the Appellant in these proceedings. Accordingly, we now determine the sole outstanding issue as follows.

Evidence

6.      The Decision of 13 March 2017 directed the Appellant to provide evidence of its income from regulated activities during the relevant period together with supporting material. The evidence produced in response was unsatisfactory, as were several addendum statements, as the witness failed to exhibit the relevant documentary evidence and/or repeatedly failed to address the key question of what part of the Appellant’s income was attributable to activities not regulated by the CMR and why.   

7.        After considering witness statements produced by the Appellant in May, June, August and September 2017, the Tribunal finally gave the CMR permission to produce its own expert witness evidence.  We are grateful to Allan Hodson FICA for his assistance.

8.        Mr Hodson’s witness statement dated 23 January 2018 explained that he had reviewed the Appellant’s statutory accounts for the financial years ended May 2015 and 2016, also the VAT returns for all quarters in the period June 2014 to May 2016, plus the monthly management accounts and the sales invoice register for the relevant period.  He had noted a significant number of missing invoice numbers. A revised list also contained missing invoice numbers, albeit that fewer were missing in the second list.

9.        Mr Hodson’s evidence was that he asked the Appellant to identify its unregulated income during the period but that the Appellant did not explain the basis on which it had calculated the figure it gave him.  The CMR then asked questions in correspondence about the figure given, but letters sent to the Appellant in October, November and December 2017 were not answered.

10.    Mr Hodson explains that he has treated income in the relevant period as from unregulated business only where it is derived from the Appellant’s car hire activities.  This amounts to a sum of £35, 790.06.  He has included as regulated income all other payments, including some which were claimed by the Appellant to be in the unregulated category.  He explains that he has treated as regulated income all payments from Scottish and Irish law firms (because there was no evidence of the country of residence of the claimants), also all the invoices in respect of which there was insufficient information about the business to conclude that it was unregulated, and also the income related to “mortgage mis-selling” claims, which is a regulated activity.   He exhibits to his witness statement a helpful schedule in which he breaks down the relevant income streams.

11.    Mr Hodson concludes that the total turnover figure for the relevant period is one of £2,814,129.46, from which £35,790.06 should be deducted as income derived from non-regulated activity.

Conclusion as to Turnover

12.    We have considered the evidence provided by the Appellant but found it to be unsatisfactory.  As we noted in the Decision of 13 March 2017, the Appellant’s approach throughout these proceedings has been to “drip-feed” information to the CMR and to the Tribunal.  This approach often raised more questions than it answered, with the result that the process of obtaining evidence has been overly protracted.  It has also resulted, in our judgement, in the Appellant failing to discharge the burden of proof which it bears to satisfy us of the turnover figure it had claimed.

13.  Having considered all these matters, we prefer the evidence of Mr Hodson and find on the balance of probabilities that the Appellant’s turnover for the relevant period, excluding income from non-regulated activity, is £2,778,339.40. 

Calculation of Penalty

14.    As noted in the Decision of 13 March 2017, the Financial Services (Banking Reform) Act 2013 introduced power for the CMR to impose financial penalties on authorised persons.   The Compensation (Claims Management Services) (Amendment) Regulations 2014 make provision for the determination, notification and enforcement by the CMR of a financial penalty, as follows:

“ Determining the amount of a penalty

49(1) The Regulator must determine the amount of any penalty that an authorised

person is required to pay under regulation 48 in accordance with this regulation and

regulation 50.

(2) The amount of the penalty must be—

(a) for an authorised person whose business has a relevant turnover of less than

£500,000, no more than £100,000;

(b) for an authorised person whose business has a relevant turnover of £500,000 or

more, no more than 20 per cent of that turnover.

(3) The amount of the penalty may be the same as or greater or less than the proposed

amount set out in the notice under regulation 51(1)(b).

(4) When determining the amount of the penalty that an authorised person is required to

pay under regulation 48(1), (2) or (4) the Regulator must have regard to—

(a) the nature and seriousness of the acts or omissions giving rise to the Regulator’s

decision to exercise the power to require the authorised person to pay a penalty;

and (b) the relevant turnover of the business of the authorised person.

 

             Relevant turnover

50(1) In this Part “relevant turnover” means the figure determined by the Regulator in accordance with this regulation.

(2) The Regulator must determine such figure as the Regulator considers appropriate for the turnover of the business of the authorised person.

(3) The turnover to be determined is the turnover of the authorised person’s business from

regulated claims management services.

(4) The turnover to be determined is for the period of 12 months prior to the date on

which the Regulator gives the notice under regulation 51(1).

(5) When determining the relevant turnover of an authorised person under this regulation

the Regulator must have regard to—

(a) any figure for the annual turnover or the expected annual turnover used by the

Regulator for the purposes of calculating the authorised person’s most recent fee for authorisation;

(b) any more up to date information on turnover.

(6) When determining the relevant turnover of an authorised person under this regulation

the Regulator may estimate amounts.

 

Procedure for requiring an authorised person to pay a penalty

 

52(1) If the Regulator decides to require an authorised person to pay a penalty the

Regulator must give written notice to the authorised person of that decision.

(2) The notice must specify—

(a) the amount of the penalty;

(b) the number of payments; and

(c) the date by which the penalty or each part of the penalty is required to be paid.

Treatment of unpaid penalty as a debt

 

53. If the whole or any part of a penalty imposed by the Regulator is not paid by the date

by which it is required to be paid and either—

(a) no appeal relating to the penalty has been made under section 13 of the Act during

the period within which such an appeal may be made; or(b) an appeal has been made under that section and has been determined or withdrawn, the Regulator may enforce as a debt due to the Regulator the penalty or that part of it.”

15.    The CMR’s “minded to” letter of 11 January 2016 relied on a turnover figure calculated over the period 1 October 2014 to 30 September 2015. We concluded in the Decision of 13 March 2017 that we could not safely rely on the CMR’s estimated turnover figure, because the period in respect of which it was calculated represented a breach of Regulation 50 (4). The Tribunal’s Decision of 13 March 2017 therefore concluded that the Tribunal should make a fresh decision in relation to the correct turnover period and itself impose a fresh penalty pursuant to s. 13 (3) (da) and (db) of the Compensation Act 2006, as amended.

16.    We note that the CMR originally imposed a financial penalty of £365,000, which equated to just over 6% of the turnover figure it then considered appropriate.  Later, it reduced the financial penalty by £500 in response to the Appellant’s representations, to reach a figure of £315,000 which equated to 5.17% of the turnover figure it then relied upon.

17.    Our conclusion above as to the Appellant’s turnover from regulated activity for the period of twelve months up to 11 January 2016 is that it was £2,778,339.40.  We had already found that the applicable penalty band was between 5-8% of the turnover figure, which would produce a financial penalty of somewhere in between £138,916.97 (5%) and £222,267.15 (8%). 

18.    We note that, pursuant to the Compensation Act 2006 (as amended) s. 13 (1A) (3), the Tribunal:

“(da) may require a person to pay a penalty (which may be of a different amount from that of any penalty imposed by the Regulator);

(db) may vary any date by which a penalty, or any part of a penalty, is required to be paid;

                    (e) may remit a matter to the Regulator;”

19.     Accordingly, it is open to us now either to take the CMR’s approach and impose a penalty calculated at 5.17% of the correct turnover figure, or to calculate a penalty ourselves, applying a different percentage within the relevant band.  We find ourselves in some difficulty in adopting a different percentage in the absence of further submissions on the point, and we note here the CMR’s greater experience and expertise in applying the formulae set by Parliament.  We also note that we have made fresh findings of fact on which the CMR must now rely in calculating the penalty afresh.

20.     For this reason, we have decided to remit the matter of imposing a fresh penalty and date by which it must be paid to the CMR under s. 13 (1A) (3) (e) of the Compensation Act 2006.  In so doing, we observe that the facts as we have found them to be suggest to us that a percentage higher than 5% of relevant turnover may be appropriate, but we leave the final decision as to the amount of penalty and the date by which it must be paid to the CMR.   

21.     These proceedings are now concluded.

 

(Signed)

 

ALISON MCKENNA                                                         DATE: 23 February 2018

 

PRINCIPAL JUDGE