THE FSA'S POWERS TO GATHER INFORMATION
By Kapil Dhir
Over the past 18 months, the FSA has demonstrated an increased willingness to take strong action when financial institutions do not comply with applicable regulatory standards. Our experience is that the FSA's well-trailed shift to a more active enforcement strategy with increasing financial penalties and prosecutions must be treated with the utmost respect.
As a prelude to any enforcement action, the FSA will probably have exercised its powers under Part XI of the Financial Services and Market Act 2000 ("FiSMA") ("Information Gathering and Investigations"). The FSA's ability to require the provision of information and documents is central to its investigative powers for the purpose of enforcement.
Collecting Information
Under Section 165 of FiSMA, the FSA can require authorised persons to provide information or documents that are "reasonably required" in connection with the exercise of its functions (S165(4)). The FSA can specify the form that the information is to take (S165(5)).
The scope of this information gathering power is greatly enhanced because information can be required of any person who has at any time been authorised or is "connected with" the authorised person (for example another part of the authorised person's group). Further, if the FSA (or an investigator - see below) finds that a relevant document is in the possession of a third party, the power to require information may also be exercised against that third party (S175(1)).
Privileged and Protected Items
Under Section 413 of FiSMA, a person is not required to produce "protected items". Protected items include communications between a professional legal adviser and his client, or any person representing his client (i) in connection with the giving of legal advice to the client or (ii) in connection with, or in contemplation of legal proceedings, and for the purpose of those proceedings.
Who can Exercise the Power and How?
Note that the FSA can exercise its information gathering powers in one of two ways: either directly by notice in writing to the authorised person (S165(1)), or via an officer who has written authority from the FSA (S165(3)). Information has to be provided either before the end of a "reasonable period", or without delay in such form as the FSA requires (S165(5)).
Overseas Regulators
Under Section 169 of FiSMA, the FSA can gather information where it has received a request from an overseas regulator. The FSA has the same powers to gather information as it has under Section 165. The FSA can take account of factors which include whether the country of the overseas regulator would give corresponding assistance to the UK Regulatory Authority in deciding whether or not to exercise its investigative powers in support of that overseas regulator (S165(4)).
Skilled Persons Reports
Under Section 166, the FSA can by notice in writing require a range of persons (including an authorised person, any other member of that authorised person's group, a partnership of which the authorised person is a member or any person who has at any relevant time been any one of them) to provide the FSA with a report on any matter in respect of which the FSA has required, or could require the provision of information.
The person writing the report must be an appropriately skilled person. Note that such reports by skilled persons will be for the cost of the authorised person, and the authorised person is obliged to provide all reasonable support to the skilled person. This power is often used in the production of investigations into cash management and cash balances.
Summary
In short, it is important to be aware of the wide scope of the information gathering powers under FiSMA, the exercise of which is likely to become even more frequent in the current climate.
COMPANIES ACT – THE FINAL IMPLEMENTATION
By Andrew Carpenter
1 October 2009 is the final implementation date for the Companies Act 2006. A number of significant provisions will come into force on that date. These include:
- Rules relating to authorised and nominal share capital are abolished. Companies should consider amending their articles to remove reference to the authorised share capital thereby allowing freedom to allot shares beyond that ceiling.
- Registers of directors and particulars provided by directors will no longer need to state the names of other companies of which the director is or has been a director.
- Directors' private residential addresses will no longer appear on the public register although existing addresses on the register will remain.
- A company's articles will be able to provide methods of changing the company's name other than by a special resolution and where a company changes its name, its articles will be deemed to be amended so far as references to the name are concerned, so that no actual amendment will be required.
- A company's memorandum of association will no longer set out the company's objects. These will be unrestricted for new companies and existing companies may amend their memorandum to opt out of this provision. Unless a company's articles specifically restrict the objects of the company, its objects will be unrestricted.
A full list of the provisions can be found in The Companies Act 2006 (Commencement No. 8, Transitional Provisions and Savings) Order 2008 at: http://www.opsi.gov.uk/si/si2008/uksi_20082860_en_1
TAXING ISSUES
By Kapil Dhir & Andrew Carpenter
Insurance Premium Tax
In Homeserve GB Ltd v Revenue and Customs Commissioners ([2009] EWHC 1311 (Ch)), Homeserve appealed against a decision that part of an arrangement and administration fee paid by an insured to Homeserve under an "assistance insurance" scheme was to be taxed as insurance premium.
Under the scheme, Homeserve located an insurer, negotiated terms of cover with that insurer and then offered to the public the insurance-backed service which, if taken up, it then administered. When the homeowner took out cover, two contracts were entered into, one with Homeserve and the other with the insurer. Under the contract with the homeowner, Homeserve, charged a fee which it did not account for to the insurer.
The tribunal considered the wording used in s.72(1A)(b) Finance Act 1994 and concluded that the tax was intended to be levied on the premium received by an insurer under a contract of insurance. If therefore a payment made under a contract with an intermediary, and not under the contract of insurance, was disclosed to the policyholder as an amount separate from the premium, and was never received by the insurer, there was no evident reason why the payment should be taxed as being part of the premium.
VAT
In our March 2009 bulletin we examined the case of LeadX v HMRC ([2009] S.T.I. 448) and the potential impact on intermediaries and aggregators as regards their VAT position. The position remains unclear as demonstrated in InsuranceWide.com Services Ltd v Revenue and Customs Commissioners ([2009] EWHC 999 (Ch)) where the court concluded (taking the opposite view to the VAT tribunal conclusions in LeadX) that companies offering introductory services to channel potential customers to insurers by electronic means who receive a consequent commission where an insurance contract was concluded, are insurance brokers or insurance agents falling within the VAT exemption.
A link to the law report is at: http://www.lawreports.co.uk/WLRD/2009/CHAN/InsuranceWide_v_RevCustComrs.html>
We will continue to follow developments in this area, but it is obvious that more clarity is required.
NO STAY OF ENGLISH PROCEEDINGS IN FAVOUR OF CONCURRENT
OVERSEAS PROCEEDINGS
By Geoffrey Conlin
Karafarin Bank v Gholamreza Mansoury-Dara [2009] EWHC 1217 (Comm)
The defendant applied to stay proceedings in England on the grounds that there were concurrent proceedings in Iran or, in the alternative, that the proceedings should be stayed pending the conclusion of the concurrent proceedings in Iran. Both the primary and alternative applications were dismissed by Teare J.
The claimant bank had brought proceedings in England for sums due on 13 cheques. The defendant was unaware that the claimant had, before commencing the English proceedings, obtained civil and criminal judgments from the Iranian Courts on 4 of those cheques. The defendant had the criminal conviction set aside and appealed to the Iranian Court against the civil judgments on the 4 cheques.
The defendant applied to have the English proceedings stayed. The application was brought on the following grounds:
- The claimant was abusing the process of the Court by bringing proceedings on all 13 cheques when they had already commenced proceedings and obtained judgment against the defendant in respect of 4 cheques. Reliance was placed on Australian Commercial Research and Development Ltd which held that the effect of pursuing the same defendant in two jurisdictions is vexatious and oppressive.
- The proceedings in Iran were lis alibi pendens
(dispute elsewhere pending) and the English proceedings should be
stayed pursuant to the principle in The Abidin Daver:
"... the additional inconvenience and expense which must result from two sets of legal proceedings to be pursued concurrently in two different countries ... can only be justified if the would-be plaintiff can establish objectively by cogent evidence that there is some personal or juridical advantage that would be available to him only in the English action that is of such importance that it would cause injustice to him to deprive him of it". - In support of the alternative application for a stay pending the Iranian appeal, reliance was placed on Section 34 of the Civil Jurisdiction and Judgments Act 1982 ("the CJJA") and case management considerations. Section 34 provides that a claimant, having obtained judgment in his favour from an overseas Court, cannot bring proceedings in England on the same cause of action and between the same parties, unless that judgment is not enforceable or entitled to recognition in England.
On the abuse of process argument, the judge held that the continuation of the English proceedings was not an abuse of process because the Iranian judgment could not be enforced in England since it was obtained in the absence of the defendant and in circumstances where he would not have been regarded as having submitted to the jurisdiction. Fresh proceedings in England were therefore necessary and permitted by section 34 of the CJJA. Also, the judgment in Iran extended to 4 of the 13 cheques only. Furthermore, no application for a stay had been made earlier.
On the lis alibi pendens argument, the Judge held that the ability to enforce an English judgment against the assets of the defendant in England is a legitimate "juridical advantage" that is only open to the claimant in England (there being no assets in Iran) and is of sufficient importance that it would cause the claimant injustice to deprive him of it.
Furthermore, the defendant had delayed in making the application and the claimant had been acting in the London action pursuant to the directions of the Court. Therefore, the judge held that case management considerations were very strongly in favour of permitting the English trial to go ahead, rather than in staying the proceedings. A decision from the Iranian proceedings would take 1-2 years and the English trial is to go ahead in July 2009.
Additionally, it was not certain that, by appealing, the defendant had retrospectively submitted to the jurisdiction of the Iranian Court and that the Iranian judgment would become enforceable in the UK.
The key lesson to be drawn from this case is that defendants applying to stay English proceedings must act expeditiously. The Judge also made it clear that a tactical delay in making an application was unacceptable.
ISSUES OF CONFIDENTIALITY AND PRIVILEGE IN
MEDIATION
By Simon Sloane and Julian Teoh
Farm Assist Ltd (in liq) v Secretary of State for the Environment, Food and Rural Affairs (No 2) [2009] EWHC 1102
The law pertaining to confidential and privileged information disclosed in mediation has been clarified in a recent judgement by Ramsey, J.
The claimant sought to set aside a settlement agreement entered into at mediation on the grounds that the settlement was entered into under economic duress. The parties agreed that there was no bar to taking a witness statement from the mediator. The defendant served a witness summons on the mediator which the mediator applied to set aside.
After an analysis of the authorities, Ramsey, J. summarised the position generally as follows:
- Confidentiality – there is an implied duty of confidentiality in mediation between the parties and between the parties and the mediator so the mediator can enforce the confidentiality provision even if the parties have waived confidentiality. However, where it is in the interests of justice the court can permit the use of, or order disclosure of, the otherwise confidential material.
- Privilege – privilege in mediation is derived from the 'without prejudice' nature of the mediation proceedings. This privilege exists as between the parties and is not a privilege of the mediator and as such the parties can waive this privilege.
- Other privileges – if another privilege attaches to documents which are produced by a party and shown to a mediator, the party retains that privilege and it is not waived by disclosure to the mediator or by waiver of the 'without prejudice' privilege.
Ramsey, J denied the application to set the witness summons aside on the interests of justice exception.
Ramsey, J's findings on the nature of confidential and/or privileged information in mediation, particularly that the Mediator is able to enforce the confidentiality of the proceedings, surpasses the current standard of confidentiality as set out in Article 7 of the EU Directive on Mediation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.