Securities and Investments Board v Scandex Capital Management A/S

A person is knowingly concerned in an unauthorised investment-business contravention when aware of the facts constituting it. The person is judged on the facts as believed, but on English law as it stands. Lawful entitlement to trade abroad without regulatory approval is distinct from being authorised by a foreign supervisory authority.

The power under section 6(2) of the Financial Services Act 1986 extends to staged and preparatory measures directed towards transaction-specific restitution. It permits an interim payment into court for later distribution, provided the payment relates to identified transactions and is reasonably capable of assisting restoration of all parties to their former positions.

The Securities and Investments Board obtained summary judgment before Carnwath J against the managing director of a Danish company which had carried on investment business in the United Kingdom without domestic authorisation. The judge held that the director had been knowingly concerned in contraventions of section 3 of the Financial Services Act 1986, but concluded that he lacked jurisdiction to order an interim payment.

The Board appealed against the refusal of an interim payment. The director cross-appealed on liability and costs. The issues were whether his understanding of the company's Danish status afforded an arguable defence, whether section 6(2) authorised an interim payment into court, and whether the costs order should stand.

1. Appeal allowed and cross-appeal dismissed. Millett LJ delivered the leading judgment. Otton LJ agreed, and Hobhouse LJ agreed while giving additional reasons. The case was restored to Carnwath J to decide whether an interim payment should be ordered under section 6(2) of the Financial Services Act 1986 and, if so, on what terms.

2. A person is knowingly concerned in a contravention of section 3 only if aware of the facts comprising the carrying on of investment business, its conduct in the United Kingdom and the absence of the required authorisation. Ignorance of English law supplies no defence. The person is judged on the facts as believed but on the law as it is.

3. The director knew that the company had applied for, but had not received, authorisation from the Danish regulator. He also knew that transitional arrangements merely permitted it to trade in Denmark without authorisation pending determination of its application. Any belief that this status entitled it to conduct investment business in the United Kingdom was a mistake of English law. He therefore had no arguable defence.

4. For section 31, being authorised means holding specific authorisation from the appropriate supervisory authority. Mere lawful entitlement to trade in an unregulated jurisdiction, or temporarily without authorisation, is insufficient. The company was neither a European investment firm nor a quasi-European investment firm under the Investment Services Regulations 1995.

5. The court had no inherent jurisdiction, and no jurisdiction under RSC Order 29 rule 9, to order an interim payment to the Board. The money would benefit individual investors rather than the Board.

6. Section 6(2), however, confers an extremely flexible power to direct steps towards restoring all parties to identified transactions. Restitution must be transaction-specific and mutual, but need not be achieved immediately or in a single step. The court may order an interim payment into court, or payment to a court-appointed recipient, as a preparatory step towards a later pro rata distribution. The possibility of insufficient funds does not remove that power.

1. Court of Appeal: Allowed the Board's appeal, dismissed the director's cross-appeal and restored the matter to Carnwath J for consideration of an interim-payment order under section 6(2) of the Financial Services Act 1986. Leave to appeal to the House of Lords was refused.

2. Chancery Division: Carnwath J granted summary judgment and declarations establishing liability, together with accounts and inquiries. He refused an interim payment for want of jurisdiction and ordered immediate taxation and payment of the Board's costs.