Mahon v Rahn (No 2)

A tribunal’s proceedings attract absolute privilege where its authority, function, procedure and determinations make it equivalent to a court of justice. The privilege may extend to information supplied for use in those proceedings. It protects the flow of information needed by a financial regulator to determine whether a person is fit to conduct investment business.

An informant becomes a prosecutor for malicious prosecution only by procuring the proceedings. In a complex investigation, the test must be applied cautiously. A trained prosecuting authority’s independent investigation and exercise of discretion will ordinarily prevent that conclusion, even if the informant is alleged to have supplied false or incomplete information.

The defendants supplied information about a disputed share transaction to the Serious Fraud Office and, at the request of The Securities Association, sent the regulator a letter for use in authorisation proceedings concerning one claimant. The claimants were later prosecuted for fraud but were acquitted after the trial judge ruled that there was no case to answer.

The claimants brought proceedings for libel and malicious prosecution. Eady J held that the regulatory letter was not protected by absolute privilege, refused summary dismissal of the malicious prosecution claim and refused permission to expand the defendants’ particulars of justification.

The defendants appealed on all three issues. The central questions were whether the regulator’s tribunal and the letter attracted absolute privilege, whether the defendants could be treated as prosecutors, and whether evidence of earlier transactions had to be pleaded in the defence.

1. Appeal allowed and action dismissed. Brooke LJ delivered the judgment of the court. Mantell and Laws LJJ agreed.

2. The proceedings of The Securities Association’s Authorisation Tribunal attracted absolute privilege. Applying the four matters identified in Trapp v Mackie [1979] 1 WLR 377, the tribunal acted under statutory authority and determined whether an applicant was fit and proper to conduct investment business. Its decision had important legal consequences for the applicant and the public. Its procedural rules sought to secure fairness, and a preliminary hearings officer could depart from them where justice required.

3. Private hearings, the absence of evidence on oath and the lack of general automatic discovery did not prevent the tribunal from being equivalent to a court of justice. The power to direct disclosure or depart from the ordinary rules was important. The tribunal’s procedures balanced justice with the need for swift and proportionate regulation.

4. The letter supplied to the regulator also attracted absolute privilege. The reasoning in Taylor v Serious Fraud Office [1999] 2 AC 177 was not logically confined to criminal investigations. The flow of information to financial regulators could be seriously impeded if informants faced libel proceedings. That would endanger the protective purpose of Part I of the Financial Services Act 1986. The court left open the position of a malicious informant who spontaneously supplied false information and whose conduct could be proved without disclosed litigation material.

5. In a simple malicious prosecution case, the court may ask whether the informant intended a prosecution, whether the facts were peculiarly within the informant’s knowledge, and whether the informant procured proceedings by knowingly supplying false information or withholding known truth. In a complex investigation, the same principles require cautious application because professional prosecutors critically assess evidence from multiple sources.

6. Even assuming the pleaded dishonesty, the claimants had no real prospect of proving that the defendants were prosecutors. The Serious Fraud Office had conducted extensive independent inquiries, obtained evidence from numerous sources and exercised its own expert discretion. Its Director, investigators and independent leading counsel participated in the decisions to investigate and charge.

7. The proposed evidence of four earlier transactions was central and could be adduced through witness statements and documents. It did not need to appear in expanded particulars of justification because the existing pleadings sufficiently identified the dispute. The appeal against refusal of the pleading amendment was therefore dismissed, although the judge’s assessment of the evidence’s importance was rejected.

1. Court of Appeal: Allowed the defendants’ appeal on absolute privilege and malicious prosecution. Dismissed the action. It dismissed the appeal concerning the proposed pleading amendment while holding that the underlying evidence could be adduced through witness statements.

2. High Court, Queen’s Bench Division: Eady J held on 1 July 1999 that the regulatory letter was not absolutely privileged. He refused summary dismissal of the malicious prosecution claim and upheld the refusal of permission to add the proposed particulars of justification.

3. Master: Master Hodgson refused the proposed pleading amendments on 25 March 1999.