Financial Services Authority v Martin & Anor

Section 380(2) of the Financial Services and Markets Act 2000 is not mutually exclusive with the restitution jurisdiction in section 382. It may support a monetary order where the payment is a step reasonably capable of remedying a contravention or mitigating its effects.

For pre-commencement contraventions of section 3 of the Financial Services Act 1986, Regulation 2(4) of the transitional order requires the contravener's breach to have involved a transaction. It does not require a person knowingly concerned in that breach personally to have entered into the transaction.

The Financial Services Authority sought orders against a solicitor, Mr Martin, and his former firm after their client had carried on unauthorised investment business. Investors paid money into the firm's client account. Some did not receive shares, while others paid substantially more than the price at which the client acquired them.

On a summary-judgment application, the Chancery Division found that the client had contravened section 3 of the Financial Services Act 1986 and that Mr Martin and the firm had been knowingly concerned. It ordered payments under section 380(2) of the Financial Services and Markets Act 2000. The appellants challenged the jurisdiction, the remedial character of the payments, the effect of the transitional order, and the order against the firm.

1. Appeals dismissed. The Chancellor's conclusions on the first two issues were agreed by Longmore and Lloyd LJJ. Lloyd LJ's construction of the transitional provision was also agreed by the other members of the court.

2. Section 380(2) of the Financial Services and Markets Act 2000 was not confined to a remedy having no restitutionary aspect. The headings, sidenotes and explanatory notes supported a distinction between section 380 and section 382, but were secondary aids to construction. The provisions were capable of overlapping, and Parliament had not required the court to select only one where both were available.

3. The two preconditions to an order under section 380(2) were a relevant contravention and steps intended, and reasonably capable, of remedying it. The unauthorised investment business here included transactions. Reimbursing investors who received no shares remedied that contravention. Repaying the excess paid by investors who did receive shares mitigated its effect, within section 380(5).

4. Per Lloyd LJ, Regulation 2(4) of the Financial Services and Markets Act 2000 (Transitional Provisions and Savings) (Civil Remedies, Discipline, Criminal Offences Etc.) (No. 2) Order 2001 preserved, rather than removed, the former power to make a remedial order against a person knowingly concerned. In that context, the person concerned meant the person whose contravention gave rise to the application. It was sufficient that the unauthorised contravener had entered into transactions. The contrary construction would create an inexplicable gap between pre- and post-commencement regulatory powers.

5. There was no error of principle in ordering the firm to pay. Although the practical consequence could be liability for Mr Sam, who was not knowingly concerned, the judge was entitled to exercise her discretion against the partnership.

• Court of Appeal (Civil Division): dismissed the appeals: [2005] EWCA Civ 1422.

• Chancery Division: HH Judge Alton QC, sitting as a High Court judge, found that Mr Martin and the firm had been knowingly concerned in a contravention of section 3 of the Financial Services Act 1986, and made payment orders under section 380(2) of the Financial Services and Markets Act 2000.