Amro International SA & Anor, R (on the application of) v The Financial Services Authority & Ors

The claim challenged the Financial Services Authority's decision to appoint inspectors under section 169 of the Financial Services and Markets Act 2000 to assist the United States Securities and Exchange Commission and the form and scope of a production notice served on the claimant's accountants. The principal legal issues were the scope of the FSA's powers under Part 11 of the 2000 Act (particularly sections 165, 169, 171 and 172), the correct application of the statutory tests of relevance, necessity and proportionality when requiring confidential documents from third parties, and whether the FSA could lawfully accede to a request for very wide disclosure in support of a foreign civil claim.

The court concluded that international co-operation with overseas regulators is generally lawful under section 169, but the FSA had acted unlawfully in agreeing to obtain the very wide category of documents sought without limiting the scope to material relevant to the pleaded Sedona claim. The judge held that documents genuinely limited to the Sedona transaction or otherwise demonstrably relevant and proportionate could properly be produced, but the broad requirement to produce essentially all documents relating to Amro, Creon and many SPVs for a long period was not authorised. The FSA's failure to consult was not fatal in the circumstances, but the appointment and notice were quashed in part and replaced by a narrower approach.

Background and parties: The claimants, Amro and Creon, were financing companies represented as having no involvement with the alleged wrongdoing. The SEC pursued a civil action in New York against Andreas Badian and others for alleged manipulative short-selling connected to a March 2001 Sedona financing. The SEC asked the FSA under section 169 of the Financial Services and Markets Act 2000 to assist in obtaining documents from the claimants' accountants, Goodman Jones. The requested material was wide in scope (documents concerning Rhino, Amro, Creon and some 100 SPVs from January 2000 to the present).

Nature of the application and relief sought: The claimants sought judicial review of (a) the FSA's decision to appoint inspectors to obtain documents for the SEC and (b) the terms of the production notice requiring broad disclosure of documents held by their accountants.

Issues framed:

• whether the FSA lawfully exercised its powers under Part 11 (notably sections 165, 169, 171 and 172) to assist an overseas regulator;
• whether the production notice was within statutory power because documents were "specified" and reasonably considered relevant and proportionate to the investigation; and
• whether the FSA had a duty to consult or seek further information from the claimants or the SEC before agreeing to the request.

Court's reasoning: The court accepted that co-operation with overseas regulators is legitimate under section 169 and that an investigator may obtain documents from third parties under sections 171 and 172. However, when compulsory production of confidential documents is sought, the investigator must consider relevance, necessity and proportionality. The judge found that the SEC had not pleaded or particularised allegations linking Amro and Creon to the alleged wrongdoing in its complaint, and the SEC had long had material that might support broader allegations but only sought the wide disclosure very late in the discovery timetable. Given that the request aimed to pull in non-parties and to support allegations not pleaded, the FSA should not have acceded to the very wide production request. The court considered that some disclosure limited to documents relevant to the Sedona transaction would be lawful and proportionate. There was no statutory obligation to consult the claimants, although inviting their consent might have been appropriate; the FSA was entitled generally to rely on information provided by the foreign regulator but should not agree to disproportionate requests.

Disposition and ancillary matters: The judge quashed the impugned appointment and notice to the extent they required the very wide production, recorded that limited discovery concerning the Sedona transaction would be lawful, ordered preservation of documents for a limited period, recorded an undertaking, and awarded the claimants' costs. Permission to appeal to the Court of Appeal was granted.

This was a first-instance judicial review in which the court allowed the claim in part. The judge held that while the FSA may assist an overseas regulator under section 169 of the Financial Services and Markets Act 2000, it could not lawfully agree to or give effect to a compulsory production notice seeking a very wide and unspecific range of confidential documents going well beyond the pleaded Sedona claim. The appointment of inspectors and the notice were quashed to the extent they authorised that wide production; the court confirmed that narrower production limited to documents genuinely relevant and proportionate to the Sedona proceedings would be lawful. The FSA was not under a strict statutory duty to consult the claimants before acting, but the approach taken by the FSA in this case was excessive given the timing and scope of the request.