Financial Services Authority (FSA) & Ors v Amro International SA & Ors

The Court of Appeal allowed the Financial Services Authority's appeal. The court held that the FSA lawfully appointed investigators under section 169 of the Financial Services and Markets Act 2000 (FSMA) to assist the United States Securities and Exchange Commission and that the investigators were entitled to issue notices under section 171 requiring production of specified classes of documents. The court rejected the High Court judge's approach that the FSA had a duty to verify or second-guess a foreign regulator's request or to confine document production to matters pleaded in the foreign proceedings. It held that the correct statutory tests are: (i) for appointment under section 169 the FSA may take into account the matters in section 169(4) but is not required to investigate the overseas regulator's case; (ii) section 171 requires only that the investigator reasonably considers the requested documents to be relevant to the purposes of the investigation; and (iii) the stricter "necessary or expedient" test applies to the separate powers in section 172. The court also held that compliance with non-statutory Memoranda of Understanding was not a statutory requirement and that section 170 notice obligations did not apply to investigators appointed under section 169.

Background and parties. The Financial Services Authority (appellants) appointed two investigators under section 169 FSMA to assist the United States Securities and Exchange Commission (SEC) in obtaining documents from Goodman Jones LLP relating to Amro International SA and Creon Management SA (respondents). The respondents applied for judicial review. Collins J quashed the FSA's appointment of the investigators and the section 171/172 notices, accepting undertakings from the respondents to produce a much narrower class of documents. The FSA appealed.

Nature of the claim and relief sought. The respondents sought judicial review of the FSA's decision to appoint investigators and of the investigatory notices dated 4 and 11 August 2009 compelling production of documents. The FSA sought to overturn Collins J's order quashing the appointment and notices.

Procedural posture. The matter came from Collins J in the Administrative Court [2009] EWHC 2242 (Admin) and was heard by the Court of Appeal, which permitted the appeal and heard argument on whether the appointment and notices were lawful.

Issues framed. The court considered whether the FSA was under a duty to verify or investigate the overseas regulator's request; whether compliance with bilateral or multilateral Memoranda of Understanding was a statutory precondition; whether section 170 notice requirements applied to investigators appointed under section 169; whether the investigatory scope was confined to matters pleaded in the foreign litigation; the applicable test for issuing requirements under section 171 (relevance) as distinct from section 172 (necessity/expediency); and whether the notices sought "specified documents or documents of a specified description".

Facts relevant to reasoning. The SEC requested assistance late in discovery in New York proceedings concerning alleged manipulative trading in Sedona Corporation shares and sought broad classes of documents from Goodman Jones relating to ownership, funding, correspondence and bank records for Amro, Creon and a number of special purpose vehicles. The FSA assessed the request, consulted the SEC, and appointed investigators under section 169. Goodman Jones indicated they held records within the classes sought but raised confidentiality concerns.

Court's reasoning and disposition. The Court of Appeal held that the FSA was not required by FSMA to verify or second-guess a foreign regulator's request and that it was lawful to rely on the statutory factors in section 169(4) when deciding to exercise investigatory powers. The court held that compliance with the MOUs is not a statutory precondition. Section 170 notice requirements do not apply to investigators appointed under section 169. The proper test for a section 171 requirement is whether the investigator reasonably considers the documents relevant to the purposes of the investigation; the judge had erred by applying the stricter section 172 "necessary or expedient" test to section 171. The court found the notices identified classes of documents of a specified description and were therefore lawful. It rejected the High Court's restriction that production be limited to matters pleaded in the foreign complaint. The appeal was allowed and the quashing order set aside.

Wider context. The court commented on the importance of international regulatory cooperation and that investigators' document powers under FSMA are an investigatory tool distinct from domestic discovery in litigation; proportionality and confidentiality are relevant but do not displace the statutory tests.

Appeal allowed. The Court of Appeal held that the FSA lawfully appointed investigators under section 169 FSMA and that the investigators' notices under section 171 seeking specified classes of documents were lawful. The judge below erred by requiring the FSA to verify or second-guess the foreign regulator, by applying the section 172 "necessary or expedient" test to section 171 powers, and by confining the investigatory scope to matters pleaded in the New York proceedings. Compliance with non-statutory MOUs was not a statutory precondition and section 170 notice obligations did not apply to investigators appointed under section 169.

Appeal from Collins J in the Administrative Court, reported as [2009] EWHC 2242 (Admin). The Court of Appeal allowed the FSA's appeal and set aside Collins J's order dated 28 August 2009; neutral citation [2010] EWCA Civ 123.