Financial Services Authority v Da Vinci Invest Ltd & Ors

The court considered an FSA application under section 381 of the Financial Services and Markets Act 2000 for continuation of freezing orders and for injunctions restraining market abuse. The relevant legal test under section 381(1) is whether there is a reasonable likelihood that any person will engage in market abuse; sections 381(3) and (4) permit asset restraints where the court is satisfied the person may be or have been engaged in market abuse and is reasonably likely to dispose of assets. Market abuse is defined by section 118 of the 2000 Act, and the FSA relied primarily on behaviour falling within section 118(5) (transactions or orders giving a false or misleading impression or securing an abnormal price).

The judge found that the FSA's evidence gave good reason to think there had been market abuse and that there was a reasonable likelihood of future market abuse by each defendant. Key factors were (a) the strength of the FSA's evidence, (b) the absence of any evidence from the defendants, (c) the resumption of trading after Goldman Sachs terminated an earlier agreement, and (d) limited financial information and non-compliance by the third defendant. The court therefore continued the freezing orders until trial and granted the requested restraining relief under section 381(1).

Background and parties: The Financial Services Authority brought proceedings against Da Vinci Invest Limited (first defendant), Da Vinci Invest PTE Limited (second defendant), Mineworld Limited (third defendant) and two individual traders (fourth and fifth defendants). The FSA alleged manipulative trading in qualifying investments between August and December 2010 and again from February 2011, involving contracts for differences and trading through intermediaries including Goldman Sachs and Sungard.

Nature of the application: The FSA applied for continuation of freezing orders originally made by Briggs J on 12 July 2011 and for injunctions under section 381 of the Financial Services and Markets Act 2000 restraining the defendants from engaging in market abuse. Briggs J had granted freezing orders on a without-notice basis but declined without-notice injunctive relief under section 381(1); the orders were continued by consent on 20 July.

Issues for decision: (i) Whether there was a reasonable likelihood that the defendants would engage in market abuse such that an order under section 381(1) should be made; (ii) whether the freezing orders against the corporate defendants should be continued until trial under sections 381(3) and (4); and (iii) ancillary issues including a proposed transfer of funds to New York by the first and second defendants.

Evidence and procedural posture: The FSA relied on the affidavit of Mr Beauchamp and a skeleton argument describing an alleged manipulative strategy, in particular transactions designed to give a false or misleading impression as to supply, demand or price (section 118(5)). No evidence in opposition was filed by the defendants; the third, fourth and fifth defendants were not represented at the hearing. The first and second defendants were represented by a company director who disputed liability and argued lack of knowledge and no risk of future abuse.

Reasoning and findings: The judge held that the FSA's evidence provided good reason to think there had been market abuse within the meaning of section 118(5), noting that the FSA need not establish market abuse definitively at an interim stage. The resumption of trading after Goldman Sachs had terminated its agreement, and evidence that Goldman Sachs had referred to possible breaches of London Stock Exchange rules, weighed against the defendants' assertions of ignorance and against affording them the benefit of doubt. The court was satisfied that the corporate defendants may have been engaged in market abuse and were reasonably likely to dispose of assets, justifying continuation of freezing orders. The proposed transfer of funds to New York was left to be pursued in correspondence or by further application rather than decided at the hearing.

The court continued the freezing orders made by Briggs J until trial and granted the relief sought under section 381(1) of the Financial Services and Markets Act 2000 restraining the first to fifth defendants from engaging in market abuse. The judge concluded there was a reasonable likelihood of future market abuse by each defendant based on the FSA's evidence, the absence of opposing evidence, the resumption of trading after Goldman Sachs' termination and limited financial disclosure.