O'Neal v Gale

The Court of Appeal dismissed the defendant's appeal against a High Court finding in an unjust enrichment claim. The principal legal questions were whether the defendant had aided her husband's offence under the Financial Services and Markets Act 2000 (FSMA) (notably sections 19 and 23 and the definition of a collective investment scheme in section 235), and whether she could rely on the change of position defence.

The court held that the defendant's provision and continued allowance of use of her bank and betting accounts and her processing of dividend payments constituted deliberate assistance to the commission of the FSMA offences. Ignorance of the existence of FSMA did not preclude liability; the relevant mens rea required knowledge of the essential matters constituting the offence rather than knowledge that the conduct was unlawful. Because she was properly characterised as a wrongdoer within the Lipkin Gorman formulation of the change of position defence, she could not rely on that defence in respect of payments connected with losing bets and dividends.

Background and parties. The claimant invested in an unlawful pooled betting arrangement run by Mr Gale. The claimant sued to recover monies on a restitutionary basis. The respondent defendant, Mrs Faye Gale, was the wife of the scheme operator and had allowed use of accounts in her name and made payments at her husband's request.

Procedural posture. The matter came on appeal from the High Court, Chancery Division (Deputy Judge David Donaldson QC). The only remaining cause of action determined below and on appeal was unjust enrichment. The defendant raised a change of position defence.

Issues framed.

• Whether, on the facts, the defendant had aided the commission by her husband of offences under the Financial Services and Markets Act 2000 (sections 19 and 23, with reference to the definition of a collective investment scheme in section 235).
• Whether the change of position defence was available to the defendant if she was a wrongdoer.
• Whether any pleading deficiency (failure to plead explicitly that allowing account use amounted to aiding an FSMA offence) prevented the judge reaching the conclusion he did.

Court's reasoning. The Court of Appeal applied authorities on the mens rea for assisting an offence, notably Regina v Bryce and Regina v Stringer, emphasising that the aider need not know his conduct is unlawful but must know the essential matters constituting the offence and intend to assist or foresee it as a real possibility. On the facts admitted and found at trial, the defendant deliberately permitted account use and processed payments, realised those acts could assist her husband and knew the relevant factual elements of the regulated activity (a collective investment scheme) and that her husband was not a regulated person. Accordingly her acts satisfied the requirements for assistance to an offence under FSMA. The court also held that she had adequate notice in the pleadings that FSMA breaches were in issue and that, as a wrongdoer within Lord Goff's dictum in Lipkin Gorman, she could not rely on change of position in respect of unlawful bets and dividend payments. The Court declined to express a general view on the broader correctness of Laddie J's approach in Barros Mattos and left that for another case.

Outcome. Appeal dismissed: the judge below was correct to find that the defendant had aided FSMA offences and was therefore unable to invoke the change of position defence in relation to the specified payments.

Appeal dismissed. The Court of Appeal upheld the High Court finding that the defendant had deliberately provided and permitted the use of her bank and betting accounts and processed dividend payments in a way that amounted to assisting the commission by her husband of offences under sections 19 and 23 of the Financial Services and Markets Act 2000. Ignorance of the statutory requirement was not a defence because the mens rea required knowledge of the essential facts of the regulated activity rather than knowledge that it was illegal. As a wrongdoer within the Lipkin Gorman formulation, she could not rely on change of position for payments connected to the unlawful betting and dividends.

Appeal from the High Court of Justice, Chancery Division (Deputy Judge David Donaldson QC), case no. HC11C00790, to the Court of Appeal [2013] EWCA Civ 1554. The Court of Appeal heard argument on whether the defendant had assisted FSMA offences and whether the change of position defence was available, and dismissed the appeal.