Financial Conduct Authority v Hobbs

The Court of Appeal allowed the Financial Conduct Authority's appeal against the Upper Tribunal's decision that the Authority had discontinued proceedings and that Mr Hobbs was a fit and proper person. The court held that (i) the Upper Tribunal was wrong to treat a press-release style website statement as an effective discontinuance under section 389 of the Financial Services and Markets Act 2000; and (ii) the Tribunal erred in law by failing to address whether Mr Hobbs' proven lying to his employer, the exchange and the regulator could, independently of any finding of market abuse under section 118, render him not a "fit and proper person" for the purposes of section 56 FSMA. The Court remitted the matter to the Tribunal to determine in the light of those conclusions whether a prohibition order should be made.

Background and parties:

• The appellant, the Financial Conduct Authority (formerly the Financial Services Authority), proposed to make a prohibition order against Mr David Hobbs under section 56 FSMA and served a decision notice under section 57 following an investigation into his trading in LIFFE coffee futures on 15 August 2007.
• The Authority alleged market abuse (section 118) and relied also on Mr Hobbs' subsequent misleading and untruthful statements to his employer, the exchange and the Authority as showing lack of honesty and integrity.

Procedural history:

• Mr Hobbs referred the decision to the Upper Tribunal which found that his trading did not amount to market abuse and that the Authority had not made out that he was not a fit and proper person; it directed the Authority to take no action. The Tribunal found that many of Mr Hobbs' telephone conversations were "trader bravado" and that, although he had lied, the Authority had not established unfitness.
• After the Tribunal published its decision the Authority briefly placed a statement on its website saying it was discontinuing its action; that statement was removed. The Authority applied for permission to appeal to the Court of Appeal; the Upper Tribunal refused permission but Lewison LJ later granted permission to appeal to this Court.

Issues:

• Whether the Authority had in fact discontinued its proceedings so as to preclude an appeal (section 389 FSMA).
• Whether the Tribunal had considered whether Mr Hobbs' lying alone demonstrated that he was not a fit and proper person for the purposes of section 56 FSMA.
• If not, whether that was an error of law requiring intervention and what order should follow.

Court's reasoning:

• On discontinuance, the Court concluded the Tribunal erred to the extent it regarded an internal or public relations statement as effecting an irrevocable discontinuance. Section 389 requires a notice of discontinuance to be given and Parliament's scheme contemplates communication of such decisions; a website press statement not addressed to the individual is not sufficient. Evidence before the Court (witness statement of the Authority's manager and internal emails) showed no authorised decision to discontinue had been taken.
• On fitness and propriety, the Court construed "the matter" capable of referral under section 57 broadly to include the facts and evidence relied on in the decision notice. The Authority's case before the Tribunal expressly relied on both the alleged market abuse and the subsequent misleading statements. Because the Tribunal found that Mr Hobbs had lied, it was incumbent on the Tribunal to address whether that lying, even in the absence of market abuse, demonstrated lack of honesty and integrity sufficient to justify a prohibition order. The Tribunal's failure to give reasons on that live question was an error of law. The Court also noted public interest considerations and the risk of later preclusion issues if relevant facts were omitted from the Tribunal's determination.

Disposition:

• The Court allowed the appeal and remitted the matter to the Upper Tribunal to consider what order to make in light of the Court's conclusions. The Court declined to itself make a prohibition order because Mr Hobbs was not then performing regulated functions and had been dismissed in 2007; the Tribunal should therefore determine appropriateness of any order.

Appeal allowed. The Court held that the Upper Tribunal erred in finding that the Authority had discontinued the proceedings by virtue of its website statement and in failing to address whether the respondent's lies, found by the Tribunal, independently rendered him not a fit and proper person for the purposes of a prohibition under section 56 FSMA. The matter was remitted to the Tribunal to determine what order should be made.

The matter was referred to the Upper Tribunal (Tax and Chancery Chamber) which allowed Mr Hobbs' reference: [2012] UKUT B25 (TCC). The Upper Tribunal refused the Authority permission to appeal on 2 January 2013. Lewison LJ subsequently granted permission to appeal to the Court of Appeal. This Court (EWCA Civ) allowed the appellant's appeal on 29 July 2013: [2013] EWCA Civ 918.