Macris v Financial Conduct Authority

The Court of Appeal dismissed the Authority's appeal against the Upper Tribunal's decision that Mr Macris had been prejudicially identified in notices served on JP Morgan Chase Bank NA. The key legal principle was the proper construction of section 393 of the Financial Services and Markets Act 2000 (FSMA): a third party is entitled to third party rights where a "matter" to which any of the reasons in a warning or decision notice "identifies" that person and the regulator considers the matter prejudicial.

The court held that identification must in the first place be found in the notice itself (or "matters" contained in it) in the sense that the notice must contain a "key or pointer" to a person distinct from the notice recipient. Once such a pointer exists, it is permissible to apply an objective test, analogous to the law of defamation, to ask whether persons acquainted with the claimant or operating in his market would reasonably understand the description to refer to that individual as at the date of promulgation of the notice.

Applying that test, the Court concluded that the phrases used in the Notices (notably "CIO London management") were, in context, a reference to a particular individual and that, on the evidence available and objectively considered as at the date of promulgation (including publicly available material such as the US Senate report), persons in the relevant financial community would have understood that reference to be to Mr Macris. Accordingly he was entitled to third party rights under section 393 and the appeal was dismissed.

This was an appeal by the Financial Conduct Authority against an Upper Tribunal (Tax and Chancery Chamber) decision that Mr Achilles Macris had been identified as a third party in warning, decision and final notices served on JP Morgan Chase Bank NA on 18 September 2013 in relation to very large losses in the Chief Investment Office's Synthetic Credit Portfolio (the "London Whale"). The notices imposed a financial penalty on the Firm and contained criticisms under headings including trading strategy, valuation and failures to be open and co-operative.

Procedural posture: The Upper Tribunal (Judge Herrington) decided as a preliminary issue under the Tribunal rules that the Notices identified Mr Macris and therefore that he had third party rights under s.393 FSMA; the Authority appealed and permission was granted to raise questions of law about the proper test for identification.

Nature of the claim / relief sought: Mr Macris sought to rely on s.393(11) FSMA to challenge the Authority's failure to give him a copy of the Warning/Decision Notices and a reasonable period to make representations, on the ground that the Notices identified him and were prejudicial to him.

Issues framed:

• Whether the reasons in the Notices "relate to a matter which identifies" Mr Macris for purposes of s.393 FSMA;
• If so, whether identification must be established solely from the notice itself or whether reference may be made to external material and, if the latter, what material is permissible;
• Application of the correct test to the facts: whether the Notices' references to "CIO London management" identified Mr Macris.

Court's reasoning: The court explained that the statutory word "identifies" should be given its ordinary meaning. The initial question is whether the notice itself contains a reference (a "key or pointer") to a person distinct from the notice recipient. If so, it is legitimate to apply an objective test, informed by analogy to defamation law, asking whether persons acquainted with the claimant or who operate in his area of the financial services industry would reasonably have understood the description, as at the date the notice was promulgated, to refer to that individual. External material may be considered but only to the limited extent of what such persons would reasonably have known at the relevant date; unlimited ex post reference to material in the public domain is impermissible.

Applying that approach, the court accepted that the Notices' references to "CIO London management" were, in context, a reference to a particular individual and that, given the available evidence (including organisational material and the US Senate report), persons in the relevant market would reasonably have understood that to be Mr Macris. Accordingly he was prejudicially identified and was entitled to third party rights under s.393. The Court dismissed the Authority's appeal.

Wider comment: The court observed that the test for identification under s.393 is narrower than the general question of implication in defamation law but that defamation authorities provide a useful analogy for the objective test of how a reasonable informed reader would understand the words. The court emphasised the need to assess identification by reference to knowledge reasonably available to the relevant market as at the date of promulgation, not by unfettered retrospective inquiry.

Appeal dismissed. The Court held that the Upper Tribunal had been right to find that the Notices identified Mr Macris for the purposes of section 393 FSMA. Identification requires a "key or pointer" in the notice itself to a person other than the notice recipient; once such a pointer exists an objective test (analogous to defamation law) is applied asking whether persons acquainted with the claimant or operating in his market would reasonably have understood the description, as at the date of promulgation, to refer to that individual. Applying that test (and limiting permissible external material to what those persons would reasonably have known at the relevant date), the references to "CIO London management" identified Mr Macris, entitling him to third party rights.

Appeal from the Upper Tribunal (Tax and Chancery Chamber) (Judge Herrington) decision promulgated 10 April 2014 (case FS/2013/0010). Permission to appeal was granted (including by order of Sir Timothy Lloyd dated 2 July 2014) and the matter was heard in the Court of Appeal (Three Lords Justices) with judgment handed down on 19 May 2015 ([2015] EWCA Civ 490).