Burns v FCA

The Court of Appeal dismissed the appellant's challenge to the Upper Tribunal's findings that Ms Burns, while a non-executive director and chair of investment committees, culpably solicited remunerative arrangements from a potential fund manager (Vanguard) and failed to disclose a real and sensible possibility of conflict. The court applied the duties in the Companies Act 2006 (in particular sections 175 and 177) and the equivalent disclosure duty applicable to friendly societies (Building Societies Act 1986 s.63 as applied), and upheld the Upper Tribunal's approach that disclosure is required when a director "has, or can have, a direct or indirect interest that conflicts, or possibly may conflict" with the company.

The court also rejected the appellant's submission that the Tribunal erred in taking into account unpleaded material concerning the appellant's earlier employment by Pearl, holding that the Tribunal was entitled to treat such matters as relevant to credibility and fitness and propriety, that Ms Burns had a fair opportunity to address them, and that no injustice resulted.

Finally, the Court of Appeal dismissed the FCA's cross-appeal against the Upper Tribunal's costs award, concluding that the FCA acted unreasonably in reintroducing an allegation that the appellant sought corrupt payments when that allegation had earlier been considered and rejected by the RDC and there was no cogent evidence to overturn that conclusion.

Background and parties: Ms Angela Burns, an experienced investment professional and non-executive director who chaired investment committees at two mutual societies (Marine & General Mutual Life Assurance Society (MGM) and Teachers Provident Society Limited (Teachers)), was the recipient of a Decision Notice (28 November 2012) from the then FSA (now the FCA) imposing a financial penalty and a prohibition under FSMA. The FSA alleged reckless breaches of Statement of Principle 1 (failure to act with integrity), misuse of fiduciary position and lack of fitness and propriety. Ms Burns referred the matter to the Upper Tribunal under FSMA.

Procedural posture: The Upper Tribunal (Main Decision [2014] UKUT 0509 (TCC)) upheld four allegations of reckless breach and found Ms Burns not fit and proper for CF2. A subsequent Penalty Decision (on written submissions) imposed a reduced financial penalty and a Costs Decision awarded Ms Burns costs against the FCA on the basis the FCA had unreasonably pursued a corrupt payment allegation. Ms Burns appealed to the Court of Appeal on two grounds (standard of conduct applied by the Tribunal; reliance on unpleaded matters), and the FCA cross-appealed the Costs Decision.

Issues before the Court of Appeal:

• Whether the Upper Tribunal applied the correct legal standard in finding breaches of director duties (notably the disclosure and conflict duties reflected in Companies Act 2006 ss.175 and 177 and the equivalent duties applicable to Teachers).
• Whether the Tribunal unlawfully relied upon unpleaded matters (non-disclosure of employment by Pearl) in reaching findings on integrity and fitness and propriety.
• Whether the Upper Tribunal erred in awarding costs to Ms Burns on the basis that the FCA unreasonably reintroduced an allegation of solicitation of corrupt payments.

Court's reasoning and conclusions: The court held that the Tribunal correctly stated and applied the legal principles derived from the Companies Act 2006 and equitable authorities: a director must disclose any interest where there is a "real sensible possibility" of conflict, and solicitation of a benefit while the third party is an active candidate for company business creates an interest that must be declared. The Tribunal was entitled to find that Ms Burns, by sending emails in February 2009 and November 2010 soliciting remunerated roles or commissions from Vanguard while Vanguard was a live candidate, placed herself in a position of conflict and failed to disclose that interest to MGM and Teachers.

The court also concluded that the Tribunal did not unfairly rely on the unpleaded Pearl employment matter: the FCA had become aware of it before the hearing, it was explored in evidence, Ms Burns had opportunity to address it (including adduction of further evidence), and the Tribunal legitimately took it into account for credibility and fitness and propriety. The Court found no injustice requiring remittal.

On costs, the Court upheld the Upper Tribunal's award, concluding the FCA acted unreasonably in reintroducing the corrupt-payments allegation after the RDC had rejected it and in the absence of cogent evidence sufficient to support that serious allegation; that unreasonable conduct materially increased the gravity and cost of the proceedings.

Appeal dismissed as to the Main Decision: the Court of Appeal upheld the Upper Tribunal's findings that Ms Burns breached director duties by soliciting benefits from a potential supplier while she sat on decision-making bodies and by failing to disclose the consequent potential conflicts; the Tribunal did not err in taking into account unpleaded material about prior employment for the purposes of credibility and fitness and propriety. FCA's cross-appeal on costs dismissed: the Court agreed that the FCA acted unreasonably in reintroducing a corrupt-payment allegation previously rejected by the RDC and affirmed the Upper Tribunal's costs award.

On appeal from the Upper Tribunal (Tax and Chancery Chamber): Main Decision [2014] UKUT 0509 (TCC) (finding four breaches and that appellant was not fit and proper); Penalty Decision [2015] UKUT 0252 (TCC) (financial penalty and prohibition remitted/determined on written submissions); Costs Decision [2015] UKUT 0601 (TCC) (award of costs to the appellant). This judgment ([2017] EWCA Civ 2140) dismisses the appellant's appeal and dismisses the FCA's cross-appeal against the Costs Decision.