Burns v The Financial Conduct Authority

A director who contemporaneously solicits paid work or appointment from a third party seeking to contract with the company may be indirectly interested in that proposed transaction. Where there is a real, objectively assessed possibility of conflict, disclosure is required under Companies Act 2006 section 177. The fact that the third party’s candidacy remains preliminary does not remove the duty.

In a de novo regulatory reference, the Upper Tribunal must decide the adversarial case defined by the parties’ statements of case. It may permit a late substantive allegation only where this is fair. The FCA must also have a proper evidential basis for every allegation, especially one of corrupt intent.

Ms Burns was a non-executive director and investment-committee chair of two mutual societies. The FCA alleged that she used those positions while soliciting work from Vanguard, a prospective investment manager, and failed to disclose conflicts of interest.

The Upper Tribunal upheld four allegations, found that she lacked integrity and was not fit and proper for a CF2 function, and imposed a prohibition limited to that function and a £20,000 penalty: [2014] UKUT 0509 (TCC) and [2015] UKUT 0252 (TCC). It later awarded her £100,000 plus VAT in costs because the FCA had unreasonably pursued an allegation that she sought corrupt payments: [2015] UKUT 0601 (TCC).

Ms Burns appealed on the directors’ duties and procedural fairness. The FCA cross-appealed on costs.

1. Both appeals were dismissed. The Upper Tribunal applied the correct standard when finding that Ms Burns had breached her duties to MGM and Teachers.

2. For MGM, the relevant duty was Companies Act 2006 section 177. The statutory duties retain the content of the corresponding equitable principles. Applying Aberdeen Railway Co v Blaikie (1854) 1 Macq. 461, Boulting [1963] 2QB 606 and Boardman v Phipps [1967] 2 AC 46, the question was objective: whether there was a real sensible possibility of conflict. A director need not await a final decision on the proposed transaction. While MGM was actively considering Vanguard, Ms Burns solicited a remunerative relationship with Vanguard. That gave her an indirect interest in the proposed arrangement and required full disclosure to MGM. The statutory exception for an interest not reasonably likely to give rise to conflict did not apply.

3. The same conclusion followed for Teachers under section 63(1) of the Building Societies Act 1986, as applied to a friendly society. Vanguard was live in Teachers’ selection process when Ms Burns sought paid work from it. The act of solicitation itself created an indirect interest in the proposed arrangement. Her failure to disclose it breached her duty of undivided loyalty.

4. The Tribunal was not free, despite the de novo character of the reference, to determine unpleaded substantive allegations simply because they arose from the evidence. The FCA bore the burden of advancing its case in its statement of case. A late allegation could be admitted if fairness permitted it. Here, Ms Burns had not challenged the FCA’s late reliance on the Pearl non-disclosure and was later given an opportunity to provide further evidence and submissions. There was no procedural unfairness. Deliberately untruthful evidence given to the Tribunal was independently relevant to fitness and propriety.

5. The costs award was also sound. The FCA could plead an allegation with a real prospect of success in a de novo hearing. However, an allegation of corrupt intent required evidence of commensurate cogency and especially careful assessment after the Regulatory Decisions Committee had rejected it. The Tribunal was entitled to find that later general concerns about credibility did not provide a sound basis for alleging corrupt intent from the email. Its finding of unreasonable conduct under rule 10(3)(d) was therefore open to it.

6. Ms Burns’ applications to adduce fresh evidence were dismissed.

• Court of Appeal (Civil Division): dismissed Ms Burns’s appeal and the FCA’s cross-appeal: [2017] EWCA Civ 2140.

• Upper Tribunal (Tax and Chancery Chamber): upheld four misconduct allegations, found Ms Burns not fit and proper for a CF2 function, and rejected other allegations: [2014] UKUT 0509 (TCC).

• Upper Tribunal (Tax and Chancery Chamber): directed a CF2 prohibition and a £20,000 financial penalty: [2015] UKUT 0252 (TCC).

• Upper Tribunal (Tax and Chancery Chamber): awarded Ms Burns £100,000 plus VAT in costs for the FCA’s unreasonable pursuit of the corrupt-payment allegation: [2015] UKUT 0601 (TCC).