Anderson & Ors v Sense Network Ltd

An authorised person’s liability for an appointed representative under section 39(3) of the Financial Services and Markets Act 2000 is co-extensive with the business for which it accepted responsibility in writing. Responsibility may cover only part of a prescribed category of business. A contractual restriction defining the permitted products or agencies therefore limits statutory liability, although a restriction concerning merely how permitted business is conducted does not.

Vicarious liability requires the wrongdoer’s activities to form an integral part of the defendant’s operations and benefit, rather than a recognisably independent business.

A purported fixed-return investment may constitute a collective investment scheme. Its apparent character is determined by the parties’ common understanding when the investment is made, even where the represented arrangements are fictitious.

Ninety-five investors claimed losses arising from a dishonest Ponzi scheme operated without the respondent’s knowledge by an appointed representative and its controlling director. Twelve claims proceeded as lead claims. Jacobs J dismissed all claims in the Commercial Court: [2018] EWHC 2834 (Comm).

Permission to appeal was confined to liability under section 39(3) of the Financial Services and Markets Act 2000 and vicarious liability at common law. The respondent contended by notice that the purported high-interest deposit scheme was not a collective investment scheme.

The central issues were whether the relevant advice and arrangements fell within the business for which the respondent had accepted statutory responsibility, whether the appointed representative’s advisers acted as part of the respondent’s business, and whether the arrangements described to investors satisfied the statutory definition of a collective investment scheme.

1. Appeal dismissed. Section 39(3) of the Financial Services and Markets Act 2000 made an authorised principal responsible only for acts or omissions occurring in the business for which it had accepted responsibility in writing. Section 39(1) permitted responsibility to be accepted for the whole or part of a generically prescribed category of business. The appointed representative’s exemption and the principal’s liability were therefore co-extensive: paras [29]–[38].

2. The principal’s responsibility was determined from its written acceptance, rather than from the full scope of its own regulatory authorisation or the public register. The statutory words permitting responsibility for part of a business were not confined to arrangements involving multiple principals. The amendments implementing the public-register requirements of MiFID I did not alter the extent of civil liability under section 39(3): paras [36]–[46].

3. A principal cannot avoid liability merely because permitted business was conducted improperly. It may, however, define what business it accepts responsibility for. Advice inherently bound up with authorised advice may fall within the accepted business, whereas activity outside an express product or agency restriction does not: paras [40], [47]–[49]. Here, the appointed-representative agreement confined the relevant business to products using a company agency. Advice to entrust money to the unauthorised scheme used no such agency and fell outside the accepted business: paras [55]–[57].

4. There was no vicarious liability. Under Cox v Ministry of Justice [2016] UKSC 10, the individual’s activities must be assigned by the defendant as an integral part of its operations and for its benefit, rather than being attributable to a recognisably independent business. The appointed representative and its advisers provided advice as part of their own independent financial-services business. They did not perform activities assigned as part of the principal’s business: paras [58]–[64]. The possible inapplicability of those principles to commercial agents was left undecided: para [65].

5. The respondent’s notice was rejected. The scheme described to investors was a collective investment scheme under section 235. Its character depended on the parties’ common understanding when investments were made, notwithstanding that the represented arrangements were fictitious. A promised fixed return did not prevent participation in income arising from the supposed special account. The contributions were understood to be pooled and managed as a whole, and participants lacked day-to-day control: paras [66]–[79].

6. The common-account exclusion in paragraph 6 of the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 did not apply. The supposed rights against the bank would belong to the operator, rather than being property acquired individually or collectively for participants; nor was the bank account held to make payments directly to them: paras [80]–[82].

Hamblen LJ and Snowden J agreed with David Richards LJ.

• Court of Appeal (Civil Division): The appeal from the dismissal of the section 39(3) and vicarious-liability claims was dismissed. The respondent’s contention that the arrangements were not a collective investment scheme was rejected: [2019] EWCA Civ 1395.
• Commercial Court: Jacobs J dismissed the lead claimants’ claims on all pleaded bases: [2018] EWHC 2834 (Comm).