McKendrick v The Financial Conduct Authority

When sentencing for contempt involving breach of a court order, the court should assess culpability and the harm caused, intended or likely. It must then consider whether a fine would suffice before imposing imprisonment. Deliberate and substantial breaches of freezing orders ordinarily warrant significant imprisonment. The two-year maximum accommodates a comparatively broad range of the most serious conduct. Credit for admissions depends on their timing, with the greatest reduction reserved for admissions made when proceedings commence.

An appellate court generally interferes only for an error of principle, an improper assessment of relevant factors, or a sentence outside the range reasonably open to the judge. The sentence actually imposed must meet that threshold; a high starting point alone does not justify intervention.

Robert McKendrick was a defendant to proceedings brought by the Financial Conduct Authority concerning investment schemes. Following findings that he had contravened financial services legislation, he was ordered to pay more than £14.3 million for distribution to investors. Two worldwide freezing orders required disclosure of his assets and restricted the operation of his buy-to-let business to a specified Barclays account.

McKendrick admitted five contempts involving failures to disclose assets, diversion of rental income to his wife or former wife, Priya McKendrick, whom he had appointed as his lettings agent, and expenditure outside the authorised account. He maintained that the Barclays account had been blocked and that expenditure would otherwise have been permitted. He subsequently became bankrupt and made further disclosures.

Marcus Smith J imposed six months’ immediate imprisonment in [2019] EWHC 607 (Ch), reducing a twelve-month starting point for admissions, apology and belated compliance. McKendrick appealed principally on the ground that the starting point, and consequently the final sentence, was excessive. Grounds concerning a stay pending appeal and the time allowed for payment of costs were not pressed.

Appeal dismissed. The joint judgment of Hamblen and Holroyde LJJ upheld the sentence of six months’ immediate imprisonment.

1. Sentencing for contempt required an assessment of culpability and the harm caused, intended or likely. The approach in Liverpool Victoria Insurance Limited v Zafar applied to breaches of court orders. Relevant considerations included the non-exhaustive aggravating and mitigating factors identified in Asia Islamic Trade Finance Fund v Drum Risk Management. After assessing seriousness, the court had to consider whether a fine would suffice. If so, imprisonment could not be justified, even where limited means required a modest fine (paras 39–40).

2. Deliberate and substantial breaches of freezing orders were inherently serious and ordinarily required imprisonment measured in months. The observations in JSC BTA Bank v Solodchenko and others (no 2) were endorsed. Although the two-year maximum under section 14 of the Contempt of Court Act 1981 had to inform sentence length, it was sufficiently short that a comparatively broad range of the most serious conduct could justify a sentence at or near that maximum (para 40).

3. A sentence could include an element encouraging belated compliance. That element could in principle be remitted following compliance. Here, a coercive element was unnecessary: the sentence concerned punishment for past breaches (para 41).

4. Appellate intervention generally required an error of principle, consideration of immaterial factors, omission of material factors, or a decision outside the range reasonably open to the judge. The judge had correctly directed himself and considered the relevant circumstances. Important disputed matters on which he had made no specific adverse findings had to be approached in McKendrick’s favour, including the duration of the blockage of the Barclays account (paras 37–38, 42–43).

5. Nevertheless, the breaches were repeated and deliberate. The blocked account did not prevent notification to the FCA. All funds otherwise available to investors had been diverted, and the orders’ monitoring purpose had been wholly frustrated. The inability to quantify the dissipation itself demonstrated the seriousness of the breaches (paras 44–45).

6. Credit for admissions depended on timing. The guidance in Liverpool Victoria Insurance Limited v Zafar reserved a maximum one-third reduction for admissions when proceedings commenced, reducing towards about ten per cent for admissions at trial. These delayed admissions justified no more than one-quarter credit. Although the twelve-month starting point was high for punishment alone, the overall halving was generous. The six-month sentence actually imposed remained within the permissible range (paras 46–47).

7. The decision against suspension was also within the judge’s discretion. The remaining grounds had no merit. McKendrick was ordered to pay the FCA’s appeal costs, summarily assessed at £4,375 (paras 48–50).

• Court of Appeal (Civil Division): In [2019] EWCA Civ 524 , dismissed the appeal against the six-month immediate custodial sentence and ordered payment of the FCA’s appeal costs.
• High Court, Business and Property Courts, Business List (Chancery Division): Marcus Smith J committed McKendrick to prison for six months on 1 March 2019 in [2019] EWHC 607 (Ch) . The judge also ordered payment of the FCA’s costs within fourteen days.
• Underlying proceedings: Following a contested hearing in March 2018, HH Judge McCahill QC found contraventions of the Financial Services and Markets Act 2000 and ordered payment of more than £14.3 million to the FCA for distribution to investors. Permission to appeal that order was refused.