McKendrick v The Financial Conduct Authority

For contempt consisting of breaches of a freezing order, the court should assess the contemnor’s culpability and the harm caused, intended or likely. It should then decide whether a fine is sufficient. Custody is justified only where a fine cannot adequately punish the contempt.

Deliberate and repeated breaches which frustrate asset preservation and monitoring are grave. The statutory maximum of two years under the Contempt of Court Act 1981 is not confined to only the most extreme imaginable contempt. Credit for admissions depends materially on their timing. On appeal, the question is whether the sentence imposed was wrong in principle or outside the reasonable range, rather than whether the appellate court would have selected a different starting point.

The Financial Conduct Authority obtained worldwide freezing orders against Mr McKendrick in proceedings concerning investment schemes. The orders required disclosure of assets and controlled the operation of a Barclays account used for his buy-to-let business.

Mr McKendrick admitted five contempts. They included failing to disclose assets and arrangements involving his former wife, diverting rental income from the designated account, and spending money paid to her. Marcus Smith J committed him to prison for six months: [2019] EWHC 607 (Ch).

He appealed principally on the ground that the sentence was excessive. The central issue was whether the sentence fell outside the range reasonably open to the judge.

1. Appeal dismissed. The judge had correctly directed himself and considered the relevant aggravating and mitigating matters. The Court of Appeal could interfere only for error of principle, failure to consider a material matter, consideration of an immaterial matter, or a sentence outside the reasonable range.

2. For contempt by breach of a court order, sentencing should begin with culpability and the harm caused, intended or likely. The court should then consider whether a fine would suffice. If it would, imprisonment is not justified. The court adopted a similar approach to that in Liverpool Victoria Insurance Limited v Zafar [2019] EWCA 392 (Civ), and agreed with the observations in JSC BTA Bank v Solodchenko and others, (no 2) [2011] EWCA Civ 1241 concerning the seriousness of substantial breaches of freezing orders.

3. The maximum committal term under section 14 of the Contempt of Court Act 1981 is two years. Since that maximum is comparatively short, it is not reserved for only the worst conceivable contempt. A broad range of very serious conduct may justify a sentence at or near it.

4. The contempts were deliberate, repeated and planned. Although the Barclays account was to be treated as blocked until August 2018, that did not prevent disclosure to the FCA that rent was being diverted. The diversion frustrated the monitoring and preservation of income intended for investors. The inability to quantify all dissipated funds itself reflected the seriousness of the breaches.

5. The appellant’s admissions and later disclosure justified credit, but they were not made at the earliest opportunity. The six-month sentence, viewed as punishment for the past breaches after credit, was within the reasonable range. The judge was also entitled to order that it be immediate rather than suspended. The appellant was ordered to pay the FCA’s appeal costs, summarily assessed at £4,375.

• Court of Appeal (Civil Division): Dismissed the appeal against the six-month committal sentence: [2019] EWCA Civ 524.
• High Court (Business and Property Courts, Chancery Division): Marcus Smith J found the admitted contempts proved and committed the appellant to prison for six months: [2019] EWHC 607 (Ch).