The Financial Conduct Authority v Avacade Ltd & Ors

Section 382 of the Financial Services and Markets Act 2000 confers a flexible remedial jurisdiction. A restitution order need not replicate common-law damages or be calculated identically for every defendant. For an interim restitution order, the court must be satisfied that a substantial final monetary award will be obtained and that the proposed payment is no more than a reasonable proportion of the likely final amount. Gains received by defendants may provide a reasonable proxy for investor loss where the assumptions are sound. A final injunction requires a real risk of repetition of prohibited behaviour. Serious past misconduct, personal economic benefit and the possibility of future operation through another entity may outweigh informal assurances of future compliance.

The judgment concerned consequential relief following a nine-day trial and the earlier judgment in The Financial Conduct Authority v Avacade Ltd & Ors [2020] EWHC 1673 (Ch). The corporate defendants had contravened provisions of the Financial Services and Markets Act 2000 and the Financial Services Act 2012, and three individual defendants had been knowingly concerned in those contraventions.

The court had to determine whether to make interim restitution orders under section 382 of the Financial Services and Markets Act 2000 and CPR 25.7, whether to grant final injunctions, and whether execution of the interim orders should be stayed pending a proposed appeal. The central issues were the proper basis for estimating likely restitution and whether there was a real risk of repetition.

1. Interim restitution. Section 382 of the Financial Services and Markets Act 2000 creates a broad and flexible remedial discretion. The court may order such sum as appears just, having regard to profits appearing to have accrued, investor loss or adverse effect, or both. The jurisdiction is not a facsimile of common-law damages. Different bases may properly apply to different defendants, according to their roles and the circumstances of their involvement.
2. Under CPR 25.7(1)(c), the court had to be satisfied that, if the claim proceeded to trial, the claimant would obtain a substantial monetary award. Under CPR 25.7(4), the interim payment could not exceed a reasonable proportion of the likely final judgment. The assessment was discretionary and required a pragmatic evaluation of the evidence.
3. The court rejected an assumed-loss basis because the split trial had reserved valuation of the investments and the court could not safely assume their residual value. The court accepted a gain-loss proxy: it was reasonable to infer that commissions and fees came from investors’ capital and that, without the contraventions, that capital would not have been diminished to that extent. The individual defendants’ personal gains were safer and fairer proxies for investor loss than the larger corporate figures. Interim orders were therefore made for £10 million against Avacade, £715,000 against Alexandra Associates, £2.5 million against each of Craig Stanley Lummis and Lee Edward Lummis, and £1.7 million against Raymond George Fox, subject to an aggregate recovery cap of £10.715 million.
4. Injunctions. Alexandra Associates had a reasonable likelihood of repeating its contraventions. In relation to the individual defendants, their prolonged and serious involvement, personal economic benefit and potential to operate through a new corporate entity established a real risk of repetition. Informal assurances about future employment or business intentions did not remove that risk. Final injunctions were granted against Alexandra Associates, Craig Stanley Lummis, Lee Edward Lummis and Raymond George Fox.
5. Execution of the interim orders was not stayed. The claimant’s undertaking protected the proposed appeal, and the defendants could seek a stay from the Court of Appeal.

The matter was a consequential hearing following the trial judgment in The Financial Conduct Authority v Avacade Ltd & Ors [2020] EWHC 1673 (Ch). Permission to appeal that judgment had been refused, but an appeal notice was subsequently filed. This judgment determined consequential relief and related applications at first instance.