Abuse of Power – Regulating the Regulator

The Appellant claims that the Regulator pushed him out of his own company, which then went into liquidation, simultaneously depriving him of access to his own company’s computers and to its documentation and deterred him from talking to his colleagues (citing Article 37 of the Financial Services (Jersey) Law, 1998 as a reason for so doing. We will comment on this aspect in a later blog).

The Appeal itself concerns the decision of the Regulator to issue a public statement in relation to the Appellant in what has been described by the Appellant as pejorative, misleading and inaccurate terms. The proposed public statement remains embargoed pending the hearing of the Appeal.

The Appellant’s notice of appeal was filed on 17 July 2014. It is an appeal under Article 25(A) of the Financial Services (Jersey) Law 1998 which provides as follows:

“Notice of public statement

(1) If a public statement identifies any person who is registered, the Commission shall serve notice on the person.

(2) If a public statement identifies any person who is not registered, and at any time before the Commission issues the public statement it is reasonably practicable for the Commission to serve notice on the person, the Commission shall do so.

(3) A notice under paragraph (1) or (2) shall –

(a) give the reasons for issuing the statement.”

Notwithstanding the elapse of three years, at the time of the judgement the Appellant has never received an adequate list of reasons for the proposed actions of the Regulator, nor yet has he received an adequate statement of the facts upon which the Regulator relies.

Furthermore, the Appellant is aware on the basis of the Regulator’s own admissions of testimony and doubtless documentation from which he and his lawyers were excluded but which informed the actions of the Regulator.

Earlier applications through the Courts to cause the Regulator to disgorge the documents received from the Appellant’s own company by the Regulator failed for reasons which continue to baffle both the Appellant and his advisors.

The attached interlocutory Judgment is a step in the right direction and we quote in part from it where it sets out points of general principle.

The problem thus far for the Appellant is that although the Appellant has received long expositions by way of the affidavits from the Regulator they have been mainly descriptive of the process which the Regulator adopted in order to agree with itself. The process by which the Regulator agrees with itself i.e. its own processes for reaching evaluations of fact will be the subject of future blog postings.

A succinct comprehensive statement of what the Appellant allegedly did wrong and the evidence upon which any findings of fact of wrongdoing have been made remains lacking. All of this is clearly very wrong, it also runs contrary to centuries of case law and to the terms of the relevant statute.

This Judgment, albeit an interlocutory one, is however a step in the right direction.

Regulators have jobs to do but regulators like all branches of law enforcement need to be kept in check and need to be disabused of the idea that they are omnipotent.

We are aware from our colleagues in the legal and financial services industry that there has been criticism of the Regulator for being high handed and being prone not to listen to anything anybody else says to it.

The following parts of the Judgment seemed to be worthy of reproduction:-

“11. However, neither the board minutes recording the decision to issue a public statement in respect of W, nor the letter of 19th June, 2014, nor the public statement itself nor any of the affidavits filed on behalf of the respondent contain any reasons for the decision to issue a public statement. This is a breach of Article 25A. I address the significance of this failing later in this judgment.”

“42. I have already referred to the fact that both parties agreed that De Smith’s Judicial Review 7th Edition contained useful guidance on the approach to be adopted by an administrative body. I firstly refer to paragraph 7-102 at page 455 where the authors state:-

The reasons must generally state the decision-maker’s material findings of fact (and, if the facts were disputed at the hearing, their evidential support), and meet the substance of the principal arguments that the decision-maker was required to consider. If a decision is made on the basis of the evidence of witnesses or experts, reasons for preferring one witness or expert over another should generally be explained. In short, the reasons must show that the decision-maker successfully came to grips with the main contentions advanced by the parties, and must tell the parties in broad terms why they lost or, as the case may be, won. Provided the reasons satisfy these core criteria, they need not be lengthy.”

“43. Some general guidance on the standard of reasons required may also be derived from a consideration of the purposes served by a duty to give reasons.

Thus, reasons should be sufficiently detailed as to make quite clear to the parties—and especially the losing party—why the decision-maker decided as it did, and to avoid the impression that the decision was based upon extraneous considerations, rather than the matters raised at the hearing. Reasons must be sufficient to reveal whether the tribunal made any error of law. Reasons must also enable the court to which an appeal lies to discharge its appellate function, and when this is limited to questions of law, it will only be necessary to explain the exercise of discretion and to set out the evidence for the findings of fact in enough detail to disclose that the decision-maker has not acted unreasonably.

The reasons should refer to the main issues in the dispute, but need not necessarily deal with every material consideration. Brevity is an administrative virtue, and elliptical reasons may be perfectly comprehensible when considered against the background of the arguments at the hearing.”

“45. More specific observations in relation to what is expected from the respondent were considered in Interface [Interface Management Limited v Ors v JFSC [2003] JLR 524. Firstly at paragraph 50 Sir Michael Birt stated as follows:-

But where a matter as serious as an allegation of forgery is raised and where there is what appears on the face of it to be a reasonably persuasive defence, we think that the Director General should do more than simply refer to the fact that the response has been made but that his view remains unaltered. We think that the Director General should have either modified what he said in relation to the forgery allegation or explained why he remained unconvinced by IML’s response.”

“53. In drawing these principles together, in relation to the obligation to give reasons, I summarise the position as follows:-

(i) There is an obligation on an administrative body to give reasons;

(ii) The extent of the reasoning required is to allow the person affected by the decision to know why a decision has been reached and what material has been relied upon by the decision maker in reaching that decision;

(iii) The reasons can be brief; indeed brevity is to be encouraged as long as the obligation in the preceding sub-paragraph is met;

(iv) Reasons do not need to indicate why the material relied upon was preferred to other evidence;

(v) Clarity of the explanation given is particularly important where any finding involves a conclusion as to the honesty or other similar characteristic of the person about whom a decision is being made.

(vi) Any breaches of duty or codes of practice relied upon should be identified expressly.”

“71. No breaches of any duty or Codes of Practice by the Trust Company for which W is responsible are identified despite paragraph 64 of Interface cited above even though breaches of Codes of Practice are referred to in the Trust Company report.”

“72. This leaves W (and the Court) having to guess whether this is the case. W should not be left in this position.”

“87. The issue is simply the identity of the customers being referred to. Without this identification, W cannot assess whether the criticism in paragraph 2.10 is one he accepts or whether he wishes to challenge it.”

“99. For the same reason, I also accept that the respondent should set out why [it is alleged] W’s conduct lacked integrity in respect of paragraph 4.2.”

“112. I next turn to deal with my observations at paragraph 11 above concerning the lack of reasons in relation to the decision to issue a public statement. The conclusion I have reached is that the board must explain its reasons for its decision to issue a public statement. This is because there is firstly a separate obligation in Article 25A of the Financial Services Law to do so. Secondly, there is a distinction between a decision to issue directions and a decision to make a public statement.”

“113.I wish to add that I think that the respondent’s error in this case is to have used the public statement as the reasons for its decision. The essence of a public statement is ultimately to warn individuals, whether in Jersey or elsewhere, not to deal with the subject matter of the public statement. Such statements are likely to be concise and only contain an outline or summary of the matters that have led to the necessity for a public statement. The obligation to give reasons however fulfils a different function. It is so that the person affected knows why the decision has been made and what material has been relied upon in making that decision. The more difficult the issue being considered by the respondent, the more potential there is for tension between the simplicity required by a public statement and the level of detail needed to meet the applicable legal obligations when giving reasons. In future cases I therefore encourage the respondent to reflect on its current practice and whether or not the respondent should keep separate any public statement, if it decides to issue one, from any reasons it is required to provide.”

In our view, the Judgment tells a lamentable story. Notwithstanding the provisions of the Financial Services (Jersey) Law 1998, previous decisions by the Royal Court and a common understanding amongst the legal profession and the public alike of basic precepts of fairness like telling someone exactly what they have been accused by whom, let alone convicted of the Regulator has not done so. The Regulator has strenuously resisted applications to compel it to do so.

It is worrying that the Regulator which has the power to terminate careers and reputations should seek to behave in such an inappropriate fashion especially given that it was legally advised at every stage.

On the positive side, although the Judgment did not go as far as we might have liked, judicial control is being exercised and fundamental judicial precepts are being applied.

This brings this posting to an end but we will look at how the Regulator conducts its inquiries and agrees with itself and the deterrence of inter witness communication in subsequent postings.