UT (Tax & Chancery) UT/2022/000100 and UT/2022/000107 - [2024] UKUT 00156 (TCC)

There is clearly a tension between the approach to the question of the “matter” referred and the Tribunal’s jurisdiction in cases such as Bonas and ITV,where the provisions of PA04 are concerned, and the approach taken to the corresponding FSMA provisions we are concerned with. The interpretation in the PA04 cases appears to be a much broader one of focusing on the relevant decision (see [36] above), and that informs both the approach to the extent to which the “matter referred” can include fresh allegations and also the different levels of importance accorded to warning notices and the pre-Tribunal proceedings. Like the waters of rivers which meet but do not mix, the Pensions Act cases do not seem to have influenced the approach in the FSMA decisions (The Pensions Act cases were not mentioned in Bluecrest, which Mr Temple says is one of the Authority’s criticisms of that decision), nor the other way round; see Arden LJ’s comments in ITV at [72]. As explained by Mr Temple, the basis of the Authority’s appeal in Bluecrest is that PA04 cases should influence the approach in FSMA cases and that there should be a common approach to the interpretation of the equivalent provisions in both statutes.

A second tension is between decisions such as Jabre and Carrimjee, which would suggest that, before the Tribunal, the Authority can make allegations (that the target has committed a particular regulatory breach) which were not made in the warning notice, as long as the allegations are based on facts and circumstances referred to in the warning notice (and so considered, even if rejected, in coming to a decision) or other evidence which can properly be produced in the Tribunal and the regulatory outcome sought is no more severe (from the point of view of the target) than that for which the Authority argued in the warning notice, and other decisions such as Khan, Seiler and Bluecrest, which suggest that, where the Authority seeks to rely on allegations which were not made in the warning notice but could have been, to be part of the “matter referred” the fresh allegations must be based on the same factual background and of the same nature as the allegations in the warning notice (and thus before the RDC). The difference between these two approaches boils down to the requirement that the new allegations are of the same nature as existing allegations in the warning notice; the requirement that, subject to an exception for facts and circumstances which could not have been included in the warning notice, they arise out of the factual matrix before the RDC is common to both approaches. As to what amounts to an allegation of the same nature, this Tribunal in Bluecrest was clear that, where the allegation is in respect of a different regulatory provision, then it cannot be of the same nature.

It is not easy to choose between these approaches based on policy. On the one hand, just as in the tax jurisdiction of the tribunals there is a “venerable principle” that the task of the tribunals is to determine the right amount of tax due, not to decide who has the better argument (see, for example, Shinelock Limited v HMRC, [2023] UKUT 00107 (TCC)), there is here a public interest in getting to the “right” regulatory outcome, in particular ensuring, so far as possible, that persons who are not fit and proper persons to perform functions in relation to a regulated activity are precluded from doing so. On the other hand, Parliament has established a process for resolving disputes between a subject of enforcement action and the Authority, which is based on through, fair and effective administrative decision-making procedures, which are less formal, less expensive and quicker than tribunal or court proceedings. These involve a process of investigation, followed by warning and decision notices. Those objectives will be compromised if the Authority does not ensure that all relevant matters are placed on the table at the warning notice stage. That is why it has been observed, on several occasions (see, for example, Seiler at [1010]), that it is generally to be expected that the Authority will have completed its investigation before the commencement of regulatory proceedings and will carry forward the same case both through the regulatory proceedings and into the Tribunal.

The Authority is not seeking to introduce any new evidence here. It simply submits that, if the facts do not support an allegation of lack of integrity (which includes reckless behaviour as well as outright dishonesty), they would allege that the Applicants have not behaved with due skill and care, in other words they were negligent. If I were to follow what I have described as the broader approach, I would conclude that the matter referred could include an allegation of a lack of skill and care if it were no more than a new analysis of facts already included in the warning notice and there were no suggestion that it should lead to a more stringent sanction. If I were to follow the approach in Bluecrest, then the new allegation would not be part of the “matter referred” as what is alleged is a breach of a different Principle.

As I have already indicated, there is a clear and obvious tension between the approaches to the question of the “matter referred” in the PA04 cases on the one hand and those on similar provisions in FSMA. I have considered whether the decision of the Court of Appeal in ITV is binding on me or otherwise is a decision which I should follow. Clearly, if the approach in ITV is mapped across into the FSMA provisions, then it is hard to see how, at least as a matter of jurisdiction, the alternative allegation could not be raised.

The decision in ITV is a decision on provisions of PA04 and, therefore, is not binding authority on the interpretation of similarly worded provisions in FSMA. It is, of course, a decision which should be taken into account in construing similarly worded provisions in FSMA, but it is not possible for me to determine the extent this should be the case. Although the provisions in PA04 are similarly worded to those in FSMA and both sets of provisions are dealing with a similarly structured statutory process, there are differences between the two regimes which may make it inappropriate to construe the two sets of provisions in the same way. By way of example, the financial support which can be required under PA04 is not fixed by statute, depends on such matters as TRP thinks relevant and fault is not a necessary condition for liability (although it is something which can be taken into account). On the other hand, the FSMA provisions are very clearly penalty provisions based on fault. Secondly, as Arden L J noted in ITV, whilst warning notices are an important part of PA04 regime, there are other protections for the target (see paragraph [61]). During these proceedings, we have not analysed the two regimes and the protections they offer and contrasted them. Finally, proceedings between the Authority and the subject of regulatory action are proceedings between the two parties. On the other hand, in PA04 cases parties other than TPR itself (for example pension scheme trustees) can participate in the proceedings. The Court of Appeal will have the benefit of three days of argument on this issue in July, but, for myself at this stage, I cannot gauge the relevance of the approach in ITV/Bonas to the interpretation of the relevant FSMA provisions.

Turning to the decisions of this Tribunal on the FSMA provisions, clearly none of those decisions is binding on me, but (following the approach outlined at paragraph 32 of Halsbury’s Laws of England, volume 11(2020)) I consider that I should follow the approach taken in those decisions, unless I am convinced that any of them is wrong, which I am not. Further, to the extent there is conflict between (or, perhaps more accurately, evolution over the course of) any of those decisions, then I should follow the later decision if it is reached after full consideration of earlier decisions. Since the decision in Bluecrest was clearly reached after full and careful consideration of the earlier decisions of this Tribunal on the relevant FSMA provisions, then I consider that I should follow that decision.

It follows from what I have just said that I will approach the question of jurisdiction on the basis that there is no jurisdiction to entertain the Authority’s alternative argument, given that it was not articulated in the warning notice, unless it is of the same nature and based on the same facts as allegations which were. Subject to the points discussed immediately below, given that the new allegation relates to a breach of Principle 2 whereas the articulated allegations relate to Principle 1, the new allegation is not of the same nature as allegations contained within the warning notice.

The next question is whether a shift from an allegation of lack of integrity (at lease where recklessness rather than dishonesty is alleged) to one of a failure to exercise due skill and care involves making an allegation of a different nature. Mr Temple submits that this is not the case (even though it involves moving from Principle 1 to Principle 2). So, he says, even if Bluecrest is correct, then the new allegation could still be part of the “matter referred”.

Mr Temple says that, as a rule, the Authority does not plead negligence (Principle 2) as an alternative to recklessness (Principle 1) where they are both value judgments which could be reached in relation to the same conduct. (I pause to observe that this is a surprising position to adopt bearing in mind the observations in Markou.) Whilst there is a difference between moving between Principles 7 and 8, which involve doing (or failing to do) different things, moving between Principles 1 and 2 does not involve considering different facts, just forming a different view on the same facts. Mr Temple noted the Tribunal’s comment that “There is no sense in which a Principle 7 allegation can be automatically deemed to be subsumed within a Principle 8 allegation as an alternative or lesser allegation” (my emphasis again), but it might be said that an allegation of negligence could be subsumed within Principle 1 as an alternative or lesser allegation. Put another way, if a person alleges recklessness on the part of another, they cannot possibly accept that they acted with due care and skill. Finally, Mr Temple noted that the Tribunal in Bluecrest did not say that it thought Carrimjee was wrongly decided; it merely noted that it proceeded on the basis that it was common ground that an allegation of a breach of Principle 1 automatically engaged Principle 2.

Attractive though this approach is, I do not consider this is an approach we should adopt at this stage. I say this because: