UT (Tax & Chancery) UT-2022-000134 UT-2022-000135 UT-2022-000137 - [2025] UKUT 00214 (TCC)

We consider the amount of Mr Urra’s “relevant income” for the period from 30 July 2015 to 29 July 2016.

Mr George submitted that it is clear that income “earned by the individual in the 12 months preceding the final market abuse” under DEPP 6.5C.2.G(5) is limited to remuneration paid in respect of work undertaken in that 12 month period, and does not encompass prior earned sums which happen to vest in that period. In any event, the Tribunal should depart from the Authority’s penalty policy and (to the extent that the Authority’s position reflects the true construction of that policy) the Tribunal should depart from it as the Authority’s position is arbitrary and/or does not reflect the overriding purpose of the policy. The remuneration related to work undertaken before this 12 month period should be removed from the calculation of “relevant income”, reducing it from £1,318,367 to £744,800.

The Authority submitted that this approach is wrong in principle. If correct, it would result in the artificial suppression of a person’s income for the purpose of calculating a penalty and fails to take into account money “earned” during the relevant period which fell due for payment afterwards. It is also inconsistent with the purpose of the financial penalty regime to punish and deter market abuse.

The purpose of imposing a financial penalty is to promote high standards of market conduct by deterring persons who have committed breaches from committing further breaches and helping to deter other persons from committing similar breaches, as well as demonstrating generally the benefits of compliant behaviour. The focus is thus deterrence rather than, as submitted by the Authority, punishment.

DEPP deals with the calculation of “relevant income” as follows:

DEPP thus defines “benefits” widely, and the inclusive definition clearly encompasses the cash bonuses, awards and deferred shares which vested in Mr Urra.

We recognise that DEPP uses the concepts of “derived from”, “received by” and “earned by” at different times; and that these are not the same as each other. However, we are wary of seeking to construe this guidance as though it were a statutory provision. DEPP is seeking to capture the benefits from the employment, and provide a means of calculating “relevant income” where the market abuse lasted less than 12 months.

We agree with Mr George that the reference in DEPP 6.5C.2G(5) to income “earned by” Mr Urra in the period from 30 July 2015 to 29 July 2016 is distinct from the concept of whether amounts were “received by” Mr Urra in that 12 month period. We are inclined to prefer an approach which does not treat as “relevant income” amounts which had been earned in prior years but which were paid out or vested during the relevant period. We have considered whether such an approach does, as submitted by the Authority, artificially suppress Mr Urra’s income for this purpose. We are not persuaded that it does. In particular, the Authority’s submissions appear to be concerned to avoid a situation where bonuses received by an individual that are referable to work in earlier years and bonuses earned in the 12 month period but payable in future years are both taken out of account when determining “relevant income” for that period. On the facts before us, no such concern arises. Mr Urra has not been awarded any bonus by MHI for the 12 month period in question, and there is no deferred payment or vesting of such an amount which risks being taken out of account. On this basis, we consider that there is no reason to depart from our preferred approach of identifying the amount earned for the work undertaken in the 12 month period, and not taking into account cash bonuses, awards and deferred shares received in that period but earned two years prior.

The Tribunal determines that Mr Urra’s “relevant income” is £744,800.

We agree with the Authority’s identification of relevant level 4 or 5 factors that are met.

The Authority also identified the relevant level 1, 2 or 3 factors, with which we agree. Mr George submitted that an additional relevant factor was that there was no, or limited, actual or potential effect on the orderliness of, or confidence in, markets as a result of the market abuse. We accept that the Authority has not established any such actual or potential effect.

The Authority also took into account that Mr Urra is an experienced industry professional, held a senior position within MHI and the Authority usually expects to assess deliberate market abuse as seriousness level 4 or 5.

Mr George submitted that the presence of these level 1, 2 or 3 factors indicates that the seriousness level is no higher than level 3. The Tribunal does not agree that the presence of level 1, 2 or 3 factors means that the seriousness level should be no higher than level 3. This would be to disregard the presence of any level 4 or 5 factors.

Taking all of these identified factors into account, the Tribunal has no doubt that the significance of the level 4 or 5 factors, alongside the additional factors taken into account by the Authority, outweigh the level 1, 2 or 3 factors. The Tribunal considers the seriousness of the market abuse to be level 4. This means the Step 2 figure is 30% of Mr Urra’s relevant income of £744,800, ie £223,440.