[2025] UKUT 00185 (TCC)

In the case of FCA v Ferreira [2022] EWCA Civ 397 (“Ferreira”), Snowden LJ gave the only judgment with which Newey and Lewison LJJ both concurred. Ms Ferreira had been the director of a company which had breached FSMA s 21; at the relevant time that section read as follows:

“(1)

A person (‘A’) must not, in the course of business, communicate an invitation or inducement to engage in investment activity.

(2)

But subsection (1) does not apply if—

(a)

A is an authorised person; or

(b)

the content of the communication is approved for the purposes of this section by an authorised person.”

It was common ground that Ms Ferreira was “actually involved in the contravention”: the issue was whether she had been knowingly concerned in the company’s contravention. Ms Ferreira had lost at the High Court before Bacon J (“the Judge”), who began her decision by finding as follows, consistently with Scandex and Burton v Bevan:

“the concept of being ‘knowingly concerned in a contravention’ for the purposes of section 382 required satisfaction of two discrete elements, namely (i) that the person must have been actually involved in the contravention, and (ii) that the person must have had knowledge of the facts on which the contravention depends.”

Snowden LJ said at [20] that “it was not disputed before us that these initial steps in the Judge’s reasoning were correct”. However, the Judge went on to find that Ms Ferreira also had “knowledge of the facts on which the contravention depends”, because, in the Judge’s view to satisfy that part of the test:

“all that is required is knowledge that a communication has been made which invites or induces investment activity or claims management activity, and knowledge that this is in the course of business.”

The Judge recognised that this finding was inconsistent with the approach taken by Millett LJ in Scandex, but said that this was because the term “knowingly concerned” in FSA 1986 was to be read differently from its usage in FSMA s 21. In coming to that conclusion, the Judge took into account that one of the purposes of s 382 was “to prevent directors from hiding behind the corporate veil of the infringing company”, see the citation from Pantell set out in Capital Alternatives. The Judge acknowledged at [117] of her decision that, in consequence:

“In almost every case where a person is ‘concerned’ in a breach of section 21 FSMA they are likely to have the requisite degree of knowledge, since all that is required is knowledge that a communication has been made which invites or induces investment activity or claims management activity, and knowledge that this is in the course of business.”

Ms Ferreira appealed on the ground that the Judge’s interpretation of s 382 was wrong, and that to have been “knowingly concerned” in a contravention of section 21(1), a defendant must have had knowledge (whether actual, or imputed on the basis of wilful blindness) that the relevant communication was not approved.

Snowden LJ noted at [27] that the Judge had accepted that as a consequence of her analysis, the word “knowingly” in s 382 would “serve little or no purpose”, commenting that this was “not a promising starting point for an argument on statutory interpretation”. He went on to find that the Judge had been wrong to distinguish the usage of the same term in FSA 1986 from that in FSMA s 21, and endorsed the approach taken by Millett LJ in Scandex, saying that:

“…knowledge of the facts which make the act complained of a contravention of the statute must include knowledge of the factual circumstance that prevents a potentially relevant disapplication from operating.”

At [32] he gave this example:

“Suppose a statute were to prohibit any communication inviting or encouraging the making of an investment, but also provided that such prohibition is not to apply at weekends. It would not be sufficient to establish liability under section 382 if a defendant director knew that an advertisement inviting an investment had been placed in a newspaper by his company. Those facts alone would not indicate whether a contravention of the prohibition had occurred. The missing fact which the director would also have to know is that the advertisement was not in a newspaper published at a weekend.”

Finally, he considered the reasons given by the Judge for her conclusions, which included this one:

“…one of the purposes of introducing powers to make a restitution order against someone who was ‘knowingly concerned’ in unlawful investment activity was to prevent directors from ‘hiding behind the corporate veil’ of an insolvent infringing company.”

Snowden LJ then said at [47]:

“…the Judge interpreted section 382 in a way that imputed to the legislature
an intention to impose personal liability on directors (or others) simply on the basis that they knew of the actions that the company was taking in the course of its business. That would be a far-reaching step indeed. Business is normally conducted, and investment opportunities are routinely offered, by companies with limited liability. The interpretation adopted by the Judge would result in limited liability being disregarded irrespective of whether the company was in fact rendered insolvent by the contravention of FSMA, and in a much wider set of circumstances than those in …which the courts have conventionally thought it appropriate to pierce the corporate veil. Such grounds conventionally require some finding that the directors or corporators have established the company as a sham or façade for the purposes of some fraud. The corporate veil has never been disregarded simply because the directors were aware of the actions that their company was taking in the course of its business. In my judgment, the intention to introduce such a radical departure from the principles of limited liability in the financial services field should not be attributed to the legislature in the absence of some very clear indication – of which there is none.”