Staying regulatory proceedings to make way for civil litigation

In T v FCA, the First Claimant successfully challenged by judicial review the decision of the FCA’s Regulatory Decisions Committee (RDC) to refuse to stay disciplinary proceedings pending resolution of a related Commercial Court claim. The FCA proceedings related to allegations of dishonest conduct and a breach of the requirement to act with integrity under Principle 1 of the FCA’s Statements of Principle for Approved Persons. These allegations arose out of the First Claimant’s involvement, as Chief Executive of the Second Claimant, in a dividend arbitrage equity trading strategy.

It is alleged that this strategy had as its purpose that false claims would be made to the Danish Customs and Tax Administration (the Skatkeforvaltningen, “SKAT”) for rebates of a tax payable under the Danish Withholding Tax Act. The SKAT commenced five claims in the Commercial Court in respect of claims for rebates under this legislation, alleging that the trading strategy operated in breach of legal requirements and that applications for rebates were made on the basis of false representations. The Second Claimant is a defendant to some of those claims, and the conduct of the First Claimant as sole shareholder and director is directly in issue. A trial of a number of preliminary technical issues was listed for hearing.

The test for a stay of proceedings

The key question when seeking to stay legal proceedings is whether, absent a stay, a party is at risk of suffering serious prejudice. The Administrative Court identified this case as a “perhaps relatively rare” example of FCA proceedings as a satellite of a Commercial Court claim. This finding was based in the very close correspondence of issues between the proceedings, and the fact that any conclusion that the First Claimant acted in breach of Principle 1 by the RDC was likely to depend entirely on the legality of the trading strategy under Danish tax law, one of the preliminary issues to be determined in the Commercial Court proceedings. As a consequence the Administrative Court considered that this was a case in which “the conclusions reached by the Commercial Court on the questions of law and foreign law, reached with the benefit of the forensic procedures available in that Court, will be of particular assistance to the RDC”. It observed that the members of the RDC were not as well-equipped as judges of the Commercial Court to deal with the technical issues to be determined, which were outside their expertise.

The Court recognised that the general public interest in favour of prompt enforcement action by regulators such as the FCA is a weighty consideration in all cases, given the need to deter future offending, support the integrity of the financial services sector and promote public confidence. However, in this specific case it was also important to have in mind the seriousness of the complaint against the First Claimant, which involved dishonest engagement in a scheme by which millions of pounds in tax rebates were allegedly wrongfully obtained. Also relevant was the historic nature of the conduct complained of, the fact that the First Claimant was no longer engaged in the provision of financial services, and that “in the context of an investigation by the FCA which has been on-foot since 2015, any delay that a stay would cause is relatively short”.

This article forms part of our Parallel Proceedings Autumn 2021 update.