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FCA’s unreasonable conduct results in rare award of costs in Upper Tribunal

In a decision handed down on 9 November 2023, the Upper Tribunal made a costs award against the FCA, including because of inadequate efforts to obtain evidence from witnesses which would have assisted the Tribunal.

In the underlying proceedings, three individuals Raitzin challenged the FCA’s decision to impose a prohibition order. The FCA had found that the applicants lacked integrity as they had recklessly disregarded risks of financial crime relating to fee arrangements between their former employer, the private bank Julius Baer, and an individual connected to the Yukos Group of Companies. In a significant decision handed down earlier this year ([2023] UKUT 00133 (TCC)), the Upper Tribunal allowed the reference and held that the FCA had not made out its case on lack of integrity, and was highly critical of the FCA’s investigation. Two of the applicants then made an application for their costs of the reference.

Costs awards in the Upper Tribunal are unusual, as an applicant has to demonstrate that the decision which was the subject of the Tribunal reference was unreasonable or that a party has acted unreasonably in the proceedings.  The Tribunal found that the FCA’s decision to prohibit was unreasonable in part, and that it had acted unreasonably in the Upper Tribunal proceedings, and exercised its discretion to order the FCA to pay part of the applicants’ costs.

Three aspects of the Tribunal’s decision have potentially wider implications.

First, the Tribunal criticised the FCA’s efforts to obtain evidence from witnesses who were centrally involved in the relevant events.  Some of the witnesses were based overseas.  The Tribunal considered that the FCA had left it far too late to seek evidence from them, and found that it had the power under s.25 Tribunals, Courts and Enforcement Act 2007 to issue letters rogatory to obtain evidence compulsorily.  So far as we are aware, the Tribunal has never exercised this power.  This case may signal a willingness to do so in the future.  In addition, the Tribunal said that the FCA should have sought directions as to whether another individual (whose evidence the FCA did not believe) should be called, and if so how his evidence should be managed.  The failure to take any of these steps was unreasonable and justified awarding the applicants a portion of their costs.

Secondly, the Tribunal found that the FCA’s Decision Notices were unreasonable insofar as they were based on allegations concerning a specific transaction (the so-called “Third FX Transaction”) which had not been made in the applicants’ Warning Notices, and in relation to which the FCA’s case changed repeatedly.  The FCA’s original allegations were made on the basis of an inadequate investigation and the FCA later accepted that they were incorrect.  The Tribunal found that the FCA should have discontinued the proceedings in relation to this aspect, even if the final allegations it advanced were legally and factually arguable. Thus, in an appropriate case, an inadequate investigation can result in a situation where the FCA is obliged as a matter of fairness to drop an otherwise arguable case.

Thirdly, in a postscript to its decision, the Tribunal suggested that there may be a case for the modification of the Upper Tribunal costs regime in relation to complex matters to permit parties to recover their costs more easily.

Ben Strong KC and Constantine Fraser acted for Mr Seiler in the successful costs application, instructed by Mishcon de Reya LLP. You can view the Tribunal’s decision here.

Ben Strong KC and Jade Fowler acted for Mr Seiler in the successful substantive proceedings, instructed by Mishcon de Reya LLP. You can view the Tribunal’s decision here.