Amro International SA and anr v Financial Services Authority and ors; [2009] WLR (D) 288

PRACTICE — Discovery — Investigators appointed by FSA seeking from claimants’ accountant wide range of documents relating to claimants’ financial and business affairs in order to assist US SEC investigation — Claimants not being parties to complaint issued by SEC in United States — Notice requiring production of documents lacking specificity — Whether appointment of investigators and requirement to produce documents unlawful — Financial Services and Markets Act 2000, ss 169-172 — Human Rights Act 1998, Sch 1, Pt 1, art 8

Amro International SA and anr v Financial Services Authority and ors

; [2009] WLR (D) 288

QBD: Collins J: 26 August 2009

Although the purpose of ss 169–172 of the Financial Services and Markets Act 2000 was to facilitate investigation in support of overseas regulators and such co-operation was desirable in order to maintain the regulation of financial markets and banks, the nature of the claim in respect of which the Financial Services Authority’s assistance was sought was of fundamental importance and it was wrong to exercise the powers to aid an investigation into allegations that were not made in that claim. The correct approach was to apply a test of proportionality and the documents required should be properly specified.

Collins J so held when granting permission to the claimants, Amro International SA, a financing company incorporated in Panama, and Creon Management SA, a company incorporated in the British Virgin Islands, to apply for judicial review of two related decisions, and allowing the claim in part. The first decision challenged by the claimants was the appointment by the first defendant, the Financial Services Authority (“FSA”), on 3 August 2009 of the second and third defendants, Elizabeth Connell and Patrick Senra (“the investigators”) , under s 169 of the 200 Act, to conduct an investigation pursuant to a request to assist the US Securities and Exchange Commission (“SEC”) in respect of a civil action brought by the SEC in the United States (“the appointment decision”). The second decision was that of the investigators on 4 August 2009 to issue a notice requiring the production of documents and information relating to the claimants by the claimants’ accountant, Goodman Jones LLP (“Goodmans”), the interested party, by 15 August (later revised to 18 August) 2009 (“the notice decision”). The claimants asserted that, although they were not defendants to the SEC’s civil action or the subject of any investigation by the SEC or FSA, their interests and rights were directly affected by the decisions because both were aimed at compelling production to third parties of confidential and privileged documents relating to the claimants’ financial and business affairs; that the documents were defined by reference to an oppressively wide category and were not described with any specificity, and that they had a right to privacy in respect of those documents pursuant to the common law and art 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms. The claimants sought an order quashing the appointment decision and the notice decision as being unlawful and/or irrational and/or procedurally unfair and contrary to the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters 1970, to which the US and the UK were parties.

COLLINS J said that it was not surprising that the FSA had had concerns about the SEC’s original written request for assistance, made by letter of 24 July 2009, in connection with a complaint filed in April 2006 relating to allegations of unlawful trading in the common stock of a public company, Sedona Corporation (“Sedona”). It was an exceedingly wide request for virtually all documents in the possession of Goodmans which “related to” the claimants, to Rhino Advisors Inc (former investment advisor to the claimants), and/or to their Special Purpose Vehicles between January 2000 and July 2009, a period of 9½years. Subsequently, the FSA had accepted the assertions in the SEC’s revised basis for the request, that they were seeking wide-ranging production in order to establish “a pattern of practice” or course of fraudulent conduct on the part of Andreas Badian, a former employee of Rhino and member of the Badian family, by whose company, it was asserted, the claimants were “managed”. The relevant statutory provisions were ss 169–172 of the 2000 Act. Section 169 (1)(b) conferred on the FSA the power to appoint one or more investigators to investigate any matter at the request of an overseas regulator. Sections 170–172 of the Act were material to consideration of the conduct of investigations generally. By s 171(2), the investigating authority might require any person to produce any specified documents or documents of a specified description. This was directed at persons not subject to the investigation to enable the production of relevant documents held on behalf of third parties by accountants or banks. However, by s 171(3), such a requirement might be imposed only so far as the investigator reasonably considered the production of the document to be relevant to the purposes of the investigation. It was the reasonable view of the investigator that mattered: a document might turn out not to be relevant, but this did not mean there was no power to require it provided that the investigator reasonably considered that it was relevant to the purposes of the investigation. Section 172 provided additional powers in relation to the requirement of the provision of information by a person who was neither the subject of, or connected to the person under, investigation; by s 172(3) such a requirement could only be imposed if the investigator was satisfied the requirement was necessary or expedient . The test of proportionality adopted by the FSA in relation to confidential documents was the proper approach in view of the provisions of the Act overall. However, by s 171(2) any document sought must be properly specified. In this instance the requested documents had not been specified within the meaning of the legislation. More importantly, the SEC had sought to identify unlawful activities by the claimants that had not been contained in the complaint without giving them any opportunity to defend themselves. This would be regarded as unfair by a domestic court. The normal situation envisaged by the legislation was that the regulator would be seeking to discover material to support the assertion that an individual was involved in unlawful conduct. The wording of s 169(4)(b) ( “…whether the case concerns the breach of a law…”) should be noted. Here, “the case” was no more than that discovery was being sought. Although as a general approach there was nothing in the Act which prevented co-operation, and it was vital that co-operation with overseas regulators was maintained, the FSA should have decided that the request was too wide. In all the circumstances some disclosure would be proper, but should be limited to those documents relevant to the Sedona transaction. Accordingly, to that extent the claim succeeded. The decisions should be quashed, subject to an undertaking by the first claimant to instruct Goodmans to provide to the FSA certain agreed documents.

Appearances: Andrew Hunter (instructed by Mishcon de Reya) for the claimants; Andrew George (instructed by Legal Group Enforcement Division of the Financial Services Authority) for the defendants. The interested party, Goodman Jones LLP, did not appear and was not represented.

Reported by: Alison Crail, barrister