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Upper Tribunal refuses to grant an extension of time to allow challenge of a settled FSA enforcement matter

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Hitchins Sarah
Sarah Hitchins

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03 June 2015

In this case report, we consider the Upper Tribunal's judgment in Mohammed Suba Miah v the Financial Conduct Authority [2015] UKUT 0181 (TCC). Mohammed Miah applied to the tribunal for an extension of time in order to allow him to challenge enforcement action that had been taken against him by the FSA (as it then was) more than six years ago. The tribunal refused to grant this extension of time and emphasised the finality of FSA (now FCA) settlement agreements.

Background: FSA enforcement action against Mr Miah and other parties 

In February 2008, the FSA issued a final notice in respect of Mr Miah and imposed a financial penalty of GBP 21,000 on him, as well as prohibition order, for breaching various provisions of the FSA Statements of Principles and Code of Practice for Approved Persons (APER) in relation to the sale of high risk securities to clients. 

Several months after the publication of the final notice, the FSA also took enforcement action against the firm that Mr Miah worked for and one of Mr Miah’s colleagues at the firm, Baljit Somal. The FSA’s enforcement action in these cases related to the same underlying conduct as was the subject of the final notice (the sale of high risk securities to clients). The firm was fined GBP 250,000 and Mr Somal was fined GBP 16,000.

Time limits for referring matters to the Upper Tribunal

Under section 133(1) of the Financial Services and Markets Act 2000 (FSMA) and the Tribunal Procedure (Upper Tribunal) Rules 2008 (SI 2008/2698) (the UT Rules), references to the tribunal must be made no later than 28 days after notice was given of the decision in respect of which the reference is made. 

However, rule 5(3)(a) of the UT Rules gives the tribunal a discretionary power to extend the time limit for complying with any of the UT Rules. The exercise of a discretionary power under the UT Rules requires the tribunal to give effect to the overriding objective of dealing with cases fairly and justly (rule 2 of the UT Rules). This means that, in considering whether to exercise its discretion to extend the time within which a matter must be referred to it, the tribunal should have regard to all the circumstances of a case and undertake a balancing exercise, weighing the respective prejudice to the parties in granting or refusing the application for an extension of time. In particular, the tribunal will consider the following questions (derived from Data Select Ltd v Revenue and Customs Commissioners [2012] UKUT 187 (TCC)):

  • What is the purpose of the time limit in relation to which an extension is requested?

  • How long ago was the delay that led to the request for an extension of time?

  • Is there a good explanation for the delay that led to the request for an extension of time?

  • What will be the consequences for the parties of an extension of time?

  • What will be the consequences for the parties of a refusal to extend time?

While it is not unheard of for the tribunal to grant an extension of time for parties who wish to refer a decision taken by the FCA to it after the 28 day time limit has expired, the tribunal will only do so if there is good reason for granting an extension.

Mr Miah’s application to the Upper Tribunal for an extension of time

In October 2014 (over six years since the final notice was published), Mr Miah applied to the tribunal for an extension of time to refer the FSA’s findings as set out in the final notice and the sanction imposed on him to the tribunal. The rationale for Mr Miah’s application was that he felt the FSA had treated him unfairly and had imposed harsher sanctions on him than it had done on the firm and Mr Somal for what was essentially the same underlying conduct.

Mr Miah’s reasons for the delay in him making a reference to the tribunal were as follows:

  • He was unaware of the possibility that he could refer the FSA’s case against him to the tribunal until mid-2012.

  • He was in prison between mid-2012 and late 2014 (in connection with a separate matter) and had no internet access or access to materials relating to the FSA’s case against him. Prior to that, from the time of his arrest in mid-2009, his bail conditions did not permit him to have access to any electronic material or to communicate by email.

  • His reference to the tribunal was made within 14 days of the last steps taken in the context of on-going county court debt proceedings that had been brought against him as he had failed to pay the financial penalty imposed on him by the FSA.

  • The FSA had failed to respond to some of his correspondence sent between 2008 and 2010.

The tribunal rejected these submissions and refused Mr Miah’s application for an extension of time on the basis that there "was no good reason, indeed no reason at all, for the substantial and significant delay in making the reference" to the tribunal.

The tribunal also found no evidential basis to support Mr Miah’s allegation that he had been treated unfairly and more harshly than the firm and Mr Somal.

In principle, could Mr Miah have overturned his settlement agreement with the FSA?

Prior to the FSA issuing the final notice, Mr Miah signed a settlement agreement with the FSA. By signing the settlement agreement, Mr Miah agreed (among other things) to the publication of the final notice and to waive his rights to refer the FSA’s findings against him to the FSA’s Regulatory Decisions Committee (RDC) and the tribunal.

Even though the tribunal declined to grant Mr Miah’s application for an extension of time, Berner J briefly considered whether Mr Miah would, in principle, have been able to overturn the settlement agreement and refer the FSA’s findings against him (as set out in the final notice) to the tribunal.

As a starting point, the tribunal acknowledged that nothing in FSMA expressly prevents an individual who has entered into a settlement agreement with the FSA or the FCA from referring the subsequent enforcement action taken against them by the FSA/FCA to the tribunal. Rather, whether or not a settled FSA/FCA enforcement action may be challenged before the tribunal depends on the wording of and circumstances surrounding the settlement agreement entered into with the FSA/FCA.

Mr Miah attempted to argue that his settlement agreement should be overturned for a variety of reasons, including that the settlement agreement was uncertain and imprecise and that the terms of the settlement agreement were unfair to him, meaning that the settlement agreement constituted an unconscionable bargain. All of these arguments were rejected by the tribunal.

Although Berner J stopped short of characterising Mr Miah’s attempt to overturn the settlement agreement as an abuse of process, he did conclude that there is, in matters concerning references of FCA decisions to the tribunal:

"an interest in the finality of litigation, just as there is on an appeal from a judicial decision… Both parties, and in the context of this application in particular the [FCA] were entitled to assume that matters had been finally settled. There is no basis at all for disturbing that position in the circumstances of this case" (per Data Select at 37).

Variation or revocation of prohibition orders

Under section 56(7) of FSMA the FCA may, on the application of an individual who is the subject of a prohibition order, vary or revoke a prohibition order which has been imposed under section 56(1) of FSMA. 

As part of his application for an extension of time, Mr Miah also applied to the tribunal and asked it to vary or revoke the prohibition order that had been imposed on him when the final notice had been issued in February 2008. 

The tribunal commented that an application for an extension of time to refer the FSA’s findings against him to the tribunal was not the appropriate way for Mr Miah to attempt to request that the FCA vary or revoke his prohibition order. Rather, the tribunal stated that Mr Miah should make an application to this effect directly to the FCA. In the event that the FCA refused to vary or revoke Mr Miah’s prohibition order, he could then refer this decision to the tribunal under section 58(5) of FSMA. 

Comment

The facts of this case are quite unusual, not least due to the amount of time that had passed before Mr Miah decided to try and challenge the FSA’s findings against him before the tribunal. However, the tribunal’s judgment in this case nonetheless emphasises that: 

  • The tribunal will generally only grant an extension of the time limit for a matter to be referred to it if there is a good reason for granting an extension, considering the principles set out in Data Select.

  • It may be difficult to overturn or challenge the enforceability of an FSA or FCA settlement agreement in practice given the interest in the finality of litigation. 

Although the tribunal found that there was no evidence to support Mr Miah’s allegation that the FSA had treated him more harshly than Mr Somal or the firm, the tribunal did not comment on what it would have done in the event that Mr Miah had been able to establish that he had been treated more harshly by the FSA than these other parties. It is increasingly common for the FCA to try and take enforcement action against multiple parties in connection with the same case. As a result, this may lead to more individuals trying to claim that the FCA has treated them unfairly on the basis that they have been treated differently or more harshly than others who are also the subject of FCA enforcement action. 

Mr Carimjee challenged the FCA on the basis that it was proposing to make more serious findings against him than it had done in respect of another individual, despite the fact that the FCA was seeking to rely on broadly the same evidence against both him and the other individual. In this case, although the tribunal stopped short of indicating that the FCA is bound by its previous decisions, it did emphasise the importance of the FCA being seen to take a consistent approach towards similar cases which rely on broadly the same evidence. 

In practice, although subjects of FCA enforcement investigations may remind the FCA of its public duty to act rationally and be consistent in its approach to taking enforcement action, only if subjects of enforcement investigations refer their cases to the tribunal and the FCA’s proposed findings against them and other individuals are laid out in public may such arguments be made to their full effect. Otherwise, as was emphasised in this case, if the subject of an FCA enforcement investigation enters into a settlement agreement with the FCA, it is likely to be challenging to overturn this at a later date on the grounds that the terms of the settlement were unfair or harsher than those agreed by other parties.

Case

Mohammed Suba Miah v the Financial Conduct Authority [2015] UKUT 0181 (TCC)

Author

Sarah Hitchins is an associate in Allen & Overy’s Banking, Finance and Regulatory Litigation Group. She has experience in handling domestic and international financial services investigations on behalf of firms and individuals, and also in conducting internal investigations. Sarah has also completed a secondment to the Enforcement Division of the FSA.

This article first appeared on Practical Law and is published with the permission of the publishers.