O'Neil v Gale

On any basis, this is an unfortunate case. Taking the uncontested parts of the judgment of Mr David Donaldson QC at face value, Mrs Faye Gale, the Defendant (“Mrs Gale”), seems to have been a naïve young woman, who was swept away by a dishonest man many years her senior. She met him, married him and bore him two children in a matter of less than three years.

Mr David Gale, the Defendant’s husband (“Mr Gale”), established and operated an unlawful collective investment scheme contrary to the provisions of the Financial Services and Markets Act 2000 (“FSMA”). In colloquial language, the arrangements amounted to a Ponzi scheme, in which Mr Gale sought investments from unsuspecting investors on the basis that it involved “risk-free” pooled betting on football matches through the web-based betting exchange Betfair (the “scheme”). He offered dividends in excess of 15% per annum which he financed from new investments. The Claimant was unfortunate enough to invest, and of course lose, some £300,000.

Mrs Gale’s involvement in her husband’s scheme was modest, but nonetheless significant. She agreed some time before the scheme began to open a bank account in her name for his sole use, and later to open a Betfair account also for his sole use, because he had made himself bankrupt and could do neither of those things for himself. Mrs Gale freely admitted in evidence that she knew about the scheme, and that Mr Gale described the scheme as “risk-free” to investor family and friends alike. She also accepted that she had, at her husband’s request, sometimes made payments of dividends to investors.

The only claim upon which the judge eventually adjudicated was one founded upon unjust enrichment. In answer, Mrs Gale raised a change of position defence. The judge thought that he should consider three elements in relation to that defence namely (i) whether there was disenrichment causally linked to the enrichment; (ii) whether the change of position was in good faith; and (iii) whether the acts constituting the disenrichment were legal.

The third aspect of the judge’s consideration was based upon the last line of Lord Goff’s well-known dictum in Lipkin Gorman v. Karpnale Ltd [1991] 2 A.C. 548 at page 580: “I am most anxious that, in recognising this defence [of change of position] to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer” (emphasis added).

The judge acquitted Mrs Gale of all bad faith and that finding is not questioned before us.

The judge did, however, make two crucial holdings that were initially challenged in this court. Ultimately, however, Mr Edward Bartley Jones QC (counsel for Mrs Gale) only proceeded in his oral submissions with his challenge to the first holding. The two holdings were as follows:-

The judge commented that “[i]t would be bizarre if in opposition to a restitutionary claim by an investor the recipient of the investment monies could avoid liability by reliance on payments which resulted in loss of those (or other equivalent) monies and were acts prohibited by legislation intended to protect investors against such losses”.

In arguing before us that the judge should not have held that Mrs Gale had aided the commission by Mr Gale of a criminal offence under sections 19 and 23 of FSMA, Mr Bartley Jones also submitted that such a decision was not open to the judge, because the matter had not been fully pleaded against Mrs Gale. He relied on the fact that paragraph 23D of the Claimant’s amended Reply had simply alleged that the processing of dividend payments amounted to a breach of section 19 of FSMA, but that there was no similar allegation that either the opening or the operation of the bank account was such a breach.

The parties were broadly in agreement as to the law.

In Regina v. Bryce [2004] EWCA Crim 1231, the Court of Appeal (Criminal Division) (Potter LJ and Hooper and Astill JJ) said this at paragraph 71 about the mens rea necessary for an offence of assisting the commission of a criminal offence:-

“We are of the view that … it is necessary for the Crown to prove intentional assistance by D in the sense of an intention to assist (and not to hinder or obstruct) P in acts which D knows are steps taken by P towards the commission of an offence. Without such intention, the mens rea will be absent whether as a matter of direct intent on the part of D or by way of an intent sufficient for D to be liable on the basis of ‘common purpose’ or ‘joint enterprise’. Thus, the prosecution must prove:-

(a)

an act done by D which in fact assisted the later commission of the offence

(b)

that D did the act deliberately realising that it was capable of assisting the offence

(c)

that D at the time of doing the act contemplated the commission of the offence by [the perpetrator], i.e. he foresaw it as a ‘real or substantial risk’ or ‘real possibility’ and,

(d)

that D when doing the act intended to assist [the perpetrator] in what he was doing”.

It is also clear from paragraph 46 of the judgment in Bryce that (i) before a person can be convicted of assisting, he must at least know the essential matters which constitute the offence, and (ii) if a person knows all the facts and is assisting another person to do certain things, and it turns out that the doing of those things constitutes an offence, the person who is assisting is guilty of aiding and abetting that offence.

Mr Bartley Jones accepted that the third and fourth requirements of mens rea set out above did not require the defendant to know that the activities were illegal, but he nonetheless submitted that Mrs Gale did, in this case, have to have knowledge of the need for Mr Gale to be an authorised person under section 19 of FSMA.

In Regina v. Stringer and another [2012] QB 160, the Court of Appeal (Criminal Division) (Toulson LJ, Dobbs J and Judge Bevan QC) said this at paragraph 48:-

“It is well established that D’s conduct need not cause P to commit the offence in the sense that “but for” D’s conduct P would not have committed the offence: see R v Mendez, para 23. But it is also established by the authorities referred to in R v Mendez that D’s conduct must have some relevance to the commission of the principal offence; there must, as it has been said, be some connecting link. The moral justification for holding D responsible for the crime is that he has involved himself in the commission of the crime by assistance or encouragement, and that presupposes some form of connection between his conduct and the crime. The Law Commission observed in Participating in Crime, para 2.33:

“However, the precise nature of this sufficient connection is elusive. It is best understood, at least where D’s conduct consists of assistance, as meaning that D’s conduct has made a contribution to the commission of the offence.””

I turn then to deal with the remaining live issues in this appeal.

As I have said, the acts that Mrs Gale was held to have undertaken were twofold, namely providing account facilities to Mr Gale and permitting their use for payments in implementation of the scheme. In addition, Mrs Gale accepted in her evidence that she had herself made some dividend payments at her husband’s request. It was also clear that Mrs Gale knew of (i) the existence of the scheme, (ii) the nature of the ‘investments’ being made and of the betting activities that her husband undertook, and (iii) the fact that payments of dividends were made to investors. Mr Bartley Jones’s main point, to recap, was that Mrs Gale did not have knowledge of the need for Mr Gale to be an unauthorised person under section 19 of FSMA.

The Claimant pointed to the evidence before the judge to the effect that Mrs Gale knew that Mr Gale was seeking investments for his Betfair scheme, and that she could have prevented him doing so by changing the passwords and taking her card back, even if that would have provoked an “almighty row”.

In my judgment, it is clear from the factual matters that were admitted in evidence that the judge was justified in holding that it was inescapable that Mrs Gale had aided the commission by Mr Gale of an offence under sections 19 and 23 of FSMA. It is axiomatic that ignorance of the law is no defence (see paragraph 46 of Bryce). Mrs Gale did not need to have any knowledge of the requirements of FSMA to be found to have assisted her husband in committing an offence under it. All she needed to do was to satisfy the Bryce requirements which she could do without knowing anything about FSMA. In this case, Mrs Gale was shown to have undertaken the acts of assistance relied upon deliberately, realising that they were capable of assisting her husband (in what turned out to be an offence), and she would, had she known about the requirements of FSMA, have contemplated that the commission of the offence by Mr Gale was a real possibility. She did not need to know that Mr Gale needed to be an authorised person under section 19 of FSMA in order to assist him in contravening that section. She knew all the elements of his offence, namely the elements of the regulated activity that Mr Gale was carrying on: an arrangement the purpose of which was to enable investors to receive profits arising from the management of their money, by undertaking betting (see the definition of a “collective investment scheme” in section 235 of FSMA). She also knew that Mr Gale was no longer a regulated person under FSMA.

In this connection, I would mention that the formulation of the requirements for mens rea in relation to assisting the commission of an offence at sub-paragraphs 71(b) and (c) of the judgment in Bryce is perhaps inapt for an offence of this kind under FSMA. It is a formulation that is more easily understandable in cases of murder, assault, burglary or the like which are well-known to be criminal offences. But paragraph 46 of Bryce makes clear that what the defendant needs to know are the essential matters constituting the offence in question, not that it is illegal.

In relation to the act of providing the account facilities, Counsel for Mrs Gale has submitted that Mrs Gale’s act was too remote in time to amount to the commission of an offence, since the account was opened for Mr Gale to undertake his activities as a mortgage introducer, which is not a regulated activity under FSMA. In my judgment, this cannot avail Mrs Gale, because the evidence was equally clear that Mrs Gale continued to afford Mr Gale the use of her account once she knew he was involved in the Betfair scheme.

Mr Bartley Jones places some reliance on the facts that the Claimant had dropped all allegations of dishonesty against Mrs Gale, and that the judge had himself acquitted Mrs Gale of bad faith by a process of reasoning lasting between paragraphs 46 and 55 of his judgment in relation to the bets placed on Betfair, and in paragraphs 56 and 57 in relation to dividend payments. In my judgment, however, this did not assist Mrs Gale, once the judge had determined in paragraph 65, correctly in my view, that it was inescapable that Mrs Gale had assisted Mr Gale in the commission of an offence.

In these circumstances, I conclude that the judge was right to say that, by providing the account facilities to Mr Gale and permitting their use for payments in implementation of the scheme, Mrs Gale was aiding the commission by Mr Gale of a criminal offence under sections 19 and 23 of FSMA.

As I have already said, the Claimant did plead expressly that the processing of dividend payments amounted to an offence under section 19 of FSMA, and so prevented Mrs Gale relying on her change of position defence. Though the same was not said in the pleading in relation to Mrs Gale allowing Mr Gale to use the bank accounts, the whole pleading was on the premise that Mrs Gale could not rely on the change of position defence.

In my judgment, however, Mrs Gale was made fully aware that the wrongdoing alleged against her was the alleged breach of sections 19 and 23 of FSMA. The Claimant’s supplementary submissions at the trial made clear that the use of the bank accounts and the Betfair accounts and the processing of payments were alleged to be in violation of FSMA. Even though the oral argument was more equivocal, I do not think it can be said that Mrs Gale was not properly on notice that a breach of sections 19 and 23 was under consideration.

Whilst I accept that the judge was not specifically asked to consider an offence of assisting a violation of sections 19 and 23 of FSMA as opposed to the substantive offence, I do not think that the pleading point can assist Mrs Gale.

This was the point on which the judge himself gave permission to appeal. But in opening the appeal orally, as I have said, Mr Bartley Jones accepted that if Mrs Gale was held to have been assisting Mr Gale in the commission of an offence under sections 19 and 23 of FSMA, she would properly be regarded as a wrongdoer within Lord Goff’s dictum in Lipkin Gorman, and so unable to avail herself in this case of the change of position defence.

In these circumstances, it would be inappropriate for me to say any more about the correctness of Laddie J’s dictum in Barros Mattos. A consideration of that question must await another case.

On the facts of this case, however, I might comment that I think the judge was entitled to conclude that it would be strange if the recipient of invested monies could successfully oppose an innocent investor’s restitutionary claim by relying on the very payments that resulted in the losses (namely the subsequent bets and the payment of dividends) that were themselves unlawful under legislation designed to protect just such investors.

For these reasons, I have concluded that the judge was right to find that it was inescapable, on the evidence before him, that, by providing the account facilities to Mr Gale and permitting their use for payments in implementation of the scheme, Mrs Gale was aiding the commission by Mr Gale of a criminal offence under sections 19 and 23 of FSMA. The judge was also right to hold that Mrs Gale was a wrongdoer and unable to rely on a change of position defence in relation to payments made in respect of losing football bets and payment of dividends.

I would, therefore, dismiss this appeal.

I agree.

I also agree.