O'Sullivan, R (on the application of) v Financial Services Authority

This is a renewed application for permission to appeal against a decision of HHJ Gosnell who was sitting in the Administrative Court on 17 September 2013 when he refused the appellant permission to bring judicial review proceedings against the Financial Conduct Authority.

The background is this. The appellant was a customer of an organisation called Crown Currency Exchange,(CCE) trading under the name of Crown Holdings. They offered a forward service under which a customer could agree to the delayed delivery of foreign currency and get them all advantageous rate as a consequence.

Prior to 2009 this organisation was not regulated by the FSA, the FCA now being the body that has broadly taken over some of its responsibilities. On 1 November 2009 the Payment Service Regulations came into force pursuant to a European Directive. Crown Holdings applied for registration as a small payment institution with effect from 1 November 2009.

In September 2010 the appellants sought to convert £210,000 into euros in order to complete the purchase of a house in Ireland. He placed the order in 20 September with delivery date on 2 November 2010. On 4 October CCE went into administration and subsequently they went into liquidation. He has been unable to recover any money. He issued judicial review proceedings in February 2013. Broadly, he did so on the grounds that the FSA had failed properly to carry out investigations into the operation of CCE and had they done so then they would not have registered, or would perhaps have deregistered, the organisation.

The case came first before HHJ Behrens and was considered on paper and was rejected by him broadly on the grounds that there was no specific act or omission that was identified, that it was not in truth a judicial review claim, that, if anything, it would be a claim for damages. However, there could be no claim for damages because there is a statutory provision saying that it is only if there is bad faith that the FSA could be liable for any supervisory failures, and there is no evidence of bad faith. In any event, the claim was very vague and out of time.

That application was renewed before HHJ Gosnell. HHJ Gosnell also found against the appellant, broadly for the same reasons as HHJ Behrens had done. He considered there was no decision capable of review as such, that there was no clearly identifiable remedy which was being sought, the claim was well out of time, and there would be no possibility of a compensation claim, both because of the statutory provisions to which I have made reference, which at the time was paragraph 19 of schedule 1 of the FSMA 2000, and also because of authority and in particular Three Rivers v Bank of England [2003] 3 All E1.

The claimant then appealed that refusal to this court and it was rejected on paper by Tomlinson LJ, who essentially, following the analysis of the judge below. Whilst he had sympathy for the applicant losing a substantial sum of money, he considered that the judicial review proceedings were misconceived.

This morning I have had the advantage of submissions by Mr Dhillon, who has advanced the arguments carefully and cogently on behalf of the claimant/proposed appellant and has recognised certain features of the case which I hope his client will accept are really overwhelming in this case. The first is that he simply has no claim in damages. There could not be a private law claim because it is inconceivable that any court could say there was bad faith. He has prayed in aid certain actions by the FSA. He says they deliberately misled the court as to their conduct in relation to the supervision of this organisation. I should say the FSA strongly rebuts that and has sent a letter explaining why they say there was no misleading of the court. He says that false information was given to the Treasury which led to a contempt of Parliament as a result of statements made in Parliament. I merely mention those two matters to say that, whatever the merits of the accusations, they do not go to any relevant bad faith, which would have to relate to the regulation of CCE.

Even if the FSA at the relevant time had been grossly negligent that would not establish bad faith. That is a very serious allegation which broadly suggests that they are acting with deliberate intent against Mr O’ Sullivan. But plainly they would not have known of his existence. There is no basis for any such allegation.

As I emphasise, I am not saying for one moment the FSA was in fundamental breach of their obligations; I am merely pointing out that, even if they were, this would not establish any right to damages. That raises a problem, partly in relation to remedy, because the remedy that originally Mr O’ Sullivan was seeking was that the FSA, now FCA, should effectively stand in the shoes of CCE and take over the debt. That would be an impossible order for a court to make. Essentially it is really dressing up in public law form what is a private law claim and it would be circumventing the principle that damages could only be recovered if bad faith can be established.

Mr Dhillon today has focused his fire more precisely. He says that there was evidence that there were potentially unsatisfactory features about this organisation, that this had been drawn the attention of the FSA and that as a consequence the FSA should have done more than it did to investigate their activities. Reference is made to a letter from the FSA to Mr Alan Jones MP on 19 November 2010 when the FSA accepted they had been contacted three times in relation to this organisation. Once by the Cheshire police: at that time the conclusion was that none of the CCA’s activities fell within their jurisdiction, and that seems, on that face of it, plainly correct because at that time there was no registration function in relation to the organisation. The other two, however, were at a later stage: one in August 2009, an anonymous letter raising concerns about the organisation; and then in January 2010 there was another complaint from an employer at a foreign exchange firm. In the first case, because the complaint was anonymous, no action was taken. In the second, they tried to track down the individual who made the complaint, but unsuccessfully. The FSA say they were unable in the circumstances to advance these matters and to take these complaints any further. There was no crystallised evidence, as they put it, of any consumer detriment.

Mr Dhillon says, and it is an attractive submission, that having regard to this information, even if neither source was reliable, there was a basis for assuming that this particular organisation might have required more stringent investigation than might otherwise be the case. He submits there is a basic obligation in public law for a public body to consider whether it should exercise its powers and he refers to the well-known dictum of Lord Hoffman in Stovin v Wise [1996] AC 923. He says that given this background information, that gives rise at least to a respectable argument that the FSA had not done enough and had not complied with his statutory obligation effectively to regulate CCE in the interests of the consumer.

The difficulty, it seems to me, with a submission cast in that way is that it is still essentially a complaint of negligence that the FSA failed properly to carry out its supervisory function. It is a private law claim and not a public law claim. One of the points made by Mr Dhillon, or at least which arose in the course of discussions in court, was a question whether, for example, the FSA might have carried out greater scrutiny to see whether any of those running this organisation had been convicted of a criminal offence. In fact, one of them had been but it was a spent conviction and that is now common ground and he would not have had to disclose it even if asked about it.

I see the force of an argument that could be advanced to the effect that where there is evidence of this kind before the FSA they might indeed have a greater obligation to take all reasonable steps to investigate to satisfy themselves that these complaints which individuals had been making were not warranted. But even if that had been done in this case, as I say it would not have revealed this particular error and it is not a complaint in general about the way in which the FSA conducted its activities; it is a very specific complaint about negligence in relation to a particular organisation which, it is said, has caused loss in this case to the claimant.

In short, insofar as this is a public law claim, there is no identifiable act or omission or policy or practice which is properly the subject of judicial review. Insofar as it is a complaint about a failure in relation to supervising the activities of a particular company, it is not a public law claim but a private law claim which, for the reasons I have given, cannot properly be pursued.

There is the additional problem that the case was not advanced until 2013, some three years after the alleged failure to supervise. I would not at this stage reject the claim on that ground because I am told that this potentially important letter of 19 November 2010 did not come into the claimant’s possession until early 2013 or perhaps late 2012. In any event, he put in his claim relatively soon after that. So for myself I would not, certainly at this stage, dismiss the claim on the basis that it was out of time and should have been pursued earlier. But, for the various other reasons I have given, I am broadly in line with the approach adopted by the three previous judges who have addressed this issue. In my judgment, there is no proper claim for judicial review which should go ahead and therefore I refuse permission to appeal.