Grout, R (On the Application Of) v Financial Conduct Authority

The claimant, Julien Grout, seeks judicial review of a decision by the Financial Conduct Authority (“the FCA”, previously known as the Financial Services Authority) to terminate an investigation of his conduct in relation to what had become known as the “London Whale” affair. He wants the investigation to continue, notwithstanding highly critical findings already made by the FCA in an investigation into the bank for which he worked, JP Morgan Chase Bank NA (“JP Morgan”), which he says criticise him. He says that the FCA’s decision to close the investigation is unlawful. The FCA says that it has a broad discretion not to continue an investigation which it has begun and that its decision to terminate the investigation of Mr Grout is not susceptible to challenge on public law grounds.

The FCA’s decision to terminate the investigation of Mr Grout was made essentially for a combination of three reasons, namely that (1) he is subject to criminal proceedings in the United States in respect of the conduct in question, (2) he is not currently working in the United Kingdom financial services industry and is unlikely to do so again, and (3) in the light of these points, it was not appropriate to continue to devote substantial resources into an investigation of his conduct. The FCA does continue to investigate other more senior individuals who were concerned in the trading in question but who are not subject to criminal proceedings in the United States.

Mr Grout contends, in summary, that the decision to terminate the investigation into him was irrational (i.e. Wednesbury unreasonable) for three main reasons: (1) because he is being treated differently to others in the same position in respect of whom investigation by the FCA is still continuing, which he contends to be arbitrary and to amount to unfair discrimination against him; (2) because the FCA placed too much weight on the fact that there are proceedings against him in the United States which proceedings, he says, will operate unfairly against him; and (3) because the FCA’s reliance on the time and resources required to continue the investigation is irrational when time and resources continue to be devoted to the investigation of others whose investigations have not been terminated.

It is important to say at the outset that Mr Grout does not criticise in any way the FCA’s conduct of the investigation into him or the fact that (as it was entitled to do) it passed to the United States authorities information which it acquired from him under compulsive powers in the course of the investigation. Nor does he deny that, while it continued, it was being undertaken for a proper purpose. His sole challenge is to the rationality of the FCA’s decision to terminate the investigation.

It may seem surprising that Mr Grout should want the FCA to continue to investigate his conduct. Many subjects of an FCA investigation would be relieved to hear that the FCA had decided not to proceed further. But Mr Grout says that he wants the investigation to continue so that he can clear his name. That does not at first sight seem a very promising prospect in circumstances where the FCA has already made the adverse findings to which I have referred in the investigation into JP Morgan, although Mr Grout would be entitled to challenge in the Upper Tribunal any adverse findings made by the FCA in an investigation into his conduct. But even if the result of a concluded FCA investigation (and if necessary a review by the Upper Tribunal) were to exonerate Mr Grout from any wrongdoing, the United States proceedings will continue in any event and will not be affected by any exoneration of Mr Grout by the FCA.

A London based division of JP Morgan known as the UK-based Chief Investment Office (or “CIO”) was responsible for trading complex derivative investments as part of a synthetic credit portfolio (“SCP”) on behalf of the bank. The senior management of the CIO consisted of Mr Achilles Macris and Mr Javier Martin-Artajo.

In July 2012 JP Morgan announced that the CIO had sustained trading losses of US $5.8 billion on this portfolio in the first half of 2012. This announcement led, not surprisingly, to extensive worldwide media publicity. The losses became known as the “London Whale” losses on account of the colourful nickname given to the main individual responsible for trading the portfolio, Mr Bruno Iksil. Mr Grout was Mr Iksil’s assistant. His title was Vice President of the CIO, but his solicitor’s evidence (there is no evidence from Mr Grout himself) is that he was merely a junior trader. There is no evidence of what this junior trader was earning. I am told that he was at that time still in his twenties. He was responsible for the marking of the derivative positions in the portfolio, that is to say for producing daily reports showing the value of the portfolio against the market. His solicitor’s evidence, however, is that essentially Mr Grout did what he was told to do by Mr Iksil who decided what the “real” price of the positions was based on information which he kept in his head and that Mr Grout did not know that there was anything wrong with this.

In addition to media publicity, the announcement of the losses led also to regulatory investigations both here and in the United States and, in the United States, a criminal investigation also. The allegations concerning Mr Grout have been primarily focused on mis-marking, in other words that he deliberately overstated the value of the portfolio in the daily reports, thereby concealing the extent of the losses. Reports have been published concerning these losses by JP Morgan itself in January 2013 and by the United States Senate Permanent Subcommittee on Investigations in March 2013.This report named Mr Grout as the junior trader on the portfolio. He denies that any mis-marking was deliberate or done with knowledge on his part.

On 8 August 2012 the FCA appointed investigators under section 168 of the Financial Services and Markets Act 2000 (“the FSMA”: I refer to the provisions of the Act as currently in force) to investigate Mr Grout’s conduct. At the same time investigators were also appointed to investigate JP Morgan itself, as well as other individuals who had been part of or responsible for the unit where the losses occurred, including Mr Macris, Mr Martin-Artajo and Mr Iksil. The scope of the investigation into Mr Grout was set out in the memorandum of appointment of investigators, and was further explained in the course of a “scoping meeting” which took place on 17 September 2012. Mr Grout was being investigated both with respect to possible breach of his own obligations as an “approved person”, and to establish whether he had been knowingly concerned in any contravention of the applicable rules by JP Morgan. Mr Grout was told that it was open to the FCA to pass information obtained in the course of its investigation to the United States authorities who were carrying out their own investigation, and also that information obtained in the course of Mr Grout’s investigation might be used in the course of investigating other individuals.

Mr Grout resigned from JP Morgan in December 2012. He was interviewed over two and a half days on 7, 8 and 12 February 2013. His solicitor was present. Prior to the interview he sought an assurance on whether the FCA would pass transcripts of his interview to the United States authorities, but the FCA declined to give any assurance that it would not do so. In April 2013 Mr Grout’s solicitor was informed that transcripts of the interviews would be provided by the FCA to the United States regulators, as they were. Mr Grout was interviewed again on 9 July 2013.

In July 2013 Mr Grout (who is a French national, married to an American citizen) returned to France where his wider family lives.

On 14 August 2013 the Securities & Exchange Commission in the United States brought a civil complaint against Mr Grout and Mr Martin-Artajo. On 16 September 2013 a federal grand jury indicted Mr Grout and Mr Martin-Artajo for conspiracy, falsifying books and records of JP Morgan and causing false statements to be made in JP Morgan’s SEC filings. There are no corresponding criminal proceedings against Mr Iksil, who is described as a “protected witness” (which I understand means that he has been granted immunity from prosecution). Nor are there any criminal proceedings against Mr Macris.

On 18 September 2013 the FCA published a Final Notice (preceded by a Decision Notice in materially the same terms) by which it decided, pursuant to a settlement reached with JP Morgan, that JP Morgan should be fined £137.61 million for various failings in connection with the “London Whale” trades. This was part of a wider settlement with JP Morgan coordinated with the Unites States authorities.

The Final Notice stated, among other things, that:

“2.2

The Firm’s failings were extremely serious. The losses were caused by a high risk trading strategy, weak management of that trading and an inadequate response to important information which should have notified the Firm of the huge risks present in the SCP. Flaws in the Firm’s marking and valuation control process for the SCP meant that the Firm failed to price certain positions within the SCP accurately in 2012. As losses began to mount during 2012, those flaws allowed traders on the SCP to conceal them through mismarking the SCP’s positions. …

2.8

From 2007, at the direction of SCP management, the traders on the SCP’s approach to marking the SCP’s positions was such that they provided an estimate of what they, the traders, thought the position was worth, rather than necessarily picking the mid of what the market thought the positions were worth. In February and March 2012 as the SCP began to lose substantial amounts of money, traders on the SCP began to mark their positions in a noticeably favourable manner. At the direction of SCP management, they priced the positions at the most beneficial end of the bid-ask spread. This had the effect of making the SCP appear more profitable and enabled the traders to conceal the scale of the losses arising in the SCP from CIO Senior Management. …

2.10

By March 2012, it was clear to the traders on the SCP that the adverse market moves were continuing against the SCP’s positions. In order to conceal this from CIO Senior Management, traders on the SCP continued to mark aggressively. By mid-March, they had gone further and, at the direction of SCP management, deliberately mismarked the SCP in order to conceal what one trader believed to be genuine losses. On 16 March 2012, the traders calculated that the losses appeared to be understated by almost $500 million, based on their estimation of market mid-prices. Nonetheless on that day the portfolio only showed a loss of $4 million in its internal reporting to CIO Senior Management.”

Thus there was a finding of deliberate mis-marking by “the traders”, at the direction of “SCP management”, in order to conceal losses. These are merely examples. The Notice contained numerous other references to things done or said or believed by “the traders”.

The information provided by Mr Grout in his interviews was taken into account by the FCA in making the findings set out in the Final Notice. It appears to follow from the findings quoted above, among others, that the FCA investigators rejected material parts of his account. He was not given an opportunity to comment on the findings before they were published, but it appears that he was given an opportunity (indeed, was required) to give his account of what had occurred and his involvement in it, and that he did so with the benefit of legal advice.

Mr Grout is not named in the Notice, but he contends that he is “identified” in it for the purposes of section 393 of the FSMA. He says that the publicity about these losses has been such that anyone reading the Notice would know that “the traders” can only mean him and Mr Iksil. He has made a reference to the Upper Tribunal (Tax and Chancery Chamber) on that basis. The Upper Tribunal has not yet ruled on whether Mr Grout is identified in the Notice for the relevant statutory purposes, since an appeal to the Court of Appeal is pending concerning Mr Macris in which much the same issue arises. That appeal has been argued but not decided.

Following an internal review into the progress of the ongoing investigations into the individuals concerned in the “London Whale” trading and consultations with the SEC and the United States Department of Justice, the FCA decided to terminate the investigation into Mr Grout. Its reasons for doing so were set out in a “project closure report” signed on 13 December 2013 by Mr Matthew Nunan (the “Project Sponsor” of the investigation into Mr Grout) and prepared by his staff which recommended closure of the investigation. Mr Grout’s solicitors were informed of that decision on 16 December 2013 and, after further correspondence, this claim for judicial review was made.

The reasons set out in the project closure report were as follows:

“We recommend that the investigation into the conduct of Julien Grout (‘Mr Grout’) in connection with mismarking and potential manipulative trading practices in his role as a trader within the Chief Investment Office (‘CIO’) in the London Branch of JP Morgan Chase Bank N.A. (‘JP Morgan’) should now be closed.

Mr Grout was a junior trader on the Synthetic Credit Portfolio (‘the SCP’) reporting directly into Mr Iksil (the ‘London Whale’) and indirectly to Mr Martin-Artajo as their senior manager. He was responsible for entering the marks which we say constituted mismarking of the SCP. Although he did so under the supervision of Mr Iksil, and received guidance from Mr Iksil as to the marks to apply, there is evidence that he nevertheless knew the marks were inaccurate. There is also evidence that he was responsible for sending daily profit and loss reports to senior management in which the SCP’s losses were understated.

We recommend closure of the case against him for the following reasons:

1.

The U.S. Securities and Exchange Commission (‘SEC’) and the U.S. Department of Justice (‘DOJ’) have open civil and criminal cases against Mr Grout. Specifically:

•

On 14 August 2013, the SEC charged Mr Grout with fraudulently overvaluing investments in order to hide massive losses in a portfolio he and others managed. Specifically, the charges allege: that Mr Grout engaged in fraudulent conduct; that he knowingly falsified or caused to be falsified JP Morgan’s books and records; and that he was reckless in not knowing and substantially assisted the consequent failure of JP Morgan to maintain and furnish accurate financial reports to the SEC.

•

On 16 September 2013, the DOJ indicted Mr Grout for conspiracy; falsifying the books and records of JP Morgan; wire fraud; and causing false statements to be made in JP Morgan’s filings with the SEC.

2.

Mr Grout is no longer working in the financial services industry and is no longer residing in the UK. We would not expect any firm authorised by us to seek approval on his behalf for him to perform a controlled function while he is under indictment. It is also unlikely (although not impossible) that he will be employed again in the UK financial services industry given the publicity of the ‘London Whale’ matter.

To continue with the investigation into Mr Grout would require a significant commitment in both resource and time. We do not think this is a proportionate use of our resources in circumstances where action is being taken against him in the US and he is in effect out of the UK financial services industry.

In addition, it is possible that we would decide to stay the proceedings at Warning Notice stage in light of the on-going criminal proceedings.”

As the project closure report recognised, the FCA investigation into Mr Iksil and Mr Macris, who were not the subject of criminal proceedings in the United States, would continue.

Section 1B of the FSMA requires the FCA, so far as reasonably possible, to act in a way that is “compatible with its strategic objective” and “advances one or more of its operational objectives”. Its strategic objective is “ensuring that the relevant markets [which include the financial markets] function well”. Its operational objectives include the “integrity objective”, that is the objective of “protecting and enhancing the integrity of the UK financial system” (section 1D).

The FCA has power, under section 168, to appoint investigators in a wide range of circumstances, including that “there are circumstances suggesting that” a person “may be guilty of misconduct” under section 66 of the Act or that “a person in relation to whom [the FCA] has given its approval under section 59 may not be a fit and proper person to perform the function to which that approval relates”.

The FCA’s power to direct the termination of an investigation, or to limit its scope, is contained in section 170 as follows:

“(7)

The investigating authority may, by a direction to an investigator, control—

(a)

the scope of the investigation;

(b)

the period during which the investigation is to be conducted;

(c)

the conduct of the investigation; and

(d)

the reporting of the investigation.

(8)

A direction may, in particular—

(a)

confine the investigation to particular matters;

(b)

extend the investigation to additional matters;

(c)

require the investigator to discontinue the investigation or to take only such steps as are specified in the direction;

(d)

require the investigator to make such interim reports as are so specified.”

This is the power whose exercise is challenged in the present case.

A section 168 investigation has a number of stages. The procedure is based in part upon statutory rules and in part on procedures followed by the FCA under its Enforcement Guide and its Decision Procedure and Penalties Manual (“DEPP”). Typically the first outcome of an investigation will be a preliminary investigation report, on which the subject of the investigation is able to comment (Enforcement Guide, para 4.30), followed by a final investigation report. That report is then submitted to the FCA’s Regulatory Decisions Committee (DEPP 3.2.12) which will decide whether to issue a Warning Notice. If a Warning Notice is issued, the subject of the notice is entitled to make representations to the Committee before a final decision is made, either to issue a Decision Notice or a Notice of Discontinuance (DEPP 3.2.15–26).

However, a Decision Notice is not the end of the matter. A subject of a Decision Notice against whom action is to be taken under section 56 (prohibition) or section 66 (penalties) can refer the Decision Notice to the Upper Tribunal (Tax and Chancery Chamber) under section 57 or section 67 respectively, in which case there will be proceedings before the Upper Tribunal in which the whole matter will be considered de novo, and in which the evidence is not limited to that which was available to the FCA: section 133.

Thus, despite my comment above that at first sight continuation of the investigation does not at present appear to provide a very promising prospect of clearing Mr Grout’s name, this is by no means a foregone conclusion. If the investigation were to continue, there would be a number of further stages at which Mr Grout would be entitled to make representations which the FCA would be obliged to consider carefully, and he would in any event be entitled to a hearing before the Upper Tribunal to challenge any adverse finding.

In general this procedure is private until a Decision Notice is issued. With some exceptions, neither a Warning Notice nor a Notice of Discontinuance is published. However, in the case of a Decision Notice the FCA must publish such information as it considers appropriate.

As already indicated, a procedure exists under section 393 for a third party identified in a Decision Notice to refer to the Upper Tribunal the decision in question or any opinion expressed by the FCA in relation to him. This is the procedure which Mr Grout seeks to invoke in relation to the Final Notice issued by the FCA and addressed to JP Morgan. If, as he contends, he is identified in the Final Notice, he has access to a procedure which gives him much the same opportunity to clear his name as the continuation of the FCA investigation against him.

In Macris v Financial Conduct Authority [2014] UKUT B7 (TCC) the Upper Tribunal held that the approach to the question of identification in the case of Mr Macris was as follows:

“39.

In the light of these principles in my view the correct approach to be taken in order to establish whether Mr Macris has been identified in the Final Notice through the description “CIO London management” is to answer the following questions:

(1)

Are the references in the Final Notice to CIO London managementreferences to an individual, ascertained by reference solely to the terms of the Notice itself?

(2)

If so, can those references be regarded as referring to anyone other than Mr Macris?”

Applying these tests, and holding that in addressing the second question it was permissible to refer to information in the public domain, the Tribunal held that the Final Notice did identify Mr Macris. If this decision is upheld, it seems probable (although I do not decide) that the Final Notice also identifies Mr Grout.

I raised with the parties whether I should defer this judgment until after the Court of Appeal has given judgment on the FCA’s appeal from the Upper Tribunal decision. Both parties responded that it was unnecessary to do so. I accept that response. The availability of this procedure to Mr Grout played no part in the FCA’s decision to close the investigation into him. On the contrary the FCA’s position has been (and I understand still is) that he is not identified in the JP Morgan Final Notice and therefore cannot invoke the section 393 procedure.

There is little or no dispute as to the legal principles to be applied to this claim for judicial review which I would summarise as follows.

Only in “highly exceptional” cases will the courts disturb decisions by an independent prosecutor or investigator whether to investigate and prosecute (or to discontinue investigations and prosecutions) (see R (Corner House Research) v Director of the Serious Fraud Office [2008] UKHL 60, [2009] 1 AC 756 at [30]. Corner House was itself a decision to terminate an investigation which had already begun. As Laws LJ put the matter in R (Bermingham) v Director of the Serious Fraud Office [2006] EWHC 200 (Admin), [2007] QB 727 at [63] and [64] in a passage approved in Corner House:

“63.

… There is much authority to the effect that the jurisdiction to conduct a judicial review of a public authority's decision to launch or not to launch a prosecution, though it undoubtedly exists, is to be exercised sparingly. Where the decision is to prosecute, this admonition of restraint arises in part at least out of the imperative that criminal proceedings should not be the subject of satellite proceedings which have the effect of delaying the trial: R v Director of Public Prosecutions, ex parte C [1995] 1 Cr App R 136, especially per Kennedy LJ at 141; R v Director of Public Prosecutions, ex parte Kebilene [2000] 2 AC 326. Where the decision is not to prosecute, there cannot I think be a different rule; in any event there will have been expert assessments of weight and balance which are so conspicuously within the professional judgment of the statutory decision-maker that there will very rarely be legal space for a reviewing court to interfere.

64.

Here, of course, the decision sought to be reviewed is a decision not to investigate. The position as regards the judicial review jurisdiction is in my judgment a fortiori a decision whether to prosecute. The authority's (here, the Director's) discretion is even more open-ended. It will involve consideration of the manner in which available resources should be deployed and whether particular lines of inquiry should or should not be followed: Hill v Chief Constable of West Yorkshire [1989] 1 AC 53 per Lord Keith of Kinkel at 59 D-F, summarising R v Commissioner of Police for the Metropolis, Ex parte Blackburn [1968] 2 QB 118. It is submitted for the Director that absent bad faith or other exceptional circumstances a decision to investigate or not to investigate an allegation of crime is not subject to review. That is not quite right. It looks like an argument to limit the court's jurisdiction of judicial review; but the jurisdiction is as wide or as narrow as the court holds. The true proposition is that it will take a wholly exceptional case on its legal merits to justify a judicial review of a discretionary decision by the Director to investigate or not.”

There are three reasons for this reluctance by the courts to interfere with such decisions: first, the powers in question are entrusted to the relevant authority and to no one else; second, such decisions are typically “polycentric” in nature, involving a balance of policy and public interest considerations which are inter-connected; and third, the powers are conferred in very broad and unprescriptive terms (Corner House at [31]).

Decisions by law enforcement agencies as to the proper allocation of their resources are, similarly, decisions with which the courts are slow to interfere (see R v Chief Constable of Sussex, ex parte International Trader’s Ferry Ltd [1999] 2 AC 418 at 430). An authority such as the FCA is not obliged to investigate every case where the circumstances suggest that misconduct may have occurred. The FCA has finite resources, and is in general free to decide how those resources are best deployed.

Nevertheless, a regulatory authority’s discretion is “not unfettered”: the decision maker “must seek to exercise his powers so as to promote the statutory purpose for which he is given them. He must direct himself correctly in law. He must act lawfully. He must do his best to exercise an objective judgment on the relevant material available to him. He must exercise his powers in good faith, uninfluenced by any ulterior motive, predilection or prejudice” (Corner House at [32]).

Likewise, a decision to terminate a regulatory investigation will be susceptible to judicial review if, after all appropriate allowances have been made for the matters referred to above, it is irrational (e.g. “so unreasonable that no reasonable authority could ever have come to it” or “so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it”: see e.g. Wednesbury itself [1947] 1 KB 223 at 230 and the Council of Civil Service Unions case [1985] 1 AC 374 at 410, two of the many formulations of this concept which were relied on by Mr Richard Lissack QC on behalf of Mr Grout).

One potential form of irrationality may arise where a public body accords differential treatment to persons who are in a materially similar position, without good reason. As Sedley J explained in R v Ministry of Agriculture Fisheries & Food, ex parte Hamble (Off Shore) Fisheries Ltd[1995] 2 All ER 714 at 722, “a discretionary public law power must not be exercised arbitrarily or with partiality as between individuals or classes potentially affected by it”. The same point was made by Lord Donaldson MR in R (Cheung) v Hertfordshire County Council, (The Times, 4 April 1998) who referred to “a cardinal principle of public administration that all persons in a similar position should be treated similarly”.

Finally, even if a consideration is properly to be taken into account, the decision maker must not place “manifestly disproportionate” weight upon it: R (Gallagher) v Basildon District Council [2010] EWHC 2824 (Admin) per Kenneth Parker J at [38] and [41]. A note of caution is needed here, however. In general it is for the decision maker to determine how much weight should be afforded to the various considerations of which account needs to be taken. This is part of the discretion conferred upon him. The courts will only interfere on this ground if the weight accorded to the consideration in question is “manifestly disproportionate”, that is to say unequivocally outside the range of reasonably acceptable possibilities and therefore such that no reasonable decision maker could sensibly have given it the weight which it was given. It may be doubted, therefore, whether this final point adds anything of real substance to the matters already set out above. It seems likely that any decision susceptible to challenge on the basis that manifestly disproportionate weight has been given to a permissible consideration will also be a decision which it itself Wednesbury unreasonable. Indeed, the fact that the decision is itself Wednesbury unreasonable may well be the only indication that manifestly disproportionate weight has been given to the consideration in question. Nevertheless, it may sometimes be helpful to formulate the issue in these terms and, as the case was argued in this way, I will proceed on that basis.

The first ground of challenge to the decision to terminate the investigation into Mr Grout is that he was thereby treated differently to others in the same or a materially similar position, namely Mr Iksil and Mr Macris, whom the FCA is continuing to investigate. He contends that this constitutes arbitrary conduct by the FCA and amounts to unfair discrimination against him.

In my judgment there is nothing in this point. Mr Iksil and Mr Macris were not in the same position (or even a materially similar position) as Mr Grout, or at least the FCA was entitled to conclude that they were not. First, they were not subject to criminal proceedings in the United States, as Mr Grout was. Second, as Mr Grout himself insists, they were senior to him and he was only a “junior trader”. It would be legitimate for the FCA to conclude that an investigation should continue into the conduct of the trader who was primarily responsible for the loss making trades (Mr Iksil) and into the senior manager responsible for the CIO (Mr Macris), but not into a junior trader playing a subordinate role.

The second ground of challenge is that the FCA placed too much weight on the existence of the criminal proceedings against Mr Grout in the United States which, he says, will operate unfairly against him.

Mr Grout does not suggest that it was impermissible for the FCA to take these proceedings into account in deciding whether to continue with its investigation. On the contrary Mr Lissack on his behalf expressly accepts that it was entitled to do so, but contends that it gave this consideration far too much weight. That being so, this ground of challenge can only succeed if the weight given to the existence of the US proceedings was “manifestly disproportionate” in the sense described above. This is a high hurdle. On behalf of Mr Grout, Mr Lissack contends that the court should be more ready to intervene in this case than in other cases concerned with a review of regulatory decisions because the decision making here was not “polycentric” (i.e. requiring a balance of various inter-connected considerations); rather, he submits, the existence of the United States criminal proceedings was the sole or at any rate decisive consideration.

I do not accept this. First, the reasons given in the project closure report for the closure of the investigation clearly do involve a weighing of three considerations, namely (1) the United States proceedings, (2) the fact that Mr Grout was not currently working in the United Kingdom financial services industry and was unlikely to do so in the future, and (3) time and resources. The following paragraph spells this out:

“To continue with the investigation into Mr Grout we would require a significant commitment in both resource and time. We do not think this is a proportionate use of our resources in circumstances where action is being taken against him in the US and he is in effect out of the UK financial services industry.”

Second, the “polycentric” nature of regulatory decision making is only one of three reasons given by Lord Bingham in Corner House for the court’s reluctance to intervene in such decision making except in “highly exceptional” cases.

Accordingly it is necessary for Mr Grout to show that the weight given to the United States proceedings was “manifestly disproportionate” in the sense described above. In a case such as the present which involves a decision to terminate a regulatory investigation, that is a difficult burden to discharge. He seeks to do so by showing that the United States proceedings will operate unfairly against him.

Mr Lissack is concerned, to quote his skeleton argument, “to make plain that it is not Mr Grout’s case that the US proceedings are unfair to him because there is something inherently unsafe about such proceedings in the US”, but that there will be procedural and evidential obstacles applicable in this case which will prevent Mr Grout from getting a fair hearing in the United States or at any rate will make it more difficult for him to do so. This appears to me, with respect, to be splitting hairs: either the United States proceedings will be fair to Mr Grout or they will not. There are three reasons why it is said that the proceedings will be unfair.

The first concerns the position of Mr Iksil. It is said to be unfair that Mr Grout’s supervisor, who was on any view the central player in the “London Whale” affair is not a defendant but a prosecution witness immune from prosecution, apparently without having had to admit to any offence on his part, in circumstances where he will have every incentive to cast as much of the blame as possible on Mr Grout.

The second is that in accordance with normal criminal procedure in the United States, it appears that Mr Grout will not have access to some of the evidence against him in the Department of Justice criminal proceedings, including the testimony supplied by Mr Iksil to the SEC and the FCA (which was passed to the United States authorities), until after the trial is under way.

The third is that the timing of any trial is uncertain, not least because Mr Martin-Artajo, Mr Grout’s co-defendant, is resisting extradition to face trial in the United States from Spain. From what I was told about the applicable procedure, it seems that a final decision on his extradition is some distance away. Mr Grout himself is presently residing in France. I am told that if he chooses not to attend his trial, whenever it may take place, he cannot as a French citizen be extradited to the United States from France.

In my judgment these grounds of alleged unfairness fall well short of what would be required to show that the weight given by the FCA to the existence of the United States proceedings was manifestly disproportionate. In any event, a complaint that too much weight was given to the existence of the United States proceedings because they are unfair seems somewhat strange. I could understand a submission that it was not permissible to take account of manifestly unfair proceedings at all, but that is not the submission made. But there seems something odd about a submission that such unfair proceedings can be taken into account so long as they are not given too much weight.

Be that as it may, however, there is in my judgment no real substance in the complaints of unfairness. First, if Mr Grout decides to participate in the United States proceedings, there will be abundant material available to his lawyers to demonstrate Mr Iksil’s role in the affair and to challenge whatever evidence he may give which seeks to cast the blame on to Mr Grout. I would expect a United States jury to be alert to the implications of Mr Iksil’s status as a “protected witness” enjoying immunity from prosecution and alive to any unfairness which may result from any sense that the minnow is facing the full weight of the criminal law while the whale has escaped justice, just as a jury here would be. The fact that a prosecution witness has been given immunity from prosecution is not an unknown feature of criminal proceedings and juries are capable of assessing whether or how that affects the witness’s evidence.

Second, the fact that Mr Grout will only have access to Mr Iksil’s evidence once the trial is under way appears to be in accordance with normal United States procedure in such cases. It is not suggested that Mr Grout will not have access to this material in sufficient time to enable his lawyers to challenge Mr Iksil’s evidence. In any event, the United States indictment (which is much more detailed than an indictment here would be) appears to contain an indication of at least the gist of Mr Iksil’s evidence on the central issue of mis-marking.

Third, although the timing of any criminal trial in the United States is uncertain, so too would be the timing of any continuing investigation by the FCA here into Mr Grout’s conduct, particularly if (as the project closure report contemplated) the FCA were to decide to stay its investigation at the Warning Notice stage in order to let the criminal proceedings take their course.

In any event the alleged unfairnesses of the United States criminal proceedings against Mr Grout were not affected by the FCA’s decision not to continue to investigate him. Those proceedings would continue whatever the FCA decided. (Mr Lissack submitted that it is implausible that any trial in the United States will ever take place, principally because Mr Grout cannot be compelled to attend, but this is speculation and, in any event, would be the result of Mr Grout’s own choice: there was no reason for the FCA to form this view when it made its decision to close the investigation into Mr Grout). Moreover, the FCA’s decision to continue to investigate Mr Iksil meant that he was not immune from any penalty. It remained (and still remains) a possibility that the result of the investigation into Mr Iksil will result in a prohibition or substantial fine.

I should add that the allegations contained in the United States indictment are different in some details from the allegations which Mr Grout appeared to face here (albeit that the latter had not yet been formulated in a preliminary investigation report). But their essential gravamen is the same and in any case it is not suggested that the FCA did conduct or ought to have conducted an intensive analysis of the indictment with a view to identifying such detailed differences before making its decision to terminate the investigation into Mr Grout.

For these reasons I reject the submission that the FCA placed manifestly disproportionate weight on the existence of the United States proceedings.

Finally Mr Grout contends that the FCA’s reliance on the time and resources required to continue the investigation into his conduct is irrational when time and resources would continue to be devoted to the investigation of Mr Iksil and Mr Macris whose investigations have not been terminated and were being undertaken by the same individuals at the FCA as were investigating Mr Grout.

I reject this contention. When deciding whether to continue with an investigation it is undoubtedly permissible for the FCA to take into account the resources available to it, the time and cost commitment likely to be involved in continuing, and the other demands which it faces. Its resources are finite and there appears, unfortunately, to be no shortage of matters in the financial markets requiring investigation. As it was, the FCA’s resources were already heavily committed to investigation of alleged manipulation of LIBOR interest rates, while in October 2013 a major new investigation into trading on the foreign exchange markets was begun. A decision to carry out one investigation will generally mean that something else will not be investigated, either at all or as thoroughly or promptly as it might otherwise be. How to allocate those resources is a matter for the FCA to decide, and the courts will only interfere with its decisions when they exceed the bounds of reasonable decision making. That is not the case here.

I see no basis for any challenge to the FCA’s decision here on the basis that the required time and resources in investigating Mr Grout will not be significant in view of the ongoing investigations into Mr Iksil and Mr Macris. As indicated above, the investigation into Mr Grout was at a relatively early stage of the procedure. It had not even reached the stage of a preliminary investigation report. Such a report, if adverse to Mr Grout, would undoubtedly have been met by extensive representations, and it might have been necessary to proceed through all the subsequent stages up to and including a hearing before the Upper Tribunal. That would or at least might well be so regardless of what happened in relation to Mr Iksil and Mr Macris. The FCA was entitled to take the view that to proceed with the investigation into Mr Grout would require a heavy commitment of time, personnel and cost.

Nor do I see any basis for criticising the FCA’s decision that this would not be a worthwhile commitment of its resources, at any rate when the other demands on those resources were taken into account. It could reasonably take the view that it was unnecessary to proceed with the investigation into Mr Grout for the purpose of deterrence or (if wrongdoing was established) punishment, as those purposes would be fulfilled by the proceedings in the United States; that further investigation was unnecessary for the purpose of market protection as Mr Grout was no longer working in the financial services industry and was most unlikely to do so for so long as he was the subject of a criminal indictment in the United States; and that so far as the facts needed to be further established so that any necessary lessons could be learned, the United States proceedings would provide a suitable public forum where that could happen.

Ultimately Mr Grout’s complaint appears to be that it was unfair (and therefore irrational) for the investigation to have been terminated after all the publicity about him which has occurred because it deprived him of an opportunity to clear his name through the investigation procedure. This is not so far as I can see part of his amended grounds for judicial review. I would, however, reject any such ground of complaint. First, it was not the FCA which generated the publicity about the “London Whale” affair and Mr Grout’s involvement in it. That has occurred regardless of anything done by the FCA. Second, I doubt whether it would be a proper use of the FCA’s resources to pursue an investigation for the purpose of establishing that no misconduct had occurred. In any event, it is hard to see that the FCA should be required to devote substantial public resources to investigating a case in order to establish that there was no misconduct by an individual, let alone that it would be irrational to decide not to do so. On no view is the investigative process designed with that aim in mind. Third, a forum exists in which Mr Grout has an opportunity to clear his name, namely the criminal proceedings in the United States. If Mr Grout wishes to clear his name in any meaningful way, he will have to face those proceedings. The international nature of the financial industry would make it unlikely that Mr Grout would be employed in that industry while those proceedings remain in being. That seems likely to be so whatever may be the outcome of any continued FCA investigation.

Finally, Mr Lissack suggested that it was unfair that the FCA had not consulted Mr Grout before deciding to terminate the investigation and that it had failed to consider whether such termination was fair to Mr Grout. These points were not pleaded. However, I see no basis for imposing a duty on the FCA to consult the subject of an investigation before deciding to terminate it. No case was cited in support of any such duty. Moreover, if failure to consider possible unfairness to Mr Grout had been advanced as a ground for judicial review, further evidence might well have been adduced. Although the project closure report was accepted for the purpose of this claim as setting out the FCA’s reasons for terminating the investigation, it was an internal summary document, written for insiders who already had knowledge of the background, and was not necessarily a comprehensive statement of everything which formed part of the decision making process or the background to it. Part of that background, as Mr Nunan explains, was that it was unprecedented in his experience for the subject of an investigation to complain about it being closed, and that it was very common for a subject faced with criminal proceedings to insist that the investigation should not proceed lest it prejudice the defence of his criminal trial.

For the reasons explained above the FCA’s decision to terminate its investigation of Mr Grout was entirely rational. The matters which it took into account were legitimate considerations and it was for the FCA to determine what weight to give to them. It cannot be said that the weight given to any consideration was manifestly disproportionate. The decision was lawful. The claim for judicial review is dismissed.