Leslie-Smith -v- JFSC [2011] JRC 041 (17 February 2011)

judgment the bailiff: 1. This judgment relates to an appeal against a decision of the Jersey Financial Services Commission ("the Commission") to issue a Direction under Article 23 of the Financial Services (Jersey) Law 1998 ("the 1998 Law") in respect of the appellant and to make a public statement in relation to that Direction pursuant to Article 25 of the 1998 Law. 2. The appeal followed a somewhat unusual course. The grounds of appeal were very wide ranging and included alleged procedural unfairness as well as a contention that the Commission's decision was unreasonable. At the hearing, Advocate Blakeley developed his arguments for most of the morning, following which Advocate Lacey began her response on behalf of the Commission. 3. Before the luncheon adjournment, the Court indicated to Advocate Lacey that it was troubled by two particular matters raised by the appellant and invited Advocate Lacey to consider these over the adjournment and address them specifically in her response. When the Court reconvened following the luncheon adjournment, and following an unsuccessful application by the Commission for the appeal to be adjourned pending further consideration by the Commission, the Court was informed that the Commission was conceding the appeal on these two points. The Direction and the decision to make a public statement were therefore quashed and the matter remitted to the Commission for further consideration. 4. The Court indicated that it thought it might be helpful if it issued a brief judgment addressing the two particular matters in case this would assist the parties when the matter came to be reconsidered. This we now do. Background 5. In view of the fact that the appeal has been conceded, we can describe the factual background much more shortly than would otherwise have been the case. 6. Oracle Financial Services (Jersey) Limited ("Oracle") is a Jersey incorporated company and is registered under the 1998 Law to carry on investment business and general insurance mediation business. 7. The appellant joined Oracle in November 2002 as a financial consultant/sales manager. In July 2005 he was appointed as a director of Oracle and so became one of Oracle's "principal persons" (as defined in the 1998 Law). 8. The appellant's remuneration package with Oracle included an element based on the business that he introduced. He would earn a 5% equity share in the business on achieving in excess of a stipulated figure for new business income to Oracle in any one year and he would also receive a 40% bonus on any revenue over that figure. 9. Oracle kept its information about new business introduced on a computer generated report known as the "New Business Report" ("NBR"). The New Business Report was maintained on a computer database known as "1 st Software". Four persons at Oracle were licensed users of 1 st Software, one such person being the appellant. 10. Having identified that a particular policy had been moved in the New Business Report from one financial year to another, on 2 nd July, 2007, the managing director of Oracle raised this with the appellant, who then immediately changed two policies (including the one noted by the managing director) back to their original correct financial year. The managing director subsequently contacted the Commission on 30 th July, 2007, to advise that an internal investigation was being conducted in respect of financial irregularities appertaining to figures on the New Business Report, which had come to light as part of a review of the appellant's bonus for the financial year end 30 th June, 2007. 11. The investigations carried out by the Commission showed that changes had been made to a number of items of new business in the New Business Report. The effect of the changes was to move business from one financial year to another. At interview the appellant admitted that he had made two of these changes but denied having made the others. He explained that he originally changed the dates in order to "test" the system. He said he had forgotten to change the dates back and it was only when the managing director raised the discrepancy in relation to one of the cases that he remembered what he had done and so went to change the date back in respect of both cases. He accepted that when the managing director first raised the discrepancy on 2 nd July and again on 5 th July, he did not explain that the changes were part of any form of "test" being conducted. 12. The other matter relied upon by the Commission in support of its decision to issue a Direction related to what the appellant said to officials of the Enforcement Division of the Executive of the Commission when being interviewed. At an interview on 15 th November, 2007, the appellant was asked why he did not conduct his "test" on the "demo" system of the 1 st Software system. He said at that stage that he was not aware of the "demo" on the system and had not received any training on the 1 st Software system, although he immediately went on to say that he had attended a training course on it, but that this had related to how to deal with bulk letters. 13. Subsequent investigations by the Commission revealed that the appellant had in fact received a one day training session on the 1 st Software system in January 2004 in which the "demo" system had been used. This was put to the appellant at a further interview on 21 st December, 2007, when he accepted the evidence that he had in fact had training on the system but said that he could not remember it. 14. The matter was in due course referred by the Executive to the Board of Commissioners which met on 2 nd April, 2008. The report from the Executive gave a number of other incidents (as well as the training matter) where the Executive believed that the appellant had given inaccurate and conflicting information during the course of the investigation. The Board decided that it was minded to issue a direction under Article 23(1) of the 1998 Law prohibiting the appellant from being employed by or in any other way acting for, or on behalf of, any registered person operating in or from within Jersey without having first applied to and obtained the prior approval of the Commission. The Chairman subsequently wrote to the appellant saying that the matter would be considered by the Board at a subsequent meeting and inviting the appellant to make any further submissions. 15. The appellant did so through his then Advocate and these were considered by the Board at a second meeting on 9 th July, 2008, which the appellant and his Advocate attended in order to make oral submissions. Following consideration of all the material, the Board decided to issue a direction prohibiting the appellant from being employed by or in any way acting for or on behalf of any registered person operating in or from within Jersey without having first applied to and obtained the prior approval of the Commission to hold a specific role. Attached to the direction were the grounds supporting it and we would refer in particular to paragraph 1.3 of those grounds:- "In particular, Mr Leslie-Smith has failed to act with integrity by:- (i) acting dishonestly by altering client records and failing to declare that he altered such client data during the course of his employment; and (ii) by (sic) providing the Commission, during interview under the provisions of Article 32 of the Law, with inaccurate and conflicting information. (emphasis added) 16. Paragraph 1.4 of the Direction went on to repeat that:- "Mr Leslie-Smith has acted with a lack of integrity and is not a fit and proper person to be employed ..." We shall refer to this Direction as the 2008 Direction. 17. However the Commission resolved to defer consideration of issuing a public statement because there was a criminal investigation taking place into the matters in question and the Commission did not wish to prejudice any criminal proceedings. The appellant was in due course charged with two counts of fraud and seven charges of attempted fraud. 18. The appellant was subsequently acquitted of all charges at an assize trial in February 2010 and accordingly the matter was referred back to the Board on 3 rd March, 2010, on the question of whether a public statement should be issued in relation to the 2008 Direction. At a meeting of the Board held on 3 rd March, 2010, the Board considered the recommendation of the Executive that a public statement should now be issued and decided that it was "minded to" issue a public statement in relation to the 2008 Direction, but concluded that before reaching a final decision, the appellant should be given the opportunity to make submissions in respect of such a public statement. 19. In response to that invitation Advocate Blakeley submitted detailed written submissions on 17 th May, 2010, seeking the withdrawal of the 2008 Direction and opposing the issue of any public statement. A further Board meeting was held on 2 nd June, 2010. Advocate Blakeley attended with the appellant and made submissions on his behalf. 20. In the light of the acquittal at the criminal trial, the Board decided to amend its findings so as to confine them to those facts which had in effect been admitted by the appellant, namely the alteration of records relating to two clients (as opposed to more) and the provision of incorrect information in relation only to his training on the computer system. Furthermore it was agreed that the grounds of the decision to issue the direction should be altered from one of dishonesty or lack of integrity to a lack of competence. This is reflected not only in the minutes of the meeting of the Board but also in the new direction which was issued on 21 st June (the "2010 Direction"). We should add that, although it was described in the Board minutes as an amendment to the 2008 Direction, in reality what was issued was a replacement and the 2008 Direction fell away. 21. Although the wording of the actual prohibition contained in the 2010 Direction was slightly different from that contained in the 2008 Direction, its effect was the same. The key difference between the two Directions relates to the reasons attached to the 2010 Direction, the relevant parts of which read as follows:- "1.2 The Commission has concluded that Mr Leslie-Smith failed to act competently when; 1.2.1 during the course of his employment with a registered person, in which he acted as a principal person and key person (Director and Compliance Officer), he altered two client investment records on a live computer system. Although these alterations had the potential to prejudice the registered person employing him and to result in an unearned financial benefit to him personally, he failed: (1) to declare that he had altered the data; and (2) to restore the data into its correct form at any point before the discrepancy was discovered by others. 1.2.2 during interviews with the Commission, he provided information to the Commission which was untrue, namely that he had not received training on the computer software within which he made the alterations to client investment records referred to in paragraph 1.2.1 above." (emphasis added) 22. It is quite clear from a comparison of the grounds for the 2008 and 2010 Directions that the whole basis of the decision to issue the Direction had changed. The 2008 Direction was based upon the Commission's view that, both in relation to the alteration of the data in the New Business Report and his responses to the Executive at interview, the appellant had acted dishonestly and failed to show the requisite degree of integrity required for a principal person. Furthermore that dishonesty or lack of integrity related to several client records and to a number of matters where the Commission found that the appellant had given inaccurate and conflicting information at interview. 23. Conversely, in the 2010 Direction, all references to dishonesty or lack of integrity were removed and the sole ground was described as a failure to act competently. This fundamental difference is supported by the minutes of the Board meeting of 2 nd June, 2010, from which it is clear that the Commission felt unable in June 2010 to make a finding on the grounds of dishonesty or lack of integrity. Furthermore the findings were now confined to two client records in the New Business Report and only one matter where the appellant had given inaccurate information at interview. 24. The appellant duly gave notice of appeal against the decision in relation to the Direction and also the decision to make a public statement. In accordance with its normal procedure, an Affidavit was sworn on behalf of the Commission by the Chairman, setting out the Commission's decision and exhibiting the relevant documents. 25. The difficulty which has arisen is that, in paragraphs 38 to 41 of his Affidavit, which summarise the grounds for the Commission's decision in June 2010, the Chairman concentrates almost entirely on questions of honesty and integrity. Thus, having at paragraph 38 referred to the fact that the Commission is concerned to ensure that those persons operating in the financial services industry are competent and act at all times with honesty and integrity and deal with the Commission with utmost candour, he goes on to say at the beginning of paragraph 39:- "The admitted alterations in respect of Mr Leslie-Smith are matters that, in my view, concern his integrity and honesty". 26. In the next sentence he turns to the information provided in interview and says:- "In advising the Commission in interview that he had not undergone computer training when in fact he had attended a full one day course go to his integrity, honesty and candour". (sic) 27. In paragraph 40 he says that, from a regulatory perspective, the Commission must consider whether the conduct of an individual reaches the high standards, in particular in relation to competence, honesty, integrity and candour that the Commission requires and expects from regulated individuals. In paragraph 41 he deals with the two matters which are the subject of the 2010 Direction. In paragraph 41(a) he deals with the alterations and although he does not specifically use the word dishonesty or lack of integrity, neither does he use the word competence, and a natural reading of the paragraph in context is that he is relating back to and justifying the opening statement in paragraph 39 referred to above. At (b) he says specifically that the second issue (i.e. what was said at interview) concerns the degree of probity and honesty which Mr Leslie-Smith displayed in his dealings with the Commission. He concludes:- "In my view therefore, Mr Leslie-Smith failed to deal honestly and openly with the Commission and that conduct fails to meet the required standard". 28. In short, the Court was faced with wholly conflicting evidence as to the grounds for the Commission's decision in 2010. The Chairman's Affidavit asserts specifically that the decision in relation to both aspects was taken on the grounds of a lack of integrity and honesty. Conversely, the grounds attached to the 2010 Direction itself, supported by the minutes of the Board meeting, make it clear that there is no suggestion of dishonesty or lack of integrity but that the Direction is made solely on the grounds of a lack of competence. A lack of competence is a very different matter from a lack of honesty or integrity. 29. The second concern raised by the Court with Advocate Lacey related to whether the decision of the Commission was proportionate in connection with the sanction imposed by the Commission. The 2008 Direction was issued on the basis that the appellant had shown a lack of integrity both in relation to the alteration of the data of a number of clients and in relation to his answers on a number of issues during the investigation by the Executive. One could well understand in those circumstances the Commission taking the view that such a person should not work in the regulated field without the specific permission of the Commission. However, the basis of the 2010 Direction was that there was no dishonest purpose in relation to the change in data which in any event only now related to two clients. Thus there was no intention to benefit himself. The Commission's decision was that the appellant's action in secretly testing a system containing important financial data without informing anyone else and subsequently failing promptly to restore the data to its correct form displayed a lack of competence. Similarly, in relation to the second issue, given that the Commission was not saying that the answer showed any lack of integrity, it must be assumed that it was given honestly but mistakenly, i.e. it showed a lack of competence in giving an incorrect answer as to whether he had had training some years before. Furthermore, this was now the only matter relied upon in relation to the interviews. It seemed to the Court that the imposition of the same penalty as had been imposed for dishonest action relating to a greater number of matters was difficult to justify. 30. It was for these reasons that the Court expressed its concerns to Advocate Lacey and she made clear on behalf of the Commission that it was only for these two reasons that the Commission was conceding the appeal. We have to say that, on the basis of what we had heard so far, that decision of the Commission was correct as there was a strong likelihood of the Court finding that the decision to issue the 2010 Direction and the associated public statement was unreasonable for both the reasons described above. 31. The appellant had also raised a number of criticisms of the procedure followed by the Executive and the Board itself and had contended that this amounted to unfairness such that the decision should be quashed. Although we heard Advocate Blakeley develop his arguments on this aspect, we did not hear from Advocate Lacey on behalf of the Commission and therefore we have reached no view on this aspect of the appellant's grounds of appeal. 32. We would however just say this:- (i) We would repeat the terms of the general duty to act fairly as set out at paragraph 11 of the judgment of the Royal Court in Interface Management Ltd-v-JFSC [2003] JLR 524 as follows:- "We are in no doubt that the Commission is under a duty to act fairly towards an applicant for registration under the 1998 Law. Any decision reached in circumstances in which the Commission has acted unfairly is liable to be quashed. In particular, the applicant is entitled to know the general nature of the case against him (i.e. the matters relied upon by the Executive to suggest that he should be refused registration) and to have an adequate opportunity of responding to those matters. It is the fairness of the procedures as a whole which will fall to be considered but clearly what is required by way of fairness from the Executive (in its investigating and recommending role) is not exactly the same as that required by the Board (in its quasi-judicial role). Nevertheless, both must act fairly in their respective roles and the Commission as a whole must act fairly throughout the overall process." Although that statement was made in the context of an application for registration, it is of course equally applicable to other regulatory decisions of the Commission, such as that with which we are concerned in this case. (ii) However, it is most certainly not the case that every error in procedure will lead to a conclusion that the Commission has acted unfairly. To take one example from the present case, Advocate Blakeley complained that, during two interviews, the appellant was told by officials of the Executive that they had evidence of certain facts when in fact the Executive did not have such evidence. Now, it is certainly the duty of the Executive not to make incorrect or false statements to a person being interviewed. A deliberate misleading of an interviewee would be viewed very seriously by this Court. However, the evidence from the Director of Enforcement was that this was an innocent error and he had simply forgotten the correct position. The statement was corrected later in the second interview by the other interviewing officer. Furthermore, the incorrect statement related to an alteration in the New Business System of a client other than the two clients whose records the appellant admitted having altered. The denial by the appellant in relation to that particular client was maintained despite the incorrect information given to him and the Commission in fact did not ultimately make any finding that he had altered the record relating to that particular client. Thus, although there was an error in the procedure and the Executive should not have misinformed the appellant, this could not possibly in itself amount to a ground for concluding that the process had become unfair to such an extent that the decision should be quashed. The point we wish to emphasise is that, in order to lead to relief being granted, procedural errors must be of sufficient significance to taint the process to such an extent that it becomes unfair to uphold the decision under appeal. Advocate Blakeley raised a number of other procedural criticisms and we repeat that we have reached no conclusion on them because the appeal was conceded on other grounds. In particular, we express no view one way or the other on whether some or all of the other procedural criticisms, if accepted, would have been sufficient to render the procedure unfair. 33. We turn to the question of what should happen next. The Commission having conceded the appeal on the basis that its decision was unreasonable for the two reasons set out above, the question arose as to whether the Court should simply quash the decision to issue the 2010 Direction and the associated public statement or whether, having done so, the matter should be remitted to the Commission for further consideration. There is clearly jurisdiction to follow the latter course as both Article 23(11) and Article 25C(vi) of the 1998 Law, which deal with the Court's power on an appeal, are in extremely wide terms and specifically state that the Court may make such order as it thinks fit. 34. We decided at the hearing that the public interest required that the matter should be remitted to the Commission so that it can decide on what regulatory action, if any, should be taken on the factual basis which it found to exist prior to issuing the 2010 Direction. We do not seek to be over prescriptive but we would summarise our understanding of that factual basis as follows:- (i) The appellant altered data in the New Business Report in respect of two clients. He did this to "test" the system and not to obtain any financial advantage for himself. No question of dishonesty or lack of integrity arises. However, he did so without telling anyone, he failed to restore the data to its correct form until after the alteration in respect of one of the clients had been discovered and he did not inform the senior management of his real reason when the matter first came to light. This therefore raises an issue as to his competence. (ii) In relation to the incorrect information at interview as to whether about he had been trained on the 1 st Software system, the Commission has to proceed on the basis that there was no dishonesty or lack of integrity in relation to the appellant's answers. He was therefore genuinely mistaken and had failed to remember the correct position when he told the interviewers on the first occasion that, although he had had some training on bulk letters, he had not had the stipulated training. It is for the Commission to decide whether this displays a lack of competence such that some regulatory action is required, or whether it is the sort of mistake that anyone could make and principal persons are not expected to have faultless memories. Authorities Financial Services (Jersey) Law 1998. Interface Management Ltd-v-JFSC [2003] JLR 524 . Page Last Updated: 25 Jun 2015 BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII