Introduction

The case of The Financial Conduct Authority v. McKendrick ([2019] EWHC 607 (Ch)) is a landmark decision delivered by the England and Wales High Court (Chancery Division) on March 1, 2019. This case revolves around Mr. McKendrick, the Tenth Defendant, who faced contempt of court proceedings initiated by the Financial Conduct Authority (FCA). The crux of the matter pertains to alleged breaches of nationwide freezing orders (WFOs) imposed to safeguard investor assets amidst Mr. McKendrick's involvement in fraudulent investment schemes.

The key issues in this case include non-disclosure of assets, diversion of rental payments, and unauthorized expenditure of funds, all in contravention of the WFOs. The proceedings further complicated Mr. McKendrick’s financial standing, leading to his bankruptcy.

Summary of the Judgment

The High Court found Mr. McKendrick in contempt of court for five specific breaches of both the Roth WFO and the McCahill WFO. These breaches included failure to disclose assets, diversion of rental income, unauthorized mortgage payments, and the disposal or diminishment of asset value. The court meticulously verified that all procedural requirements for the committal application were satisfied, including proper service of orders and adherence to the criminal standard of proof.

In sentencing, the court imposed a custodial sentence of six months' imprisonment, reduced from an initial consideration of twelve months. This reduction was influenced by Mr. McKendrick's admission of contempt, sincere apology, and genuine attempts to comply with the ongoing WFO. The decision underscores the court's commitment to upholding the authority of its orders and deterring non-compliance.

Analysis

Precedents Cited

The judgment references several pivotal cases that shape the legal framework for contempt proceedings:

• FW Farnsworth v. Lacy [2013] EWHC 3487 (Ch): Established the burden of proof and the criminal standard required to establish contempt.
• R v. Montgomery [1995] 2 Cr App R 23: Discussed the circumstances under which custodial sentences are appropriate in contempt cases.
• International Sports Tours v. Shorey [2015] EWHC 2040 (QB): Emphasized the seriousness of deliberate contemptuous actions and the circumstances warranting custodial sentences.
• Commissioners for Her Majesty's Revenue and Customs v. Munir [2015] EWHC 366 (Ch): Highlighted that contempt serves to uphold the rule of law and the court's authority rather than addressing wrongs between parties.
• Official Receiver v. Brown [2017] EWHC 2762 (Ch): Addressed the application of section 258 of the Criminal Justice Act 2003 regarding unconditional release after serving half a custodial sentence.

Legal Reasoning

The court's reasoning was meticulous, ensuring that both procedural and substantive requirements for establishing contempt were thoroughly met:

• Procedural Compliance: The court confirmed that all procedural elements, such as the inclusion of a prominent penal notice in the application and proper service of orders, were satisfied.
• Substantive Proof: Drawing on the principles from FW Farnsworth v. Lacy, the court held that the FCA must prove contempt beyond a reasonable doubt. Mr. McKendrick's admission of the breaches significantly bolstered the FCA's case.
• Sentencing Considerations: The court balanced the need for deterrence and respect for court orders with mitigating factors such as the defendant's admission, apology, and efforts to comply with the ongoing WFO.

The judgment emphasizes that breaches of WFOs are deliberate and planned, especially given Mr. McKendrick's actions to divert funds and obscure asset disclosures despite the serious nature of the orders.

Impact

This judgment has significant implications for future contempt proceedings:

• Reinforcement of WFOs: The decision underscores the gravity of violating nationwide freezing orders and the court’s unwavering stance against such breaches.
• Standard for Committal Orders: By adhering strictly to the criminal standard of proof and procedural requirements, the case sets a clear precedent for the threshold required to commit individuals for contempt.
• Sentencing Framework: The balanced approach in sentencing, considering both punitive measures and mitigating factors, provides a nuanced framework for future cases.
• Deterrence: The custodial sentence serves as a deterrent against non-compliance with court orders, reinforcing the authority of the judiciary.

Complex Concepts Simplified

Contempt of Court

Contempt of court refers to actions that disrespect the court's authority or hinder the administration of justice. This can include disobeying court orders, such as WFOs, or behaving disruptively in court proceedings.

Worldwide Freezing Order (WFO)

A worldwide freezing order is a court order that restricts a defendant from disposing of or dealing with their assets worldwide. Its primary purpose is to preserve assets to satisfy potential future judgments or creditors.

Committal Application under CPR Part 8

Under the Civil Procedure Rules (CPR) Part 8, a committal application is a legal mechanism through which a claimant can apply to the court to commit an individual for contempt, particularly when seeking to enforce court orders.

Conclusion

The judgment in FCA v. McKendrick serves as a pivotal affirmation of the judiciary's commitment to upholding court orders and deterring non-compliance through stringent penalties. By meticulously adhering to procedural and substantive legal standards, the court reinforced the paramount importance of respecting judicial authority and the rule of law.

This case not only clarifies the thresholds and standards required for committal orders in contempt proceedings but also provides a balanced approach to sentencing that accounts for both the gravity of the contemptuous actions and the defendant's mitigating factors. Consequently, the decision has far-reaching implications for the enforcement of court orders and the administration of justice, ensuring that similar future breaches are promptly and effectively addressed.