The Financial Services Authority (FSA) v Sinaloa Gold plc & Ors

Factual and Procedural Background

The Authority commenced proceedings on 20 December 2010 against three Defendants alleged to be breaching provisions of the Financial Services and Markets Act 2000 (“FSMA”). Before doing so, it obtained, without notice, a freezing injunction on 17 December 2010 under FSMA s.380(3) and/or the Senior Courts Act 1981 s.37(1). The injunction covered six bank accounts held at Company A, where one of the Defendants was the sole signatory.

When the order was first made, the schedule of undertakings stated that the Authority “does not offer a cross-undertaking in damages” but also contained wording that appeared, in effect, to give an undertaking to compensate third parties for loss. At a hearing on notice on 31 December 2010, the Authority was required to add clarificatory words to resolve the inconsistency, reserving its right to apply to vary the provision.

On 12 January 2011 the Authority applied to remove the italicised words that extended the undertaking to third-party losses. Company A intervened and, before Judge [Hodge], the application was refused. The Court of Appeal later reversed that decision, limiting the undertaking to third-party costs only. Company A obtained permission to appeal to the Supreme Court, contending that an undertaking for third-party losses should be required as a condition of the injunction.

Legal Issues Presented

1. Whether a public regulator acting pursuant to statutory powers must ordinarily give a cross-undertaking in damages when seeking a freezing injunction.
2. If not, whether a different approach should apply where the undertaking is sought for the benefit of innocent third parties rather than Defendants.
3. Whether there is a principled distinction between undertakings limited to third-party costs and those extending to third-party losses.

Arguments of the Parties

Appellant (Company A)

• Hoffmann-La Roche and later cases were said to be distinguishable because they concerned enforcement of apparently valid legislation where the sole defence challenged legislative validity; the present case did not fit that paradigm.
• Requiring an undertaking encourages regulators to exercise greater care before seeking drastic interim relief.
• There is no coherent basis for distinguishing between undertakings for costs (accepted by the Authority) and undertakings for wider losses.

Respondent (The Authority)

• Public law enforcement actions are different from private disputes; imposing open-ended financial risk could deter the Authority from fulfilling its statutory duty to protect markets and consumers.
• FSMA already confers an express statutory immunity from damages, reinforcing the impropriety of an implied indemnity via a cross-undertaking.
• The Authority accepted a limited undertaking for specific third-party costs as a pragmatic concession but resisted broader liability for losses.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by distinguishing private litigation from public law enforcement. In private cases, a claimant acts for personal benefit and therefore is ordinarily required to “back the risk” by giving a cross-undertaking. A regulator, by contrast, acts pursuant to a statutory duty and with finite public resources; imposing open-ended financial exposure could inhibit the performance of that duty.

Precedent confirmed that in “law-enforcement actions” the court has a discretion and should not “as a matter of course” require such undertakings. The Authority’s statutory immunity from damages, while not directly barring an undertaking (which is enforceable only through the court’s equitable jurisdiction), reinforced the legislative expectation that the regulator should not routinely face financial liability to third parties.

The Court rejected the Appellant’s attempt to confine Hoffmann-La Roche to cases challenging the validity of legislation. The real dividing line is between private interest litigation and public interest enforcement, not the nature of the defence raised. Further, protecting an “innocent” third party is conceptually similar to protecting a Defendant; both entail exposing public funds to compensate for losses caused by interlocutory relief that subsequently proves unnecessary. The Court found no adequate justification for extending the regulator’s liability beyond specific compliance costs, which the Authority had already agreed to cover.

Finally, the Court observed that the same starting point—no undertaking—applies at both without-notice and on-notice stages. Affected parties can apply to vary the order if concrete evidence of disproportionate loss emerges.

Holding and Implications

APPEAL DISMISSED.

The Authority is not required to provide a cross-undertaking in damages to third parties as a condition of maintaining the freezing injunction. The undertaking remains limited to reasonable third-party costs incurred in complying with the order.

Implications: Public regulators seeking freezing injunctions under FSMA or similar statutes will ordinarily not be compelled to expose public funds to open-ended liability for third-party losses. The decision confirms and clarifies the discretionary framework derived from Hoffmann-La Roche, thereby providing guidance for future applications involving regulatory agencies. No new precedent is set; rather, existing authority is reaffirmed.