McKendrick v The Financial Conduct Authority

Factual and Procedural Background

The appellant was one of several defendants in a claim brought by Company A. Two worldwide freezing orders ("WFOs") were issued against the appellant, who breached them in multiple ways and admitted contempt of court. The lower court judge sentenced the appellant to six months' imprisonment for contempt. The appellant appealed, arguing the sentence was excessive. The appeal court dismissed the appeal and provided written reasons.

The underlying litigation concerned the appellant's involvement in investment schemes that caused investor losses. Company A found the appellant had violated multiple provisions of the Financial Services and Markets Act 2000, including knowingly making false and misleading statements. The appellant was ordered to pay over £14 million to Company A for investor restitution. Permission to appeal this order was refused, and the appellant declared bankruptcy.

Two WFOs were made: the first in 2013 ("the first WFO") and the second in 2018 ("the second WFO"). Both contained disclosure and asset-freezing provisions requiring the appellant to disclose all assets and bank accounts, including those not in his name. The appellant owned buy-to-let properties generating rental income, and the WFOs allowed him sufficient funds to meet mortgage and living expenses.

The first WFO was varied to limit spending from a named bank account ("the designated account") and required monthly bank statements to be provided to Company A. The second WFO incorporated these undertakings and prohibited dealing with assets up to £13.5 million, with limited exceptions for certain expenditures and required disclosure of disposals over £1,000.

The appellant provided an affidavit in April 2018 that omitted disclosure of payments received or controlled by a third party agent, identified later as his separated spouse ("the agent"). The appellant reported the designated account had been blocked from April to August 2018, limiting his access. However, he failed to provide timely bank statements and rental payments ceased to be made into the designated account from March 2018.

Company A alleged the appellant diverted rental payments to the agent's accounts and made mortgage payments from non-designated accounts, breaching both WFOs. The appellant admitted contempt but blamed these breaches on inadequate legal advice and acting without representation for a period. He claimed no further breaches would occur due to bankruptcy and receivership.

Company A applied for the appellant's committal for contempt, alleging five specific breaches related to nondisclosure, diversion of rental payments, unauthorized mortgage payments, and dissipation of assets via payments to the agent. The appellant admitted the contempts and apologized.

The lower court judge found the breaches deliberate and serious, emphasizing the importance of WFOs in protecting investor interests. The judge imposed a custodial sentence of six months after reducing a starting point of twelve months to reflect admissions and partial compliance. The appellant appealed the sentence, challenging its length, the refusal to stay execution, and the order for immediate payment of costs.

Legal Issues Presented

1. Whether the six-month custodial sentence imposed for contempt of court was excessive.
2. Whether execution of the custodial sentence should have been stayed pending appeal.
3. Whether the order requiring the appellant to pay Company A’s costs within 14 days was reasonable given the appellant’s bankruptcy.

Arguments of the Parties

Appellant's Arguments

• The starting point of twelve months’ imprisonment was too high, constituting half of the maximum two-year sentence, and thus the final six-month sentence was excessive.
• The appellant’s evidence that the designated bank account was blocked from April to August 2018 was accepted by the lower court judge by implication, mitigating the seriousness of breaches involving diversion of rental payments.
• The breaches were less serious because there was no finding that the agent dissipated funds and the sums involved were not large.
• The appellant had not persisted in lying nor committed perjury.
• The appellant admitted breaches and apologized, warranting a reduction in sentence.
• The appellant did not press grounds relating to stay of execution or costs payment due to practical considerations.

Company A's Arguments

• The starting point of twelve months was appropriate as it reflected punishment for both past breaches and potential coercion for compliance.
• The breaches were deliberate, planned, and involved diversion of funds for the appellant’s benefit, frustrating the purpose of the WFOs.
• The appellant’s failure to disclose diversion of rental payments and the flow of funds was serious, even if the sums were relatively small.
• The appellant’s admissions came late and were incomplete, limiting the credit to be given for them.
• Serious breaches of freezing orders usually merit immediate custodial sentences measured in months, often approaching the maximum two years.

Table of Precedents Cited

Court's Reasoning and Analysis

The court recognized the serious nature of breaches of worldwide freezing orders, emphasizing their critical role in preserving assets for investors. The appellant’s breaches were deliberate, repeated, and frustrated the court’s orders by diverting rental income to an agent’s accounts and spending those funds, thereby dissipating assets meant for investor restitution.

The court accepted that the designated bank account was blocked for several months, as contended by the appellant, which mitigated the seriousness of some breaches. However, the appellant’s failure to disclose the diversion of rental payments and the involvement of the agent was a further deliberate breach supporting the finding of contempt.

The court considered the appellant’s admissions and apology, which saved court time and warranted a substantial reduction in sentence. Nonetheless, the admissions were made late and not fully forthcoming, limiting the reduction to approximately one-quarter.

Applying established legal principles and precedents, the court concluded that only a custodial sentence could adequately punish the contempt. The judge’s starting point of twelve months was appropriate as a combined punishment and coercive measure, and the reduction to six months for admissions and partial compliance was within the range of reasonable sentencing decisions.

The court found no error of principle, no failure to consider relevant factors, and no decision outside the range of reasonable judicial discretion. The refusal to suspend the sentence was justified given the seriousness and deliberateness of the breaches. The court also saw no merit in the appellant’s other grounds of appeal.

Holding and Implications

The court DISMISSED THE APPEAL, upholding the six-month custodial sentence for contempt of court.

The appellant is ordered to pay Company A’s costs of the appeal, summarily assessed at £4,375. The decision confirms the serious consequences of deliberate breaches of freezing orders and underscores the courts’ firm approach to enforcing such orders to protect investor interests. No new legal precedent was established; the ruling applies existing principles to the facts presented.