The Financial Conduct Authority v McKendrick

Factual and Procedural Background

The Financial Conduct Authority ("FCA") commenced a claim under CPR Part 8 seeking to commit the Tenth Defendant for contempt of court arising from earlier Chancery Division proceedings concerning investment schemes involving the Defendant. Judgment was rendered ordering the Defendant to pay a substantial sum to the FCA for distribution to investors, reflecting their losses. Following a refused appeal and the Defendant's bankruptcy, his assets vested in a trustee in bankruptcy. Two successive worldwide freezing orders ("WFOs") were made: the first in 2013 ("Roth WFO") and the second post-trial in 2018 ("McCahill WFO"), with the latter continuing in force. The contempt application alleges breaches of both WFOs by the Defendant.

Legal Issues Presented

1. Whether the Defendant is in contempt of court by breaching the Roth and McCahill worldwide freezing orders.
2. Whether the procedural requirements for committal for contempt have been satisfied.
3. The appropriate penalty for the Defendant's admitted contempts.
4. Whether the McCahill worldwide freezing order should be discharged.

Arguments of the Parties

Appellant's Arguments

• The FCA alleges five specific breaches of the Roth and McCahill WFOs, including failure to disclose assets, diversion of rental payments, and improper expenditure of funds.
• The FCA contends that these breaches were deliberate and serious, warranting a custodial sentence.
• The FCA initially proposed a suspended custodial sentence conditional on strict compliance with information provision requirements, but the court expressed reservations about this approach.
• The FCA challenges the adequacy of the Defendant’s compliance with the McCahill WFO, asserting incomplete disclosure.

Defendant's Arguments

• The Defendant, through counsel, suggested that discharging the McCahill WFO might be appropriate but did not press this application.
• The Defendant admitted the alleged contempts, thereby shortening the hearing and accepting responsibility.
• The Defendant provided a recent affidavit and supporting documents attempting to comply with the McCahill WFO’s information requirements.
• Counsel emphasized that the Defendant’s evidence was solely for mitigation and that no new contempts should be introduced beyond those alleged.
• The Defendant contended that the complexity of the proceedings made compliance more difficult, though the court did not accept this as mitigating the deliberate breaches.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
FW Farnsworth v. Lacy [2013] EWHC 3487 (Ch)	Standards for establishing contempt: burden of proof beyond reasonable doubt; elements of breach including notice, act or omission, intention, and knowledge; requirement of unambiguous order.	Guided the court’s assessment of whether the Defendant’s breaches constituted contempt; court found all elements satisfied, aided by Defendant’s admission.
Commissioners for Her Majesty's Revenue and Customs v. Munir [2015] EWHC 366 (Ch)	Nature of contempt as an affront to the rule of law and public interest in obedience to court orders.	Supported the court’s rationale that contempt jurisdiction serves to uphold court authority and deter breaches.
R v. Montgomery [1995] 2 Cr App R 23	Custodial sentence is appropriate for interference with the administration of justice unless circumstances are wholly exceptional.	Informed the court’s starting point that a custodial sentence was justified given the deliberate breaches.
International Sports Tours v. Shorey [2015] EWHC 2040 (QB)	Severity of contempt involving knowingly false evidence; custody threshold considerations.	Used to illustrate seriousness of deliberate contempt and to justify custodial sentence.
Official Receiver v. Brown [2017] EWHC 2762 (Ch)	Requirement to inform contemnor of entitlement to unconditional release after serving half sentence under Criminal Justice Act 2003.	Court complied with this procedural requirement in its sentencing.
Hale v Tanner [2000] EWCA Civ 5570	General principles of contempt sentencing.	Considered but found not to add materially to the court’s exposition of law.

Court's Reasoning and Analysis

The court carefully examined the procedural and substantive requirements for committal for contempt, confirming that all formal prerequisites were met, including service of orders with penal notices and personal service of the application. The court applied established legal principles from relevant case law, notably FW Farnsworth v. Lacy, to determine that the Defendant’s breaches were deliberate, well-founded, and proven beyond reasonable doubt. The Defendant’s admission of contempt obviated the need for extensive evidence on breach, though mitigation evidence was heard.

The court rejected the notion that the Defendant’s bankruptcy constituted a material change warranting discharge of the McCahill WFO, emphasizing the ongoing importance of the order. It found the breaches serious and planned, involving failure to disclose assets and improper diversion and use of funds, thereby frustrating the court’s asset preservation aims for investors’ benefit.

Regarding mitigation, the court acknowledged the Defendant’s acceptance of guilt, apology, and recent attempts at compliance with information obligations, though it noted some documents were missing and compliance was late. The court concluded that no further coercive sentence was necessary to secure compliance but emphasized the need for deterrence given the deliberate breaches. It balanced these factors in sentencing, halving an initial 12-month custodial sentence to six months due to mitigation.

The court considered but ultimately rejected suspending the sentence, reasoning that the serious and deliberate nature of the breaches and the ongoing flouting of the McCahill WFO warranted an immediate custodial sentence. The Defendant was informed of entitlement to unconditional release after serving half the sentence under statutory provisions.

Holding and Implications

The court ordered the Defendant to be committed to custody for six months for contempt of court arising from deliberate breaches of the Roth and McCahill worldwide freezing orders.

The sentence was reduced from an initial 12 months to six months due to the Defendant’s admission of guilt, apology, and genuine attempt to comply with information requirements. The sentence was ordered to be served immediately and unsuspended, reflecting the seriousness of the breaches and the importance of upholding court orders in asset preservation cases.

The Defendant will be entitled to unconditional release after serving half the sentence pursuant to section 258 of the Criminal Justice Act 2003. No broader legal precedent was established beyond the application of existing principles to the facts of this case.