Tribunal orders FSA to pay costs of successful applicants in market abuse ruling

Joanna Gray, Newcastle University

Background to this costs ruling

On 16 May this year the Financial Services and Markets Tribunal had, in a long and legally and factually complex decision, ruled that, contrary to FSA’s assertions made in the course of enforcement action it had taken, Mr Paul Davidson and Mr Ashley Tatham had not engaged in market abuse in contravention of s118 FSMA 2000. Mr Davidson was a majority shareholder in Cyprotex plc a company admitted to the Alternative Investment Market by way of a placing in its shares in 2002 and Mr Tatham was an executive director of City Index Ltd, a spread-betting firm who operated an account for Mr Davidson. FSA had alleged that spread-betting activity which took place on Mr Davidson’s account prior to the placing of Cyprotex shares was part of a scheme of arrangement designed to mislead the market as to the completeness of the placing and was thus markets abuse as well as in contravention of FSA Principles for Business applicable to approved persons (Mr Tatham was also an approved person under Part V FSMA 2000). However the Tribunal took a different view for reasons explained in a note on that ruling in July 2006 FRI and the applicant’s challenge to FSA’s action against them succeeded. This left the issue of who should bear the considerable costs of that earlier challenge to FSA’s enforcement action to be resolved. Those costs were considerable and the issue of costs for individual parties who wish to challenge FSA enforcement action continues to attract wider interest and comment. For there are competing issues of procedural fairness, natural justice and the incentive effects of an inappropriate costs regime on both the industry’s willingness and ability to challenge what it sees as unfair and arbitrary enforcement action by FSA, and, on the other hand, the FSA’s ability to take decisions and to act in the course of the furtherance of its statutory objectives in good faith and without undue impediment or hindrance. For such reasons this ruling was widely seen within both industry and regulatory circles as a particularly significant one.