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W v JFSC clarifies regulator's duty to justify its decisions

Mathew Cook and Roisin Hocking, Mourant Ozannes, Counsel and trainee, Jersey, 28 April 2017

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The Jersey Financial Services Commission is obliged to give regulated people reasons for the decisions it takes about them, but in the anonymised case of W it used a public statement to do so and was in error. Its reasons can be brief and the regulator need not compare the quality of one piece of evidence with another.

This recent decision highlights the expectation that the JFSC, and other administrative bodies, give reasons for their decisions. In this case, the Court ordered the JFSC to give clarification of their reasons for a decision to issue a public statement, even if the reasons document had to be provided separately to the public statement itself. This was to allow the person affected by the decision to know why a decision has been reached and what material was relied upon.
 
A recent decision of the Master of the Royal Court of Jersey has considered the obligation of the Jersey Financial Services Commission (JFSC), and administrative bodies generally, to give reasons for their decisions. The JFSC regulates financial services business in Jersey. It has extensive powers under the Financial Services (Jersey) Law 1998 (Financial Services Law).

As well as power, in certain broadly defined circumstances, to revoke the registration of a financial services business, the JFSC has a number of other important powers, including a wide power under Article 23 to give directions and power under Article 25 to make public statements concerning businesses and individuals. As part of its investigation into the affairs of a Jersey trust company, the JFSC gave directions (under Article 23 and certain other regulatory laws) to one of its directors and owners, referred to as W, and further resolved to issue a public statement regarding him. W is appealing against the decision to issue a public statement, so the court has anonymised the proceedings. The present judgment relates to an interlocutory application by which W sought a detailed statement of findings of fact made by the JFSC, justifying the proposed public statement and specific requests for further and better particulars or for details of certain paragraphs of the proposed public statement.

The Master noted that the JFSC told W of its decision in a letter that said that the public statement contained the reasons for its decision to issue directions. Article 23(5)(a) Financial Services Law requires a notice of a direction to specify the reasons for giving directions. Each of the directions issued by the JFSC also referred to the reasons for the directions being the findings set out in the public statement. The Master also noted that Article 25A states that whenever the JFSC intends to issue a public statement that identifies any registered or formerly registered person (which would include W), it must give notice of this intention to the person concerned. The notice is also required to set out the reasons for issuing a public statement. However, neither the board minutes recording the decision to issue a public statement in respect of W, nor the letter, nor the public statement itself nor any of the affidavits filed on behalf of the JFSC contained any reasons for the decision to issue a public statement. This was a breach of Article 25A.

Looking at the matter from a more general perspective, the Master referred to De Smith's Judicial Review 7th Edition, 7-102 - 1-03, Finance and Economics Committee v Bastion Offshore Trust Company [1994] JLR 370, Interface Management Limited & Ors v JFSC [2003] JLR 524, Anchor Trust v JFSC [2005] JLR 428 and Anchor Trust v JFSC [2006] JCA 040, and drew the following conclusions.

  • There is an obligation on an administrative body to give reasons.
  • The extent of the reasoning required is to allow the person affected by the decision to know exactly why the decision maker has reached a decision and what material it relied upon when doing so.
  • The reasons can be brief; indeed brevity is to be encouraged as long as the obligation is fulfilled.
  • Reasons do not need to indicate why the material relied upon was preferred to other evidence.
  • It is particularly important for the explanation to be clear if any finding involves a conclusion about the honesty or other similar characteristic of the person about whom a decision is being made.  
  • The regulator should identify any breaches of duty or codes of practice it relies upon expressly.

A public statement is a warning only

In an administrative appeal, the Master held that he had power under the Royal Court Rules to compel a party to take the step of clarifying its reasons (or evidence, if that evidence is not understood) in order to ensure the efficient conduct of such proceedings. On the facts of this case, he held that the JFSC ought to give further reasons. Its error was to have used the public statement as the reasons for its decision.

The essence of a public statement, the Master said, is ultimately to warn individuals, whether in Jersey or elsewhere, not to deal with the subject matter of the public statement. Such statements are likely to be concise and only contain an outline or summary of the matters that have led to the necessity for a public statement. The obligation to give reasons however fulfils a different function. It is so that the person affected knows why the decision has been made and what material has been relied upon in making that decision. The more difficult the issue being considered by the JFSC, the more potential there is for tension between the simplicity required by a public statement and the level of detail into which the regulator ought to go to meet its legal obligations when giving reasons. The Master encouraged the JFSC to reflect on its current practice and whether or not it should keep separate any public statement, if it decides to issue one, from any reasons it is required to provide.

The additional reasons or facts required were to be provided by way of supplemental affidavit. The JFSC was being asked to expand upon the reasons for its decision at the time, not to formulate additional reasons or conclusions above and beyond those already reached. If the JFSC had been unable to provide any further reasons, it should have made this clear in its affidavit, saying why it was unable to do so. It would then be for the court (at the substantive hearing or upon any appeal) to evaluate the response in the affidavit.

* Mathew Cook (Counsel) can be reached on +44 1534 676 688 or at mathew.cook@mourantozannes.com; Roisin Hocking (Trainee) can be reached on +44 1534 676 113 or at roisin.hocking@mourantozannes.com

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