A View From The Exchange: Pleading the Alternative

On 24 May 2024 the FCA published its Decision Notices against two individuals, Burdett and Goodchild, for acting without integrity in relation to pensions business. The individuals referred their cases to the Upper Tribunal for an independent hearing and, prior to publication of the Decision Notices, tried unsuccessfully to obtain privacy orders. The Upper Tribunal's recent judgment on the privacy application also addresses the FCA's application to amend its Statement of Case against both individuals to plead its case in the alternative – to allege that they lacked due skill, care and diligence, if they are not found to lack integrity.

The extent of the FCA's freedom to change its pleaded case at the Upper Tribunal stage is already the subject of the BlueCrest case, in which the Upper Tribunal refused to allow the regulator to change its case from alleging a breach of Principle 8 (conflicts of interest) of the Principles for Businesses to Principle 7 (communications with customers) along with a breach of the FCA's conduct of business rules, on the basis that the new allegations were not of the same nature as those contained in the statutory notices. The FCA's appeal of the BlueCrest decision will be heard in the Court of Appeal next month.

A different approach

The regulator's attempt to insert an alternative pleading is new, and plainly a reaction to recent adverse decisions in the Upper Tribunal. Traditionally, FCA Enforcement has characterised misconduct as either integrity or negligence, not both. Following last year's Seiler & Whitestone case, as well as Forsyth and Markou, the FCA is now seeking to rely on a lower level of wrongdoing as a backup if it is unsuccessful in proving a lack of integrity by the defendant.  

In light of BlueCrest, it is not surprising that the Upper Tribunal did not allow the FCA to change its pleading in the Goodchild case. The judge quoted the Markou decision: "The starting point should be that if the Authority wishes to pursue an alternative or lesser case it should plead this from the outset of enforcement proceedings before the RDC and then the Tribunal itself."

Drafting pains

So if the FCA loses the BlueCrest appeal - will we start to see the authority plead in the alternative at a much earlier stage? 

Pleading both a lack of integrity and competence from the outset would create serious logistical challenges for FCA Enforcement, increasing the drafting and reviewing time and augment the (already substantial) length of Warning and Decision Notices.  

Plus, it would create strategic and procedural issues for the regulator: would drafting an alternative pleading not dilute the FCA's case? How would this work with settlement? Would the FCA have to remove the alternative pleading before publication?

The FCA has some challenges ahead, and a lot hangs on the outcome of the BlueCrest appeal.