Henton revised v Financial Services Authority, Court of Appeal - United Kingdom Financial Services and Markets Tribunals, November 09, 2007, [2007] UKFSM FSM049

Resolution Date:November 09, 2007
Issuing Organization:United Kingdom Financial Services and Markets Tribunals
Actores:Henton revised v Financial Services Authority
 
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PROHIBITION ORDER - whether Applicant fit and proper to perform functions in relation to all regulated activities carried on by authorised persons generally no in respect of all currently regulated activities Financial Services and Markets Act 2000 s 56 THE FINANCIAL SERVICES AND MARKETS TRIBUNAL CHRISTOPHER REGINALD COLIN HENTON Applicant - and - THE FINANCIAL SERVICES AUTHORITY Respondents Tribunal: DR A N BRICE (Chairman) MR C A CHAPMAN MR N W DOUCH Sitting in public in London on 24 and 25 September 2007 The Applicant in person Dan Enraght-Moony, of the Financial Services Authority, for the Authority © CROWN COPYRIGHT 2007 FINAL DECISION The reference

1. On 18 October 2006 the Financial Services Authority (the Authority) issued a Decision Notice stating that they had decided to make an order prohibiting Mr Christopher Reginald Colin Henton (the Applicant) from performing any function in relation to any regulated activity carried on by an authorised or exempt person or exempt professional firm. The Decision Notice was issued because it appeared to the Authority that the Applicant was not a fit and proper person to perform any such function. The Applicant referred that Decision Notice to the Tribunal.

2. On 20 April 2007 the Tribunal heard a preliminary issue in this reference. That issue was whether the Authority were entitled to rely upon the findings of the High Court in Sphere Drake Insurance Limited and Another v Euro International Limited and Others [2003] EWHC 1636 (Comm) where findings had been made about the honesty of the Applicant. On 14 May 2007 the Preliminary Decision of the Tribunal was released. The Tribunal concluded that the Authority was entitled to put before the Tribunal the findings of the High Court in Sphere Drake as evidence of the Applicant's lack of fitness and propriety; however, the Tribunal stated that it would also consider any other relevant evidence, and any other relevant argument, which either party wished to put before it and would then reach its own decision as to whether the Applicant was a fit and proper person. The legislation

3. The Decision Notice was given under the provisions of section 56 of the Financial Services and Markets Act 2000 (the 2000 Act) the relevant parts of which provide: "(1) Subsection (2) applies if it appears to the Authority that an individual is not a fit and proper person to perform functions in relation to a regulated activity carried on by an authorised person. (2) The Authority may make an order ("a prohibition order") prohibiting the individual from performing a specified function falling within a specified description or any function. (3) A prohibition order may relate to- (a) a specified regulated activity, any regulated activity falling within a specified description, or all regulated activities; (b) authorised persons generally or any person within a specified class of authorised person. (4) An individual who performs or agrees to perform a function in breach of a prohibition order is guilty of an offence ... ."

4. Section 157 of the 2000 Act provides that the Authority may give guidance consisting of such information and advice as it considers appropriate with respect to a number of matters. The Authority has published guidance in the FSA Handbook with the relevant provisions being denoted by the letter G. Section FIT 1.3.1G of the Handbook states that the Authority will have regard to a number of factors when assessing the fitness and propriety of a person to perform a particular controlled function. The most important consideration will be that person's honesty, integrity and reputation; competence and capability; and financial soundness. FIT 2.1.1G states that, in determining a person's honesty, integrity and reputation the Authority will have regard to a number of matters including whether the person has been the subject of any adverse finding in civil proceedings, particularly in connection with financial business, misconduct or fraud. The issue

5. The issue we had to determine was whether the Applicant was a fit and proper person to perform functions in relation to all regulated activities carried on by authorised persons generally. The evidence

6. A joint bundle of documents was produced at the hearing. Oral evidence was given by the Applicant on his own behalf. The facts

7. From the evidence before us we find the following facts. The Applicant

8. The Applicant was born in 1965. He left school at eighteen after taking his A level examinations. He then joined Alexander Howden, insurance brokers, where he worked in the tax department and later in the accounts department. 1986 Syndicate 103

9. When he was twenty-one the Applicant joined Lloyd's Syndicate 103 where he was an underwriting assistant to a deputy underwriter who later became an underwriter. Syndicate 103 had been formed in 1948 and was classified as an aviation syndicate; it also wrote personal accident insurance. The deputy underwriter started writing a London Market Reinsurance account for the syndicate and much of the work came from a firm of brokers where Mr Jeffrey Ronald Butler and Mr Nicholas Brown worked.

10. By the time that he was twenty-five the Applicant had been appointed deputy underwriter at Syndicate 103. Mr Brown and Mr Butler had left their previous firm and gone to Stirling Cooke where they set up the firms of Stirling Cooke Brown Reinsurance Brokers Limited and Stirling Cooke Brown Insurance Brokers Limited, both called SCB. SCB developed the reinsurance of United States workers' compensation business and placed it into various entities. Syndicate 103 was a supporter of that business.

11. While the Applicant was with Syndicate 103 he met Mr John Hubert Whitcombe. Mr Whitcombe was a Name at Lloyd's and was an underwriter in his own syndicate. For about a year the Applicant and Mr Whitcombe shared a box at Lloyd's and got to know each other well. Mr Whitcombe was more senior than the Applicant who thought that he was about fifty-four years of age in 1996 when the Applicant was thirty-one years old. Mid-1990s City Run-Off

12. In the mid-1990s Syndicate 103 went into run-off and the Applicant then worked for a firm called City Run-Off. In about 1996 Mr Whitcombe approached the Applicant and asked the Applicant if he would like to join him. The Applicant decided to leave City Run-Off and to join Mr Whitcombe. Later Mr Whitcombe formed a company called Euro International Underwriting Limited (EIU) for whom the Applicant worked as an underwriter. In November 1996 the Applicant assisted Mr Whitcombe in preparing a business plan to present to Sphere Drake Insurance Limited (Sphere Drake). The business plan was intended to describe the type of business which could be written by EIU on behalf of Sphere Drake. The intention was that the Applicant, through EIU and on behalf of Sphere Drake, would write business which was the reinsurance of workers' compensation business and that the business would be offered by SCB.

13. In January 1997 Mr Victor Broad, a director of Sphere Drake, granted a binding authority to Mr Whitcombe. The binding authority was later transferred to EIU. The business accepted on behalf of Sphere Drake under the binding authority was written by the Applicant. The Applicant became a director of EIU in February

1997. The work done by the Applicant through EIU in 1997 and 1998 later formed part of the claim brought against him and others by Sphere Drake. Sphere Drake

14. The judgment in Sphere Drake was given on 8 July 2003 after a trial which had begun in February 2002. Sphere Drake claimed damages against EIU, Mr Whitcombe, the Applicant, SCB, Mr Brown and Mr Butler. The Applicant appeared in person (with some very limited legal assistance). Part I of the judgment of Thomas J is long and comprehensive and runs to 1873 paragraphs with an Appendix of 32 paragraphs.

15. In summarising the relevant parts of the judgment we first give an overview. We then describe in a little more detail the four main findings of Thomas J relied upon by the Authority, namely the findings concerning the initial business plan, the business written by the Applicant, the underwriting reports submitted to Sphere Drake, and the stop loss reinsurances. We then summarise the main conclusions of Thomas J. Overview - introduction

16. Paragraphs 1 to 34 of the judgment summarise its contents and state that the defendants in the action were involved in the operation of a reinsurance market which traded in losses generated by United States Workers' Compensation (WC) business. The overall sum claimed in the action was in excess of $250m. Overview the nature of the business

17. The nature of the reinsurance business carried on was summarised at paragraph 7 of the judgment which stated that in the 1980s a small group of underwriters in London became involved in the business of providing the reinsurance of workers' compensation insurance business in the United States. One of the ways in which this operated was that the greater part (90%) of a standard workers' compensation policy would be reinsured after a certain part had been carved out; the part carved out was reinsured separately. The 90% part was called "WC carveout". Paragraph 7 continued: "(v) Some of those that provided reinsurance of WC carveout did so at a premium which was far less than what they knew they would have to pay out by way of claims; they were therefore deliberately writing reinsurance under which they knew and intended would make a gross loss; this was wholly different from conventional reinsurance and was not done for ordinary competitive market reasons such as for writing loss leading business. (vi) They did so only on the basis that they had outwards reinsurance by way of retrocession at a price which enabled them (1) to pay a small...

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