____________________________________________________________

IN THE GUERNSEY FINANCIAL SERVICES TRIBUNAL

14 May 2004

Before

Michael Blair QC, President

Mrs Carol Goodwin

Mr David Farrimond

BETWEEN

Z Limited

Applicant

-v-

The Guernsey Financial Services Commission

Respondent

Advocate Peter Ferbrache appeared for the Applicant

Advocate Richard McMahon appeared for the Respondent

Heard at Les Cotils, St Peter Port on 6^th May 2004

DECISION

This application was made by the Applicant, a company incorporated in Guernsey, that has applied to have a full fiduciary licence to act as a fiduciary under the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law 2000 (“the Law”). The Guernsey Financial Services Commission, the Respondent, has served on the Applicant a formal letter, at the level of its officers, indicating that the officers are not prepared to grant the licence applied for. That letter also stated that the Applicant has the opportunity of having the matter tested before this Tribunal before any final decision is taken by the Commissioners.

Before deciding whether to pursue the suggested option of going to the Tribunal, the Applicant wished to know whether it would be the case that its application to the Tribunal would be heard in public or in private. The President of the Tribunal accordingly decided that, if the Applicant applied for this limited purpose, and the parties were to produce sufficient of the documents in the case to enable the point to be considered, there would be a hearing at which the issue could be argued before and determined by the Tribunal.

We accordingly sat in St Peter Port on 6^th May to deal with this application. The Tribunal is very grateful to the parties for the quality of the advocacy on that day and for the help which was accorded to the Tribunal in dealing with this somewhat unusual situation. We indicated at the time what our view on the application was; and that a full decision would be prepared for publication, on the website of the Tribunal, which is expected to be in working order very shortly.

This was because the application, and the argument surrounding it, may be of some public interest. They raise an important set of points about the present status of this Tribunal, and the basis on which it presently exercises the functions that have been conferred upon it. These points may be of interest to other applicants and potential applicants in a position similar to that of Z Limited in this case as long as the Tribunal continues to operate on its present informal basis .

It is not without interest, in this context, that the issue of public or private sittings appears to have arisen recently in the Royal Court of Guernsey and indeed in the Royal Court of Jersey. The Guernsey case, which is as recent as 22 April 2004, is IFS Investments Ltd v Manor Park (Guernsey) Ltd and Others. The Jersey case is G v A [2000] JLR 56. We found those cases to be of relevance mainly to the second part of this judgement

The Guernsey Financial Services Tribunal currently has no statutory foundation as such. In some of the correspondence, indeed, it is described as a “Shadow Tribunal”. This is, no doubt, because it is expected that in due course there will be some kind of statutory basis for it. We observe in this context that, without such a statutory basis, it would not be possible for the Tribunal to be held up as an “independent tribunal established by law” for the purposes of Article 6 of the European Convention on Human Rights. The Tribunal understands that the States of Guernsey (and the other relevant legislatures in the Bailiwick) have passed or approved legislation to enable that Convention to have the force of law internally within the Bailiwick, but that it has not so far been brought into force. We were informed that it is now hoped that the Human Rights legislation may be brought into effect in the Bailiwick by the end of 2004.

We have therefore to determine this application in the absence of any real statutory underpinning for the Tribunal, though we observe that the Guernsey legislature appears to have taken one somewhat indefinite and, indeed, indistinct step towards creating some kind of statutory basis for the Tribunal’s functions. This is because of a small amendment made in 2002 to the parent legislation for the Respondent. This appears to have had the purpose, or at least the effect, of enabling the Respondent to provide confidential information to the Tribunal without the consent of all concerned and without committing a criminal offence. This was achieved by section 1(p)(i) of the Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law 2002, which removed the word “statutory” from section 21(2)(a) of the Financial Services Commission (Bailiwick of Guernsey) Law 1987. The effect of this, it appears to us, is that it is not now necessary for the Commission to point to a statutory function in order to disclose confidential information under that paragraph, since a non-statutory function, provided that it be a function, is enough. That appears to be of some relevance to the ability of the Commission to provide confidential information to a non statutory body set up by it, as in the case of the Tribunal.

That said, however, there is no statutory provision enabling the Tribunal itself to do anything at all. Before us, therefore, it was necessary for both parties, in order to deal with the point about public or private sitting, to examine in some depth the legal basis (or arguably the lack of it) on which the Tribunal proceeds.

Mr Ferbrache, for the Applicant, respectfully but firmly submitted that the Tribunal was not a Tribunal at all, but was merely an adviser to the Commission, and one which happened to have taken it upon itself to proceed in a particular way. This gave it no power to proceed in any way other than as the Commission itself would have been obliged to proceed. Since the Commission deliberated in private, and was surrounded by statutory provisions on confidentiality requiring it to do so, the Tribunal was equally obliged to preserve the confidentiality of the deliberative process before the Commission, of which the Tribunal was an informal part. There was accordingly some doubt as to whether the Tribunal had been well advised to sit in public in the two previous cases that had been reported as having been determined by it.

Mr McMahon, for the Respondent, accepted the first part of those submissions, but suggested that they should not be taken too far. In particular, in his view, the Commission was not itself prevented from sitting in public as long as the confidentiality constraints could be overcome. Further, it was the Tribunal’s practice to ensure, in cooperation with the parties, that persons not directly involved in the proceedings were not identified, but were assigned a number or letter for identification purposes. So far as the applicants were concerned, they would be identified if there were a public hearing, but it could be said that they had sought to avail themselves of the Tribunal stage in the knowledge that the Tribunal’s preferred practice was to sit in public, but subject to the case law on the point that had been developed elsewhere. He emphasised that it was important from the point of view of the administration of justice that the Tribunal should have power to sit in public, albeit on this somewhat unusual basis, because of the public interest in securing that decision making is dealt with in the open, and in a visibly impartial and independent way.

In our view, the common ground that developed between the Advocates on this point is indeed the true position. The Tribunal was established by the Commission, but is not in any sense part of it. It was set up, on what appears to be an interim basis pending legislation that has not yet been proposed, to be an independent and impartial Tribunal.

Because of the absence of any statutory basis, it was necessary that the Tribunal phase should be interposed between the provisional decision of the Commission and the final decision. Had the final decision been taken before the Tribunal itself was able to look at the case, this (though normal in other jurisdictions with the benefit of statute) would have two defects. First, the Tribunal phase would have collided with the possibility of an appeal to the Courts under section 19 of the Law. But secondly, and more importantly, there would have been nothing for the Tribunal to consider, since the Commission would have taken a decision, and would not have been able to respond to any findings from the Tribunal as to whether that decision was to be followed or not. But the fact that the order of decision making is that way round, for the present at least, does not mean that the Tribunal is not independent and impartial.

The “jurisdiction” of the Tribunal depends to some extent on the consent of the applicants who come before it. Unless they engage that jurisdiction, nothing can happen. If they do engage the jurisdiction, we are of the view that the Tribunal is then free to operate, in accordance with its own settled practice, as long as it does not thereby breach any applicable law, and as long as it does not seek to do anything which it lacks the power to do. This means that the Tribunal is free to establish its own practice, as long as it accepts those two conditions.

We turn therefore to the practice of the Tribunal. It has already been established in two previous reported cases, though that practice was not forged on the anvil of adversarial proceedings of the kind we now have, helpfully, in the present case. Nothing in the submissions on this aspect of this case suggests that we should abandon any of the practice that has been developed, nor revise anything in the Tribunal’s “Note on the Workings of the Tribunal”.

The Tribunal was established, by the Commission, in order to be a kind of proxy for a Court. The Note just referred to, and the practice in the two cases, both show that the Tribunal seeks to and in fact does operate as a Court does, with all that that implies, as far as it is able to. It is, of course, not able to impose any civil requirements on parties before it. There can for instance be no swearing of witnesses, no orders for costs and no application of the law of contempt of court. This is because the inherent status of the Tribunal is one depending in the last instance upon consent. That consent is required to proceed appears very starkly in this case, because the applicant company, Z Limited, has made it plain in the correspondence that it may not proceed with the Tribunal proceedings if it is not able to ensure that the proceedings are heard in private. It has therefore reserved its right not to continue with the Tribunal until it knows what the rules of engagement are going to be. In so doing, it has behaved perfectly properly, and has been fortunate to receive good legal advice.

The Tribunal’s Note, and the practice, adopts as far as possible the current position arrived at in the United Kingdom analogue to the Tribunal, which is the Financial Services and Markets Tribunal. That tribunal has a statutory basis, and is bound by rules of procedure which indicate a preference for a public hearing, unless satisfied on certain specific grounds that all or part of a hearing should be in private. The language of the statutory rule follows in many respects the language of Article 6 of the European Convention on Human Rights. Effectively, in our context, there has to be a balancing of unfairness to the applicant (or prejudice to the interests of consumers) against prejudice to the interests of justice. The working of that rule was exhaustively considered by that tribunal in 2002 in the unreported case of Eurolife Assurance Co Ltd v. Financial Services Authority.

The Tribunal has in the past indicated an intention, as a matter of practice, to follow that case, and it may be helpful to indicate the main reasons why we consider, after full argument on the point, that that practice should be adhered to.

First, we consider that, as Mr McMahon put it in argument, public perception is an important part of the necessary elements of impartiality and independence. A strong preference for sitting in public seems to us to be the best way to ensure that impartiality and independence, even for a Tribunal based on a footing of “voluntary” consent. It is, indeed particularly important in that case, so as to ensure that public scrutiny enables the separate status of the Tribunal from the Commission to be fully apparent.

Secondly, we consider that the Eurolife case is (irrespective of the fact that it was construing a specific UK rule) in line with the wider authorities on public and private sittings in courts of law, including the Channel Island authorities mentioned above.

Thirdly, we anticipate that the European Convention on Human Rights may shortly become part of the internal law of the Bailiwick of Guernsey, and, further, that the Tribunal may in that context acquire some statutory underpinning. It would therefore be sensible to proceed now on the basis that seems likely to be required once that stage is reached.

Fourthly, we have had to consider whether there would be unfairness to the applicant company if we were to apply Eurolife, and as a result potentially force them to proceed without the advantage of the independent and impartial rehearing which the Tribunal provides, with its prospect that the Commission’s decision to refuse a licence might never be made. The alternative, it seems to us, for Z Limited would be to ignore the Tribunal’s existence, to allow the Commission to reject the application for a licence, and to appeal that decision to the Royal Court under section 19 of the Law. Although limited to an appeal which alleges that the Commission’s decision "was ultra vires or was an unreasonable exercise of the Commission's powers”, we accept the submission put to us in argument that the appeal could be quite wide ranging, in view of the way in which the statutory jurisdiction of the Commission is framed in, among other places, Schedule 1 to the Law. The Royal Court in all probability would sit in public unless an application to sit in private were acceded to. The Royal Court would have power to award costs, which could be an advantage to the successful, and a disadvantage to the unsuccessful, before the Royal Court, when compared to the Tribunal. All in all, it seems to us that it would not be unfair to expect a potential applicant who disliked the Tribunal’s “open justice” policy to opt instead for the Royal Court; but we also think that there are advantages to many applicants in the availability of the Tribunal which we hope may lead to its continued use whenever it is offered. In its present non-statutory form, it provides an opportunity for an independent reappraisal of the case before the Commission’s final decision is made.

Lastly, we do not consider that the two points made against applying Eurolife by analogy are strong enough to divert us from this practice. These are that the Guernsey Tax Tribunal sits in private, and apparently has a statutory basis enabling it to do so, and, secondly, that we are operating before a final decision has been made by the Commission and while the Commission’s own procedures are still confidential. We do not know how the Tax Tribunal will function once the Human Rights legislation is commenced, but in any event the precedent of the UK tribunal specialising in financial services matters seems closer to this case than does adjudication of revenue matters. The point about the Commission’s practice has already been taken into account in this Judgement, and we would add in this context that the Commission’s process is almost, but admittedly not entirely, at an end. The Commission has stated in evidence that it would obviously place great weight on the Tribunal’s opinion, and the public record on the cases already decided shows that the Commission’s decisions have been made public even though, in one case, an appeal to the Royal Court is apparently still pending with the consequence that the decision has not yet come into effect.

We therefore conclude that it is possible and desirable for the Tribunal to follow the Eurolife case. If any applicant decides to invoke the “jurisdiction” of the Tribunal, we will expect to operate, as far as we can, as a Court operating as if we had statutory power, and applying therefore the Eurolife principles among other things. This means that the price that an applicant, who decides to go ahead, has to pay for having the benefit of the independent and impartial testing of the case is that he has to stand the risk that there may be members of the public or of the press present for all or most of the hearing.

On this basis, the final question that has exercised us is whether, applying the principles in the Eurolife case to what we know of the applicant’s circumstances, a public hearing would be an unfair outcome to the applicant. Mr Y, a director of Z Limited, gave us some indications in oral evidence of the kind of prejudice that he foresaw as likely to occur. On the basis of what we know of the case, including Mr Y’s points, we consider that this case falls on the “public” side of the line. We find that the claim that there would be unfairness was not merely “ritualistic” within paragraph 35 of Eurolife, but that it is still within the range of “ordinary cases” (see paragraph 32) where reputational risk will not in itself constitute unfairness. In so concluding, we have taken into account the fact that Guernsey is a much smaller jurisdiction than England and Wales, or indeed the United Kingdom. The Channel Island cases cited above seek to make little or nothing of that particular point, and it cannot in any event be allowed to acquire an importance that would upset the balance between the public interest and fairness to an applicant.

That said, if the substantive application proceeds, as we hope it will, we will of course be ready to consider any specific application for part of the hearing to be in private. An application for such an order will need to be based on the authorities we have discussed, and on cogent evidence of potential risk of damage of the kind there referred to. The same will also be true of any other case that may come before the Tribunal hereafter.

In summary, therefore, we refuse the application by Z Limited for an order for a private hearing of the entirety of the potential substantive hearing in its case.

Direction accordingly

Signed

Michael Blair QC

Carol P Goodwin

David Farrimond

14 May 2004