Declaratory relief in the context of regulatory supervision
Case briefing – SWM Limited v JFSC
SWM, a regulated financial services business, is appealing certain directions issued against it by the Jersey Financial Services Commission.
Key points from the case
- Declaratory relief is available when seeking to clarify a legal position for a practical purpose
- Royal Court determines the meaning of the phrase “ordinary course of business”
The principles of declaratory relief were discussed and confirmed by the Royal Court in the recent case of SWM Limited v Jersey Financial Services Commission.
SWM, a regulated financial services business, is appealing certain directions issued against it by the Commission. In the context of that appeal, SWM sought a declaration from the Royal Court as to whether certain payments it proposed to make would be in the ordinary course of its business.
It was important for SWM to have this issue determined because for two reasons. Firstly, one of the Commission’s directions included a prohibition on payments without prior consent unless they were in the “ordinary course of business”. and Secondly, a breach of that direction would potentially amount to a criminal offence.
It seems the relevant payments in the case were to be made in connection with, amongst other things, preparing expert evidence to support SWM’s position in its dealings with the Commission. The Commission had taken the stance that such payments could not be made without its prior permission. Yet this had not been forthcoming which at the date of the hearing had not been forthcoming.
The Royal Court needed to determine two substantive questions:
- did the Royal Court have the jurisdiction to, and/or should it, grant a declaratory judgment in this context?
- assuming it did have jurisdiction which it should exercise, what is meant by “ordinary course of business”?
Did the Court have jurisdiction to give declaratory relief?
When a person has a dilemma as to how to act because they are uncertain of their rights and duties under the law, it may be possible to obtain a declaratory judgment from the Court for guidance and relief from the dilemma.
The Royal Court has confirmed it has a discretion to make such a declaration in a situation where clarity is sought for a practical purpose, i.e. where the dilemma is more than fanciful or hypothetical. It found that SWM’s request in this case was sought for a practical purpose. Namely, to obtain the Court’s view on the interpretation of the JFSC direction and thereby resolve the dilemma of whether it could use its funds for the proposed payments.
Should the Court make a declaration in the circumstances?
The Attorney General was convened as the summons involved declarations relating to potential criminal offences. Submissions were made which cautioned the Royal Court not to interfere with the Attorney’s prerogative to bring prosecutions. The concern was that a declaration to the effect no offence was committed, might directly affect any future decision to prosecute.
The Royal Court disagreed. It found it was merely being asked for its interpretation of an administrative direction and any such declaration of its opinion in that regard would not usurp the Attorney General’s function, even if it were to influence a decision to prosecute.
What is meant by the “ordinary course of business”?
The Commission argued that the phrase “ordinary course of business” could not be interpreted to include one-off payments such as those proposed and suggested that these should be viewed as extra-ordinary.
However, referencing English authority, the Royal Court disagreed. It held that it was quite possible for a single one-off payment to be within the ordinary course of a company’s business. It interpreted the phrase as follows:
- The expression should be given its ordinary English meaning.
- The expression “ordinary course of business” does not preclude a single, one-off exceptional act which the company might never have done before, or ever do again.
- Actions which are likely to preserve or protect a company’s business against a threat to it may well be in the “ordinary course of its business”.
- The question of whether or not an action is in the “ordinary course of business” may be fact specific and cannot be isolated from the context in which a company conducts its business.
Decision & comment
In this case the Royal Court found that as SWM carries out its business in a regulated environment and part of that business, from time to time, will involve engaging with the regulator and sometimes taking advice in connection with that engagement, it would not seem to be outside the company’s ordinary course of business to make payments for that advice. SWM will therefore feel able to make the payments without the Commission’s prior consent. The judgment noted that the proposed payments would not have affected SWM’s adjusted net liquid assets obligations – it would have been a different outcome otherwise.
This case is interesting from both a general and regulatory perspective. In general terms, it confirms the sort of case where declaratory relief may be available. From a regulatory perspective, it will be interesting to see whether future Commission directions are more specific as to the nature of permitted payments so that it may retain the control it sought in this case. However, on that note, it might be said that there is something fundamentally wrong with a regulatory authority having control over a person’s ability to fund their case or defence in an investigation being conducted by that authority.
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