Court Grants Stay of Civil Proceedings to Prioritize Financial Misconduct Criminal Investigation

Citation: [2024] EWHC 424 (Ch)
Judgment on

Introduction

In the matter of The Financial Conduct Authority v WealthTek LLP & Anor, the court was faced with the complex task of balancing the conduct of parallel civil and potential criminal proceedings involving serious allegations of financial misconduct. The case explores the interplay between civil litigation pursued by a regulatory body and related criminal proceedings, particularly when the defendant’s property is subjected to a criminal restraint order. This article analyzes the High Court’s approach to the application for a stay of civil proceedings under such circumstances.

Key Facts

The Financial Conduct Authority (FCA), fulfilling its regulatory functions, sought a 12-month stay of the ongoing civil proceedings against Jonathan Edward Dance and his company, WealthTek LLP, primarily to prioritize its criminal investigation. The FCA aimed to determine whether to bring criminal charges against Mr. Dance within the stipulated period. WealthTek was in special administration, and proceedings against it were stayed following the appointment of joint special administrators. The FCA suspected Mr. Dance of a serious fraud involving the misappropriation of client funds, for which he had obtained a wide Criminal Restraint Order (CRO) applying to all his assets.

The court’s analysis pivoted around several legal principles:

  1. Inherent Jurisdiction and CPR Rule 3.1(2)(f): The court retains a general power to stay proceedings as part of its inherent jurisdiction, which was exercised with reference to CPR Rule 3.1(2)(f) and the guidance provided under Practice Direction 23A. The discretion must be utilized carefully and requires a balanced consideration of the interests of justice.

  2. Section 58(5) of the Proceeds of Crime Act 2002 (2002 Act): Central to the case was the application of s.58(5), which gives the court power to stay proceedings that are in respect of property subject to a restraint order. The court interpreted this broadly, encapsulating proceedings that not only concern ownership but also those where relief sought would require a defendant to take steps relating to that property.

  3. Legislative Steer in Section 69(2) of the 2002 Act: A key consideration was the directive under s.69(2), which ascertains that the powers of the court are to be exercised to prevent a decrease in the value of realizable property, with a view to confiscation following potential criminal conviction.

  4. Overlap Between Civil and Criminal Proceedings: The judgment notes the substantial overlap in the factual issues and claims across the civil and criminal proceedings, imposing on the court a duty to prevent unnecessary duplication and preserve assets for potential confiscation.

  5. Potential Prejudice: Weighing potential prejudice to the defendant was essential. The court considered whether a delay would cause Mr. Dance serious prejudice leading to injustice, especially given the opportunity for him to clear his name in criminal proceedings should they arise.

  6. Article 6 ECHR: The court also addressed the concern relating to the right to a fair trial under Article 6 of the European Convention on Human Rights but dismissed any notion that a 12-month stay would infringe upon this right, given the case’s circumstances and the timing of the potential actions.

Outcomes

The court ordered a stay of the civil proceedings for 12 months to allow the FCA to focus on its criminal investigation. This decision recognized the FCA’s unique position as both a regulator and criminal investigator with statutory duties. The stay was granted to avoid the depletion of the defendant’s realizable property, which would occur if the civil proceedings continued and substantial legal costs were incurred. The injunction against Mr. Dance was also addressed, with the court prepared to consider varying or discharging the IPO depending on the parties’ subsequent filings.

Conclusion

In adjudicating the application for a stay, the High Court underscored the primacy of the integrity of the financial system and the importance of preventing financial crime. The decision refines the application of the legal principles concerning stays in civil proceedings when a parallel criminal investigation is in progress and where there is a significant overlap in the matters under investigation. By granting the stay, the court aligned its decision-making with the legislative intent inherent in the 2002 Act, ensuring the preservation of assets for possible future confiscation, and struck a balance between the ongoing civil proceedings and the prospective criminal investigation.