Taveta Investments Ltd v FRC  EWHC 1662 (Admin) - The extent to which a regulator should follow a 'Maxwellisation' process in respect of disciplinary decisions affecting third parties
This recent decision gives guidance to regulators who are intending to publish a document that has the potential to damage a third party's reputation.
Maxwellisation, a process by which those subject to a potential criticism in a public inquiry are given an opportunity to make representations in response, is an aspect of the public law duty of fairness.
In 2016 the FRC began an investigation into alleged misconduct by PwC and Mr Stephen Denison in relation to the audit and financial statements of BHS. On completion of the FRC's investigation, PwC and Mr Stephen entered into a settlement agreement with the FRC which included a 38-page particulars of fact and acts of misconduct (together the "Sanction Documents"). In accordance with its publication policy, the FRC intended to issue a press release and then publish the Sanction Documents on its website.
The FRC sent Taveta (a subsidiary of which had owned BHS) a copy of its proposed press release and the Sanction Documents, and notified Taveta that they were soon to be published. Taveta responded by identifying statements in the Sanction Documents that it claimed were "materially inaccurate", complaining that they contained "serious criticisms" of Taveta and its personnel, without Taveta being afforded the chance to respond. The FRC did not accept Taveta's complaints and refused to amend to the Sanction Documents. Taveta applied to the court (i) for permission to seek judicial review of the FRC's alleged failure to provide a fair opportunity to make representations, and (ii) for interim relief to restrain the FRC from publishing the parts of the Sanction Documents that criticised Taveta or its personnel.
Nicklin J first granted permission for the application for judicial review to proceed. The principle issues were whether the FRC owed a duty of fairness to Taveta (in its capacity as a third party which was not itself subject to FRC investigation), and whether the FRC had satisfied or breached that duty. Nicklin J acknowledged that it is in the public interest for the FRC to make public statements of sanctions that are imposed on an auditor and the reasons for it, but that additional requirements of fairness to a third party will arise when:
(i) The criticism of the third party is necessary; and
(ii) It is impossible or impractical for the regulator to protect the third party's interests by anonymising him/her/it.
Nicklin J found that it was arguable that the FRC had breached its duty: Taveta was given three days to respond to the Sanction Documents (the minimum period), and he concluded that this advance notice was driven more by a concern to avoid a complaint by Taveta rather than to provide it with a fair opportunity to respond to the documents.
The application for interim relief failed. Nicklin J concluded that the threshold for obtaining an injunction to prevent a public authority from publishing information in the exercise of its functions was "very high indeed". He explained that in order to be granted interim relief "the most compelling reasons" or "exceptional circumstances" were required, and whilst he had serious reservations about whether the bar should this high, he could not depart from the authorities. Although he found that the Sanction Documents contained defamatory statements, these were not exceptional circumstances and therefore Taveta could not be granted an interim injunction. Subsequently, on 10 August 2018, the FRC published the Sanction Documents on its website (albeit with a disclaimer).
This case serves to remind regulators that where it is necessary to criticise a third party in its post-investigation publication it is prudent to ensure a process of Maxwellisation is carried out as the duty of fairness can extend to third parties. This case also illustrates the competing interests that can arise when a regulator investigates. Whilst there is a public interest in transparent regulatory investigations, this must be balanced against the interests of those who are potentially defamed in publications; these bodies will want to protect their reputation and be given time to consider the criticisms against them.
Although the judgment provides a useful guide for the process regulators should follow where they hand down judgment, it may be more difficult to apply in the context of other regulators who deliver 'live' judgments at the conclusion of proceedings where third parties may not have a similar opportunity to comment. Given the interests at stake it is likely that we will see similar issues come before the courts again and the case may lead to greater caution in relation to any determination that criticises a third party.
Co-authored by David Northfield and Lauren Howes (trainee)