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UK City litigation

Judicial review of regulators

For the first time, the decision of a regulator relating to modifications of a utility's licence has been successfully challenged on the basis that the regulator acted irrationally.

In R v Director General of Electricity Supply ex parte Scottish Power, the Court of Appeal reviewed the Director's reasons for refusing to consider Scottish Power's request to give it the benefit of a Monopolies and Mergers Commission (MMC) report on another utility. The Director had decided that he would not propose further modifications to Scottish Power's operating licence to match modifications proposed by the MMC following a referral by Scottish Hydro-Electric.

The Court found that, notwithstanding the Director's statutory duties to promote competition and protect customers, which required him to look at the 'whole picture', he was as well placed, if not better placed, than anyone to decide whether any changes were necessary to Scottish Power's licence, or he could have referred the matter to the MMC himself. The Court was not satisfied with the reasons advanced by the Director for his decision, but was not prepared to order him to reach a different decision. Instead, it remitted the matter to the Director for him to examine and to reach a decision in accordance with the findings of the Court, including the question of whether to make a reference to the MMC.

It is rare for the Courts to hold that a regulator has acted irrationally in reaching a decision, particularly one involving the exercise of discretion. The fact that the Court indicated the Director should have considered the impact of an MMC report on a different company widens the scope for challenging regulators' decisions.

Insider dealing

In the March 1997 issue of International Financial Law Review, this column reported on the decision of the European Court of Human Rights (ECHR) in Saunders v United Kingdom, in which the ECHR upheld a decision that Ernest Saunders's rights had been violated when evidence obtained from him by Department of Trade and Industry (DTI) inspectors was used at his trial. The Court of Appeal has been asked to consider again the question of whether answers given to the DTI during an insider dealing inquiry are admissible in criminal proceedings (R v Morrisey, R v Staines). In that case, the appellants had been convicted of insider dealing. At their trial, self-incriminating answers given to DTI inspectors were ruled admissible. They appealed, contending that their trial was unfair in the light of the decision in Saunders.

The appeal was dismissed. The Court held that if it was to rely on the ECHR's decision in Saunders and exclude the self-incriminating answers, it would be obliged to exclude that type of evidence in all cases. That would amount to a repeal, or substantial repeal, of an English statutory provision (Section 177(6) Financial Services Act 1986) in deference to a ruling which did not have direct effect and which, as a matter of strict law, was irrelevant. This was the case even though the Crown had accepted that, if an application had been made to the ECHR, the use of the answers would be likely to have been a violation of the European Convention on Human Rights.

The Court of Appeal commented, unsurprisingly, that the present position was unsatisfactory, and that if the appellants sought further relief from the ECHR, they might have claims for compensation against the UK government.

Unauthorized use of confidential information

The legal implications arising from the receipt and unauthorized use of confidential information have been examined by the Court of Appeal in Indata Equipment Supplies (trading as Autofleet) v ACL, where a finance house used confidential information provided by a broker (relating to the brokers's profit margins and commission) to make an arrangement directly with the client, thus by-passing the broker.

The Court held that the mere receipt of confidential information did not in itself create a fiduciary relationship between the finance house and the broker so as to give rise to fiduciary obligations. The relationship between broker and finance house was a commercial one and did not include the core duties of a fiduciary relationship, loyalty and fidelity. Moreover, as a fiduciary can never profit from his fiduciary position, there could not be a fiduciary relationship where the broker expected the finance house to earn a profit on its finance charges.

However, the Court held that the finance house's conduct showed "a blatant disregard for what should be commercial ethics and practice" and amounted to a breach of the equitable doctrine of confidence. The Court also found that the finance house's conduct amounted to a deliberate interference with the broker's interests and that the purpose or intention of that interference had been to inflict injury on the broker, although this may not have been the predominant aim. The breach of confidence, coupled with the "ruthless conduct" of the finance house, probably amounted to the tort of unlawful interference with the broker's business interests.

Defamation by e-mail

The insurer Norwich Union issued a High Court apology and paid some £450,000 (US$720,000) following an admission that its staff had used its internal e-mail system to libel Western Provident Association. This case brings to the fore the issue of what steps a company can take to minimize the risk of liability for defamatory and other unlawful e-mail messages sent by staff.

Although the legal status of e-mail messages has not been determined (either by the courts or by Parliament), the generally accepted view is that a defamatory e-mail message will be actionable as a libel. Although e-mail messages often seem transient, the fact that they are invariably stored on or retrievable from a computer's hard drive means they will be treated in law as publications made in permanent form, equivalent to written documents such as letters and faxes. Consequently, it is not necessary to show that any loss or damage has been suffered; this is presumed.

A company can be vicariously liable for defamatory e-mails written and sent by staff in their capacity as employees and can also be directly liable for itself publishing such messages as the owner and controller of the communications system through which the e-mails are sent.

To minimize this risk, companies would be well advised to implement a written corporate policy for e-mail systems. With the increasing use of e-mail in the office, such precautions would afford some protection in respect of a potential libel or other action over the contents of an e-mail, for instance claims for discrimination, harassment or breach of confidentiality.

Neil Mirchandani
Lovell White Durrant

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