The rights of third parties in criminal and regulatory proceedings - DAC Beachcroft

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The rights of third parties in criminal and regulatory proceedings

Published 29 May 2018

Criminal prosecutors and financial regulators in the UK now increasingly aggressively pursue criminal prosecutions and regulatory enforcement in the context of corporate misconduct.

These proceedings are highly likely to result in criticism of the actions of individuals, including directors and employees whose conduct is connected with the alleged misconduct but who are not themselves the subject of criminal prosecution or regulatory enforcement ("Third Parties").

Public criticism can have a profound adverse impact upon Third Parties. It can harm their reputation and therefore their future commercial or employment prospects. The resonance of what used to be reported only in the press and the broadcasting media has also been greatly magnified in the age of internet and social media.

What rights then do Third Parties have in these circumstances to prevent being identified or to challenge implied or express criticism of them in these proceedings?

Third Parties named in criminal proceedings

The general rule is that the administration of justice must be done in public. The public and the media have the right to attend court hearings in criminal proceedings, to understand and to report those proceedings. The intention is that open justice engenders public confidence in the justice system.

In order to achieve open justice the presumption is that the courts will manage proceedings to ensure that all evidence is communicated publicly, that all details of the proceedings, including the identity of witnesses and the accused, will be pronounced in open court and that all details of the proceedings will be capable of being reported by the media.

That proceedings should be conducted in this way is unlikely to be uncontroversial. However, prosecutors have the right to name individuals who are not charged with any offence on an indictment (for example individuals who are alleged to have conspired to commit an offence with a defendant). It may also be the case that the actions of an individual are impliedly or expressly criticised in the course of evidence at trial. Third parties named and criticised in this way will not be a party to the litigation. They will not have the ability, as a defendant does, to challenge the evidence in the course of the trial or to seek to clear their names by way of a favourable verdict from a jury at the conclusion of the trial.

Inherent power of the courts to withhold information from the public

The courts have an inherent power to hear a trial (or part of a trial) in private, or to order that information, for example a name or address, should be withheld from the public. However, the courts will only take such a step where it is necessary for the proper administration of justice or the protection of the safety of an individual.

It will be very rare that circumstances exist whereby the adverse impact on the future commercial or employment prospects of a Third Party criticised in criminal proceedings will jeopardise the proper administration of justice and thereby necessitate his or her identity being withheld from the public. It is rare therefore that a Third Party is successful in persuading a court to exercise its inherent powers to withhold his identity from the public in such circumstances.

Reporting restrictions

An individual can have no reasonable expectation of privacy in relation to matters which have taken place in open court. However, the Contempt of Court Act 1981 (the "CCA") provides the courts with powers to limit the reporting of events which have taken place in open court if it is necessary to do so in order to avoid a substantial risk of prejudice to the administration of justice. For example the courts may postpone reporting of any part of proceedings for such period as the court thinks necessary to achieve this objective .

In deciding whether to make such an order on the application of a Third Party the court will engage in a balancing exercise between the public interest in identifying the individual, the public interest in the administration of justice as well as the Third Party's right to respect for private and family life provided by Article 8 of the European Convention on Human Rights (the "Convention") and the right to freedom of expression protected by Article 10.

In most recent decisions the courts have concluded that, in balancing those competing rights, the open justice principle is not achieved by permitting the names of individuals to be withheld. This is because the anonymised reporting of issues of legitimate public concern are less likely to interest the public and therefore to provoke discussion .

However, it does not follow that because there is public interest in reporting proceedings, there is sufficient public interest in identifying the individuals involved. There may be cases where the identity of the individuals involved in the proceedings is wholly marginal to the public interest engaged. This was the case in Devine v Secretary of State for Scotland in which soldiers who had been deployed to end a prison siege were allowed to give evidence from behind a screen. It was held in that case that "their appearance and identities were of such peripheral, if any, relevance to the judicial process that it would have been disproportionate to require their disclosure".

The recent Supreme Court case of Khuja (Appellant) v Times Newspapers Limited and Others [2017] concerned an injunction granted under the CCA to prevent the media publishing information identifying a Third Party as someone suspected by the police of being involved in criminal offences. In giving judgment in that case, Lord Sumption, at para 35, observed that restrictions on reporting of proceedings which have taken place in open court are particularly difficult to justify but that "it may in some cases be easier to justify managing the trial in a way which avoids the identification of those with a sufficient claim to anonymity…if there is a solution to the problem of collateral damage to those not directly involved in criminal proceedings, that is where it is to be found".

This judgment of Lord Sumption may provide useful grounds in future cases to support applications by Third Parties at the outset of criminal proceedings that the court should identify and anonymise those parties whose identities are wholly marginal to the public interest engaged pursuant to the court's inherent powers rather than to seek to limit the way in which those proceedings may be publicised after the event.

Deferred Prosecution Agreements

Deferred prosecution agreements ("DPA's"), which were introduced by the Crime and Court Act 2013, provide an attractive mechanism by which corporates are able to promptly dispose of criminal proceedings. The commercial incentive to companies entering into DPA's is particularly stark when one considers that in January 2017, immediately after Rolls-Royce announced it had entered into a DPA, pursuant to which it had to pay a total of £671 million in fines, its share price increased by more than 5 per cent.

The introduction and use of DPA's has created further complications for Third Parties in criminal proceedings. There is nothing in the legislative framework which makes provision for Third Parties to be consulted about their identification or criticism within a DPA.

A Third Party who knows or suspects that they are to be identified and criticised in a DPA will therefore need to rely on the general powers in criminal proceedings described above in order to seek to prevent their identification.

Third Parties named in FCA warning, decision and final notices

Third Parties in FCA regulatory enforcement proceedings have greater rights, enshrined in law, to challenge criticism of them.

The FCA is required by law to issue warning, decision and final notices to a firm or person under investigation for regulatory breaches. The FCA may publicise warning notices and it is required to publish decision and final notices. Notices regarding action to be taken against firms or individuals may contain implicit or explicit criticism of individuals who are not the subject of the notice.

Unlike in criminal proceedings, the FCA will generally seek to anonymise references to individuals who are not the subject of the proceedings to which the notice relates.

However, section 393 of the Financial Services and Markets Act 2000 ("FSMA") gives Third Parties the opportunity to make representations to the FCA about publication of the notice and the FCA's findings if they are "identified" in the notice and that notice is "prejudicial" to them. The FCA must also provide the individual with access to information on which the notice is based.

The circumstances in which a Third Party will be considered to have been "identified" and thereby able to exercise this right has been the subject of a number of recent high profile cases.

The recent Supreme Court judgment in FCA v Macris made it clear that the pool of individuals who might reasonably claim to be "identified" in an FCA notice will be interpreted very restrictively. A third party will not be considered to have been "identified" unless information contained within the notice enables the public at large (i.e. members of the public who do not work in the financial services industry with access to information generally available within that industry) to identify him. This interpretation of the test was applied by the Court of Appeal in January this year in the case of FCA v Grout. The consequence of this test is that third parties may not be able to exercise s.393 rights even where they are easily identifiable within the notice by their industry peers.

Judicial Review

A Third Party may consider pursuing judicial review of the decision of the relevant public authority to name and/or criticise them in the proceedings. This may be possible where the identification or criticism of him/her has come about as a result of some illegality, irrationality or procedural unfairness on the part of the prosecutor or regulator. For example, it may be argued by the Third Party that the relevant authority failed to consider relevant exculpatory evidence demonstrating that the criticism levied at him or her was wrong.

Judicial review of a decision to identify and criticise a Third Party is however only likely to succeed in very rare and exceptional circumstances. It is likely to require the Third Party to identify some compelling evidence capable of demonstrating that the identification and criticism was clearly wrong and has come about as a result of some dishonesty or bad faith by the public authority.

Conclusion

Third Parties should be aware that there is a significant risk that they will be identified and criticised in criminal and regulatory proceedings even when they are not defendants in those proceedings and do not therefore face the risk of criminal or regulatory sanctions.

The damage to the future commercial or employment prospects of a Third Party as a result of their identification in those proceedings might be just as great as if they were defendants. In criminal proceedings, Third Parties will have to take proactive steps in order to seek to respond to any criticism levied at them. Even in FCA regulatory proceedings, where statutory provision is made for consultation with Third Parties, the relevant provisions will be interpreted restrictively. As a consequence, Third Parties should closely monitor the progress of those proceedings and be prepared to proactively assert their right to make representations.

Third Parties should therefore take legal advice as soon as possible when they anticipate that they may be implicated in matters which are the subject of criminal or regulatory investigation. This is particularly the case where a Third Party is asked to provide evidence or a statement as a witness in the course of those investigations. Statements or admissions made by Third Parties as witnesses may provide grounds for criticism of them where there might not otherwise have been evidence necessary to support such criticism.

There are steps that Third Parties may take to limit their identification or to challenge any prejudicial findings in relation to them. However, the onus will be on the challenging party to adduce evidence to demonstrate that they have been incorrectly identified or that the adverse findings are unfounded. A Third Party should very carefully consider the merits of pursuing such a course. There is a risk that any representations may have the effect of increasing scrutiny of the Third Party's conduct and the associated evidence which may result in the Third Party becoming a defendant in those proceedings.

[1] Scott v Scott [1913] AC 417, at p446 (Lord Loreburn) and A v British Broadcasting Corporation [2014] 2 All ER 1037
[2] S 4(2) Contempt of Court Act 1981
[3] In re S and In re Guardian News and Media Ltd
[4] Unreported, 22 January 1993

Authors

Christopher Dyke

Christopher Dyke

Bristol

+44 (0)117 918 2109

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