Appeal Court finds FSC had no basis to seize SSL

The Court of Appeal has found that the Financial Services Commission (FSC) had no proper basis to seize Stocks and Securities Limited (SSL) in January 2023.

“The FSC failed at this first hurdle,” Justice Kissock Laing wrote in the court’s judgment, handed down on Friday, “since these were predicated on a necessary foundation that was, in fact, non-existent.”

That foundation was the FSC’s own stated reason for the takeover: its claim that SSL had given a false or misleading statement about its affairs. However, the court found that the regulator never backed that claim with evidence.

In a judgment handed down on Friday, a three-member panel, which also included Justices Marva McDonald-Bishop and Vivene Harris, dismissed almost all of the FSC’s grounds of appeal, upholding a 2024 Supreme Court decision that discharged the temporary management imposed on SSL and affirmed the validity of trustee Caydion Campbell’s appointment.

The issue arose following the fallout from a multibillion-dollar fraud allegedly committed by an SSL employee, which the company reported to the FSC on January 10, 2023. Shareholders subsequently voted to place the company into voluntary winding up and appointed Campbell as trustee on January 16. Shortly afterwards, however, the FSC moved to seize control of the company, appointing Kenneth Tomlinson as temporary manager and later suing to have Campbell’s appointment invalidated.

The FSC sued SSL and Campbell on January 25, 2023, claiming that Campbell’s appointment to pursue the winding up of the company was in breach of directives and an attempt to frustrate the investigation into a multibillion-dollar fraud at the 50-year-old company.

However, Justice David Batts ruled in favour of SSL and Campbell in May 2024, discharging the FSC’s temporary management and an earlier injunction, and ordering the regulator to pay costs. The FSC appealed.

Declaration of solvency

Delivering the lead judgment, Laing found that the FSC’s central justification for intervening, that SSL had given a “false or misleading statement” about its affairs, specifically through its declaration of solvency, was never properly backed by evidence.

The court noted that the FSC’s own witness, Senior Director Karene Blair, testified that she had not even seen the declaration of solvency until after the company’s shareholders’ meeting, undercutting the regulator’s claim that the document drove its decision to intervene. Although the declaration had been copied to eight FSC staff members by email, none of them was called to testify that they had seen it or relied on it.

Because the notice the FSC served on SSL specifically cited the declaration of solvency as the basis for its action, the court said the regulator was bound by that stated reason and could not now point to other justifications after the fact.

With that finding, the panel declined to wade into the broader legal question of whether a court-appointed trustee should take precedence over an FSC-appointed temporary manager, calling it an “academic question” not necessary to resolve the dispute, although the judges acknowledged that it raised issues of general public importance.

Despite losing on the substantive issues, the FSC did notch one win: the court overturned the costs order against it. The judges pointed to Section 22 of the Financial Services Commission Act, which shields the commission from liability absent proof of “wilful or reckless misconduct”.

The panel found no such misconduct, noting that the regulator had acted amid genuine public anxiety over the fraud allegations and a fast-moving, murky situation.

“[T]hat is not the same as a finding that the FSC acted outside its regulatory purpose or with wilful or reckless misconduct,” the court said in explaining why no costs order would be made against the commission for the original claim.

However, the FSC was ordered to pay 80 per cent of SSL and Campbell’s costs for the appeal, having lost on nearly every ground argued.

The ruling leaves Campbell in place as trustee overseeing SSL’s court-supervised winding up and confirms that the temporary management imposed by the FSC in January 2023 ceased to have effect.

SSL and Campbell also remain free to pursue a claim for damages under the undertaking the FSC gave when it first obtained its injunction, though they will need to formally apply for an inquiry into damages.

Attorneys-at-law and industry watchers say the judgment underscores the evidentiary burden regulators face when moving swiftly to take over financial institutions, even amid a fast-developing crisis, and may prompt closer scrutiny of how such interventions are documented going forward.

Michael Hylton, KC, Sundiata Gibbs and Timera Mason appeared for the FSC, instructed by Hylton Powell. Caroline Hay, KC and Kimberly McDowell represented SSL and Campbell, instructed by Hay McDowell.