Part Xxv: Injunctions and Restitution
657.This Part is concerned with the Authority’s (and in certain cases the Secretary of State’s) power to seek injunctions and restitution orders from the High Court, or in Scotland the Court of Session, against both authorised and unauthorised persons where it appears that certain requirements have been, or might be, contravened. Section 384 also gives the Authority the power to require restitution to be paid without having to apply to the courts for a restitution order, but this direct power can only be used against authorised persons.
658.The powers contained in this Part may be exercised by the Authority in relation to breaches which constitute an offence under the Act, or which the Authority has power to prosecute under section 402, or any breach of any other requirement imposed by or under the Act, such as a rule made under Part X. The Secretary of State may exercise the powers in relation to any breach which constitutes an offence which the Act gives him the power to prosecute under section 401.
Section 380: Injunctions
659.This section sets out the powers of the court to make injunctive orders on the application of the Authority or Secretary of State and the grounds on which they may exercise those powers. The court may make three types of order: an order restraining the contravention of certain requirements (subsection (1)), an order directing remedial action to be taken when there has been such a contravention (subsection (2)) and an order freezing the assets of someone who has contravened certain requirements or been knowingly involved in a contravention (subsection (3)).
660.The first of these is a preventative measure. Undersubsection (1)(a) an order can be made restraining a person from contravening a requirement where the court believes they are reasonably likely to do so. Where a contravention has already occurred, under subsection (1)(b) the courts can restrain a person from doing so again.
661.Where there are clear steps that can be taken either by the person who has contravened a requirement or by a person knowingly concerned in the contravention, under subsection (2) the court may order a person to take those steps. This is a corrective power. For example, an order may simply require a person to meet commitments they have entered into but so far failed to discharge. Subsection (5) provides that the remedial action that the court may order under subsection (2) may include orders to mitigate the impact of a contravention even if it is not, strictly speaking, possible to remedy it. For example where a person has published a misleading advertisement, the Authority could apply to the court for an order requiring the person to publish a correction. This would not be of use to anyone who had taken action on the basis of the original advertisement but would prevent others doing so in the future.
662.An order made undersubsection (3) to freeze a person’s assets is similar to a Mareva injunction(1) apart from its timing: a Mareva injunction may only be applied for where court proceedings have been commenced or are imminent whereas this section gives the Authority or Secretary of State an independent power to apply to the court for an asset-freezing order on the grounds that they believe a breach may have occurred. The power does not prevent separate applications for Mareva injunctions.
663.Subsection (6) sets out the range of requirements the contravention or likely contravention of which may be grounds for an order under this section. These are requirements imposed by or under the Act, including the Authority’s rules made under Part X, plus the various requirements a breach of which constitutes an offence under the Act, such as the general prohibition under Part II. In addition, the powers may be exercised for breaches of requirements imposed by other Acts which constitute offences which the Authority has power to prosecute. The Authority’s power in that respect is set out in section 402.
Section 381: Injunctions in cases of market abuse
664.This section provides the Authority with the power to apply to the court for injunctive orders in cases of market abuse. The Secretary of State has no powers under this section in relation to market abuse. The types of orders which the court may make are the same for cases of market abuse under this section as for contraventions of requirements under the previous section.
Section 382: Restitution orders
665.This section gives the court the power, on the application of the Authority or the Secretary of State, to order restitution to be paid by a person who has contravened a requirement or been knowingly involved in a contravention. The court must be satisfied that the contravention has led either to the person ordered to pay restitution accruing profits or to others suffering loss or being adversely affected in other ways. It is possible for an application for a restitution order to be combined with an application for an injunction.
666.Under subsection (2), the court has discretion to decide what is an appropriate sum for a person to have to pay taking into account the size of any profits which have accrued and the extent to which persons have suffered loss or been adversely affected. The restitution is initially paid to the Authority, but the Authority is then required to distribute the money among people chosen by the court. These must be those people who appear to the court to have been directly affected by the contravention, or to whom the profits may be attributed, for example because it was their funds that were used to make a particular investment which gave rise to the profits.
667.Subsections (4) and (5) give the court powers to require further information from potential recipients of restitution orders to assist the court in determining what profits have accrued to them, to what extent others have been affected by a contravention or how to distribute the money. The court may also require this information to be verified.
668.Subsection (7) provides that the fact that the Authority or the Secretary of State has made an application under this section for a restitution order does not prevent someone taking a private action for restitution in respect of the same matter. The court is likely to have regard to the question of whether any payments have already been made by a person in determining whether to order restitution in any particular case.
669.The range of requirements the contravention of which can give rise to an application to the courts under this section for a restitution order is the same as for injunctions under section 380. These are set out in subsection (9).
Section 383: Restitution orders in cases of market abuse
670.This section provides the Authority with the power to apply to the court for restitution orders against persons who it is satisfied have engaged in market abuse. The Secretary of State has no powers under this section. The provisions of this section are equivalent to those in the section above for restitution orders following the contravention of a requirement. Again, the court has discretion to determine the amount of restitution paid and the eventual recipients of that restitution who must be persons directly affected by the market abuse. The court also has similar powers as under section 382 to require further information from the person who has engaged in market abuse. However under this section the court may not make an order if it is satisfied that the person concerned believed, on reasonable grounds, that market abuse was not involved, or took all reasonable precautions and exercised all due diligence to avoid market abuse. This restriction is analogous to the provisions of section 123(2) which apply where the Authority wishes to impose a penalty in relation to market abuse.
Section 384: Power of Authority to require restitution
671.This section gives the Authority the direct power to require an authorised person to pay restitution, without having to go through the court, although the authorised person does have the right to refer the matter to the Tribunal under section 386. The Authority can order restitution to be paid by:
authorised persons who have contravened a requirement under the Act or who have committed an offence mentioned in section 402;
authorised persons who have been knowingly involved in such a contravention;
any person, whether authorised or not, who has engaged in market abuse.
672.The Secretary of State has no direct powers under this Part to require restitution.
673.The grounds for the Authority using this power are set out in subsections (1) and (2). These are that the Authority is satisfied that the person has done the misdeed and that, because of it, either profits have accrued to that person or one or more people have suffered loss or been adversely affected.
674.The Authority may require someone to pay restitution of an amount which it considers to be just, taking into account the profits that have accrued and/or the extent of the loss or adverse effect suffered. The money is to be paid to people who have been directly affected by the contravention or offence, or to whom profits are attributable, as under sections 382 and 383. Where restitution is sought via a court order, the money is paid initially to the Authority, but when the Authority uses its power under this section to require restitution directly, subsection (5) provides for the money to be paid straight to the final recipients. The Authority may determine the arrangements for payment.
Section 385: Warning notices
675.This section requires the Authority to issue a warning notice informing someone of any proposal to require them to pay restitution under section 384. A warning notice must comply with the provisions of section 387. The warning notice must specify the amount of restitution proposed.
Section 386: Decision notices
676.This section provides that if the Authority decides to require restitution to be paid, it must send a decision notice to the person in relation to whom this power is being exercised. The section also provides a right to refer the Authority’s decision to the Tribunal.
A Mareva injuction (now known as a ‘freezing order’) is a remedy a court may use to prevent assets being removed, charged or otherwise dealt with in a way that could prejudice a legal action that is otherwise being, or about to be, pursued.
