S&B v Bourn – the thresholds and parameters for claimants seeking summary judgment

Summary

On 20 September 2022, the High Court handed down a judgment in S&B Consultancy Services Limited v Bourn and Anor [2022] EWHC 2359 (Comm), a claim relating to unpaid fees under an introducer agreement. The court dismissed the claimant's application for summary judgment on a portion of the Defence, on the basis that it raised a novel point of law about whether the Claimant’s actions constituted performance for the purposes of s26 of the Financial Services and Markets Act 2000.

We will be closely monitoring any decision of the court made following a trial on this issue, which will be of interest to firms engaged in UK regulated activities, in particular those paying/receiving introducer fees. The substantive judgment on the s26 defence should clarify whether, when and how that provision may operate to nullify introducer agreements. It may also shed light on how the court perceives possible links between an introduction and any unauthorised advising and arranging in connection with that introduction.

Background

The claimant is a company which introduces businesses to potential funders. The claimant entered into an Introductory Agency Agreement ("IAA"). with a limited partnership ("Agri"), of which the defendants were both general partners. Under the IAA, the claimant would introduce Agri to prospective funders, in return for a fee equal to 2% of the gross facility provided by the funder to Agri, or any related entity.

In 2020, the claimant introduced Agri to a prospective funder, Arrow Group, which subsequently entered into two facility agreements with a company called Farm Finance Limited ("FFL"). The defendants are directors of FFL and have an indirect ownership interest in FFL. As a result, the claimant now contends that the defendants are liable to pay it 2% of the funding limit under the agreements between Arrow Group and FFL.

The strike-out/summary judgment application

The claimant sought to strike out/obtain summary judgment on the third of four raised by the defendants, contending that:

• in performing the introduction services required by the IAA, the claimant had also arranged/advised on investments in contravention of the general prohibition in s19 Financial Services and Markets Act 2000 ("FSMA"), as an unauthorised entity. Such services were not mentioned explicitly in the terms of the IAA.
• this breach of the general prohibition renders the IAA unenforceable by operation of s26 FSMA (which renders agreements unenforceable against the other party, if it is made by that party in the course of carrying on an unauthorised regulated activity).

The claimant challenged this defence on the basis that even if it had carried on the regulated activities, those activities were not, and could not have been, carried on in performance of the IAA.

The parties had, for the purposes of the application, agreed that the claimant would accept certain matters, including the allegation that it had breached the general prohibition in s19 FSMA by arranging/advising on investments. The parties also agreed that the mere act of the claimant introducing funders is not a regulated activity.

The disputed provision of FSMA

S26(3)(b) of FSMA, which lies at the heart of this application, defines the "agreement" which would be made unenforceable as: an agreement made after FSMA enters into force, "the making or performance of which constitutes, or is part of, the regulated activity in question.".

The defendants argued that "performance" would include doing some act that was in pursuit of a contractual right under the IAA (i.e. payment to the claimant of the 2% fee), even if such an act was not required by or expressly envisaged in the terms. The claimant argued for a narrower interpretation: that "performance" would only encompass conduct that was envisaged in some way by the agreement, for example as an optional act.

The judgment

The parties made reference to several cases in support of their respective arguments. However, Simon Birt KC, sitting as a deputy judge, found that "none of these cases are of particular assistance on the point that arises here". Ultimately, he dismissed the claimant’s application for summary judgment on the issue on three bases:

1. The principle that where there is a novel point of law to be decided, that decision should be based on actual findings of fact, established in Farah v British Airways [1999] All ER (D) 1381 and Begum v Maran (UK Limited) [2020] EWHC 1846 (QB).
2. The factual investigation at trial would assist the court in determining whether the alleged regulated activities were connected to the "introducing" required by the IAA.
3. Though not a sufficient factor on its own, even if the claimant was successful in obtaining summary judgment in respect of this defence, the remaining three defences would still require determination at trial.