As the management consultants complete their important work, organisational cultures are nestled all snug in their beds (embedded) while visions of accountability frameworks dance in our heads. The seasonal messaging from CBI is of reason and restraint, and an avalanche of enforcement actions is not on the cards. Still, in the counting house the General Counsel toils by the scant coals of a frugal fire, mulls on administrative sanctions past and asks, unsentimentally: what are the standards, what is the procedure, what is the right of appeal?
The short answers to those questions are:
• The standards are largely what one might expect and have been well discussed: a reasonable list of behaviours and attitudes which are similar to the principles which have been applied by the Financial Conduct Authority and the Prudential Regulation Authority (and their predecessors) for some time. Financial services in the UK have not ground to a halt as a result.
• The procedure is workable, though if the CBI gives respondents the bare legal minimum (see e.g. Section 33ANK(2)(c)(i)) involves notably short timelines. Ultimately, any hearing will involve an expert panel, well-advised and guided by a legal practitioner team. The careful progress at inquiry and level of detail is likely to involve significant costs of legal representation which will be simply unachievable without appropriate D&O cover, a supportive employer or the deepest of pockets.
• The right of appeal or the possibility of the courts intervening is fairly complex: involving two different venues (High Court and the Irish Financial Services Appeals Tribunal) with the High Court to apply a standard of review which looks to be at the razor edge of compliance with constitutional norms.
This last aspect is perhaps the most important and has received comparatively little attention. A brief look at the past, present and future may shed some light.
John Freeman
Enforcement past
Since the Administrative Sanctions Procedure (“ASP”) was introduced in 2004, an Administrative Sanctions case could result in serious penalties: including a fine of up to €1m for an individual. In practice, most ASP cases have resolved in settlement.
Where an ASP against an individual was not resolved by settlement and resulted in a finding and sanction, the individual could appeal to the Irish Financial Services Appeals Tribunal (“IFSAT”). IFSAT was to decide what was the correct and preferable decision, which effectively allowed that Tribunal to rehear a case on the merits with new evidence and argument, and to substitute its own decision for that of the CBI. From IFSAT, a disappointed appellant could bring a question of law to the High Court.
A targeted and careful recalibration of the 2023 Central Bank Act may yet prove necessary.
The timeline for seeking a judicial review of the CBI was cut down from 3 months to 2 months (Section 33BF 1942 Act).
A monetary sanction or disqualification would not take effect unless confirmed by the High Court. There are now a range of public bodies with varying powers to make decisions affecting rights, which come perilously close to taking over the role which the Constitution reserves to the courts. Reserving this function to the courts was generally viewed as ensuring that a disciplinary process was constitutional. The ASP has been held to fall the right side of this line (for this and other reasons) in litigation arising from the financial crisis (Purcell v Central Bank of Ireland [2016] IEHC 514).
Confirming a regulatory or disciplinary decision is not a new role for the courts: the High Court has the same function for doctors and teachers and a range of other professions and callings. While the 1942 Act did not set out any test or standard to be applied by the court, the approach in other regulated areas could provide some guidance. The courts have decided one confirmation case in financial services (under specific securities markets legislation rather than the ASP itself), observing with surprise that the task of the court was not detailed in the legislation. The President of the High Court at the time concluded that the court must satisfy itself that the prescribed statutory procedures were followed but also that the proceeding was in accordance with natural and constitutional justice. (Central Bank of Ireland v Lynch [2022] IEHC 319).
Zalewski present
For the last few years, Zalewski has been a watchword for regulatory and public lawyers. This was a case involving an error by the public body (Workplace Relations Commission) which was to determine an employment dispute. The case led the Supreme Court to offer a new vision of the dividing line between matters which are the preserve of the courts and those which can be left to an administrative body (such as the CBI).
Where an administrative process has been saved from unconstitutionality because its decisions must be confirmed by the courts, the court has been the “effective decision-making tribunal” (and not a rubber-stamp) with the full capacity to come to its own conclusion on the merits.
The role of the courts in confirming an ASP finding and sanction sets an exceptionally high bar for an appellant to clear.
The judgments of the Supreme Court judges in Zalewski now stalk the corridors of the parliamentary draftsman and cast a pall over legislation: past and future. If the wording of the 1942 Act were not amended, the constitutionality of the ASP itself would be very much up for argument. The spirit of Zalewski permeates the Central Bank (Individual Accountability Framework) Act 2023 and (as the Oireachtas debates show) some care has been taken to Zalewski-proof the new framework.
Enforcement future
There are three principal features of note in terms of appeal and challenges before the courts.
First, the right of appeal to IFSAT is drastically cut down so that an appeal to IFSAT will now be limited to what lawyers might call judicial review grounds and the ground that any sanction imposed is not proportionate (Section 33AW(3) 1942 Act). This is a significant change from the current position which involves a full review on the merits.
Second, the right to seek judicial review is removed entirely (Section 33BF of the 1942 Act). Instead, an affected person is left to either appeal to IFSAT and onwards to the High Court on a point of law or to contest an application by the CBI to confirm a decision.
Third, the role of the courts in confirming an ASP finding and sanction sets an exceptionally high bar for an appellant to clear. The issue noted by the President of the High Court in Lynch has been addressed. The standard to be applied by the High Court when considering whether to confirm an inquiry decision is certainly spelled out clearly: whatever its merits.
The High Court is required to confirm a decision unless it is satisfied on the basis of the evidence that was before the CBI inquiry or IFSAT that (a) the CBI/IFSAT made an error of law which is manifest from the record of the decision and fundamental or (b) that any sanction imposed is manifestly disproportionate.
The varying standards of review which are applied by the High Court can be a bit dry as a subject. An arid survey of typologies and procedural features is best sidestepped here. However, one word leaps from the page: manifest.
Manifest error has a varied and involved legal heritage.
In the area of expert determination, English caselaw suggests that a “manifest error” is a “howler” so obvious as to admit of no difference of opinion.
The question as to whether legal rights have been infringed does not generally depend on that position being obvious to the court. As one judge observed in the UK Supreme Court in a different context: “Legal rights and remedies are not usually defined by reference to the visibility of the misconduct.
Neither that concept, nor the dictionary meaning of manifest (clear or obvious to the eye or mind) can be correct in this context. The question as to whether legal rights have been infringed does not generally depend on that position being obvious to the court. As one judge observed in the UK Supreme Court in a different context: “Legal rights and remedies are not usually defined?by reference to the visibility of the misconduct.”
It may be that some assistance can be had from the decisions of the administrative board which hears internal reviews of the European Central Bank’s supervisory decisions. That board reviews the “procedural and substantive conformity” of a contested decision with the ECB statutes (while leaving a substantial margin of discretion to the ECB) by applying a standard of manifest error and manifest disproportionality. The concept of manifest error as applied by the European Court of Justice may also have a role in interpreting this power of the High Court.
Whatever the legal heritage or inspiration, this legal standard requires close consideration and more exposition and reflection than this brief piece can offer. It may be that an error of law which is manifest and fundamental is one which appears from the record of the decision and which is material to the decision. Is this enough? The spectre of Zalewski will attend any confirmation hearing in the High Court. If a careful reading of the 2023 Act cannot constitute the court as the effective decision-maker with a full capacity to come to its own conclusion on the merits, then the confirmation mechanism may not save the ASP. In that event, a targeted and careful re-calibration of the Act may yet prove necessary.