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This article was written by Dr Jason Grant Allen.

This note explains the decision of the Appellate Division of the Civil and Commercial Court of the Qatar Financial Centre (“QFC”) in Qatar Financial Centre Regulatory Authority v First Abu Dhabi Bank P.J.S.C. [2019] QIC (A) 3. The case demonstrates the extent of the extra-territorial jurisdiction of modern financial services regulators, even in a case with a distinct inter-state and political element.

The dispute concerned transactions by the First Abu Dhabi Bank PJSC (“the Bank”) on the foreign exchange market for Qatari Riyals between June and December 2017. The Bank operated a branch in the QFC. The United Arab Emirates (“UAE”), along with a number of states in the region, started a trade and diplomatic blockade of Qatar in June 2017. The Qatari Riyal has been pegged to the US Dollar since 2001. During the Eid holidays in June 2017 and again throughout the third and fourth quarters of that year, a pattern of unusual trading was observed by the QFC Regulatory Authority (“the Regulatory Authority”), which it deemed worthy of investigation (see para [27]).


Procedural History

The Regulatory Authority commenced an investigation in March 2018, and served Notice on the Bank (via its QFC branch) to produce certain documents and information held by the Bank at any of its branches or offices. The Bank handed over certain documents held by the QFC branch but refused to comply further.  In particular, the Bank refused to provide any documents held by its head office in Abu Dhabi in the UAE. The Regulatory Authority commenced legal proceedings in the First Instance Circuit in July 2018 and obtained an Order (see Quatar Financial Centre Regulatory Authority v First Abu Dhabi Bank PJSC [2018] QIC (F) 12) to comply with the Notice. The Bank appealed on five grounds, premised on a challenge to the jurisdiction of the court:

1.     Jurisdiction of the Regulatory Authority: Did the Regulatory Authority have jurisdiction to commence an investigation into matters that occurred outside the QFC and to issue a Notice to the Bank to produce documents and provide information relating to those matters?

2.     Scope of Jurisdiction: If so, did that jurisdiction extend only to the QFC branch of the Bank, or to the Bank itself? If the latter, did that jurisdiction extent to requiring the production of documents held outside Qatar?

3.     Validity of Notice: If jurisdiction existed, was the Notice validly served on the Bank via its QFC branch?

4.     Jurisdiction of the Court: If jurisdiction existed and Notice was validly served, did the First Instance Circuit have jurisdiction to make an Order requiring compliance with the Notice?

5.     Discretion: If the First Instance Circuit had jurisdiction, did it exercise its discretion properly in ordering compliance with the Notice in its entirety?

The Appellate Division (Lord Thomas of Cwmgiedd P, Chelva Rajah J and Sir William Blair J) dismissed the appeal on all grounds.


Ground 1: Jurisdiction of the Regulatory Authority

The jurisdiction of the Regulatory Authority is set out in the QFC Law and Regulations. Article 8.1 of the QFC Law establishes the Regulatory Authority “for the purpose of regulating, licensing and supervising banking, financial and insurance-related business carried on in or from the QFC”. That Article further provides that subordinate legislation will define the “management, objectives, duties, functions, powers and constitution” of the Regulatory Authority. Article 26 of the Financial Services Regulations contains some specific provisions relating to the jurisdiction of the Regulatory Authority to require information, deeming activities to be “carr[ied] on in or from the QFC” if the activities are “conducted in circumstances that are deemed to amount to activities carried on in or from the QFC under Rules made by the Regulatory Authority”, which the Regulatory Authority may do on the basis of the effects of those activities.

The Bank’s jurisdictional challenge turned on the construction of these provisions, and of Rules made under Article 26, in light of the fact that some of the impugned actions occurred outside the QFC, and that the Regulatory Authority purported to require the Bank to produce documents held outside the QFC. Argument raised some tricky questions about whether Article 8.1 in combination with Article 26 allowed the extension of the Regulatory Authority’s jurisdiction by subordinate legislation.

These questions did not need to be answered, however, in the opinion of the Court: it was clear that the jurisdiction of the Authority extended to making enquiries into matters that occurred outside the QFC, and to order the disclosure of documents held outside the QFC—the Regulations in question did not extend the actual jurisdiction conferred by Article 8.1 (para [21], [24]). The question was rather whether an evidential basis existed for the Regulatory Authority to require the documents and information it did, i.e., whether the activities in question (i) related to a firm active in the QFC and (ii) were capable of affecting confidence in the financial system operating in the QFC or the firm’s fitness and propriety. On the evidence at hand, the Court took the view that the activities carried on outside the QFC related to the activities of the branch of the Bank in the QFC (para [30]).


Ground 2: Scope of the Regulatory Authority’s Jurisdiction

The Bank contended that, for the purposes of the QFC Law and Regulations, the relevant firm over which the Regulatory Authority had jurisdiction was the QFC branch, not the Bank itself. The question then arose whether the Regulatory Authority’s jurisdiction extended only to the QFC branch, or also to the Bank itself and thus to documents held by the Bank outside Qatar. This raised issues about the interpretation of the QFC Law and Regulations and international practice and case law that needed to be considered together (para [33]). 

Part 5 of the Companies Regulations made under the QFC Law provide for (i) migration of a company with the consequence that it becomes incorporated as a QFC company and (ii) registration as the branch of a foreign company, with a branch representative and place of business for the service of notice (see para [34[). In this case, the second route was taken; the branch was described in proceedings (although not always consistently) as the “First Abu Dhabi Bank Public Joint Stock Company Qatar Financial Centre Branch (incorporated in the United Arab Emirates and authorized by Qatar Financial Centre Regulatory Authority)”.

The Bank accepted that the QFC branch was not a separate legal entity, but argued that it ought to be treated as distinct from the Bank for regulatory purposes (para [37]), by reference to insolvency and taxation regimes. Further, the principle of territoriality required the regulation of financial services through inter-regulator cooperation rather than extra-territorial jurisdiction to require documents and information by a territorial regulator.

The Court approached these issues by posing three questions (para [38]): (i) whether the QFC Law and Regulations gave the Regulatory Authority jurisdiction to require the production of documents held outside Qatar; (ii) whether the case law on the distinction between a bank and its branch is relevant; and (iii) the rationale for treating a branch as distinct for regulatory purposes where this is the case.

In terms of the first, the Court emphasised the “principles of general application” in the international cases on extra-territoriality (see paras [42] to [46]) and the legislative intention to establish the QFC as an international financial centre (para 47]). The proper regulation of the QFC requires, in some cases, the ability to exercise powers in the QFC in respect of matter occurring or documents and information held outside the territory of Qatar, and the QFC Laws and Regulations (properly interpreted) enable the Regulatory Authority to do so. This approach does not infringe on the principle of territoriality (para [49].

In terms of the case law on the distinction between banks and their branches, the First Instance Court relied on two cases from the Dubai International Financial Court applying the well-established principle that a branch is no more than a part of the larger company similar to a division of the company (para [52]). Although these cases were in a “non-regulatory context”, and although some of the statements in them might require qualification in that context, the First Instance Circuit was correct to apply them. As a matter of general principle, a branch has no separate legal identity: “The Bank is the regulated entity for regulated activities carried out by the Bank through its branch in the QFC” (para [55]).

As for the circumstances in which a branch has been treated as separate for regulatory purposes, the Court grouped the cases into four categories (see paras [57] to [63]), each of which is grounded in reasons of policy (para [56]). The first line of decisions concerned recovery of deposits, including the classical Russian banking cases from the early 20th century. The second line of decisions concerned taxation of local branches. The third line of decisions concerned insolvency. The fourth line of cases concerned enforcement of court orders and the situs of the debt. None of these exceptions applied in the instant case. Again, the proper interpretation of the QFC Law and Regulations conferred jurisdiction on the Regulatory Authority to issue Notice requiring the Bank to produce information from its head office as well as its branches; this was in line with both the case law and banking practice, and was practically necessary to enable a meaningful investigation (para [64]).


Ground 3: Proper Service of Notice

The Notice requiring information was addressed to the “First Abu Dhabi Bank” and served on the Bank at its QFC branch office. This gave rise to a challenge on the basis that the notice was addressed to the branch and served only on the branch. This issue was disposed of quickly on the basis of the reasons set out in relation to the first two grounds (see para [66]); the Court’s ruling on the separate legal entity question entailed that the Notice was served properly on the Bank at the address of its QFC branch.


Ground 4: Jurisdiction of the Court to make an Order  

This issue was also disposed of quickly on the basis of the court’s findings on jurisdiction and legal personality. As the Authority was competent to make the request for information and had served valid Notice on the Bank, the First Instance Circuit had jurisdiction to make an Order requiring compliance (para [72]).


Ground 5: Exercise of the Court’s Discretion

The final issue concerned the Court’s discretion to make an Order on the Bank to comply with the Regulatory Authority’s notice. Argument on this question turned on which Article in the QFC Financial Services Regulations the Regulatory Authority should have relied on when seeking the Court’s assistance in enforcement of the Notice.

The Regulatory Authority relied primarily on Article 54 of the Financial Services Regulations, which gives the Court a broad discretion, stipulating that the Court “shall provide such assistance as it considers appropriate in the circumstances and in accordance with its powers” to assist the enforcement of the Regulatory Authority’s powers. In the alternative, the Regulatory Authority relied on Article 48, which is narrower, providing that the Court “may on application make an order that the Regulatory Authority may make a requirement… in respect of a person outside the QFC”. The Bank contended that the Regulatory Authority should have applied to the Court for assistance under Article 48. Again following the Court’s findings in relation to jurisdiction and legal personality, Article 54 was the relevant provision on which to rely (para [77]). 

The reference to assistance “which it [the Court] considers appropriate” confers a discretion on the Court. The First Instance Circuit referred to the sensitive political aspects of the dispute between Qatar and other states including the UAE (para [78], referring to the First Instance Circuit judgment para [42]). However, the First Instance Circuit was not directed to all the relevant authorities concerning extra-territoriality and regulatory cooperation (para [78]). Thus, the Appellate Division considered the exercise of the Court’s discretion under Article 54 in some detail.

First, the First Instance Circuit had been correct to pay close regard to the fact that the documents and information required were necessary for a proper, authorised investigation (para [86]). Secondly, it was appropriate to give great weight to the evidence that requests for assistance from the relevant UAE regulators had gone unanswered, and that assistance was unlikely to be forthcoming (para [87]). In such circumstances, the usual principle that regulators will assist each other could not be relied upon, such that the Bank’s insistence on the principles of mutual regulatory cooperation was “significantly undermined” (para [88]). Finally, it was necessary for the Court to consider the scope of the Notice when exercising the discretion to make an Order for compliance with it. A court should generally, and of its own motion, consider the breadth of the requirements for information, compliance with which would require action outside the relevant state (para [91].

All in all, the Court dismissed the appeal on all substantive grounds. In the event, the Court found no basis for challenging the core list of documents sought in the Notice; however, it accepted that some of the further documents “may be too wide in scope” and, without expressing a view on the merits of the argument, the Court granted permission to apply to the First Instance Circuit with regards to those items.


Non-Compliance and Enforcement Proceedings

Qatar Financial Centre Regulatory Authority v First Abu Dhabi Bank PJSC [2020] QIC (F) 2, in turn, dealt with enforcement of a Decision Notice issued by the Regulatory Authority following non-compliance by the Bank with the Order.

Following initial judgment in the substantive proceedings, the Regulatory Authority wrote on numerous occasions to the Bank requiring compliance with the Order. There followed a rather complex set of applications, the appeal summarised above, contempt proceedings, imposition of a Decision Notice by the Regulatory Authority imposing a substantial fine of QAR 200,000,000 (approximately US$ 55 million), and the Bank’s closure of the Bank’s Doha branch office in June 2019—the culmination of a course of action that the First Instance Circuit characterised as “a determined and orchestrated campaign” to thwart the Regulatory Authority’s efforts to progress with the investigation. The result was an application by the Regulatory Authority under the Financial Services Regulations Article 59(4), which provides that any penalty which is not paid within the stipulated period may, on application to the Court by the Regulatory Authority, be recovered as a debt.

The First Instance Circuit (Sir Bruce Robertson, Lord Hamilton, and George Arestis JJ) noted that there was no existing judicial guidance in QFC law governing the approach the Court is to take under Article 59(4). Although the Financial Services Regulations draws substantively on the UK Financial Services and Markets Act 2000, the Court noted a clear difference between s. 390(9) of that Act and Article 59(4), to the extent that a judicial action is implicit within the latter (para [22]). Whatever action—including the exercise of a discretion—Article 59(4) might require, it did not provide an instance to appeal the Decision Notice, which could have been made to the Regulatory Tribunal (but was not) (para [23]).

The Regulatory Authority submitted that the Court should treat the enforcement of the Decision Notice as tantamount to the judgment of a foreign court or an arbitral award, such that the Court should make an order for enforcement unless some consideration of public policy would require otherwise or such a course of action would involve a breach of natural justice of fraud (para [24]). An amicus submission urged the Court to approach the application on a test of “proportionality” or “rationality” analogous to a judicial review proceeding (para [25]). The Court did not accept either of these submissions without qualification. The latter approach would bring the procedure too close to the law of judicial review, but the decision to exercise the jurisdiction granted to the Court by Article 59(4) could not, in the Court’s view, involve a detailed critique of the reasoning in the Decision Notice of that kind (para [26]). The former submission came closer to the mark, but the analogy was not perfect because the Decision Notice had been reached via an administrative rather than a judicial process, and this might require more flexibility for the Court than in the case of a foreign judicial or arbitral award (para [26]).

The Court stressed that the Decision Notice was based on non-compliance with an investigation into an allegation of improper conduct rather than a finding of such (para [27]). In particular, the Decision Notice referred to (i) obstruction of the Regulatory Authority in the exercise of its functions and breach of the applicable principles in the General Rules of the QFC by (ii) failure to observe a high standard of integrity and (iii) failure to deal with the Regulatory Authority in an open and cooperative manner (para [28]). Although (ii) and (iii) were less clear cut (see paras [30] to [35]), the Regulatory Authority was entitled in this case to conclude that there had been a persistent (and continuing) failure by the Bank to produce documents and information; although the penalty of QAR 200,000,000 might seem high, it was not such that the Court could refuse to give judgment for it on an application under Article 59(4), and the application was granted (para [36]).


Conclusion

These two decisions show the reach of a modern financial services regulatory jurisdiction. A bank operating a branch in one jurisdiction may be required to give disclosure across its international operations with substantial penalties imposed for non-compliance. The demands of the rule of law require no less, even in a case with potential geo-political overtones. In a future note, I will consider the creation and development of novel financial centres across the Middle East more generally and the contribution they have made to international commerce and the development of the law.


Ben Jaffey QC and Naina Patel acted for the Qatar Financial Centre Regulatory Authority.

 

Dr Jason Grant Allen is a member of Blackstone Chambers’ Academic Research Panel

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