The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A fund administrator’s bid to overturn a Securities Commission fine has been rejected by the Court of Appeal, which yesterday found the case raised no legal issues that could impact the wider Bahamian financial services industry.

Fund Haven Ltd, the former Accuvest Fund Services, had sought to appeal ‘out of time’ a 2012 Supreme Court verdict against itself and its client, South American Investment Fund Ltd, which upheld an earlier Securities Commission disciplinary decision and fine against them.

Appeal Justice Crane-Scott, in her ruling, recorded how Fund Haven and its client sought the Court of Appeal’s permission to appeal on the grounds that the case raised “two points of law of general public importance”.

Gawaine Ward, the Securities Commission’s in-house attorney, objected because the Supreme Court ‘certification’, confirming that it involved two issues of importance to the wider financial services industry, had been produced “more than two years” after the judge who heard the case had left office.

The Court of Appeal, though, allowed the hearing to proceed after Gail Lockhart-Charles, the attorney for Fund Haven, produced a Supreme Court transcript purporting to show that then-Justice Claire Hepburn had agreed to ‘certify’ the appeal as raising key questions regarding the securities and investment funds sector.

For the Court of Appeal to rule in Fund Haven’s favour, Justice Crane-Scott said its 16 ‘grounds of appeal’ had to show a “point of law” was at issue. And it then had to demonstrate that the case raised issues “of general public importance”.

“Mrs Lockhart-Charles submitted that the several grounds of the intended appeal involve two points of law of general public importance,” Justice Crane-Scott recalled.

These were whether, under section 7 (1) of the Investment Funds Act 2003, a company that did not act as an investment fund, could be deemed to be doing business as such a vehicle under the Act’s section three.

And whether a company once licensed as an investment fund by the Securities Commission, but no longer operating as such, can still be considered an investment fund under the same two sections of the Act.

Justice Crane-Scott said the two questions, as framed, would require the Court of Appeal to determine what was meant by the relevant sections of the Investment Funds Act.

She added, though, that both were based on ‘fact’ as opposed to a ‘point of law’,as Fund Haven’s argument was that South American Investment Fund Ltd was “once licensed as an investment fund, but had subsequently ceased to be so”.

As a result, given the definition of ‘investment fund’ in the Act, their argument was that neither could have breached the law, as the Securities Commission had found.

Fund Haven (Accuvest) had been found guilty of failing to submit its financial statements to the Securities Commission for the years 2005-2007, plus the annual declaration for 2006.

The regulator’s disciplinary panel also found that South American Investment Fund Ltd was operating without the required licence, and failed to submit its annual declaration for 2008.

Fund Haven (Accuvest) was fined $53,500, while its client was subjected to a $27,500 penalty. The Supreme Court, while upholding the Securities Commission verdict, reduced the fines to $36,000 and $20,000, respectively.

“We must confess that we have found great difficulty in understanding what possible connection these two questions have with the intended grounds of appeal as framed,” Justice Crane-Scott ruled, indicating that the Court of Appeal was unimpressed with Fund Haven’s arguments.

“It is also not hard to discern that both questions have been carefully crafted to buttress the grounds of the intended appeal, but we are convinced that neither question has any obvious connection with any of the grounds. Nor do the questions relate to any ground which specifically seeks to impugn the judge’s interpretation of section 7(1) of the Investment Funds Act.”

Justice Crane-Scott said Fund Haven and its client had “placed the proverbial cart before the horse”, adding that the questions raised no ‘point of law’ or issue “of great public importance to the Bahamas’ financial services sector and to the public generally.”

Mr Ward, for the Securities Commission, argued that the Fund Haven appeal was based on an interpretation of the facts, and raising issues that had not been brought before the regulator’s disciplinary committee - that South American Investment Fund should not be treated as an investment fund, because it no longer held such a licence.

Justice Crane-Scott said South American Investment Fund had been licensed as a SMART fund in 2004 when it chose to become registered, and the Supreme Court had found “it could not simply choose to be registered” - especially if the Securities Commission had not been informed.

“Section 7 of the Investment Funds Act provides that upon its election to be licensed as an investment fund, a company shall from the date of licensing be deemed an investment fund for purposes of the Act,” the Court of Appeal ruled.

“Once licensed, an investment fund is, as the section expressly states, subject to the provisions of the Investment Funds Act, and becomes obligated to comply with the applicable regulatory provisions.....

“The judge clearly found that once licensed, a company could not simply ignore its obligations, particularly if it did not inform the Commission, as the regulator, of its decision. This finding has not been appealed.”