Derek Colins Associates Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Anthony Mann QC |
| Judgment Date | 31 July 2002 |
| Judgment citation (vLex) | [2002] EWHC J0731-3 |
| Date | 31 July 2002 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case Nos 3092, 3093 & 3094 of 2002 |
[2002] EWHC J0731-3
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London WC2A 2LL
Mr Anthony Mann QC, Sitting as a Deputy Judge of The Chancery Division
Case Nos 3092, 3093 & 3094 of 2002
Mr Michael Green (instructed by the Treasury Solicitor) for the Petitioner
Mr Jonathan Lopian (instructed by Cuff Roberts & Co) for the Defendants
JUDGMENT: APPROVED BY THE COURT FOR
HANDING DOWN
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
1. These are three petitions brought by the Secretary of State seeking to wind up the above three companies on public interest grounds. The principal activities of the companies to which objection is taken are the same in each case, so for the most part it will be unnecessary in this judgment to distinguish between them. The allegedly offending activities all concern the procuring of advertising in publications which are produced for, and circulated by, organisations that are mainly charities but which also include two non-charitable but nonetheless socially beneficial organisations. It is said that the process of getting in advertising tends to mislead the advertisers, and it is also said that the nature and conduct of the business exploits commercially naive charities. More complaints were originally made, but those were the principal complaints relied on by the time final speeches were reached in the hearing before me.
The companies�formation, shareholders and directors
2. The three companies were formed, and are owned and managed, as follows:
Derek Colins Associates Limited ("DCA"):
Formed: 5 March 1999
Shareholders: Derek Ayre 2; Craig Ayre 49; Neil Ayre 49
Directors: Neil & Craig Ayre
Apsley House Partnership UK Limited ("Apsley"):
Formed: 26 October 1999
Shareholders: A shares�Craig Ayre 349; Neil Ayre 350; Graham Jones 300; B shares�Craig Ayre 60, Neil Ayre 10, Graham Jones 30
Directors: Neil & Craig Ayre, Graham Jones
Addcom (UK) Limited ("Addcom'):
Shareholders: as DCA
Directors: Derek, Craig and Neil Ayre.
Craig and Neil Ayre are brothers; Derek is their father. Derek has no real role in this story. The prime movers are Craig and Neil. Graham Jones is in effect a business associate in these businesses, and he gave evidence before me, but again he plays a less material part than the Ayre brothers.
The investigation and commencement of these proceedings
3. On 15 November 2001 the Secretary of State for Trade & Industry gave authority to Jonathan Clive Moore to require the production of documents under Companies Act 1985, section 447. He duly served his authorities, visited company premises and over the following four weeks or so he obtained documents and interviewed the directors. In due course, as a result of his report, the Secretary of State presented these petitions on 7 May 2002. She applied for the appointment of a provisional liquidator in each case, but that application was refused. Instead, a speedy trial was ordered, and the petitions were heard together by me starting on 15 July 2002. Mr Michael Green appeared for the Secretary of State in all three petitions; Mr Jonathan Lopian appeared for the companies.
The business of the companies
4. The sole business of DCA and Apsley is what is known as support advertising. It is carried out for five charities and two police community organisations. That is part of Addcom's business too, but that company also has a line of business in commercial advertising with which I need not be concerned for the moment. The nature of support advertising is as follows; I shall illustrate it by reference to DCA. In what follows, and in the rest of this judgment, I shall refer to the companies' clientele as if they were all registered charities for ease of exposition. Although the two police community organisations were not charities they would be likely to be perceived by people as having the same worthy status for these purposes.
5. DCA enters into an agreement with an organisation which is in almost every case a charity, usually a small one. The agreement provides that DCA will deliver to the charity a quantity of stationery in the nature of diaries, wall planners, reports, books of childrens' games and so on. These are not the sort of products that are produced for commercial resale at a profit. They are products either for free distribution to supporters of the organisation in question, or for sale at a relatively nominal sum for publicity and limited fundraising purposes. None of them has what one could describe as a circulation in any commercially definable market. The quantities range from between 50 to several thousand. DCA also agrees to pay the charity a sum of money�often between �1,000 and �3,000. DCA then sells advertising space in the publication in question in respect of which it is entitled to keep the entire proceeds. The cost of the advertisements varies between several tens of pounds and several hundred pounds, depending on size, the publication and what the salesman thinks he can get out of the advertiser as a matter of negotiation.
6. The method of selling the advertising space is by telesales. Individuals employed by the company make unsolicited telephone calls to large numbers of businesses inviting them to place an advertisement. In the case of DCA and Apsley, the individuals are employed on a purely commission basis�they get 25 per cent of confirmed orders (subject to various qualifications which are immaterial for these purposes) which is apparently a familiar rate in the industry. If the prospect appears interested their interest is noted and a short time later a further call is made by another employee (who is one of a more select class of employee than those doing the initial canvass). This is the "confirmation" call, and if all goes according to the company's plan it ends up with an oral contract for the advertisement at an agreed price. The advertiser is then invoiced. Each of those two telephone calls is scripted�that is to say, the employee in question is required to stick as closely as possible to a written script. The confirmation call, but not the initial call, is recorded. This is so that the companies have clear evidence of a sale in case of a dispute; there is no written agreement on which the companies could rely. In due course the publication is created and delivered to the charity at no cost to the charity. The charity is said to have got two principal benefits from this arrangement�
The sum paid by DCA (whatever that might be) and the publication itself, which the charity is free to dispose of as it thinks fit. As I have pointed out, often it will not be disposed of for any or any significant sum of money, but in any event the reference to the charity on and in the publication will give it additional publicity and raise public awareness (or so it is hoped). The company benefits from income from the advertising but bears the cost of selling and the direct cost of publication and delivery. Its deal with the charity enables it to use the charity's name to persuade the advertisers to advertise; the use of the charity's name is the central key to the operation.
7. The terms of the scripts, and particularly that relating to the initial call, lie at the heart of the principal issue in this case, and I shall set them out in Appendices to this judgment.. The activity generates a significant profit for the companies. By and large the companies make profits of about 10 per cent of turnover on this business. The charities get about 3.7 per cent as cash (some get none on some publications; some get more but that is the overall figure) plus the publications themselves. Over the course of about two years of business the companies have issued over 18000 invoices to advertisers. All this makes it clear that the profit to the companies out of these various publications is much more than is contributed to the charities in cash terms. The directors accept that (though they would also stress the cost and value of the publications, which the charities also receive).
8. I have stated that the calls to potential advertisers are carried out according to scripts to which the operatives of the company are required to stick to so far as possible, though some ad libbing is allowed within limits�for example, if an advertiser asks for details of the charity or the organisation
for whose publication advertising is being canvassed, the telesales operative can supply information from details that he or she has to hand. The scripts that the companies use or have used, or are said to have used, in the initial cold calls are set out in Appendices to this judgment. Since the initial calls are not taped, the best evidence of what was said comes from these scripts. Mr Moore did not actually listen in to any of the actual conversations. He did not even ask to do so, considering that he could not listen in at the same time as maintaining the confidentiality of his investigation. I am not sure that he was sensible to take that view, and it might have been better if he had at least asked so as maximise the opportunity of getting the best possible evidence of what is a very important part of this case, but as it is I am left with no evidence of the calls other than the scripts. However, since the company does not dispute that the scripts were used, that evidence can be taken as reliable evidence of each of the telephone calls in all material respects, and I so treat them, though there was a serious dispute...
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