Norwest Holst Ltd v Secretary of State for Trade

JurisdictionEngland & Wales
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE ORMROD,LORD JUSTICE GEOFFREY LANE
Judgment Date01 February 1978
Judgment citation (vLex)[1978] EWCA Civ J0201-1
Docket Number1977 N. No.1112
CourtCourt of Appeal (Civil Division)
Date01 February 1978
Norwest Holst Limited
Plaintiffs (Appellants)
and
and
The Secretary of State for Trade
First Defendant (Respondent)
and
Lewis John Davies
First Defendant (Respondent)
and
Thomas Garrard Harding
Third Defendant (Respondent)

[1978] EWCA Civ J0201-1

Before:

The Master of the Rolls

(Lord Denning)

Lord Justice Ormrod and

Lord Justice Geoffrey Lane

1977 N. No.1112

In The Supreme Court of Judicature

Court of Appeal

On Appeal from the High Court of Justice

Chancery Division Group B

(Mr. Justice Foster)

MR. S.E. BRODIE, Q.C. and MR. M.J. BELOFF (instructed by Messrs Bull & Bull, Solicitors, London) appeared on behalf of the Plaintiffs (Appellants).

MR. P. ARCHER. Q.C. (Solicitor General) and MR. P.L. GIBSON (instructed by the Treasury Solicitor) appeared on behalf of the defendants (Respondents).

1

REVISED JUGEMENT

THE MASTER OF THE ROLLS
2

Ever since 1948 there has been a valuable provision of the Companies Act by which the Board of Trade can appoint inspectors to investigate the affairs of a Company, Many investigations have been held by inspectors, usually one of Queen's Counsel, and the other an Accountant. In a case we had fairly recently, In re Pergamon Press Ltd. (1971) 1 Chancery 388, we had to consider the position of the inspectors under such an inquiry. It was held by this court that the inspectors were under a duty to act fairly in the conduct of their inquiry.

3

Now we have to consider a different point. It is said that the Minister himself has done wrong. His conduct is challenged. It is said that the Minister has acted beyond his powers in appointing inspectors. He ought, it is said, to have warned the Company beforehand and given them a chance of being heard. Furthermore, it is said that the Minister exercised his discretion erroneously. He ought to have had sufficient reasons, and he had none in this case. It is said further that he is acting on the information of informers, which is inadmissible as being against the public interest.

4

On these grounds the Company has brought an action to try to stop the inspectors proceeding with the inquiry. The Minister applied to strike it out. Mr. Justice Poster struck it out. The Company appeal to this court.

5

The Company is Norwest Holst Limited. It is a public company. We know nothing about it, except what we find in the 1976 Annual Report. It has very many subsidiaries. It carries on an engineering and construction business all over the world by itself and its subsidiaries. As at March 1976, 31-89 per cent of its Ordinary Shares were held by a consortium, of which two of the directors, Mr. Lilley and Mr. Slater, were the principal members, holding over one-million shares each. Those twodirectors made a take-over bid for the shares of the Company. it went before the Takeover Panel of the City of London. The Panel did not approve the bid. The Annual Report said: "… Following the decision of the Takeover Panel in regard to the proposed bid for the Company from two of its directors, Messrs. Slater and Lilley, it might appear that this left a situation which was not helpful to the Group, but I must emphasise most strongly that the entire Board is unanimous in its support for the Chief Executive and the management, and, therefore, the matter has no effect on the conduct of the business."

6

That report was dated September 1976. On the 29th November, 1976, the Secretary of State appointed two officers of the Department of Trade to look into the Company's documents. That was done by virtue of section 109 of the 1967 Act. It authorized the officers to require the Company to produce any books and papers they wanted and to take copies, and to require explanations.

7

Those two officers were given the books. They were provided with explanations by Mr. Lilley, the director and Mr. Bosdet the secretary.

8

We have no information as to what the documents contained or what the explanations were, but we do know that four months later, on the 11th March, 1977, the Secretary of State ordered the inquiry now in question. He did it under section 165(b)(ii) of the Companies Act 1948. It said: "Without prejudice to their powers under the last foregoing section" - I will come back to that later - "the Board of Trade -

9

(a) shall appoint one or more competent inspectors to investigate the affairs of the Company and to report thereon

10

(b) may do so if it appears to the Board that there are circumstances suggesting …

11

(ii) that persons concerned with its formation or themanagement of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards its members".

12

It was under that section that the Minister appointed two gentlemen, Mr. Lewis John Davies, Q.C., and Mr. Thomas Garrard Harding, a chartered accountant, as inspectors to investigate the affairs of the Company.

13

On the 25th March, 1977 the secretary of the group wrote: "I am authorised to say that it does not appear to by Board that there are any circumstances which would justify the exercise of your discretionary power under the Section to appoint Inspectors". He asked: what were the circumstances? Would they be disclosed? The Secretary of State declined to give that information. The Company wrote back on the 19th April, saying: "Your reference to the provisions of Section 165(b)(ii) of the Act places a wide category of persons within the Company under possible suspicion of having been guilty of most serious offences. The Board considers that the failure of the Secretary of State to give any indication of the nature of the alleged offences or of the person or persons allegedly responsible seems hardly just of equitable".

14

As the Minister gave no information, the Company started this action. They delivered a statement of claim, which they afterwards amended. The burden of the statement of claim is that che Company know of no wrongdoing which has been done by them or any of their people; and therefore it was wrong that the minister could appoint inspectors without, as they say, any proper justification. They put it in these words in their final amended leadings: "… It is implicit in the provisions of Section 165 b)(ii) of the said Act that the discretionary power to appoint inspectors is to be exercised fairly and/or in accordance with the principles of natural justice". They ask for a declarationthat the appointment or purported appointment was ultra vires and invalid.

15

It is important to know the background of the legislation. It sometimes happens that public companies are conducted in a way which is beyond the control of the ordinary shareholders. The majority of the shares are in the hands of two or three individuals These have control of the company's affairs. She other shareholders know little and are told little. They receive the glossy annual reports. Most of them throw them into the wastepaper basket. There is an annual general meeting but few of the shareholders attend. The whole management and control is in the hands of the directors. They are a self-perpetuating oligarchy: and are virtually unaccountable. Seeing that the directors are the guardians of the company, the question is asked: Quis custodiet ipsos custodes - Who will guard the guards themselves?

16

In these courts two or three years ago we had a good illustration of the need for some oversight of public companies. In Wallersteiner v. Moir (1974) 1 Weekly Law Reports 991 at page 1016 I described what had happened:

17

"This case discloses grave breaches of company law. Dr. Wallersteiner obtained control of a public company, Hartley Baird Ltd., by means which were quite unlawful. He acquired 80 per cent, of the shares by using its own money. He paid nothing himself. He operated by means of puppet concerns of his own making. Puppet trusts in Liechtenstein. A puppet finance company in the Bahamas. A puppet banking company in the City of London. All these he brought into his service to further his unworthy ends. Much of it took place 14 years ago in 1962. His solicitors refused to act further for him. But still he went on. He has managed to keep it from the light until now. But Nemesis has overtaken him. The Board of Trade has ordered an inquiryunder the Companies Act. The liquidator of Camp Bird has brought proceedings against him. In this case the judge has condemned him. I would affirm his condemnation".

18

It is because companies are beyond the reach of ordinary individuals that this legislation has been passed so as to enable the Department of Trade to appoint inspectors to investigate the affairs of a Company. Mr. 3rodief who appears for. Norwest Holst Limited, drew our attention to the practice of the Board of Trade from 1948 to 1962. It was given in evidence to Lord Jenkins's Committee on Company Law. The Board of Trade said that it was "very necessary to hear both sides before deciding whether so or not an inspector should be appointed. By so doing it is often possible in cases where no fraud is alleged to bring the parties together for them to reach a mutually satisfactory arrangement so that an investigation is not necessary". That was the practice before 1962. Mr. Brodie submitted that that practice was required by the common law. He said that the principles of natural justice are to be applied; and, accordingly, both sides should be heard before an inspector is appointed.

19

That may have been the practice of the Board of Trade in those years: but I do not think that it was required by the common law. There are many cases where an inquiry is held - not as a judicial or quasi-judicial inquiry - but simply as a matter of good administration. In these circumstances there is no need for any preliminary notice of any charge, or anything of that sort. Take the case where a police-officer is suspected of misconduct. The practice is to suspend him pending enquiries. He is not given notice of any charge at...

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