Re London United Investments Plc

JurisdictionEngland & Wales
JudgeLORD JUSTICE DILLON,LORD JUSTICE MUSTILL,LORD JUSTICE STUART-SMITH
Judgment Date19 December 1992
Judgment citation (vLex)[1991] EWCA Civ J1219-4
Docket Number91/1183
CourtCourt of Appeal (Civil Division)
Date19 December 1992

[1991] EWCA Civ J1219-4

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

(MR JUSTICE SCOTT)

Royal Courts of Justice

Before:

Lord Justice Dillon

Lord Justice Mustill

Lord Justice Stuart-Smith

91/1183

In The Matter of the Companies Act 1985

and

In The Matter of London United Investments Plc

MR STANLEY BRODIE Q.C., MR STEPHEN NATHAN and MR ROBERT HOWE, instructed by Messrs Tarlo Lyons, appeared for the Appellant (Respondent), Peter Stringer Wilson.

MR ANDREW COLLINS Q.C. and MR WILLIAM CHARLES, instructed by The Treasury Solicitor, appeared for the Respondents (Applicants), William Marcus Gage Q.C. and Angus Hugh Gilroy F.C.A. (Inspectors).

LORD JUSTICE DILLON
1

The court has before it an appeal by Mr Peter Wilson against an order of Scott J. made in the Chancery Division on 23rd July 1991. By that order, which was made after a hearing on an application to the court by originating motion under section 436 of the Companies Act 1985 by Inspectors (Mr William Gage Q.C. and Mr Gilroy F.C.A.) appointed by the Department of Trade and Industry ("D.T.I.") under section 432(2) of that Act, the judge declared that the refusal of Mr Wilson to answer the questions (a) contained in a schedule enclosed with a letter dated 15th February 1991 written by the Inspectors to Mr Wilson's solicitors and (b) put to Mr Wilson by the Inspectors on 22nd March 1991 was unjustified. He then adjourned the originating motion sine die, partly to enable Mr Wilson to appeal against that declaration, if he wished, and partly to give Mr Wilson an opportunity to reconsider his refusal to answer the Inspector's questions.

2

Leave to appeal, if needed, was granted by the judge, but the appeal has been presented as a final appeal. I have considerable doubts whether the appeal is in truth a final, as opposed to an interlocutory, appeal; in The Governor and Company of the Bank of England v. Riley decided in this court on 17th October 1990, an appeal which raised similar issues, but under a different Act, the Banking Act 1987, was clearly interlocutory. It is unnecessary in this case to decide whether appeals such as the present are in truth final. If they are, it is important that they should be heard as expeditiously as if they were only interlocutory, and happily that has happened in the present case.

3

Mr Wilson was, from 1st January 1976 until he resigned on 4th October 1990, a director of London United Investments Plc ("LUI"). LUI is a company which was quoted on the London Stock Exchange and carried on business primarily as a holding company in the insurance field, with, at the material times, two relevant wholly-owned subsidiaries. These were Walbrook Insurance Company Limited ("Walbrook") and H.S. Weavers (Underwriting) Agencies Limited ("HSW"). Walbrook was a non-life, non-marine insurance company specialising in casualty, professional indemnity and property business. HSW was a managing agent writing business on behalf of Walbrook and non-group companies. Mr Wilson was a director of Walbrook from 3rd December 1974 until 2nd August 1990. He was already a director of HSW when it became a subsidiary of LUI in 1971. He was managing director of HSW from 1st January 1976 until he resigned as managing director in September 1989 on becoming chief executive of LUI. He resigned his directorship of HSW on 4th June 1990.

4

LUI ran into difficulties in 1989, if not before. On 26th March 1990, following directions from the D.T.I., LUI and its subsidiaries stopped writing new insurance business, and, after an attempt at a market rescue had failed, on 22nd May 1990 an administration order was made in respect of LUI. Since LUI was a quoted company, as I have mentioned, until the quotation of its shares was suspended on 26th March 1990, its difficulties attracted considerable attention in the financial press.

5

On 2nd November/31st October 1990 the Secretary of State for Trade and Industry in exercise of his powers under section 432(2) of the 1985 Act appointed Mr Gage and Mr Gilroy to act as Inspectors "to investigate the affairs" of LUI and to report thereon in such manner as the Secretary of State might direct. The phrase "to investigate the affairs" of a company is the traditional phrase which has been used in successive Companies Acts to describe the function of Inspectors appointed under those Acts, first by the Board of Trade and more recently by the Secretary of State.

6

Whether the appointment so worded entitled the Inspectors to investigate the affairs of subsidiaries of LUI, viz. Walbrook and HSW, was challenged by Mr Wilson before Scott J. But that particular point is not pursued on this appeal, since the judge's decision that the Inspectors were so entitled is clearly warranted by the express wording of section 433 of the 1985 Act.

7

When they were appointed Inspectors, the Inspectors were particularly asked by the Secretary of State to look at the circumstances surrounding payments of commission on reinsurance contracts relating to HSW. That raises questions in particular in relation to the arrangements made between HSW and a German reinsurance company referred to, for short, as "Munich Re". In an affidavit sworn by the Inspectors on 10th May 1991 in support of the originating motion the Inspectors say:

"It is apparent from our investigations to date that between 1976 and 1989 [HSW] entered into reinsurance quota share treaties with Munich Re acting as lead underwriters (hereafter the Munich Re facility). The quota share treaties during that period formed a substantial part of the [HSW] stamp companies' reinsurance programme. During that period deductions of 5% rising in 1982 to 6.5% were made from reinsurance premiums and paid to various companies based in Germany or Liechtenstein. We shall refer hereafter to those companies as the Smith Companies. The total of such deductions is in the order of US$46 million. The reinsurance premiums were those relating to the Munich Re facility. We regard it as essential and central to our investigation to determine why those deductions were made; what was the true nature of the role performed by the Smith Companies and for whom were they acting."

8

The Inspectors go on to point out in their affidavit that Mr Wilson was the person who carried out the negotiations with Munich Re and operated the Munich Re facility throughout the whole period and they say that he has told them that he intended that the deductions should go to the Smith Companies. They therefore submit that Mr Wilson must be in possession of information which will throw light on the issues set out in their affidavit.

9

The Smith Companies referred to in the Inspectors' affidavit take their name, it seems, from a Mr Graham Smith and his wife Isolde Smith. Mr Graham Smith is an English Chartered Accountant who has long been resident in Liechtenstein. His wife is a Liechtenstein citizen as well as being resident there. It seems that there have been four companies or bodies involved or possibly involved with the Munich Re commission, viz. (and I take the details from the list of Dramatis Personae supplied by counsel for Mr Wilson):

"(i) Protega Agentur Anstalt—a Liechtenstein Anstalt formed in 1976 as an insurance agency but now no longer in existence which was formerly owned and controlled by a Mr Alfred Muessner, who died in 1983, and of which Mrs Isolde Smith was a director.

(ii) Protega Versicherungs-Agentur GmbH—a German company which was formed in 1982 but was wound up in 1987 and is now dissolved, and of which Mr Alfred Muessner was the sole shareholder until his death.

(iii) Smith Agentur GmbH—a German insurance agency formed in 1982/3 which was owned and controlled by Mr and Mrs Smith until 1985, when Mrs Smith became sole shareholder and possibly

(iv) Smith Agentur A.G.—a Liechtenstein insurance agency formed in 1977 of which Mr and Mrs Smith are directors."

10

The Inspectors have copies (as has this court) of an affidavit sworn in other proceedings by a Mr Borley who has been a director of HSW since July 1979 and who succeeded Mr Wilson as managing director of HSW, to the effect that he had no knowledge of any commission being payable by Munich Re in respect of HSW's reinsurances until he was told of the payments by Munich Re's U.K. account manager in Munich on or about 25th June 1989.

11

The Inspectors are also concerned to investigate the establishment of a Michigan reinsurance agency, called, for short, " Russell Re", by, it would seem Mr Wilson and others, but it is unnecessary for present purposes to refer further to this.

12

One further aspect of the facts on which Mr Brodie Q.C, on behalf of Mr Wilson, has placed considerable reliance is that on 30th October 1990 HSW started an action in the Commercial Court against Mr Wilson and others, including Mr and Mrs Smith and the Smith Companies, claiming damages and other relief for fraud in respect, in effect, of the diversion to the Smith Companies of the commissions payable by Munich Re. This action has not proceeded far, and Mr Brodie says that that is because HSW has no evidence of any fraud and cannot even offer any sufficient particulars to achieve a proper pleading of fraud.

13

The Serious Fraud Office is undoubtedly aware of the general situation over LUI and its subsidiaries and the commission from Munich Re. But neither Mr Wilson nor anyone else has yet been charged with any criminal offence in respect of anything to do with LUI or its subsidiaries. Indeed, so far as I am aware Mr Wilson has not yet been questioned by the Serious Fraud Office or by any police officer.

14

In these circumstances it does not surprise me in the least that the Inspectors should have wanted...

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