Re Southbourne Sheet Metal Company Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,Lord Justice Beldam,LORD JUSTICE McCOWAN,LORD JUSTICE BELDAM |
| Judgment Date | 09 July 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J0709-13 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 92/0796 |
| Date | 09 July 1992 |
[1992] EWCA Civ J0709-13
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE HARMAN)
Royal Courts of Justice
Lord Justice Nourse
Lord Justice McCowan
Lord Justice Beldam
92/0796
MR EDWARD A. BANNISTER, Q.C., instructed by Messrs Shoosmiths & Harrison (Northampton), appeared for the Appellant (First Respondent).
MR PHILIP HESLOP, Q.C., and MR MATTHEW COLLINGS, instructed by The Treasury Solicitor, appeared for the Respondent (Applicant).
This is an appeal relating only to costs. It is brought with the leave of the judge below, which means that the restriction on an appeal imposed by section 18(1)(f) of the Supreme Court Act 1981 does not apply. Shortly stated, our concern is to decide whether, in making his order, the judge erred in principle; cf. Alltrans Express Ltd v. CVA Holdings Ltd [1984] 1 W.L.R. 394.
The order was made by Mr Justice Harman on an application by the Secretary of State for Trade and Industry under the Company Directors Disqualification Act 1986 seeking a disqualification order against Mr Peter Harry Checketts, who had formerly been a director of a company called Southbourne Sheet Metal Company Limited ("the company"). The facts are set out in the judgment of the judge, reported at [1992] BCLC 361, and not much repetition will be necessary.
After affidavits had been put in on both sides, but before trial, the Secretary of State proposed that he should be given leave to withdraw the application with no order as to costs. Notwithstanding Mr Checketts' opposition to that proposal, the judge acceded to it, the basis of his decision being expressed at page 363 A-B:
"I think I can properly say that there has grown up something of a practice in this court not to visit upon the department costs incurred by a director who has been proceeded against in a case where there is cause to investigate (as Mr Collings put it) but, more than that, cause to believe that there is a prima facie case of unfitness to be a director, which prima facie case is then rebutted by the evidence that comes in."
Since I am of a clear opinion that any such practice is contrary to principle and that Mr Checketts' appeal must therefore be allowed, I propose to state my reasons as briefly as I can.
The principal provisions of the 1986 Act to which the arguments in this court have directed our attention are these.
Section 6(1) is in these terms:
"The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied—
(a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and
(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company."
So far as material, section 7 is in these terms:
"(1) If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order under section 6 should be made against any person, an application for the making of such an order against that person may be made—
(a) by the Secretary of State, or
(b) if the Secretary of State so directs in the case of a person who is or has been a director of a company which is being wound up by the court in England and Wales, by the official receiver.…
(3) If it appears to the office-holder responsible under this section, that is to say—
•••
(d) in the case of a company of which there is an administrative receiver, that receiver,
that the conditions mentioned in section 6(1) are satisfied as respects a person who is or has been a director of that company, the office-holder shall forthwith report the matter to the Secretary of State.
(4) The Secretary of State or the official receiver may require the liquidator, administrator or administrative receiver of a company, or the former liquidator, administrator or administrative receiver of a company—
(a) to furnish him with such information with respect to any person's conduct as a director of the company, and
(b) to produce and permit inspection of such books, papers and other records relevant to that person's conduct as such a director, as the Secretary of State or the official receiver may reasonably require for the purpose of determining whether to exercise, or of exercising, any function of his under this section."
The company was put into administrative receivership on 4th February 1988 and into creditors voluntary liquidation on 28th September 1988. Mr Checketts attended the meeting of creditors and signed the company's statement of affairs. As a director or former director of the company he was under a duty to co-operate with the joint administrative receivers and the liquidator, but it is not suggested that he failed to discharge that duty in any material way. On 12th October 1988 the administrative receivers made a report to the Secretary of State pursuant to section 7(3) of the 1986 Act. In accordance with the usual practice no copy of the report was disclosed to Mr Checketts.
On 30th January 1990, four days before the expiry of the two-year period limited by section 7(2) of the 1986 Act, the originating summons in the proceedings was issued, supported by a 16-page affidavit with 12 exhibits sworn by Mr P.S. Padmore, one of the joint administrative receivers, and a two-page affidavit sworn by the chief examiner in the disqualification unit of the Department of Trade and Industry. The latter stated that the Secretary of State had received information from Mr Padmore from which it had appeared to him expedient in the public interest that a disqualification order under section 6 should be made against Mr Checketts and Mr P.I.E. Bartlett, another former director of the company, who, in December 1987, had been convicted at Chichester Crown Court on five counts of theft of funds totalling £20,417 from the company and two counts of falsifying cheque counterfoils with a view to gaining for himself further such funds totalling £10,960. Mr Justice Harman said that the evidence suggested that Mr Bartlett's defalcations may have been very much greater, perhaps to the order of £1/4 million.
Paragraph 14 of Mr Padmore's affidavit set out five matters regarding the affairs of the company, by reference to which Mr Checketts was, in Mr Padmore's opinion, unfit to be concerned in the management of a company. In the chief examiner's affidavit it was stated that those were also the matters by reference to which Mr Checketts was, in the opinion of the Secretary of State, unfit to be concerned in the management of a limited company. It is agreed that none of those matters was put to Mr Checketts, either orally or in writing, either by the administrative receivers or by the Secretary of State, before the proceedings and the affidavits in support were served on him. His only prior intelligence of the matter was via the formal 10-day notice required by section 16(1) of the 1986 Act.
On 5th June 1990 Mr Checketts swore an affidavit in opposition to the application. An affidavit in reply was sworn by Mr Padmore on 16th July 1990 and further affidavits in opposition were sworn on 21st September and 4th October 1990 respectively by a solicitor who had acted for Mr and Mrs Checketts and occasionally for the company for 16 years or so and by a chartered accountant who had dealt with the company's bookkeeping over a period of some years and whose firm had acted as its auditors. There can be no doubt that the affidavits in opposition, especially perhaps those of the two professional advisers, made out a powerful case for the view that Mr Checketts, in contrast to Mr Bartlett, was not unfit to be concerned in the management of a company.
On 19th December 1990 the Treasury Solicitor on behalf of the Secretary of State wrote to Mr Checketts' solicitors in these terms:
"…we write to inform you that following the Secretary of State for Trade and Industry's consideration of your client's evidence we have been instructed to withdraw the disqualification proceedings brought by the Secretary of State against your client. We shall, accordingly, seek leave to withdraw the proceedings at the first opportunity.
Since these proceedings were properly commenced in the public interest on the evidence available at the time and it was only upon receipt of your client's defence that we were presented with evidence justifying withdrawal of the proceedings, we believe that it is proper that there should be no order in this matter as to costs between the Secretary of State and your clients."
Mr Checketts' solicitors replied on 2nd January 1991 requiring that his costs be paid and enclosing a breakdown of them which showed a total for costs, disbursements and VAT of £11,898.42.
No agreement having been reached, on 8th July 1991 the chief examiner in the disqualification unit swore a further affidavit formally seeking leave to withdraw the application against Mr Checketts, but with no order as to costs. Having exhibited copies of the liquidator's address to the meeting of creditors and the statement of affairs, the deponent continued:
"4. The Unit had no other information and does not have the opportunity of approaching potential Respondents beforehand. The practical position as to information is slightly different where the Official Receiver becomes liquidator, and where there may, for example, have been a...
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