Secretary of State for Trade and Industry v Sullman and Another

JurisdictionEngland & Wales
JudgeMr Justice Norris,Justice Norris,Mr
Judgment Date19 December 2008
Neutral Citation[2008] EWHC 3179 (Ch)
CourtChancery Division
Date19 December 2008
Docket NumberCase No: 5989 of 2004

[2008] EWHC (Ch) 3179

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Before:

Mr Justice Norris

Case No: 5989 of 2004

Between
The Secretary of State for Business Enterprise and Regulatory Reform
Claimant
and
(1) Anthony Frederick Sullman
(2) Colin David Poole
Defendants

Mr Mark Cunningham QC and Mr George Hayman (instructed by The Treasury Solicitor) for the Claimant

Mr Jeremy Cousins QC and Mr Andrew Charman (instructed by Neil Davies & Partners LLP) for the First Defendant

Hearing dates: 14–15,17,21–23, 28 April, 7,9,12 May 2008

APPROVED JUDGMENT

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic

Mr Justice Norris 19 December 2008

Justice Norris Mr
1

By section 8(1) of the Company Directors Disqualification Act 1986 (“ CDDA”) the Secretary of State may make an application to the Court for a disqualification order to be made against a person who is or has been a director of a company. Mr Anthony Sullman (“Mr Sullman”) was a director of Claims Incorporated PLC (“Claims Incorporated”) from the 13th of December 1995 until the 20th of March 2001 and a director of Claims Direct PLC (“Claims Direct”) from the 20th of June 2000 until the 29th of August 200His conduct has been investigated under section 447 Companies Act 1985 and the Secretary of State considers it expedient to make an application for a disqualification order.

2

By section 8(2) CDDA

“the Court may make a disqualification order against a person where….it is satisfied that his conduct in relation to the company makes him unfit to be concerned in the management of a company”.

The requirement that the conduct should make the director “unfit to be concerned in the management of company” is also to be found in section 6 CDDA (with which section most of the reported cases are concerned). In that context it is well established that these words must be approached as ordinary words of the English language to which it is important to hold in each case, and that whilst in the ordinary case the conduct must display a lack of commercial probity, or a marked degree of negligence or incompetence,

“… the true question to be tried is a question of fact —what used to be pejoratively described in the Chancery Division as “a jury question”….”

(per Dillon LJ in Sevenoaks Stationers Retail Ltd [1991] Ch 164 at 176B-F). As Timothy Lloyd J put it in ( Re Atlantic Computers PLC unreported 15 Jun 1998) summarising the authorities :-

“In order to disqualify a respondent the court has to be satisfied that he or she “has fallen below the standards of probity and competence appropriate for persons fit to be directors of companies”…. This is a minimum standard…. It is also appropriate to recall that the purpose of the legislation is to improve the standard of conduct of company directors…….. The point of a disqualification order is, by depriving the respondent of the liberty to take part in the management of a business carried on with the privilege of limited liability, to protect the public both from misconduct of a business by that director and also by a deterrent effect in relation to other company directors…. A consistent theme in the cases under the Act is that, while the Court must consider the extent of a respondent's responsibility… a director cannot avoid his responsibility by leaving the management to another or others….”(see the passage at page 14 line20 to page 16 line 20).

3

What is at issue in the present case is not Mr Sullman's competence, but his integrity, in constructing and selling an insurance product to members of the public, in floating the business so created on the stock market, and in statements made to the market. In relation to Mr Sullman's alleged conduct Mr Cunningham QC on behalf of the Secretary of State submitted that Mr Sullman's willingness to mislead the public, franchisees and underwriters and prospective and actual investors was calculated, cynical and shameless; as was his rapacious disregard of the rules prohibiting professional referral fees and his willingness to assist his co-director in “cashing his chips in”. He accused Mr Sullman of being driven by a financial imperative, namely to become as rich as possible, as quickly as possible and as invisibly as possible. The question for decision may be “a jury question”, but the tribunal making the decision is not a jury.

4

Furthermore, although the fundamental question is a jury question and one to be approached on a “broad brush” basis (see Re Westmid Packing Services Limited [1998] 2 All ER 124 at 134j-135b per Lord Woolf MR) that does not mean that the Court is entitled to undertake only a superficial factual enquiry. To refer again to the judgment of Timothy Lloyd J. in Re Atlantic Computers (now at p.18 line 10):-

“The question of unfitness and the period of disqualification are aspects which need to be considered in a broad way, but where there are factual issues as to whether the conduct of a respondent was as alleged by the applicant, I do not see how the Court can avoid a detailed investigation of the evidence including all relevant documents”.

It was a central part of the case for Mr Sullman advanced by Mr Jeremy Cousins QC and Mr Charman that, on examination, the matters out of which the charges arose were not as they appeared in the evidence filed on behalf of the Secretary of State. This has entailed a detailed analysis of a mass of paper, which has taken this case well away from the summary proceedings of which the Court of Appeal spoke in Re Westmid Packaging [1998] 2 All ER 124: and it has resulted in judgment that is regrettably long and fact-heavy. But a summary of the position reached will be found in paragraphs 117 following.

5

The context in which Mr Sullman's business was created was the implementation of the policy to restrict the availability of Legal Aid, and so to relieve the general body of taxpayers of the burden of assisting litigants of modest means and to cast that burden upon motorists, householders and others who took out policies of insurance. The first step in this direction was taken in Regulations made in 1995 under the original section 58 of the Courts and Legal Services Act 1990 which permitted providers of legal services to offer conditional fee arrangements containing a costs uplift (a “success fee”). An unsuccessful defendant could thus be made to pay uplifted costs (the uplift defraying costs incurred by unsuccessful claimants in other cases against successful defendants). But whilst a conditional fee agreement deals with a claimant's exposure to liability for his own costs in the event of failure of his claim, it does not deal with his exposure to a claim for the defendant's costs in the event of the failure of his claim. Mr Sullman exploited this market from 1996 by promoting a contingency fee scheme (“the 30% scheme”). In essence, in return for a 30% share of the proceeds of a successful claim Claims Incorporated agreed (a) to find a solicitor to advance the claim (and if necessary to bring proceedings) and (b) in the event that the proceedings were unsuccessful then to indemnify the claimant in respect of (i) any liability to pay any order for costs in favour of the defendant and (ii) the costs of the solicitor that was provided by Claims Incorporated. In 2000 it was asserted that between 1996 and 2000 under the 30% scheme Claims Incorporated had settled 15,000 cases recovering £50 million in damages for its clients.

6

The next step came in the Access to Justice Act 1999 (which was enacted on the 27th of July 1999). This was designed to promote an “after-the-event” (“ATE”) insurance market. The section provided:-

“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy”

An unsuccessful defendant could thus be made to pay “costs in respect of the premium” on “an insurance policy against the risk of incurring a liability in [the] proceedings” as part of the recoverable costs in the litigation. The claimant's exposure to liability for a successful defendant's costs was thereby addressed.

7

The section did not have immediate force, but was to be brought into effect on a day to be appointed. It came into force on 1 st of April 2000 by virtue of the Access to Justice Act 1999 (Commencement No.3, Transitional Provisions and Savings) Order 2000 made on the 20th of March 2000. The delay between enactment on the 27th of July 1999 and coming into force on the 1st of April 2000 required that the period between those two dates be addressed. This was done in the Access to Justice Act 1999 (Transitional Provisions) Order 2000, paragraph 3 of which was in these terms:-

“Section 29 (recovery of premium insurance premiums by way of costs) shall not apply, as regards a party to proceedings, to (a) any proceedings in relation to which that party took out an insurance policy of the sort referred to in section 29 before 1st April 2000……..” .

8

On the 16 th of August 1999 (and so immediately after enactment of, but before the coming into force of, section 29) Mr Sullman and his colleague Mr Poole (a solicitor) launched an ATE policy called “the Claims Direct Protect Scheme”. The policy was available to any claimant who had a “better than evens” chance of success in his claim (the standard that had to be met in order to obtain Legal Aid). The “premium” was £1312.50 inclusive of IPT (£1250 net). Of this, only £90 went to...

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