Secretary of State for Trade and Industry v Bell Davies Trading Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery |
| Judgment Date | 30 July 2004 |
| Neutral Citation | [2004] EWCA Civ 1066 |
| Docket Number | Case No: A2/2004/0006,0155,0156,0005. |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 2004 |
[2004] EWCA Civ 1066
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE DAVID RICHARDS
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Mummery
Lord Justice Scott Baker
Mr Justice Lawrence Collins
Case No: A2/2004/0006,0155,0156,0005.
(Nos 6544 and 6545 of 2003)
MR RICHARD SIBERRY QC (instructed by Leboeuf, Lamb, Greene and MacRae) for the Appellant Companies
MR RICHARD RITCHIE (instructed by Treasury Solicitor) for the Respondent Secretary of State for Trade and Industry
This is the judgment of the court to which all members of the court have contributed.
INDEX
TOPIC PARAGRAPH NUMBERS
I Introduction 1–6
II The Parties 7–12
III Imports from China and EC Regulations 13–40
IV Business of BDT and KTA 41–58
V Background to the Petition 59–74
VI First Judgment of David Richards J 75–86
VII Second Judgment of David Richards J 87–90
VIII Grounds of Appeal 91–94
IX The Control Issue 95–102
X Appeal from Undertakings 103–109
XI Public interest petitions and undertakings 110–112
XII Costs 113
XIII Result 114
I Introduction
Bell Davies Trading Ltd ("BDT") and KTA Ltd ("KTA") were established to exploit import licences granted for imports of footwear and ceramics from the People's Republic of China. The directors of BDT, who were in partnership as the Bell Davies Partnership ("the Partnership"), devised a scheme whereby licence applications could be made by numerous companies ("Quota Companies") owned by persons, who were recruited by or on behalf of BDT and KTA.
The Secretary of State for Trade and Industry ("the Secretary of State") formed the view that the method of exploitation was in breach of EC Regulations, which allowed only single applications by operators who were deemed to be "related persons." The Secretary of State presented winding up petitions against BDT and KTA (together "the Companies") under section 124A of the Insolvency Act 1986 alleging that BDT was operating and that KTA was participating in, and assisting with, the operation of, an unlawful scheme (described as "quota theft" "which should be stopped as soon as possible in the public interest" and involving "wholesale abuse of the Import Licensing Scheme operated by the DTI"), which breached EC Regulations in relation to the import of footwear and ceramics from China and that the Companies should be wound up in the public interest. The crucial issue between the Secretary of State and the Companies and their advisers, both in correspondence and at meetings before the petitions were presented and during the winding up proceedings themselves, was whether the Quota Companies, which applied to the DTI and other importing licensing authorities within the EC, were "related persons" under the control of the Companies within Article 2.3(b) of EC Commission Regulation 1394/2001 and its successors and Article 143 of EC Commission Regulation 2454/93.
Section 124A empowers the Secretary of State to present a petition for a company to be wound up if the court thinks it just and equitable for it to be so, where it appears to the Secretary of State from (inter alia) any report made or information obtained under Part XIV of the Companies Act 1985 that it is expedient in the public interest that a company should be wound up. Section 447 of the Companies Act 1985 (which is a provision appearing in Part XIV) permits the Secretary of State to give directions to a company to produce documents, and to provide an explanation of any of them.
These are appeals by the Companies, brought with the permission of the judge, from two decisions of David Richards J. In the first judgment, given on December 19, 2003, the judge accepted the Secretary of State's contention that the Quota Companies were "related persons" and were under the control of the Companies within the meaning of the relevant EC Commission Regulations. The scheme operated by the Companies was therefore unlawful. He decided, however, that the Companies should not be wound up under section 124A, provided that certain undertakings were given by them and their directors. The undertakings were given, as the Companies did not wish to be wound up. The winding up petitions presented by the Secretary of State on 13 October 2003 were dismissed. The Secretary of State makes no complaint about the dismissal of the petitions presented by her. She is content with the undertakings given in compliance with the condition set by the judge for the dismissal of the petitions. The Companies do complain about the undertakings, contending that they were wrongly extracted from them in winding up proceedings, which should never have been brought against them. It was wrong for them to have to litigate the control issue, which turned on the meaning and application of the EC Commission Regulations, with the threat of a winding up order hanging over them, if they were held to be wrong. They seek an order releasing them from the undertakings or setting the undertakings aside on the ground that it was inappropriate for the Secretary of State to have invoked the winding up jurisdiction at all. They argue that the judge exercised his discretion in an unreasonable and unfair way by making dismissal of the petitions conditional on the undertakings. The correct course would have been to dismiss the petitions unconditionally, leaving the Secretary of State to seek declaratory or injunctive relief in other proceedings.
The Companies also appeal from the judge's order that they should pay 75% of the Secretary of State's costs. They contend that he ought to have ordered the Secretary of State to pay all or some of their costs, or at least made no order as to costs, as the Companies had repeatedly pointed out that winding up proceedings were inappropriate and that declaratory proceedings ought to be pursued instead. It is contended that a substantial part of the costs were spent on matters relating to winding up, including an application by the Secretary of State for the appointment of a provisional liquidator, which was not pursued, and by the Companies themselves making other applications to restrain advertisement and for s127 relief, which in the event it was not necessary to pursue.
In his second decision, given on January 16, 2004, the judge refused to make a declaration that a course of action proposed by the Companies for licence applications in 2004 would not be in breach of the undertakings in the order of December 19.
II The parties
The Partnership was set up in October 1994 and operates as a consultancy providing clients with advice on aspects of international trade relating to Customs and Excise, such as classification, valuation, duty, reliefs, origin, preference, warehousing, etc.
The founding partners were Alun Davies, Paul Ness and John Carlin. Mr Davies had been employed by HM Customs and Excise in its Policy Division in London. Mr Davies subsequently became a customs duty consultant with KPMG, and later became the principal in charge of the UK customs duty practice of Touche Ross. Mr Ness and Mr Carlin worked for Mr Davies at Touche Ross. Mr Ness had, like Mr Davies, been employed by HM Customs and Excise, in its Investigation Division.
In October 2000, the Partnership established BDT to manage import licences in circumstances detailed later in this judgment. Mr Davies, Mr Ness and Mr Carlin are its directors, and Mr Carlin is company secretary.
KTA was incorporated in July 2001, and changed its name to its present name in March 2002. Its sole shareholder and director is Mrs Kirsten Lawson. Her husband, Mr Timothy Lawson, is the company secretary. Each of them had worked for BDT since April 2001. Mr Lawson had previously been a tax and customs consultant with Scandinavian Airlines, and subsequently with Price Waterhouse. KTA provides services to BDT, including the recruitment of individuals to the scheme and dealing with the paperwork generated by the Quota Companies.
The Secretary of State for Trade and Industry is the respondent to the appeal because she presented the winding up petitions on the public interest ground and her department, the Department of Trade and Industry (the "DTI"), through its Company Law and Investigations Directorate, is responsible for the exercise of the powers of the Secretary of State under section 124A.
The DTI Import Licensing Branch is also the competent national authority for the purposes of the administration of European Community import quotas.
III Imports from China and EC Regulations.
Prior to the adoption of Council Regulation (EC) 519/94, there were over 6000 national restrictions on imports of certain products from the People's Republic of China to the European Community. There was also a small number of Community-wide restrictions. The United Kingdom had a large number of restrictions on products imported from China. These encompassed a wide range of goods and affected relatively small quantities of imports. This had the result that products were imported by other Member States and then transported to the United Kingdom to avoid the restrictions.
Council Regulation (EC) 519/94 was introduced to promote Community-wide uniformity to help create a single market. This put an end to national import restrictions and imposed quantitative quotas on the import of 14 types of products from China, including footwear and ceramics. Since 1994, seven of the...
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