Secretary of State for Business, Innovation & Skills v Mr Baljinder Chohan & others
| Jurisdiction | England & Wales |
| Judge | Mr Justice David Richards |
| Judgment Date | 05 May 2011 |
| Neutral Citation | [2011] EWHC 1350 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: 2313 OF 2010 |
| Date | 05 May 2011 |
[2011] EWHC 1350 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice David Richards
Claim No: 2313 OF 2010
Mr Mark Cunningham QC (Instructed by Howes Percival LLP) appeared on behalf of the Claimant
Mr Stephen Davies QC & Mr Jeremy Bamford (Instructed by Lupton Fawcett LLP) appeared on behalf of Defendant
This is an application made in proceedings under the Company Directors Disqualification Act 1986. The proceedings were issued on 19 April 2010. There are six respondents against whom disqualification orders were sought. The present application by the fifth respondent, Nigel Walter, seeks in paragraphs 1 and 2 of the application notice orders for clarification of the case of alleged unfitness made against him. The solicitors acting for Mr Walter sought, first in correspondence in the months following the commencement of the proceedings and then by formal requests dated 24 August 2010 and 1 October 2010, clarification and information pursuant to CPR part 18. They met little or no success in correspondence, but responses to the formal requests were served on or about 17 September 2010 and 15 October 2010. It is Mr Walter's case that the allegations against him and the essential evidence relied on in support of those allegations remain unclear. Accordingly the present application is made.
The facts relevant to the present application may briefly be summarised as follows. UKLI Limited ("the company") carried on a so-called land bank business, involving the establishment and marketing to the public of schemes whereby small parcels of land forming part of a larger site, which the company either owned or over which it had options to purchase, would be sold to investors. It was envisaged that the company would or might itself retain or acquire a significant part of the sites in question. The suggested attraction of investment by the purchase of small parcels of land on these sites was that the sites might receive planning permission, or be rezoned in area plans making it more likely that planning permission would be granted, in either case leading to a significant increase in value. The company's business was substantial. There was a sales force of some 60 to 80 people and approximately 5,000 plots were sold on some 17 sites. The company went into administration on 22 April 2008, and subsequently into liquidation on 21 November 2008, with an estimated deficiency as regard to creditors of over £70 million.
In February 2006 the Financial Services Authority published guidance on the application of the provisions concerning collective investment schemes in the Financial Services and Markets Act 2000 to land bank schemes. Only persons authorised under the financial services legislation may promote, market or operate a collective investment scheme and there are strict requirements imposed on authorised persons as regards such activities. These provisions exist for the benefit of the public who may wish to invest in such schemes. The company was not at any time an authorised person under the relevant legislation. Following publication of this guidance the company took advice as to whether a reformulated land bank scheme, differing in material respects from the scheme previously operated by it, would constitute a collective investment scheme as defined in section 235 of the Financial Services and Markets Act 2000. If so, it would be unlawful for the company to operate it, giving rise to both civil and criminal liabilities under the 2000 Act. The company received advice from leading counsel specialising in financial services law in consultation and in an opinion dated 4 May 2006. The advice was to the effect that the reformulated scheme, if implemented in the manner proposed by the company, would not constitute a collective investment scheme and accordingly would not attract the prohibitions and potential penalties under the financial services legislation.
The Financial Services Authority subsequently, in 2007, investigated the company and its business and as a result concluded that the reformulated scheme was not being operated or marketed in a lawful way but, as in fact marketed and operated by the company, constituted a collective investment scheme. The FSA agreed with the legal advice given by counsel in his opinion of 4 May 2006, but took the view that the company had operated the scheme contrary to that advice and hence unlawfully. The FSA's views on this were stated in a letter dated 23 May 2007 to the company in a passage under the heading "UKLI's Current Operations":
"In relation to UKLI's current operations, our attention has recently been drawn to various matters which have caused us some concern.
"We note that in your Proposal to the 'Financial Services Authority', sent to us in April 2006, you advised us at paragraph 2.1(d) that UKLI would apply for the 25% of the land that it owns on its sites to be re-zoned into a Local Development Framework, with the consequent likelihood that any freehold plots purchased by customers which adjoin UKLI's plot would also fall within the rezoning proposals.
"By a letter dated 11 May 2006 UKLI's solicitors, MacFarlanes, enclosed a copy of an opinion received from Michael Blair QC, in which he considered the lawfulness of UKLI's proposed plan. Mr Blair stated at paragraph 26 of that opinion that UKLI's new papers (literature, contractual and conveyancing documentation and telephone scripts) would refer to 'the advantages of the property being re-zoned'. At paragraph 27 however he qualified that statement, noting:
"'Further, the papers would carefully avoid giving the impression to any potential purchaser that the Company was intending to apply for re-zoning either for its retained land or for the land of any purchasers'.
"At paragraph 30 he further stated: ' As long as the substance of the transaction is one for the sale of the land for investment purposes with no element of collectivisation of any process for obtaining planning permission or rezoning, the Company has, in my view, successfully avoided the problems about planning permission that characterised the previous business models'.
"The FSA agreed with Mr Blair's views on this point, and considered that as he had given UKLI clear guidance as to how to avoid its new scheme having the element of collectivity that would lead to it falling within the ambit of section 235 of the Act. We therefore assumed that UKLI would comply with that guidance.
"Recently, however, our attention has been drawn to the manner in which UKLI actually markets its scheme to potential investors, and we are concerned to note that the guidance given by Mr Blair has not been adhered to. In particular we have seen a copy of a brochure entitled 'Guide to Buying Strategic Land'. That brochure contains the following statements:
• 'We reserve up to £500,000 per site to promote our retained land for re-zoning within its local authority framework. Once a site has been re-zoned, its value, as we will demonstrate in this guide, can increase significantly'.
• 'we do everything possible — reserving up to £500,000 of our resources per site — to promote our retained land to be re-zoned for residential development'
• 'the exceptional potential returns from land come with getting the site rezoned … Achieving re-zoning is a very expensive, highly skilled process … our land and planning team conducts a thorough investigation of the site … our land and planning team submits its initial representation for the local authority to consider. A series of further submissions and public inquiry appearances follow as the local authority refines and finally adopts its development plan.'
• 'Once a site has been successfully re-zoned, the value of the land will increase dramatically. It is at this stage that we recommend all investors on the site sell to the highest bidding developer … we strongly recommend you exit your investment at the same stage as we do'.
• 'By promoting our land for re-zoning with the local authority we are confident that we will increase its value significantly, should we be successful'.
• There is a calculation of the 'potential returns on your land' based on re-zoning of the 'parcel of land' being achieved, showing a potential new value for the parcel of land of £69,580 as against a typical cost of £20,000 (i.e. with a profit of £49,580).
"The FSA is aware that extracts from this booklet form the basis of the regular seminars which UKLI invites members of the public to attend, and at which attendees are given the same message: that an investor can expect UKLI to achieve the rezoning of the site, including any plot which they buy, resulting in a large increase in value.
"The FSA has also seen two short marketing videos that UKLI distributes to potential investors. They contain statements from Brian Smith, the Planning Director for UKLI such as: ' We promote land with the local authorities to achieve its rezoning for development' and ' I also oversee the Planning Department to ensure that they use their strong expertise to promote the sites in the best possible way'. Nigel Walter states ' When we promote land to get rezoned there is a dramatic increase in value'. This statement is overlaid on screen with the figures '250% to 400%'. Further, UKLI's website also states that ' From our point of view we are looking to sponsor a site to be re-zoned (or allocated) for residential use'.
"The...
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