Secretary of State for Trade and Industry v Property Investors Courses Ltd & Anor

The seven appeals that are before us are brought, by permission to appeal granted by Rimer LJ on consideration of the case on paper, on one single ground. He refused permission on other grounds and the application for permission on those grounds was not renewed.

They arise from orders of Mr John Jarvis QC sitting as a deputy judge of the Chancery Division on a preliminary issue in petitions to wind up the seven companies in question, brought on public interest grounds by the Secretary of State for Business Enterprise and Regulatory Reform, whom I will call the Secretary of State. The appellant is Ms Marcela Frolikova, who claims to be a validly appointed director of each of the seven companies. The preliminary issue which had been directed and which the judge considered was whether she was validly so appointed. She is not a shareholder of any of the companies and, so far as appears, she has no interest in the companies other than as a non-remunerated director.

The preliminary issue came on for hearing on 23 October 2007. Ms Frolikova applied on that date, appearing in person, for an adjournment to give her time to instruct new lawyers. Mr Jarvis granted an adjournment but only for two days. The case came on before him on 25 October. He held that she was not a validly appointed director. He also gave consequential directions in his order with a view to the winding up petitions being heard by the registrar as soon as possible and with a view to a possible application on the part of the Secretary of State that Ms Frolikova should pay personally the costs of the preliminary issue. The sole issue on the appeal is whether the judge was wrong in law in granting an adjournment for only two days rather than, say, for two weeks.

What has happened since then at first instance is that, as I understand it, the petitions are still pending but the companies are not trading; so although it is unsatisfactory that the matter should remain in abeyance, the petitions having been issued some almost two years ago, the public is not under any continuing threat from these companies. As regards the other aspect of matters, the Treasury Solicitor took steps under the orders to progress an application for an order that Ms Frolikova pay the costs of the preliminary issue personally, and there is currently a hearing due in respect of that on Wednesday of this week, that is to say, in two days’ time (16 July 2008).

By the end of March 2008 a listing appointment was due on the costs application at the end of April but a date for the appeal was set for 18 April. On 2 April Ms Frolikova sought an adjournment of the date for the appeal. That was on the grounds that she did not have time between 2 April when she wrote her letter and 14 April to prepare for the appeal. She had said in her letter that she had contacted her preferred solicitor but found that he was absent from his office due to a family bereavement and would only return on Monday 14 April from South Africa, and for that reason she asked for an adjournment from 18 April, which was then fixed, submitting that she needed longer, including the time to obtain a transcript. The Court of Appeal granted that application. A new date was supposed to be fixed by 24 April. On 21 April Ms Frolikova communicated with the Treasury Solicitor by email to the effect that she had not yet got the transcript and that she would be unavailable in May because she was due to be in Prague for medical treatment and that during June she would be recovering from that treatment. In the light of that, on 13 May a new date of 14 July was fixed for the appeal and Ms Frolikova was told of that by the Treasury Solicitor and also separately by the court.

On 19 May, however, Ms Frolikova sent an email to the court office asking for the appeal hearing date to be put back to after August: “…after my treatment for which I attach a medical note from my Doctor”. She had by then obtained the transcript of the hearing of 23 October.

The medical report, which is from the Prague Women’s Health Centre, states that she has attended the private gynaecological practice in Prague, she was examined on 5 May, she was diagnosed with a particular condition and that she would have an operation under general anaesthetic on 12 June, that she would attend the clinic twice weekly up to then; there was the possibility that the procedure would have to be repeated and that afterwards the patient would have “close follow up, twice weekly, at least six to eight weeks”. So she was asking for an adjournment and on 3 June the Treasury Solicitor responded to her by email making a number of pertinent points. They asked what attempts she had made to instruct solicitors to act on her behalf since October 2007, they asked for copies of correspondence with potential solicitors, they asked for confirmation as to whether she had now instructed solicitors and if not why not and in the event that she had not instructed solicitors she should explain why she cannot do so now in time for them to represent her at the hearing on 14 July. She was also asked for some information in relation to her illness.

On 4 June the Civil Appeals Office wrote to her stating that her application had been referred to Ward LJ. The response to that application was that the adjournment was refused for three reasons: first, there had been already lengthy delays and an adjournment at her request, the request being that the case not be listed in May or June, which had been complied with; the second point was that the medical certificate of 5 May allowed a month for recuperation and that follow up appointments could be arranged for times other than 14 July; the third point was that she had already indicated on 2 April, as I have mentioned, that she was seeking advice from her preferred solicitor. She had had adequate time by then to arrange legal representation.

She had had solicitors acting for her in the proceedings below. Whether those were her preferred solicitors we know not because there was never any response to the Treasury Solicitor’s letter of 3 June. On 24 June she returned to her application for an adjournment. She sent a further short medical note stating that she would undergo for the second time an operation under general anaesthetic on 11 July and would require six to eight weeks close follow up at the clinic in Prague after that date. Her request said that:

“My ill health, predating my travel, physically and emotionally hindered, and continues, the instructing of legal representation for the hearing of my successful permission to appeal.”

She asked that the hearing be postponed due to her ill health and operation. The Treasury Solicitor’s response to that was to point out that there had been no response from her to their letter of 3 June and they reiterated the points to which they sought answers. That was sent to her by post and by email. Her request of 24 June was again referred to Ward LJ, on whose instructions the court responded as follows:

“The evidence to support this application is wholly insufficient.

1.

Did the applicant have the operation on 12th June as set out in the report of 5.5.08? If so, with what result? If a second operation is necessary, why? Why does it have to be fixed on 11th July and not a week or so later. Why is there medical urgency? Why should this fixture in the Court of Appeal not take precedence. Why does the applicant’s present condition, whatever that is and there is no current elaboration of it, prevent the applicant attending court?

2.

What has happened to her obtaining legal representation?”

She was asked for a response to these issues, pending which the matter remained in the list for 14 July.

On the one hand she failed to supply any information in response to either my Lord’s questions or those posed by the Treasury Solicitor; on the other hand she reiterated her request. There was a further request on the basis of a medical report of 4 July. This confirmed that she had had the first procedure on 12 June but that she required a second procedure which was due on 11 July, four weeks was necessary between the two procedures, and that the patient was suffering severe fatigue, severe lower abdominal pain and other disagreeable symptoms. Her letter of 7 July said:

“My preferred solicitor was bereaved and travelled to South Africa. My deteriorating health and physical weak being meant that I needed urgent medical attention and thereafter attention and thereafter treatment by my long standing doctor. I have been unable to physically coordinate and arrange legal representation in the UK whilst undergoing treatment in Prague.”

My Lord’s response to that was that the adjournment was refused because of the long delays that had already occurred and the failure to postpone medical treatment for the few days to allow the case to be heard as it had been listed for a long enough time ahead to make those alternative arrangements, together with the failure to respond properly to the Treasury Solicitor’s letter of 3 June. That was communicated to Ms Frolikova on 10 July. She responded at nine minutes past midnight on 11 July reiterating that she was due to undergo a second treatment and making a number of points, partly about the substantive issue, not really about the circumstances of the adjournment. What she did say was that after the adjournment but before the new hearing date, she told the court that her treatment would require her absence in May and June but that she did not know that her sickness and treatment would last beyond June, which is why she had difficulty in obtaining legal representation for the coming hearing.

That was followed up by an email sent late last night from which it is unclear, because she does not say, whether she had the second operation on Friday; but perhaps the answer is that she did not because otherwise if she was due to undergo an operation on Friday under general anaesthetic, it seems relatively unlikely that she would be sending an email at midnight the previous night or at a late hour on Sunday evening. In her latest email she does not really add to any of the circumstances of the wholly inadequate information that she has already provided relevant to the issue of an adjournment.

She is not present in court today and therefore in effect she is still applying for her appeal to be adjourned. The Secretary of State is represented by Mr Caddick who has given us such information as the Secretary of State has about her position, but that is precious little in addition to that which has been made clear to the court.

The court’s first task, therefore, is to consider whether it should proceed in her absence. Several features of the present case stand out as remarkable. One is that the whole appeal is about the brevity of an adjournment, too short, it is said, for Ms Frolikova to have taken any realistic steps to arrange legal representation in time for the adjourned hearing. By contrast, in relation to her appeal launched last November she appears to have taken no steps at all in the last nine months other than at one point contacting “her preferred solicitor” to arrange representation in April. There has been no follow up since then. By that example she would have required an altogether disproportionate time to organise representation for the hearing below. That is to be seen in the context of the fact that in the course of the proceedings at first instance she had had solicitors acting, Messrs Chua’s, who only came off the record by notice on 16 October 2007 although the notice had been signed almost a week before that, and did so in circumstances in which it was clear that their retainer had been terminated by the client rather than by the solicitors coming off the record of their own volition. There has been no explanation at any stage as to why the retainer was terminated. The single relevant reference in the entire sequence of correspondence is in Ms Frolikova’s very latest email of late last night, where she said that the only quick and simple way was for her sign the paper so that they could send the paper to the court which, though not very forthcoming, implies that there may have been more to it than just the client discharging the solicitor. It may be -- one does not know because she has not vouchsafed any information on this -- that the problem was that there were no funds to instruct the solicitors. That may still be part of the problem. That may not be wholly unconnected with the next point that I would make.

The next striking feature of the case is that Ms Frolikova has no obvious interest in the proceedings other than, now, to resist an order for costs against her personally, which of course she can do regardless of the appeal; and even success on the appeal would not necessarily free her from a risk of a liability for costs. She is not a shareholder of any of the companies; she is not paid as a director of any of the companies; she does not have anything substantial to do as a director; there is no apparent reason why she should have accepted appointment as a director nor, having done so and facing winding up petitions in respect of the companies on public interest grounds, why she should wish to resist the petitions. The circumstances of the case permit a strong inference that Ms Frolikova’s conduct since 25 October and, indeed, probably since the discharge of the retainer of Messrs Chua’s, on the one hand has been pure prevarication and procrastination and on the other has been dictated by Mr Spencer Michael, who was previously the director and the shareholder of each of the companies. He ceased to be a director on being made bankrupt on 29 March 2007 but he did not immediately recognise or accept that he had so ceased. Not until 12 June was the Treasury Solicitor told that Ms Frolikova had been appointed as a director, purportedly on 20 March. What the judge had to decide was whether that was true or whether, as it was suggested, it had been done after the bankruptcy and backdated.

Ms Frolikova, having found herself – ass a result of her own acts -- without representation at first instance, applied for an adjournment by an application notice dated 22 October. She relied on the fact that the solicitors had ceased to act and her witness statement asserted at length her rights under Article 6 of the European Convention on Human Rights. It is unclear what in practical terms were her civil rights and obligations in respect of the question of whether she was or was not a director of seven almost certainly insolvent and certainly non-trading companies. It does not seem to me that it can have been properly regarded as a matter of great weight or importance. At that stage, on 23 October, Mr Michael had pending the oral renewal of his application for permission to appeal against the bankruptcy order. That application was due for hearing on 25 October. Ms Frolikova said in support of her application for an adjournment that she wanted time to seek new lawyers, but she explained nothing at all as to the circumstances in which Chua’s came to be disinstructed.

She attended the hearing on 23 October and made her application for an adjournment orally. There is a transcript of that hearing but it is fair to say that it is of very poor quality except as to what the judge said and some of what Mr Caddick said on behalf of the Secretary of State. From what has been transcribed it is apparent that there were communication problems as between Ms Frolikova and the judge, but it is clear that the judge understood her request for an adjournment. He granted the application for an adjournment, but only for two days so that it might come on with or immediately after Mr Michael’s permission to appeal application. That was to allow Ms Frolikova time to instruct solicitors as regards her position. It is fair to say, as Ms Frolikova does say in her emails, that that was a rather short time. It may be that if she had taken any trouble to get a solicitor to act for her, that solicitor could have done little other than give her some sensible advice on the facts and attend with counsel on the 25^th to ask for a further adjournment, if such was merited.

The case did come on for hearing on 25 October, following the hearing and dismissal of Mr Michael’s permission to appeal application by Mr Jarvis. Ms Frolikova herself did not in fact attend until she was summoned by telephone, and she attended in the afternoon. She had made witness statements in support of her contention that she was duly appointed as a director of each company and also in support of the application for the adjournment. She was cross-examined, the judge heard submissions and he gave judgment. He did not believe her evidence as to when she was appointed, for reasons which on the face of it appear to be sound and which are explained in the judgment. No doubt if Ms Frolikova had had lawyers acting, points could have been made on her behalf; but they would have been limited to the evidence set out in the witness statements already put in and there would not, as it seems to me, have been much scope for any significant forensic exercise.

Those being the circumstances of the proceedings below, and Rimer LJ having refused permission on other grounds, the appeal is limited to the question of whether the adjournment was too short. Rimer LJ, in giving reasons for granting permission, said this:

“It appears that Chua’s, the solicitors who were formally on the record for the companies, informed them on 10 October 2007 that they were no longer going to act for them and they came off the record during the week commencing 15 October.”

From the fact that Rimer LJ puts it that way, it looks as if he may have been unaware that the notice of change was signed by the client rather than by the solicitors. He makes the point that Ms Frolikova was faced at apparently short notice with having to obtain new representation or to represent the companies herself. She says the adjournment was too short and the judge says:

“I consider that she has a real prospect of showing that the two day adjournment was insufficient for the purpose for which it was required and that she should have been given, say, at least two weeks rather than two days, perhaps even more.”

Whether that is as compelling as Rimer LJ clearly thought, in the light of the apparent indication that it was the companies who disinstructed Chua’s rather than the other way round, is a matter for debate.

As I say, it is striking that in relation to this appeal about an adjournment, really the only thing that has happened since the appeal was launched and permission was granted is that Ms Frolikova has been making last minute applications for adjournments.

As I mentioned, the petitions are still pending, which is unsatisfactory in principle although the companies are not trading and therefore what is impeded by the failure to progress the petitions is that no liquidator can get in to see what there may be in terms of money that was raised from the public for investment not so applied, and therefore which ought to be restored to the investors. The Treasury Solicitor’s costs application is pending but that is a separate matter.

It does seem to me profoundly unsatisfactory in principle that this issue as to whether Ms Frolikova was or was not a properly appointed director of the companies should be allowed to remain outstanding for any longer. Of course one respects with sympathy Ms Frolikova’s ill-health and the fact that she needs not one but two operations; but it is, to say the least, puzzling that despite the fact that she has what she refers to as a preferred solicitor, who so far as is known has been available since the middle of April, that she has taken no steps to instruct that solicitor, which could have been done -- even if she is unable to attend in London to see the solicitor -- in good time for her to be represented through that solicitor by counsel for today’s hearing.

In those circumstances it seems to me that the appropriate course is not to accede to Ms Frolikova’s application for an adjournment; instead to proceed with the hearing of the appeals but to make an order such that, if Ms Frolikova wishes the matter to be revisited, it would be open to her to apply for any order adverse to her to be set aside, that application being made within a stipulated time supported by evidence and to be considered in due course by a single member of the court.

On that footing I can turn, and I can turn briefly, to the substantive issue on the appeal in relation to which the cardinal factors seem to me to be, first of all, that she had disinstructed her lawyers almost two weeks before the hearing so that she had had a number of days in which to replace them if she really wanted representation at the hearing on 23 October; secondly that there was a good reason for an adjournment to 25 October because of the hearing in relation to Mr Michael; thirdly that it is utterly incomprehensible that Ms Frolikova is resisting these proceedings at all. She has no shareholding interest in it, and she has no substantial interest to protect as a director of these probably insolvent and certainly defunct companies, in relation to which the Secretary of State alleges that they have been conducted in a manner prejudicial to the public interest. Altogether it seems to me that there was no good reason for her to require a lengthy adjournment on 23 October and there was ample reason for the judge to consider that an adjournment for two days was proper in the circumstances. It may be that if she had had lawyers by the 25^th they might have ended up applying for an adjournment; whether that would have succeeded is another matter. The task of representing her at the hearing of the preliminary issue was not a major or difficult forensic exercise requiring much in the way of preparation.

For those reasons I would dismiss these appeals. It seems to me that Mr Jarvis made a case management order well within the ambit of his discretion in the particular and unusual circumstances of the case. That order is of course adverse to Ms Frolikova and I would make the order on terms that Ms Frolikova, not being represented or present at the hearing, is at liberty to apply to the court to set aside the order dismissing her appeals. That application needs to be made by a proper application notice, under Part 23 of the Civil Procedure Rules, with which Ms Frolikova is familiar because that is the form that she used for her application to adjourn before Mr Jarvis.

The time to be allowed for that application needs to allow for her to get not only the order but also a transcript of our judgments. I would direct that a transcript be provided for her at public expense. It will have in practice to be sent to her, as the order will, by email because although she has an address for service in England, if what she says is to be believed, and there is no reason to doubt that she is in Prague at the moment, the only address at which she can receive documents in Prague that is known is her email address.

I would direct whatever steps to be taken as are possible to expedite the preparation and promulgation of the transcript so that it may be made available by no later than 31 July and preferably sooner, and I would be minded to direct that, on the footing that the order and the transcript are communicated to her by 31 July, she should have until, say, 21 August to put in an application to set the order aside if she wishes. I would also say that, unless that application is supported by material which addresses the issues raised by the Treasury Solicitor in the letter of 3 June, and in particular what steps were taken as regards obtaining legal representation, and by that stage what future steps she has in mind taking by way of legal representation, her application to set aside is not likely to be viewed with much favour.

For those reasons I would dismiss the appeals but on the basis that I have described, allowing her one further chance. If she makes such an application it will be considered on the papers by one member of the court and, if possible, by one member of the present constitution of the court.

I agree

I also agree