Broomfield Developments Ltd & Anor v Secretary of State for Business, Innovation & Skills

This is an application by two companies, Broomfield and Lakeview, for permission to appeal against the judgment of Mr Tim Car QC, sitting as a deputy judge at the Chancery Division, given on 13 November 2014 whereby he refused the applications of these two companies for an order restraining the petitioner, the Secretary of State for Business Innovation and Skills, from advertising petitions by the Secretary of State for orders winding up the two companies on public interest grounds. Permission to appeal was refused on the papers by Lewison LJ by order dated 27 November 2014. The applicants requested that this refusal be reconsidered at an oral hearing which has come on before me today. The applicants have been represented at this hearing by Mr Steven Thompson QC as they were before the deputy judge.

For the purposes of this application, the background may be summarised as follows. Lakeview was incorporated in 2004 and Broomfield in 2009. Both are beneficially owned and controlled by Mr Baron Deschauer and are engaged in what is known as land banking. They carry on business buying blocks of agricultural land which do not have planning permission for development, dividing the plots up and re-selling them to members of the public for profit. Broomfield owns land nears Chelmsford in Essex and Lakeview owns land near Sevenoaks in Kent. Both blocks of land are in the Green Belt and the Secretary of State maintains that they are unlikely, in the short term, to be the subject of a grant of planning permission for development.

In January 2013 the Secretary of State began an investigation under section 447(3) of the Companies Act 1985 and over the course of the following year obtained information about the activities of the applicants. In January 2014 the Secretary of State presented petitions for the winding up of the applicants and filed evidence to the effect that misleading statements had been made by their sales agents which gave prospective buyers false hope of planning permission for development being granted. The Secretary of State also maintains that the applicants have been providing credit in breach of the Consumer Credit legislation but this allegation formed no part of the argument before the deputy judge. The evidence filed by the Secretary of State also indicates that he has been contacted by a number of anxious customers seeking an update of progress but that he has been unable to answer these queries because the petitions have not been advertised.

In response to the petitions, the applicants have filed evidence to the effect that they no longer have any sales agents; they are no longer selling plots of land; at no time did either applicant encourage its sales agents to make any representations about the likelihood of planning permission being granted; no encouragement has been given by either applicant to purchasers or prospective purchasers to consider the land as of any particular residential value; the applicants are solvent; and the applicants have continued to receive deferred payments from purchasers and, in the case of Lakeview, it continues to service a commercial loan. The sales contracts contained an acknowledgment by each purchaser that no representation had been made concerning the existence of or any prospects of obtaining planning permission; and that the applicants wished to continue trading in the sense of honouring their contractual obligations under their existing contracts including the completion of sales as and when any outstanding instalments had been paid up.

Before the deputy judge the Secretary of State contended that customers should be told about the petitions so that they could come forward and provide information about any misleading statements which had been made to them. Further, continued the Secretary of State, the customers should know about the petitions so that they could consider whether to continue making payments or not and, if necessary, take advice on that issue. Further, the Secretary of State maintained that, in the absence of advertisement, he would be hampered in the gathering of reply evidence. In that regard, I should explain that what appears to be a small number of buyers have made claims for misrepresentation, and one such claim has been settled. This particular incident was said by the applicants to have been the result of actions by an individual rogue sales agent and that this instance is atypical of the applicants' operations more generally.

As for the applicants, they contended that if the petitions were advertised, there would be a real risk that this would cause great concern amongst customers who were continuing to pay instalments. Some might seek to accelerate their payments, but others might simply stop paying and breach their contracts. They argued that there would be a flurry of claims giving rise to an administrative burden on the companies at a time when they were staffed by only a few persons and that this could make their position very difficult and could even drive them in the direction of insolvency.

The deputy judge directed himself by reference to the principles explained in a number of decisions including, perhaps most importantly, the decision of this court in Re a Company (No. 007923 of 1994) [1995] 1 W.L.R. 953. In that case Nourse LJ explained that the primary purpose of advertisement in a case such as this must be to give notice of the petition to those who are entitled to be heard on it, namely the creditors and contributories of the company. The secondary, but no less important, purpose of an advertisement must be to give notice to those who might trade with the company during the period between the presentation of the petition and its final determination. Nourse LJ went on to explain that the default position is that there must be advertisement and that it is for the company to displace that proposition by showing that maintaining the normal practice of advertisement could cause serious damage to the reputation and financial stability of the company.

In that same case, Waite LJ explained that upon an application such as this, the court is not so much concerned with protecting its own process from abuse as with the need to strike a fair balance between two different aspects of public policy. One is the concern of the court to ensure that the proceedings are brought to the attention of all those who may be presumed to have an interest in resisting or supporting them, that is to say, actual, contingent and prospective creditors, contributories and those dealing or proposing to deal with the company in the ordinary course of its business. The other is an appreciation by the court of the serious consequences for the reputation and financial stability of the company to which the advertisement of the petition may give rise.

With these principles in mind, the deputy judge then turned to the evidence and to the submissions made to him by the parties. At the outset, he accepted Mr Thompson's submission that the customers were not actual creditors or contributories of the applicants and that the wider public interest was represented by the view taken by the Secretary of State under section 124(a) of the Insolvency Act, 1986. He then explained that the outcome of the balancing exercise turned on a consideration of, on the one hand, the purchasers of the plots of land and on how strong their interest was in knowing about the petitions and, on the other hand, how strong the evidence was that advertising could seriously damage the reputation and financial stability of the applicants.

As for the customers, these did, the deputy judge thought, have a genuine interest in knowing about the petitions because they were in the position of potential claimants if and to the extent that they had, or considered that they had, been misled into thinking that the plots would benefit from planning permission in the near future. As for the applicants, the deputy judge did not accept that advertisement would necessarily and inexorably lead to their imminent demise or downfall, or cause them irremediable harm, or even that it was likely to do so. Further, he was not persuaded that there was any real likelihood of there being a run on the applicants as suggested by Mr Thompson. Overall, he thought that the evidence of likely adverse impact on the companies was thin. A validation order would be likely to protect them against the freezing of their bank accounts and the evidence of vilification and adverse publicity was not substantial.

Weighing all these considerations as best he could, the deputy judge concluded that the customers’ position should prevail. The prospects of claims being brought and, if brought, succeeding, was not so remote as to be fanciful and if and to the extent that the putative claims had a good foundation, withholding knowledge of the petition from those who might bring them required justification. Conversely, the deputy judge was not persuaded that advertisement could cause serious damage to the reputation and financial stability of the applicants. He therefore declined to make the order which the applicants sought.

Mr Thompson contends that the deputy judge fell into error in two principal respects. He argues first and primarily, that the deputy judge fell into error in holding that the customers and former customers of the applicants were contingent creditors. Second, the deputy judge applied the wrong standard to the test of damage to the applicants' reputation and financial stability and that, in effect, he elevated the test to one of proof that such damage would be suffered when he ought only to have considered whether there was a real risk of such damage being suffered, and that he ought to have estimated and weighed in the balance the chance of damage being done by some customers.

Mr Thompson has elaborated the first submission as follows. He contends that the deputy judge accepted that the customers were not actual creditors and that they had no right to know about the petitions as creditors. However, it is implicit in his reasoning and decision that he found, at least for the purposes of the application, that the customers were contingent creditors. If and insofar as he found they were not contingent creditors, then, says Mr Thompson, they had no legitimate interest at all. In either event, continues Mr Thompson, the deputy judge fell into error. He ought to have concluded that the customers were not actual or contingent creditors and that their interest, such as it was, carried no weight in favour of the advertisement of the petitions.

I do not accept Mr Thompson's submissions that the deputy judge characterised the customers as contingent creditors. Indeed, he said expressly at [81] that he did not have to decide whether the customers did or did not fit the definition of contingent creditors. Further, he explained at [91] that some, but not necessarily all, of the customers were in a position akin to that of contingent creditors. Therefore, it seems to me to be clear that the deputy judge did not approach the application on the basis that the customers were, in fact, contingent creditors. Rather, the deputy judge considered that these customers were persons who were dealing or proposing to deal with the companies in the ordinary course of their business by continuing to make payments and who fell within the wider class of persons referred to by Nourse and Waite LJJ in Re a Company (No. 007923 of 1994). This was a conclusion to which, it seems to me, the deputy judge was entitled to come. The prospect of such persons bringing claims and, if brought, succeeding was not so remote as to be fanciful. It was therefore a matter which did weigh properly in the scales. There is no real prospect of the deputy judge’s conclusion being reversed upon an appeal.

Turning now to the deputy judge's assessment of the risk of damage to the applicants, it is, I think, clear that the deputy judge was required to consider whether the advertisement might cause serious damage to their reputation and financial stability. Here again, so it seems to me, the deputy judge directed himself entirely properly. He said in terms at [79] that he was required to consider how strong the evidence was that advertising could seriously damage their reputation and financial stability. Then again, at [92], the deputy judge reiterated that the justification for the order sought would have to be the proposition that advertising could cause serious damage of that kind. In my judgment, the deputy judge therefore approached the matter entirely correctly.

The deputy judge then proceeded to consider the weight of the evidence before him. He evaluated it and came to the conclusion, as he was entitled to, that, if the customers were made aware of the true position, their reaction was likely to be multiform and not uniform. He took into account the fact that the customers would react in different ways and some might take advice. He also considered that some might seek to accelerate completion of the sale process and secure the transfer of title. Overall, he was far from satisfied that there was any real prospect of any run on the applicants by way of a concerted refusal to make payments to them and that the evidence of adverse publicity was not substantial.

Drawing the threads together, I am satisfied that the deputy judge carried out an entirely appropriate evaluation and did so in accordance with well-established principles. I would observe, as did Lewison LJ, that this does not mean to say that, had this court been considering the matter for itself, it would necessarily have come to the same conclusion. That is neither here nor there. The question is rather whether the conclusion to which the deputy judge came was one which was properly open to him. I am satisfied that it was. The evaluation having been carried out in an entirely proper way, there is no real prospect of this court reversing the conclusion to which the deputy judge came.

There is also before the court an application to adduce further evidence in the form of the fifth witness statement of Mr Deschauer. Lewison LJ reasoned that the application did not satisfy the Ladd v Marshall test. Further, and as Lewison LJ also observed, the proportion of non-performing debts to which Mr Deschauer refers in that statement, appears to be the consequence of the investigation rather than a consequence of the petitions. I entirely agree with Lewison LJ's observation in respect of this evidence and the application has not been pursued by Mr Thompson in the course of his oral submissions to me this morning, although I recognise that it is a matter with which I must deal. I do not accept that this evidence could not have been obtained with reasonable diligence for use before the deputy judge and, in my judgment, there is no real prospect that it would affect the outcome of an appeal in any event.

For all of these reasons, the applications before me must be dismissed.