Secretary of State for Trade and Industry v Swan

This is a somewhat unusual application brought by Mr Christopher Paul Mckinley Swan in director’s disqualification proceedings.

Mr Swan was the Chief Executive of Finelist Group Limited ("Finelist"). That company was floated on the London Stock Exchange in February 1994. By 1999 Finelist’s business was very substantial and divided into 4 divisions. It had 12 principal trading subsidiaries. One of those was AEW Limited ("AEW"). The main board of Finelist comprised three executive directors and two non-executive directors. The other two executive directors were Mr Reddy and Mr Ritchie. Mr Reddy was the Finance Director and Company Secretary. The non-executive directors were Mr North and Mr Stewart. Messrs Swan, Reddy and Ritchie were also directors of AEW.

Mr Andrew Woolaston and Mr William Tacon, both of Ernst & Young, were appointed Joint Administrative Receivers of Finelist on 5 October 2002 and of its 12 subsidiaries, including AEW, on the following day. The Statements of Affairs of both Finelist and AEW disclose very substantial estimated actual deficiencies as regards creditors and members. On 4 October 2002, the Secretary of State for Trade and Industry ("SoS") caused a claim form to be issued in which she sought the disqualification under section 6 of the Company Directors Disqualification Act, 1986 ("the Act") of Mr Swan and the four other directors. The claim form stated that the grounds upon which disqualification orders were sought were summarised in an affirmation of Mr Mark Lawrence Bruce. Mr Bruce is a Chief Examiner in the Disqualification Unit of The Insolvency Service ("the DU"). His affirmation is dated 4 October 2002.

In April of this year Mr Swan launched the current application. The relief sought and the grounds advanced in support are as follows:

In support of this application Mr Swan has sworn a lengthy Affidavit. The other four directors support Mr Swan’s application but have not sought similar relief themselves. However they have served evidence, some of which I will have to refer to below. It should be noted at this stage that Mr Ritchie has given a disqualification undertaking. He says that he has done this because he is seriously ill and does not have the resources to challenge the DTI. He does not admit wrongdoing.

At an early stage in the hearing, I asked Mr Stephen Davies QC, who appears for Mr Swan, whether he was seeking to strike out the SoS’s claim form or obtain summary judgment for his client. After a discussion as to whether such a course would be possible without an adjournment, Mr Davies confirmed that the relief sought was as set out in his client’s application notice. I also asked Mr Davies whether, as an alternative to striking out the whole of Mr Bruce’s affirmation, he was asking for parts of it to be struck out. He said he was not. As I will explain more fully below, a major part of his argument is that the procedure adopted by the SoS was so unfair to Mr Swan that the only satisfactory course is to oblige the SoS to perform her duties again. Mr Davies says that, if she is required to do that, one must be optimistic that she will reconsider the case against Mr Swan, taking into account his explanations, and either not proceed with it or reduce the scope of the allegations made against him.

This application involves consideration of a number of matters of principle. It is convenient to start by considering the nature of disqualification proceedings since this has an impact on the nature and content of the documents served by the SoS and the procedure to be adopted by her against potential disqualification targets.

At an early stage in the hearing, a dispute arose as to whether these proceedings should be likened to a criminal prosecution. Mr Davies refers consistently to the "charges" levelled at his client. Mr Green, who appears for the SoS, objects to the use of that expression and the connotations underlying it.

The power to impose a period of disqualification or accept an undertaking in lieu arises under s 1(1) of the Act. The maximum period of disqualification varies according to the grounds on which the order is made. Thus where the director has been convicted of an indictable offence (s. 2) or has been guilty of fraud in relation to the company’s activities (s. 4), he may be disqualified for up to 15 years. Similarly, under s 6, the relevant provision in these proceedings, a director may be disqualified for up to 15 years if the court is satisfied that he is or has been a director of company which has at any time become insolvent and his conduct as a director makes him unfit to be concerned in the management of a company. The same maximum period of disqualification arises under s 8, where there has been an investigation of the company’s activities or documents under various provisions of the Companies Act, the Financial Services Act 1988 and the Criminal Law (Consolidation)(Scotland) Act 1995. Lesser maximum disqualification periods can be ordered in cases of persistent breaches of companies legislation (s. 3) and on summary conviction (s. 5). In all cases the purpose of the disqualification is to protect the public.

In relation to proceedings brought under s 6, the Court of Appeal in Re Sevenoaks Stationers Ltd [1991] Ch 164 stated that the 15 year period could be split into three brackets. Disqualification for 10 to 15 years should be reserved for particularly serious cases, 5 to 10 years for serious cases not meriting inclusion in the top bracket and up to 5 years for not very serious cases. As one would expect, the more disreputable the behaviour, the longer the period of disqualification.

It is true that a disqualification order is not the same as a criminal conviction, but I doubt that much purpose is to be served by trying to see whether such orders are similar to, or fit into the legal box entitled, criminal convictions. It should be remembered that a wide variety of activities are treated as crimes including many which would attract much less public opprobrium, and far less punishment, than is available under the Act. A period of disqualification, particularly one towards the upper end of the scale, is serious. It will have the effect of preventing the individual from being a director of a company, acting as a receiver of a company’s property or in any way, directly or indirectly, being concerned or taking any part in the promotion, formation or management of a company or from acting as an insolvency practitioner (s. 1(1)). Against persons whose only expertise is in the area of company management, a period of disqualification may severely limit his ability to secure employment. It is, in the commercial world, the equivalent of a solicitor or doctor being struck off or a barrister being disbarred. As Sir Donald Nicholls V-C said in Re Rex Williams Leisure [1994] Ch 1, 14, a disqualification order can have grave consequences and is a serious interference with the freedom of the individual. It is the seriousness of these consequences and the fact that such orders are sought by the SoS on behalf of the public which should inform the way in which the proceedings are commenced and how the SoS carries out her functions.

These proceedings were commenced in accordance with the procedure required by the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 ("the Rules"). Thus, the initiating document is a claim form and the procedure to be followed is that set out in CPR Part 8 (rule 2(2)). It will be recalled that one of the differences between a normal civil action commenced by claim form in accordance with the procedure set out in CPR Part 7 and one proceeding under CPR part 8 is that, in the former, particulars of claim must be contained in or served with the claim form or be served on the defendant within 14 days after service of the claim form (CPR Part 7.4). Where the CPR Part 8 procedure is to be followed, there is no provision for the inclusion or service of particulars of claim. On the other hand CPR Part 8.5 requires the claimant to file any written evidence on which he intends to rely when he files the claim form.

This procedure is carried through to company disqualification proceedings. Under the Rules there is no obligation to include within the claim form anything other than fairly formal matters. In this case it contains little more than a notification to the directors that the SoS intends to seek an order for disqualification for a period of not less than 2 years nor more than 15 years and costs. Furthermore, like all Part 8 proceedings, there is no provision for the service of particulars of claim. On the other hand the Rules make special provision as to the contents of the evidence which must be served with the claim form. This is set out in rule 3 which, in its post-CPR form, reads as follows:

Thus the affidavit must perform two functions. First, it must set out the facts and matters upon which the SoS intends to rely. The court must accept that as prima facie evidence. Second, it must contain a statement setting out why the SoS alleges the director is unfit. It was the latter which have been referred to by Mr Davies, as they have in a number of cases, as the "charges". In view of Mr Green’s objections to the use of this expression, I shall refer to them as the "allegations". Nomenclature aside, I agree with the view expressed by HH Judge Micklem in Re Circle Holidays International plc [1994] BCC 226 that the affidavit in support of an application has of necessity something of the character of a pleading. I do not understand Mr Green to dispute that.

The structure prescribed by the Rules was followed in this case. Paragraphs 1 to 90 of Mr Bruce’s affirmation consist of the evidence relied upon by the SoS. Paragraphs 91 and 92 contain the allegations. I shall return to the contents of these paragraphs later.

As was pointed out by the Court of Appeal in Sevenoaks , it is possible to change the nature of the allegations relied on against a director or add to them, even at the hearing. However this will only be allowed if it can be done without injustice to him. As the Court said:

It is not sufficient for the director to know and understand the allegations he has to meet. There is an obligation on the SoS to set out in the affidavit or affirmation in support the main parts of the evidence on which she is to rely. This is all the more important because, as noted above, there is no particulars of claim which will identify the key facts upon which the court will be asked to exercise its powers. Fairness to the director demands that he knows not only the allegations of unfitness but also the essential facts which are to be relied on in support of them. This has been discussed in a number of cases. Mr Davies drew my attention to some of them. In Re Rex Williams the Vice-Chancellor said that the SoS’s case "must be stated clearly in the evidence". This was taken further by Chadwick J in two cases. In Re Pinemoor Ltd [1997] BCC 708, 710 he said:

This was taken further in Re Sutton Glassworks Ltd [1996] BCC 174, 176. Having referred to the Rex Williams case, the judge said:

Thus the case law establishes that there is an obligation on the SoS to set out clearly what are the essential facts on which she relies. Furthermore, because the SoS is acting in the public interest and not as a civil litigant, she is required not to overstate the case against the director. As it is put in Directors’ Disqualification by Mithani (Butterworths), she is under an obligation to put before the court a balanced view. The need to do so was considered in the judgment of HH Judge Weeks in Re Moonlight Foods Ltd., Secretary of State for Trade and Industry v Hickling [1996] BCC 687, 690:

Mr Green says that it is misleading to suggest that a duty of fairness is well-established, as Mr Davies asserts. He argues that a "duty to act fairly" is somewhat nebulous and unspecific. The only clear and uncontroversial statement of the law is that a director facing disqualification must know the substance of the charges that he is to meet. He also says that Hickling does not appear to have been applied in any subsequent case (other than in another decision of HH Judge Weeks).

Whether it has been applied or not, Hickling was cited with approval by Arden J in Re Tech Textiles Ltd [1998] 1 BCLC 256 and referred to on this point, without disapproval, by Hart J in Re Landhurst Leasing plc (unreported – 21/12/98). This is a matter on which we await the views of the Court of Appeal. For my part, I think its guidance is proportionate to the seriousness of the proceedings. I accept Mr Green’s submission that a duty to act fairly can be described as nebulous and he was justified to rely on authority, including Re Continental Assurance Co of London plc [1997] 1 BCLC 48 and Re Cubelock Ltd [2001] BCC 523, for the proposition that this jurisdiction should not be hedged about with rigid rules which would allow directors to navigate around disqualification applications by taking fine points on the way in which the affidavits have formulated. No doubt the court should adopt a robust approach to criticisms of the affidavit evidence served on behalf of the SoS. But none of this removes from her the obligation to ensure that the evidence filed is balanced, that the particular evidence relied on in support of the allegations is properly identified and that issues proved by direct evidence should be distinguished from matters of inference.

Mr Davies says that the duty of fairness has to be applied with particular vigour in cases where the allegations made against the director are particularly serious. For example, where they contain assertions of fraud, it is more important that the SoS makes clear in the affidavit both the nature of the wrongdoing and the essential facts from which the court will be asked to make such a finding. On this point Mr Davies has referred me to a number of cases, the Chancery Guide and the rules which define Counsels’ professional duties when pleading fraud.

To some extent this topic was obscured by a dispute between counsel as to whether in these proceedings fraud was alleged against Mr Swan. For present purposes, I think it is clear that the more serious the allegations made against the director, the more important it is for the case against him to be set out clearly and with adequate particularity. In my view this does not apply only to cases of fraud. It applies in all cases where serious wrongdoing is alleged, particularly where it is asserted that the director knew his acts were wrongful or improper. In this respect, reference can be made to Palamisto General Enterprises SA v. Ocean Marine Insurance Limited [1972] 2 WLR 1425, in which Buckley LJ said :

The Court of Appeal applied that approach to breach of confidence cases in John Zink & Co. Limited v. Wilkinson [1973] RPC 717. Both Palamisto and John Zink were civil actions. No lesser obligation of clarity should apply to the SoS when seeking severe penalties in the public interest on the basis of allegations of serious wrongdoing by a director.

Mr Davies argues that the obligation on the SoS to be fair applies also to the procedure to be adopted prior to the issuance of the claim form. In substance he says that she should give the director advance notice of the allegations she is minded to make against him so that he has an opportunity to point out serious errors in her understanding of the facts. The SoS should not shoot first and ask questions later. Mr Davies says that this obligation arises from the interaction of a number of factors. First, consistent with the need for the SoS’s affidavit in support to fairly put the allegations against the director, it is appropriate to put them to the director before the service of the claim form. Second, disqualification proceedings are subject to the CPR and, in particular, the emphasis on pre-action discussions designed to reduce, if not remove, the areas of dispute between parties. Third, there is a statutory obligation on the SoS, arising from s 16 of the Act, to give the director not less than 10 days prior notice of an intention to commence proceedings. All of these matters will be considered below, but before turning to them it is convenient to have in mind what Nicholls V-C said in Rex Williams :

As Mr Davies points out, this was said in pre-CPR days. It may be that a somewhat different emphasis is appropriate now. Furthermore, the Vice-Chancellor was not considering a case in which the director objected to the claimant’s evidence on the basis that he had not been given advance warning of it. It appears from the report that in Rex Williams the director had been given notice in accordance with s 16 of the Act. The major objection taken was to the fact that the evidence contained hearsay matters, something which is not in issue here.

It appears to me that an earlier passage in Rex Williams is at least as important:

If, as is undoubtedly the case, the SoS is in a less well-informed position than the director to know what was going on in the company, it seems only reasonable for her to put her preliminary conclusions to the director before commencing proceedings. That is particularly so where long term disqualification is sought. It should always be borne in mind that the director might be innocent of the allegations made and it is that possibility which should inform the procedure to be followed. For example, as I will explain in greater detail below, in this case the most important single fact relied upon by the SoS is the existence of four cheques bearing Mr Swan’s signature. Assume, for the purpose of illustration, that none of them had actually been signed by him. His signature had been forged. A procedure which obliges the SoS to put the allegation to the director in advance of the issue of the claim form would prevent unjustified adverse publicity. It is difficult to see how adhering to such a procedure would cause significant prejudice to the SoS. Furthermore putting the allegations to the director would assist her in complying with the guidance given in Hickling . The best way of ensuring that the SoS’s evidence deals with "any explanation already proffered" by the director is to offer him an opportunity to proffer explanations.

In any event, disqualification proceedings are now governed by the CPR. This is a consequence of paragraph 2 of the Rules. There is no approved pre-action protocol in relation to this class of proceedings. As a result paragraph 4 of the Practice Direction on protocols applies:

If the discussion of claims and defences in advance of commencement of proceedings is to be encouraged between parties to civil litigation it should be no less encouraged where the SoS is minded to bring proceedings in the public interest against a director. That approach would be consistent with the Statement of Insolvency Practice 4 (E&W) directed to office holders who make reports which may lay the foundation for disqualification proceedings:

Furthermore this approach is also consistent with the "Pre-Issue Guidance for Directors" produced by the DU. This document sets out the purpose of discussions between the DU and directors before disqualification proceedings are commenced and how they will be conducted. Throughout emphasis is placed on the importance of the SoS learning what the director has to say and what documents he has before a final decision is made to bring proceedings. It includes the following:

All of this is, and particularly the statement in paragraph 7 that SoS will "always very carefully consider any further information provided at the meeting by the director and any representations that he makes before reaching a final decision", is consistent with basic concepts of fairness. If, as will invariably be the case, the director will have a better understanding and knowledge of what went on in the company and, according to Hickling , the SoS’s evidence should attempt to deal with any explanation already proffered by any of the respondents, fairness requires that, save in special circumstances, explanations should be sought from the director before the balloon goes up.

As paragraph 3 of the DU’s Guidance states, its pre-action procedure interfaces with the "usual" receipt of the s 16 letter. As will be explained more fully below, one part of Mr Swan’s complaints is the failure of the SoS to give him the requisite notice under the Act. S 16(1) provides:

In Re Cedac Ltd [1991] Ch 402, the Court of Appeal had to determine whether breach of this mandatory statutory requirement rendered the disqualification proceedings a nullity. By a majority it held that it did not. The lead judgment of rhw majority was given by Balcombe LJ. First he considered whether the SoS was under an obligation to comply with the notice requirement. Unsurprisingly, he said that she did:

However, as far as the consequence of non-compliance is concerned, Balcombe and Leggatt LLJ came to the conclusion that s 16(1) was directory rather than mandatory. Mr Green suggests that this undermines any point Mr Davies tries to make on the 10 day notice point.

In my view it is necessary to consider Cedac more closely. It is convenient to start with the facts and the arguments advanced by the parties in that case. The SoS was minded to bring disqualification proceedings against the director. The notice in purported compliance with s 16(1) of the Act was served on him on 11 April 1989. The proceedings were commenced by originating summons dated 21 April 1989, just inside the 2 year limitation period specified by s 7(2) of the Act. It appears that, at that time, both the director and the SoS believed that the 10 day notice period required by the statute had been complied with. The director raised no objection and, presumably, proceeded to deal with the allegations made against him. However, in the following year, Harman J’s judgment in Re Jaymar Management Ltd [1990] BCC 303 was reported. That held that the 10 day notice period had to be calculated exclusive of the day on which the notice was given and the day on which the proceedings were issued. This meant that the notice received by the director in Cedac was just inside of the 10 days notice period. Nearly a year after the notice was served, on 22 March 1990, the director applied to strike out the SoS’s originating summons for failure to comply with s 16(1). On that application, the SoS not only argued that the failure to comply with the section (which was admitted) did not render the disqualification proceedings a nullity, but also two other points. First it was said that the director was estopped from objecting to the breach or had waived his right to do so. This, apparently, was based largely on an argument of delay. Second, the SoS argued that, if the breach resulted in the proceedings being a nullity, the period for bringing proceedings should be extended (there being no dispute as to the court’s power to do so) and leave be given to commence new disqualification proceedings. The director objected to the latter course on the ground that the onus was on the SoS to justify an extension of time and had failed to do so.

At first instance, Mummery J held that breach of the mandatory time limit in the statute rendered the proceedings a nullity. On the other hand he acceded to the SoS’s fall-back argument and granted leave to commence new proceedings out of time. Both the SoS and the director appealed.

Although the majority of the Court of Appeal held that in that case the breach of s 16(1) did not render the subsequent proceedings a nullity, in doing so they held that the relevant principles to be employed in determining the effect of failure to comply with a statutory time limit were those summarised in de Smith’s Judicial Review of Administrative Actions 4 ^th ed. (1980) at p 142 including, in particular, the following passage:

Balcombe LJ applied those principles by addressing four questions; (1) What is the scope and purpose of the Act of 1986? (2) What is the importance of the 10-day notice requirement in section 16(1)? (3) What is the relation of that requirement to the general object intended to be secured by the Act of 1986? (4) What are the relevant circumstances of the present case?

In relation to the first of these he said that the purpose of the 1986 Act was to protect the public. His response to the second is of particular interest. Mummery J had stated that prior notice of intended legal proceedings involving potentially serious and damaging allegations provides a "valuable safeguard" for the intended respondent to those proceedings and that it allows him the opportunity to clear up any misunderstanding before the proceedings are launched. While not disagreeing with the generality of those comments, Balcombe LJ did not agree that this meant that breach led inexorably to nullity of the subsequent proceedings. He said that the 10-day notice was of little value to the targeted director and he explained this under four heads. First he noted that no notice had to be served in cases where the court is empowered and decides to disqualify of its own motion, although, even there;

Second, he pointed out that no notice has to be served when the application for a disqualification order is made to a court other than the winding up court. However, even here he said;

Third, he pointed out that the letter conveying the notice did not have to give the grounds on which the application was to be made;

No doubt this was why he accepted Counsel’s description of the notice as "an unparticularised letter before action". Fourth, he thought that a 10-day notice period was too short for the recipient to do be able to do very much. For this reason, he said that the importance of the notice seemed to be to limit the shock to the intended target.

The same view of the lack of value of the 10-day notice was put trenchantly by Leggatt LJ;

From this it will be understood that the major objection to this part of the director’s argument was that the notice conveyed little or nothing to him. Failure to receive it at the stipulated time therefore deprived the director of very little. It seems to me that this conclusion can not be divorced from the environment which existed at the time of Cedac , that is to say where the emphasis on pre-trial discussion under the CPR did not exist and the obligations on the SoS to deal fairly with the director and to attempt to deal with "any explanation already proffered" by him, as described in Hickling , had not yet been articulated. Similarly the passages in the DU’s own " Pre-Issue Guidance for Directors" set out above emphasise that it is now thought normal, appropriate and fair for a director to be given far more than a mere unparticularised letter before action.

Balcombe LJ described the third question as a balancing exercise with the protection afforded to the director by the provision of the notice period being set against the need to protect the public. In relation to this also, it was pointed out that the notice period afforded the director little protection so the balance came down in favour of protecting the public.

It appears to me that the answer to the fourth question posed by Balcombe LJ is of particular significance. It is inherent in the summary of principles in de Smith and the terms of the latter question, that the particular circumstances of the case can be important. Sometimes the effect of breach of the time limit may render the subsequent proceedings a nullity while in others it will not. If, on a proper construction of the section, breach of the time-limit can never result in nullity of the proceedings, it is difficult to see why the facts of the case are stated to be relevant by de Smith and why they were considered by the Court of Appeal in Cedac . It is, no doubt, for this reason that Balcombe LJ said;

In coming to that conclusion, it appears that the learned judge relied heavily, indeed almost entirely, on the absence of any harm to the director and no suggestion of failure, except a technical one, by the SoS;

The same point is to be found in a later passage in the judgment;

Here again, the emphasis is on lack of prejudice to the director and the failure to meet the time limit not being conclusive. Furthermore, here and in other passages in the decision reference is made to the entitlement of the SoS to launch new proceedings if the first set have been struck out. This was consistent with the fact that, in Cedac , the director did not assert that the breach of the time limit or the commencement of fresh proceedings was in any way unfair to him. His position throughout was that there had been a technical, and very minor, breach of the statutory time limit, that he had not suffered thereby but it afforded him the right to escape disqualification proceedings. His objection to the commencement of new proceedings was based solely on the argument that the onus was on the SoS to justify an extension of time and he had failed to do so.

The same approach to the breach of s 16(1) in the particular circumstances of Cedac is to be found in Leggatt LJ’s judgment;

However Leggatt LJ seems to have accepted that sometimes failure to comply with s 16(1) could lead to the disqualification proceedings being dismissed;

It appears to me that, although Cedac decides that a minor failure to comply with the 10-day notice period does not, by itself, render subsequent disqualification proceedings a nullity, it does not go as far as to hold that all failures to comply with the statutory time limit can be ignored or that there are no adverse consequences of doing so. As Leggatt LJ seems to have accepted, a failure to give any notice at all may result in the proceedings being struck out. Furthermore, because the circumstances in each case are relevant to whether failure to give the correct notice results in nullity, serious failures, short of giving no notice at all, in circumstances where, for example, the director suffers significant disadvantage as a consequence, may also result in the proceedings being declared a nullity.

In addition, Cedac does not address the issue whether a major failure which is or is likely to significantly disadvantage the director cannot amount, by itself or with other factors, to an abuse of process. I can see no reason in principle why it should not. As Balcombe LJ accepted, the rules of natural justice apply to these proceedings as to others. It seems to me that failure to comply with the section and the extent of such a failure can be taken into account, with other matters, in deciding whether the commencement and continuation of disqualification proceedings amounts to an abuse of process. Among the factors which can be taken into account is not only the extent to which the full 10-day period has been missed but also whether, on the facts of the particular case, the director has been prejudiced. In many cases the director will have been interviewed by the DTI and will not only have been told what the SoS’s concerns are but will have furnished responses to them. In such a case it may be much more difficult for a director to complain that the subsequent failure to give the full 10 days notice was prejudicial to him. Another relevant factor is the explanation, if any, provided by the SoS for her failure to comply with the section.

Furthermore, whatever the position in 1991, practice has moved on. Now when notice is given the director is sent the draft claim form and evidence in support and the provisions of the CPR apply. The receipt of the notice is not a mere formality but should give the director an opportunity to consider his position and make comments on the allegations in advance of commencement of the proceedings. In the circumstances which prevail now, complying with the statutory requirement of advance notice is, in some cases, a more important safeguard for the director.

Because prejudice to the director and abuse of process were not argued in Cedac , he could not and did not argue that commencement of new disqualification proceedings (assuming the first set were struck out) would itself be an abuse of process. As noted above, the only objection taken to the commencement of new proceedings appears to have been that the SoS needed an extension of time to do so and she had failed to discharge the onus on her to show that the discretion should be exercised in her favour. If disqualification proceedings are struck out as an abuse, it may well be that in some cases commencement of new proceedings will not be permissible

Mr Green argues that it is necessary to bear in mind the two year limitation period which applies to directors disqualification proceedings. He says that meeting this puts considerable pressure on the SoS. The suggestion is that erosion of the 10 day period required by s 16(1) should be accepted if time constraints make it difficult or impossible to complete preparations for proceedings in the 2 years less 10 days available. In relation to that argument a number of points can be made. First, if the 2 year period is so short that, in some cases, it prevents the SoS from completing her preparations in time to give the statutory notice, the problem should be addressed by inviting Parliament to extend the limitation period. It does not appear to me to be a good reason for taking away or diminishing protection for the director. Second, it appears to me that the correct response to inadequate time is to give the director the full 10 days notice but to ask the court for permission to commence the proceedings outside the 2 year period. In the light of Cedac it is difficult to believe that in any but the most unusual case such permission will be refused. Third, if the SoS’ position is that she has had inadequate time both to finish her preparations within the limitation period and to give the 10 days notice, it is incumbent upon her to state as much to the court and to explain why. I do not think it is appropriate just to fail to give 10 days notice without explaining why the statutory requirement was not met.

In summary, it seems to me that although failure to give 10 days notice does not, per se, render the disqualification proceedings a nullity, taken with other factors, including the shortness of the notice, it may do so. Further it is at least one factor which the court can bear in mind in determining whether the procedure adopted by the SoS has been unfair to the director and an abuse of process. The consequences of any such finding will be considered below.

The allegations made against Mr Swan in this case revolve around a practice known as "cheque kiting". This involves the transfer of funds between two or more bank accounts so as to give rise to fictional balances during the time it takes for the cheques to clear. This was explained by reference to an example in a report prepared on behalf of Mr Swan by Grant Thornton as follows:

Cheque kiting therefore makes use of the fact that a cheque is credited to the account of the payee even before it is cleared and that such clearance usually takes a few days. In the example set out above, the cheque kiter is an individual writing cheques on accounts in different banks. However the same procedure can be operated by two or more individuals and they may all have accounts at the same bank. It is the latter form of cheque kiting which is in issue in these proceedings. AEW and another subsidiary of Finelist, Edmunds Walker Limited ("Edmunds Walker") had bank accounts at the same branch of National Westminster Bank. The kiting took the form of each company drawing cheques in very large sums on its account and making the same payable to the other. By doing this, each company’s bank account appeared to be much more in credit (to the tune of millions of pounds) than was in fact the case.

The allegations made against Mr Swan fall into two categories. The first concerns his alleged involvement in a cheque kiting operation which, it is said, was carried out without significant interruption over a two year period. The second, although also related to cheque kiting, relates to the disposal of Maccess Group Ltd ("Maccess"), a wholly owned subsidiary of Finelist, in August 1998. Because Finelist was quoted on the London Stock Exchange, it had to comply with the relevant Listing Rules. The sale of Maccess was a "Class 1 transaction". As such, the Listing Rules required, amongst other things, the preparation of a circular which had to contain a statement of the indebtedness of both the listed company and the company the subject of the transaction, a working capital statement and a declaration by the directors in the following terms;

Such a circular was distributed in connection with the disposal of Maccess and the declaration was signed by, amongst others, Mr Swan. It is said by the SoS that, as a result of cheque kiting, the statement of indebtedness was materially incorrect.

The allegations of unfitness levelled at the directors are set out in three paragraphs at the end of Mr Bruce’s affirmation. The preceding 89 paragraphs purport to set out the essential facts on which the SoS intends to rely. The allegations are as follows:

It will be seen that the kiting allegation is only levelled at Mr Swan and Mr Reddy. Furthermore it will be seen that in relation both to kiting and the Maccess Circular, the allegations made against these two directors is that they were knowingly involved in the activities complained of. By contrast, the allegations levelled at Messrs Ritchie, North and Stewart only concern the Maccess Circular and then only alleges that they knew or ought to have known that the Statement of Indebtedness materially misstated the financial position of Finelist.

Mr Davies argues that these amount to allegations of fraud made against his client. Mr Green disputes that this is a proper use of the word fraud. For the reasons set out above, whether these are allegations of fraud or not is peripheral to the issues to be determined. They are allegations that Mr Swan and Mr Reddy were knowingly engaged, over a protracted period, in highly disreputable activities. The seriousness of the allegations are confirmed by the fact that the SoS has suggested disqualification for 8 years.

Mr Davies explains that the reason his client does not seek to strike out the proceedings as a whole is that he has no difficulty in understanding the allegations levelled against him. His objection is not so much to the proceedings themselves but the way they have been brought. His case is based on the following principal arguments. First he says that the evidence in Mr Bruce’s affirmation is wholly inadequate to support the allegations made and do not comply with the obligation of fairness. Second, the procedure adopted by the SoS breached s 16(1) of the Act and prevented Mr Swan from pointing out, prior to the commencement of proceedings, the defects in the allegations and supporting evidence or from putting his side of the story. As a result, the commencement of the disqualification proceedings was grossly unfair to him and has resulted in substantial damage to him already. Mr Davies says that, as a result of the publicity surrounding these proceedings, contributed to by the SoS’s own press office, Mr Swan has been de facto disqualified for several months. I will consider these objections separately.

Mr Davies argues that Mr Bruce’s affirmation is seriously defective in the light of the material known to the SoS at the time it was prepared. He also argues that it is even more defective if one takes into account the information the SoS would have been in possession of had she given Mr Swan the opportunity to put his side of the story before launching the proceedings. The latter issue will be considered later.

Mr Davies raises numerous objections to the first 89 paragraphs of the affirmation. The fact of insolvency is one of the triggering conditions before a disqualification order under s 6(1) of the Act may be sought. There is no requirement in the statute that there be a nexus between that insolvency and the unfit behaviour of the director. It follows that evidence in support of an order for disqualification under the section need do no more than recite that the company is insolvent. Needless to say, in cases where the insolvency is related to the unfit behaviour, the scale and circumstances of the insolvency are matters which should be brought to the attention of the court. They are facts which the court may legitimately take into account in deciding on the seriousness of the allegations made. However this is not such a case. As Mr Green says in his skeleton argument, that Mr Swan was a director of a company which has become insolvent is not in dispute. The only issue is whether his conduct as a director of Finelist, AEW and Edmunds Walker makes him unfit to be concerned in the management of a company. Notwithstanding that, Mr Bruce has gone into some detail about the growth of the Finelist group, its assets and reported profits and the size of the insolvency. He also refers to the directors’ remuneration and benefits (paragraphs 36 to 39). None of this is relevant to the issues of unfitness levelled at the directors. I do not understand Mr Green to suggest otherwise. He says that it was appropriate matter to include since it gave background information which the court might well wish to know about if and when these proceedings are determined at a hearing.

Mr Davies objects that not only is this material irrelevant but the underlying flavour is that, in some unspecified way, the directors’ alleged unfit behaviour was responsible for the demise of the companies and that, while there were many victims of that demise, the directors looked after their own interests. He says that his client feels that he will have no alternative but to put in evidence in reply to Mr Bruce explaining that the companies were well run while he was at the helm and that the insolvencies were attributable to poor management by Autodis SA, a French concern which purchased the companies in April 2000, and had nothing whatsoever to do with the activities which are said to render him and his former colleagues unfit. Mr Davies says that it is unfair that his client should be put to the expense and trouble of responding to evidence which, at least on the surface, is irrelevant.

I have considerable sympathy for Mr Swan in relation to this. If, as is accepted to be the case here, the size, timing and reasons for the insolvencies and the directors’ remuneration have nothing to do with the allegations of unfitness made against a director, I can see no reason why the proceedings should be burdened with that material. Mr Swan’s fear that there is a hidden innuendo in all this evidence is understandable. In my view it would be good practice to omit all irrelevant material and, in particular, all such material which may be misconstrued as reflecting adversely on the directors.

On the other hand, I am not convinced that this material in this case will be as prejudicial to Mr Swan and the other directors as suggested. This is not evidence which will be presented to a jury. It will be read by a court with experience of this area of law. It is likely to regard this for what it is, unnecessary and irrelevant, particularly in view of Mr Green’s concession that it is so. It follows that, although the material should have been excluded or its irrelevance to any issue expressly confirmed, these are not matters which, in themselves, render the affirmation unsound or are likely to have a significant adverse impact of Mr Swan. In my view, more telling objections can be raised in relation to other material in Mr Bruce’s affirmation.

Among the most serious allegations made in relation to kiting are those contained in paragraphs 91(a), (e) and (f) of Mr Bruce’s affirmation. The first of these alleges that Mr Swan and Mr Reddy "caused" AEW and Edmunds Walker to engage in kiting. The latter two allege that kiting was conducted by both Mr Swan and Mr Reddy on a daily basis, and that both of them did so on an extensive scale.

As far as the first allegation is concerned, I understand Mr Green to accept that there is no direct evidence to support that suggestion that Mr Swan knew about the kiting operation when it started, ordered the operation to be put in place or did anything to encourage it. The position adopted by the SoS is that Mr Swan’s involvement in causing the companies to start and continue the operation is to be inferred. Notwithstanding the guidance in Pinemoor , the SoS has not distinguished between direct evidence and inferences. Indeed, the affirmation does not disclose that the SoS’s case is one of inferences.

Paragraphs 55 to 71 of the affirmation are put forward to support the other allegations. These start by setting out who the companies’ bankers were (paragraph 56) and points out that Edmunds Walker became dormant in June 1998, that is to say before the cheque kiting is alleged to have started (paragraph 57). They also refer to the annual report for the year ended 30 June 1999 as approved by the Board of Directors which contains the following statement;

In paragraph 58 it is alleged that AEW and Edmunds Walker began cheque kiting in November 1998. Paragraph 61 starts by saying that "the daily cycling of cheques follows a routine pattern". This is then followed by an example (paragraphs 62 to 66) showing that cheques were drawn on the AEW account and made payable to Edmunds Walker while, at the same time, cheques in the same amount were drawn on the Edmunds Walker account and made payable to AEW. This example concerns the signing of cheques on the 11 and 14 June, 1999. Until the cheques were cleared, this created credits of millions of pounds in both companies’ accounts. Paragraph 68 reads as follow;

The message conveyed by this evidence is that Mr Swan was a major participant in the routine of daily cheque kiting. He signed many of the cheques. Mr Davies argues that the evidence comes nowhere near supporting the allegations made. The facts which the SoS knew or should have known appear to be as follows. In the two years from November 1998 to October 2000 during which the kiting practice is said to have been in operation, over 1500 cheques were drawn on the relevant bank accounts of the two companies. Only 268 paid cheques were recovered by the receivers. Of those, only 4, all dated 1 June 1999, were signed by Mr Swan. Thus, the only evidence that Mr Swan "caused" the companies to engage in cheque kiting, was "actively involved" in the process which was "concerted and extremely extensive", and that it was "conducted by them [i.e. Mr Reddy and Mr Swan] on a daily basis from November 1998 by signing identical or similar cheques for millions of pounds", consists of the existence of just four cheques all bearing Mr Swan’s signature and all signed by him on a single day some 6 months after the kiting operation started. Furthermore this is the evidence which is said to support the allegations that Mr Swan had undertaken cheque kiting as a "deliberate policy" which was "designed to mislead". Mr Davies argues that this evidence gets nowhere near supporting the strong allegations of deliberate dishonesty levelled at his client. In relation to this issue, Mr Bruce’s affirmation lacks the fairness and balance to be expected of the SoS.

Furthermore, Mr Davies directs fire at two further paragraphs in the affirmation;

Mr Davies argues that these two paragraphs also are misleading. They convey the impression that the kiting operation involved not just sums in excess of the Group’s turnover, that is to say exceeding £500m, but actually resulted in the Group breaching its bank covenants, materially understating its debt position in the management accounts and misleading those trading in its quoted shares. In fact, as the SoS knew, none of these things happened. It is only when one reads the paragraphs carefully that it is appreciated that they are expressed in terms of potential problems. Thus it only says that kiting "would have enabled" the Group to breach its banking covenants, not that it did do so. Similarly it is only said that the Group could have materially understated its debt position in the management accounts "if the management accounts recorded the borrowing position directly from bank statements." It is not, and could not, be said that the management accounts of the Group ever recorded the borrowing position directly from bank statements. Indeed Mr Davies points out that it would be most unusual for this to be done. Finally, he says that there is no evidence that at any time during the two years the kiting was taking place, the exercise in any way affected the share price of the companies or that any shareholder was misled. Since none of these adverse consequences could be alleged here, Mr Davies says that it is inappropriate and unfair to include this sort of material in the affirmation. It has the effect of damaging Mr Swan by innuendo. Mr Davies adds that the SoS’s case against Mr Swan in relation to these allegations are all the more surprising when it is appreciated that she must have known that there are 12 kiting cheques signed by Mr Ritchie yet she has not made any similar allegations against him.

Mr Green rejects all these criticisms. He admits that the receivers have only managed to find one episode on one day when alleged kiting cheques were signed by Mr Swan and this was some six months after the process commenced. He argues that, if the affirmation and exhibits are read carefully, they would confirm what Mr Swan should have known, namely that only 4 cheques were being relied on. Furthermore he suggests that the fact that only 4 out of 268 paid cheques recovered by the receivers bore Mr Swan’s signature does not mean that others within the 1300 or so paid cheques which have not been recovered did not also bear his signature. Presumably this is the reason why Mr Bruce refers to the cheques exhibited to his affirmation, which include the 2 Swan cheques, merely as "examples" (see paragraph 74 above). He also argues that it is reasonable to infer that the kiting operation could not have continued so regularly and on such a large scale without his knowledge or approval. Mr Swan must have noticed that he was signing cheques for millions of pounds, including two drawn on the account of a dormant company. That must have alerted him to the practice, yet it was allowed to continue for more than a year. Mr Green says that, on a proper reading, there is no allegation in Mr Bruce’s affirmation that in this case the management accounts recorded the borrowing position from bank statements. All that is said is if that had been done, it would have led to the management accounts being inaccurate. He also concedes that there is no evidence to suggest that the share price was affected by the kiting or that any shareholder was misled. Once again Mr Bruce’s affirmation only suggests that the share price could have been affected and shareholders could have been mislead.

I have come to the conclusion that these responses do not meet the criticisms levelled at the SoS. The average reader of this material would not appreciate, without a lot of digging, that the cornerstone of the allegation of Mr Swan’s involvement in causing and continuing a prolonged, regular and extensive practice of cheque kiting was his position as the chief executive of the companies and the fact that he signed four cheques on a single day. If, as the authorities suggest, the SoS is under an obligation to present the case against the director fairly and without overstatement and to identify when inferences are being drawn, the limitations on her evidence should have been stated clearly. Furthermore, if she wanted to make points such as the potentiality for kiting to lead to the creation of misleading management accounts, in other words all those matters which Mr Davies criticises as attacks by innuendo, she should have made it clear that no such allegation was being made against Mr Swan in this case. If she had done that, she may well have come to the reasonable conclusion that there was no point in including this material. Furthermore, it is not legitimate to ask the court to infer that some other unknown and unidentified kiting cheques might have been signed by Mr Swan. Whether one categorises the allegations against Mr Swan as fraud or not, there appears to me to be very little evidence to support the serious allegation of knowingly engaging in all the activities complained of. As noted already, the SoS has chosen not to make the lesser allegation (which would have demanded different evidence) that Mr Swan ought to have known about these activities. The suggestion made by her that Mr Swan should be disqualified for 8 years is, no doubt, dependent upon the correctness of the allegation that he knowingly caused, participated in and continued the extensive kiting operation.

This leads me to the issues relating to the Maccess Circular. The SoS’s allegation is set out in paragraph 92 of Mr Bruce’s affirmation;

Of particular significance is the difference between the allegations made against Mr Swan and Mr Reddy on the one side and the other directors on the other. As far as the latter are concerned, it is accepted that the allegation is that they ought to have known of the inaccuracy of the Circular. The allegation against the former is that they actually knew it was inaccurate. Mr Green accepts that the evidence which would be relevant to an allegation that a director ought to have known of this state of affairs will be materially different to the evidence relevant to an allegation of knowledge. Once again, Mr Swan needs only concern himself with allegations of actual knowledge.

The evidence relied on by the SoS in relation to this allegation is contained in paragraphs 72 to 89 of the affirmation. The last of these refers back to the evidence in the affirmation relating to cheque kiting which is put forward in support of the first allegation against Mr Swan and Mr Reddy. Save in this respect, there is nothing in this material pointing to Mr Swan’s personal involvement in the preparation of the Circular or knowledge that it was misleading. This allegation is dependent upon the case the SoS makes out that Mr Swan was knowingly involved in the generation and continuance of the kiting operation. If he knew about that, it is said that he must have known of the inaccuracies in the Circular. It follows that the criticisms of the affirmation in relation to the cheque kiting allegations apply with at least as much force to the allegations relating to the Maccess Circular. I do not think it is necessary to consider this allegation further.

In my view many of Mr Davies’ criticisms are justified. The evidence mustered in Mr Bruce’s affirmation does not support allegations of the width there set out. The affirmation does not give a balanced and fair picture of the limitations of the material known to the SoS. In my view she has failed to set out the case against Mr Swan without overstatement and fairly.

Mr Davies argues that the defects in the evidence referred to above can be traced back to the manner in which the SoS conducted her investigations and commenced these proceedings. He says that, had she paid proper regard to the provisions of s 16(1) of the Act, the judicial guidance in cases like Hickling , the obligations to conduct proceedings in accordance with the CPR, the DU’s own guidelines and basic concepts of fairness, she would have learnt at the very outset that the allegations made went too far and were not adequately supported by the evidence. He argues that even if, after discussing the issues with Mr Swan, she had decided to seek a disqualification order against him, it is inconceivable that Mr Bruce’s affirmation would have taken the form it has. It would have been more modest in scope and more balanced in its attacks. It would have made clear the substantial limitations on the evidence linking Mr Swan to the allegedly wrongful acts and the great extent to which it was based upon drawing inferences. Of particular importance, it would have had to have taken into account and, in accordance with Hickling , have made reference to, Mr Swan’s explanations. Mr Davies goes as far as to say that, had she approached this case properly, she may well have decided not to seek disqualification against Mr Swan or indeed any of the other directors with the exception of Mr Reddy who quickly owned up to the fact that the kiting exercise was his idea and was implemented by him.

Mr Swan first knew that disqualification proceedings were to be brought against him when, on Wednesday 2 October 2002, he received a letter from the SoS’s solicitors, asb law, giving notice of her intention to commence such proceedings. The timing of this letter is significant. The two year period for bringing disqualification proceedings in this case would expire on Saturday 5 October. Absent an application to extend time, the disqualification proceedings had to be served on Friday 4 October. Rather than giving 10 days notice as required by s 16(1), the SoS gave one days notice. Mr Swan received less warning that would be normal on an inter partes application for interim relief in the applications court. Although asb law ’s letter advised Mr Swan that he should seek legal advice and consider the benefits of offering a disqualification undertaking, for all practical purposes he was put in the same position as if he had been given no advance notice at all.

The SoS has given no explanation for her failure to give the statutory notice. She has not even said that it was not possible to give the notice in time. Furthermore, assuming that for some reason it was not possible to give the proper notice before the expiry of the 2 year limitation period, she has not sought to explain why she did not give 10 days notice and seek permission from the court to bring the proceedings out of time. If she had taken the latter step, she would have been obliged to explain why she was late before the court could exercise its discretion in her favour. Mr Green’s answer to these points is to say that the SoS is not prepared to waive privilege and, for that reason, is not obliged to explain why the statutory notice was not given. Mr Davies says that this is not good enough. Without waiving privilege she could indicate, at least in general terms, why the provisions of s 16(1) were not complied with.

Mr Davies argues that this failure to give any effective notice should not be considered in vacuo. The SoS’s investigations in this case were handled by asb law . They extended over the 14 months prior to the service of the s 16 letter. At no time was any attempt made to interview Mr Swan. Indeed, Mr Swan says that the first he knew of the fact that the SoS was contemplating proceedings against him was when the s16 notice was received. No explanation for this has been offered by the SoS. Mr Davies argues that, in these circumstances, the result of this combined failure to interview Mr Swan or give proper notice has been to deprive him of the opportunity to put what he says is the true and balanced facts before the SoS. Had he been given an opportunity to do so, he would have been able to draw to her attention the numerous matters which pointed away from him being knowingly involved in the cheque kiting exercise. Mr Swan sets out the relevant facts at some length in a witness statement produced for the purpose of this application. Among them are the following. He would have pointed out that there were only 4 cheques bearing his signature and that the reason that they were signed by him was that he was a default signatory on the accounts and, on the relevant day, Mr Reddy was away on holiday. Mr Swan believes that he would have signed these cheques, probably together with a number of others, during a day on which his diary records that he had a number of meetings. He would have been able to state to the SoS that he had no idea that cheque kiting was taking place. He could have pointed out that he had very many duties in a group of companies which had an extremely large turnover, thousands of employees and enormous numbers of transactions being conducted each year. He would have pointed out that there was no question of the insolvencies being related in any way to the kiting, of management accounts being based on bank statements or of share prices being manipulated. Furthermore she would have learnt that Mr Reddy, who was in charge of treasury functions, admitted that he had introduced the kiting operation, signed nearly all the cheques, felt he had no obligation to disclose this activity to Mr Swan and, as Mr Swan confirmed, had not done so. Mr Swan would have been able to point out that he was not an accountant and that the kiting was not picked up by the Group’s bankers; the internal audit team (30-strong); the Audit Committee; the external auditors, PwC; the accounting team from PwC who virtually lived at the group’s head office in Stratford or the various firms of accountants who carried out due diligence exercises during the same period. It was also not picked up during the post-acquisition investigation by Arthur Anderson for Autodis SA nor during the financial assistance due diligence by PwC for Autodis SA. This was so notwithstanding the fact that every one of the transactions making up the kiting exercise was dutifully recorded in the books of the companies concerned. Furthermore he would have been able to point out that there were a number of teams of accountants and finance personnel within the group. If any of them had any idea that kiting was taking place, there is no suggestion that any of them disclosed that, directly or indirectly, to him. He would have also been able to point out that, far from trying to feather his own nest, as implied in Mr Bruce’s affirmation, Mr Swan left £1m of equity and loan notes in the Finelist business after Autodis SA took over and was prepared to take his severance package on deferred payment terms.

I accept Mr Davies’ submissions on these points. At the moment the court has no idea why proper notice was not given. It may have been because of difficulties in getting material together. It may have been due to an oversight by someone in the SoS’s department. There may be other reasons. In those circumstances I do not see how the court can assume, against Mr Swan, that all reasonable steps were taken by the SoS to meet the time limits imposed by the section. There is no explanation of the failure by asb law to interview Mr Swan. As I understand it, Mr Green does not dispute that the points Mr Swan says he would have put before the SoS are relevant to the allegations made against him. In my view, taken together, they are very relevant and many of them should have been referred to in the SoS’s evidence..

Mr Swan says that the effect on him of the SoS’s failure to give him a fair opportunity to explain himself has been the commencement of proceedings which have caused him a great deal of harm and that the SoS should have predicted as much. He was a very well known commercial personality. He had been The Financial Times Entrepreneur of the Year and Midland Businessman of the Year. As the SoS knew, the collapse of the Finelist Group had excited the attention of the national press. As soon as the proceedings were launched against the directors, the national press took up the story. The SoS anticipated this. She had prepared her Press Officer with a response to press inquiries. On Sunday 6 October 2002 the Mail on Sunday announced that Mr Swan was being proceeded against by the DTI under the headline "Ex-Finelist boss facing board ban". The story was also carried prominently by The Birmingham Post on 8 October. Following this he was prevailed upon by a major shareholder to resign as a director of Media Square plc, a company of which he was a co-founder and shareholder. He also received a visit from the charity Childrens Nationwide for which he was the chairman of their "Why my Child" Appeal. He was told that the trustees of the charity had met and had expressed the view that it was in the best interests of the charity that he should step down. He agreed to do so. For similar reasons he felt obliged to withdraw as a member of the West Midlands Industrial Development Board and as a patron of the War Widows Association of Great Britain.

The real question is whether or not the procedure adopted by the SoS was defective and unfair to him. For the reasons set out above, in my view it was. She should have given him an opportunity to make representations before the proceedings were commenced. Giving him one clear days notice falls far short of what was fair to Mr Swan, required by the Act and reasonable in the circumstances of this case. It is likely that all or most of the parts of Mr Bruce’s affirmation of which complaint is now made would not have been included or would have been recast in more restrained form if proper notice had been given and Mr Swan had been consulted in advance. I have no reason to doubt that the commencement of these proceedings has been harmful to Mr Swan. However, had the SoS followed a course more to his liking and had Mr Bruce’s affirmation been more restrained, it is still quite possible that the SoS would have determined to bring disqualification proceedings. The commencement of any such proceedings would have been likely to inflict the same harm on Mr Swan’s public image. It follows that the course followed by the SoS has deprived him of the opportunity of putting his side of the story and the chance of persuading her not to bring proceedings at all.

This leads to the most difficult part of this case. As noted above, the guidance from de Smith and the approach adopted by the Court of Appeal in Cedac , suggests that whether or not failure to give the statutory notice under s 16(1) renders subsequent disqualification proceedings a nullity depends, among other things, on whether, in the facts of the particular case, substantial prejudice has been suffered by the director and the shortness of the notice given. However, I have not be invited to make a finding of nullity here and, accordingly, it has not been necessary for Mr Green to address this point. Mr Swan understands the allegations made against him and accepts that the proceedings should continue. The only relief sought is that Mr Bruce’s affirmation be struck out and the SoS be asked to reconsider the evidence she wishes to rely on.

For reasons set out above, it is possible that failure of the SoS to act fairly in preparing and presenting her case against Mr Swan, including failing to give him an opportunity to respond to her allegations, could amount to an abuse of process, an issue which Cedac did not address. Were that to be the case, at least one possible form of relief would be to strike out the proceedings. To allow them to continue or to allow the institution of new proceedings would not cure the prejudice which, it is said, Mr Swan has suffered. Once again, that is not the relief sought on behalf of Mr Swan nor does he suggest that the proceedings, as opposed to the evidence, are an abuse of process.

In the light of this, what relief, if any, is appropriate? As will be appreciated, I have concluded that the affirmation does contain matter which, because it is irrelevant, should not be there. The solution to that is to strike out the irrelevant passages if there is a significant risk that their continued inclusion will cause real prejudice to the director. However, during the course of the hearing Mr Davies rejected an invitation to identify particular passages in the affirmation which he wanted removed. His client’s position remained that he wanted the whole of it, including parts against which no criticisms were levelled, to be struck out.

Similarly, I have held that, both in the way that she prepared for the commencement of these proceedings and in the way the affirmation makes allegations which go further than appear to be justified, the SoS has failed to treat Mr Swan fairly. However, it seems to me that the correct response to that is either to strike out the proceedings in their entirety if the proceedings are thereby rendered an abuse, or to strike out particular passages or give further particulars. This was the approach advocated by Chadwick J in Re Sutton Glassworks Ltd [1996] BCC 174, 178;

Mr Davies argues that, if the court can strike out the whole proceedings, it can take the lesser course of striking out the evidence only. Furthermore the relief sought is said to be consistent with the CPR. In relation to the latter, Mr Davies relies particularly on the court’s wide case management powers and the Practice Direction – Protocols. That encourages the exchange of early and full information about prospective claims and enables parties to avoid litigation by agreeing a settlement. It provides that the court should exercise its powers "with the object of placing the innocent party in no worse a position that he would have been in" had the proper pre-trial procedures been employed (paragraph 2.4). So requiring the SoS to withdraw the affirmation, in part at least, would turn the clock back.

I do not accept these submissions. Although parties are to be encouraged to pay due regard to the objectives of the CPR and, in particular, to attempt to avoid or minimise the scope of litigation by pre-action discussions, the normal penalty for failure to do so sounds in costs. Furthermore, although the court should consider exercising its powers, if possible, with a view to putting the parties in the position they would have been in had the objectives of the CPR been complied with, this does not mean that it should grant relief which is inappropriate. If the proceedings are an abuse of process, they should be struck out or, if that is too great a penalty, an order for costs can be made against the offending party. If evidence contains matter which is irrelevant you strike out that matter. If it is unclear you ask for particulars. Mr Swan does not suggest that he does not understand the allegations made against him. He does not dispute that an arguable case for disqualification exists in the material relied upon in Mr Bruce’s affirmation. He has not suggested that the proceedings should be struck out. In those circumstances, the proper relief is to strike out offensive passages in the affirmation or to seek further particulars or both. That is not relief which Mr Swan invites the court to give.

The result is that, notwithstanding the defects in Mr Bruce’s affirmation and the procedure adopted by the SoS in this case, I will not grant Mr Swan the relief he seeks. Even so, it is to be hoped that the SoS will review whether it is appropriate to proceed with the affirmation in its present form or at all.

Before finishing, there are a number of small points which should be dealt with. First, I have not expressly addressed a point made by Mr Davies to the effect that Mr Bruce’s affirmation was seriously defective in that it did not record that Mr Swan denied cheque kiting. This was something which the SoS should have known since Mr Swan had said as much to the receivers of Finelist. In my view there is nothing in this. As soon as Mr Swan evinced an intention to defend the proceedings, he asserted his innocence. I do not accept that Mr Bruce’s affirmation can be criticised because it does not state the obvious.

Second, during his submissions, Mr Green has drawn my attention to the judgment of Lord Woolf MR in Secretary of State for Trade & Industry v Griffiths [1998] 2 All ER 214 and, in particular, his suggestion that the parties should adopt a "broad brush" approach to disqualification proceedings. He has also drawn my attention to Re Continental Assurance Co of London plc [1997] BCLC 48, in which Chadwick J deplored any tendency to introduce into this jurisdiction the inflexibility which surrounds criminal indictments. Nothing in this judgment is intended to detract from either of those judgments. On the other hand I do not understand them to undermine the obligation of the SoS to be fair to the director in executing her functions under the Act in the public interest.

Finally, I have not dealt with the subsidiary matter of expert evidence raised in Mr Swan’s application (see paragraph 4 above). This can be disposed of shortly. Mr Bruce’s affirmation refers to and exhibits tables and data collated by Baker Tilley. It is argued on Mr Swan’s behalf that the latter material constitutes expert evidence from Baker Tilley. As such the SoS has failed to comply with the provisions of CPR 35 including, for example, the prohibition on putting an expert’s report in evidence without the court’s permission (CPR Pt 35.4). In my view there is nothing in this allegation. Baker Tilley has provided no expert evidence for these proceedings and the SoS has not relied on any of the data exhibited to Mr Bruce’s affirmation as an expert report.