Chicago Holdings Ltd v Cooper & Anor

This is an application for specific disclosure of documents which would otherwise be privileged, in the hands of the liquidators, who are respondents to an application for their removal on the ground, inter alia, that the company, Chicago Group Limited, was put into creditors voluntary liquidation on the authority and under documents signed by Mr. Njie, who according to Mr. Capone was neither a director nor a shareholder. Mr. Capone and Mr. Njie had been associates. I understand that they had split their business interests. That the group structure was that Chicago Holdings Limited originally owned Chicago Group Limited, which in turn owned three companies: AC Corporate Limited, Chicago Computers Company Limited and Chicago E-tools Limited. The basis of the split apparently, although it is not necessary for me to decide anything on it today, was that Mr. Njie was to have AC Corporate Limited and Chicago Computers Company Limited, and Mr. Capone was to have Chicago E-tools Limited. After the liquidation, the liquidators complained that the transfer of Chicago E-tools limited to Mr. Capone was at an undervalue, and that is the subject of separate proceedings which will be heard sometime in the middle of next year. The removal application will be in the course of January.

On 27^th September this year, Mr. Capone and his legal representative attended at the offices of the liquidator’s solicitors to inspect six boxes of documents relating to the affairs of Chicago Group Limited, the company. In the course of the inspection, Mr. Capone’s advisors noticed a hand-written document which was apparently notes taken at a meeting with the solicitors. On the document were the words, according to Mr. Capone’s advisers, something like, “Go ahead anyway. Try to get it sorted or bluff it out.” With the permission of Mr. Jeffries, counsel for Mr. Capone, I was shown the document. It does contain words to that effect.

What is said by Mr. Capone is that the note is highly relevant, that the documentation already disclosed in the proceedings shows that the liquidators knew that there were problems with Mr. Njie’s authority to conduct the liquidation process, they knew or at least they had grave doubts as to whether he was a director or shareholder. The note confirms the doubts. The note suggests to Mr. Capone that they were prepared to ignore the requirements of company law and just “bluff it out,” by presenting Mr. Njie to the body of creditors as a director and shareholder of the company. That is what in fact happened in his opinion. In the context of these proceedings the note is relevant, in that if it is established that the liquidation was a nullity, the liquidators have no standing to bring these proceedings. He then goes on to say that even if were privileged, privilege cannot be claimed for it because one of the options given was “bluff it out.” To bluff is, according to Brewer’s Dictionary, to deceive by pretence, or according to the Oxford Dictionary, to intimidate by a pretence of strength. He says that liquidators were being advised that they had an option to try to sort it out or to bluff it out, so there was some part of the necessary factual background to wind up the company which was absent, and which they knew was absent. Mr. Capone says he had said all along that Mr. Njie was not a director and shareholder. He believes the liquidators knew this. This was not advice about the effect of a transaction after the event, but how it might be affected, by bluffing. That was advice which sought to effect an iniquity and did not attract privilege.

The application is not only for production of that document, but for production of the whole of the file, on the basis of the iniquity rule to which I will come.

I should mention in addition that Mr. Njie, whose name is now Mr. Cole, has given evidence in support of Mr. Capone. He says that he had a meeting with one of the proposed liquidators, Mr. Cotton, before the creditors meeting, when Mr. Cottam told him that they could not liquidate the two companies whose business Mr. Njie was acquiring, without first liquidating the company. Mr. Njie goes on,

“He then said to me that there was a way around it. I asked him how we could get over it. He said it could be done if I sat in as director and chairman of the Company. I told him that I wasn’t interested in the Company, and that I had nothing to do with it. He said there would be no implications or repercussions for me by doing so. I was aware that the Company was not trading, and I was primarily concerned about protecting my own interests as a shareholder and director of ACC and CCC. Mr. Cottam presented me with a form 288A for my appointment as director of the company, which I signed. I also recollect signing a document appointing a secretary of the Company, although I cannot recall who was appointed. I understand these documents have not been filed at Companies House.”

Mr. Woolley says that he attended meetings. Mr. Njie, according to one of the proposed liquidators, Mr. Woolley, says that he was specifically asked to confirm whether he was a director and shareholder of the company, and confirmed that he was. Mr. Woolley had no reason to disbelieve him.

There are no pleadings in this matter. The primary case of Mr. Capone is that the appointment was invalid simply because Mr. Njie was not a director and shareholder.

If what Mr. Njie says is true, for what must be inevitably very little gain, Mr. Cottam and Mr. Woolley were engaged in what can hardly be called less than a fraudulent scheme, in complete breach of any professional standards, which would have, if made out, obviously be the subject of disciplinary proceedings, which could only have one result.

The law as understood for almost well over 80 years, going back to the leading case of O’Rourke v. Derbyshire [1920] AC 581 at 604, is that the iniquity exception to privilege, for that exception to apply there must be a definite charge of fraud or illegality, supported by prima facie evidence and not merely an allegation of fraud.

I was referred to the recent case of Barclays Bank plc v. Eustice, which was a case involving an alleged transaction at an under value. In that case, Schieman LJ referred to some of the well known cases in this area, particularly the decision of the Court of Appeal in Ventouris v. Mountain [1992] 1 WLR 701 and R v. Cox & Railton in 1884. Schieman LJ, after referring to Ventouris v. Mountain that Bingham LJ was,

“recognising the effect of a line of cases which have established that advice sought or given for the purpose of effecting iniquity is not privileged. The present appeal is concerned essentially with the question whether the effecting of transactions at an under value for the purpose of prejudicing the interests of a creditor, can be regarded as iniquity in this context. Iniquity is, I believe, without having done any research on the point, Bingham LJ’s word. The case law refers to ‘crime’ or ‘fraud,’ (R v. Cox & Railton), ‘criminal’ or ‘unlawful’ (Bullivant v Attorney General for Victoria) and “all forms of fraud and dishonesty, such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances.” The case law indicates that ‘fraud’ is, in this context, used in a relatively wide sense.”

Then he refers to the unreported decision of Gamlen Chemical Co v. Rochem which was a case of fraudulent diversion of goodwill.

The case is essentially about whether or not the processes of the liquidation were valid, and that turns on the authority of Mr. Njie. Although Mr. Njie does make allegations, which if they were at the centre of this matter would amount to allegations of iniquity, I am far from satisfied that this is a case either where the essence of the claim is fraud or iniquity in the wide sense, and certainly I am not satisfied that simply because of Mr. Njie’s assertion, this is a case where there is a prima facie case shown to the requisite standard. In those circumstances, I would dismiss the application for specific disclosure of these documents.

I do not think that in itself, the expression “bluff it out” carries the matter any further. Obviously I would accept that if there had been a document saying, ‘Let us get on with this fraud’ -----