Cathie & Anor v The Secretary Of State For Business, Innovation & Skills

HIS HONOUR JUDGE PURLE: I have already granted permission to appeal in this case, which concerns a disqualification order made against directors by the District Judge in Manchester. I also consider that this is a proper case for the appeal to be expedited. There are at least two reasons for this. Firstly, the appellants are not in the first flush of youth and wish to re-establish themselves in their lives, buttressed by what they hope will be a successful appeal. In addition there was a regrettable delay of several months between the handing down of the judgment and the making of the order under appeal. Without that delay, this appeal would by now probably have come on in the ordinary way. The actual judgment was handed down in June 2010 but no order was made until 9 March 2011, a period of approximately nine months. There had been an earlier adjournment of the hearing, which seems to have been down to the appellants, and so that earlier delay cannot be a reason for expedition. But there is no satisfactory explanation for the nine-month delay between June and March.

So far as Mr Kellar is concerned, there is another matter of acute importance to him, which also justifies expedition. He has described his past career and his present business opportunities at some length in a witness statement, which on the last occasion was described by Mr Morgan as reading something like a John Le Carré novel, except that it was not, he told me, fiction. Miss Wilson-Barnes also does not suggest that the witness statement is fiction. Mr Kellar is a former army officer who has for some years, since 2005, acted as a freelance conflict resolution specialist employed by various international agencies. He sets out in some detail the hot spots in the world in which he has been engaged. As a result of injuries sustained in field activities, the emphasis of his activities has since 2008 been to act as a mediator or adviser in peace negotiations held in neutral venues. He intends, if possible, to resume that role. To be able to carry out that role, Mr Kellar must have and retain the trust and confidence of the agencies and other contacts that he has built up. I should add that, although disqualification orders were made in this case, there were no findings of fraud or dishonesty made against the appellants.

Mr Kellar is concerned that the effect of the registration of the disqualification order would be to damage his reputation and standing irreversibly because the highly trusted connections which he has built up may be lost in consequence. He says that those connections, once severed, can rarely be re-established. Anyone undertaking due diligence in respect of him, finding a registered disqualification order, albeit one which may be reversed on appeal, would regard that as a very serious matter, possibly indicating fraud or dishonesty (even though that was not found) leading to loss of confidence and therefore potential loss of business connections. He accordingly seeks a stay (or its equivalent) of the disqualification order and a direction to the Registrar of Companies not to register the order in the meantime.

Since May of last year he has not been working because he felt it would be wrong not to disclose the proceedings to any employer. It appears that his current fragile financial position means that he now has to return to work as quickly as possible. An interim costs order of £20,000 has also been made against him and he needs to fund at least counsel's element of the appeal costs. I say at least because I understand that the solicitors are acting under a conditional fee agreement, or have in the past, though that may not be the case today.

Given the confidential nature of many of his connections, he was less than wholly specific and did not identify them in evidence by name. There was however correspondence between Wragge and Co, who act for the Secretary of State, and Chandler Harris, who act for the appellants, concerning the provision of further information. As a result of that certain confidential documentation was provided by Mr Kellar under agreed terms, set out in a letter dated 12 April. The confidential documents in question were made available to Wragge and Co upon the following undertakings:

Inspection has been made available on that basis. So on this application, had the solicitor undertaking the inspection felt that there was reason to challenge what Mr Kellar was saying about his confidential connections, it would have been open for that solicitor to bring the content of the documents to the attention of others within the firm, and to counsel, and then to discuss their significance, and put evidence before the court, without being in breach of undertaking. The basis for disputing the inference of irreparable harm could also have been explored by reference to the information disclosed by the documents.

I was invited by Mr Morgan this morning to read a document which Miss Wilson-Barnes had not seen, though her solicitors probably had. It was said that this would persuade me of the correctness of what Mr Kellar was saying. I declined that invitation and make no inferences as to what the document in question might be supposed to portray.

However, more significant is that Miss Wilson-Barnes has not (despite the inspection) been instructed to put forward any positive case contrary to what Mr Kellar says about the confidential nature of the documents and his connections, and the damage that might ensue from registration of the disqualification order. She has merely said that, on the evidence disclosed to the court, Mr Kellar's evidence is not good enough. In my judgment, his evidence is as full and as detailed as it could reasonably be expected to be. That evidence establishes a realistic prospect of irreparable reputational damage if there is no stay and if the disqualification order is in the meantime publicised by registration. There has already been limited publicity as the disqualification order was made in open court and this hearing has been in open court. Nonetheless, this would not necessarily be revealed on routine searches undertaken by those carrying our due diligence, whereas registration would be more likely to be so revealed. Section 18 of the Company Directors Disqualification Act 1986. (“the 1986 Act”) provides for a register of disqualification orders to be maintained by the Secretary of State, which is in practice kept by the Registrar of Companies on his behalf. That register is open to public inspection. There are regulations made under the same section which require court officers to furnish the Secretary of State with the relevant particulars, as well as particulars of variations to an order or of a disqualification order ceasing to be in force.

There is a procedure under section 17 of the 1986 Act for obtaining permission to act as a director, notwithstanding the disqualification order. In Mr Kellar's case that is not something which is now of any use to him. His days as an entrepreneurial director are over. His current employment prospects are exclusively in the field of mediation and advising in peace negotiations as an individual, not through a body corporate. For that purpose what matters is not his status as a director; he is not and does not wish to be a director of any company, but he wishes to protect his individual reputation and maintain trust among those with whom he has built up contact over time. Accordingly he seeks a stay or its equivalent, not so as to preserve for him the ability to act as a director, but so as to prevent the registration of the disqualification order pending appeal, upon the footing that the disqualification order may turn out to be wrongly made, in which case it will have to be removed from the register and all the particulars deleted. That follows from section 18(3) of the 1986 Act which provides:

It is obviously important for the protection of the public that the register should be maintained and up to date. However, Mr Kellar is not proposing to act as a director and offers me an undertaking to that effect. He submits, through Mr Morgan of counsel, that the court has jurisdiction to grant a stay of the existing order or its equivalent and to buttress that with an order preventing registration. That conclusion is disputed by Miss Wilson-Barnes for the Secretary of State. She draws my attention to the decision of Registrar Baister in Raymond Puddephatt v The Secretary of State for Trade and Industry, decided on 14 August 2002. This appears at page 4 of the transcript:

He then went on to consider the question of granting a stay, which he granted. He cited the decision of the Court of Appeal in Secretary of State for Trade and Industry v Bannister [1995] BCC 1027 and was persuaded that he had what in effect was an unfettered jurisdiction. albeit to be applied judicially. That was a case where the appellant had a number of positions of some status which he felt he would have to relinquish in the absence of a stay. It was therefore in that sense another case of reputational damage, though it was much more focused than in this case because specific positions were identified which the applicant would have to relinquish. Here of course Mr Kellar does not have any specific position. He wishes to resume his activities of the past, but he does have a number of contacts and considers, in my judgment justifiably, that further publication by registration could give rise to irreversible reputational damage.

Accordingly, it seems to me this is a proper case for a stay and that I have jurisdiction to make the necessary order for the prevention of publicity via registration. The passages in Registrar Baister's judgment, to which I have referred, were common ground and have prima facie great force. If, however, the court stays the disqualification order then that order ceases to have effect so long as the stay is in being and, under section 18(3) of the 1986 Act, when an order ceases to be in force the entry has to be deleted. The only possible point taking this case out of that subsection is that it may be that the entry has not yet been registered, so the order is not yet in force. On an earlier occasion I postponed the date upon which the order should come into force under section 1(2) of the 1986 Act, which provides that the period of disqualification begins at the end of the period of 21 days, beginning with the date of the order, "unless the court otherwise orders". I did otherwise order on that occasion. Miss Wilson-Barnes has questioned my power to have done that.

She does, however, concede that I have jurisdiction to grant a stay and that therefore is what I propose to do because, although certain submissions were addressed to me on the footing that a stayed order remains in force and time runs during the period of stay for the purpose of calculating the period of disqualification, I was not referred to any authority (rather than text-book commentary) which established that that was so. In my judgment, a stayed disqualification order ceases to have effect for the purpose of the 1986 Act, and section 18 in particular. The fact that the stay may only be temporary is irrelevant. The order ceases to have effect for so long as the stay is in force, and the director cannot, when the stay is removed (if that eventually happens) claim the benefit of the period of the stay as counting towards the period of disqualification. If the stay is granted before the disqualification period commences, then the order does not come into effect until the stay is lifted or expires. Either way, an order which is stayed has no force and should not be on the register. As the stay order that I am now making will, it seems likely, be made before any entry on the register has got there, it seems to me that I clearly have power to give effect to the stay by directing the Registrar not to enter the disqualification order on the register because the result of the stay is that the order does not have effect pending appeal. Insofar as it may already have had effect, it ceases to have effect during the period of the stay, and should be removed on that ground.

I was referred by Mr Morgan to the Australian case of Hunter v Corporate Affairs Commission, (1988) 12 NSWLR 178, a decision of the Equity Division of the New South Wales Supreme Court where Young J, whilst disclaiming any intention to decide anything finally (because unlike myself he had not heard full argument) nonetheless took the view that the court did have power to restrain the Corporate Affairs Commission from exercising its duty to compile and keep a list of disqualified directors pending appeal. The particular ground upon which Mr Morgan relied, derived from that judgment, was the power under the Supreme Court Act 1970, which I assume is a local statute, to grant injunctions. That has its equivalent here under section 37 of the Senior Courts Act 1981. Accordingly in jurisdictional terms I do not consider that there is any bar to my exercising that power. It seems to me appropriate to do so in the light of the stay that I have granted. The point was not argued in Puddephatt and, moreover, in that case it is perfectly clear that the disqualification order had already been registered and the focus of argument was not on that point.

It follows from my construction of section 18(3) that the disqualification order in Puddephatt, or in any like case, should, as a consequence of the stay, have been removed from the register. If at the end of the day the appeal court upholds the order of the District Judge, it will have power not just to discharge the stay but to vary the order to ensure that the effective period of disqualification is as long as that which was granted by the District Judge. In other words, it will have power on hearing the appeal to specify the commencement of the period of disqualification to be a date after the conclusion of the appeal. No one should be under any illusions that staying the order pending appeal will give appellants who are fortunate enough to obtain such an order the advantage of time counting in their favour. For the reasons I have given, a stayed order ceases to have effect and, in the event of an unsuccessful appeal, a new commencement date would have to be specified at the conclusion of the appeal.

As Mr Morgan pointed out, the powers of the appeal court are governed by the Insolvency Practice Direction, which in its present form in paragraph 17.17(1) says: "In relation to an appeal the appeal court has all the powers of the lower court." That must, as is conceded, extend to the power to grant a stay and I would also consider it, were it necessary to do so, as extending at an interlocutory hearing to enabling the court to postpone the commencement of the period of disqualification until a date after the hearing of the appeal. However, as I am staying the order I do not need to do that. The court hearing the appeal substantively will make an adjustment to that date, if the appeal is dismissed.

There then is the question of whether I should stay the order as to costs. It is of course well known that an appeal does not operate as a stay. Good reason has to be shown. Mr Morgan says that in this case the financial position of the appellants is so precarious - and they have given a fair amount of detail as to their respective financial positions - that there is a real risk that an appeal, which has some merit in the sense that the appellants have satisfied the court that permission ought to be given, will be stifled. Miss Wilson-Barnes says that that is not so and that the evidence is not good enough. She points to factors such as there being some funds which have been made available by third parties, for school fees and the like, and she says that it would not be right for the Secretary of State to be kept out of the costs to which he is entitled under an interim costs order of £20,000, let alone the full costs when they are ultimately assessed. I am prepared to expedite the appeal so I do not think any question of the full costs being assessed before the appeal comes on is likely to happen.

What I shall do is I shall direct that the appeal be listed, either here, in London, Manchester or elsewhere as soon as possible after 6 June. I say 6 June because transcripts are still to be obtained. They will take about four weeks. They then have to be considered and people have to get their skeleton arguments together. It seems to me that it is unlikely that the case will be ready in May and I think 1 June may be a bit tight, but I am prepared to be persuaded against that if anyone wants to try, especially as I understand that a date may be available in Manchester at the beginning of June. My present estimate for the appeal, although again the parties may contradict me on that, is two days. The parties may have a different view, but that was the position we reached on the last occasion. Mr Morgan at first thought it might be over in a day, but I think that is somewhat ambitious.

In the meantime it seems to me that the appellants should have the advantage of appearing on a level playing field with the respondent and should be able to enjoy the services of counsel. The level playing field point is particularly relevant in a matter of litigation between citizen and state. I do consider on the evidence that there is a real risk that the appellants will not be in that position if the costs order is now enforced and, as enforcement will merely be suspended for a relatively short period of time, I consider that the balance of justice requires enforcement of the costs order to be stayed. So I shall grant Mr Morgan that stay as well.

I will now hear counsel on any other matters.