England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
APPLICATION FOR PERMISSION TO APPEAL

		Royal Courts of Justice Strand London WC2 Tuesday, 26th June 2001

1. LORD JUSTICE CHADWICK: This is a renewed application for permission to appeal against an order made on 16th March 2001 by Mr Anthony Mann QC, sitting as a Deputy Judge of the High Court in the Chancery Division, in Companies Court proceedings brought by the Secretary of State for Trade and Industry under Section 7 of the Company Directors Disqualification Act 1986 against four respondents including, in particular, the applicants, Mr Paul Murfitt and Mr Kenneth Rayna.
2. The Disqualification Act proceedings arose out of the liquidation of two companies, Cedarwood Productions Ltd and Inter City Print and Finishing Ltd. The Cedarwood proceedings were commenced by issue of an originating summons on 20th December 1995. The evidence filed on behalf of the Secretary of State pursuant to Rule 3 of the Insolvent Companies (Disqualification of Unfit Directors) Rules 1987 is not before the court on this application; but the matters relied upon in support of the Secretary of State's contention that Mr Murfitt and Mr Rayna are persons whose conduct as directors of Cedarwood, Inter City and another company, Walker Publicity Print Ltd, make them unfit to be concerned in the management of a company for the purposes of Section 6 of the 1986 Act are sufficiently identified in a witness statement made by their solicitor, Mr G O'Toole, on 28th November 2000. They are summarised by the judge at paragraph 9 of his judgment. Put very shortly, the allegations said to merit a finding of unfit conduct are (i) trading at the risk of creditors when they should have known that the companies were under capitalised or insolvent, in particular, (ii) trading at the risk and cost of the Inland Revenue by withholding PAYE payments and National Insurance contributions, (iii) misapplication of company monies by paying them away to other companies, (iv) misuse of bank accounts and (v) failure to keep accounts and records sufficient to ensure that adequate financial information was available to them as directors. There is an underlying allegation that, in relation to Cedarwood and Inter City, these applicants had been concerned in the management of a series of "phoenix" companies which have each borne the liabilities of what was, in essence, a single business but none of which have had the benefit of the assets employed in that business; those assets being held by a further company, Walker Print Ltd.
3. The Disqualification Act proceedings were commenced in December 1995. Progress in those proceedings appears to have been slow. On 13th December 1999 the proceedings came to a halt on the making of an order for a stay by Mr Registrar Buckley in relation to these applicants. The reason for the stay was that Mr Murfitt, Mr Rayna and others were facing criminal charges in relation to Cedarwood Productions, Inter City and a third company, Paragon Litho Lts. The offences charged are set out by the judge at paragraph 4 of his judgment. They include conspiracy to defraud and fraudulent trading. In the course of the trial the counts in that indictment were re-cast or re-framed so as to include a composite count - count 1 -in these terms:

"[Mr Murfitt and Mr Rayna] on divers days between 1st January 1992 and 29th August 1998 conspired together to defraud such creditors and other corporations, companies or persons as might engage in business transactions with companies under their control or with which they were connected by:

(a) causing or permitting Walker Print Limited to be run as a profit-making concern while all debts accrued to `production companies' including Cedarwood Productions Limited, Inter City Print and Finishing Ltd and Paragon Litho Limited

(b) causing and permitting those production companies to accrue debts which they failed to pay as and when they fell due

(c) causing and permitting the production companies to be liquidated and/or to `disappear' owing substantial sums of money."

4. On 13th June 2000, in the course of the criminal trial, Mr Murfitt and Mr Rayna pleaded guilty to that count and, I think, to one other count. On 15th September 2000 they were each sentenced to terms of imprisonment which, running concurrently, amounted to 9 months. More material to the current application, each was disqualified for 2 years under Section 2 of the Company Directors Disqualification Act 1986. Section 2 (1) is in these terms:

"The court may make a disqualification order against a person where he is convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation, management, liquidation or striking off of the company or with the receivership or management of the company's property."

5. The maximum period of disqualification under section 2 of the Act is 15 years (save in a case where the court is a court of summary jurisdiction). There is no minimum period. Those provisions maybe compared with provisions of Section 6 of the Act. which requires the court to make a disqualification order in certain cases. Section 6 (1) is in these terms:

"The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied -

(a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and

(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company."

6. The term of disqualification imposed under Section 2 by the Crown Court judge of 2 years was equal to the minimum period of disqualification that could have been imposed under Section 6 of the Act. Section 6 not only makes it mandatory to impose a disqualification order where the court is satisfied of unfit conduct but provides that the minimum period of disqualification is 2 years. The maximum period is the same 15-year period.
7. We have been referred to the judgment of the Court of Appeal (Criminal Division) in R v Evans (2000) BCC 901. In that case the court accepted that the purpose of disqualification in the context of criminal proceedings is primarily to protect the public from the dishonest operations of those unfitted to take part in management of companies rather than to punish. That is one purpose - but not the only purpose - of an order made under Section 6 of the 1986 Act; see In re Blackspur Group Plc [1998] 1 WLR 422, 426F, 433G. The deterrent effect on others must not be overlooked - see In re Westmid Packing Services [1998] 2 BCLC 646, 655C.
8. Following the plea of guilty in the criminal proceedings, the Secretary of State applied to lift the stay which had been imposed in the current disqualification proceedings by Mr Registrar Buckley in December 1999. That application was opposed by Mr Murfitt and Mr Rayna. The basis of the opposition was that these current proceedings, at least as against them, had become an abuse of process by reason of the disqualification orders made in criminal proceedings. Alternatively, that to seek disqualification orders in the civil proceedings when disqualification orders have already been made in the criminal proceedings would breach what is described as "the principle of former recovery". The judge rejected those contentions and ordered that the stay be lifted as against Mr Murfitt and Mr Rayna and that these proceedings should proceed to a trial as against them - that trial to come on with the trial against the other respondents in relation to whom there had been no stay. It is against that order that Mr Murfitt and Mr Rayna seek permission to appeal to this court.
9. The test to be applied on an application for permission to appeal -where the court from which it is sought to appeal was not itself sitting as an appeal court - is that permission should be granted unless the proposed appeal has no real prospect of success.
10. In my view, there is no real prospect of success in the present case. The judge analysed, with conspicuous care, the principles applicable where a court is asked - as, in effect, it was asked in the present case - to stay current proceedings on the ground that the existence of earlier proceedings would make it an abuse of process for the current proceedings to continue. His analysis is set out in paragraph 18 of his judgment. There is not, as I understand the submissions made to us on this application, any serious attack on the principles which we identified. The judge then went on to consider whether applying those principles - and looking at the facts in the round - there was any question of abuse, or any danger of breach of the principle of former recovery. The difficulty, as he pointed out, was that although there were plainly overlapping factors - in that the same individuals, the same companies and the same general conduct lay at the root both of the criminal proceedings and the civil proceedings - it was impossible, from the material available, to tell what factors the Crown Court judge had taken into account when reaching the conclusion that it was appropriate to make a disqualification order for 2 years. That is, perhaps, not surprising in the circumstances that the judge was invited to make an order under Section 2 of the Company Directors Disqualification Act by the applicants themselves, through their counsel.
11. Mr O'Toole, in a witness statmentmade on 26th February 2001, acknowledges, with commendable frankness, that counsel raised that issue with the Crown Court judge, and invited an order under Section 2 of the Act, with a view to disposing of the entirety of the case including the civil proceedings. It seems to have been counsel's view that, if the Crown Court judge were to make a disqualification order in the criminal proceedings, that would amount to a complete answer to the civil proceedings. This, then, was not a case which the judge, assessing all the evidence for himself, decided of his onw motion that it was necessary to make a diqualification order in the face opposition to that course.
12. There was a plea to the criminal charges. There would have been some material put before the judge by the prosecution in connection with sentence. There ewas no opposition to a disqualification order by the respondents; indeed, there was an invitation to make one. In those circumstances it is not surprising that we do not have, in this court, any analysis by the Crown Court judge of the factors which led him to the conclusion that a disqualification order was appropriate in the case before him; or of the factors which led him to impose a period of 2 years.
13. It seems to me therefore quite impossible to say that the civil proceedings amount to an abuse of process. The task of the court in the civil proceedings is to examine the particular matters which are alleged in the Secretary of State's evidence to justify a conduct of unfitness and - if satisfied that unfitness is made out - then to determine, in accordance with the principles explained by this court in In re Westmid Packing Services [1998] 2 BCLC 646, 654-658 what period of disqualification to impose. In carrying out that function it may consider ground which could have been the subject of a disputed trial in the Crown Court. But it is, to my mind, apparent that it will have to go considerably further than that. It may be borne in mind that the powers to impose a period of disqualification under Section 2 arise where there has been a conviction of an indictable offence. In other words, where there has been proved or admitted criminality. Section 6 is not concerned with criminality; it is concerned with unfit conduct which may or may not include criminality.
14. I am not persuaded that there is anything in the present case which could be regarded as an abuse. Any attempt to appeal the judge's order on that ground would, in my view, be bound to fail. Nor am I persuaded that this is an area in which the doctrine of former recovery can have any meaningful role. The matter which has given me some concern was whether it has become common practice for defendants facing criminal charges arising out of their conduct of a company's affairs to invite an order under Section 2 of the Act in order to forestall the rigorous investigation which would take place on an application for an order under Section 6 of the 1986 Act. We have been told by Mr Ritchie, who appears for the Secretary of State, that that is not perceived by the Secretary of State to give rise to a problem. In particular, the Secretary of State does not take the view that that is a matter upon which the guidance of the Court of appeal is necessary or would be welcomed.
15. In those circumstances, having reached the conclusion that an appeal would have no real prospect of success and there being no other reason why the matter should be entertained by the Court of Appeal, I would refuse this application.
16. MR JUSTICE ROUGIER: I agree, and for the reasons given. Since the power to disqualify is not only penal but also for the protection of the public, it seems all the more desirable that the full and precise aspects which rendered the applicants unfit should be investigated with a view to determining the proper period of disqualification.
17. Mr Mann QC, in his judgment, rightly pointed out (at paragraph 20) that at the stage of the criminal trial the picture available to the trial judge was not the full picture that arises from a proper consideration of the civil proceedings.
Order: Application refused