England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
COMPANIES COURT
(Mr Justice Lloyd)

		Royal Courts of Justice Strand London WC2 Thursday, 25th January 2001

Thursday, 25th January 2001

1. LORD JUSTICE CHADWICK: The applicant, Mr William Stern, is the subject of a disqualification order made on 18th April 2000 under section 6 of the Company Directors Disqualification Act 1986 by Lloyd J on an application made by the Official Receiver following the insolvent liquidation of Westminster Property Management Limited. The disqualification order prohibits Mr Stern from being a director, or otherwise concerned in the affairs of a company, for the period of 12 years without leave of the court. The judge gave Mr Stern permission to appeal against that order (save in relation to certain of his findings). Mr Stern has taken advantage of that permission by lodging a notice of appeal. That appeal is still to be heard. In the meantime the order has taken effect.
2. Section 1 of the Company Directors Disqualification Act 1986 enables a person against whom a disqualification order has been made to apply for leave to be a director of a particular company, or companies, notwithstanding that the disqualification order has taken effect. The application is made in accordance with the provisions in section 17 of the Act. On the hearing of such an application the Official Receiver, in a case where the disqualification order itself was made on the Official Receiver's application, is required to appear and to call the attention of the court to any matters which seem to him to be relevant - see section 17(2) of the Act.
3. On 18th April 2000, immediately following the judgment in the disqualification proceedings, Mr Stern, who was then in person, made application to the judge for leave to be or remain a director of a number of companies. The application was adjourned for a hearing with evidence on 8th May 2000. In preparation for that hearing, Mr Stern filed a number of affirmations. They are dated respectively 14th, 28th April and 3rd and 5th May.
4. The first of those affirmations was made before the date of the disqualification order itself, but in anticipation of it, in the light of the draft Judgment which had been made available to the parties in advance of judgment being delivered. That first affirmation identified nine companies in relation to which Mr Stern sought leave to continue to be a director. As it was put in the affirmation, those nine companies fell into three distinct groups. First, there were three companies incorporated in the United States - two in Texas and one in California. They were California Nickel Corporation, Applied Seismic Research Corporation and Reservoir Stimulation Technologies Incorporated. Those three United States companies, as Mr Stern affirmed, had no nexus whatsoever with the United Kingdom, save that he conducted correspondence in relation to their affairs from his address here. The second group comprised three subsidiaries of Dollar Land Holdings Plc, a United Kingdom company. They were Dollar Land (Manhattan) Limited, Dollar Land Holland BV and AOI NV. It was said that the activities of those companies were carried out exclusively in Belgium and Holland. The third group comprised three companies, or entities, having as their purpose the establishment and maintenance of schools for the provision of an education in accordance with the doctrines and principles of traditional Judaism. They were Pardes House Foundation, Cometville Limited and Pardes House & Beis Yaacov Primary Schools.
5. By the affirmation of 28th April 2000, Mr Stern's application was enlarged so as to include County Dollar Corporation, a company incorporated in the state of New York (which falls naturally into the second group); and, by the affirmation of 3rd May, the application was enlarged further to include the North-West London Jewish Day School, a charity of which Mr Stern was a trustee.
6. In relation to two of the educational bodies, Pardes House & Beis Yaacov Primary Schools and North-West London Jewish Day School, the judge held that the court had no power under the Company Directors Disqualification Act 1986 to relieve Mr Stern from the effect which a disqualification order would have under the School Standards and Framework Act 1998 or the Charities Act 1993, respectively; and there is no challenge to that decision. That left the three companies which were incorporated in the United Kingdom, Dollar Land (Manhattan) Limited, Pardes House Foundation, and Cometville Limited, and the six companies which were incorporated overseas, Californian Nickel Corporation, Applied Seismic Research Corporation, Reservoir Stimulation Technologies Inc, Dollar Land Holland BV, AOI NV and County Dollar Corporation.
7. In relation to the three United Kingdom companies there was no question but that the judge had jurisdiction to make the orders sought. But, after considering the material which was before him, including the material put in by the Official Receiver, the judge refused Mr Stern leave to be or to remain a director of those companies. He said this:

"Having considered the circumstances of these three companies, the seriousness of the misconduct on which the disqualification order was based and the evidence before me, I am satisfied that I ought not to grant permission to Mr Stern to be concerned in the management of any of these companies. I find it striking that, albeit the matter has come on rather quickly, there is no evidence independently of Mr Stern that these entities want or need Mr Stern to continue as a director and need his services or as to why that should be so."

8. The judge refused permission to appeal.
9. Application for permission to appeal was made to this court by notice dated 9th May 2000. That application was considered on paper and was refused on 18th October 2000. Mr Stern does not seek to renew the application for permission to appeal in relation to those three companies. The application before us relates only to the six foreign incorporated companies.
10. The judge had to consider whether the six foreign incorporated companies fell within the 1986 Act at all. If they did not, then the disqualification order made on 18th April 2000 did not prohibit Mr Stern from acting as a director of, or otherwise being concerned in the affairs of, those companies and no case for leave on an application under section 17 of the Act arose.
11. The judge reminded himself that "a company" for the purposes of the Company Directors Disqualification Act 1986 means "any company which may be wound up under Part V of the Insolvency Act 1986": see section 22(2)(b) of the Company Directors Disqualification Act 1986. He reminded himself, also, of the guidance given by this court in the recent appeal in Stocznia Gdanska SA v Latreefers Inc (unreported, 9th February 2000); and of the three core requirements identified in that, and in earlier cases, which needed to be established before a court in England and Wales would assume jurisdiction to wind up an overseas company. He went on to say this:

"The evidence before me suggests that the Californian and Texan companies have no connection with England and Wales other than the residence of Mr Stern, a director, and the fact that he may sometimes receive communications here about the companies and indeed send communications conveying what may amount to management decisions. It may perhaps be that this connection could suffice for the first requirement. I am not at all sure of that. If a question arose whether such a company could be wound up by the English court, it would have to be decided on a good deal fuller evidence as to the circumstances of the company and as to the connection of the company with this jurisdiction than is before me today. Equally, if Mr Stern were to carry on as a director of that, I not having granted him permission, and it was then suggested that this was a breach of the disqualification order, carrying criminal sanctions as it does, it would be necessary to look more closely at the circumstances of the company to examine the degree of connection.

Because this application has been mounted and brought on for hearing within the 21 day period before the order takes effect, the evidence is necessarily in some respects rather limited. As it is, while I cannot and do not decide that the Act and the order do not apply to these companies, I am not satisfied that they do and I will therefore not grant permission under section 1 in relation to these companies.

I can see that it is possible that this may pose problems for Mr Stern in relation to these companies, but in my judgment it would be wrong to attempt to be categorical on the basis of the limited evidence that I have before me.

As far as the next group of companies, Dollar Land Holland, AOI and County Dollar Corporation, are concerned, although their circumstances are rather different, because there is a connection through either a debt or a shareholding or both to a UK company, I have come to the same conclusion. It is certainly not clear to me that for a foreign company to have a UK creditor or a UK shareholder is enough to satisfy the first of the three core requirements sanctioned by the Court of Appeal. I will not grant leave in relation to any of these three companies either because it has not been shown to my satisfaction in relation to these, any more than in relation to the first three, the burden being on the applicant, that they are within the ambit of the Act and the order."

12. Later, at the conclusion of his judgment, he added that, although it was not necessary for his decision but in the light of what he had said on the merits as regard the application in relation to the three United Kingdom companies, he doubted very much whether he would have been prepared to grant permission in relation to any of the other six companies even if he had been satisfied as to the question of jurisdiction.
13. The problem for Mr Stern, of course, is that he does not know whether, if he continues to act as a director of any of the six overseas companies, he will be acting in breach of the disqualification order and so committing a criminal offence. He asks the court to resolve that problem for him.
14. Mr Stern's application for permission to appeal against the judge's order in relation to the six overseas companies was adjourned for oral hearing with appeal to follow if permission was granted. In giving directions to that effect on 18th October 2000, I indicated:

"It is arguable that the appropriate course might be for the Court of Appeal to entertain the appeal for the limited purpose of remitting the matter to the Judge for him to decide, with the benefit of fuller evidence (i) whether these companies are within the order under section 1 of the CDDA 1986 and (ii) if so whether leave to act should be granted."

15. Mr Tager QC, who appears for Mr Stern today, has not sought an order that the matter be remitted to the judge so that he can decide, with the benefit of fuller evidence, whether the companies are within the scope of the 1986 Act. He says, in effect, that there is already ample evidence for that decision to be made. Further, he does not suggest that there is any useful purpose in sending the matter back to the judge to consider whether leave to act should be granted. He is mindful, perhaps, of the strong indication at the end of the judgment that leave to act would be unlikely to be granted.
16. Mr Tager says that, as a matter of principle, the judge should have resolved on the evidence before him the question whether or not the foreign incorporated companies were companies to which the order applied; and that, the judge not having decided the point, permission to appeal to this court should be granted so that this court can make an appropriate declaration. In support of that submission he has referred to Regina v Campbell [1984] BCLC at page 83; and in particular to a passage at page 88 in the judgment of Beldham J. The passage is in these terms:

"The evil which, it was said by counsel for the appellant, arose from giving those words the width of construction which they appear to have is that a person in the position of the appellant, a consultant, would not know what he could or could not do. In the opinion of the court that criticism is amply met, as Ackner LJ pointed out during the argument in this case, by the fact that there is provision in s 188 or in any of the other sections which deal with disqualification of directors for such a person, in the case of doubt, to apply to the court for leave to do that which he seeks to do. If he applies to the court then any question of ambiguity will be resolved because the court would either say that he could or could not do that which he proposed to do."

17. The reference to section 188 in that passage is to section 188 of the Companies Act 1948, which contained provisions which were the statutory predecessors of those now in section 1 and 17 of the Company Directors Act 1986. But it would be wrong to read that passage as suggesting that there was provision in section 188 of the Companies Act 1948 - or elsewhere in the 1948 Act - for the court to resolve questions of doubt as to whether or not any overseas company (not being the company in relation to which the disqualification order itself was made) was or was not a company within the Act. There is nothing in section 188 of the 1948 Act which has that effect. What Beldham J was referring to was this: that if a person was concerned as to whether or not he could continue to act in relation to a company, he could ask the court for leave and, if the court gave him leave, then there would be no question of any breach of the provision.
18. In my view the judge was plainly right to treat the application before him as an application for leave to act under the 1986 Disqualification Act and not as an application for a declaration whether or not particular companies were companies within the jurisdiction for the purposes of Part V of the Insolvency Act 1986 and section 22(2)(b) of the Company Directors Disqualification Act 1986.
19. Mr Stern had raised his problem, quite properly, in the fourth affirmation made on the 5th May 2000 at paragraph 3. He deposed this:

"I stated in my Second Affirmation that I did not believe that either of the above three companies... [that is the three United States companies in the first group] ... meet the first core requirement ... and I therefore agree that, effectively, the Court should dismiss my application in the context of a judgment which will make clear that, on the basis of the evidence I submitted to the Court, these companies are not subject to the High Court's winding up jurisdiction."

20. In that passage Mr Stern was inviting the court to cast its judgment in a particular way. But he was inviting the court, also, to make the order which it actually did make; namely, an order dismissing his application. His complaint, on a true analysis, is not against the order that was made; but against the form in which the judge delivered his judgment. In my view that complaint is misconceived. If Mr Stern had wished the court to make a declaration, then it was important (i) that was made clear, both to the court and to anybody else who would be affected by the declaration, and (ii) that the terms of the declaration were spelt out clearly and precisely so the court knew what it was that the it was being asked to do.
21. The judge took the view that, on the evidence before him, it would have been impossible to make such a declaration. As he said, the material before him did not enable him to decide whether or not the companies had a sufficient connection with this country so as to bring them within the winding up jurisdiction. I can see no prospect that this Court would think it right to interfere with that conclusion. I can see no basis upon which this Court would consider it appropriate to make a declaration on the material which is at present available.
22. Nor, for my part, would I encourage courts to take the view that it was a sensible or appropriate course to make such declarations in this kind of case. The problem is that the court can only make a declaration as to an existing state of affairs on the basis of the material which is put before it. If, relying on that declaration, a party continues as a director of a company and is then prosecuted, the question for the criminal court will be whether on the material which is put before it - which is likely to include material which has come into existence since the matter was before the civil court and may include material which, although then available, was not before the civil court - the company concerned was a company within the winding up jurisdiction at the time when the offence is said to have been committed. It is because the question in criminal proceedings is likely to be different from the question which would be before the civil court when asked to make such a declaration that the utility of any such declaration seems to me extremely doubtful.
23. In those circumstances, while not seeking to shut out a future application by Mr Stern for a declaration, I should make it clear that he should take no encouragement from this judgment that a declaration would be likely to be granted.
24. On the application that is before us, I would refuse permission to appeal for the reasons that I have given.
25. LORD JUSTICE KEENE: I agree.
Order: Application refused with costs.