England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		05th December 2005

MR. JUSTICE LAWRENCE COLLINS :

1. 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.
2. 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.
3. 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.
4. 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.
5. 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."

6. 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.
7. 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.
8. 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.
9. 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.
10. 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.

11. 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.

MR. BARKER: My Lord, I'm grateful. My Lord, I seek my client's costs of the application -- I was going to say application. There were initially three applications. When I saw my friend's skeleton late on Friday, one of them had dropped off. That was in relation to some expert handwriting evidence. Your Lordship indicated that you were against my friend on the question of expert evidence as to solvency and I didn't need to address your Lordship on that. But, my Lord, I seek my costs of all three applications. They were made, two of them, I think in both sets of proceedings, one in only the claim against Mr. Capone. Could I hand up my client's statement of costs, together with my friend's? Sorry, I think I may have just handed up too much. My friend's solicitor has produced two different schedules. I think -----

MR. JUSTICE LAWRENCE COLLINS: One was privileged then?

MR. BARKER: One of them's probably privileged.

MR. JUSTICE LAWRENCE COLLINS: Yes.

MR. BARKER: I think it's the lower amount, £4,000-odd, was eventually sought overall by my friend, I think.

MR. JUSTICE LAWRENCE COLLINS: Just under £4,000. £3,866.5.

MR. BARKER: I think that's us.

MR. JUSTICE LAWRENCE COLLINS: Oh, that's yours, is it? No, it isn't. Oh, it depends. I see what you mean by applicant, yes. Sorry, yes.

MR. BARKER: Yes. It's confusing.

MR. JUSTICE LAWRENCE COLLINS: Yes.

MR. BARKER: I think ours is the £3,000-something and my friend's should be at four-six, I think. There's VAT on his. But, my Lord, I seek costs in accordance with our schedule of £3,800-odd.

MR. JUSTICE LAWRENCE COLLINS: On the basis it's broadly similar, in terms of quantum -----

MR. BARKER: My Lord, yes.

MR. JUSTICE LAWRENCE COLLINS: ----- it's pretty well identical. Well, in fact it is identical.

MR. BARKER: I think if one takes the VAT off, they're almost the same.

MR. JUSTICE LAWRENCE COLLINS: It's almost evidence of collusion!

MR. JEFFERIS: My Lord, two things if I may. Firstly on the sum, we actually had to make the running on this. We had to do the preparation. There have only been two short affidavits in answer, which amount to a few pages. I would invite you to apply the usual sort of rule of thumb and take of thirty per cent and so therefore knock it down to three. It has been rather greater than it might, given the evidence that's actually been put in. My learned friend says he only learned on Friday evening. As I understand it, my instructing solicitors notified their counterparts earlier than that, on the Friday morning, so that point is not the best point that he makes. Secondly, my Lord, I would wish to ask for leave to appeal, as there is a point of principle here. In essence, my learned friend's point about boot-straps, he's saying, 'I can't use this document as my foundation for saying there's strong evidence of fraud.' If one takes that to its limits, what if there was a document there saying, 'We know full well Njie is not involved, that he's not a director, not a shareholder, shouldn't be doing this, but we're going to have a go anyway,' that document, if that were what it said, we could plainly rely upon those words.

MR. JUSTICE LAWRENCE COLLINS: Yes. Actually, I did not in fact deal with that. I had better just simply say why I do not regard that document in itself as helpful. I will say it in one sentence. I did not in fact deal with that point, I just dealt with it on a broader basis.

12. 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' -----

MR. JEFFERIS: That could be my foundation.

MR. JUSTICE LAWRENCE COLLINS: Yes.

MR. JEFFERIS: Well, my Lord, I hear what your Lordship says, but -----

MR. JUSTICE LAWRENCE COLLINS: I was not trying to cut your appeal off at the pass, by the way.

MR. JEFFERIS: My Lord, Heaven forbid. To be serious for a moment, my submission is that the position here is that one must be allowed to rely on the document itself, once one has seen it, once one knows the critical words in it. My submission is that we have come a long way here, we have got a situation where there were allegations they knew there was a problem, and they had been specifically told so, they had done a search, and here we have a document which says "bluff it out." It must be fair -- you've only been shown one tip of an iceberg. There was some sort of bluff. We don't know what that bluff was, and we don't know what the other documents that go with it are going to say. Now, if you'd been shown the whole file and you could have been taken and shown, "This it the bluff," but you haven't been. You've been shown one piece of paper, and that's the one that refers to a bluff.

MR. JUSTICE LAWRENCE COLLINS: Well, I will refuse permission. On the figures, Mr. Barker, I think £3,000 does seem to me to be appropriate.

MR. JEFFERIS: My Lord, on the question of the second part of the application relating to the evidence, that is left that we should apply for case management directions in relation to specific items.

MR. JUSTICE LAWRENCE COLLINS: When you see what's really in issue. At the moment, again I haven't been taken to the essence of this, but if there are some issues which are isolated in relation to accountancy, then by all means and they can't be resolved and they do need expert evidence, which I doubt, then I think you should, although this is a relatively small case, you should apply for a case management conference and deal with it fully there.

MR. JEFFERIS: Deal with it that way.

MR. JUSTICE LAWRENCE COLLINS: But not in the applications court.

MR. JEFFERIS: I am obliged.

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