England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		No. CH/2007/APP/701 Royal Courts of Justice
		12th March 2008

MR. JUSTICE DAVID RICHARDS:

1. This is an appeal from a decision of Mr. Registrar Jaques made on 17^th October 2007 whereby, on the second day of a four day trial which had been fixed for the hearing of disqualification proceedings, he refused an application by the Secretary of State to adduce expert evidence in the form of a report by a Mr. Maurice Fall, a forensic accountant. The disqualification proceedings relate to a company called Damage Control Plc of which the defendant to the proceedings, Paul Antony Benson, was one of two directors and shareholders.
2. The matters on which the disqualification proceedings are based relate to events in the last year or so of the company's trading. In particular, one of the two broad grounds relied on for establishing unfitness are transactions which occurred, it now appears in March 2004, whereby sums totalling some £275,000 were credited to Mr. Benson's loan account in the accounts of the company as at, I think, 31^st August 2003. The effect of crediting those sums to his loan account was to reduce to £33,000-odd the amount which he owed to the company.
3. The broad thrust of this part of the Secretary of State's case is that this book entry was made on Mr. Benson's instructions without the consent of his co-director, who at that time was not taking a very active part in the business of the company, and that it was an entry made with the intention (and for the purpose) of largely eliminating the debt which he owed to the company, that there was no proper basis for making the entry and that it was - though I am not sure it is put in these terms - a breach of his fiduciary duty as a director. It was, in short, it is said, a transaction designed to benefit Mr. Benson at the expense of the creditors of the company at a time when Mr. Benson knew or should have known that the company was (or was becoming) insolvent. The justification advanced by Mr. Benson for making this entry is that it was in recognition of the purchase by the company some three years earlier of the goodwill of the partnership business previously carried on by Mr. Holetris and himself as partners. The partnership business had been transferred to the company in 2000 or 2001 and the accounts for that year showed that the net assets of the partnership had been purchased for a sum of £224,547 which had been credited to the loan accounts of Mr. Benson and his fellow director.
4. The circumstances in which Mr. Benson thought it appropriate to commit the company to make a payment to himself and Mr. Holetris for goodwill, as I say, some three years after the partnership business had been acquired by the company and in circumstances where there was no formal agreement for the acquisition of the partnership business is a matter which will need to be explored at the adjourned trial of these disqualification proceedings. I mention all this simply to set the background of the application to which this appeal relates.
5. The procedural history of these proceedings is set out in the full and careful judgment of Registrar Jaques. I am grateful for that and need refer briefly only to some of the important events. The disqualification application was issued on 2^nd May 2006. There were various orders made, some of them by the court on its own motion, in the course of 2006 for the service and filing of evidence. It was necessary to make Unless orders against first Mr. Benson and then against the Secretary of State as regards the filing of evidence, but the effect was that by the end of 2006 the written evidence was complete. Application should then have been promptly made to fix the trial of the application but for reasons which are not clear it was not fixed until June 2007 at which point it was fixed to start on 16^th October 2007, with four days being made available for the trial. I should say there are six or seven witnesses who had given statements by the end of 2006.
6. In January 2007, the Secretary of State's solicitors wrote to Mr. Benson to say that in the light of the evidence they considered that it would assist the court in determining the issues in the proceedings if it had available to it expert evidence from a forensic accountant on the value which could be attributed to the goodwill of the partnership business, at the time in 2000 when the partnership business was transferred to the company. Their letter continued:

"At present the court has not made provision for expert evidence to be provided in these proceedings. However, it is possible to make an application to the court that it should admit expert evidence under the liberty to apply ..."

which was included in an order of Chief Registrar Baister made on 11^th December 2006. The Secretary of State's solicitors proposed that there should be a joint expert with each party being responsible for half his costs, but they continued:

"We should explain that if you do not agree with us to jointly instruct an expert, we are instructed by our client to proceed with instructions to an expert forensic accountant in any event, and we will then make an application to the court that such evidence should be admitted in these proceedings."

7. Mr. Benson replied promptly on 30^th January 2007 rejecting the proposal that there should be a joint expert and that he should pay half the costs. His position was (and is) that it is for the Secretary of State to adduce the evidence on which he seeks to rely in support of his proceedings against Mr. Benson and, as I understand from counsel for the Secretary of State today, Mr. Benson has taken the position that such expert evidence is superfluous. But at any rate, Mr. Benson made clear that it was for the Secretary of State to take his own course, and if he wished to adduce expert evidence he should make an application to the court. Mr. Benson asked only that he should be given 14 days' notice of any such application.
8. The almost immediate reply from the Secretary of State's solicitors was that they would contact Mr. Benson again in due course, regarding their proposed application to the court. In fact, nothing happened, certainly so far as Mr. Benson would know, until May 2007 when he received a costs' estimate, which included a figure for the fees of a forensic expert accountant. Mr. Benson took issue with that, and made clear, as was the case, that there had been no order by the court for expert evidence, nor of course any application for it. By that time the expert, Mr. Thawl, had prepared and submitted his report and a copy of that report was sent to Mr. Benson under cover of a letter of 31^st May 2007. The Secretary of State's solicitor said:

"We confirm that we intend to make an application to the court for permission to rely on Mr. Thawl's evidence at trial."

In response, Mr. Benson confirmed that his position had not changed as regards any expert evidence.

9. On 2^nd July 2007, and by now the trial had been fixed to start on 16^th October 2007, the Secretary of State's solicitors wrote to Mr. Benson to say:

"We confirm we shall now prepare an application to the court seeking permission for our client to rely on the report of Mr. Thawl."

As the Registrar notes in para.19 of his judgment, that letter was sent well over five often since the question of expert evidence had been raised by the claimant. There was still no application in that respect. Nothing happened until a letter dated 31^st August from the Secretary of State's solicitors stating that they were about to issue an application for permission to adduce Mr. Thawl's evidence. They did issue that application and the court gave a date of 10^th September for its hearing, and Mr. Benson was duly informed.

10. The application came before Registrar Derrett on 10^th September 2007. She refused permission to adduce the expert evidence of Mr. Thawl. Mr. Registrar Jaques sets out passages from the transcript of the hearing before Registrar Derrett and also quotes from her judgment as follows:

"In fact, I am not persuaded that it is appropriate to grant the Secretary of State's application to admit expert evidence. I think that the evidence which has been highlighted to me in the form of the affidavit of the accountant and the Official Receiver, highlighted this issue which should have been in the minds of the claimants from the outset, and in view of the fact that it seems that this question of expert evidence was not raised until after the matter had already -certainly trial directions had been given - I do not think it is appropriate at this very late stage to permit this evidence to be presented by the Secretary of State. The allegation itself is contained in the claim against Mr. Benson and it seems to me that the issue which is raised can properly be dealt with by Mr. Benson and cross-examination of him at the appropriate stage during the course of the trial, so I am not at this very late stage prepared to permit this evidence to be included."

It is clear from that passage and Mr. Margolin, counsel for the Secretary of State, accepts that the primary ground on which Registrar Derrett refused permission to adduce this expert evidence was the very late stage at which the application was made, given the long period in which the Secretary of State had been apparently contemplating introducing it. As Mr. Registrar Jaques observes, there was then some five weeks before the hearing of the trial of the disqualification application. As he further observes, neither at that stage nor at any time thereafter, has there been any appeal from the decision of Registrar Derrett, and that remains the position today.

11. Notwithstanding the refusal of Registrar Derrett to grant permission, the Secretary of State made a further application by a notice issued on 10^th October 2007 which was listed to be heard with the trial. What appears to have happened on 16^th October is that Mr. Margolin, on behalf of the Secretary of State, fully opened the disqualification proceedings to the Registrar and then, with the benefit of the information which that gave to the Registrar, made his application to adduce the expert evidence. The argument on that application was heard by the Registrar principally, I think, on the morning of 17^th October, and the Registrar gave judgment in the afternoon. As I say, he refused permission and his approach is set out in para.30: -

"The problem Mr. Margolin faces, so it seems to me, is this: where a Registrar or any judge at first instance makes a decision which is based on the evidence before him or her, and which constitutes an exercise of his or her discretion, if the losing party on such an application wishes to take the matter further the proper course is to appeal. The Court of Appeal has said time and again that it is not appropriate for a Registrar or a judge at first instance to substitute his or her own exercise of discretion for that of the Registrar or judge who first determined the matter."

He records later on that Mr. Margolin accepted that Registrar Derrett had exercised a discretion and so far as it is relevant Mr. Registrar Jaques said that he considered it a decision which was not beyond the range of reasonable possibilities, based on the evidence that was before her. He went on to say:

"It seems to me that the proper way forward, if expert evidence is to be adduced is to appeal the learned Registrar's decision and, if necessary, to apply for an adjournment of the trial until that appeal is determined."

12. It would appear that the way in which Mr. Margolin argued the matter before the Registrar in the morning of 17^th October was in general terms that the Registrar could revisit the question as to adducing expert evidence and, more specifically, that he could do so in reliance on Insolvency Rule 7.47 which provides that:

"Every court having jurisdiction under the [Insolvency] Act to wind-up companies may review, rescind or vary any order made by it in the exercise of that jurisdiction."

That rule, by the terms of the rules which govern disqualification proceedings, expressly applies to disqualification proceedings, as more generally do the CPR.

13. The difficulty that faced Mr. Margolin in relying on Rule 7.47 is that there are a significant number of authorities, both in the Court of Appeal and at first instance, which establish that the court will not exercise the jurisdiction to review a previous order unless there are either very exceptional circumstances or a material change of circumstances, since the order was made. The power which is included in Rule 7.47 derives from the bankruptcy jurisdiction of the court and has been part of bankruptcy jurisdiction for a very long time. It is recognised to be an exceptional jurisdiction and one that requires to be confined within proper limits.
14. On this appeal, Mr. Margolin, in the light of those authorities has not based his argument on rule 7.47(1). He bases his argument, I think, both on the general considerations on which he relied before the Registrar and more specifically on a provision in the CPR to which he referred the Registrar after lunch on 17^th October 2007. That provision is CPR 29.9, and it provides, in the context of trials of multi-track cases:

"Unless the trial judge otherwise directs, the trial will be conducted in accordance with any order previously made."

There is a provision in identical terms in CPR 28.7, applicable to fast track cases. Mr. Margolin's submission before the Registrar, and before me is that the words: "Unless the trial judge otherwise directs ..." confers upon the trial judge a wide and unfettered jurisdiction to depart from orders previously made in relation to the case if, in the interests of disposing of the case fairly and justly, he considers it right to do so.

15. What the learned Registrar said in relation to this submission based on CPR 29.9 was as follows:

"It is quite clear that this CPR 29.9 is similarly as widely phrased as Insolvency Rule 7.47(1) and s.375(1) of the Insolvency Act, 1986. However, I am quite clear in my own mind, and Mr. Margolin did not suggest otherwise, that my discretion under CPR 29.9 must be exercised judicially. The notes to that rule say that the trial Judge has full power to conduct the trial in the manner he considers best to enable him to deal with the case justly. It seems to me that having concluded that Registrar Derrett's order refusing to admit Mr. Thawl's report in evidence is not open to review by me it would not be just in those circumstances for me, under those general words, to allow it in."

I can omit the next two sentences. He continued:

"It may be that at the trial I will have difficulty in determining the issues, but that is not my fault. The fault, if that causes a problem for the Secretary of State is in not bringing the application to admit expert evidence before the court in time to enable it to be properly dealt with without interfering with the timetable for trial or, if that could not be done, his fault is in not seeking an adjournment of the trial so that justice could be done."

16. On this appeal, Mr. Margolin on behalf of the Secretary of State submits that the Registrar erred in confining his consideration of the application to a reconsideration of the matter only if there were a change of circumstances, or possibly some other exceptional circumstances which would justify him in deciding again the issue which had been decided against the Secretary of State by Registrar Derrett. It is submitted that he erred in considering that the proper course for the Secretary of State rather than renewing the application was to seek to appeal the order made by Registrar Derrett. This raises a point of principle about the proper approach to be taken by a trial judge when asked to depart from an order previously made in the proceedings. As I have indicated, Mr. Margolin submits that the rule is expressed in very broad terms and he submits that the purpose and effect of the rule is to confer a wide and unfettered jurisdiction on the trial judge to depart from previous orders if he considers that the just disposal of the case requires it.
17. In my judgment it is necessary to place the power conferred by CPR Part 29.9 in a slightly wider context. The CPR contains many provisions for the making of orders and directions with a view to bringing a case to trial. The purpose of those powers is to enable cases to be prepared in as orderly, efficient and economic way as possible, and with a view to their economic and efficient disposal at trial, always of course consistent with achieving as far as possible a just result.
18. Part 35 is part of the complex of provisions designed to enable cases to be brought properly to trial. Dealing with expert evidence it provides in 35.4.1:

"No party may call an expert or put in evidence an expert's report without the court's permission."

Experience has shown the need to have the court's control over adducing expert evidence. Such applications to adduce expert evidence in the vast majority of cases are made and should, if possible, always be made well before trial so that all parties are properly equipped by the start of the trial to deal with such expert evidence as the court has permitted.

19. Orders of the court made pursuant to the powers under the CPR, including Part 35, are subject to the provisions of Part 3 and, in particular, so far as relevant today, to Part 3.17:

"A power of the court under these Rules to make an order includes a power to vary or revoke the order."

Whatever the precise scope of that provision, it seems to me clear that it is capable of applying to an order made either to permit or to refuse expert evidence under Part 34. The power contained in 3.17, like the power in CPR 29.9, is expressed in general terms, but there are a significant number of authorities which have established that the power under 3.17 is not to be exercised in an unfettered way but, to put the matter broadly, is to be exercised only where there has been a material change of circumstances since the previous order of the court, or where the court previously acted on a materially false basis and possibly there may be some other very exceptional circumstances in which the power may be exercised.

20. The effect of the authorities is summarised in the notes in Civil Procedure vol.1 at 3.1.9. Mr. Margolin does not suggest that this is not an accurate summary of the principles to be applied, and I will quote part of the relevant passage on p.92:

"In Lloyds Investment (Scandinavia) Limited v Ager-Hanssen [2003] EWHC 1740 (Ch), the claimants entered judgment against the defendant after he had failed to comply with conditions imposed on him by an order setting aside an earlier judgment obtained in default of defence. The defendant applied to vary the terms of the setting aside order. In dismissing the application Patten J. noted that Rule 3.17 is not confined to procedural orders and that no real guidance is found within the Rule or elsewhere as to the possible limits of the jurisdiction. Without intending to offer an exhaustive definition of the circumstances in which the power under the Rule is exercisable his Lordship said that in his opinion for the High Court to revisit one of its earlier orders, the applicant must either show some material change of circumstances, or that the Judge who made the earlier order was misled in someway, whether innocently or otherwise, as to the correct factual position before him. The latter type of case would include, for example, the case of material non-disclosure on an application for an injunction. If all that is sought is a reconsideration of the order on the basis of the same material then that can only be done in the context of an appeal. Similarly, it is not open to a party to the earlier application to seek in effect to re-argue that application by relying on submissions and evidence which were available to him at the time of the earlier hearing but which, for whatever reason, he or his legal representatives chose not to employ.

A party cannot fight over again a battle which has already been fought, unless there are good grounds. (See Chanel Ltd v FW Woolworth & Co. Ltd. [1981] 1 WLR 485 applied in Lead Mill Ltd. v O'Mari). In Woodhouse v Consignia Plc [2002] EWCA Civ 275, [2002] 1 WLR 2558, it was said that there is a public interest in discouraging a party who makes an unsuccessful interlocutory application from making a subsequent application for the same relief based on material which was not but could have been deployed in support of the first application.

In Collier v Williams [2006] EWCA Civ 20 the Court of Appeal stated that the power given by Rule 3.17 cannot be used simply as an equivalent to an appeal against an order with which the applicant is dissatisfied. The court endorsed the approach adopted in Lloyds Investment (Scandinavia) v Ager-Hanssen and said that the circumstances outlined by Patten J. in that case are the only ones in which the power should be exercised. In summarising the position the court said (para. 120) the power should not normally be exercised unless the applicant is able to place new material before the court, whether in the form of evidence or argument which was not placed before the court on the earlier occasion."

21. I think it is clear that if at some stage before the trial the Secretary of State had made a second application to adduce the expert evidence of Mr. Thawl, then the jurisdiction of the court under Rule 3.17 to vary or revoke the earlier order would have been exercisable only subject to the constraints which would have been established by the authorities referred to in that passage. There would have to be a change of circumstances, or a demonstration that the factual basis of the previous application was false. There is no change of circumstances, and no relevant change in the factual basis between the decision of Registrar Derrett and the decision of Mr. Registrar Jaques.
22. Mr. Margolin submits, and in these circumstances is forced to submit, that the power of the trial judge under 29.9 to consider again an application to adduce expert evidence is not constrained in the way that consideration of a second application made before trial would have been constrained. In my judgment that cannot be the right approach. Of course, there may be circumstances which become apparent to the trial judge, such as the way in which the parties are putting their case or, indeed, the way that the trial judge views the issues, which may make it appropriate for him either to refuse to hear expert evidence for which permission was previously given, or indeed to allow in expert evidence in circumstances where permission had previously been refused, but that is in a case where there has in substance been a material change of circumstances; the nature of the case appears differently at trial than it previously appeared. That is not the case here.
23. In my judgment there are good reasons of principle and practice why the power of the judge under 29.9, certainly as it applies to substantial questions such as permitting expert evidence, should be subject to the same considerations as apply to the power under 3.71. It would hardly be consonant with the policy of encouraging the orderly, efficient, and economic preparation of cases for trial if at the trial any party could invite the trial judge to revisit questions previously determined as to what expert or other evidence should be admitted, without being required to show some material change in circumstance. It would leave all parties in a very unsatisfactory position if they knew that at trial they could find previous decisions which had been the matter of full argument and reasoned judgment being up for reconsideration without, as I say, a material change of circumstances. I therefore consider that Mr. Registrar Jaques was right to approach the exercise of the court's power under Part 29.9 in this case as being subject to those constraints.
24. Mr. Margolin very properly referred me to the notes to Part 28.7 which, as I mentioned earlier, is the equivalent powering in identical terms applying to fast track cases. I will read those notes: under the heading "Effective Rule" it is stated:

"In fast track cases a trial timetable may have been given at the allocation stage or, more usually, it is directed at the listing stage. Many other rules have consequences for the conduct of the trial, e.g. an order under Rule 35.4 giving or refusing permission to a party to call an expert witness. If a party is dissatisfied with a direction the proper course is to appeal, not to wait until the trial in the hope that the trial judge will take a different view. The general rule is that the trial will be conducted in accordance with any order previously made. Rule 28.7 does enable the trial judge to otherwise direct. The trial judge is likely to do that only in non-controversial circumstances. Time is limited at a fast track trial and the trial judge is most unlikely to allow part of it to be used up by what is, in effect, an application to vary or appeal directions previously given. Nevertheless, the principal remains that the trial judge is in charge of his/her own court and in an exceptional appropriate case has power to depart from an order previously made."

Although there is specific reference in that passage to the particular time constraints on a fast track trial, in my judgment the note accurately sets out the approach of the court and applies also to the power under 29.9. The statement that the proper course of a dissatisfied party is to appeal a previous order, not to wait until trial, and the restriction of the exercise of the power to depart from a previous order to an exceptional appropriate case echo both what Mr. Registrar Jaques said in this judgment, and the principles established in relation to Part 3.1.7.

25. I therefore conclude that, certainly in relation to the matter that was before Mr. Registrar Jaques i.e. the renewed application to adduce expert evidence, he was right to approach it in the way that he did, and he was right to conclude that there were no circumstances which would justify him in granting permission to adduce the expert evidence. There had been no change of circumstances since Registrar Derrett heard the previous application and there were no other exceptional circumstances. In that context Mr. Margolin submitted that it was an exceptional case, because the proposed expert evidence was very important evidence. The Registrar acknowledged, particularly in the course of argument, its importance in the light of the opening of the case to him.
26. I have only very briefly explored with counsel the importance of the proposed expert evidence, and I have not had the benefit of the full opening which Mr. Registrar Jaques had. However, I think I should record my own very tentative view at the moment that the expert evidence is by no means central to the real thrust of the case which the Secretary of State seeks to make against Mr. Benson. However, even assuming that it could properly be characterised as important evidence, that is not in my judgment a proper basis on which the Registrar should have in effect reversed the order previously made by Registrar Derrett and I consider that he was right not to do so.
27. In those circumstances I consider that Mr. Registrar Jaques came to the right decision for the right reasons and I dismiss this appeal.
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