England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Rolls Building Royal Courts of Justice
		29th July 2015

THE DEPUTY JUDGE:

1. This is my judgment in a matter where submissions took place yesterday. Yesterday the parties were represented by Ms. Joanna Smith QC with Mr. Graeme Halkerston for the respondents and Mr. Davies QC for the applicants.
2. I will say at the outset what the outcome is but, in fact, the route by which I reach that outcome is far more important than the actual outcome. The outcome is that I make no orders on any of the applications before me and I will adjourn one aspect of the application to the trial judge to do with costs. I will reserve the costs to the trial judge. My reasons are as follows.
3. In this matter the respondents to the proceedings are partners in the firm of KPMG, who were appointed administrators of a number of companies in a particular group on 12^th October 2012 and over a further company in the group on 10^th April 2013. One of the respondents had replaced a previous administrator from the same firm but nothing turns on that. The administrators were appointed under para.22 of Schedule B1 to the Insolvency Act 1986, in other words by the directors or the company, but no doubt at the behest of the secured creditors, who are banks in the Lloyds Group of banks (I will refer to them as "the bank" or "the banks").
4. It was a fundamental statutory duty of the administrators to act expeditiously and efficiently and with candour to the court as officers of the court, and also to act in the interests of the creditors as a whole. I would refer to the well-known work of Lightman & Moss: The Law of Administrators and Receivers of Companies, 5^th edition, at paras.12.031, 12.042, 12.043 and 12.046, as authority for those propositions.
5. The companies in question were essentially owned and run by one person, the first applicant in this case, Ms. Julie Anne Davey. Ms. Davey, and a company effectively owned by her, the second applicant, have applied on 6^th March 2015 to remove the respondents as administrators and replace them with an independent liquidator, the well-known insolvency practitioner Mr. Hosking. Ms. Davey has also very recently sued the respondents and the banks in question for unlawful conspiracy. She issued proceedings on 1^st July 2015 and I shall come back in my summary of the chronology in this case to that.
6. The applications to remove the administrators have been set down for a 7 day trial at the end of October this year on an expedited basis. I have before me two applications for specific disclosure in those proceedings, the first by the respondents dated 24^th June 2015, and amended on 29^th June 2015. By that application the respondents in the proceedings seek orders for disclosure along the following lines: that the applicants do disclose advice from a firm of accountants, by the name of McBrides, and another firm of accountants, by the name of Mazars, which is referred to in particular witness statements of Ms. Davey, and all that advice is said to refer to the declaration and payment of dividends during a period 1^st January 2009 to 3^rd May 2012. By para.4 of the draft minute of order they also seek further information by way of a witness statement as to the particulars of oral advice given by those firms of accountants.
7. There is a cross-application for disclosure by the applicants dated 17^th July 2015, but that is effectively, for present purposes, a freestanding cross-application and I will deal with it separately at the end.
8. A CMC was held before Mr. Justice Henderson on 29^th June 2015 when he adjourned the respondents' application for disclosure which now comes before me. I begin by considering the jurisdiction to order disclosure and the principles governing the manner in which I should exercise my discretion. There was essentially no dispute between the parties about the relevant principles. I was referred by counsel, first of all, to Insolvency Rule 7.51A(1), which essentially says that the provisions of the CPR, in particular CPR Part 18 and Part 31, shall apply to insolvency proceedings by virtue of the provisions of these rules set out in the second column. The relevant particular rule is IR 7.60 which I do not think I need to read out.
9. As to authority as to how I should exercise the undoubted discretion that I have, it is clear that I do not just proceed on the basis that this is a common-or-garden application under the CPR in ordinary proceedings. These proceedings are special, so to speak. I was taken first to a passage in the judgment of Mr. Justice Harman in the case of Re Primlaks (UK) Ltd. (No.2) [1990] BCLC 234 and, in particular, to the passage at p.239 of the report where he said just above F down to H:

"The ordinary rule is that if application is made, even in proceedings brought by a regulating summons, and the court is satisfied that it is desirable in the interests of justice, then discovery should be ordered."

In those days it was "discovery"; it is now "disclosure".

"That proposition in my view must apply also to applications under r 7.60 of the 1986 rules which says that any party may with the leave of the court obtain discovery. The same principles must, in my view, apply to a rule providing for obtaining the leave of the court and a rule that the court may make such order for discovery as it seems just, as under Ord 24, r 4. I cannot believe that the difference of wording in the two rules ought to be held to lead to differing burdens. Thus, once one sees that that is an issue to which discovery could properly go, in general terms discovery will be ordered unless it is unduly burdensome, oppressive or not necessary for the disposal of the issue before the court."

10. Further and helpful clarification was provided by Mr. Justice Lawrence Collins (as he then was) in the case of Highberry Ltd. v Colt Telecom Group Plc [2003] 1 BCLC 290, where the learned judge said this at para.33:

"Consequently in my judgment the governing provisions are the 1986 Rules which give the court power to order disclosure and cross-examination on the application of any party to insolvency proceedings. The equivalent CPR provisions are not incorporated by reference through r 7.51(1) of the 1986 Rules … Whether such an order will be made will depend upon the nature of the proceedings and the nature of the disputed questions. Any application for such an order must be viewed in the light of the overriding objective laid down by the CPR, which is not, of course, not inconsistent with the 1986 Rules and is incorporated by reference through 7.51(1)."

Then at para.35 he says:

"It seems to be plain that the nature and purposes of an application for an administration order, the nature of the enquiry by the court, and the usual urgency of the application, make it inevitable that only very exceptional circumstances will justify an order for disclosure or cross-examination in proceedings for an administration order."

11. Whilst it seems to me that an application to remove administrators is not exactly the same as an application for an administration order, there are important similarities between the two sets of proceedings. The desire of a court to limit disclosure and cross-examination is fully apparent in cases such as the present, particularly since, as I will say, it is open to the court in proceedings such as this, and it seems to me a classic type of case for this, to draw adverse inferences against a party who appears to have failed to assist the court by way of full and frank disclosure on an issue that is material in the proceedings, where that issue in question is not one that has to be specifically determined in those proceedings.
12. I turn therefore to consider what the general principles are that govern the exercise of the court's discretion on a removal application. I do not think I need to refer any further than to what is set out in para.10-12 of Mr. Davies' skeleton argument:

"The overall issue at trial

10. Para 88 of Sch B1 to IA 1986 provides: "The court may by order remove an administrator from office." This has been equated with the "on cause shown" test for liquidators. The leading text provides: "Allegations of misfeasance or incompetence need not be shown, if there is a case that may best be addressed after a replacement administrator has investigated all the circumstances" ( Lightman & Moss (5th Edn) (2011) at page 716).

11. The jurisdiction conferred by para 88 was considered in Clydesdale Financial Services Ltd v Smailes [2009] EWHC 1745 in the context of a claim, like the present case, to investigate the conduct of administrators and others in the period prior to their appointment (when they were advisers to the company leading to a sale of the company's assets in a 'pre-pack' administration). Removing the administrators in that case, David Richards J decided that there must be a good ground for removing an administrator but the ground need not involve misconduct, personal unfitness or imputation against his integrity ([14] and [30]) and the person applying has only to show that the evidence raises a serious issue for investigation ([26]).

12. In relation to the alleged breaches of para 4, reliance is also placed on the judgment of Etherton J in Re Buildlead Ltd [2006] 1 BCLC 9 (removal of liquidators of a company on application of its parent after undue and oppressive delays by the office-holders)."

13. What is not stated in that skeleton is that there is a further issue that the court will need to decide and that is whether the applicants have a proper interest in the relief that they seek. I was referred by Ms. Smith to the case in the Privy Council of Deloitte & Touche v Johnson [1999] 1 WLR 1605 where the court, at p.1611, in the paragraph beginning at letter D and down to letter F, emphasised that the applicant has to have a legitimate interest in the relief sought: in other words, in the removal of the administrators.
14. In this case, without going into the detail of the evidence, it is plainly the respondents' case that the applicants in this matter have an improper collateral purpose in seeking their removal, namely to obstruct and delay the proper investigation and pursuit of claims in misfeasance against them, arising out of a dividend of about £11million said to have been declared and paid in about June 2010 but, so the respondents say, in fact effected in June 2011 and fraudulently backdated to a year earlier. I will come back to the sequence of evidence to that effect. Whilst I was not referred to any specific authority to the effect that the court can take that into account in the exercise of its discretion, I am satisfied that the trial judge might well take into account, in the exercise of his discretion, the extent to which the removal application was motivated by a desire to obstruct and delay the proper investigation of that claim. I have in mind, although I do not think I was specifically referred to such cases, a line of cases concerned with whether a compulsory winding up order should be made where there is in place a voluntary liquidator appointed, by one means or another, by those in control of the company against whom allegations of misfeasance exist. I was referred to one case, the Medisco case, and the cases that I have in mind fall into the same type of case as the Medisco case. The respondents' application for disclosure is obviously directed to that issue.
15. The applicants' main complaint about the respondents' application for disclosure is partly that there is no case to answer and, in particular, they rely upon the fact that Ms. Davey made a number of cash advances before the administrators were appointed but after June 2011. Their main complaint is, in effect, that the respondents have raised this issue really only as a defence to their removal and in order to divert attention from due consideration of their own incompetence and inefficiency, including incompetence and inefficiency and delay in any investigation and pursuit of any claim against the applicants for misfeasance. So one finds, rather unfortunately, in this case, as will be seen, that when the respondents after the issue of these proceedings seek to pursue the applicants for misfeasance, by raising questions and seeking answers and disclosure, the applicants then respond by relying upon that as a further ground for the removal of the administrators, which appears to lead to a relentless spiralling of allegations and counter-allegations.
16. On the material before me I cannot, of course, form any views as to where the truth lies. That is a matter for the trial judge, insofar as he needs to form a view, and, indeed I should refrain, so far as I can, for present purposes from expressing any views on that in order not in any way to restrict or hinder the trial judge in the exercise of his discretion in the light of his much fuller consideration of all the material. But it seems to me that it is likely that the trial judge is going to have to ask himself this question: Are the applicants seeking to stifle the investigation of the claims against them by applying to remove the respondents or are the respondents only raising the misfeasance claims because of the removal application?
17. There is some evidence that the respondents have been investigating the misfeasance claims for some time, although equally there is evidence that they have done so in a dilatory and incompetent manner. As I say, I am refraining from expressing any view one way or the other on that evidence. It appears that they have been trying to extract information from the company's auditors, who appear to have been involved in the declaration of the dividend, at least since 2014 with limited success. Indeed, Mr. Justice Henderson was told at the CMC that it was hoped that more documents will be obtained from the auditors in August of this year. The transcript of that exchange before Mr. Justice Henderson is set out in para.54 of Mr. Davies' skeleton argument:

"MR DAVIES: I didn't come into court this morning thinking we were going to be talking about McBrides at all. But if they want to make an application for this, let's see what McBrides have told the administrators and that will be a good starting point for working out the extent to which there is any objection at all to that.?…

MS SMITH: My Lord, I have taken instructions over the short adjournment. Thank you for the opportunity to do that. There was an interview with Andrew Warren of McBrides on 22 May 2014. We did not get any advice at that interview. The interview was cut short because Mr. Warren collapsed and had to be taken to hospital. There has subsequently been correspondence with solicitors acting on behalf of McBrides, DAC Beach croft. Some documents, emails, have been provided to us, but they are by no means complete, and we are hoping to gain access to more of their records in August. The position simply is this: we have not had from them any advice they may have given, so we would wish to seek it in our application as against Ms Davey."

18. I think it would be helpful if I carried out a very brief survey of the principal events relied upon in this case, which cast light on whether or not there is any substance in the allegations of misfeasance against the applicants. As to the accounts for the years ended 30^th April 2010 and 30^th April 2011, I only saw the latter set of accounts but I am told that the former set of accounts referred to the interim dividend of £11million as having been declared and paid after the year end of 30^th April 2010. So it may well look from those accounts, and I do not know what the date of the approval and filing of the former accounts was, that the interim dividend was declared and paid in mid-2010. In late 2011, and we know that in May and June 2011 the bank was getting a bit twitchy about the financial position and the prospects of the companies in the Group, the bank was beginning to query the dividend with Ms. Davey.
19. This led to what is called the "Khan Letter", dated 3^rd April 2012. Mr. Khan was a solicitor instructed by Ms. Davey to give some reassurance to the bank that there was nothing to worry about in relation to a number of aspects of the Group's affairs, including the payment of the dividend. Mr. Khan's long letter, under the heading "AGL's financial statements for the financial year ending 30^th April 2010", referred to the fact that on 11^th May 2010 there had been a board meeting at which it was resolved to make a distribution to Ms. Davey of £11million but she did not take this dividend in the same financial year. On 27^th July 2011, as part of the audit process for the year ended 30^th April 2010, Ms. Davey signed a letter of representation addressed to the auditors confirming inter alia that included within one company's work in progress were development properties with a total current value of £16million-odd, which were held in trust by her as nominee on behalf of the beneficial owner, Angel (London). There is a reference to associated bank loans and charges and that she held legal title to those development properties and, since the year end, some of the development properties, to the tune of over £16million, and related loans were transferred to her, the £16million-odd as their current value at the time of the transfer. A copy of the letter was enclosed. So a bit more information was disclosed than appeared from the 2011 and, no doubt, the 2010 accounts.
20. Attached to that letter were a number of documents, including the following documents. First of all (this is at p.115 of bundle SB1 after tab 11), an email from Mr. Warren of McBrides to Mr. French, who was the finance manager of the companies, dated 10^th June 2011, saying: "Jack, you asked if I could provide copies of our templates which I attach". A number of templates are attached. Also, at p.128 of the bundle, there is an email dated Monday, 13^th June 2011 from Mr. French to Mr. Warren, saying: "Can you have a quick look at these and call me asap", and a number of blank draft documents are sent to Mr. Warren.
21. On 12^th October 2012 the administrators were appointed over all but one of the companies and in February 2013 the administrators produced what has been called a "forensic options document", which I was taken to, which clearly discloses that they were advising the bank that there should be an investigation of, amongst other things, the dividend payment, although that would take time and it would cost quite a lot of money. In April 2013 the administrators, without investigating the matter further with Ms. Davey, referred her to the Insolvency Service as being a person unfit to be a director on the basis of the information provided in the Khan Letter. Ms. Davey found out about that reference in due course from the Insolvency Service and was very upset that any such reference had been made without consulting her first. The Insolvency Service were assured by Ms. Davey's advisers that there was nothing to worry about and they only had to look at the Khan Letter.
22. Moving on, by May 2014 it is clear that the administrators were putting pressure on the auditors, and in particular Mr. Warren, to provide information about, amongst other things, the £11million dividend. Indeed, so great was the pressure that Mr. Warren felt that he collapsed at the interview with the administrators under the strain and was carried off to hospital. It appears that the auditors took exception to being asked for information when they did not know in advance what the questions were and what the line of enquiry was. In the event obviously, by his collapse in the interview, Mr. Warren had thereby avoided answering any further questions.
23. In October 2014 the administrators requested Ms. Davey to attend an interview and again they did not say what they wanted to question her about. But instead of adopting the position, "I will answer your questions if you tell me what the questions are in advance and you provide me with the information that you have on those issues", she adopted the position that she was not going to be interviewed by the administrators, whom she regarded as having conspired with the banks to bring down the companies. She would only be interviewed by "a conflicts administrator". In an 80-page letter, dated 31^st December 2014, Ms. Davey set out her complaints about the administrators.
24. On 5^th March 2015 the auditors disclosed to the administrators the advice, dated 22^nd January 2010, that they had given to the company and Ms. Davey. That was essentially largely focused on tax planning for Ms. Davey who was planning to move her tax residence from the UK to abroad at that time. But it included a consideration of the payment of a dividend. The administrators did not disclose that advice to Ms. Davey or her advisers until, as I will come onto, 9^th July 2015.
25. On the next day, 6^th March 2015, ignorant therefore of the disclosure of the contents of that advice, the applicants issued this application. On 26^th March 2015 Rose J gave full directions for an expedited trial. In April the administrators launched a freestanding application under s.236 of the Insolvency Act 1986 for the production of a piece of recording equipment at the company's offices, and it subsequently became clear that the administrators believed that that might well contain evidence relating to the circumstances in which the £11million came to be paid. For example, they would say that if everything was done on the advice of the auditors in May 2010 then there might be some record of conversation of the auditors ringing the company, and Mr. French, up about it.
26. On 27^th April 2015 Ms. Davey made her fourth witness statement in the removal proceedings. That was following the launch of the s.236 application. In that witness statement, at para.6 onwards, she complained bitterly about the failure of the administrators to ask her earlier about this. She referred to the advice that she had received from the auditors and from an external firm of accountants, called Mazars, so as to how there was nothing wrong with the declaration of dividend. "There is nothing to investigate", she said. "They only want to cause me trouble and for that purpose make it look as if there is something to investigate because I have applied to remove them". In para.11:

"For these reasons, I believe that this alleged need to investigate the dividend has arisen as a defensive measure to justify resistance of the application to remove the Administrators."

27. On the following day, 28^th April 2015, Mr. Registrar Briggs took the view that he was not going to deal with the s.236 application and he would adjourn it to the trial judge in the removal application. I have seen his reasons for doing so.
28. On 30^th April 2015 the administrators wrote a letter to Ms. Davey in which they asked searching questions about the payment of the dividend. For example, at p.7 of that letter they refer to emails between Mr. Warren of McBrides and Mr. French of the companies from June 2011, i.e. more than a year after the payment of the dividend, which, on one possible interpretation, suggested that documents appearing to be dated May 2010 had been backdated and produced a year later. They asked were the documents deliberately backdated.
29. Ms. Davey sent a letter on 1^st May 2015 in which she basically said that they were bullying her. In any event, her solicitors replied to the letter of 30^th April 2015 by a letter dated 5^th May 2015, which could perhaps unfairly be characterised as following the strategy of attack as the best form of defence, because in that letter Ms. Davey's solicitors said that the fact that Ms. Davey was now being pressed for information about the dividend was a further ground upon which the administrators should be removed. At p.2 of that letter reference was made, quite properly, to the obligations of the administrators to act expeditiously and efficiently and, indeed, as I have said, that is a fundamental obligation of administrators. The administration process was envisaged by Parliament to be as quick and as cheap as possible. I suspect that that is the last thing that can be said about this administration. But the question is does it lie in Ms. Davey's mouth to apply to bring that administration to an end by the removal of the administrators? I note it is an application to remove, it is not an application, as it were, to resist any further extension of time for the administration. As is clearly established in the authorities, the court will take into account that any removal of administrators is bound to be perceived at least as some sort of reflection on their professional competence and integrity, particularly if an allegation of actual bias or dishonesty is made, although in this case, as I understand it, no such allegation is made. The case is put solely on the basis of perceived bias.
30. The letter then went on to say that they were going to amend their removal application and rely, to summarise, upon the hopelessness of the conduct of the administrators in investigating this matter and now seeking to investigate it after the removal application was brought. That, indeed, is what they have done. I was taken to their statement of case from which it appears that they do indeed apply to remove the administrators on the basis of, to use my own neutral phrase, their hopelessness in their investigation of the claim against Ms. Davey before the removal application was launched.
31. In any event, on the same day as that letter was sent, Mr. Croxen, one of the administrators, filed his first witness statement which took up, in part, what had been said in the letter of 30^th April and at paras.203-208 referred to the potential claims against the applicants, and at para.207 said:

"In the light of the potential claims against her, set out below, the administrators believe that the removal application may be motivated in part by Ms. Davey's desire to avoid scrutiny and/or avoid the making of such claims."

He then refers in particular to the letter of 30^th April 2015 to Ms. Davey.

32. Then on 13^th May 2015 Ms. Davey filed and served her fifth witness statement which, under the heading "The Administrators' conduct since 26^th March 2015", in para.5 says:

"That conduct is pure bullying. They are trying to wear me down with collective might and resources of KPMG and Lloyds. I address this in more detail below."

At para.7:

"My perception of what is going on is that it is some sort of game. The Administrators brought the present circumstances on themselves and now wish to cast me in the light of a villain."

She refers to her willingness to be interviewed by a conflicts administrator. Then she says:

"What is really going on since the last hearing on 26^th March is an attempt by the Administrators to stymie the removal application by alleging for the first time in two years that I have got something to hide."

In relation to the dividend, she deals with this in para.32 and following, which I will not read out but essentially was saying that the Khan Letter gave all the necessary explanations in some considerable detail. So she was really saying, "Just look at the Khan Letter. You will see that there is nothing in it". She emphasised that at all times she acted on professional advice. In para.63 she said:

"I have absolutely nothing to hide. It is another good example of the Administrators doing their level best to make it look as if I am the problem."

33. That prompted a letter dated 21^st May 2015 from the administrators requesting disclosure from Ms. Davey, in particular, of the professional advice which she said she was relying upon. I take on board the fact that Ms. Davey criticises the administrators for not disclosing at this stage that they had in their possession the auditor's note of advice of January 2010. In that letter the solicitors acting for the administrators say this:

"We are considering what documents our clients may seek from your clients and will endeavour to produce a composite request. For now, we have identified certain documents which we request at this time, comprising:

A. in relation to the advice from Mazars LLP, referred to in Ms. Davey's fourth statement and to any advice from Mazars in relation to the trust assets and the transfer of shares…

a. copies of the advice …

B. the loan agreement referred to by Ms Davey in her witness statement of 27 April 2015 ..."

That was the usual request in correspondence for disclosure, following which an application might or might not be made for specific disclosure.

34. On 19^th June 2015 Ms. Davey made her sixth witness statement, in which she addressed, amongst other things, her complaints about the misconduct of the administrators and she referred again to the contents of the Khan Letter. She complained about the reference of her to the Insolvency Service, but she did not exhibit any further documents which are material to that request made by the administrators in their solicitor's letter of 21^st May 2015.
35. In those circumstances, on 24^th June 2015 the respondents issued their application for disclosure, which was supported by Mr. Hollands' third witness statement of the same date, which summarised the matter and explained why the administrators were seeking the documents that they were after and explaining that those documents had not been supplied. That was shortly before the CMC before Mr. Justice Henderson on 29^th June.
36. On the morning of that hearing Ms. Davey made her eighth witness statement, in which she again referred, in particular, to the contents of the Khan Letter. She said that at the time of the Khan Letter she was relaxed about it because everything had been done on McBrides' advice. She referred to her solicitor's letter of 5^th May 2015, which I have referred to, but she did not provide the information that had been requested by the administrators and she said, at para.42:

"There is no grounds for the Administrators' belief that the Removal Application is motivated by a desire to avoid scrutiny or claims against me."

She repeated, in para.53, her charge that the investigation against her was just an attempt to stifle the removal application.

37. On the same day, that is the morning of the CMC, the first witness statement from Mr. Khan was filed, the purpose of which was to claim privilege in relation to any advice given by Mazars, on the basis that Mazars had been instructed by Khan after Khan had been instructed in the latter part of 2011. So any advice given by Mazars to Khan, which led to the Khan Letter, was privileged. I heard extensive argument as to whether that claim to privilege was good or bad and, in the light of the orders I propose to make, I do not need to decide that issue. Obviously I make the point that if Mazars only gave advice after Khan were instructed then that advice is obviously of much less importance because it would not have been contemporaneous with the events in question. It certainly would not have been contemporaneous with anything that happened in mid-2010 and it also would not have been contemporaneous with anything that may have happened in mid-2011, and therefore having been backdated to 2010, as the administrators allege.
38. Mr. Justice Henderson gave directions and on that occasion he was told by Ms. Smith, as is accepted by Ms. Smith, leading counsel for the administrators, that the administrators did not yet have anything specific from the auditors but were hoping to receive something in August 2015. The judge was not told that the administrators did indeed have the auditor's note of January 2010, but I entirely accept Ms. Smith's apologies for that oversight and that it was not intentional.
39. On 1^st July 2015, as I say, the applicants launched their conspiracy claim against the bank and the administrators. On 6^th July 2015 Ms. Davey made her ninth witness statement.
(Short break)

THE DEPUTY JUDGE:

40. Returning to Ms. Davey's ninth witness statement, dated 6^th July 2015, she dealt with the request for disclosure of the McBrides' advice in paras.7-10 and, so far as the Mazars' advice was concerned, in paras.11-13. So far as the McBrides' advice was concerned, she first of all in para.7 and 8 queries what the administrators had got from McBrides themselves and then in para.9 she said this:

"I do not object to disclosing documents which I can find relating to McBrides' advice on the £11m Dividend. I have therefore been conducting searches since the CMC Hearing for relevant documents and correspondence with McBrides. Given the age of the materials this is not a straightforward exercise, and due to travel arrangements (I am currently in Israel) I have only had a limited opportunity to progress the searches this week. I believe a realistic date for production of relevant documents is 31 July [she says 2014 but she must mean 2015]."

Then so far as Mazars is concerned, she says: "Mazars did not provide any advice to me before October 2011".

41. On 9^th July 2015 the administrators' solicitors wrote Ms. Davey's solicitors a letter in which they, for the first time, disclosed the auditor's note of January 2010. But they also say this:

"It is not obvious that this advice relates to the £11m dividend".

Indeed, commenting on that paper, in my view that certainly seems to be general advice primarily directed to tax issues. It does not appear to be detailed advice recommending, let alone advising as to how to implement, the declaration and payment of a dividend and, so far as necessary, the appropriation of assets so that that dividend could in substance be paid to Ms. Davey, assuming that the company did not have the cash to pay it but only had assets to pay it in specie.

42. It is abundantly apparent that it was that letter and that disclosure of 9^th July 2015 that has caused Ms. Davey now to say that any offer she had made in para.9 of her ninth witness statement is now withdrawn and she is no longer willing to give any disclosure, even the disclosure which she refers to in para.9 of her ninth witness statement. Mr. Davies, leading counsel for Ms. Davey, sought to persuade me that Ms. Davey had a good reason for withdrawing her offer and, in particular, he relied upon the failure of the administrators to disclose the auditor's note before. I was wholly unpersuaded by Mr. Davies' explanation for the reason for the withdrawal of the offer and I am entirely satisfied, in all the circumstances of this case and in the light of all the submissions made, that Ms. Davey has just changed her mind, no doubt on advice.
43. On 10^th July 2015 Ms. Davey's solicitors wrote two letters to the administrators' solicitors commenting upon the late disclosure of the auditor's note. On 13^th July Stephenson Harwood, the administrators' solicitors, wrote again to Ms. Davey's solicitors pressing again for disclosure. On 17^th July the applicants issued their cross-application for disclosure and, on 22^nd July 2015, the administrators filed the third witness statement of Mr. Croxen, which is of some significance as it is in that witness statement that the respondents now allege in substance that Ms. Davey acted fraudulently in relation to the declaration and payment of the dividend. The grounds of that allegation are set out in Mr. Croxen's third witness statement. He refers, in particular, at para.10 to correspondence in June 2011, which is exhibited, which is said to support the case that whatever property transfer was effected that was not effected until June 2011. Ms. Smith, in the course of her submissions, relied in particular upon the fact that there is an exchange of emails between Mr. French and the auditors which seems to suggest that after the auditors, in mid-2011, had given advice as to the form of documents that were needed in order to effect the payment of a declaration and dividend, documents then appeared to be produced by the company adopting the advice of the auditors but instead of showing the current date of mid-2011 showed a date of mid-2010. There is also reference in that witness statement to advice sought and given by Messrs. Mishcon de Reya, but at the hearing in oral submissions Mr. Davies objected to any reference to that advice on the grounds of privilege and I indicated that I would proceed at this hearing on the assumption that the claim to privilege was justified, but obviously without making any finding to that effect. So for the purposes of this hearing I have not read and I have disregarded any reference to the advice from Mishcon de Reya. As Ms. Smith rightly observed, it is unsatisfactory that that claim to privilege was only advanced in oral submissions before me when it plainly should have been advanced before the witness statement was put in the bundle and before counsel were in the process of preparing their submissions.
44. Mr. Davies, for the applicants, complains strongly about the piecemeal and delayed production of evidence by the administrators in relation to the allegation of misfeasance, but I have to say that in the course of the hearing I have formed the distinct impression that the applicants, whilst professing that they had nothing to hide, were rather not going to cooperate in any way in telling the court in these proceedings what they knew about the £11million dividend or any appropriation of assets out of the companies in favour of the applicants in 2010 or 2011. That lack of cooperation was justified on the basis, so they said, that this was an irrelevant issue cooked up by the respondents to hide their own misconduct. In my judgment, there is a real prospect that the trial judge will disagree with the applicants on this. There is evidence of wrongdoing in this case which the court may take into account against the applicants if the court is satisfied that the applicants could assist the court on the issue of this alleged wrongdoing and they have failed to do so. Mr. Davies submitted that one only has to look at the cash advances made by Ms. Davey after this dividend was declared and paid and before administrators were appointed, to show that there cannot have been any wrongdoing, but I simply do not follow that argument. It does not seem to me to be directed at all to the question of whether there was or was not any wrongdoing.
45. I turn, in those circumstances, to the respondents' application for disclosure. The first question to my mind is this: is the issue of misfeasance material to the trial of the removal application? In my judgment, it may well be. The court will obviously not be determining that issue but it will have to decide what weight to attach in the exercise of its discretion to the respondents' allegation that the removal application was issued so as to stifle the investigation of that claim. The court will also have to consider the question, as I have said, of what interest the applicants have in the relief they seek and of the legitimacy of that interest.
46. One outcome that the trial judge might well be considering in this case is some sort of joint office holding, one office holder to control the investigation and pursuit of claims against the bank and the administrators, if such claims are of substance; another office holder to control the investigation and pursuit of claims against the applicants, if such claims are of substance. There needs to be more than one office holder because one office holder could not reasonably be expected to control both. Alternatively, the court might entertain an application by the applicants to apply for permission to bring a claim in the derivative form against the banks and the administrators on the basis that the companies are, and remain, controlled by the alleged wrongdoers, in other words, administrators who are themselves defendants and banks who are, by their funding, maintaining those administrators in office. It does not seem to me to be out of the question that the court might entertain an application for permission to bring claims on behalf of the companies in a derivative form in those circumstances, but the court would obviously be mindful of the question of whether there was substance in those claims and would ask itself whether any reasonable board of directors would authorise such proceedings and would view them as being in the interests of the companies.
47. I also have to ask myself, do I need to order disclosure on this issue when I could alternatively leave it to the discretion of the trial judge to determine what adverse inferences may fairly be drawn from the failure of the applicants to give disclosure on this issue. I also have to ask myself, if I were not satisfied that this alternative course was the best one, to what extent should I order disclosure having regard to, firstly, the fact that the trial judge will not be determining whether misfeasance has occurred and it is not suggested by the respondents that general disclosure should be ordered on this issue; secondly, any oppression of the applicants; thirdly, the applicants' own case that this issue has only been raised by the respondents so as to divert attention away from their own failings, and, fourthly, and importantly, the evident desire of Mrs. Justice Rose, when giving directions, to limit the expense and time taken up in this application and the issues that needed to be addressed by the trial judge. So she did not make any order for general disclosure and she made no order for the cross-examination of any witnesses.
48. As I see it, my job is to make an order which will best enable the trial judge to reach a fair result at the trial without undue cost to the parties. Doing the best I can, in my judgment, the best course is to leave it to the trial judge to draw such inferences adverse to the applicants as he sees fit from their failure to give full and frank disclosure of what they know in relation to the misfeasances alleged against them and of the documents which cast light upon it which either are, or have been, in their possession. He may well form the view that the applicants in this case, asking as they do the court to exercise its discretion in their favour so as to remove the respondents, can reasonably be expected to make full and frank disclosure to the court on the issues raised against them by the respondents. I emphasise, however, that it is ultimately a matter for the trial judge and he will no doubt exercise his discretion having regard to the contents of my judgment.
49. This is a classic type of case, in my judgment, where the court can avoid the cost and expense of disclosure and cross-examination by adopting the alternative course of drawing inferences which are appropriate from any failure on the part of any party to be full and frank with the court. It seems to me that this is precisely what Mrs. Justice Rose had in mind at the outset.
50. I do not think it would be right to make a full and general order for disclosure against the applicants and no such order is sought. In my judgment, making a partial order for disclosure, even of the documents previously offered by the applicants to be disclosed, seems to me to be likely to do more harm than good. It may be taken to suggest that this is the limit of their disclosure obligations and it also may prove to be inadequate and lead to yet further evidence and dispute about its scope and as to the applicants' obligations as to searching and the like.
51. So I do not determine any issue as to privilege. Such issues can be raised, as necessary, before the trial judge. So I make no order on the respondents' application for disclosure.
52. As to the applicants' cross-application for disclosure, much has already been given, as I understand it, voluntarily. As for para.4, namely disclosure in relation to costs, in my judgment, the right thing to do here is to adjourn this to the trial judge on the basis of the assurances given by both parties at the hearing before me yesterday to the effect that if the judge were minded to order the disclosure sought by the applicants, and also if he were minded at the same time to order disclosure of costs as against the respondents, then the parties would have the material information with them at the beginning of the trial so that it could be produced immediately if the judge thought it should be disclosed.
53. So far as the costs of these applications are concerned, superficially the respondents' application has failed but I have made no order on the basis that I think that it is not necessary to do so and that the best course is to leave it to the judge to draw such adverse inferences against the applicants as he sees fit. In substance, therefore, it could be said that the respondents were the real victors, but I think it would be wrong of me to order the applicants to pay the costs. The trial judge will be much better placed than I am and, by the end of the trial, it will have become clear who the real victor was so far as this application was concerned. It is, of course, possible, I acknowledge, that the judge takes a completely different view from me to the lack of transparency on the part of the applicants. So I would reserve the costs to the trial judge. I know that I have heard no argument about this but those are my firm views.
54. As a postscript to my judgment I would urge the parties to consider a resolution of these proceedings by applying for the appointment of joint office holders. Whether those office holders are administrators or liquidators it does not matter. There might be one nominated by the applicants, one nominated by the banks, with separate roles. One to control the claims against the administrators and the bank; one to control the claims against the applicants for misfeasance. These proceedings do no credit to the legal system or the insolvency profession in this country. It is litigation piled upon litigation and I have referred to the spiralling of allegations in this case. I think the trial judge will be interested in being told why such a solution has not been reached in this case.
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