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Cite as: [2011] IESC 45
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Judgment Title: Director of Corporate Enforcement v Seymour Neutral Citation: 2011 [IESC] 45 Supreme Court Record Number: 161/07 High Court Record Number: 2005 271 COS Date of Delivery: 06/12/2011 Court: Supreme Court Composition of Court: Denham C.J., Macken J., Finnegan J. Judgment by: Macken J. Status of Judgment: Approved
Outcome: Allow And Vary | ||||||||||||||||
THE SUPREME COURT Denham C.J. [S. C. No. 161 of 2007]
Between:
THE DIRECTOR OF CORPORATE ENFORCEMENT Respondent/Applicant
-and- BARRY SEYMOUR Appellant/Respondent
Judgment delivered on the 6th day of December, 2011 by Macken J.
This is an appeal from the judgment of the High Court (Murphy J.) delivered on the 20th March, 2007 and from the Order made thereon, by which the appellant was disqualified from being involved in a company in any of the ways mentioned in s.160 (2) (b), (d) or (e) of the Companies Act 1990, as amended (the “Act of 1990”). Disqualification, pursuant to s.160(2)(e), for a period of twelve years was deemed appropriate and reduced by three years, to nine years. Background Although the period covered by the Report was the ten year period from 1988 to 30th March, 1998, the appellant did not join the Bank until April 1994, and left in 1996. The Report concluded that NIB and NIBFS were both involved in a number of inappropriate practices. In the Summary to the Report these are listed as being the following: • Bogus non-resident accounts were opened and maintained in the branches of NIB thereby enabling customers to evade tax through concealment of funds from the Revenue Commissioners; • Special Savings Accounts had the tax payable on them deducted at a reduced rate, notwithstanding that the applicable statutory conditions for permitting this were not observed; • Fictitiously-named accounts were opened and maintained in NIB branches, enabling customers to evade tax through concealment of funds from Revenue Commissioners; • CMI (“Clerical Medical Insurance”) policies were promoted by NIB as a secure investment for funds undisclosed to the Revenue Commissioners; • There was improper charging of fees to customers; • There was improper charging of interest to customers. The Report, which is extensive, states the Inspectors’ conclusion that responsibility for the above six improper practices rested with the senior management of NIB. In the Report, 12 past and then extant members of senior management of NIB were allocated express or direct responsibility for some or all of these practices. The Inspectors made findings adverse to the appellant regarding the first five practices: they made no finding against him under the last heading. The conclusions are said to be on the basis that the appellant had “ultimate responsibility” for four of those five headings, and in relation to the fifth (importer charging of fees) he is also held to be “responsible” for ensuring a proper system was in place, and “ultimately responsible” for its absence. By way of originating Notice of Motion filed on behalf of the Director of Corporate Enforcement (“the Director”) on the 29th July, 2005, pursuant to the power vested in him under s.160 of the Act of 1990 as amended, the Director sought a declaration, invoking s.160(2)(b) (d) and (e), of the Act of 1990, that the appellant be disqualified from: (a) being appointed or acting as an auditor, director, or other officer, receiver or examiner of, or (b) being in any way, directly or indirectly, concerned or taking part in, the promotion, formation or management of, any company, or any society registered under the Industrial and Provident Acts, 1893-1978, for such period as the court should deem appropriate. The High Court Order of the 17th April, 2007, disqualifying the appellant for nine years pursuant to s.160(2)(e) of the Act of 1990 was made pursuant to that Notice of Motion. As to the parties themselves, the following are respectively the businesses of NIB and NIBFS, and the background of the appellant, according to the Report, and/or the affidavit evidence filed:
On 31 October 1987 the share capital of the company was acquired by National Australia Finance (UK) Limited, now known as National Australia Group Europe Limited, a subsidiary of National Australia Bank Limited. On 15 April 1988 the company changed its name to National Irish Bank Limited. [NIB] National Irish Bank Financial Services Limited was incorporated as Northern Bank Trustee Company Limited on 12 January 1970. It changed its name to Northern Bank Trust Corporation Limited on 6 January 1976, to National Irish Bank Trust Company Limited on 15 April 1988, and finally to National Irish Bank Financial Services Limited on 3 November 1989. National Irish Bank Financial Services Limited is a wholly owned subsidiary of National Irish Bank Limited.” The management structure of NIB is described as follows:
The position of chief Dublin-based executive of the Bank was held by a number of individuals during the period, with differing titles. Reporting to the chief executive was a General Manager in charge of banking activities with responsibility for a number of areas including the retail branch network of the Bank. The executive in charge of the branch network had over the period a variable number of regional or area managers reporting to him; the titles and reporting lines of these individuals, to whom branch managers reported, changed on a number of occasions during the period 1988 to 1998. The Head of Audit reported to the chief executive up to 1 July 1991, then directly to the audit committee of the Board until April 1997, when responsibility for internal audit was transferred to National Australia Bank’s European Audit function, based in Glasgow. The Report also describes the Financial Advice and Services Division in the following terms: “Separate from the branch network, was the Financial Advice and Services Division (“FASD”) of the Bank, set up in 1989. This Division was responsible for the marketing of financial products, including those the subject of the investigation ordered on 15 June 1998. The executive in charge of this division, Nigel D’Arcy, reported to Mr Lacey as Chief Executive, and thereafter to Mr. Seymour as Executive Director until 1 January 1995. From the latter date until 23 May 1997 he reported to the General Manager – Banking, and thereafter, up to the date of appointment of the Inspectors, to the Chief Operating Officer. The FASD comprised a number of financial services managers, an investment manager and support staff, reporting to Mr. D’Arcy. While the financial results of the FASD were accounted for in NIBFSL, the FASD personnel were at all times during the period covered by the investigation, employed by the Bank.” The Appellant’s Background The appellant had not held any management or other role in NIB prior to his appointment. Nor did he have an executive responsibility in any of the positions he had held prior to his appointment to NIB. While he was carrying out the above due diligence work, he was informed there was an “immediate need” for someone to take over and “hold the fort”, pending the appointment of a new Chief Executive. The appellant (who was cross-examined on his affidavits) stated in evidence he had been asked to take over from Mr. Lacey, on the latter’s sudden departure as Chief Executive - on little or no notice - and with no transitional period during which the reins of office were transferred to him. The appellant said that his initial expectation was that his tenure would be for a few weeks, and he then expected it to be for no more than a few months. He said that he inherited an organisation that had been managed in an autocratic fashion, and a business that had embedded in it problems which had prevailed for many years before he arrived, but of which he was wholly unaware for many months after his arrival. The High Court Proceedings and Judgment Having recited information concerning the appointment of the Inspectors and the summary conclusions of the Inspectors’, and the six specific improper practices already mentioned, the originating Notice of Motion detailing the findings of Inspectors’, the conclusions arising therefrom and the appellant’s responsibility for the practices, according to the Report. This approach adopts a logical sequence, taking each of the allegations of the Inspectors, setting out the practices in NIB and the findings of the Inspectors on these practices first, and then making findings and drawings conclusions in respect of the appellant, for five of the six improper practices detailed above, deal with each in turn, no allegation being made in respect of the last practice concerning improper charging of interest to customers. The same sequence is repeated in the affidavit. I have used “the appellant” and “the Director” in this judgment, as appropriate. The content is as follows: “A(i) Bogus Non-Resident Accounts: • Bogus non-resident deposit accounts were opened and maintained by the Bank and were widespread in the branch network during the period the subject of the investigation. • The opening and maintenance of such accounts by the Bank constituted an unlawful and improper practice which served to encourage the evasion of Revenue obligations by third parties, both on the funds deposited and on interest earned. • Up until May 1995, senior bank management failed to inform branch staff in clear terms of the relevant provisions of the Finance Act, 1986 – that non-resident deposits had to be treated as deposits in respect of which DIRT had to be deducted from the interest unless the Bank was satisfied that the person beneficially entitled to the deposit was non-resident. In addition, senior bank management failed to have a review conducted at that time to ensure that all existing non-resident accounts were genuine. • At branch level, the Bank failed to deduct DIRT from bogus non-resident accounts and from non-resident accounts where a properly completed declaration in a form prescribed or authorised by the Revenue Commissioners was not held by the branch. • Although senior management was aware of the existence of bogus non-resident accounts, the Bank failed to account to the Revenue Commissioners for the DIRT properly payable on the interest paid or credited on such accounts. • The Bank failed to account to the Revenue Commissioners for DIRT payable on the interest paid or credited on non-resident accounts where the Bank did not hold a properly completed declaration in a form prescribed or authorised by the Revenue Commissioners. A(ii) The Appellant’s Responsibility: • During his period as Executive Director of the Bank, the appellant was copied with internal audit reports and accordingly had notice of the deficiencies or “irregularities” which existed in the operation of DIRT-exempt non-resident accounts at branches; • The majority of these reports referred to the failure of branches to hold properly completed declarations for all accounts classified as DIRT-exempt non-resident accounts. Certain of these reports referred to instances where the residential status on non-resident declarations was at variance with other branch records, while others referred to instances where lending to resident customers was secured by letters of lien over deposit accounts with non-resident status; • It is the Inspectors’ opinion that these internal audit reports pointed to the likelihood that the non-resident accounts referred to therein were in fact bogus;
• The extent of the reported documentary non-compliance was on such a scale that, in the Inspectors’ opinion it constituted a further indication that a substantial proportion of the non-resident accounts could be bogus; • The DIRT Theme Audit of December 1994 highlighted the extent of the irregularities. The appellant was made aware of significant issues of documentary non-compliance, the lack of understanding at branches of the Bank’s duty to satisfy itself on non-resident status, and the resultant failure to deduct DIRT at the standard rate from interest paid or credited where the conditions for the operation of accounts as DIRT-exempt non-resident accounts were breached; • Through his receipt of the branch audit reports referred to above and the DIRT Theme Audit report, the appellant should not only have been aware of the failure of the branches to hold properly completed non-resident account declarations, but should also have been aware of the fact that bogus non-resident accounts existed throughout the branch network; • The appellant attended the meeting of senior management of the Bank on 9 February 1995 convened to consider what corrective action was needed to remedy the situation disclosed by the DIRT Theme Audit, but he failed at the meeting, as did everyone else who attended it, to address, or even to raise, the question of the potential liability of the Bank to the Revenue Commissioners resulting from the irregularities; • In spite of the corrective action taken by the Bank following the DIRT Theme Audit, there continued to be non-compliance in the branches with the requirements for DIRT-exempt status during the remainder of the appellant’s term of office; • While DIRT compliance procedures improved during the appellant’s term of office, nonetheless as Executive Director he held ultimate responsibility to ensure that DIRT was deducted from interest paid or credited on all accounts subject to DIRT under the Finance Act 1986. He failed to discharge this responsibility. B(i) Fictitious and Incorrectly Named Accounts: • Fictitious and incorrectly named accounts were opened and maintained by the Bank and existed throughout the branch network during the period of the investigation up until the end of 1996. • The opening and maintenance of such accounts by the Bank served to encourage the evasion of tax as it concealed the true ownership of the funds in the accounts. • Bank personnel were aware or ought to have been aware of the reason for the opening of such accounts. • In 1995 and 1996, when branch managers were directed that all fictitious and incorrectly named accounts must be regularised and/or closed, even where there was a possibility that the business might be lost, managers sought to retain for the Bank the funds on deposit in such accounts by proposing to the customers that they invest in CMI, or by suggesting that they deposit the funds in another branch of the Bank in their correct names. • In the opinion of the Inspectors, these “solutions” were improper because they served to encourage customers to continue to evade tax. B(ii) The Appellant’s Responsibility: • The appellant may not have had knowledge of the existence of fictitious or incorrectly named accounts at the Bank’s branches until late 1995; • The appellant must nonetheless bear ultimate responsibility for the practice of opening and maintaining fictitious or incorrectly named accounts for the period during which he was Executive Director; • During the period the appellant held his position, the General Managers took action to eliminate these accounts. C(i) Special Savings Accounts: • The Bank failed to deduct Deposit Interest Retention Tax (“DIRT”) at the standard rate from interest paid or credited on accounts designated as Special Savings Accounts where the branch did not hold a properly completed declaration in a form prescribed or authorised by the Revenue Commissioners or where there had been a breach of the statutory requirements relating to withdrawals; • Although senior management was aware of the breaches of the relevant statutory requirements, the Bank took no steps to calculate and remit to the Revenue Commissioners arrears of DIRT due, being the difference between tax at the standard rate, which ought to have been deducted, and tax at the reduced rate actually applied. C(ii) The Appellant’s Responsibility: • During the period when the appellant was Executive Director of the Bank, he was made aware, through audit reports circulated to him, of the deficiencies which existed in the operation of SSAs at branches both in relation to documentary non-compliance and breaches of the withdrawal notice requirements; • The appellant was also circulated with the DIRT Theme Audit report of December 1994 and attended the meeting on 9 February 1995 to discuss the results of the audit and the issues arising therefrom. He was thus aware of significant issues of documentary non-compliance in relation to SSAs, the widespread failure to ensure adherence to the notice requirements for withdrawals from such accounts, and the resultant failure to deduct DIRT at the standard rate from interest paid or credited where the conditions for the operation of such accounts as SSAs were breached; • As Executive Director, the appellant bears ultimate responsibility for the failure of the Bank to deduct DIRT at the standard rate from interest paid or credited on all accounts classified as Special Savings Accounts where the conditions to which such accounts were subject were not observed. D(i) CMI, Scottish Provident International and Old Mutual International Policies: • Monies which were undisclosed to the Revenue Commissioners, including funds held in bogus non-resident accounts and fictitious and incorrectly named accounts, were targeted by Bank personnel for investment in CMI policies. • Bank personnel promoted CMI policies as a secure investment for funds which had not been declared to the Revenue Commissioners, thereby engaging in a practice which served to facilitate the evasion of Revenue obligations by third parties. • Prospective investors were given an assurance by Bank personnel that their investment would be confidential from the Revenue Commissioners and, if made the subject of a trust, would pass to their beneficiaries without probate having to be obtained, thus making it possible for the funds invested to be kept hidden from the Revenue Commissioners even after the investor’s death. • The role of the branch personnel of the Bank was to identify likely investors, and the role of the personnel in the Financial Advice and Services Division (“FASD”) was to introduce customers to CMI and induce them to take out policies with CMI. • The purposes for the Bank behind the execution of such policies were:
o The retention of deposits. o The gaining of new deposits. • On the appointment of the appellant as Executive Director, he inherited the practice whereby customers of the Bank, and others, were being facilitated in evading tax through investment in the CMI product. • As Executive Director of the Bank, the appellant has to bear responsibility for the continuation of the practice. E(i) Improper Charging of Fees: • Between 1988 and April 1996, there was no system in operation at the branches for the contemporaneous recording of administration and management time. • The manner in which branch managers purported to charge fees for administration and management time during this period was in the opinion of the Inspectors improper, resulting in some customers being overcharged, across the branch network. • While the new system for recording and charging account administration time introduced in March 1996 was to take effect from the May/August charging period of 1996, this system did not become fully operational in the branches on schedule, and extensive manual adjustments were still being effected in a number of branches in November 1997. E(ii) The Appellant’s Responsibility: • The appellant was made aware, through his receipt of branch audit reports, of consistently reported shortcomings concerning the lack of explanation supporting fee increases recorded on the Fees to be Applied Reports; • The appellant was also made aware, through his receipt of branch audit reports, that the Customer Action Pad introduced in July 1992 was not being used; • The appellant was responsible to ensure that there was a system in place in the branches for the contemporaneous recording of management and administration time which was chargeable to customers. Such a system was introduced in March 1996 following pressure on banks from the Director of Consumer Affairs to provide customers with an itemised breakdown of bank charges before they were applied to customer accounts; • The appellant, during his period as Executive Director, bears ultimate responsibility for the failure of the Bank to put in place in the branches an appropriate system for recording management and administration time which was chargeable to customers. Having recited in summary the improper practices at NIB, the Notice of Motion goes on to state: • the appellant inherited, on his appointment as Executive Director, a situation where various improper practices prevailed within the Bank; • progress was made during his tenure to correct a number of the practices of which he was aware; • the appellant was responsible with others for the continuation of these practices and for the failure during his tenure to address the Bank’s retrospective liabilities arising from a number of those improper practices. • by virtue of his position as Executive Director, the appellant was ultimately responsible for the Bank’s associated legal and professional failures.” (emphasis added) The Notice of Motion finally asserts: “By his duty as such an officer in failing to ensure that the company’s legal requirements were complied with and in failing to carry out his common law duties with due care, skill and diligence (s.169(2)(b));
Engaged in conduct which makes him unfit to be concerned in the management of a company (section 160(2)(d) and (e));” It will be noted that the appellant’s responsibility is alleged to be “ultimate responsibility” in respect of four of the above five issues arising from the fact that the appellant was the executive director of NIB during some of the period covered by the Report, save in respect of the improper charging of fees where he is also stated to have been “responsible” for ensuring an appropriate system was in place. Background Matters
2. 21% of the declarations had an incorrect account number. 3. 13% of the declarations were not dated.” It was the fact that he was aware of the contents of this Report that led the Inspectors to make all of the criticisms of the appellant in respect of DIRT compliance on what became known in the Report as “bogus non-resident accounts” (as well as on special savings accounts). The DIRT Theme Audit report emphasis was concentrated on the unsatisfactory state of the required written records and documents held by the Bank, and their accuracy. It was directed to, concentrated on, and was perceived by all parties, according to their evidence, as confirmed by the Report, as being a documentary non-compliance problem. It did not allege, or highlight, that the underlying problem was, or might be, one of substantive or other statutory non-compliance problem, or that the accounts were evidencing underlying tax evasion by deposit holders. It made no reference whatsoever to “bogus non-resident accounts”, a matter confirmed by the Inspectors. This term, so far as appears from the materials adduced, was adopted by the Inspectors to describe the accounts whose declarations were deficient in one way or another, leading to further analyses of these and the eventual, but correct, conclusion that they were “bogus”, in that they, or many of them, were not, and could never be, properly considered or classified as genuine, non-resident accounts, or, more accurately, accounts of genuine non-resident account holders. Nor did it state or even suggest the problem was, or might also be, related to possible, let alone likely, retrospective liability of NIB to the Revenue for past failures to conform with the applicable statutory requirements in respect of DIRT. It did, however, speak of “penalties for non-compliance”. This aspect of the Report and the knowledge and responsibility of the appellant are dealt with in greater detail later in this judgment. The appellant was also involved in the follow up to the DIRT Theme Audit Report. He was one of ten people in senior management of NIB who attended a meeting on 9th February 1995 in relation to it. At that meeting, the appellant organised and allocated responsibilities for the follow up action to correct or improve matters. Nobody at that meeting itself raised any potential retrospective tax liability by NIB to the Revenue, or even hinted at the possibility of its existence, although the Director refers to an email sent to the appellant on the same day which concerned possible “tax evasion”, and which will be considered further below. Also attending that meeting, chaired by the General Manager – Banking, were the General Manager – Administration, two Regional Managers, the Head of Internal Audit, as well as the Head of Finance, and others. Parts 1 – 7 of the Report set out details concerning both the generality and the specifics of the various improper practices operating in NIB under the several above headings, with details including extracts from documents, from memos, from emails and from interviews which took place between the Inspectors and NIB personnel and others, and spanned the ten year period from the date of their appointment until 1998 or thereabouts. Part 8 of the Report is entitled: “IMPROPER PRACTICES: KNOWLEDGE AND RESPONSIBILITY.” This is the chapter where the Inspectors make findings in relation to the improper practices; as to the knowledge and responsibility of various members of senior management (of the Audit Committee of the Board, of the Board itself, as well as of the external auditors). The findings and conclusions are essentially in the same terms as those set forth above, and are again dealt with separately by reference to each of the headings, as reflected in the originating notice of motion. Under the title “Evasion of Revenue Obligations: Incorrectly Classified Non-Resident Accounts. Bogus Non-Resident Accounts”, the Inspectors expressly criticise a number of senior managers, including the appellant, for not being aware of the widespread existence of bogus non-resident accounts in the branch network, and of their failure to appreciate the potential retrospective tax liability for NIB (and presumably for its customers). A separate paragraph on the same page of the Report states in respect of two (named) general managers that it was their responsibility to ensure that accounts classified as DIRT-exempt non-resident accounts were correctly classified as such and to see that regional managers secured full compliance with the statutory provisions relating to DIRT. The Inspectors found that they failed to discharge this responsibility. This finding of actual responsibility for the correct classification of the accounts did not apply to the appellant, as this is not so stated in the Report, and the appellant, in his capacity as Executive Director, is expressly stated to be “ultimately responsible” for ensuring DIRT was deducted, under the Finance Act 1986. The other related part of the Report relied on by the Director recalls the Inspectors’ finding that the appellant had been on the circulation list for the DIRT Theme Audit report, that he had attended the meeting of 9th February, 1995, and that he was thus aware of the extent of non-compliance in the operation of DIRT to those accounts. Analogous comments are made in relation to the failure to make returns for DIRT on Special Savings Accounts, which do not have to be repeated. His alleged responsibilities under these two headings are set out above. In respect of these failures on the issue of DIRT deductions, the Inspectors did not, however, criticise the Board of Directors of NIB but did criticise the Audit Committee of the Board. As to the Audit Committee of the Board, chaired by the Chairman of the Board, the Inspectors found that while otherwise satisfactory in relation to matters raised by Internal Audit, the exception was in the area of DIRT, in respect of which they said: “The management summary in the quarterly audit report to the Audit Committee in respect of the quarter ended February 1995 stated that, in the quarter under review, Internal Audit had completed its first theme audit, which was concerned with DIRT. The audit was rated “unsatisfactory”. The report noted three major audit findings in relation to DIRT, each with a 4 star significance rating … . It was clear from the findings that both in regard to non-resident accounts and special savings accounts there had been a significant failure on the part of the Bank to observe the relevant statutory requirements. The corrective action proposed by Internal Audit and accepted by management did not include any proposal to deal with the issue of the Bank’s liability for such arrears of DIRT as might be due in the circumstances. Because of this, the Audit Committee should have sought further information as to how management intended to deal with the issue of a potential retrospective liability for DIRT.” Nor did the Inspectors criticise the External Auditors, as such, but in relation to them stated: "The Bank’s external auditors, KPMG, received a copy of the DIRT Theme Audit report and it was considered by them when conducting their audit of the Bank’s financial statements for the year ending 30 September 1995. When conducting their audit KPMG were, accordingly, aware of the conclusion in the DIRT Theme Audit report that “this is a risk area and the penalties for non-compliance at the level shown in this report would be very significant” and this put them on notice of a potentially material liability. This should have led to KPMG asking management to quantify the potential retrospective liability to the Revenue Commissioners for DIRT resulting from the findings of the Theme Audit. KPMG did not seek to have this done. The Inspectors are of the opinion that, if KPMG had requested that the potentially material liability be quantified, this would have emphasised its importance to senior management and it is unlikely that they could have ignored it, as they did.”
The Inspectors did not ascribe any responsibility to the external auditors for these apparent shortcomings. These extracts will also be considered further below. The Grounding Affidavit “… the influence of the appellant in eliminating fictitious or incorrectly named accounts, and in curbing to some extent bogus non-resident accounts, SSA’s, CMI and fees in particular.” nevertheless averred that the appellant failed, according to Mr. O’Rafferty :
• to pursue sufficiently strongly the correction of weaknesses or potential weaknesses in Bank practices of which he was aware, • to address the Bank’s retrospective liabilities to the Revenue Commissioners and its customers which resulted in the improper enrichment of the Bank at the expense of those stakeholders, and/or • to create, promote and uphold within the Bank a culture of material compliance with relevant law and duty.”
(b) of the opinion of the Inspector in relation to any matter contained in the report. The High Court Judgment “Mr. O’Rafferty avers that there is no dispute between the Inspectors and the appellant in relation to the state of knowledge of the problem of fictitious and incorrectly named accounts. On becoming aware of the problem in late 1995 the Inspectors have acknowledged that actions to eliminate the problem were taken during Mr. Seymour’s tenure but that, as Executive Director, he was ultimately responsible for the continuation of this improper practice. The existence of accounts in a Licensed Bank which were fictitious and were incorrectly named was such a serious matter that the practice should have been discontinued immediately once their existence became known.” (emphasis added) This was not a finding made by the Inspectors, nor a failure alleged against the appellant in respect of the same, although it is one of the specific conclusions sought to be drawn by the Director, through Mr. O’Rafferty’s affidavits. The learned High Court judge next cites Mr. O’Rafferty’s conclusion from the irregularities that were found to have existed at NIB, as follows: “There remained (up to 1998, well after the appellant had left the Bank) the continuing problem of substantial non-compliance with respect to SSA after Mr. Seymour left the Bank. Fear of losing deposits was one of the reasons established by the theme audit for explaining why many branches were finding it difficult to impose the notice requirements. Mr. Seymour, having notice of these facts, ought to have known that there were potential legal consequences for the bank’s participation in this failure. It was difficult to avoid the conclusion that Mr. Seymour, and other senior management at the Bank, were careful not to damage business retention and growth prospects in the interest of legal compliance.” The Inspectors did not make the above allegation, in particular the latter, against Mr. Seymour, at any stage during the course of their Report, and did not draw such a conclusion based on any such allegation. The allegation appears to be one of dishonesty or of “lack of commercial probity”. These assertions made on behalf of the Director, although outside the scope of the Inspectors’ findings, and the Notice of Motion, nevertheless were accepted by the learned High Court judge in his judgment under the heading “Conclusions”. In the judgment of the High Court, having dealt with the evidence in cross-examination, which extended over many pages of the judgment, the learned High Court judge stated: “What is critical is the enforcement of standards of management. Where the conduct of any person makes him/her unfit to be concerned in the management of a company, the court may make a disqualification order … The application … extends to a situation where a director fails to act as he is required to act, fails to take action which should have been taken and fails to realise that which ought to have been realised.” He continued: “The Inspectors identified several serious and very significant defaults of management and legal non-compliance within the bank. Mr. Seymour, for a period of twenty-seven months, was the single most senior and responsible employee in the company. The Inspectors found (a) that he knew of DIRT irregularities, (b) that he ought to have known of the widespread bogus non-resident accounts, and (c) that he failed in his responsibility to eradicate them. They found (d) that he knew of the special savings account irregularities, and (e) that he bears ultimate responsibility for the failure to eradicate them. They also found (f) that he knew of the shortcomings concerning the lack of explanations supporting fee increases, and (g) that there was no system in place for contemporaneous recording of management of administrative time chargeable to customers, and (h) that he was ultimately responsible for that also.” The learned High Court judge continued: “Mr. Seymour should have been more decisive and effective in eliminating issues of non-compliance, and redressing the consequence of improper practices. His successor adopted a tougher stance by giving bank staff a warning of the consequences of breaking bank procedures, and of participating in fraudulent acts. As a result of the Inspectors’ Report the bank made a substantial payment to the Revenue.” (emphasis added) These latter findings reflect the conclusions of the Director sought to be drawn from the Report, as reflected in Mr. O’Rafferty’s affidavits, accepted by the learned High Court judge, but which again appear to me to go outside the true ambit of the Inspectors’ findings and conclusions, as recited in the Notice of Motion. In his judgment, the learned High Court judge found that the first and fourth findings of the Inspectors, that is to say, those concerning bogus non-resident accounts and fictitiously named accounts, leading to investment in CMI policies, which enabled persons to evade tax through concealment of funds from the Revenue Commissioners, as well as the treatment of special savings accounts, were the most serious allegations. In respect of these it was held by the High Court, wrongly, that the Inspectors found Mr. Seymour to be “directly responsible” for them. According to the Report, the Inspectors considered the appellant ultimately responsible for those. The High Court was satisfied that the appellant was “aware of the failure of the branches to utilise the customer action plan introduced in March, 1992, and failed to redress the problem until 1996 or to account for refunds (of fees)”. This finding corresponds clearly with the Inspectors’ findings, which concluded that he was “responsible” for ensuring a proper system existed, and “ultimately responsible” for its continued absence. On the question of CMI policies, for which the Inspectors found Mr. Seymour bore “ultimate responsibility” for their continuation, the learned High Court judge found that the appellant’s responsibility for the continuance of the practice, “on its own”, not a ground for disqualification, and that “there was no evidence” that Mr. Seymour “could have stopped the practice”. I agree with this finding, but will return to it later. Arising from the foregoing, the Court continued: “A director must familiarise himself or herself with the business of the company in order to carry out his duties. The business of banking requires adherence to and compliance with the statutory provisions relating to deposit taking. While a director may rely on delegating to others, there remains an ultimate responsibility with regard to the discharge of the statutory obligations. It does not appear, from the written records of the bank, and in particular in relation to the DIRT Theme Audit Report and the meeting of 9th February, 1995, and the circulars emanating therefrom, that the issue of retrospective liability for DIRT tax or the necessity to get specific advice in relation thereon was addressed by Mr Seymour, let alone the making of a provision in relation thereto. It is clear from the taxation of credit interest audit of January, 1999 which was, of course, compiled after Mr. Seymour had left the bank, that the standard of compliance on overseas resident accounts continued to be unsatisfactory for a further four years after the DIRT theme audit report. The fact that after he left office the bank made a substantial settlement with the Revenue Commissioners regarding its liability for DIRT incurred, in part, during Mr. Seymour’s tenure, further highlights the non-compliance by the bank and its directors, particularly its executive director, in discharging its, their and his statutory duty. The Bank’s failure effectively assisted tax payers to avoid their legal responsibilities to the Revenue and contributed to, if not caused, a further liability of the bank in discharging its statutory duties in relation to tax. The court does not accept the suggestion by Mr. Seymour in his affidavit that it was not clear existed. Nor was this a suggestion that was made by him to the Inspectors.” (emphasis added) Again, several of these findings do not appear to be ones properly within the ambit of the Notice of Motion, or of the findings of the Inspectors. The learned High Court judge found that the appellant, “as a Director”, owed a duty of care, diligence and skill to the bank, citing In re City Equitable Fire Insurance Co. Ltd. (No. 1) [1925] Ch. 407. In that regard he found that no allegation of breach of duty to the bank was made, but rather that “the director’s conduct” allegedly made him “unfit to be concerned in the management of a company”. This latter “duty of a director”, the learned High Court judge held, is a duty owed to the public. In relation to the standard of the duty of care, the learned High Court judge found that the duties “of a director of a board” are to exercise a degree of skill that may reasonably be expected from a person of his knowledge and experience, stating: “In order to ascertain the duties that a person appointed to a board of an established company undertakes to perform, it is necessary to consider not only the nature of the company’s business, but also the manner in which the work of the company is in fact distributed between the directors and the other officials of the company, provided always that this distribution is a reasonable one in the circumstances. In discharging the duties of his position as ascertained, a director must, of course, act honestly, but he must also exercise some degree of both skill and diligence. … City Equitable is also the authority for the proposition that in respect of all duties that, having regard to the exigencies of business, and the articles of association, may properly be left to some other official, a director is, in the absence of grounds for suspicion, justified in trusting that official to perform such duties honestly. (see Palmer, 8.401)” (emphasis added) It is the case, however, that Mr. Seymour was never appointed to the Board of NIB, according to the evidence and the submissions made to this Court. The learned High Court judge then considered several cases in which Chairmen and Managing Directors of companies, were disqualified for various periods ranging from four years, nine years and three years, in the context of insolvent liquidations, where the insolvencies gave rise to a deficiency of £8 million, and where the party disqualified for nine years was in day to day control of the company, and “knew that the company was lending its funds interest and security free to its holding company in clear breach of the Companies Act and channelled further monies to his own use”. It had been held that these disqualifications were based on “serious incompetence or neglect” in relation to the affairs of the company. He considered that the function of the court in addressing the question of unfitness is to decide whether the conduct of which a complaint is made, viewed cumulatively, and taking into account extenuating circumstances, “had fallen below the standards of probity” and “competence” appropriate for persons “fit to be directors of companies”, and that “the appellant’s conduct had to be evaluated in context. The burden was on the applicant (the Director) to satisfy the court that the conduct complained of demonstrated incompetence of a high degree assessed in the context of, and by reference to, the role in the management of the company which was assigned to the appellant and by reference to his duties and responsibilities in that role.” That standard had to be applied to the facts of each particular case. No question of the appellant’s probity was mentioned in the Report. He adopted the approach of Browne-Wilkinson V.C. in In re Lo-Line Electric Motors Ltd. [1988] Ch. 477, as approved by the Supreme Court in Re Newcastle Timber Limited [2001] 4 IR 586, and cited other case law of the Supreme Court, as all setting out the applicable test. The learned High Court judge next dealt with cases concerning disqualifications within NIB, including the case of Director of Corporate Enforcement v. Nigel D’Arcy (Unreported, High Court, Kelly J., 26th October, 2005) in which, without objection on his part, Mr. D’Arcy was disqualified for a period of twelve years, on the basis that he was “primarily responsible” since 1992 for the promotion and investment in CMI policies in NIB, and that those funds had been undisclosed to the Revenue Commissioners, and were being targeted by bank personnel for investment in CMI. He had also become aware that CMI was being used by NIB to “regularise” bogus non-resident accounts and fictitious named accounts. He was disqualified on the basis of “lack of commercial probity on his part”. The learned High Court judge in the present case also considered Director of Corporate Enforcement v. Collery (Unreported, High Court, Finlay Geoghegan J., 9th March, 2006) an application made in relation to the affairs of Ansbacher (Cayman) Limited. The Court found that as a matter of probability, Mr. Collery was “guilty of a serious lack of commercial probity” in relation to the affairs of the company under investigation, and disqualified him for a lengthy period. The Inspectors had concluded that Mr. Collery had “knowingly assisted” Hamilton Ross, inter alia, in evading tax due on its activities, and in its unlicensed banking activities in Ireland, and knowingly assisted Hamilton Ross in carrying on its business in such a manner to defraud creditors or other persons. The learned High Court judge, having also found that a Mr. Brennan “alerted Mr. Seymour to the question of tax evasion”, continued: “Mr. Seymour failed to make enquiries that any reasonable chief executive would have made knowing what he knew and bearing in mind the very significant and important responsibilities which the Bank had under the provisions of the 1986 Act. There is clearly no requirement that the company becomes insolvent as a result of the director’s conduct. Nor, indeed, is it necessary that the director’s conduct involves the commission of wrongdoing. Non-feasance in relation to systemic non-compliance may be sufficient. The clear evidence was that Seymour did know of the recurrent problems and, at least in respect to the bogus non-resident accounts could have re-designated these, accounted for the DIRT unpaid and disciplined senior and branch management for non-compliance. The failure to do so is, in the opinion of the court, a lack of a proper standard of conduct. The same would appear to apply to the other areas identified by the Inspectors which could have been resolved by the repayment of fees improperly charged and by the cessation of the practice whereby bogus non-resident accounts were transferred into CMI policies.” This latter statement appears to be at odds with the learned judge’s earlier finding that “It does not seem to the court that Mr. Seymour’s responsibility for the continuance of the [CMI] practice, on its own, is a ground for disqualification. There was no evidence he could have stopped the practice.” “It was remarkable that Mr. Seymour did not communicate to the Audit Committee nor to the Board the extent of these failures and the potential liability of the bank to the Revenue. It is, in the view of the court, not an answer that he was making a strenuous effort in the difficult circumstances to resolve the increasing problems that were dawning upon him during his tenure. Neither is it an answer to say that the problem was endemic in Irish banking nor, indeed, that taxation matters were dealt with outside the Bank. No advice was sought in relation to potential retrospective or continuing liability. It is clear from the decisions in D’Arcy and Collery where, notwithstanding that the applications were not contested, nonetheless were examined in detail by the courts, that a failure to comply with legislation by a person who had responsibility and who could have resolved issues of non-compliance, is sufficient to justify disqualification. … It is clear that an order made under s. 160 is not penal in nature – it is not a criminal sanction nor a determination of liability in respect of any losses that accrued to members, creditors or the regulatory authorities – but an indication of a lack of commercial probity in relation to the management of a company. The court is of the opinion that the appropriate period of disqualification before taking into account any mitigating factors should be one of twelve years given the serious nature of irregularities which were allowed to continue and the senior position of Mr. Seymour. The court is also mindful of the deterrent element of such a disqualification period.” (emphasis added) In the earlier case of Director of Corporate Enforcement v. Byrne [2009] 2 ILRM 328 the High Court (Murphy, J.) the learned High Court judge had reviewed a number of French and Latin dictionary definitions of “probity”, which appeared to equate it with, inter alia, honesty. In that regard, he did not refer to any English dictionary. The Oxford English dictionary (2nd Ed., Vol XII) defines probity as: “moral excellence, integrity, rectitude, uprightness; conscientiousness, honesty, sincerity.” In this case, the learned trial judge did not define what was meant by “probity”. However, it seems clear that his earlier adopted definition is correct insofar as he considered it to equate with honesty. I mention again, however, that although the learned High Court judge was speaking about a s.160 order being concerned with an indication of a lack of commercial probity, that was not an allegation or a finding ever made against the appellant by the Inspectors, although it appears immediately prior to the decision as to the length of the period of a disqualification. In the circumstances it is difficult to conclude that it was not a factor going towards that decision, and I so find. The Appeal (1) an Order setting aside the whole of the Order of the High Court; (2) an Order dismissing the application of the Director; (3) an Order for costs. The basis for the appeal is premised largely on claimed errors in law on the part of the trial judge in: (1) failing to adopt and apply the correct test for the purpose of deciding whether a disqualification Order against the appellant was warranted (i.e. whether the appellant was guilty of dishonesty or lack of commercial probity or gross negligence or total incompetence; (2) failing to take any account of the fact that no allegation of dishonesty was made against the appellant in the proceedings; (3) failing to take into account the purpose of disqualification Orders which is the protection of the public against the future conduct of companies by persons whose past conduct as directors of companies has shown them to be a danger to creditors and others; (4) mistakenly evaluating the conduct of the appellant by reference to a finding that an application for a disqualification Order extends to a situation where a director fails to act as he is required to act, fails to take action which should have been taken and fails to realize that which ought to be realized; (5) assigning a period of disqualification that was excessive and disproportionate to the findings against him. The parties submitted helpful written submissions to this Court on the appeal, supplemented by detailed oral argument of counsel. Before considering the judgment of the High Court and the arguments made in the course of this appeal, it is helpful to set out, at the outset, certain important provisions of the governing legislation, its interpretation, intention and the likely consequences which may flow from the provisions according to the case law, since the approach to be taken to the assessment of the claims made in the originating Notice of Motion, and to the possible consequences flowing therefrom, derive from that framework. The Legislative Framework “(1) Where a person is convicted on indictment of any indictable offence in relation to a company, or involving fraud or dishonesty, then during the period of five years from the date of conviction or such other period as the court, on the application of the prosecutor and having regard to all the circumstances of the case, may order –
(b) he shall be deemed, for the purposes of this Act, to be subject to a disqualification order for that period.
(b) Where a person has been guilty, while an…officer…of a company of any breach of his duty as such…officer…; or (d) The conduct of any person as… officer… of a company, makes him unfit to be concerned in the management of a company; or (e) In consequence of a report of inspectors appointed by the Court or the Director under the Companies Acts, the conduct of any person makes him unfit to be concerned in the management of a company, … the court may, of its own motion, or as a result of the application, make a disqualification order against such person for such period as it sees fit. … “(9A) In considering the penalty to be imposed under this section, the court may as an alternative, where it adjudges that disqualification is not justified, make a declaration under section 150.” In these proceedings, the Court is concerned only with s.160(2)(b), (d) and (e), and in this appeal is dealing with s.160(2)(e), since the only order made was one pursuant to that sub-section. The provisions of s.160(2) have been the subject of considerable case law in this jurisdiction. Some of that case law relies on comments made in decisions arising under the United Kingdom statutory, but not identical, scheme. It is almost invariably the case, however, that decisions are made, both in this jurisdiction and in the United Kingdom, by specific reference to particular facts arising in the cases in question, a matter meriting mention in the judgment of Fennelly J. in Director of Corporate Enforcement v Byrne [2009] 2 ILRM 328. For my own part, I would prefer, on balance, to deal with s.160(2) by commencing with the provisions themselves, as interpreted by this Court, inter alia, for the following reasons. In some of the cases in the United Kingdom, such as In Re Barings [1999] 1 B.C.L.C. 433, the primary thrust of the judgments was to consider the responsibility for, and the consequent liability in respect of, matters which were the expressly allocated responsibility, within the management structure of that bank, of the respondent parties. I mention this case merely as an example of one of the range of circumstances in which disqualification orders may arise. It seems to me that it is not always helpful to transpose, willy nilly, statements in relation to the interpretation and application of provisions of an Act adopted in the United Kingdom, as applied there to particular facts or to particular parties in particular positions, with particular and express obligation, to all other facts and all other parties or companies affected by the provisions of the legislative scheme in this jurisdiction. Coincidentally, in the present case, the application is also made in the context of a banking institution, as was the case in Barings. A detailed analysis of the structure of the Act, of the intention properly to be understood from the provisions of s.160 (2), and of the appropriate manner in which the adjudication should be carried out, is found in the judgment of O’Donnell J., in this Court’s decision in The Director of Corporate Enforcement v. Patrick McCann (Unreported, Supreme Court, 30th November, 2010). In that case, and of particular significance in the context of the exercise carried out by O’Donnell, J., the High Court had determined that: “The only function of the court is to … prevent a respondent from acting as an auditor or other officer … where the evidence is sufficient to demonstrate that as a matter of probability the person in question would present a current risk to members of the public” (emphasis added) This statement was made in purported reliance on the language used by Browne-Wilkinson V.C., in the oft cited extract from In re Lo-Line Electronic Motors Ltd & Others [1998] Ch. 477 where he stated, in part: “The primary purpose of the section is not to punish the individual but to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies have shown them to be a danger to creditors and others.” (emphasis added) As O’Donnell J. stated, there is a tendency to treat observations such as those above and others, as “a gloss on the statute so as to replace consideration of the words and structure of the statute itself. Not only does this deprive the court of the guidance to be obtained from the entirety of the section in its context, it also means that the court does not have the benefit of the decision-making structure that the section has been held to require.” A similarly cautious note was expressed by Fennelly, J., in Director of Corporate Enforcement v. Byrne [2009] 2 ILRM 328 when, having referred to the longer extract from Lo-Line, supra., next mentioned, stated: “Dillon L.J., in his judgment in Re Sevenoaks Stationers Ltd. [1991] Ch. 164 at 176 deplored the tendency to treat these statements as “judicial paraphrases of the words of the statute, which fall to be construed as a matter of law in lieu of the words of the statute.” He went on to state the “the true question to be tried is a question of fact.” I agree with and endorse these comments. There are, nevertheless, considered and helpful comments in the case law of this Court on the appropriate approach to be taken to the proper interpretation and application of the statute. In the Lo-Line decision itself, supra., Browne-Wilkinson V.C., stated at page 485: “What is the proper approach to deciding whether someone is unfit to be a director? The approach adopted in all the cases to which I have been referred is broadly the same. The primary purpose of the section is not to punish the individual but to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies have shown them to be a danger to creditors and others. Therefore, the power is not fundamentally penal … Ordinary commercial misjudgement is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt that in an extreme case of gross negligence or total incompetence disqualification could be appropriate.” While this extract should not permit “a gloss” to be put on the provisions of s.160(2) this extract from the Lo-Line case has been cited with approval on several occasions in this jurisdiction, including in Re Readymix: Cahill v. Grimes [2002] 1 IR 372, in In the matter of Wood Products (Longford) Ltd,: Director of Corporate Enforcement v. McGowan [2008] 4 IR 598, as well as in Director of Corporate Enforcement v. Byrne [2009] 2 ILRM 328. I also agree with the following statement of O’Donnell J., in Director of Corporate Enforcement v. McCann, supra.: “It seems clear to me that the Act of 1990 considers that past conduct is the key to disqualification, and which conduct, in itself, demonstrates either the breaches of duty or general unfitness which can justify disqualification unless the court, in the exercise of discretion, considers that such an order should not be made. This is a more focussed inquiry, and one which is rooted in the Act.” (emphasis added) A similar emphasis on the importance of past conduct is found in the judgment of the High Court (Finlay Geoghegan J.) in Re Ansbacher (Caymon) Limited: Director of Corporate Enforcement v. Collery, supra., in which she stated at page 581: “The period of disqualification should reflect … the gravity of the [past] conduct as found by the Inspectors which makes the appellant unfit to be concerned in the [future] management of a company.” Reverting to the section, on a correct reading of it, the wording also contains an indication that deterrence is also among one of its intentions. Clearly if s.160 is intended to ensure and encourage proper corporate governance, then a disqualification order will, or ought, to have a deterrent effect, and properly so, on the conduct of affected persons, and on others in key positions. The same extract from Lo-Line, supra., was also cited by the learned High Court judge in this case as representing a correct statement of the law on s.160 of the Act of 1990. In the judgment of Murphy J., in Re: Readymix Ltd., supra., with whom all other judges of this Court agreed, having cited the extract, he continued at page 381: “That passage was quoted with approval by the learned trial Judge and likewise was adopted by Shanley J in La Moselle Clothing Ltd .v. Soualhi [1998] 2 ILRM 345 by McGuinness J in Squash (Ireland) (Unreported, High Court, McGuinness J, 8th February, 2001) and in the judgment of McCracken J in Re Newcastle Timber Ltd ( supra). It is I believe a correct statement of the law and represents a proper approach to the application and interpretation of s.160 of the Companies Act 1990.” (emphasis added) It was also adopted expressly by this Court in the more recent judgment of Denham J. in Director of Corporate Enforcement v. Byrne [2009] 2 ILRM 328 in which, referring to the Readymix case, supra., she stated: “Murphy J. referred to the above as "a correct statement of law and represents a proper approach to the application and interpretation of s.160 of the Companies Act, 1990." I shall apply the legal propositions set out earlier in the judgment to this case.
(ii) The conduct necessary to justify the making of a disqualification order has to be much more grave and blameworthy than the conduct which justifies a restriction order. Therefore, more grave and blameworthy conduct is required to be identified in this case if the Director's application is to succeed. (iii) The conduct necessary to justify a disqualification order must be manifestly more blameworthy than merely failing to exercise an appropriate degree of responsibility. The Inspectors' Report in this instance held that having read the Theme Report and attended the meeting of the 9th February 1995 he "ought to have known the consequences of such non-compliance for the accuracy of the returns of DIRT being made by him, or persons under his control, to the Revenue Commissioners." At its height the Inspectors' Report criticised the appellant for not exercising a responsibility, which he did not have, and which he did not realise arose. Commercial misjudgment is not sufficient. However, this did not arise as an issue in this case. The conduct complained of must display a lack of "commercial probity", although in an extreme case of gross negligence or total incompetence, disqualification could be appropriate. The High Court held that there was no evidence of gross negligence or total incompetence. There was no issue of dishonest behaviour by the appellant. Thus these aspects of the legal test are not met. (iv) The primary purpose of a disqualification order is not to punish the individual but to protect the public against the future running of companies by persons whose past records have shown them to be a danger to creditors and others. The learned High Court judge held that the appellant was not a danger to the public, and I would affirm that finding. (v) The Court should take into account the entire history of the person in question and not just the alleged act or acts of wrongdoing in isolation. The appellant has had an unblemished record, apart from the criticisms in the Inspectors' Report. (vi) There is an element of deterrence in the exercise of the Court's discretion. This discretion arises especially if the person involved is not a danger to the public. The High Court found that the appellant was not a danger to the public and as the appellant is no such danger there is no necessity to exercise a discretion relating to deterrence. (vii) The matter is not to be judged with the inevitable benefit of hindsight. In this case the appellant had entered his role in 1994, he complied with the requirements of his position, neither he, nor others in the Bank, were alerted to the danger of a retrospective tax liability by either the Theme Report or the meeting on the 9th February, 1995. The benefit of hindsight is not given to any one party, or to be so assessed. (viii) In the exercise of its discretion, the Court is entitled to take into account the fact that the effect of a disqualification order may be greater on a professional person. While the appellant is a professional person, I am satisfied that the issue of a discretion to be exercised, and whether it is proportionate or not, does not arise in this case, as the Director has not presented a case such as should ground a disqualification order. (ix) The burden of establishing that a disqualification order is warranted rests on the Director. In this case I am satisfied that the Director has not discharged the burden of raising the Court's jurisdiction to make an order under s.160 of the Companies Act, 1990.” “Murphy J, in his judgment in Readymix, with which Murray J (as he then was) and McGuinness J agreed, described that as a correct statement of the law and as representing a proper approach to the application and interpretation of section 160. He cited several cases where it had already been followed. It has been treated as a useful point of reference in several later cases. It is obvious, however, that Browne-Wilkinson VC was not propounding an exhaustive definition. His use of expressions such as, “in a normal case,” and “primary purpose,” show that. No doubt, unfitness could encompass physical or mental incapacity, though not mentioned. So also might irresponsible behaviour, total neglect or a high degree of carelessness. All would depend on the circumstances. Nonetheless, having administered those cautions, it is clear that the words of Browne-Wilkinson VC provide some useful pointers to how the court should assess “unfitness.” The drastic nature of the remedy necessarily implies that the Director should meet a high standard of proof. It is natural to begin by asking whether the person is shown to be dishonest. In that event, it will be very difficult to show that he should be trusted with the management of a company. Counsel for the Director placed particular reliance on some passages from the judgment of Jonathan Parker J in Re Barings plc and others; Secretary of State for Trade and Industry v Baker (1999) BCLC 433 ate 483, which were as follows:
I agree that it is correct to examine the question of the fitness of the person by looking at his behaviour and record as a whole (Jonathan Parker J used the word “cumulatively.”) The question of unfitness must be assessed generally and rigid categories should be avoided. There are degrees of honesty, probity and integrity. In Re Newcastle Timber Limited [2001] 4 IR 586 at 592, McCracken J considered that directors had acted incompetently, adding: “particularly in relation to insolvent trading and preference of trade creditors, I think they behaved irresponsibly.” Nonetheless, he was not satisfied that they had been shown to be unfit. I do not say that I would necessarily have reached the same conclusion on the facts of that case. I mention it as an example of an assessment of all the relevant behaviour taken as a whole. One other procedural detail is important. Section 160(7) of the Act obliges the Director to give at least ten days notice to the person of his intention to apply for a disqualification order. This provides him with an opportunity to respond, as he did in the present case. This provision illustrates the general principle that any person who is to be the subject of an application under the section must be given clear notice of that fact and of the grounds on which the application is to be made. I emphasise the matter here because it has a bearing on the finding of want of commercial probity made by the learned trial judge in the present case. The Director, by his notice, stated that he intended to make the application pursuant to paragraphs (b), (d) and (e) of Section 160(2), but also stated that the application was to be brought having regard to the Inspector's Report. In fact, both the draft notice of motion sent with the Director’s prior notice and the notice of motion actually sent were based exclusively on the contents of the Inspector's Report.” (emphasis added) It seems to me that tests in the above case law, including, when properly read, the oft-cited extract from Lo-Line, supra., are correct. They properly leave to the court, as was correctly pointed out by O’Donnell J., in his judgment in McCann, supra., the obligation to apply the provisions of the Act, in the context of the circumstances of each particular case. The principles do, however, make it clear that, when assessing incompetence or breach of duty, this must be at least of a “high degree”, even if not necessarily “gross”, and established to be such by the Director, upon whom there is a “heavy burden”. If it is established, it may also follow that a person is unfit within s.160(2)(d). There is one other aspect of the section, mentioned both by O’Donnell J., in Director of Corporate Enforcement v. McCann, supra., and also by Fennelly J., in the case of In Re Wood Products (Longford) Ltd., supra., which requires to be re-emphasised. In the latter case, Fennelly J., noted that the logical application of the provisions of the Act of 1990 involves a two stage enquiry, the first being whether the court is persuaded that conduct which falls within one or more of the sub-paragraphs of s.160(2), invoked by the Director, has been established. The establishment of such facts and/or conduct constitute what Fennelly J., called “jurisdictional triggers” and O’Donnell J. “gateways” to the second stage, which is the exercise of the court’s discretion to disqualify or not. In In Re Wood Products (Longford) Ltd., Fennelly J., also noted that this two stage enquiry requires the court to consider first, as a matter of “objective forensic enquiry” whether one or more of the criteria under s.160(2) has been established to the necessary level required. If not, then there is no jurisdiction to make a disqualification order, and the exercise of the discretion vesting in the trial judge, or as appropriate, in this Court, on appeal, does not arise. Once the jurisdictional triggers have been established, however, then a disqualification order may be made in a manner reflecting the findings under s.160(2), unless in the exercise of the court’s discretion, such an order is not made. I agree that this is the correct approach to the application of the provision. In light of the foregoing synopsis of the legislation, and of the relevant case law, I now turn to the matters arising from the judgment and on the appeal. Before doing so, and having regard to the case law, it is helpful to recall the management structure of NIB. There was a Chief Executive later called the Executive Director (including the appellant, who was not, at any time, appointed to the Board of NIB) to whom the General Manager-Banking reported. The latter was responsible, inter alia, for the retail branch network. The Branch Managers reported to Regional Managers, later called Area Managers, who reported, in turn, to the General Manager – Banking, also called Head of Retail Banking. He reported, in turn, to the Chief Executive who reported to the Board. The Report does not suggest, nor has the Director contended, that the appellant had direct executive or managerial responsibility in respect of the branches, but rather, as chief executive, had overall responsibility for NIB. There was, as mentioned earlier, an Internal Audit Department or Function which did not report to the appellant, but to the Audit Committee of the Board. It was chaired by the Chairman of the Board. There were also, as required by law, external auditors to NIB. The Issues 1. What legal test should apply in order to determine what constitutes “unfitness” for the purposes of making an order of disqualification? 2. Was the correct legal test properly applied in the High Court judgment? 3. Did the conduct of the appellant meet the legal test? 4. Was a disqualification order justified, and if so, was the period for which it was ordered, appropriate? The Arguments of the Parties Counsel for the appellant contends that the legal test which must be met in order to make a disqualification order is that the conduct complained of must display (a) dishonesty or a lack of “commercial probity” (i.e. integrity), or (b) gross negligence, or (c) total incompetence, or some or all of these. The Director posits a variation of these arguing that simple breach of duty is sufficient. Ordinary commercial misjudgement, it is well established, is not, in itself, sufficient to justify disqualification. Counsel for both parties also agree that the main purpose of a disqualification order is not to punish the individual but to protect the public against persons whose past record as directors have shown them to be a danger to creditors and others; although the appellant in written submissions puts a slant on this by suggesting that the Director must establish that the appellant was, and is now, a danger to the public. He also argues that the level of incompetence or negligence must border on virtual dishonesty. The tests are dealt with in the above analysis, with the particular caution that (a) to (c) are not necessarily exclusive criteria, as is clear from the recent case law, and that the court cannot be hidebound by phrases such as “gross” negligence or “total” incompetence, whatever these phrases mean. I do not accept as correct the appellant’s contention that in a case relying on incompetence or negligence, this must be established to a level which amounts to “virtual dishonesty”, and accept the Director’s argument to the contrary, the legislation giving no hint that this should be so, which is well supported by the case law. The parties agree that in evaluating whether an individual should be disqualified, the Court should also take into account, in its analysis, the background events, and the exercise should not either be undertaken with the inevitable benefit of hindsight. [Denham J., citing with approval the judgment of Browne-Wilkinson J. In re Lo-Line Motors Limited, supra., in Director of Corporate Enforcement v. Byrne, supra.] Whether the legal test was correctly applied in the High Court judgment? The appellant argues that the legal test was not applied by the learned High Court judge. No allegation of dishonesty or lack of commercial probity was made by the Inspectors. On this matter, there was some common ground between the parties. The Director did, however, in some of the affidavits impute dishonesty to the appellant, in particular on the CMI issue. Also, as mentioned above, the judgment invokes a “lack of probity” at a crucial point just before fixing the appropriate disqualification period. A question, therefore, arises as to how there was a finding, if there was, of a lack of “commercial probity”. I am satisfied that on a proper reading of the judgment there can be no doubt but that there was an implicit finding of lack of probity. Senior Counsel for the appellant, Mr. Collins, contests the correctness of such a finding, and submits there is no basis for it in the Report. He also argues that, there being no finding by the learned judge of gross negligence or of total incompetence, and no finding that the appellant was a danger to the public, the application for a disqualification order should necessarily have been dismissed. In support of this argument, counsel for the appellant cites the language in the judgment, material extracts of which are set out above, and which, it is contended, utilise a different but lower test or tests for determining whether the appellant was unfit to manage, or be involved in, or concerned with the management of, a company, including the following: “A disqualification order extends to a situation where a director fails to act as he is required to act, fails to take action which should have been taken and fails to realize that which ought to have been realised”. Counsel submits that such a statement does not warrant disqualification according to the proper test, in support of which he invokes the above case law. Additionally, it is submitted, that following a summary of the inspector’s findings, the High Court finding that: “Mr. Seymour should have been more decisive and effective in eliminating issues of non-compliance and redressing the consequences of improper practices. His successor adopted a tougher stance by giving bank staff a warning of the consequences of breaking bank procedures and participating in fraudulent acts” is also not the appropriate legal test. This is not the Inspectors’ finding of him. The appellant was, it is said, effective in eliminating, or in seeking to eliminate non-compliance, and sought to end improper practices. There was no evidence to support the statement that the appellant’s successor adopted a “tougher stance” on fraud, and, in any event, no fraud was alleged against the appellant, nor did the Inspectors suggest he was in any way implicated in, or oversaw, any fraudulent act. Mr. Collins also points to the language used in the judgment, where his attempts to introduce controls were recognised by the learned High Court judge who, nevertheless, went on to say: “The Court recognises those efforts. However, as Executive Director he had an overall duty to ensure compliance. It was not unrealistic to take steps to ensure that the bank became compliant within the period of over two years while he was in control. His actions did not, in fact, resolve the problem”. The appellant contends that this too is not the test, and is not a finding made against him in the Report, nor a conclusion drawn by the Inspectors. The test is not whether a person who takes honest, responsible steps for the period of just over two years he was in office managed to transform the culture, ethos and practices which had been ingrained for many years. It is a question as to whether he was honest, and not grossly incompetent or grossly negligent in his efforts. The appellant also queries the evidentiary basis behind the judge’s statement, as to whether it was “realistic” to ensure full compliance during this time period. He cites the learned judge’s failure to take into account of the marked improvements that, in fact, took place during the appellant’s tenure, as recognised by the Inspectors. Senior Counsel for the Director, Mr. Murray, on the other hand, argues for a broad interpretation of the judgment of the High Court. He submits that the learned High Court judge applied the proper legal test in s.160(2) and correctly determined that the appellant was unfit for the future management of a company. In short, he contends, the trial Judge did exactly what the authorities (and commonsense) require that he do: identify the conduct alleged to constitute grounds for disqualification, decide if it amounts to “culpable omission”, place it in its proper context, consider whether the omissions were sufficiently serious, having regard to all relevant circumstances, to justify disqualification, and proceed to determine that, in this case, they did. He suggests that it is proper to question the appellant’s contentions raised in the course of the appeal, in the following manner: “ … however, it may be helpful to the Court to identify what in truth is the central issue in this case: on what precise basis can it be contended that the executive director, and most senior employee, of a financial institution who is the subject of these findings over a broad range of matters of a significant nature, [should] not be subject to orders of the kind in issue here? What precise version of the law is it that says that the executive director of a financial institution who presides over the conduct identified by the Inspectors and by the Court in a licensed bank, and who bears the level of personal responsibility for its continuation is not unfit to be concerned in the management of a company, and has not been responsible for breach of duty? How is it that an executive director who is in a position to require compliance but fails to do so, who fails to make the enquiries that a reasonable chief executive would have made knowing the responsibilities of the Bank under the Finance Act 1986, who knew of recurrent problems of systemic non compliance within the Bank but failed to address them, who could have (but did not) designate bogus non resident accounts and disciplined management for non-compliance, who could have (but did not) done the same in relation to repayment of charges improperly levied and the practice whereby bogus non-resident accounts were transferred into CMI policies, who did not (‘remarkably’) communicate the extent of the failures and potential liability to the Audit Committee or the Board, and who failed to obtain advice in relation to the potential retrospective or continuing liability, how does such a person not fall within the provisions of the Companies Act enabling the imposition of a disqualification order? It was evident by the end of 1995 that Mr. Seymour was aware that there was a fundamental or serious system problem in National Irish Bank in respect of compliance with the legal requirements which gave rise to the Inspectors Report. Although the most senior employee and, in effect, Chief Executive, he never reported to the Board of the company that there was such a problem with Revenue compliance within the Bank. He failed in the most fundamental and basic respect.” The main argument of the Director on the above submission is that simply because the learned High Court judge failed to use specific terminology sufficiently often in his judgment, does not mean that the judgment was incorrect, or that it failed to deal with the issues. In support of this, counsel analyses the trial judge’s findings of fact, and then points to the statement: “It is clear that an order made under s.160 is not penal in nature – it is not a criminal sanction nor a determination of liability in respect of any losses that accrued to members, creditors, or the regulatory authorities – but an indication of a lack of commercial probity in relation to the management of a company”. Additionally, it is said, the language “gross negligence” and “gross incompetence” is not contained in the text of the section, but rather gives a backdrop to what constitutes “unfitness.” Therefore, it is not necessary or appropriate to make these terms a central focus of s.160(2). Mr. Murray also submits that it is clear that the learned High Court judge found the omissions of the appellant, while Executive Director, deviated from the “appropriate standard of conduct”, which, he argued, is sufficient to support a disqualification order. The Director relies on Walters and Davis White, Directors Disqualification and Bankruptcy Restrictions (2005) in support of the argument that “a failure to conform to proper standards will justify disqualification if it is more than mere misjudgement and amounts to culpable negligence.” (emphasis added). Since the learned High Court judge determined that the appellant “did not conform to the proper standard of conduct” a disqualification order is justified. Counsel submits that the evidence before the learned High Court judge, which the latter analysed in great detail, as set out earlier, was sufficient for him to have made the disqualification order he made. It was not appropriate, therefore, to criticise the judgment for failing to include specific wording to characterise the matters upon which the Order was eventually made. Counsel finally contests the appellant’s argument that he was not found by the judge to be a danger to the public. This, it is said, is not required, and ignores the wording of the relevant provision of s.160(2), and also the critical consideration that the focus of the provisions is upon past conduct, and whether that is demonstrative of present unfitness. And, significantly, it is said, it converts an undisputed purpose of the disqualification regime into a test. It has never been decided that a party seeking disqualification pursuant to s.160(2) must independently establish that a person is or was a danger to the public. As a result, being a “danger to the public” is not a necessary precondition to the making of a disqualification order. Finding “Mr. Brennan had, however, alerted Mr. Seymour to the question of tax evasion in February, 1995. Mr. Seymour’s response was inadequate and systemic problems post-dated circular S. 11 after meeting in February 1995. Mr. Seymour failed to make enquiries that any reasonable chief executive would have made, knowing what he knew, and bearing in mind the very significant and important responsibilities which the Bank had under the provisions of the 1986 Act. … Non-feasance in relation to systemic non-compliance may be sufficient. The clear evidence was that Seymour did know of the recurrent problems and, at least in respect to the bogus non-resident accounts, could have re-designated these, accounted for the DIRT unpaid and disciplined senior and branch management for non-compliance. The failure to do so is, in the opinion of the court, a lack of a proper standard of conduct. The same would appear to apply to the other areas identified by the Inspectors which could have been resolved by the repayment of fees improperly charged and by the cessation of the practice whereby bogus non-resident accounts were transferred into CMI policies. It was remarkable that Mr. Seymour did not communicate to the Audit Committee or to the Board the extent of these failures and the potential liability of the bank to the Revenue. It is, in the view of the court, not an answer that he was making a strenuous effort in the difficult circumstances to resolve the increasing problems that were dawning upon him during his tenure. Neither is it an answer to say that the problem was endemic in Irish banking nor, indeed, that taxation matters were dealt with outside the Bank. No advice was sought in relation to potential retrospective or continuing liability. It is clear from the decisions in D’Arcy and Collery where, notwithstanding that the applications were not contested, nonetheless were examined in detail by the courts, that a failure to comply with legislation by a person who had responsibility and who could have resolved issues of non-compliance, is sufficient to justify disqualification.” (emphasis added) It is not apparent to the reader what precisely in these paragraphs, and others in similar terms preceding them, as set out earlier in greater detail, the learned High Court judge was deciding in respect of Mr. Seymour. Since a lack of probity, in the sense of dishonesty on the part of Mr. Seymour was never alleged by the Inspectors, it should not have been an issue in the High Court, since the application was grounded expressly on the content of the Report, as cited in the Notice of Motion. Lack of commercial probity involves some element of dishonesty or moral impropriety, and none was alleged by the Inspectors, and was not a finding made against Mr. Seymour in the course of the Report. It was, however, raised as an issue in the course of the affidavits of Mr. O’Rafferty, who sought to draw conclusions as to the improper commercial reasons why NIB acted in a particular way. These were not findings ever made by the Inspectors against Mr. Seymour, and are not the Inspectors’ conclusions in the Report. Mr. O’Rafferty’s opinion, or purported conclusion, does not have the status given to the Inspectors’ opinion by the provisions of s.22 of the Act of 1990. When the Inspectors make findings of fact and reach conclusions on those facts, and further make specific findings of responsibility against the appellant, as here, it is those findings and conclusions which are given the benefit of the presumptions appearing in s.22 of the Act of 1990. I find that, on a proper reading of the judgment, the learned High Court judge wrongly made a finding or took into account an allegation of absence of commercial probity which was not supported by the terms of the Report, and was not within the ambit of the Director’s claim. The terms of the Notice of Motion constitute the ambit of the Director’s application, as is clear from the judgment of Fennelly J. in Director of Corporate Enforcement v Byrne, supra. Further, although it is clear that the cross-examination of Mr. Seymour, including his responses to questions concerning the interviews with the Inspectors were factors in the learned High Court judge’s judgment, I am not satisfied it is correct in law, or appropriate, to revisit the content of the evidence adduced before the Inspectors, in the manner in which this was done in the High Court, and thereafter seek to make findings, or reach conclusions, on that material, which are not found in the Report of the Inspectors. The Report cannot be, or become, a simple backdrop permitting the Court to embark on issues outside the ambit of the claim, or reach conclusions which the Inspectors did not, and might never, make in the same way, on the same evidence, or to the same effect. That does not mean, of course, that if a party makes a statement in evidence which is entirely at odds with an answer given to the Inspectors, concerning the findings and conclusions in the Report, these cannot be put to the witness. They can, but on the basis that they are alleged to be prior inconsistent statements. In the present case, however, several findings of the learned High Court judge are based on an examination of, and on argument and counter argument of counsel, as the conclusions to be drawn from the interviews with the Inspectors, and even as to the correct meaning to be given to quite ambiguous statements made or responses given in the course of the investigation, for such an approach also has the effect of undermining the findings and conclusions in the Report itself. Further, the judgment concludes that Mr. Seymour, while knowing of recurrent problems in respect of bogus non-resident accounts, “could have re-designated these, accounted for DIRT unpaid, and disciplined senior and branch management for non-compliance. The failure to do so represents a lack of proper standard of conduct”. Again, the Inspectors did not say so. What they said, both in relation to bogus non-resident accounts and Special Savings Accounts, was that he failed in his responsibility to return appropriate DIRT tax to the Revenue. Instead, this was a proposition put on behalf of the Director, and appears in Mr. O’Raffferty’s first affidavit. Mr. Seymour gave his reasons for not having redesignated the accounts, and his reasons, even accepting with the benefit of hindsight that they were incorrect, are not stated by the learned High Court judge to have constituted either negligence or incompetence of a high degree. If the test is not as stated in Lo-Line, supra., where the term “gross” is used, then recent case law, cited above, makes it clear that incompetence “to a high degree” or incompetence which is “more blameworthy”, than in the case of a restriction order are required and that the burden on the Director to establish this is a “heavy one”. While the legal submissions on behalf of the Director, supplemented by fine argument by Mr. Murray, do a commendable job in restructuring the language used in the judgment, and in imposing a different test framed in the negative, and by reference to an academic publication, which speaks of “culpable omission”, and thus seeks to express and apply a different lower legal test, this approach ultimately seems to me to fail. Although the above extract of the Director’s approach to the central issue in the case is, at first glance, very attractive, there are several errors in the statement. First, the statement includes several matters not alleged against the appellant by the Inspectors, including almost all or all of those mentioned above. Secondly, a judgment which bases a disqualification order on what the appellant “should” have done, or “should” have known, or “should” have changed, or in the alternative, as here, while recognising that although the appellant did not have knowledge of certain matters, and could not have changed these, as the judgment finds, nevertheless must bear “ultimate responsibility”, by nature of his position for these, does not express the test established by the above case law. Thirdly, the statement also suggests that Mr. Seymour bore “personal responsibility” for the continuation of the conduct identified by the inspectors, whereas the Inspectors, but not the Director or the High Court, did not so allege, limiting this allegation to the obligation to ensure a proper system for the recording of fees. Fourthly, although contending that Mr. Seymour failed in a most fundamental way, and while contending for a test which is at best framed in terms of breach of duty, this is not the test in law. The language and phrases used in the case law to identify the legal test are noticeably missing from the judgment. Indeed, where a test can be gleaned, this appears to be based on a lower test, such as a failure to do “what a reasonable chief executive would do”, or “an inadequate response”, because systemic problems continued, or “non feasance”, but without ever specifying what that consisted of: for example, “a disqualification order extends to a situation where a director fails to act as he is required to act, fails to take action which should have been taken and fails to realize that which ought to have been realized,” is particularly powerful, since it appears from the case law that this statement is not a statement of the test. So also is the statement, not used by the Inspectors, that it was “remarkable” the retrospective liability to tax was not brought to the attention of the Board by Mr. Seymour, without any reference to the appropriate test by which to measure such alleged breach. These suggest that a mere breach of duty, and the duty is not identified, is sufficient, whereas, on all the case law, even on that cited in the judgment itself, the incompetence or negligence invoked must be “of a high degree”, even if not “gross”. All of such language is also contrary to the proper test, as is clear from the finding of Fennelly J., in Director of Corporate Enforcement v. Byrne, supra., in which he stated: “If the learned trial judge intended to convey that unfitness could be found merely on the basis of a departure from the ordinary standards of a person in the position of the appellant, he would have been in serious error.” The judgment does not disclose a clear finding of breach of the appropriate legal test, sufficient for a disqualification order to be made, except perhaps in a most oblique and opaque manner, and by having to make assumptions for the purposes of doing so. Even if, as is contended by the Director, the test should be that used in Walters and Davis White, that is to say, one of “culpable negligence”, it is unclear what is encompassed by this term. It appears also from the judgment that, in the case of “ultimate responsibility”, which the learned High Court judge wrongly identified as being alleged against the appellant in respect of only two of the five areas of responsibility, knowledge has been imputed to him, or he is found to be vicariously liable, by virtue of being Executive Director, for the activities of others, even where it is clear he had no knowledge of the activities in question, such as in the case of the CMI policies, and where according to the judgment, he could not have done anything. No authorities were opened to this Court on behalf of the Director on the nature of the “ultimate responsibility” test, or as to its ambit. Nor is it clear whether a test, such as the “culpable negligence” test, also covers an allegation based on the “ultimate responsibility” theory and test. I am not persuaded that use of this term brings the debate any further and am, on the contrary, satisfied it is not any more helpful than the test already set out above as the case law of this Court. On the other hand, I find that the appellant’s argument that the Director misconstrues the purpose of s.160(2) of the Act of 1990, unconvincing. I agree with the Director’s argument that the appellant has confused the purpose (of the section) with the legal test, by suggesting that a finding that a person is (or was) a danger to the public is a necessary ingredient in the test. Even on this point, however, my support for the Director’s position stems from the judgments of O’Donnell J., in The Director of Corporate Enforcement v. Patrick McCann, supra., and that of Fennelly J., in In the matter of Wood Products (Longford) Ltd., supra., rather than from anything found in the present High Court judgment. Future protection of the public, based on a past record, is an essential purpose of the section. Other considerations undoubtedly include deterrence and the improvement of corporate governance. Being a present or even past danger to the public, therefore, is not a necessary ingredient, per se, including in this case. It is, of course, extremely important that the significant findings and conclusions of Inspectors appointed under the Act of 1990 be fully implemented, and that the equally important – indeed vitally important – work of the Director is properly supported by the courts, commensurate with the courts’ role in ensuring that the rule of law is upheld, and that the full gamut of legal rights guaranteed to persons such as those in the position of the appellant, are at the same time guaranteed and applied. In cases such as those arising under the provisions of s.160(2), however, and given the draconian nature of the orders which may be made, a disqualification order should be based on clear findings, of a legal nature, of a breach of one or more of the legal tests applicable in the particular circumstances of a particular case, findings which, I say with some regret, do not appear to me to be at all obvious from the judgment in the present case. Noteworthy, for example, is the decision made to disqualify pursuant to s.160(2)(e), that is, on the basis of “unfitness”, without invoking either s.160(2)(b) or (d) and without any express finding on the basis of either incompetence or negligence to a high degree. I find that the judgment of the learned High Court having failed to adopt or set out the proper legal tests for a declaration of unfitness leading to a disqualification order, failed also to apply them. It is especially important that the reasoning for such a decision is clear, is based on an identifiable test or tests, and on findings made pursuant to that, or those, test(s) within the ambit of the Director’s claim, as originally framed. That is not, with regret, the position arising on this appeal. In light of the foregoing, it is, therefore, necessary to determine whether, on the grounds put forward, and on the appropriate evidence adduced, the legal tests for disqualification were, in fact, met.
Dirt Compliance on Non-Resident Accounts & Special Savings Accounts [Allegations 1 and 2] In relation to the Audit Committee, the DIRT Theme Audit Report and the subsequent meeting of the 9th February, 1995, which are the main bases for the findings of the Inspectors, and the potential retrospective liability of NIB for DIRT tax payments to the Revenue, this is one of the most difficult areas in the entire proceedings. It covers two main findings of the Inspectors. It is clear from the judgment and the submissions of the parties that what became known as “bogus non-resident accounts”, and “Special Savings Accounts” leading to CMI products being sold, as well as fictitious accounts, were the “practices which were most serious”. The first heading arises from the tax known as deposit interest retention tax (DIRT) which obliged NIB to deduct, return and pay to the Revenue Commissioners a fixed rate of tax from the interest paid to holders of deposits in the Bank. However, deposits of persons not “resident” in the State were exempt from DIRT, under a strict legislative scheme. The key provision in s.32 of the Finance Act, 1986, require:
(2) A relevant deposit taker shall treat every deposit made with it as a relevant deposit unless satisfied that it is not a relevant deposit; but where it has satisfied itself that a deposit is not a relevant deposit it shall be entitled to continue to so treat the deposit until such time as it is in possession of information which can reasonably be taken to indicate that the deposit is, or may be, a relevant deposit.” The Report, it will be recalled, uncovered a widespread practice in the branches of NIB of accounts with claims of non-residence, which accounts came to be known as “bogus non-resident accounts” in the Report. A large number of deposits were treated, in practice, as exempt from DIRT, even though the holder was not genuinely “non-resident”. This unlawful practice was the result of false, incomplete or questionable non-resident declarations on the part of account holders. In the case of the Special Savings Accounts, the main problem appears to have been the failure to abide by the required notice periods, either because there were no required declarations at all, or because of those which did exist, many were deficient in a material way. One of the criticisms made against the appellant is that he either realised, or if not, inferentially, should have realised, that so-called “bogus non-resident accounts” and non-complying special savings accounts existed within NIB, and on a widespread basis. The Report, inter alia, states: “In the opinion of the Inspectors these audit reports pointed to the likelihood that the non-resident accounts referred to therein were in fact bogus… The DIRT Theme Audit of December 1994 highlighted the extent of these irregularities…”. Furthermore, it goes on to say that, “Whilst the Inspectors accept Mr. Seymour’s submission that DIRT compliance procedures improved during his term of office, nonetheless, as Executive Director, Mr. Seymour held ultimate responsibility to ensure that DIRT was deducted from interest paid or credited on all accounts subject to DIRT under the Finance Act 1986. He failed to discharge that responsibility.” (emphasis added) Essentially, the argument of the Director is: (1) that the appellant had sufficient information in front of him pointing to the presence of these account issues, so that - if he was not - he should have been aware of the problem, corrected it immediately and deducted the correct tax, including any retrospective tax liability; (2) regardless of whether he fell within (1), by the nature of his position as Executive Director, he bears ultimate responsibility for the fact that DIRT was not deducted from these accounts in accordance with the provisions of the Finance Act, 1986. He should also have acted more forcefully and disciplined employees of NIB who were directly responsible. The counter argument on behalf of the appellant is twofold. First, the appellant disagrees with the conclusion that he had enough information before him that he should have been aware of the tax consequences for NIB of these accounts not being properly documented, and he gave evidence as to why he didn’t. Secondly, even if he should have realised the significance of these accounts, and their consequences, this failure would not amount to a lack of competence or negligence of a level necessary to justify a disqualification order. Regarding the first point, the appellant makes a number of arguments: the internal audit reports did not refer to “bogus non-resident accounts”, or to tax liability, retrospective or otherwise. The appellant, having read these reports, testified that he thought the problem was one of documentary compliance rather than substantive tax avoidance or widespread efforts to evade taxes. Since the possibility of tax evasion was never expressly pointed out to him, he had no reason to assume that the problem was in any way different to the one he had identified. Additionally, he made serious efforts to remedy the documentary compliance problems that he identified as flowing from the reports. It was submitted on behalf of the appellant that is was unrealistic to criticise him, with the benefit of hindsight, on a particular and complex point of tax law when such detail was not within his role or knowledge, and bearing in mind the myriad of other difficulties facing Mr. Seymour in his unfamiliar role and his efforts to resolve all of those issues. Regarding the potential retrospective tax liability of NIB to the Revenue – the appellant argues that compliance with Irish tax legislation was not under his direct supervision, nor within his knowledge. Due to the structure of the bank, he was made to, and did, rely on senior management and on their direction in this area, and was entitled to do so. Additionally, the appellant points out that the Head of Internal Audit, although present at the meeting following the DIRT Theme Audit, did not raise with him any issue of either “bogus non-resident accounts” or any possible retrospective tax liability of NIB at any point, and it was unfair to suggest he should have inferred from the content of the Report that this was a potential problem, when the author of the reports did not so infer or advert. In addition the Internal Audit Committee of the Board of NIB, the external auditors of NIB, KPMG, the Retail Banking Department, and the European Tax Function Department, each of which also had access to NIB’s financial records, although having far more particular expertise in the area, all also failed to appreciate the import of the material, from the point of view of any potential retrospective tax liability. None of these parties was held responsible by the Inspectors. Aside from not being at fault for not appreciating the alleged tax evasion/retrospective liability issues, the appellant was, on the contrary, active in endeavouring to resolve the documentary problems that he did note and account for. One example of this was the implementation of Circular S11/95, put into place following the DIRT Theme Audit. Whether the detail of these steps was the best possible response or whether these steps could have been implemented differently is not the test, it is said. His efforts do not demonstrate either negligence or incompetence of the required degree. Additionally, the Inspectors’ Report credits the appellant with achieving “significant progress” in the areas of concern that they identified, during his term of office and at the time of the subsequent Public Accounts Committee DIRT inquiry, NIB had achieved 100% compliance. The Director essentially supports the learned High Court judge’s findings, and supplements these with extracts from the hearing, including several which concern matters never included in the Inspectors findings against the appellant, and several conclusions also not made by them. Nevertheless the Director contends that, even on the Inspectors own findings, the conclusion which ought to be drawn is that the appellant knew or ought to have known of the retrospective tax liability of NIB arising from these wrongly classified or wrongly operated accounts. On these points, I am persuaded by the argument of the appellant. First, it appears from the Report and from his evidence, that the appellant had no actual knowledge of the existence of what became known as “bogus non-resident accounts”, even if there were “pointers” to their status. Actual knowledge is not ascribed to him by the Inspectors. Indeed, “bogus” is a word first used in the Report itself. The Report mentions the “pointers” which the Inspectors properly suggest should have alerted him to the fact that they many have been bogus. Nor did he know of any potential retrospective DIRT tax liability, despite the Director’s contention to the contrary, and the Inspectors did not conclude that he did. Numerous other individuals and groups had access to the same information, and were arguably and, in fact, far more qualified in the area of tax legislation, and tax evasion, and yet they too failed to appreciate or point out any problem. Some of these, it is true, are criticised by the Inspectors in the Report, but not all, and some had specific responsibility for financial oversight. This included the Audit Committee which, in general, is not dependent, and was not in this case, on what a chief executive might refer to it, but, on the contrary, is charged with ensuring oversight of and compliance with all appropriate financial requirements. Audit committees are nowadays required to be independent of the executive, and to have as part of their remit to ensure internal audit effectiveness. In this investigation, the Inspectors point out that the Audit Committee had access to all the audit reports. Of course, their remit has become stricter over the years by reason of, inter alia, Directive 2006/43/EEC transposed in the State in 2010. In the present case, the audit committee was chaired by the Chairman of the Board. Of particular note also is the finding of the Inspectors as to the role of NIB’s external auditors, KPMG, mentioned earlier. The finding on that party is already set out earlier in the judgment. It suggests that if the auditors had “asked for” a calculation of the potential exposure to tax, this “would have alerted” NIB to the position. It would indeed. It seems obvious that the appellant, had he been so alerted, would, in line with his approach to all other matters, have tackled this immediately. But he was not an expert, did not have direct or express responsibility for this area, and was surrounded by others, both internal and external, who did. The Inspectors, however, make no finding as to the consequences of those auditors not seeking such information, it being clearly inferred from what the Report states that they had sufficient information to alert them to ask the question. Of course, it is axiomatic that the auditors, had they done what the Inspectors suggest they should have done, would have alerted the appellant and others, including perhaps even the Board, of which the appellant was not a member, to the potential retrospective tax liability. It has to be said also that if anyone with expertise in such matters within NIB, such as the Audit Committee of the Board, had also done so, this too would have alerted the appellant, and, on his evidence before the High Court, he would have immediately dealt with these matters. Instead, the Director contends that he, a person without tax training or knowledge, and without direct responsibility for the same, is alleged to be at fault for failing to appreciate the same, although the Inspectors did not so find, confining their allegation to one of “ultimate responsibility”. The learned High Court judge also found that he was “alerted to tax evasion” by a Mr. Brennan. This is a comment coming from a statement in the Report, in that part analysing and reciting several email exchanges as well as the minutes of the meeting on the 9th February, 1995. However, the Inspectors did not invoke this statement, even by inference, when making their findings and drawing their conclusions in the Report, against the appellant, as can clearly be seen from the terms of the Notice of Motion, and even from Mr. O’Rafferty’s first affidavit. It is difficult therefore to see the purported effect of this email having been sent. Fictitious Accounts Regarding fictitious accounts, the Inspectors’ Report accepts that: “Mr. Seymour may not have had knowledge of the existence of such accounts until late 1995.” As Executive Director, however, it is said, Mr. Seymour “must bear ultimate responsibility” for the practice of maintaining fictitious or incorrectly named accounts. “During the period Mr. Seymour held his position of Executive Director the general managers took action to eliminate such accounts”. Again, the Director relies on the “ultimate responsibility” argument on this point. The appellant argues on the other hand that the Inspectors expressly recognised that he was active in eradicating this problem from when he became aware of them in late 1995, six years after the practice first started, and where the practice ceased within approximately one year of the date on which he became aware of it. It is submitted he could not be liable for the opening and continuation of these. The CMI Policies The issue of such policies is unusual. The Inspectors found that the appellant bore “ultimate responsibility” for the continuation of these. The High Court judge found, initially, that the appellant did not know of their use for wrongful purposes, and “could not have changed the position”, and that these on their own could not justify a disqualification order. Thereafter, however, the judgment builds these CMI policies back into the findings, as a ground upon which to make the Order. I am satisfied that the evidence adduced properly led to the learned trial judge’s first finding, and that there are no grounds put forward upon which it could be said that the appellant either knew, or ought to have known, of their improper use, or that he could have done anything to have altered the position. I do not consider that this issue is a live issue in this appeal. Improper Charging of Fees to Customers The Inspectors’ Report states that it the appellant’s responsibility to ensure that there was a system in place in the branches for the contemporaneous recording of management and administration time. This is a clear finding of fact. “Mr Seymour during the period he was Executive Director bears ultimate responsibility for the failure of the Bank prior to March 1996 to put in place in the branches an appropriate system for recording management and administrative time which was chargeable to customers”. It is the Director’s contention that the appellant had the means to know - or should have known - that the system for charging customers, implemented in 1992, wasn’t working. Furthermore, his failure to do anything to rectify the situation on his own accord, without the pressure of the Director of Consumer Affairs, is an example of his breach of duty or negligence which merits a finding of unfitness. The appellant puts forward three matters to counter this argument: (1) The Inspectors’ Report stated that a Mr. Brennan and a Mr. Keane (General Manager Retail Banking and General Manager) “bear the principal responsibility for the bank’s failure” in this respect; (2) the appellant put in place a system to rectify this problem during his tenure, in May 1996, as soon as he became aware of the fact that it was not working; (3) any “ultimate responsibility” criticism is discharged by the action he took to resolve the problem. While this issue is not as serious as others to the outcome of the case (since the learned High Court judge placed significantly more emphasis on the issues that are previously discussed above), I am not persuaded that the appellant’s actions with regard to the improper charging of fees are sufficient to meet the test applicable to justify a disqualification order. The “ultimate responsibility” argument appears to fall short of the applicable test. I agree also with the third argument of the appellant that his responsibility was discharged when a system was implemented under his watch to rectify this issue, once he became aware of the need to do so, especially when the primary responsibility for this rested expressly with others, upon whom, on the case law, he was entitled to rely. Decision Nevertheless, there remains the important issue of the failure to ensure the DIRT payments were properly returned to the Revenue Commissioners, in compliance with the Finance Act, 1986. This relates to both “bogus non-resident accounts” and “Special Savings Accounts”. The evidence makes it clear that the figures were generated automatically by computer, at branch level, and then remitted to head office, and presented for signature with an averment that they were correct and accurate. These returns were never checked by the appellant as to their accuracy or correctness, even though it was clear that there were continuing failings in both non-resident accounts and special savings accounts, but rather were signed and presented on the assumption they were correct, and were not so. They therefore, on their face, breached the specific terms of the Act of 1986. Although the appellant did not appreciate the possible retrospective tax issue, it was essential that such returns were not made on the basis of a representation to the Revenue that they were correct and accurate and in time. This was a grave failure. Whether the disqualification order, and the period for which it was ordered, was appropriate? I am satisfied that a disqualification order under s.160 is not, however, appropriate in this case. Even if the learned High Court judge had applied the correct legal test in the context of the arguments on this appeal, the evidence based on that test does not appear to amount to the level of negligence or incompetence necessary to warrant the making of a declaration of unfitness, such as to justify moving to consider if a disqualification order ought to be made, save in respect of the above failure to comply with the Act of 1986. Despite the comment by the learned High Court judge addressing the law on the issue of commercial probity, there is no evidence to support any suggestion of dishonesty on his part, either directly or on the basis of being responsible for the actions of others. The main pieces of evidence that are alleged to impute knowledge of the bogus non-resident accounts and the special savings accounts to the appellant are the receipt of the internal audit reports and the DIRT Theme Audit. As already found, nobody else at the Bank in a position of authority, and with direct responsibility, or with an “oversight” function, deduced that there was a calculated effort taking place to evade taxes that would inevitably, or even likely, lead to a retrospective tax liability on the part of NIB. The appellant took steps to try and counteract the problems he did recognise. He implemented Circular S11/95, worked with senior management to eradicate the practice of using fictitious names, and with regard to the improper charging of fees to customers, a program was implemented that provided an itemized breakdown of charges, during his tenure as Executive Director, even if this was eventually done on the urging of an outside party. Regardless of whether he was totally successful in curbing the poor work practices that had been in existence at the bank for many years prior to his employment or not - his failures on these issues were not established by the Director as amounting to the level of incompetence necessary to meet the test for a disqualification order. Additionally, since there has never been any allegation of dishonesty by the Inspectors, and since he had many successes at the Bank in the areas where he focused his energies, which were recognised by the Inspectors themselves, the allegation of negligence or incompetence of a high degree, and therefore of unfitness, is not established. Even if there was support for the view that the appellant might have been more successful in remedying the practices embedded in NIB, or might have remedied these more rapidly, and even if it could be said that these constituted a breach of duty, the extent of that breach does not constitute a sufficient reason to justify a disqualification order with a view to protecting the public in the future, by virtue of such past failures. I am satisfied, however, that in relation to the DIRT returns made to the Revenue pursuant to the Act of 1986, the appellant was at fault, and that an appropriate order might properly be made, subject to the court’s discretion in that regard. The appellant has nevertheless spent 42 years in banking, where he appears to have been very successful, had no previous complaints ever raised against him, and according to the evidence, had an entirely blemish free career. The appellant is now retired, close to his mid-seventies, and at this point in time, appears to be of little threat to the public into the future by reason of any past conduct. He has no involvement in, or intention to become involved with, the promotion or direction or management of any commercial entity. The appellant is involved in a number of charitable organizations within his church community (i.e. he is an auditor of accounts of Amersham Methodist Circuit, Deanshanger Methodist Church and Westbury Support Group and the treasurer of the Drugs Prevention Education and Awareness Project, a registered charity), all in the United Kingdom. He gave evidence that if a disqualification order is upheld against him he would feel compelled to resign from all these positions. In fact, the only possible reason for imposing a disqualification order at this time is for deterrence purposes. In today’s financial landscape perhaps such a strong statement is necessary: however, in this case, I do not think, in the exercise of the Court’s discretion, a disqualification order can be justified on that ground either. It is nevertheless appropriate to mark this Court’s finding of fault in failing to make proper returns to the Revenue, or to ensure the same, pursuant to the Finance Act, 1986. In that regard, I consider that a less draconian order, to be made pursuant to s.150 of the Act of 1990, may and should properly be made. In the circumstances, I would set aside the High Court Order and substitute for it an Order restricting the appellant, pursuant to s.150 of the Act of 1990, for a period of five years. Before making such a final order, I consider it appropriate that the Court should hear any representations as to the manner in which such an Order might impact on the appellant’s work for the above church undertakings.
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