Scottish Court of Session Decisions

Act: A. Stewart; Brodies LLP

Alt: Mr Sean Mason (a director of the Respondents)

27 March 2009

[1] This is an application by the Secretary of State for Business Enterprise and Regulatory Reform to wind up UK Bankruptcy Limited ("the company") under section 124A of the Insolvency Act 1986 on the ground of expediency in the public interest. In the petition the Secretary of State alleges inappropriate business practices, deficient financial management and failures to lodge accounts and annual returns. On 9 December 2008 the court appointed Mr William Cleghorn, CA, as provisional liquidator of the company. Mr Mason, who is one of two directors of the company and owns fifty per cent of its share capital, lodged answers to the petition on behalf of the company on 22 December 2008.

[2] Mr Mason then appeared in court at a By Order hearing on 19 February 2009 which was arranged to discuss future procedure. At that hearing I allowed a period of adjustment of the pleadings and appointed the cause to be put out By Order on 7 May 2009. I asked parties whether Mr Mason had the right to be heard in court proceedings on behalf of the company. In response, the petitioner's counsel undertook to intimate to Mr Mason within two weeks whether the petitioner challenged his right to address the court in his capacity as a director instead of opposing the application to wind up the company in his capacity as a shareholder. The petitioner's solicitors, having intimated to Mr Mason that they did not accept that he was entitled to defend the winding up petition on behalf of the company, arranged for the case to be put out By Order on 16 March 2009 to discuss the issue.

The parties' submissions
[3] Mr Stewart on behalf of the petitioner referred to Equity and Law Life Assurance Society v Tritonia Limited 1943 SC (HL) 88 in which the Lord Chancellor (Viscount Simon) stated:

"When an appeal is argued before the House of Lords, no one has any right of audience except counsel instructed on behalf of a party or (when the litigant is a natural person) the party himself. In the case of a corporation, inasmuch as the artificial entity cannot attend and argue personally, the right of audience is necessarily limited to counsel instructed on the corporation's behalf."

Mr Stewart submitted that this statement, albeit now encompassing solicitors with extended rights of audience, remained good law and was applied in the Scottish courts. He acknowledged that Mr Mason as a director had a residual power to act on behalf of the company to instruct solicitors and counsel to oppose the winding up petition and to appeal against the appointment of the provisional liquidator (In re Union Accident Insurance Co Ltd [1972] 1 WLR 640). But a director had no right to appear in court on behalf of the company.

[4] Mr Mason submitted that he had power to act as a litigant in person. He observed that the Equity and Law Life case was quite old authority and suggested that it had been superseded by legal developments. He was in an ideal position to act on behalf of the company as he had the detailed knowledge of its affairs. Secondly, he argued that the court and the petitioner were barred by acquiescence from challenging his right to appear on behalf of the company as the court had heard him without objection on 19 February 2009. That, he submitted, operated an estoppel. Thirdly, he submitted that under Article 6 of the European Convention on Human Rights the company had an inalienable right to be represented in court by one of its directors. He recognized that he might make mistakes and argue irrelevant matters as he had no legal training but his company was entitled to equality of arms which meant that he should represent it. Fourthly, he submitted that the winding up of the company would have serious effects on his business career as he would be likely to face proceedings to disqualify him from acting as a director. He personally did not have the financial resources to instruct counsel and therefore sought to act in his capacity as director.

Discussion

[5] While the House of Lords' decision in Equity and Law Life dates from 1943, it lays down the rule which governs the Scottish courts and is referred to in more recent text books. Thus Maxwell, "The Practice of the Court of Session" (at pp.24 and 600), Lord MacPhail, "Sheriff Court Practice" (3^rd ed) (at para 1.35) and Lord Hope of Craighead in the chapter on the House of Lords in Tottel's "Court of Session Practice" (at J[54]) refer to the case as authority. Lord Macphail also refers to two more recent cases in the sheriff court which have followed the Equity and Law Life case. Lord Hope states in the paragraph mentioned above:

"The right of audience before an Appellate Committee is restricted to counsel instructed on behalf of a party, or, where the party is a single individual, the party himself".

[6] The Rules of the Court of Session are framed on the basis that only lawyers with rights of audience and individual party litigants have a right to sign court documents and to appear in court. See Rule of Court 4.2. Thus documents such as answers to the petition should be signed by qualified lawyers if the party to a litigation is a legal person rather than a natural person. In my opinion, although the case on which the petitioner founds is not recent authority, it remains binding on this court. Accordingly Mr Mason has no right to represent the company in this court.

[7] I can deal briefly with Mr Mason's second submission, that the court is barred by acquiescence from challenging his right to appear. The short answer is (a) that there was no acquiescence as the issue of his entitlement to appear was raised and was reserved as mentioned above and (b) that, in any event, the court cannot by acquiescence empower itself to do something which is beyond its power. Just as in administrative law a person cannot have a legitimate expectation that a public body will act ultra vires (R v Attorney General ex p ICI plc [1990] 60 TC 1, at 64G-H; R v IRC ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545, at 1569B-C and 1573H), so also a public body by acquiescence cannot confer rights which it has no power to give.

[8] I can also deal briefly with Mr Mason's fourth submission. In so far as he seeks to protect his personal position, he is entitled to enter the process as an interested party in his capacity as a shareholder. It is understandable that he does not wish to do so as, if the Secretary of State were ultimately to succeed in the application, Mr Mason might be exposed to an award of expenses which could be substantial. But if he wishes to protect himself rather than the company from the consequences of a winding up, he has the means to do so by lodging answers as an interested party in these proceedings.

[9] I turn then to the human rights submission. Article 6 of the European Convention on Human Rights gives everyone a right to a fair trial. That right includes, in most circumstances, the right to attend a court hearing and participate effectively in the proceedings. Companies and other non-natural persons can be victims in terms of the Convention. But that does not necessarily mean that in relation to representation in court a company should be treated in precisely the same way as a party litigant. A company as a legal person is not the same as a natural person. Where a person chooses to obtain the benefits of limited liability by trading through the medium of a registered company, he has also to accept the disadvantages to which separate legal personality gives rise. Thus as a general rule I see no incompatibility between Article 6 and the requirement that a company be represented in court not by a director but by a suitably qualified legal representative who has responsibilities to the court and who is subject to professional discipline.

[10] I consider, nonetheless, that exceptional circumstances may arise in which the court has to take steps to allow a company or corporation to be represented in court in order to ensure a fair hearing under Article 6. The Rules of Court do not provide for such a circumstance but the court has an inherent power to regulate its own procedures which it can use in this context. It appears to me that there needs to be careful consideration of the circumstances in which the court may authorise a person who is not a lawyer with rights of audience to represent a company or corporation. Parties have not addressed me on this issue. It is likely to require the court to hear well thought out submissions from interested parties. I have therefore decided to report this issue to the Inner House for its opinion. I attach to this opinion a copy of my report.

[11] I have arranged for the case to be put out By Order before Lord Glennie on 2 April 2009. This is to allow parties to inform the court (a) of the financial circumstances of the company and (b) whether the company has authorised Mr Mason to represent it in court and the grounds on which he is authorised to resist the winding up application. If parties can provide this information in writing timeously, it may be possible, on their joint application, to avoid the expense of that hearing. In that event the next hearing in this case would be the By Order hearing on 7 May 2009 before Lord Glennie.