Scottish Court of Session Decisions

Petitioner: Party

Respondent: D M Thomson & Duthie; Shepherd & Wedderburn LLP

12 July 2013

[1] The Secretary of State for Business Enterprise and Regulatory Reform ("the Secretary of State") applied for an order to wind up UK Bankruptcy Ltd ("UKB") on 8 December 2008. UKB is a company registered in Scotland but it carried on business in England and Wales. It offered a debt advice service to people who were insolvent. The service involved arranging the applications for their bankruptcy. Clients often funded UKB by use of their credit cards shortly before they were bankrupted. The Secretary of State in his application averred that he had instructed an investigation of UKB under Part XIV of the Companies Act 1985 ("the 1985 Act") after his department received complaints from the official receiver of several of UKB's clients. As a result of the report by inspectors in that investigation the Secretary of State applied for a winding up order against UKB on the basis that it would be expedient in the public interest (Section 124A of the Insolvency Act 1986).

[2] The petitioner in this application for judicial review, Mr Sean Mason Kiani ("Mr Kiani"), who was a director of and shareholder in UKB, had opposed the winding up application. He was not entitled to represent the company in the proceedings because of established case law authority in this jurisdiction which requires a company to obtain legal representation. After the Inner House gave guidance on the continued applicability of that authority in response to a report from me as the Lord Ordinary, I pronounced an order winding up UKB on 10 December 2010.

[3] The principal allegations on which the winding up application proceeded were:

(i) That UKB had no formal or fixed fee structure but charged excessive fees which often related to the funds available on their clients' credit cards. This increased the client's debt to the detriment of the credit provider. In addition UKB colluded with clients to give them in cash part of the fee obtained from a credit card.

(ii) That UKB encouraged clients to default on obligations which they had undertaken in an individual voluntary arrangement ("IVA") by alleging through a marketing organisation, the IVA Council ("IVAC"), that they had been mis-sold IVAs. IVAC operated a website that encouraged people to default on their IVAs and gave the impression that it was connected with the Insolvency Service.

(iii) That UKB had deficient financial management and failed to file accounts and an annual return in 2008.

[4] On 20 December 2011 the Secretary of State (now the Secretary of State for Business, Innovation and Skills) lodged a petition seeking the disqualification of Mr Kiani as a director under section 8 of the Company Directors Disqualification Act 1986. This section empowers the Secretary of State to apply for a disqualification order if from investigative material he considers that it is expedient in the public interest that such as order should be made. The petition founded on only the first of the three principal allegations (para [3] above). Mr Kiani opposed the application. He also sought to challenge the decision to seek the order by a judicial review application. As a party litigant he needed to obtain the approval of a Lord Ordinary to raise such proceedings. In his proposed petition he included assertions about the merits of the application, which were properly pleaded as a defence to the application rather than in a judicial review challenge. I refused his application but stated that there were three allegations which might be the subject of judicial review proceedings because they related to the propriety of the Secretary of State's actions in raising the proceedings rather than the merits of the application.

[5] The three matters were:

(1) that the Secretary of State had been improperly influenced by Mr David Mond in his decision to wind up UKB and the resulting application for a disqualification order;

(2) that the Secretary of State's department had acted with bias, which was evidenced by a statement made to Mr Kiani by Mr John Gardiner; and

(3) that the department had illegally prejudged the decision to apply for disqualification, which was again evidenced by Mr Gardiner's statement.

Mr Mond is an insolvency practitioner whose businesses were involved in IVAs and who had raised defamation proceedings against Mr Kiani in relation to his allegations of the mis-selling of IVAs. Mr Kiani alleged that Mr Mond's businesses lobbied the Insolvency Service and that he sat on a joint committee of the Insolvency Service and the British Bankers Association and an IVA Standing Committee. It was not suggested that the officials who carried out the Part XIV investigation knew of Mr Mond or had been influenced by him. The statement by Mr Gardiner referred to in the second and third heads above was an alleged statement made at a meeting with Mr Kiani at the Treasury on 13 February 2009 when officials of the Department of Business Enterprise and Regulatory Reform ("the Department") gave Mr Kiani an opportunity to make representations against the Secretary of State's proposal to seek a winding up order against UKB. Mr Kiani alleged that in the course of the meeting Mr Gardiner approached him and waved his finger in his face, stating "make no mistake about it, we are gunning for you".

[6] Mr Kiani produced a revised petition for judicial review. On 15 June 2012 I authorised him to raise the judicial review proceedings but only on the three limited grounds. I intended that he be allowed to use the petition address those matters, which could not be covered in his answers to the disqualification petition, when the court considered the application for disqualification. In August 2012 I allowed the parties to adjust their pleadings in the judicial review proceedings.

[7] On 8 October 2012 the Secretary of State intimated that he would not proceed with application for disqualification. On 30 October 2012 I refused the prayer of the petition and awarded expenses in favour of Mr Kiani.

[8] Although the judicial review proceedings were initiated to allow Mr Kiani to advance arguments in relation to the disqualification proceedings which had been brought to an end, he stated that he wished to proceed with the judicial review petition. He sought to extend its scope by adjustment of his petition. The petition purports to challenge only the decision to apply for disqualification and statement 5 of the petition states the three grounds which I set out in para [5] above. Those were the only grounds which he was authorised to advance. But Mr Kiani has expanded his pleadings to challenge the merits of the disqualification application and to seek remedies for losses which he averred were the result of the discontinuance of UKB's business. He has applied for a wide range of remedies, namely:

(1) Damages for his personal time costs, which he states involved 1,400 hours of work, and for the damage to his reputation;

(2) An order instructing the Office of Fair Trading to reinstate the consumer credit licences of Bankruptcy Ltd and UKB;

(3) An order requiring the Secretary of State to remove all posts, blogs and news media in respect of the directors and officers of UKB and Bankruptcy Ltd including all entries on discussion and advice forums;

(4) An order requiring the Secretary of State to issue a public statement in which he confirms the mistake which he has made;

(5) An order requiring the Secretary of State to confirm in writing that the directors of UKB and Bankruptcy Ltd were exonerated from further proceedings and that the matters relating to the investigation and the disqualification were closed;

(6) An order requiring the liquidators of UKB to release the company back to the control of its directors:

(7) An order requiring the department to apologise to the former clients of UKB for the inconvenience and confusion caused by the intervention of the Companies Investigation Branch; and

(8) A direction to appoint an accountant to calculate the petitioners losses and fees incurred and for the Secretary of State to pay the costs.

[9] I heard a debate on the Secretary of State's plea to the relevancy, after Mr Thomson had provided Mr Kiani with his written submission and extracts of the principal authorities on which he relied. I am grateful to Mr Thomson for so doing. Mr Kiani produced a carefully drafted written submission in reply.

[10] Mr Thomson reminded the court of its limited role in judicial review proceedings; it was not empowered to review the merits of a decision. He referred to the well‑known dictum of Lord President Hope in West v Secretary of State for Scotland 1992 SC 385, at 412-413. Parliament had given the Secretary of State the function of deciding whether "it was expedient in the public interest that a disqualification order should be made" and therefore he should apply to the court for such an order (s 8 of the 1986 Act). Mr Thomson referred to R v Secretary of State for Trade and Industry, ex p Lonrho plc [1989] 1 WLR 525, Lord Keith of Kinkel at 535; In re Blackspur Group plc [1998] 1 WLR 422, Lord Woolf at 426; and Secretary of State for Trade and Industry v Baker (no 2) [1999] 1 WLR 1985, Chadwick LJ at 1989. Mr Kiani in his written argument accepted the substance of this submission and those limits on this court's jurisdiction.

[11] But Mr Kiani's position was that because the Secretary of State had abandoned the disqualification proceedings, there had been no rational basis for commencing such proceedings. He complained that the Secretary of State had not provided any justification for withdrawing the disqualification proceedings. He inferred from the Secretary of State's silence that there was no rational basis for the application and that there had been an abuse of jurisdiction, as the department had acted for an ulterior motive.

[12] I readily understood that Mr Kiani would be puzzled by the decision to abandon the disqualification proceedings and the lack of any explanation from the department for that decision. I asked for clarification. In response to my questions, Mr Thomson explained that the Secretary of State had abandoned the disqualification application after his advisers discovered that witnesses, who had earlier given statements to the department's investigators, would not speak to their statements in court. He submitted that the Secretary of State had acted in good faith in raising the disqualification proceedings on the basis of information then available. It was only because of the unwillingness of witnesses to speak up in court that he had decided to abandon the proceedings. Mr Thomson recognised that that was a factual assertion, which I could not accept as proven. But he submitted that one could not infer from the abandonment of the proceedings that there had not been a proper basis for raising them in the first place. That incorrect inference underlay Mr Kiani's case.

[13] Mr Thomson attacked the relevancy of the petition. His submission may be summarised in the following six grounds. First, he submitted that the averments in support of remedies which related to the Secretary of State's decision to seek the winding up of UKB were irrelevant. The only challenge which the court had authorised was to the later decision to apply for the disqualification order. Secondly, many of the averments related to the merits of the application for disqualification order which were beyond the scope of the court's jurisdiction in judicial review. Thirdly, the averments of bias were fundamentally lacking in specification if they were alleging actual bias. Fourthly, if the case were one of apparent bias, it could not support the claim for damages. Fifthly, there was no relevant basis for asserting that the decision to seek a disqualification order was irrational. The decision had been taken based on all the available evidence, including representations from Mr Kiani, and was supported by reasoned independent legal advice from counsel. Sixthly, what Mr Gardiner is alleged to have said at a meeting on 13 February 2009 was said in the context that the department had given Mr Kiani an opportunity to make representations about the Secretary of State's proposal to seek the winding up of UKB. Mr Thomson acknowledged that officials had told Mr Kiani that they did not accept his explanations. But he denied that Mr Gardiner had used the words that Mr Kiani attributed to him.

[14] Mr Kiani conceded that the only remedy to which he might be entitled was that of damages. In both his written argument and oral submission he founded on the Secretary of State's failure to explain why he had abandoned the disqualification application and the inferences could be drawn from that failure. He suggested that no distinction could be drawn between the application for a winding up order against UKB and the application to disqualify him.

Discussion

[15] I am satisfied that this action should be dismissed. I have reached this view for the following three reasons.

[16] First, I am satisfied that the averments, taken at their highest, do not support the test for apparent bias in relation to the decision to disqualify Mr Kiani. That test is "whether the fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the decision-maker was biased" (Porter v Magill [2002] 2 AC 357, Lord Hope at para 103; Davidson v Scottish Ministers (No 2) 2005 SC (HL) 7, Lord Bingham at para 7, Lord Hope at para 58).

[17] Mr Mond's inferred intervention pre-dated the application to wind up UKB. His involvement directly or indirectly in various committees of the Insolvency Service does not give rise to an inference that he had influence over the decision-makers which he misused. He had a business dispute with Mr Kiani and UKB. But his contacts with the Insolvency Service and that dispute are not sufficient of themselves to support an objective conclusion that there was a real possibility of bias on the part of the decision-maker. The petition to wind up UKB and the application for the disqualification order both proceeded on the report of the officials who investigated the company under Part XIV of the 1985 Act. They did not know Mr Mond. It is clear from a comparison of the winding up petition and the petition for disqualification that the Secretary of State confined the latter to the first of the three principal allegations (para [3] above), omitting any allegation concerning UKB's campaign against IVAs. The decision to seek disqualification was a separate decision from the decision to apply to wind up UKB and the former was made three years after the latter.

[17] Secondly, averments of apparent bias would not support the only remedy which Mr Kiani now seeks, that of damages. One needs to aver misfeasance or abuse of power amounting to bad faith (Shetland Line (1984) Ltd v Secretary of State for Scotland 1996 SLT 653, Lord Johnston at 658). Malice or the deliberate misuse of a power could support the remedy of damages (Micosta SA v Shetland Islands Council 1986 SLT 193, Lord Justice Clerk Ross at 198-199). But there are no averments which suggest that Mr Mond had any improper influence over the decision to pursue the disqualification order. In my view, the averments taken at their highest do not support the view that when he came to consider whether to apply for a disqualification order, the official acting on behalf of the Secretary of State was influenced by Mr Mond or knew that there was no proper basis for the application. Nor is the alleged comment by Mr Gardiner in February 2009 a sufficient basis on which a claim of actual bias in relation to the relevant decision can go to proof.

[18] Thirdly, there are no averments which suggest that Mr Kiani suffered loss as a result of the application to seek his disqualification. His averments of financial loss, such as loss of salary as a director and loss of dividend income and the costs which he incurred in opposing the winding up application, relate to the decision to seek a winding up order and the making of that order. He made similar claims in his submission (No 12 of process), asserting that he sought to be placed in the position he and his co‑directors had been when a provisional liquidator was appointed to UKB in December 2008. Mr Kiani has an award of expenses in relation to the application for his disqualification. He has not averred any loss caused by that application. His challenge to the disqualification application does not provide a relevant basis for his claim for damages.

Conclusion

[19] As I am satisfied that the petition is irrelevant and lacking in specification, I sustain the Secretary of State's first plea in law and dismiss the petition. I will have the case put out by order to hear parties on the issue of expenses.