Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 80

XA87/15

Lady Smith

Lord Malcolm

Lord McGhie

OPINION OF LADY SMITH

in the appeal

by

PATRICK JOSEPH BRADLEY

Appellant and defender

against

HER MAJESTY’S SECRETARY OF STATE FOR BUSINESS, INNOVATION & SKILLS

Respondent and pursuer

Appellant:  Davies; TLT LLP

Respondent:  Thomson; Burness Paull LLP

25 October 2016

Introduction
[1]        The appellant, who is an accountant, was a director of Barhaul (2003) Limited (“the company”).  The company ceased trading on 30 June 2010, HM Revenue and Customs (“HMRC”) commenced proceedings for its liquidation on grounds of insolvency, an interim liquidator was appointed by the sheriff at Perth on 28 February 2011 and a liquidator was appointed on 21 April 2011. 

[2]        On 30 June 2010, the company’s balance sheet showed that it owed trade creditors £109,881; it also owed £134,468.86 to HMRC in relation to PAYE and NIC, and £147,567 to HMRC in relation to VAT. 

[3]        The business, assets and employees of the company were transferred to another company of which the appellant was a director – Adenloch Limited – on 30 June 2010 and Adenloch’s name was changed to “Barhaul Aberfeldy Limited” (“BAL”).  Those assets included book debts of £378,986.  The book debts were collected by BAL and used to pay the company’s trade creditors. 

[4]        No payments were made by the company in relation to the sums owed to HMRC and at the end of the liquidation there were insufficient funds to pay a dividend to any creditor. 

 

Summary Application
[5]        In these circumstances, the respondent presented a Summary Application at Perth Sheriff Court in terms of the Company Directors Disqualification Act 1986, seeking a disqualification under section 6(1).  The sheriff heard evidence from a number of witnesses including the appellant. 

[6]        The unfit conduct relied on was that the appellant had failed in his director’s duties when, through the transaction with BAL, he caused book debts to be realised and paid to trade creditors, all to the detriment of HMRC, to which he chose to make no payment at all.  As the appellant averred, in Ans 9.3:

“Barhaul Aberfeldy Limited collected payments on behalf of the company and made disbursements on behalf of the company. Barhaul Aberfeldy Limited collected a sum of £103,583.37 which sum was used to pay creditors of the company….”.

 

BAL in fact collected more than that;  a sum in excess of £160,000 was realised from the company’s debtors and used to discharge the debts due to trade creditors (finding in fact 20).  Nothing was paid to HMRC because, although the appellant accepted that there was a debt due by the company to HMRC – a debt which had been outstanding for a significant period – he considered that the total amounts sought were excessive.  Between 30 June 2010 and 28 February 2011, he tried, without success, to reach a compromise agreement with HMRC.  He made offers of payment by instalments (an initial instalment of £20,000 then £10,000 every fortnight) but he made them conditional on HMRC agreeing to enter into negotiations with him; those offers were rejected.  The company did not appeal or otherwise formally challenge the assessments.  HMRC never wavered from their position which was that the company owed the total sum due as shown in their assessments and the relevant VAT returns and they were entitled to proceed to enforcement if it remained unpaid. 

[7]        The appellant’s case was presented to the sheriff on the basis that he had a proper and genuinely held belief that receipts generated by ingathering the debts due to the company would discharge the whole of the company’s indebtedness.  She did not accept that his conduct could be characterised in that way.  She said:  “I cannot conclude from the evidence that the defender was operating in that context” (Appeal print p.49, para 2).

[8]        In evidence, the defender relied on the fact that whilst he accepted a debt was owed to HMRC, he did not accept the total sum due was as high as they claimed.  The sheriff rejected that defence as irrelevant to the issue of whether or not a disqualification order was justified.

[9]        She was satisfied that the conduct relied on, amounting to a deliberate policy of non‑payment to HMRC whilst paying other creditors, made the appellant unfit to be concerned in the management of a company.  She ordered that he be disqualified from being a company director for three years. 

 

Appeal to the Sheriff Principal
[10]      The appellant appealed to the sheriff principal on grounds not relied on in the appeal to this court.  The sheriff principal was satisfied that the basis of the application and for the sheriff’s order was the operation by the appellant of a policy of discrimination in favour of the company’s trade creditors and against HMRC; payment was withheld from one creditor whilst all others had been paid. 

 

The Present Appeal

[11]      The appeal was presented essentially on the basis that the sheriff had erred in making her assessment of whether or not the appellant was unfit to be a director.  The findings in fact did not, it was submitted, support that conclusion.  Counsel placed much reliance on:  the absence of any allegation of fraud or dishonesty or personal gain;  the absence of allegation that the transfer of the company’s business to BAL was at undervalue;  his assertion (unsupported by any finding in fact) that the company was solvent on 30 June 2010;  that the outcome was a matter of misjudgement by the appellant, not a deliberate policy directed against HMRC;  dicta to the effect that non-payment of Crown debts does not of itself point to unfitness (Re Dawson Print Group Limited [1978] 3 BCC 322, Lord Hoffman at p. 325);  dicta to the effect that ordinary commercial misjudgement does not call for a disqualification order (In re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164, Dillon LJ at p.176);  and dicta to the effect that the conduct relied on, if not dishonest, needs to be a breach of commercial morality or really gross incompetence (Re Dawson Print at p.324; Secretary of State for Trade and Industry v Blackwood 2003 SLT 120, Lord President (Cullen) at para 7).  He submitted that the sheriff erred in concluding that the appellant’s contention that the sums claimed by HMRC were excessive was irrelevant and erred in failing to conclude that there was nothing wrong with choosing to pay trade creditors whilst trying to negotiate with HMRC.  The import of the latter seemed to be that the appellant genuinely believed he would be successful in negotiating with HMRC to the extent that monies collected after 30 June 2010 would be sufficient to meet the whole of the company’s liabilities.  Finally, counsel submitted that the sheriff’s decision was, in reality, based on the fact that, in the end of the day, HMRC were not paid and that, he said, was not sufficient for disqualification. 

[12]      In response, counsel for the respondent submitted that the sheriff had not erred in any respect.  She did not accept that the appellant genuinely believed that the position would, ultimately, be that there would be sufficient funds to discharge the whole of the company’s indebtedness.  There was no need to show that the transfer of the business had been at undervalue.  The circumstances amply supported the sheriff’s conclusion:  it was not simply a matter of non-payment of a Crown debt;  the sheriff was satisfied that a policy was determined on that discriminated against one creditor;  that policy was a deliberate policy of non-payment of one creditor whilst paying others;  the outcome, whereby HMRC received no payment at all, was not simply the result of paying creditors as their debts fell due;  the appellant’s contention that HMRC’s claim was excessive was, as the sheriff rightly determined, irrelevant;  the debts due to HMRC could not be characterised as disputed given that they were the amounts due in terms of assessments and VAT returns which had never been subject to formal challenge.  Further, the Sheriff’s decision was a matter of judgment and she had been entitled, in all the circumstances, to find that the appellant was unfit to be concerned in the management of a company; it was, essentially, a jury question.  The grounds of appeal disclosed no proper basis to justify interference by this court with the sheriff’s decision.

 

Decision
[13]      The sheriff disqualified the appellant in terms of section 6 of the Company Directors Disqualification Act 1986 which provides: 

“(1)  The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied –

 

1. that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and

    

2. that his conduct as a director of that company… makes him unfit to be concerned in the management of a company.”

 

[14]     The purpose of section 6 is to protect the public, particularly potential creditors of companies, from losing money through the insolvency of companies whose directors are unfit to be involved in their management.  Conduct prior to insolvency may be just as relevant as conduct engaged in after a company becomes insolvent.  Section 9 provides that where it falls to a court to determine whether a person’s conduct as a director makes him unfit to be concerned in the management of a company, the court shall have regard in particular to the matters mentioned in a list in Schedule 1 to the Act but the list is not exhaustive.  None of those matters were, however, relied on by the sheriff.  Her approach was, rather, that facts other than those mentioned in Schedule 1 were demonstrative of unfitness. 

[15]      Turning first to the contention that the sheriff erred in finding that appellant’s contention  that HMRC’s claims were excessive was irrelevant, I would reject it.  The appellant accepted that the company was indebted to HMRC – indeed, he had offered to pay £20,000 plus £10,000 per fortnight.  As the sheriff observed, he “was fully aware that sums were outstanding to HMRC and had been for some time.”  Further, he had not raised any formal challenge to the PAYE assessments nor sought formally to retract the sums brought out as due in VAT returns submitted.  Even if he had shown that he had a basis for contending that the company’s debt to HMRC was less than the total brought out in those assessments and returns (plus interest and penalties), he nonetheless accepted that there was a debt.  It was the fact of there being debt due to one creditor who received nothing at all towards discharging it that weighed with the sheriff, not the extent of the debt.  That aspect of the defence was, I agree, irrelevant.

[16]      I turn then to the contention that, on the facts found, it was not open to the sheriff to conclude that section 6(1)(b) of the 1986 Act applied.  The issue for the sheriff was whether, in her judgment, what happened made the appellant unfit to be concerned in the management of a company.  Whilst there are discussions in the authorities to which we were referred about the types of conduct which may or may not be demonstrative of unfitness, the issue is always the question posed by the terms of the statute.  That said, for the reasons discussed in the Sevenoaks case, I accept that it is unlikely that failure to pay debts due to HMRC will, of itself, meet the requirements of section 6(1)(b).  But the sheriff did not proceed on that basis.

[17]      I  also accept that descriptions such as “conduct…[which] has fallen below the standards of probity and competence appropriate for persons fit to be directors of companies” (Re Grayan Building Services Ltd (In Liquidation) [1995] Ch 241, Hoffman LJ at p.253; Secretary of State for Trade and Industry v Blackwood, Lord President (Cullen) para 7) or “conduct which if not dishonest is at any rate in breach of standards of commercial morality” (Re Dawson Print, Hoffman J at p. 604), appropriately capture the sense of the statutory provision.  And I accept that the provisions are not directed at ordinary commercial misjudgement; in a particular case, it may be that despite due probity, appropriate competence and the absence of anything approaching commercially immoral conduct, a bad outcome results from a judgment as to risk that could have been made by any fit director.  That was not, however, what, according to the facts found, happened here.  I should add that I do not read the sheriff’s reference to the defender having miscalculated what he saw as a “sense of entitlement to control payments to HMRC pending resolution of matters to his satisfaction” as showing that the appellant simply made a commercial misjudgment.  None of the findings support the view that the appellant had any reason to think that any such entitlement had been conferred on him.  Further, as the sheriff went on to explain, the problem as she saw it was that whilst pursuing his attempts to negotiate with HMRC, he caused BAL to pay the trade creditors from a finite source of funds. Nor do the findings in fact provide a basis for a belief that that source would generate sufficient to pay all the creditors including HMRC, in full.   

[18]      The salient facts were: the company had ceased trading and its assets – apart, it seems, from the debts due to it – and means of earning income had all been transferred to BAL;  the appellant knew that a significant debt was due to HMRC;  the appellant did not, on the sheriff’s findings, believe that the receipts generated by BAL collecting the debts due to the company, on its behalf, would be sufficient to discharge all debts due by the company; the company’s trade creditors were paid; no payments to account were made to HMRC (as they could have been) nor was any provision made by, for instance, retention of part of the funds ingathered for payment towards the HMRC debt.  In these circumstances, I consider that the sheriff was entitled to conclude that the appellant had operated a policy of not paying HMRC whilst paying other creditors, choosing thus to favour trade creditors, to the detriment of HMRC.  Put shortly, he applied a policy of discrimination amongst the creditors.  Further, he did so at a time when he knew that HMRC’s consistent position was that they would not negotiate a settlement with him, no formal challenge to their claims had been raised and the company’s cash resources were finite with no prospect of any further earnings. 

[19]      Regard must also be had to the fact that the sheriff heard the evidence, including evidence from the appellant and having done so, concluded that his conduct fell below the standard of probity and competence envisaged by section 6(1)(b). 

[20]      In all these circumstances, I agree with the respondent; the sheriff was entitled to find that the appellant was unfit to be concerned in the management of a company.  I cannot conclude that there is any basis on which the court could interfere with that conclusion and, I would, accordingly, refuse the appeal. 

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 80

XA87/15

Lady Smith

Lord Malcolm

Lord McGhie

OPINION OF LORD MALCOLM

in the appeal

by

PATRICK JOSEPH BRADLEY

Appellant and defender

against

HER MAJESTY’S SECRETARY OF STATE FOR BUSINESS, INNOVATION & SKILLS

Respondent and pursuer

Appellant:  Davies; TLT LLP

Respondent:  Thomson; Burness Paull LLP

25 October 2016

[21]      I have had the advantage of reading a draft of the opinion of your Ladyship in the chair.  Unfortunately I differ from your Ladyship as to the proper disposal of this appeal.  I would uphold the appeal.  My reasons are as follows:

[22]      I consider that the sheriff erred in law in her decision “that the defender’s position that the sums sought by HMRC were excessive is irrelevant to the determination in the present proceedings”.  (page 22 of the judgment)  The authorities are to the effect that court proceedings are not the correct forum in which to challenge such liabilities, they being matters entrusted by statute to the various tax tribunals.  However, it does not follow that, when resolving an application of the present nature, the court must shut its eyes to the director’s motivation in connection with a failure to pay claims made by HMRC.  Depending upon the full facts, such may or not be a relevant factor to be taken into account.  There is no automatic prohibition of the kind applied by the sheriff.  Decisions under section 6 of the 1986 Act are necessarily fact sensitive.  The court should apply its mind to all potentially relevant circumstances when deciding whether it is satisfied that the director’s conduct makes him unfit to be concerned in the management of a company.

[23]      In the present proceedings the defender is not attempting to set aside the Crown debts, nor contend that, in themselves, his concerns necessarily amount to a defence to the current application.  Rather they are part of the explanation for his conduct and a constituent element in the background to what happened.  If these matters are left out of the picture there is potential for a flawed outcome.  The application is not based upon non‑payment of the PAYE and VAT debts, but rather on an alleged unfair policy of discrimination in favour of trade creditors.  Whether there was such a policy, and if so whether it justifies a finding of unfitness, should be assessed in the light of all the factors which contributed to the key events.  In cases of this kind the court commonly has to assess questions such as dishonesty, or a lack of commercial probity, or marked incompetence.  These are open‑ended evaluative exercises in which a priori exclusions or assumptions will rarely be appropriate.  I consider that the sheriff’s decision on this preliminary issue concerning relevancy contributed to a wrong categorisation of the defender’s conduct.  In any event, if I am right in describing the decision as an error in law, it allows this court to examine the evidence and the facts of new and reach its own conclusion. 

[24]      An examination of the evidence led before the sheriff demonstrates the accuracy of her comment that there was no significant factual dispute between the parties.  The key events occurred in 2010.  By then the company had accrued substantial PAYE and VAT debts.  The full circumstances of their non‑payment over several years was not explored in the evidence, but it is clear that, in part at least, it could be attributed to software problems which at one time generated, at least in the view of the defender, inaccurate and grossly excessive VAT returns. 

[25]      On 12 April 2010 the defender wrote to Ian Thomson, a debt manager at HMRC.  He addressed the outstanding demands.  The full terms of the letter were read into the evidence.  It was proposed that payments would be made on an instalment basis.  Mr Thomson’s reply was that, given the lengthy history of the matter, immediate payment in full was required, otherwise winding‑up proceedings would be raised.  By letter of 12 May 2010 the defender explained that the payments would have to be funded by outside investors who would need reassurance that no such proceedings were imminent.  It was anticipated that by the end of May, monthly payments of £25,000 could begin.  This offer was refused as being unacceptable because the 7 month payment arrangement was “too long”.  Again immediate payment in full was demanded, failing which there would be winding‑up proceedings.  Shortly thereafter the transfer of assets and liabilities (in effect the undertaking) to the other company took place.  In evidence Mr Thomson explained that if the company had made a payment to account, it would not have stopped the court action.  In cross‑examination he accepted that HMRC had rejected an offer, to be funded by the directors, to pay HMRC in full, albeit over a period of time (transcript page 48 D-E).

[26]      Jill Hepburn, a compliance manager with HMRC, spoke to a further offer made in August 2010 by way of a telephone call from the defender.  This was of an initial payment of £20,000 and £10,000 per month thereafter.  She informed him that this would not halt the court proceedings since payment in full was required.  She then received a letter from the defender dated 10 August 2010.  Again the full contents of this letter were addressed in the evidence.  Mr Bradley made reference to the previous day’s telephone conversation.  He wanted to repeat the proposal in writing.  After the initial payment of £20,000, £10,000 would be paid every two weeks “while we negotiate the actual amount payable to the Revenue.” Ms Hepburn explained (60/61) that every such proposal would be considered on its merits.  She reviewed the facts and circumstances.  She had to make a decision on whether the offer was or was not acceptable.  Once more the proposal was rejected because of the long history of non‑compliance.  By this stage HMRC was looking for payment in full “so the time for manoeuvre and negotiation had … passed” (61 C-D).  Again it was stated that any payments to account would not have stopped the legal action.  It seems clear that the above decision, and that taken by Mr Thomson, were discretionary decisions made by officers acting on behalf of HMRC. 

[27]      Joanne Covell gave evidence as an officer acting on behalf of the pursuer.  The view had been taken that the defender was unfit because all of the company’s assets had been moved to a new company which “collected in what money it could” and “could then pick and choose what creditors of the company it wanted to pay.”  It paid nothing to HMRC.  In cross‑examination Ms Covell acknowledged that had HMRC accepted a payment plan it would have received some money (107 C).  She was not in a position to say whether adequate consideration had or had not been paid for the transfer of the business to the other company in June 2010, however that was not the nature of the complaint.  Other creditors, but not HMRC, received the benefit of the company’s assets.  Ms Covell accepted that Mr Bradley had made an offer to HMRC which showed that he was trying to manage the situation (117 E).  However, by moving assets away from the company, HMRC could not “distrain” them.  Ms Covell did not wish to comment on the reasonableness or otherwise of HMRC’s refusal of the offers.  She disclaimed any suggestion of dishonesty on Mr Bradley’s part.

[28]      Mr Bradley’s evidence was in brief compass.  He had personally funded the company to the extent of £550,000, all of which had been lost.  It initially defended the winding–up application on the basis that the amount claimed was “extortionate”, but had dropped the defence when another sheriff commented that the assessment of the debt due would be a matter for the liquidator (158 D).  In return for the assets and the business, the other company took on finance agreement liabilities in excess of £640,000 and it collected debts of £200,000 which it paid to creditors of the original company.  Mr Bradley described HMRC’s stance as “irresponsible and unreasonable” (155 D).  In cross-examination he acknowledged that the August 2010 offer was to make payments on the basis that negotiations with HMRC would take place as to the proper value of the claim (176 D-E and 178 A-B). 

[29]      Against this undisputed background, certain general observations can be made.  In the first place, but for HMRC’s negative responses to the company’s offers, the probability is that at least some of the Crown debt would have been paid.  However HMRC demanded immediate payment in full, failing which winding‑up proceedings would be raised.  No doubt it was entitled to take this stance, and I express no criticism of it.  Nonetheless it played an important part in the ultimate non‑payment of any of the Crown debt.  In my view, once the full background and circumstances are taken into account, it is difficult to conclude that the defender operated an unfair policy of discrimination in favour of other creditors.  Plainly the company was not in a position to satisfy the insistence on immediate payment in full, and action was taken with a view to preserving the business and the workforce of some 40 in number.  Mr Bradley’s preference was to make some payment to HMRC, albeit, at least in relation to the August 2010 offer, linked to his desire to negotiate down what he considered to be an excessive overall claim.  It can of course be said that he could still have made payments to account, though these would not have stopped the court proceedings.  That comes close to a simple complaint that over a lengthy period he allowed considerable PAYE and VAT arrears to accumulate, and made no payment to HMRC in 2010/11, but that basis of alleged unfitness is not maintained by the pursuer.  In any event, HMRC was not being asked to give up the option of winding‑up proceedings, but simply to enter into negotiations, which by definition might or might not come to fruition.  From Ms Covell’s evidence, one gains the impression that her main concern was the transfer of assets to the other company, but again that is not the basis of the application.  It is well established that the court can only make a finding of unfitness on the specified ground or grounds.

[30]      In short Mr Bradley was faced with what he regarded as an excessive claim and, in his view, an irresponsible and an unreasonable attitude on the part of HMRC to his payment proposals.  His and the company’s conduct are far from beyond criticism, but if and when all the circumstances are taken into account, I am unable to agree with the sheriff that the defender was motivated by “a sense of entitlement to control payments to HMRC pending resolution of matters to his satisfaction.”  The defender had no guarantee that matters would be resolved at all, let alone to his satisfaction.  Nonetheless he was willing to make payments to reduce the overall debt. 

[31]      Much has been made of the inability to predict that over time the other company would be able to satisfy HMRC’s claims.  It can be noted that this was never claimed or suggested in evidence, nor even put to the defender.  And we will never know what would have happened had HMRC, despite the long history of non‑compliance, been prepared to give the payment proposals a chance.  There is no suggestion of dishonesty, nor of personal gain in the part of the defender.  There is no plea of a transaction at an under-value, unfair preference, or trading at the risk of creditors.  When regard is had to the narrowly focussed basis for alleged unfitness, and once the full circumstances are taken into account, I am unable to identify any lack of commercial probity or marked incompetence such as would make the defender unfit to manage a company.  In so far as there was a “policy”, it included payments to HMRC, but for the reasons set out earlier, none were made.  What happened thereafter was a reaction to the stance taken by HMRC.  I would uphold the appeal and quash the disqualification order. 

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2016] CSIH 80

XA87/15

 

Lady Smith

Lord Malcolm

Lord McGhie

OPINION OF LORD McGHIE

in the appeal

by

PATRICK JOSEPH BRADLEY

Appellant and defender

against

HER MAJESTY’S SECRETARY OF STATE FOR BUSINESS, INNOVATION & SKILLS

Respondent and pursuer

Appellant:  Davies; TLT LLP

Respondent:  Thomson; Burness Paull LLP

25 October 2016

[32]      I am in broad agreement with the views of Lady Smith and gratefully adopt her exposition of the relevant facts and law.  I would, accordingly, refuse the appeal.  I do see the force of Lord Malcolm’s approach but I have come to the view that on a reading of the sheriff’s judgment as a whole, it is clear that she did not, in fact, exclude consideration of the defender’s motivation.  It was not the defender’s belief that quantum was excessive but rather that the issue of whether it was, in fact, excessive, which she considered to be irrelevant.  In other words I consider that her description of what she referred to as a “preliminary decision” was not entirely accurate.  I am satisfied that, properly understood, her decision on this issue discloses no error in law and, accordingly, that there is no justification for us to make a fresh assessment of the evidence.

[33]      The context in which the preliminary decision was made was not spelled out.  There were few direct references to relevancy.  The sheriff quoted the pursuer’s submission as being that the defender’s challenge to “the extent” of liability to HMRC was irrelevant: p40.  She then referred to the defender’s submission that it was the consistent position of the Defender that the sums sought by HMRC “were excessive” and added that this submission ignored “the preliminary finding that any such defence was irrelevant”: p42.   She went on, at p46, to describe the decision in the following terms

“I have referred above to my preliminary decision that the Defender’s position that the sums sought by HMRC were excessive is irrelevant to determination of the present proceedings”.

 

There is no doubt that on a literal construction this could be taken to mean that the sheriff considered it irrelevant that the defender believed that the sums claimed were excessive.  But other parts of the Note appear to me to make it quite clear that the sheriff did not approach her decision on the basis that his belief was irrelevant.  There was no formal interlocutor giving effect to any such preliminary decision and it is likely that the decision was made in the context of a proposal to lead or test evidence relating to the actual quantum of the pursuer’s claim.  It appears that in substance what she intended to decide, and what she was regarded as having decided, was that it was irrelevant to consider precisely what sum the defender might have been able to establish as the proper extent of his liability had he gone through the proper channels of appeal.  In support of the decision she quoted authority which was directed only at that proposition: p46.  I see no error in it.

[34]      I am satisfied that the decision in question was simply a decision that the proper quantum of the HMRC claim was irrelevant.  This decision would have the effect of excluding evidence or discussion of the detail of the amount.  There was no dispute as to the general validity of the HMRC claim.  Substantial sums were due to the Revenue and had not been paid.  Sums were claimed which the defender thought to be excessive but these were not challenged in the appropriate forum.  The sheriff heard detailed evidence of the attempts to negotiate.  If the preliminary decision was indeed expressed in terms of exclusion of evidence of what the defender thought, it is plain that the learned sheriff did not give effect to such decision.  Evidence of the defender’s position was heard and discussed.  She expressed her conclusions on the relevant aspects. She took the view that the defender thought that he had a right to have informal discussion with the HMRC to negotiate the precise figure:  p49.  It is implicit that she accepted his position as being that the claim was excessive.  But, when the Revenue refused to discuss the detail the defender responded by setting in train a scheme which would prevent them getting anything. 

[35]      On a fair reading of the sheriff’s judgment it is clear that consideration was given to the defender’s attitude.  The sheriff explicitly concluded that the defender was fully aware that sums were outstanding to HMRC:  p 48.  She referred to his “sense of entitlement”.  Her treatment of these questions contains no hint that she saw them as covered by any preliminary decision that such considerations were irrelevant.  But she was plainly correct to take the view that he had no right to have the issue of quantum or payment resolved by discussion.  His remedy would have been to follow appropriate statutory appeal mechanisms. 

[36]      Evidence was apparently led as to why the Revenue officials declined to become involved in negotiation over the debt.  But the sheriff’s concern was not the attitude of the pursuers but the attitude of the defender.  He may well have been justified in thinking that the officials were unreasonable.  But, having tried to negotiate with them and failed, he did not take the proper course of pursuing a statutory appeal.  Why he did not do so does not appear from the decision but, at first blush, such failure might in itself be taken to point to the inadequacy of his control as director and, accordingly, it cannot be treated as a factor to be prayed in aid as supporting his position. What we know is that he took matters into his own hands and created a situation whereby he succeeded in defeating the claim.  I see no reason to interfere with the sheriff’s finding that what he did amounted to misconduct.