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Case: Secretary of State for Business Enterprise and Regulatory Reform v Aaron

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Case: Secretary of State for Business Enterprise and Regulatory Reform v Aaron

Written by Calum Haswell

Wednesday, 22 October 2008

[2008] EWCA CIV 1146, [2008] All ER (D) 144 (Oct)

COMPANIES - DIRECTOR – DISQUALIFICATION – EVIDENCE – ADMISSIBILITY – WHETHER EVIDENCE, FINDINGS OF FACT, OPINION AND CONCLUSION MADE IN REPORT TO SECRETARY OF STATE PRIOR TO ISSUANCE OF PROCEEDINGS ADMISSIBLE

The defendants were all directors of a company which operated as an independent financial adviser. The company was regulated by the Personal Investment Authority until the end of November 2001 and thereafter by the Financial Services Authority (FSA). On 23 June 2003, the FSA commenced an investigation into the sale of certain products by the company. On 8 December, the Financial Ombudsman Service (FOS) upheld four complaints against the company and made compensation awards against it. The FSA published its investigation report on 30 April 2004. Thereafter, having considered representations from the defendants, the FSA cancelled the company's authority to carry in business by a final notice. In December 2005, the Secretary of State issued the instant proceedings under s 6 of the Company Directors Disqualification Act 1986 (the CDDA). The evidence served in support of the proceedings consisted of an affidavit, which had as an exhibit a report prepared by the FSA for the Secretary of State and upon which he had relied when making his decision to begin the action. The FOS decision and the final notice were also exhibited. The defendants applied to strike out the report on the ground that it was inadmissible. The deputy judge dismissed that application holding, inter alia, that the FSA report was admissible by virtue of the implied exception to the rule in Hollington v F Hewthorn & Co Ltd. Furthermore, the FOS decision and the final notice were admissible on the basis that the Secretary of State's application had been made under s 6 of the CDDA and had not been based upon 'investigative material' pursuant to an application made under s 8 of the CDDA. The defendants appealed.
They submitted, inter alia, that the exception to the rule in Hollington v F Hewthorn & Co Ltd had ceased to have any relevance. It was concerned with hearsay only and in that respect had been replaced by the Civil Evidence Act 1995.
Held – The appeal would be dismissed.
(1) It was clearly established that there was an implied exception to the strict rules of evidence on hearsay evidence, opinion evidence and the rule in Hollington v F Hewthorn & Co Ltd in disqualification proceedings whether brought under s 8 or under s 7 for an order under s 6 CDDA.
It was clear on the authorities that the exception had been developed in the context of specific rules relating to disqualification and not in the context of rules pertaining to use in subsequent litigation of a decision in prior litigation. The primary objective of the implied exception was to put before the court material obtained under the statutory scheme on which the Secretary of State relied in making his decision and which formed the basis of the case against defendants. It was no more than prima facie evidence and the defendant director was entitled to adduce evidence to contradict the findings and conclusions in the report. It enabled the defendant to know the case made against him and to put in materials on which he relied in response.
(2) There was good reason to reaffirm not only the principle of the implied exception and its scope as extending to whatever was contained in the reports and other materials obtained under the statutory scheme, but also its eminent good sense in relation to disqualification proceedings.
To abrogate the exception would be to render of no value a careful investigation, to put the public through the Secretary of State to considerable and unnecessary expense and to cause significant delay. Save by making the task of the Secretary of State more difficult, slower and expensive (with the consequent advantage that would provide to such defendant directors), it could not sensibly be argued that the admission of such evidence caused any disadvantage to defendant directors. It was plainly relevant evidence which a judge could and should take into account with all the other relevant evidence in the case, giving it such weight as it deserved in the context of all the other evidence adduced.
(3) In the context of the implied exception to the rule in Hollington v F Hewthorn & Co Ltd, there was no reason to make a distinction between applications made under s 6 and those made under s 8 of the CDDA.
It would make little sense if evidence was admissible if the application was made under s 6, but not under s 8. Furthermore, the whole basis for the rationalisation in the cases was the statutory scheme. There was no reason to hold that anything relied on by the Secretary of State was admissible in disqualification proceedings; the rationale for relying on the reports and other materials fitted into the statutory scheme, but there was nothing to suggest that the Secretary of State could go outside that scheme. If he could, it was difficult to see what limit there could be to the material relied on. There was also good sense in restricting the material relied upon to material produced through the statutory scheme for investigation; that was understood by everyone and the procedure clear. Moreover, a report or other material produced in that way could readily be distinguished from a decision in an adjudicative process (such as the decision of the FOS or the final notice) where the decision maker was deciding a matter between two parties.
Applying those principles to the facts of the instant case, the deputy judge had been right to hold that the FSA report was admissible. However, given the absence of a distinction to be drawn between applications made under s 6 of the CDDA and those made under s 8, the deputy judge had erred in holding that the other material sought to be relied upon was admissible. It was not analogous investigative material and did not fall within the implied exception. The FOS decisions contained much that was simply a recital of the evidence given by the complainants and were admissible as hearsay under the 1995 Act. Rather than attempting to excise parts of the documents before they were put before the court for determination, the judge conducting the trial would simply ignore that which was inadmissible.