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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Secretary Of State For Trade & Industry v Eastaway [2001] EWCA Civ 1595 (13 September 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1595.html Cite as: [2002] 2 BCLC 263, [2004] BCC 839, [2001] EWCA Civ 1595

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
(MR JUSTICE PATTEN)

		Royal Courts of Justice Strand, London WC2 Thursday, 13th September 2001

Thursday, 13th September 2001

1. LORD JUSTICE CHADWICK: This is an appeal against an order made on 25th May 2001 by Patten J in proceedings brought by the Secretary of State under the Company Directors Disqualification Act 1986 against the appellant, Mr Nigel Eastaway, and others and in related proceedings for judicial review brought against the Secretary of State by Mr Eastaway. The appeal raises a question of some general importance in relation to the Secretary of State's practice when deciding whether to accept undertakings offered under the provisions recently introduced into the 1986 Act by amendments enacted by section 6 of the Insolvency Act 2000.
2. A convenient statement of that practice is found in a Guidance Note produced by the Insolvency Service entitled "Information for Directors in proceedings under section 6 of the Company Directors Disqualification Act 1986 ("CDDA"). Put shortly, undertakings are not generally accepted by the Secretary of State unless offered in a form which refers to an attached schedule of unfit conduct; where the schedule itself contains a statement that for the purposes of the Act and other purposes consequential to the giving of the undertaking, the director will not dispute the matters there set out. The appellant challenges that practice.
3. The power of the court to make orders (known as "disqualification orders") prohibiting a person from being a director of, or in any way concerned in the management of, a company was first introduced as section 33 of the Companies Act 1947, which became operative on consolidation as section 188 of the 1948 Act. The current provisions are now found in the Company Directors Disqualification Act 1986. Section 6(1) of the 1986 Act requires the court to make a disqualification order against any person in any case where, on an application under that section, the court is satisfied (a) that he is or has been a director of a company which at any time has become insolvent, and (b) that his conduct as a director of that company makes him unfit to be concerned in the management of a company. An application for a disqualification order under section 6 may be made, and may only be made, if it appears to the Secretary of State that it is expedient in the public interest that a disqualification order should be made against that person: see section 7(1) of that Act. A disqualification order, if made, has the consequences set out in section 1 of the Act. The person against whom the order is made shall not, without leave of the court, be a director of or be concerned in any way with the management of a company, nor may he act as an insolvency practitioner. Those prohibitions are supported by sanctions. In particular, section 13 of the Act provides for criminal penalties (including the penalty of imprisonment) where a person is convicted of acting in contravention of a disqualification order; and section 15 imposes personal responsibility for the debts of a company on a person who, in contravention of a disqualification order, is involved in the management of a company.
4. The inter-relation of sections 6(1) and 7(1) of the 1986 Act has the effect that it is for the Secretary of State, and not for the court, to determine whether it is expedient in the public interest that a disqualification order under section 6 should be made against a person; but it is for the court to be satisfied as to the unfit conduct condition in section 6(1)(b). The latter requirement has the consequence that it is impossible for disqualification proceedings to be disposed of on the basis of a consent order embodying the agreement of the parties to an appropriate period of disqualification; for the reasons explained by Ferris J in In re Carecraft Construction Co Ltd [1994] 1 WLR 172 - see, in particular, the passage at page 181 C-D. But the summary procedure adopted in that case - that is to say, a procedure under which an agreed statement of facts is put before the judge and no oral evidence is called by either party has been widely used; and was approved by this court in Secretary of State v Rogers [1997] 1 WLR 1569. The procedure has been known as "the Carecraft procedure" and the agreed statement of facts upon which the judge is invited to act in exercising his power to make a disqualification order under section 6 of the Act is now often referred to as a "Carecraft statement".
5. Sir Richard Scott, Vice-Chancellor, when giving judgment in this court in the Rogers case, took the opportunity to restate a view which he had expressed earlier, by way of explanation to a practice direction which he had made in December 1995. His earlier observations are reported as a practice note at [1996] 1 All ER 442, 443 C - 444 B:

"The practice direction makes adjustments also to the developing procedure initiated by Ferris J in Re Carecraft Construction Co Ltd [1993] 4 All ER 499, [1994] 1 WLR 172, for enabling applications where there is no dispute about the material facts and no dispute as to the appropriate period of disqualification, to be dealt with in a summary fashion. This procedure will, I hope, enable the court to dispose of these applications more speedily than has hitherto been possible.

I do question, however, the need for there to be a court hearing at all in cases where the Secretary of State, or the Official Receiver, and the respondent director are in agreement as to the essential facts and as to the length of the appropriate disqualification period. Judges' time, registrars' time, courts' time, should, in my opinion, be reserved to the cases where there is a dispute between the parties which has to be resolved.

Under the 1986 Act, there is no alternative but for all applications for disqualification orders, no matter what state of agreement there may be between the parties, to be processed through the court machinery and made by a judge or registrar after a court hearing. I regard this as unnecessary and avoidable. I would recommend, accordingly, that the Secretary of State give consideration to the possibility of introducing amending legislation, under which an agreement between a director and the Secretary of State, or the Official Receiver, as to the disqualification period to be applied to the director, be given the same effect as a court order imposing the disqualification period. If the director is willing to bar himself from acting as a director for a period that the Secretary of State, or Official Receiver, regards as being sufficient to protect the public interest, I do not see why time and money should be expended by insistence on bringing the case before the court.

It would, of course, be necessary to provide for these agreements, of the sort that I have described, to be entered on a suitable register at Companies House, and for a breach by the director of any such agreement to attract the same criminal sanctions as breach of a court imposed disqualification order attracts. Legislation could provide easily for this.

A very great advantage, in the procedure of the sort that I have described, would be the saving of costs. The Department of Trade and Industry, very naturally, seeks (and usually obtains) an order for its legal costs to be paid by a director against whom a disqualification order has been made. If the summary Re Carecraft procedure is used, the costs, though less than in a disputed case, may still be substantial. I would hazard a guess that in a number of cases a director may contest the disqualification proceedings in order to postpone, for as long as possible, his liability to meet an order for costs that he may have no easy means of paying."

6. When Sir Richard Scott, Vice-Chancellor, revisited the point in Rogers he said this, at [1996] 1 WLR 1569, 1574 G-H:

"I have on previous occasions expressed the personal belief that it would be very sensible, in a case where the Secretary of State and the director agree that the director's conduct warrants and the public interest would be satisfied by a disqualification for a specified period, if the disqualification could be imposed by a formal undertaking entered into by the director without the necessity of a court order. A statutory amendment would, however, be necessary in order to give such an undertaking the same effect as a court order. For the time being, a disqualification period can only be imposed by order of a judge and the judge must be satisfied that the order is the right one to make on the agreed statement of facts."

7. The need for statutory amendment to legislation - or, perhaps more accurately, the impediment to dealing with the problem identified by Sir Richard Scott, Vice-Chancellor, by undertakings in the absence of legislative amendment - was endorsed by this court in In re Blackspur Group Plc [1998] 1 WLR 422, on an application brought by another respondent, Mr Vernon Davies, to the disqualification proceedings with which we are presently concerned. Mr Davies had offered undertakings to the Secretary of State to the effect that he would never, in the future, be a director of, or be concerned in the management of, a company. The Secretary of State declined to accept those undertakings. Mr Davies applied for a stay of the disqualification proceedings against him on the ground that the Secretary of State was acting oppressively in refusing to accept the undertakings and seeking to pursue the proceedings. That application failed. In giving the judgment of the court on an appeal by Mr Davies, Lord Woolf, Master of the Rolls, said this at page 433, paragraph 2:

"Notwithstanding the undertakings offered by Mr Davies, it appears to the Secretary of State, at this time, to be expedient in the public interest to continue those applications. The Secretary of State does not take the position that she must continue them because she has no power to discontinue them. Contrary to an observation in In re Homes Assured Corporation Plc [1996] BCC 297, it has never been the position of the Secretary of State that it is impossible to discontinue proceedings on undertakings. The reason why the Secretary of State is not prepared to discontinue these proceedings on these undertakings is that these undertakings, offered without any admission of the facts, are not equivalent to a disqualification order made by the court on its being satisfied that the respondent to the application is unfit to take part in the management of a company. The Secretary of State has reasonable grounds for adopting the position that adherence to the statutory scheme is in the interest of the promotion of good regulation: the possibility of contempt proceedings for breach of an undertaking is unlikely to have a deterrent effect equivalent to a charge and trial of a criminal offence of breach of a disqualification order; there is no statutory proceeding for the policing and variation of, or for the grant of leave to act under, an undertaking; even if an extra-statutory proceeding could be devised, it would be difficult to operate in the absence of findings or admissions of fact made at the time when the undertaking was given; the 'indebtedness undertaking' to the court cannot provide the same degree of protection for creditors as the statutory protection in section 15(1)(b) of the Act of 1986; there is no statutory authority for the entry of undertakings on the register of disqualification orders. It is true that the object of the Act of 1986 is the protection of the public, but the means by which that object is to be achieved is embodied in a carefully structured, detailed statutory scheme which does not provide for the disposal of the proceedings on the basis of non-admissions undertakings. On the contrary, the regulatory scheme operated by the Secretary of State and adjudicated upon by the court presupposes the making of an order on a factual basis, sufficient to justify the judicial finding that the respondent is unfit to be the director of a company. This is apparent from the language in which the disqualifying power is conferred on the court and from the detailed statutory provisions (e.g. applications for leave under section 17). The factual basis for making orders, whether in the contested context or in the summary uncontested Carecraft procedure, ensures that disqualification orders, predicated on findings or admissions of unfitness, have a real deterrent effect and, in that way, afford public protection against the menace of persons unfit to enjoy the privileges of limited liability."

8. It is important to note that this court recognised, in that passage, that the statement of facts - which was essential in the context of the Carecraft procedure in order to provide a basis upon which the judge in court could decide whether or not to make a disqualification order - had other beneficial consequences as well. The Master of the Rolls describes them. They include the need to provide a foundation for subsequent applications under section 17 of the Act; the need to bring to the notice of the public the sort of conduct which is likely to attract a disqualification order; and the need to relate the period of disqualification to the facts upon which the order is based. It is not the case that the only reason for, or benefit to be obtained from, a Carecraft statement is to provide a factual basis for the court's decision at the time when the order is made.
9. Sir Richard Scott, Vice-Chancellor, is not the only Chancery judge to have expressed concern at the burden which potential liability for the costs of a contested trial places upon a director who is respondent to disqualification proceedings. There are observations to the same effect in the judgment of Jonathan Parker J in Official Receiver v Cooper [1999] BCC 115, 117 C-F, and in the judgment of Jacob J (to which Jonathan Parker J refers in Cooper) in Secretary of State v Tjolle [1998] BCC 282. I have little doubt that many other examples could be found in the decided cases.
10. The potential for oppression where a comfortably off, but not wealthy, director is faced with allegations of unfitness involving detailed examination of complex transactions over a substantial period of time, in relation to a company which (inevitably) will have collapsed some years earlier - and, I would add, where the director has already been acquitted of related charges in criminal proceedings or in proceedings before the regulatory authorities - has not escaped notice or judicial comment over the years: see, for example, observations of my own in this Court in In re Barings (No 3) [1999] 1 BCLC 226, 251 h - 252 a. But the decision whether it is expedient in the public interest for the proceedings to be commenced, or pursued, in those circumstances has been entrusted by the legislature to the Secretary of State. The point was emphasised by this Court in the earlier Blackspur appeal [1998] 1 WLR 422 at 426, to which I have referred; and again in the Barings appeal at [1999] 1 BCLC 226, 252 c-e. The legislation must be taken to reflect Parliament's view that the Secretary of State is in a much better position than the court to gauge what the public interest requires in relation to the regulation of directors' conduct. The courts must recognise and respect that view.
11. It is against that background that Parliament amended the law as to the disqualification of directors by enacting section 6 of the Insolvency Act 2000. In advance of the introduction of the Bill which contained the provisions subsequently enacted, the Select Committee on Trade and Industry prepared a report (its Second Report). It acknowledged, at paragraph 40, that the proposals in respect of disqualification undertakings arose, in some measure, from the observations of Sir Richard Scott, in December 1995, when introducing the practice direction to which I have referred. At paragraph 41 of that Second Report the Select Committee addressed the question whether there should be a statement of fact accompanying the disqualification undertaking. The paragraph reads:

"Several witnesses emphasised the importance of there being some sort of agreed statement of fact on the basis of which the undertaking was sought and given, to help guide both the court and directors, should they seek leave to return to business. The DTI in evidence emphasised that the department would still go through the whole of the process of investigation and production of full documentation, and only at the point which they would normally issue proceedings would a decision be taken on whether to seek an undertaking from directors. The Bill provides for the Secretary of State to be able to appear and present evidence in case of an application to vary or quash an undertaking. We consider that there could usefully be explicit provision for a statement of fact on which the undertaking was based to be available to the court in the event of subsequent proceedings."

12. That recommendation was addressed by the Department in its response to the Select Committee's Second Report - see Appendix 2 to the Select Committee's Fourth Special Report at paragraph 17. In commenting on paragraph 41 in the Second Report, the Department observed:

"We note the Committee's views and understand its concerns. We are mindful, however, of the danger of placing too much emphasis on the form of the procedure (statement of unfitted conduct) rather than on the substance of the underlying legislation (early provision of the protection for business and for the public generally which the Company Directors Disqualification Act 1986 is intended to provide)."

13. I do not refer to those passages as an aid to construction of the legislation which was subsequently enacted; but rather as a clear indication that the question whether or not a disqualification undertaking should be accompanied by a statement of fact had been identified and may be taken to have received consideration during the passage of the legislation. That that question did, in fact, receive such consideration is apparent from the references to the debates in Parliament which were put before Patten J and to which he refers at paragraph 24 of his judgment.
14. It is convenient to refer to the material provisions, incorporated into the Company Directors Disqualification Act 1986 by section 6 of the Insolvency Act 2000, by the section numbers which they have assumed in the context of the 1986 Act. Section 1A:

"(1) In the circumstances specified in sections 7 and 8 the Secretary of State may accept a disqualification undertaking, that is to say an undertaking by any person that, for a period specified in the undertaking, the person -

(a) will not be a director of a company, act as receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has the leave of a court, and

(b) will not act as an insolvency practitioner.

(2) The maximum period which may be specified in a disqualification undertaking is 15 years; and the minimum period which may be specified in a disqualification undertaking under section 7 is two years."

15. I need not set out subsections (3) and (4) of section 1A. Section 7(2A):

"If it appears to the Secretary of State that the conditions mentioned in section 6(1) are satisfied as respects any person who has offered to give him a disqualification undertaking, he may accept the undertaking if it appears to him that it is expedient in the public interest that he should do so (instead of applying, or proceeding with an application, for a disqualification order)."

16. Section 8A(1):

"The court may, on the application of a person who is subject to a disqualification undertaking -

(a) reduce the period for which the undertaking is to be in force, or

(b) provide for it to cease to be in force.

(2) On the hearing of an application under subsection (1), the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses."

17. Section 9(1A):

"In determining whether he may accept a disqualification undertaking from any person the Secretary of State shall, as respects the person's conduct as a director of any company concerned, have regard in particular -

(a) to the matters mentioned in Part I of Schedule 1 to this Act, and

(b) where the company has become insolvent to the matters mentioned in Part II of that Schedule;

and references in that Schedule to the director and the company are to be read accordingly."

18. Consequential amendments made in Schedule 4 of the amending Act achieve the result, broadly that a disqualification undertaking has the same effect as a disqualification order: see, in particular, the amendments to sections 13 and 10 of the 1986 Act which are affected by paragraphs 8 and 10 of Schedule 4 to the Insolvency Act 2000.
19. In the context of this appeal it is important to note:

(1) A disqualification undertaking is defined by section 1A(1) in terms which correspond exactly to the current definition of a disqualification order now contained in section 1(1).

(2) The maximum and minimum periods which may be specified in a disqualification undertaking are the same as those applicable in the case of a disqualification order made under section 6 of the 1986 Act - see section 6(4) of that Act.

(3) The Secretary of State cannot accept a disqualification undertaking unless it appears to him that the conditions mentioned in section 6(1) of the 1986 Act are satisfied. That requires that the Secretary of State must be satisfied that the person offering the undertaking is or has been a director of a company which has at any time become insolvent, and that the conduct of that person as a director of that company makes him unfit to be concerned in the management of a company. In determining the question of unfitness he is required by section 9(1A) to have regard to the same matters - that is to say, the matters mentioned in Schedule 1 of the 1986 Act - that the court is required to take into account when exercising its function under section 6(1)(b). The unfitness condition is preserved; but where a disqualification undertaking is offered, the arbiter of unfit conduct is the Secretary of State rather than the court. This, of course, removes the problem identified in the Carecraft case. The court has no role in relation to a decision whether or not to accept a disqualification undertaking.

(4) The public interest condition is also preserved. In the case of a disqualification order, the Secretary of State must be satisfied that it is expedient in the public interest that such an order should be made. Otherwise, no application for such an order is competent: see section 7(1). In the case of a disqualification undertaking, the Secretary of State must be satisfied that it is expedient in the public interest that he should accept the undertaking instead of applying for, or instead of proceeding with, an application for a disqualification order. Although it is unnecessary to decide the point -- and I do not do so -- it seems to me tolerably clear that Parliament envisaged that cases in which the Secretary of State will decide that it is expedient in the public interest that he or she should accept a disqualification undertaking will be cases in which (absent any offer of a disqualification undertaking) he would have decided that it was expedient in the public interest that a disqualification order should be made against that person. Indeed, that is reflected in the Department's evidence to the Select Committee - see paragraph 41 of the Select Committee's Second Report, to which I have already referred.

(5) The two elements of "unfit conduct" and "expedient in the public interest" - which have to be determined separately and by different arbiters in the case of a disqualification order - are not elided into a single condition in the case of a disqualification undertaking. They still have to be considered separately, although it is inherent in the fact that the court has no role in relation to the acceptance of a disqualification undertaking that both elements must be considered by the same person, the Secretary of State.

(6) There is no power in the Act for the Secretary of State to require a disqualification undertaking to be offered or given. The power conferred by the Act is to accept an undertaking which is offered; and that power to accept is circumscribed by the conditions in section 7(2A) to which I have referred.

(7) The Act contains no provision which requires that a disqualification undertaking must be offered - or can only be accepted - on the basis of a statement of unfit conduct. The suggestion, or recommendation, by the Select Committee to which I have referred was not adopted.

20. In the light of those provisions, to suggest that the relevant question is whether the Secretary of State has power to require an offer to be made, or to require an undertaking offered to be given on terms other than the terms on which the offer is made, is to misunderstand the basic structure of the new provisions. The starting point is to ask whether an undertaking has been offered; and if so, on what terms. It is only when there is an offer on the table that the new provisions are engaged. In that event, the relevant question is "Has the Secretary of State power to accept that offer?"; and, if he has such power, the consequential question arises "Would the Secretary of State be acting unlawfully or irrationally if he refused to accept that offer?"
21. I turn now to the circumstances in which the Secretary of State's practice of declining to accept an offer of a disqualification undertaking which does not incorporate by reference a statement of unfit conduct is challenged in the present case.
22. Blackspur Group Plc went into administrative receivership in July 1990. The estimated deficiency was £34 million. On 1st July 1992 the Secretary of State issued proceedings under section 7 of the Company Directors Disqualification Act 1986 in which he sought disqualification orders against five of the directors. The appellant, Mr Nigel Eastaway, was named as the fifth respondent to those proceedings. Mr Vernon Davies, to whom I have already referred, was the first respondent.
23. In March 1994 the proceedings were adjourned generally to await the outcome of related criminal proceedings to which Mr Eastaway and three other directors were defendants. The criminal trial concluded in June 1994. Mr Eastaway was acquitted of the charges against him. Nevertheless, the Secretary of State took the view that the disqualification proceedings under the 1986 Act should continue.
24. Little progress was made in the disqualification proceedings between December 1994 and December 1997. In part, at least, that lack of progress was the result of two applications made by the first respondent, Mr Davies, which were taken to this court. The second of those appeals is that to which I have already referred, reported at [1998] 1 WLR 422.
25. Following the dismissal of Mr Davies' second appeal, the Secretary of State invited Mr Eastaway to consider a disposal of the proceedings against him under the Carecraft procedure. On 17th February 1998 Mr Eastaway indicated that he was willing to consider that course; and negotiations commenced with a view to reaching an agreed Carecraft statement which could be put before the court. By October 1998 it seems those negotiations had broken down. The matter was relisted for further directions and a date was fixed for the commencement of a trial on 4th October 1999.
26. It may have been the imminence of the trial which led to renewed attempts to reach an agreed statement. On 18th August 1999, Mr Eastaway issued an application seeking to challenge, by way of judicial review, the Secretary of State's decision to pursue the disqualification proceedings against him. On 13th September 1999 Mr Eastaway obtained an order in the disqualification proceedings vacating the trial date (which was then some three weeks off) on the terms of an undertaking to the court that if his application for judicial review was not successful, he would sign a Carecraft statement in the form which had, by then, been agreed with the Secretary of State; and would agree to the disposal of the disqualification proceedings by way of the Carecraft procedure on the basis of that signed statement.
27. The application for judicial review issued in August 1999 was unsuccessful. Permission to apply was refused on paper by Collins J on 15th September 1999 and, on a renewed application, by Sullivan J on 27th January 2000. On 15th March 2000 an appeal from Sullivan J's order of 27th January was dismissed by this court. On 2nd November 2000 permission to appeal from the order of this court was refused by the House of Lords. In those circumstances, the undertaking given to the court on 13th September 1999 became unconditional. The terms of that undertaking required that Mr Eastaway sign the Carecraft statement and join in an application for disposal of the disqualification proceedings on the basis of that statement.
28. Mr Eastaway was unwilling to take that course. On 10th November 2000 he applied for an order that the disqualification proceedings be struck out. The basis of that application was that the proceedings were in breach of, or were incompatible with, his Convention rights under Article 6 of the European Convention on Human Rights - which had, by then, become incorporated into English domestic law by the Human Rights Act 1998. In the alternative, Mr Eastaway sought to be released from the undertaking which he had given to the court on 13th September 1999. The basis of that application was that he had been induced to give the undertaking by a misrepresentation and in consequence of a mistake.
29. Those two applications came before Sir Andrew Morritt, Vice-Chancellor, on 15th February 2001. They were dismissed. The Vice-Chancellor refused to strike out or stay the disqualification proceedings or to release Mr Eastaway from the undertaking which he had given on 13th September 1999. Permission to appeal against the Vice-Chancellor's order was refused by this Court at an oral hearing on 6th April 2001.
30. Shortly before that hearing, on 2nd April 2001, the Insolvency Act 2000 came into force. As I have indicated, that Act amended the 1986 Act in the important respect that it introduced the new provisions empowering the Secretary of State to accept a disqualification undertaking. It was in those circumstances that on 6th April 2001, immediately following the dismissal by this Court of Mr Eastaway's application for permission to appeal against the orders which the Vice-Chancellor had made on 15th February 2001, Messrs Burton Copeland, the solicitors instructed by Mr Eastaway, wrote to the Treasury Solicitor, who was acting on behalf of the Secretary of State, a letter which contained the following paragraphs:

"As you know, Mr Eastaway has long said that he would wish to give undertakings if able to do so - our letter of 18th November 1996 is referred to at paragraph 13 of the Vice Chancellor's judgment. The law has now changed so that undertakings may be given and, with the exhaustion of his Convention points in the domestic Courts, Mr Eastaway now wishes to do so.

Form of Undertaking

We propose an undertaking for four and a half years and would be obliged if you could let us have a form of undertaking.

Our client also agrees to pay the costs of the disqualification proceedings in the sum agreed for the purpose of a Carecraft disposal. The Order for costs relating to the Judicial Review proceedings, and the Orders relating to the Convention Application and Appeal, of course remain."

31. The Treasury Solicitor replied by letter dated 9th April 2001. She wrote, so far as material:

"I confirm that subject of course to your client offering a suitable form of disqualification undertaking, and the court releasing your client from his current Undertaking (in effect to sign the agreed form of Carecraft statement and dispose of the proceedings under the summary form of procedure) to it, the Secretary of State is prepared in principle to accept a disqualification undertaking from your client.

To reflect the basis of the undertaking, the Secretary of State's usual practice is to require the grounds of unfitness to be set out in a Schedule which forms part of the undertaking. On the particular facts of this case, the Secretary of State proposes that the currently agreed Carecraft Statement should be adopted as the Schedule immediately after the opening words, (i.e. replacing the bullet points "I was a director ..." onwards), but subject to the following points ..."

32. Then she set out a number of amendments to the Carecraft statement which are proposed.
33. Mr Eastaway is not prepared to give a disqualification undertaking on the basis that it would refer to a schedule of unfit conduct. His immediate response was to make further application in the disqualification proceedings, again seeking his release from the undertaking of 13th September 1999 or, in the alternative, a declaration that the undertaking be not enforced. That application notice is dated 9th April 2001. That was followed by a second application, by notice dated 18th April 2001, seeking a stay of the disqualification proceedings on the basis that there were no reasonable grounds upon which the Secretary of State would be or is entitled to refuse to accept the disqualification undertaking which had been offered. On 24th April 2001 Mr Eastaway applied to the Administrative Court for permission to proceed by way of judicial review to challenge the Secretary of State's refusal to accept the disqualification undertaking that he had offered. The undertaking offered may be described as a "bare undertaking" in that it contains no reference to any schedule of facts setting out the grounds upon which the Secretary of State was entitled to take the view that Mr Eastaway's conduct made him unfit to be a director.
34. The applications made by notices dated 9th and 18th April 2001 in these proceedings were listed for hearing before Patten J in the Companies Court. By consent the application dated 24th April 2001 for permission to proceed by way of judicial review was transferred to the Chancery Division so that the three applications could be heard together. On 25th May 2001 the judge dismissed the applications of 9th and 18th April and refused permission to proceed to judicial review. He did so for reasons set out in a judgment which he had delivered a couple of days earlier, on 23rd May 2001.
35. The judge gave permission to appeal from his order of 25th May 2001. But, save as to an appeal and the enforcement of the costs orders which he made, the disqualification proceedings were stayed upon terms that Mr Eastaway signed a disqualification undertaking in the form sent to Burton Copeland by the Treasury Solicitor on 24th May 2001. That is to say, in a form which contained the schedule of unfit conduct which the Secretary of State requires.
36. The disqualification undertaking, which Mr Eastaway has now signed, contains an undertaking by him to the Secretary of State "on the basis set out in the schedule to this disqualification undertaking" that, in accordance with section 1A of the 1986 Act he, Mr Eastaway, will not for a period of four and a half years be a director of, or be directly or indirectly concerned or take part in, the management of a company. The schedule to the undertaking is headed "Schedule of unfit conduct to the disqualification undertaking given by Nigel Eastaway". It begins with the words "Solely for the purposes of the CDDA and for any other purposes consequential to the giving of a disqualification undertaking, I do not dispute the following matters".
37. The matters which, as Mr Eastaway acknowledged by signing the undertaking, are not to be in dispute for the purposes of the 1986 Act and other purposes consequential to the giving of the disqualification undertaking appear in the body of the schedule. The schedule has been redacted in the copies of the document included in the appeal bundle so as to remove those matters from it. But it is clear that the body of the schedule incorporates (with appropriate amendment) the Carecraft statement which was the subject of the undertaking which Mr Eastaway had given to the court on 13th September 1999.
38. The disqualification undertaking was signed by Mr Eastaway, and the disqualification proceedings were stayed, on terms set out in the schedule to Patten J's order of 25th May 2001. So far as material, those terms provided that the Secretary of State should not, without the consent of Mr Eastaway or further order of the court, reveal the contents of the schedule to the disqualification undertaking. In the events which have happened, that restriction continues until the final disposal of this appeal. It continues thereafter "if such appeal is ultimately successful and it is determined that the Secretary of State had no power to accept such a schedule to the undertaking". Further, in that event, the terms set out in the schedule to the order of 25th May 2001 provide that the disqualification undertaking should be avoided and set aside in whole.
39. The appeal to this Court, as appears from section 5 of the appellant's notice lodged on 5th June 2001, is against the dismissal of Mr Eastaway's application made by the notice of 18th April 2001. There is no appeal against the dismissal of the application made by the earlier notice of 9th April 2001 - which had sought Mr Eastaway's release from the undertaking recorded in the order of 13th September 1999 or a declaration that that undertaking be not enforced. I need say no more about that application. It has, in effect, been overtaken by events.
40. The application of 18th April 2001 seeks an order that the disqualification proceedings be dismissed; alternatively, that those proceedings be stayed. The grounds of that application are set out in a Rider (Rider B) to the application notice, which I will read:

"(1) The Fifth Defendant has offered a disqualification undertaking pursuant to Section 6 of the Insolvency Act 2000.

(2) There are no reasonable grounds upon which the Secretary of State would be or is entitled to refuse to accept the undertaking."

41. The problem posed for the court by an application in that form was identified by the judge at paragraphs 14 and 15 of the judgment which he handed down on 23rd May 2001. He said this:

"All three applications by Mr Eastaway depend upon persuading me that the Secretary of State has no power to insist upon or even to accept a disqualification undertaking which has attached to it a statement of the basis in terms of conduct and fitness upon which the undertaking was offered and accepted. Although Mr Collings [who appeared before Patten J as he does before this court for Mr Eastaway] submitted to me that I should as a matter of discretion exercise my power under CPR 3.1(2)(f) to stay the disqualification proceedings simply on the basis that the Secretary of State was behaving unreasonably it would in my judgment be quite wrong and inappropriate for me to grant any relief to Mr Eastaway on that ground alone. If on a proper reading of the 1986 Act as amended the Secretary of State has power to accept undertakings coupled with a statement of the type I have described then the question whether to accept an undertaking in that or an unqualified form must be a matter for his decision and his decision alone. It is not for the court in the exercise of some procedural discretion to dictate to the Secretary of State how he should exercise the powers conferred upon him by an Act of Parliament. I therefore indicated to Mr Collings, and he accepted, that in order to interfere I must be satisfied that the practice of including a statement of grounds as an attachment to a disqualification undertaking is both ultra vires and unlawful.

Mr Collings proceeded to address me on this basis. He also indicated to me that it was not his client's contention that if the power existed under the 1986 Act as amended to accept disqualification undertakings coupled with a statement of grounds the Secretary of State was not entitled to formulate a policy of requiring such a statement to be provided in most cases or to apply that policy in the present case. I am not therefore concerned on these applications with questions of Wednesbury unreasonableness. The only issue that I have to decide is whether there is power under the amended statute for the Secretary of State to request and accept undertakings with a statement attached."

42. In those circumstances, it is difficult to see what, if anything, the application for permission to proceed to judicial review could add to the application made by the notice of 18th April 2001. The decision of which judicial review was sought was the decision of the Secretary of State in the letter of 9th April 2001 to which I have referred - that is to say, the decision only to accept a disqualification undertaking from Mr Eastaway if Mr Eastaway agreed to a schedule or statement to accompany such an undertaking. The grounds for review, as they appear in the claim issued on 24th April 2001, are these:

"The Claimant requests permission to proceed with a claim for judicial review of the Defendant's decision, communicated by letter dated 9th April 2001, only to accept a disqualification undertaking from the Claimant if the Claimant agrees to a schedule or statement to accompany such undertaking.

There is no statutory or other basis (or any other good reason) for such a schedule or statement, and good reason in this case (and generally) for not having one.

The Secretary of State's stance, and decision under section 6(3) of the Insolvency Act 2000, is Wednesbury unreasonable."

43. As I have indicated, it clearly appeared to the judge, as he recorded in paragraph 5 of his judgment, that that basis of attack had been abandoned before him. Nevertheless, the appellant's notice extends "insofar as necessary" to the judge's refusal of permission to apply for judicial review. I confess that I am unable to identify circumstances in which it could be necessary or appropriate for this court to reverse the judge's decision to refuse Mr Eastaway permission to proceed to judicial review. If the judge was correct to hold, as he did, that the Secretary of State has power to accept a disqualification undertaking with a statement of unfit conduct attached, then he was plainly correct to hold also that the decision to insist on such a statement in this case could only be challenged on the grounds of Wednesbury unreasonableness and, as he recorded, a challenge on that basis was not being pursued before him. If the judge was wrong to hold that the Secretary of State had power to accept a disqualification undertaking with a statement of unfit conduct attached, as Mr Eastaway had contended before him, then, plainly, he could not hold that the Secretary of State's decision to refuse a disqualification undertaking without an attached statement of unfit conduct was lawful. There was no need for the matter to be considered further in proceedings for judicial review.
44. In these circumstances, we thought it necessary, at the outset, to invite Mr Collings to identify with some precision the question or questions which this court was asked to decide on this appeal. I should add that we did so in the context of Mr Collings' introductory submission that the only point for decision was a point of statutory construction, which he defined as being "Is there power to require a statement of unfitness?". As I have already observed, if the point is put in those terms, the answer is obvious. There is no power under the statute to require a statement of unfitness because there is no power to require a disqualification undertaking. The true question is not whether there is power to require a statement of unfitness, but whether the Secretary of State is acting unlawfully if he refuses to accept a disqualification undertaking, otherwise satisfactory, on the grounds that it does not refer to or incorporate a statement of unfit conduct. When that had been pointed out to him, Mr Collings accepted that the question which he sought to argue on this appeal could properly be posed in these terms:

"As a matter of law, it is not open to the Secretary of State to take the view, for the purposes of section 7(2A) of the Company Directors Disqualification Act 1986, that it is inexpedient in the public interest to accept a disqualification undertaking without a schedule of unfit conduct which will not be disputed thereafter for the purposes of the Company Directors Disqualification Act and other consequential matters."

45. Mr Collings told us, expressly, that no separate point was being taken which was specific to the facts of this case. That reflects the basis upon which the judge recorded that the argument had proceeded before him. Mr Collings addressed us throughout the morning on the basis that no separate point was being taken as to the contents of the schedule to the disqualification undertaking in this case. As I have said, the contents of the schedule have been redacted in the copies of the disqualification undertaking which have been provided to the court, which clearly reflects an expectation on the part of those advising the appellant that they were not going to be matters of relevant consideration.
46. It was, therefore, a matter of some surprise when Mr Collings, after the short adjournment, indicated that he wished to advance arguments which were specific to the facts of this case. He accepted that the grounds which he now wished to advance were not included in the grounds of appeal as set out at section 7 of his appellant's notice. We invited him to formulate an amendment to those grounds in order that we, and Mr Davis-White as counsel for the Secretary of State, could address the point properly. The amendment which he formulated and which he sought permission to make was in these terms:

"That the learned judge erred in failing to find and apply the following facts to a consideration of whether the Secretary of State was acting reasonably in this case.

(1) The facts referred to in paragraph 3.3 of the skeleton argument.

(2) The facts referred to in paragraph 7.5 of the skeleton argument.

(3) The facts referred to in paragraph 8.5 of the skeleton argument.

(4) The facts referred to in paragraph 9.4 of the skeleton argument."

47. The skeleton argument referred to in that formulation is that provided for the purposes of this appeal. It is dated 19th June 2001. The four points referred to in that formulation may be summarised as follows. First, that the judge ought to have taken into account that Mr Eastaway had said in a witness statement that he was forced to accept a disqualification undertaking because of the potentially ruinous costs of proceeding with a contested trial. Second, as appears in paragraph 7.5, that Mr Eastaway had said that he did not wish to make an application under section 8A of the 1986 Act - that is an application for his release of the disqualification undertaking or a reduction in the period. Third, that he had said that he did not wish to make an application under section 17 of the 1986 Act - that is an application for leave to be a director of a particular company, notwithstanding the disqualification undertaking. Fourth, that he had said that he was a member of the Institute of Chartered Accountants of England and Wales and that disclosure of the factual basis would have a further detrimental effect beyond the legitimate purposes of the disqualification undertaking.
48. To criticise the judge for failing to take those matters into account in circumstances in which Mr Collings had expressly disclaimed any intention of putting his case on a "Wednesbury unreasonable" basis is, to say the least, surprising.
49. The application for permission to amend the appellant's notice so as to advance a case on these new grounds is opposed by the Secretary of State. In my view, the application should be refused for three reasons. First, because these matters were abandoned before the judge below, this Court does not have the benefit of the judge's view as to the reasonableness or unreasonableness of the Secretary of State's decision. Secondly, the grounds are inconsistent with the case which counsel for the Secretary of State came here to meet - see paragraph 14 of the Secretary of State's skeleton argument, dated 10th July 2000, in which the point is identified:

"Mr Eastaway accepts that:-

(1) If the Secretary of State does have vires to reach agreement as to the basis on which the undertaking is offered and accepted, then it will be a question for his discretion as to whether or not to require such an agreement in any particular case.

(2) The Secretary of State can have a policy in this respect (see eg. British Oxygen v Board of Trade [1971] AC 610).

(3) The Secretary of State's position on any individual case may be subject to review for Wednesbury unreasonableness, but that no such attack is made on the decision in this case."

50. That that was the Secretary of State's understanding as to the scope of this appeal, has been apparent since 10th July; and until 2 o'clock yesterday afternoon, it was never suggested that that understanding was incorrect. In those circumstances, the Secretary of State would plainly be entitled, if he wished, to an adjournment of this appeal for the purpose of considering what is, in effect, a new case. In that context, it is relevant to have in mind that the schedule to the judge's order of 25th May 2001 provided that Mr Eastaway would join with the Secretary of State in an application for the expedition of his appeal. No doubt it was as a result of such an application that the appeal has been listed at short notice before this court in the vacation. To seek to raise new points on the afternoon of the appeal is to frustrate what was plainly the parties' intention, namely that a short point of statutory construction should be resolved by this court at the earliest opportunity. Thirdly, and to my mind importantly, there is simply no merit in the attempt to raise matters which are case specific to Mr Eastaway's application. On 13th September 1999 Mr Eastaway gave an undertaking to dispose of the disqualification proceedings on the basis of a Carecraft statement which he had signed. It must be assumed that in giving the undertaking to the court he intended at that time to honour it. The Secretary of State's willingness to accept a disqualification undertaking under the new procedure with a schedule which is substantially in the form of the Carecraft statement can be seen as an alternative means of enforcing the undertaking given to the court some two years ago. Mr Eastaway has sought unsuccessfully on two occasions to be released from that undertaking. He has not succeeded on those applications and the undertaking continues to bind him unless and until, with the agreement of the court, some equivalent procedure or process is put in place. In those circumstances, to suggest that the Secretary of State is acting irrationally or oppressively in this case in seeking to obtain, through a disqualification undertaking under the new provisions, the same protection for the public as Mr Eastaway was content to offer - and did offer in the form of an undertaking to the court - some two years ago is, to my mind, verging on abuse. I would refuse the application for permission to amend. I understand the other two members of the court take the same view. It is unnecessary, therefore, for me to consider, further, the issues which Mr Eastaway seems to raise by amendment.
51. That leaves the question posed as a matter of principle; that is to say, whether, as a matter of law, it is not open to the Secretary of State to take the view that it is inexpedient in the public interest to accept a disqualification undertaking without a schedule of unfit conduct in any case. Mr Collings submitted that the matter could be put in one of three ways. First, that it was not open to the Secretary of State, on the true construction of the statute itself, to accept a disqualification undertaking which incorporates a schedule of unfit conduct. The only relevant words in the statute itself are those which appear in section 7(2A): "The Secretary of State may accept the undertaking if it appears to him that it is expedient in the public interest that he should do so". I find it impossible to see how, as a matter of any process that can be described as statutory construction, it is possible to read into those words some qualification which prevents the Secretary of State from taking into account, when considering what is or is not expedient in the public interest, the desirability of a statement of unfit conduct. If Parliament had intended that the Secretary of State should not take that into account, it could have said so. Plainly it was alive to the point. It has not done so. As a matter of statutory construction, there is no fetter (other than relevance) on the matters which the Secretary of State can take into account in considering whether or not a particular course of action is expedient in the public interest.
52. The second ground - which is a related ground - was advanced by Mr Collings as his final and best point; but it is convenient to deal with it at this stage. The point advanced is that a construction which does not fetter the Secretary of State's ability to take into account, when considering expediency in the public interest, the desirability of a statement of unfit conduct is incompatible with the Convention rights given to Mr Eastaway under Article 6 of the European Convention on Human Rights as incorporated by the Human Rights Act 1998. Accordingly, it is said, the court must either strive to give the statutory words a special construction in accordance with section 3 of the 1998 Act or must make a declaration of incompatibility.
53. The submission is founded on the provisions in section 20(1) of the 1986 Act. The subsection is in these terms:

"In any proceedings (whether or not under this Act), any statement made in pursuance of a requirement imposed by or under rules made for the purposes of this Act under the Insolvency Act may be used in evidence against any person making or concurring in making the statement."

54. It is said that the effect of section 20(1) of the 1986 Act is that a statement made in a schedule to a disqualification undertaking can be used in proceedings against Mr Eastaway by persons other than the Secretary of State - for example, proceedings brought by an administrator, receiver or liquidator - and that such use would infringe his Convention rights under Article 6 because it would lead to a position in which there was no equality of arms, to use the familiar phrase.
55. To my mind, the point fails because the premise is not made good. First, a statement made in a schedule to a disqualification undertaking is not made "in pursuance of any requirement imposed by or under" section 7(2A) or any other section of the 1986 Act. There is no requirement in the 1986 Act for a statement of unfit conduct. The statement is made because the person giving the undertaking wishes to make it in order to persuade the Secretary of State to accept his undertaking. It is not made under any compulsion in the statute. To my mind, it is not a statement which falls within section 20(1) of the 1986 Act at all; any more than a Carecraft statement falls within that section. Secondly, and in any event, the only matter which could be used in evidence would be the statement actually made. The statement actually made is that the director giving the undertaking will not dispute certain matters in subsequent proceedings under the Act, or consequential upon the undertaking. It is not an admission of those matters. It is simply a statement that those matters will not be disputed in subsequent proceedings of a particular kind. I am unable to see how, if such a statement is within section 20(1) of the 1986 Act at all, the fact that it is made can be said to infringe any Convention right.
56. I turn, therefore, to the third ground upon which it is said that the Secretary of State is acting unlawfully. It is submitted that the Secretary of State is acting irrationally in seeking to obtain a statement of unfit conduct in conjunction with the disqualification undertaking. Mr Collings was forced to accept, I think, that the only basis upon which a charge of general irrationality could be maintained would be if it could be shown that a statement of unfit conduct served no useful purpose at all. The reason why the Secretary of State is reluctant to accept a disqualification undertaking without a statement of unfit conduct is explained in the witness statement made by Mr Patrick Chillery on 30th April 2001. Mr Chillery is Director of Enforcement of the Insolvency Service. He explains, at paragraph 14 of his witness statement, that in the vast majority of cases it is unlikely to appear to the Secretary of State expedient in the public interest to accept a disqualification undertaking instead of pursuing court proceedings for a disqualification order, unless not only is there agreement as to the appropriate period of disqualification, but also agreement that for the purposes of the CDDA and other purposes consequential on the giving of the undertaking, certain facts of misconduct are agreed or not disputed. In most cases, relevant considerations are likely to result in the Secretary of State concluding that the public interest will require an agreed or non-disputed basis for a disqualification undertaking. Fairness in treating like cases alike will also be an important factor. He then sets out a number of considerations, of which the two principal are (i) that a statement is of use for the purposes of any subsequent application under section 8A of the 1986 Act, and (ii) that a statement is of use in connection with any application for leave to act as a director of a particular company made under section 17 of the Act. He might have added the reason which was identified in the judgment of Lord Woolf, Master of the Rolls, in this Court; namely, that such a statement is useful in identifying the basis upon which the Secretary of State has reached the conclusion that the conduct is such as to make the director unfit to be concerned in the management of a company, and that there is a public interest in knowing what sort of conduct attracts that sanction.
57. Mr Collings sought to persuade us that it was possible to apply sections 8A and 17 without a statement of agreed facts as to the basis upon which the disqualification undertaking had been offered and accepted. But that is not the relevant question. The question is not whether a statement is necessary for those purposes, but whether the Secretary of State can reasonably take the view that a statement will serve those purposes - that is to say, whether the Secretary of State can reasonably take the view that such a statement will provide a useful basis from which the court can start when addressing an application either to release or vary the undertaking or to give specific permission for the person giving the undertaking to act as a director.
58. For my part, having heard a number of section 17 applications in cases where there was an existing disqualification order, I feel able to say that the usual (if not invariable) starting point is to identify why the court made the disqualification order which it has made. Indeed, that that is the starting point is now reflected in the practice of requiring applications for leave under section 17 to be made, in the first instance, to the judge who has made the disqualification order. In deciding whether or not a director who has been disqualified should be allowed nevertheless to act as a the director of some other company, a judge is bound to be concerned with the question "Why was he disqualified?"; in particular, a judge is bound to ask "Was he disqualified as a result of some form of dishonest conduct?" A director whose disqualification arises from incompetence is likely to be regarded in a different light from a director whose disqualification arises as a result of dishonest conduct. I can envisage no reason why the same considerations should not be applicable on an application under section 8A to be released from an undertaking or to have the period of the undertaking reduced.
59. That is not to say that a statement is necessary. It is simply to say that it is likely to be useful, as Lord Woolf recognised in the passage at [1998] 1 WLR 422, 433 to which I have already referred. It is also likely to be useful in providing the basis on which the Secretary of State can make public the fact that a disqualification undertaking has been offered and accepted and the reasons why it has been offered and accepted.
60. To my mind, a submission that the Secretary of State is acting irrationally if, as a general rule, he takes the view that such statements are likely to serve a useful purpose, cannot be sustained. I would hold that there is no irrationality or unlawfulness in the practice adopted by the Secretary of State.
61. For those reasons, I would dismiss this appeal.
62. LORD JUSTICE LAWS: I agree that Mr Collings' application for leave to amend his grounds of appeal should be refused and that this appeal should be dismissed for all the reasons given by my Lord.
63. I add a word of my own only in relation to the European Convention on Human Rights. Even if a schedule of unfitness did fall within the meaning of "statement" in section 20 of the Company Directors Disqualification Act, for any case to be made under Article 6(1) of the Convention alleging want of an equality of arms in criminal or other litigation it would at least be necessary to show that the appellant had on particular concrete facts suffered such a detriment. I would emphasise that judicial superintendence of the Convention rights does not generally involve a review of some statutory scheme in the abstract; rather it is necessary to see whether the application of the statute in question has led to an actual violation in the instant case: see the decision of the European Court of Human Rights in Hakansson [1990] 13 EHRR 1 at 46. No such specific case is made here.
64. SIR PHILIP OTTON: I agree for the reasons given by my Lords, Chadwick and Laws LJJ.
Order: Appeal dismissed with costs.