Baker v Secretary Of State For Trade And Industry

Under Company Directors Disqualification Act 1986, unfitness is assessed cumulatively by reference to the director’s complained-of conduct and actual management role. The court considers whether that conduct falls below the competence reasonably expected of a fit director. Incompetence must be established to a high degree where dishonesty is not alleged. Responsibility for insolvency requires a broad assessment and does not depend on fine legal concepts of causation. A breach of duty is neither necessary nor sufficient. Directors may delegate, but remain under a duty to supervise delegated functions. On appeal, factual findings and the evaluative conclusion on fitness attract considerable respect, although an appellate court must intervene where, on largely undisputed facts, the trial judge was wrong.

The Secretary of State applied under section 6 of the Company Directors Disqualification Act 1986 for a disqualification order against Ronald Baker, a director of Bishopcourt (BB&Co) Ltd. The application alleged serious managerial incompetence in relation to the unauthorised trading activities of Nick Leeson within the Barings group.

Jonathan Parker J, after a 44-day hearing, found the allegations proved and ordered Mr Baker’s disqualification for six years: [1999] 1 BCLC 433. Mr Baker appealed, challenging factual findings, the assessment of his management responsibility, the treatment of expert and inquiry evidence, and the refusal to admit fresh evidence. The central issues were whether the judge had applied the correct legal standard for unfitness and whether his factual and evaluative conclusions could properly be disturbed.

1. Appeal dismissed with costs. The Court of Appeal held that the judge had correctly approached unfitness under section 6 of the Company Directors Disqualification Act 1986. The relevant conduct was to be viewed cumulatively, with any extenuating circumstances, against the standards of competence appropriate for fit company directors.
2. Where dishonesty is not alleged, incompetence must be demonstrated to a high degree. The court need not establish unfitness to manage every company or every type of business. The assessment concerns the complained-of conduct in the context of the respondent’s actual management role. A breach of fiduciary or other duty is neither necessary nor, by itself, sufficient to establish unfitness.
3. The reference in Schedule 1 paragraph 6 to responsibility for the causes of insolvency requires a broad approach. Other persons may also have contributed, and fine distinctions of legal causation are immaterial. The evidence established that Mr Baker had responsibility for the relevant derivatives business under the group’s matrix management system.
4. The Court agreed with the principles summarised by Jonathan Parker J concerning directors’ continuing duty to acquire sufficient knowledge of the company’s business and their continuing duty to supervise delegated functions. Delegation permits reasonable reliance on subordinates, but does not absolve a director from supervision.
5. The statutory standard is distinct from professional negligence and ordinarily requires no expert evidence. The judge was entitled to assess Mr Baker’s evidence and understanding of the derivatives business without expert evidence.
6. On appeal, primary factual findings, particularly those based on credibility, should not lightly be disturbed. The ultimate conclusion on fitness is itself a factual evaluation. An appellate court should nevertheless reach its own conclusion where the primary facts are substantially undisputed and it is as well placed as the trial judge to assess fitness.
7. Fresh evidence was correctly refused under the three requirements in Ladd v Marshall: reasonable diligence, probable important influence on the result, and apparent credibility. The proposed evidence failed the first two requirements or was irrelevant.
8. Mr Baker’s failure to understand and supervise the switching business, impose and enforce effective limits, segregate front- and back-office functions, and investigate the SLK Receivable amounted to a serious abdication of responsibility and justified the six-year disqualification.

• Court of Appeal (Civil Division): appeal dismissed with costs, affirming the six-year disqualification order.
• High Court of Justice, Chancery Division: Jonathan Parker J found the allegations proved and ordered disqualification for six years on 21 December 1998; judgment reported at [1999] 1 BCLC 433.