Secretary of State for Trade & Industry v Paulin

Permission is not required for a first appeal from a High Court registrar’s decision in disqualification proceedings under section 6 of the Company Directors Disqualification Act 1986. The court’s power to admit evidence after trial is discretionary and must be exercised consistently with finality, fairness, the overriding objective and the guidance in Ladd v Marshall. Fresh evidence ordinarily should not be admitted where it was available at trial, would require a retrial, or does not materially affect the findings. Conduct establishing unfitness must be distinguished from matters relevant only to mitigation. Where the statutory conduct is proved, disqualification is mandatory, subject to determining its period by reference to seriousness and mitigation.

The Secretary of State sought disqualification orders against Mr Paulin under section 6 of the Company Directors Disqualification Act 1986. The Registrar found that Mr Paulin had caused the company to trade to the detriment of Crown creditors and had transferred its business and assets to companies under his control, thereby giving a preference and breaching fiduciary duty. A seven-year disqualification order was made.

Mr Paulin appealed against the disqualification order and against refusal of permission to adduce further evidence. The issues were whether permission to appeal was required, whether the further evidence should be admitted, whether the finding of unfitness was justified, and whether seven years was excessive.

1. Permission to appeal. Applications under section 6 of the Company Directors Disqualification Act 1986 are regulated by the insolvency rules. The combined effect of Insolvency Rule 7.49(1) and paragraphs 1.1 and 17.6 of the Insolvency Proceedings Practice Direction removes the permission requirement otherwise arising under CPR rule 52.3(1). No permission was therefore required for an appeal from the Registrar to a single High Court judge.

2. Fresh evidence. The court adopted the principle that the discretion to admit evidence after trial but before judgment is handed down is no more restrictive than that exercised by the Court of Appeal. The relevant considerations include whether the evidence was available at trial, whether it would probably influence the result, whether it is apparently credible, and the overriding objective. After judgment has been handed down, reopening contentious matters or introducing new defences requires strong reasons and is only exceptional.

   The evidence was available at trial, no adequate explanation for the delay was given, and its admission would have required a retrial. It did not undermine the material findings and in some respects would have strengthened the case against Mr Paulin. Both appeals concerning the further evidence were dismissed.

3. Unfitness. The conduct specified in Schedule 1 to the Company Directors Disqualification Act 1986, including misfeasance or breach of fiduciary duty and responsibility for a preference liable to be set aside, had been proved. The Registrar was entitled to distinguish matters establishing unfitness from matters relevant only to mitigation. Repayment of £280,000 and efforts to improve the company’s profitability could not excuse the preference or negate the findings.

4. Non-payment of Crown debts is not itself evidence of unfitness. Its significance must be assessed in context. Here, the Registrar found that non-payment resulted from Mr Paulin’s instruction and that he had overall control of the relevant financial decisions. The findings were supported by the evidence and disclosed no error of law or procedural irregularity.

5. Period of disqualification. The seven-year order fell within the middle bracket identified in Re Sevenoaks Stationers Ltd. The deliberate exclusion of Crown creditors and the transfer of assets in circumstances where insolvency was known made the case serious. The period was neither disproportionate nor based on an error of principle.

6. Both appeals against the orders made on 3 December 2004 were dismissed. The court also observed that the delays between preparation and hand-down of the Registrar’s judgments were unacceptable and that the status of draft judgments should be made clear.

The Registrar made findings of unfitness and imposed a seven-year disqualification order on 3 December 2004. The High Court dismissed Mr Paulin’s appeals against the refusal to admit further evidence and against the disqualification order.