Secretary of State for Business, Enterprise and Regulatory Reform v Aaron

The Court of Appeal considered the admissibility of findings and opinions contained in a Financial Services Authority (FSA) investigation report and related materials in disqualification proceedings under the Company Directors Disqualification Act 1986 (CDDA), brought by the Secretary of State under s.7 seeking orders under s.6. The court reaffirmed that an implied exception to ordinary rules of evidence applies in disqualification proceedings to permit the Secretary of State to rely, as prima facie evidence, upon materials produced under statutory investigatory schemes (for example reports produced under ss.167–170 of the Financial Services and Markets Act 2000), including findings of fact and evaluative conclusions, subject to the court’s assessment of weight and any rebuttal evidence.

However, the court held that materials not produced under the statutory investigatory scheme (for example adjudicative decisions of other bodies such as certain Financial Ombudsman Service findings or a Final Notice taken as an adjudication) do not fall within that implied exception; inadmissible parts may nevertheless be included in the bundle and a judge should ignore portions that are not admissible at trial. The rule in Hollington v Hewthorn remains good law, and the implied exception operates so long as that rule stands, but it is confined in scope to statutory investigatory material of the kind envisaged by the CDDA and analogous statutory schemes.

The claim concerned an application by the Secretary of State to disqualify three directors of David M Aaron (Personal Financial Planners) Limited (DMA) following DMA's insolvency and an FSA investigation into the sale of structured capital-at-risk products (SCARPs). The Secretary of State relied on an FSA investigation report (made under ss.167–170 FSMA), an FSA Final Notice, Financial Ombudsman Service determinations, transcripts of FSA interviews and an expert report prepared for the Secretary of State.

(i) Nature of the application: an application under s.7 CDDA for disqualification orders under s.6 on grounds of unfitness to be concerned in the management of a company.

(ii) Issues framed:

• whether findings of fact and opinions in the FSA report and other materials were admissible in disqualification proceedings, given the rule in Hollington v Hewthorn;
• whether an implied exception permitted the Secretary of State to rely on statutory investigatory reports (the Armvent/Rex Williams line of authority);
• whether non-statutory adjudicative materials such as FOS decisions and the FSA Final Notice were admissible under the same exception;
• procedural consequences and appropriate case management steps if such material were admitted.

(iii) Reasoning and outcome: the court reviewed authorities developing an implied statutory exception allowing the Secretary of State to rely on reports and materials produced under statutory investigatory schemes (Re Travel & Holiday Club, Re Armvent, Re Rex Williams Leisure plc, Ashcroft and the Barings decisions). It concluded that the implied exception covers hearsay, findings of fact and evaluative conclusions contained in reports produced under the statutory scheme, and that such material may be placed before the court as prima facie evidence subject to rebuttal and weight assessment. The court distinguished Bairstow on the basis that Bairstow concerned judicial findings in ordinary civil proceedings (to which the rule in Hollington applies) rather than statutory investigatory reports. The court held that materials not produced under the statutory investigatory scheme fall outside the implied exception; nonetheless the whole of such documents may be put before the judge who will ignore any inadmissible passages, avoiding unnecessary excision and delay. The Court of Appeal upheld the deputy judge's order admitting the FSA investigatory material and directed robust case management and further steps for the trial judge to assess weight and any need for supplementary evidence.

The appeal was dismissed. The Court of Appeal affirmed that an implied exception permits the Secretary of State to place before the court, as prima facie evidence, findings of fact and opinions contained in reports and materials produced under statutory investigatory schemes (for example reports under ss.167–170 FSMA) in disqualification proceedings under the CDDA, subject to the court assessing weight and allowing rebuttal. Materials not produced under that statutory investigatory scheme do not fall within the implied exception; however, they may be included in the bundle with the trial judge instructed to ignore inadmissible portions to avoid unnecessary excision and delay.

Appeal to the Court of Appeal from a decision and order of Thomas Ivory QC (sitting as a Deputy High Court Judge) dated 22 April 2008 dismissing the defendants' application to exclude various materials; permission to appeal was granted on 5 June 2008. Earlier interlocutory hearings included applications before Etherton J and Robin Knowles QC (Deputy Judge of the Chancery Division).