Secretary of State for Business, Innovation & Skills v Chohan & Ors

The application arose in disqualification proceedings under the Company Directors Disqualification Act 1986. The fifth respondent sought orders for clarification and particulars of the Secretary of State's allegations of unfitness, advanced principally under the Financial Services and Markets Act 2000 in respect of an alleged unlawful collective investment scheme.

The court reviewed the affidavit evidence (notably the affidavit of Elliott Burns) and the responses to formal requests for information under CPR Part 18. It emphasised the long-established requirement (including Rule 3(3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 and authorities such as Re Sutton Glassworks and Re Finelist) that the applicant must set out grounds of unfitness and the essential evidence relied upon with sufficient clarity.

Although the original affidavit did not set out the grounds in an ideal structured form, the court concluded that the Secretary of State had adopted the Financial Services Authority's position as stated in its letter of 23 May 2007 and relied on the specific marketing and operational instances identified in Mr Burns' affidavit (paras 90–141). The Secretary of State's responses to the CPR Part 18 requests were sufficient to clarify the case that the second land bank scheme was alleged to be a collective investment scheme and that the respondent, as a de facto managing director, caused or allowed the company to operate and market it in that fashion.

Accordingly the court refused the respondent's application for further clarification and for particulars and refused to strike out or order summary judgment in respect of that ground.

Background and parties

• The proceedings are disqualification proceedings issued on 19 April 2010 against six respondents in respect of the activities of UKLI Limited, a land bank business which entered administration and liquidation in 2008.
• The present interlocutory application was made by the fifth respondent, Nigel Walter, seeking clarification and particulars of the alleged grounds of unfitness made against him and relied on in the Secretary of State's affidavit evidence.

Nature of the application and relief sought

The fifth respondent sought orders under CPR Part 18 for a clearer statement of the alleged unfitness in relation to the company's second land bank scheme (from March 2006), including precise identification of which aspects of counsel's May 2006 advice it was alleged had been contravened, particulars of the respondent's alleged conduct, the facts in the applicant's affidavit said to be direct evidence of those matters, and the inferences the Secretary of State invited the court to draw. As an alternative, the respondent sought strike out or summary judgment that the Secretary of State had no real prospect of succeeding on that allegation.

Issues for decision

1. Whether the Secretary of State's affidavit and the responses to CPR Part 18 requests provided sufficient clarity of the grounds of unfitness and the essential evidence relied upon to enable the respondent to file evidence in opposition.
2. Whether further particulars should be ordered, including identification of conflicts between the FSA's position and later opinions of counsel, or whether parts of the affidavit should be struck out or summary judgment entered.

Facts and evidence

• UKLI operated a first and second land bank scheme; the company was not authorised by the FSA. In May 2006 counsel (Michael Blair QC) advised that the reformulated second scheme, as structured and marketed, would not constitute a collective investment scheme if certain guidance was followed.
• The FSA later investigated and in a letter of 23 May 2007 concluded that the company had not followed that guidance and, on the basis of the marketing and seminars, was operating a collective investment scheme contrary to the Financial Services and Markets Act 2000 (section 235 and related provisions).
• The Secretary of State relied on a lengthy affidavit of Elliott Burns which set out the alleged grounds of unfitness (paras 7–34), evidence of de facto directorship (paras 39–63) and detailed evidence of marketing and operation of the second scheme (paras 90–141).

Court's reasoning and conclusion

The court reiterated the established principle that an applicant must identify the matters by reference to which a respondent is alleged to be unfit and must identify the essential evidence relied on (citing Rule 3(3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 and decisions such as Re Sutton Glassworks and Re Finelist). It explained the ideal form of pleading the grounds of unfitness (identifying how the second scheme was a CIS by reference to the statutory definition, the particular evidence relied on, how the respondent caused or allowed the conduct, and what the respondent knew or ought to have known).

Applying those principles, the court found that, despite deficiencies in drafting, the Secretary of State had adopted the FSA's position in its 23 May 2007 letter and relied on the marketing and operational matters identified in Mr Burns' affidavit. The Secretary of State's responses to the Part 18 requests sufficiently clarified that position, and the case against Mr Walter that he, as a de facto managing director, caused or allowed the company to operate and market the scheme as an unlawful collective investment scheme was sufficiently stated. It was therefore unnecessary to order further particularisation or answers about later contrary opinions of counsel. The court refused the application for clarification and related relief, and noted with concern the delay in progressing the interlocutory application and shortcomings in the original drafting of the affidavit.

The court refused the fifth respondent's application for further clarification or particulars and refused the alternative strike out or summary judgment relief. The judge held that, although the Secretary of State's affidavit could have been more clearly drafted, the Secretary of State had adopted the Financial Services Authority's position as set out in its 23 May 2007 letter and relied on the specific marketing and operational evidence in Mr Burns' affidavit (paras 90–141). The responses to CPR Part 18 requests were sufficient to enable the respondent to know the case he had to meet and the application was therefore refused.