The Secretary of State for Business, Energy and Industrial Strategy v Zafar Ali Khan

The claim under section 6 of the Company Directors Disqualification Act 1986 was not finally determined at trial because the court exercised its case management powers under CPR 3.1(2)(b) to vacate the trial listing. The principal reasons were: (1) material overlap between the alleged grounds of unfitness (a VAT ground and a PAYE/NIC ground) and live tax tribunal proceedings concerning VAT and National Insurance personal liability notices; and (2) the Defendant is presently suffering a severe mental health crisis and has a disability within the meaning of section 6(1) of the Equality Act 2010, including evidence of suicidal ideation, such that he is not fit to participate fully at trial.

The judge held that the Secretary of State owed and had not discharged public sector equality duties under section 149 of the Equality Act 2010 and had omitted to consider reasonable adjustments in the litigation context. Given Parliament's intention that specialist tax tribunals have primary jurisdiction to determine tax disputes and the realistic prospect that tribunal outcomes could narrow or dispose of issues central to the disqualification claim, the balance of prejudice and the overriding objective favoured vacation of the trial and relisting for directions.

Background: The Defendant was the sole director of Anderson Security & Trading Limited until the company entered creditors' voluntary liquidation in June 2016. HMRC asserted that the company had wrongly claimed input VAT and had failed to account for PAYE and National Insurance in respect of security guards. HMRC issued a VAT personal liability notice (PLN) and an NIC PLN to the Defendant and the Defendant appealed those notices in the tax tribunals. The Secretary of State commenced disqualification proceedings under section 6 of the Company Directors' Disqualification Act 1986, relying on two grounds of unfitness: (1) fraudulent VAT claims (the VAT Ground) and (2) deliberate failure to operate PAYE/NIC (the PAYE/NIC Ground).

Procedural posture: The disqualification claim had been listed for trial but was repeatedly adjourned to permit the underlying tax issues to be litigated in the tribunals. The VAT PLN appeal had been struck out and an appeal against that strike-out was pending in the Upper Tribunal; the NIC PLN appeal succeeded on the basis that HMRC withdrew opposition and reduced the NIC PLN to nil. The disqualification trial was listed to start on 7 February 2023. On 18 January 2023 the Defendant applied under CPR 3.1(2)(b) to vacate and relist the trial; the application was supported by evidence of recent and historical psychiatric reports and by a description of ongoing tribunal activity.

Issues framed by the court: (i) whether the trial should be vacated pending resolution of related tax tribunal proceedings and/or further psychiatric evidence; (ii) whether the Defendant has a disability for Equality Act 2010 purposes and whether the Secretary of State had discharged public sector equality duties and taken into account reasonable adjustments; and (iii) whether public interest in concluding disqualification proceedings promptly or a risk of prejudice to the Secretary of State outweighed the Defendant's illness and the overlap with the tax tribunal proceedings.

Court reasoning: The judge concluded that (i) on the evidence the Defendant has a disability under section 6(1) of the Equality Act 2010 and is currently in a severe mental health crisis including suicidal ideation; (ii) the Secretary of State had been aware of medical material since 2020 but had not carried out the enquiry required by the public sector equality duty nor ensured reasonable adjustments were addressed in the litigation; (iii) tax tribunals have primary jurisdiction over the substantive tax issues underpinning the disqualification grounds, and tribunal rulings (already favourable to the Defendant on the NIC issue and potentially dispositive on VAT) could materially narrow or remove issues in the disqualification claim; (iv) prejudice to the Secretary of State from a further short delay was minimal while the risk to the Defendant's health and the public law duties owed to him were significant; and (v) the overriding objective and CPR authorise vacating and relisting the hearing.

Relief sought and disposed of: The Defendant sought vacation and relisting of the disqualification trial. The court vacated the trial listed for 7 February 2023 and ordered the matter to be listed for an attended directions hearing on the first available date after the end of June 2023, with a half day time estimate, and permitted updating witness statements to be filed ahead of that hearing.

This was a first instance case in which the court vacated the scheduled trial and remitted the matter to a directions hearing. The court granted the Defendant's application to vacate and relist the trial on the grounds that the Defendant is suffering a severe mental health crisis and has a disability within the meaning of the Equality Act 2010, that the Secretary of State had not discharged the public sector equality duty or ensured reasonable adjustments were considered, and that significant factual and legal overlap with ongoing tax tribunal proceedings made vacatur appropriate and proportionate.