PROVING THINGS 179: SECRETARY OF STATE’S “SUPERFICIAL INVESTIGATION” FAILS TO PROVE THAT DEFENDANT WAS A DE FACTO DIRECTOR

In the judgment given today in Secretary of State for Business, Energy And Industrial Strategy v Rahman [2020] EWHC 2213 (Ch) HHJ Paul Matthews found that the Secretary of State had failed to prove that the defendant had ever been a de facto director of a company.

 

… the evidence presented in this case, properly viewed in its own context, and having regard to the oral evidence given to me, does not demonstrate on the balance of probabilities that the defendant was a de facto director of the company. It shows only that there might be something further to look into. The problem is that the claimant has not looked into it. And what there is, as I say, does not get him home. This claim must accordingly fail.

THE FACTS

The claimant Secretary of State brought proceedings seek disqualification of the defendant as a director. It was the claimant’s case that the defendant had been a de facto director of a restaurant business.

THE JUDGE’S FINDINGS ON THE ISSUE OF WHETHER THE DEFENDANT HAD EVER BEEN A DE FACTO DIRECTOR

The judge found that the claimant ‘s investigation was superficial.   There was a failure to adduce any cogent evidence that the defendant was a de facto director.
“Discussion
    1. The claimant’s case against the defendant that he was a de facto director of the company is based on three matters. The first of these is the statement of Mr Ahmed to the Home Office immigration officers that the defendant was “the owner” and “the boss”. The second is that the defendant was (as he admits) the person whose name was on the alcohol licence for the premises as the designated premises supervisor. The third is that by means of the website advertisement the defendant held out the restaurant as under his control. I will deal with each of them in turn.
The defendant was “the owner” and “the boss”
    1. As to the first of these matters, I have already held that the statement that the owner or boss was the defendant was in fact a statement by one of four migrant workers, who used his surname – a common surname – alone. Moreover, the worker concerned, Mr Ahmed, said he previously worked at The Viceroy Restaurant in Yeovil, with which Mr Rahman was at an earlier stage concerned. If he thought there was a connection with the Yeovil restaurant, as it bore a similar name, I see good reason why he might think that a Mr Rahman was the owner or boss of the Dunkeswell Viceroy.
    2. I remind myself that there is no evidence whatever that the defendant was ever seen at the Dunkeswell premises in 2017. None of the workers said that he was there the day before, or the week before, or whatever. Only one even mentioned his name. None of them said that he actually did anything at the restaurant. None of them could properly be relied on to know what duties an English company director undertakes. This is an extraordinarily slender basis for saying that the defendant has assumed the responsibilities of a director of the company running the Dunkeswell restaurant.
Premises licence
    1. As to the second matter, this is perhaps more significant. Normally, a person who applies for an alcohol licence for restaurant premises is a person who is concerned in the business. Yet he need not be a director. He may simply be an employee. But it is a fact that in order to apply for such a licence, the person applying has to have a personal licence already. And it is accepted that the defendant had such a personal licence, whereas Mr Sharof did not.
    2. Accordingly, if Mr Sharof was in a hurry to open his restaurant – as the defendant says he was, because he was struggling financially – he might be tempted to ask someone who had a personal licence if he could borrow that person’s name to make the application. And if the person he asked was a person with whom he was already acquainted, indeed had had business relations with, and moreover belonged to a minority community of restaurateurs which sought to help each other gain business for their respective businesses, it strikes me as quite plausible that that other would say Yes. The defendant says that that is what indeed he did. He helped Mr Sharof out, by allowing his name to be used to make the application for the premises licence.
    3. In my judgment, it is more likely than not that that is exactly what happened. It was a wrong thing to do, and it may yet land him with other liabilities, but it does not by itself make him a person who has assumed the responsibilities of the office of director of the company concerned. There is no evidence that the defendant ever supervised the sale of alcohol. It was a straightforward pretence to the licensing authority.
The website
    1. Thirdly, there is the question of the website. I regard this as the weakest of the three matters relied on by the claimant. The internet page is not in any sense a homepage for a website. Each of the restaurants has its own website, and the page only gives those details which are necessary for any potential customers to be directed to. Of course it could have been a common page for all the restaurants in a group owned and directed by the same person or persons. But it could also be an advertisement for a loose group of restaurants whose owners were associated in some way with one another, without being in any way responsible for each other’s debts or sharing profits. In my judgment, on the material before me, it is at best the latter. It does not show that the defendant was involved in the affairs of the company which ran the Dunkeswell restaurant, much less that he assumed any of the duties of a director.
The superficial investigation
    1. Over and above these matters, I am struck by the fact that the claimant has simply relied on these three rudimentary pieces of evidence to prove that the defendant was a de facto director of the company. The claimant has done nothing to obtain direct evidence from the workers themselves. Three of them did not identify any Mr Rahman at all. The defendant is not registered as a director of this company, whereas I assume he is registered as such a director of the other companies which run restaurants that he accepts are his. At all events the claimant has not sought to show that the defendant habitually carries on business without ever becoming a director. He has adduced no evidence to show that the defendant has profited in any way from the restaurant, eg by showing payments from the company to him. Nor has he adduced any evidence to show that the defendant received any management information about the affairs of the business.
    2. The claimant says these restaurants are in a group which the defendant owns or controls, but has made no attempt to show that they act together, for example that they buy their food or other supplies from the same wholesalers or suppliers, or have any other dealings in common. He has given no evidence of the person to whom Mr Ali gave the immigration officers’ notices. He has adduced no evidence from any third party to show that the defendant assumed the role of director, or that (for example) he was a signatory on the company’s bank account. No letters or other communications from him on behalf of the company have been produced to me. No evidence from Mr Sharof himself has been adduced, whether to inculpate or exculpate the defendant, though it is not credible to suppose that Mr Sharof was not asked. No evidence has been adduced to show that any of the defendant’s admitted restaurants has any problems of this kind. Why should he put the other businesses at risk for this one, where he is not even a registered director or a shareholder?
    3. Mr Passfield cited to me the case of Re Stakefield (Midlands) Ltd [2011] Bus LR 457, a decision of Newey J (as he then was). There, defendants to a director’s disqualification claim by the Secretary of State under section 6 of the Act sought to strike out the claims on the basis of alleged breaches of human rights and/or beaches of duty to ensure that a thorough and unbiased investigation was carried out. Newey J said:

“12. … I do not read the authorities to which I have been taken as establishing any duty on the Secretary of State to interview or obtain documents from third parties, nor to ensure that investigations are carried out. …

13. It would be dangerous to lay down an absolute rule. However, it seems to me that neither article 6 of the European Convention on Human Rights, nor the Secretary of State’s duty to act fairly, will normally extend to requiring the Secretary of State to obtain evidence or to ensure that investigations are undertaken.

14. If a defendant takes the view that the Secretary of State has failed to investigate sufficiently, it may theoretically be open to him to challenge by way of judicial review a decision to institute or continue disqualification proceedings … . More realistically, he could, in an appropriate case, apply to have the proceedings struck out as too weak to be allowed to proceed. In other cases, the defendant may wish to secure missing evidence himself (including, if necessary, by applying for non-party disclosure or serving witness summonses) and/or to draw attention at trial to the deficiencies in the Secretary of State’s investigations and evidence. What the defendant will not usually, in my judgment, be able to do is have the proceedings struck out on the basis that the Secretary of State has committed a breach of duty by failing to obtain evidence or otherwise to investigate.

15. Where, however imperfect the investigations may have been, the Secretary of State has in fact assembled evidence of a defendant’s unfitness to be concerned in the management of a company, it is, as I see it, for the court to determine at trial whether the Secretary of State has made out his case. If, in the event, the evidence proves to be sufficient to establish unfitness, the defendant should be disqualified even if the Secretary of State failed to obtain relevant evidence or ensure a thorough investigation. On the other hand, the defendant may be able to point to the absence of evidence or investigation to cast doubt on the Secretary of State’s case.”

    1. I accept that this decision makes clear that the claimant owes no duty to the defendant to investigate the matter. Instead, it is a matter for the claimant to decide what to investigate and what evidence to place before the court. Then it is a matter of appreciation by the court as to whether the case is proved or not. Although, prior to October 2015, section 8 only applied where “investigative material” was relied on, the claimant may now place before the court any relevant information to prove the case. The claimant could have investigated further, and placed further information before the court, but has chosen not to do so.
Conclusion
  1. In the present case there is in my judgment nothing to show that the defendant assumed the duties of a director, nothing to show that he had any role in the governance of the company, or in fact that he ever did anything for the company (even supervising the sale of alcohol) and nothing to show that anyone else thought he was a director. In my judgment, the evidence presented in this case, properly viewed in its own context, and having regard to the oral evidence given to me, does not demonstrate on the balance of probabilities that the defendant was a de facto director of the company. It shows only that there might be something further to look into. The problem is that the claimant has not looked into it. And what there is, as I say, does not get him home. This claim must accordingly fail.”