Friday, 24 September 2010

UK: Scotland: no lay representation for a company in public interest winding-up

Section 124A of the Insolvency Act (1986) gives the Secretary of State the power to petition the court for the winding-up of a company where this is in the public interest. At issue before the Court of Session (Inner House) in HM Secretary of State for Business, Enterprise and Regulatory Reform, Re An Order To Wind Up UK Bankruptcy Ltd [2010] CSIH 80 was whether in such proceedings a company was entitled to be represented by a lay person (e.g., a director) rather than a lawyer with rights of audience before the court.

Lord Hodge, in the Outer House (see [2009] CSOH 50) held that following Equity and Law Life Ass Soc v Tritonia Ltd (1943 SC (HL) 88), the director had no right to represent the company but he found that there were exceptional circumstances where representation by a lay person was necessary to ensure a fair hearing. Counsel before the Inner House also agreed that lay representation should be permitted, noting that the rule preventing it (to quote from para. [28]):

... forces upon companies the expense of legal representation in all cases, whether or not in any individual case the enforcement of the rule would be of material benefit to the court or to the company itself. There may be cases in which a lay representative of a company, for example a director, may be best placed to articulate the company's position and thereby to assist the court. The rule also forces upon the company in every case an expense that may significantly affect its financial position or may be disproportionate to any advantage that legal representation may bring. In extreme cases, the cost of legal representation may cause the company not to be represented at all, with the consequent risk that it may suffer an injustice thereby". 

A unanimous Inner House (Lord Justice Clerk, Lord Clarke and Lord Marnoch) held that the director could not represent the company. The Lord Justice Clerk, with whom Lord Clarke and Lord Marnoch concurred, observed (paras. [39] to [41] and [43] to [44]):

In my view, it is not open to this court to modify the rule, whether by the use of its inherent power or by act of sederunt, no matter what conditions or safeguards it might impose.

In any event, I consider that even if it were open to this court to modify the rule, it should not do so. The proposal raises questions of social policy relating to rights of audience in the civil courts. Such questions are not for us to decide. From the brief review of the legislation that I have given, it is clear that every extension of rights of audience in the courts has been brought about by express legislation. If there were to be an extension of rights of audience in relation to artificial legal persons, that, in my opinion, should be effected only by legislation after the normal consultative processes of law reform.

This court cannot foresee all the wider implications of an ad hoc judicial decision to relax the present rule; nor the practical difficulties that might follow from it. However, certain practical problems at once come to mind. In a company liquidation or in a compulsory winding up of the kind with which this case is concerned, I can think of good reasons why a company should not be represented by a director whose own actings may have caused the litigation.

I am also of the view that the granting of this proposal would inevitably lead to wider questions of rights of audience in relation to unqualified persons; for example, in the representation of a trust by one of its trustees; or the representation of a commercial partnership by one of its partners.

Even if it were open to us to allow representation of a company by an unqualified person, these considerations would persuade me of the unwisdom of our taking that step".

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