Thursday 16 October 2008

UK: England and Wales: the admissibility of evidence in directors' disqualification proceedings

The Court of Appeal has given judgment today in Secretary of State for Business,  Enterprise & Regulatory Reform v Aaron & Ors [2008] EWCA Civ 1146. The issue on appeal was the admissibility of evidence in directors’ disqualification proceedings. The Secretary of State sought the disqualification of three directors under Section 7 of the Company Directors Disqualification Act (1986) (CDDA). In doing so, reliance was placed on findings of fact and evidence in a report prepared by Financial Services Authority investigators appointed under Sections 167 and 168 of the Financial Services and Markets Act (2000). The report identified failings on the part of the directors in respect of their selling of structured capital at risk products; it contained witness statements, investigators’ findings of fact and conclusions.

The directors argued that the findings of fact and other opinions in the FSA report were inadmissible and in doing so relied on the strict rule of evidence in Hollington v Hewthorn [1943] 1 KB 587. The Court of Appeal (Buxton, Keene and Thomas LJJ) unanimously rejected this argument and provided a strong endorsement of the implied exception to the rule in Hollington in directors’ disqualification proceedings brought under Section 7 and 8 of the CDDA. Thomas LJ (delivering the only reasoned opinion) observed:

…there is good reason to reaffirm not only the principle of the implied exception as extending to whatever is contained in the reports and other materials obtained under the statutory scheme but also its eminent good sense in relation to disqualification proceedings such as this … it cannot sensibly be argued that the admission of such evidence causes any disadvantage to the defendant directors” (para. [31]).

It may be that in a diverse regulatory system within the UK and in a globalised financial and banking services industry, it is necessary to rely on investigative reports carried out by other regulators or under statutory authority in other states and that by analogy, such material can be relied on in disqualification proceedings … I accept that an argument can be made along those lines and the merits of the argument can be decided when it arises, unless Parliament takes the preferable course of amending the CDDA” (para. [37]).

Note: click here for a copy of the FSA's final notice, which provides further information on those matters investigated by the FSA. 

Update (17 October 2008): the case has been reported here by the ICLR (this report will disappear if, as is likely, the case is reported by the ICLR in one of its series of law reports).

Update 2 (20 October 2008): a case summary has been provided here by Maitland Chambers. 

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