[2016] CSIH 13A


Lord Menzies

Lady Smith

Lord Brodie


delivered by LADY SMITH

in the Reclaiming Motion by


Petitioner and Reclaimer;


Secretary of State for Business, Innovation & Skills for a Disqualification Order


Act:  Party

Alt:  Duthie; Shepherd & Wedderburn LLP

13 January 2016

[1]        After proof, the Lord Ordinary held that, on the facts found by him, the reclaimer’s conduct when a director of Ascot Care Homes Limited (“Ascot”) had been such as to show that he was unfit to be concerned in the management of a company.  The reclaimer, Mr Hamilton, challenges that conclusion.  He does so for the reasons set out in his 32 grounds of appeal, as expanded on in his detailed note of argument, both of which we had the opportunity to consider fully in advance of today’s hearing. 

[2]        The position of the respondent, the Secretary of State for Business, Innovation and Skills is that the Lord Ordinary did not err; no colourable basis to impugn the Lord Ordinary’s findings and conclusion has been made out and the reclaiming motion should be refused.  We should, he says, adhere to the decision of the Lord Ordinary. 



[3]        Turning briefly to the relevant background, Ascot went into administration on 22 December 2010 but before then, it had operated four residential care homes in Scotland.  Between 2008 and that date, Mr Hamilton was a director of Ascot.  He owned 50% of its issued share capital.  The care homes were leased from Endless Investments LLP, which was owned by Mr David Newett, and two other individuals.  David Newett and Mr Hamilton had done business with each other for many years always, according to Mr Hamilton, on the basis of a handshake.  Between 2008 and 2009 Endless lent approximately £190,000 to Ascot and in October 2009 two variable rate secured loan notes were issued to cover those borrowings.  As a result, fixed and floating charges were created over Ascot’s assets, in favour of Endless.  It was in relation to those securities that administrators were appointed. 

[4]        Turning to the Secretary of State’s contentions, these disqualification proceedings were brought because, on the information disclosed during the administration, he considered it to be apparent that Mr Hamilton had misappropriated funds of Ascot in breach of his fiduciary duties as a director and in all the circumstances it was demonstrated that he was unfit to be concerned in the management of a company.  Section 6(1) of the Directors Disqualification Act 1986 accordingly applied and the court had a duty to pronounce a disqualification order for an appropriate period. 

[5]        As to the misappropriation of funds, the Secretary of State contended that Mr Hamilton had caused Ascot to pay him sums totalling £158,843.68, all of which he used for his personal benefit or for the benefit of persons connected to him.  Mr Hamilton’s position was that he accepted he had received the sums but contended that the payments had all been authorised.  The Secretary of State also relied on Mr Hamilton’s conduct in relation to payments to Ascot from local authorities for the cost of residents’ personal care in implement of their obligation to provide such care free of charge (“FPC”).  Since the system operated by Ascot involved charging residents for the full cost of their care - including the FPC element - in advance, those sums did not, as Mr Hamilton accepted before us today, belong to Ascot but required to be reimbursed to the residents or in the case of any who had in the meantime died, their estates.  Mr Hamilton signed a joint minute (number 58 of process) in which he agreed that the schedule forming 6/183 of process summarised the FPC payments received by Ascot from local authorities, the sums reimbursed to residents and the time taken to effect reimbursements and that it was accurate.  That schedule showed that the sum outstanding to residents, as at 22 December 2010, was just over £23,000 and that reimbursements were delayed.  If, for instance, one takes the period March to September 2010 the average retention time was between seven and nine weeks. 


The Lord Ordinary’s Decision

[6]        Turning to the proceedings before the Lord Ordinary, he heard evidence from a number of witnesses as explained in his opinion.  Two of the witnesses who gave evidence about matters from the perspective of Endless - Mr Wilson and Mr Robson - were found by the Lord Ordinary to be impressive, credible and reliable.  He explains how and why he reached that conclusion.  He also found Mr Newett to be a credible witness and to be largely reliable and again he explains why.  He did not find Mr Hamilton to be an impressive witness and, importantly, on the material matters that were in dispute, particularly on whether or not the payments to Mr Hamilton were authorised, he found his evidence to be neither credible nor reliable.  On the matter of payments to Mr Hamilton, the Lord Ordinary did not accept that there had been any oral agreement, understanding or acquiescence between any of the Endless partners and Mr Hamilton.  But even if there had, he concluded that as a matter of law that would not have sufficed because, as Mr Hamilton accepted, there had been no board resolutions in either company  approving the payments as being remuneration due to Mr Hamilton nor did the law confer any right on a director to payment quantum meruit nor was there any merit in an argument to the effect that the absence of a resolution didn’t matter because, if the issue had been put to the members of Ascot, it would have been approved; the evidence did not support the conclusion that the relevant members would have been fully informed or would have been unanimous in their decision.  These were all unauthorised payments and the law did not permit them to be regarded in any other way. 

[7]        Regarding the FPC monies, the Lord Ordinary approached matters on the basis that the sums due and outstanding to residents as at the date of administration were of the order of £23,000, in accordance with the agreement in the joint minute.  But it is clear that what weighed with him most on this chapter of evidence was what the facts he found proved told him about Mr Hamilton’s lack of probity.  Mr Hamilton had accepted in evidence that he had said, when interviewed, that he regarded the FPC payments as part of Ascot’s working capital and the Lord Ordinary concluded from all the evidence that Mr Hamilton’s approach was to treat the residents as any other ordinary creditor when it came to reimbursement of the FPC element.  In those circumstances, the Lord Ordinary regarded it as being a matter of breach of trust by Mr Hamilton.  Further, it was a breach of trust which had consequences.  The residents and their families ranked as ordinary creditors and at the end of the day received nothing. 

Case for the Reclaimer

[8]        Turning to Mr Hamilton’s grounds of appeal and his submissions in support of them, his 32 grounds make it clear that he takes issue with many of the Lord Ordinary’s findings in fact.  And, in particular, that he considers that Mr Wilson and Mr Robson committed perjury.  It is also clear that he feels very strongly that Ascot should not have been put into administration and that, in fact, the administration was invalid.  He feels very strongly that the Endless directors behaved badly and let him down and that the administrators acted on a concerted basis pre-administration and fraudulently both then and thereafter.  These are all matters which he considers should have been explored and should have resulted in it becoming apparent that the Secretary of State’s case was ill‑founded.  The Lord Ordinary should, Mr Hamilton says, have dealt with the fact that, as he puts it, it was not his and Mr Newett’s practice to put their agreements into writing nor was it the habit of Ascot or its holding company to record written resolutions.  He should also have dealt with the impact of the financial crash in 2007.

[9]        In his note of argument, Mr Hamilton expands on these matters under reference to evidence given at proof and contends that conclusions adverse to Endless, adverse to Mr Wilson, Mr Robson and Mr Newitt and favourable to his case ought to have been reached when it came to determining the whole facts.  It is clear that those whole facts, as Mr Hamilton sees it, go considerably wider than the discrete issues of whether or not the remuneration payments to him that were founded on by the Secretary of State were authorised and how the free personal care payments were treated by him.  In some respects they were matters which ought to have been explored and decided in the way he sets out in his note because they were mitigatory in nature.  Mr Hamilton, separately, complains that as a party litigant he was at a disadvantage and was, in a number of respects, taken by surprise both when giving evidence and when handling his own case. 

[10]      Before us today Mr Hamilton highlighted the following.  First, that whilst he accepted that the law was to the effect that it was not open to him to challenge the validity of the administration in these proceedings, as explained by the court of appeal in the case of The Secretary of State for Trade and Industry v Jabble 1998 1 BCLC 598, it meant that, at proof, the underlying validity of the administration could not be examined under law such as that applicable under the Corporations Act 2001, (for which Mr Hamilton referred to a document headed “Australian Corporate Law” on which it is noted that it emanates from a book entitled “Australian Legal Extracts”).  Under that law, it was possible for a director to defend himself on the basis of matters relating to the administration.  Mr Hamilton believed he had acted properly and if there had been able to be deeper exploration of the basis of the administration, that would have been apparent.  Secondly, he felt strongly that the Lord Ordinary’s conclusions on the FPC matter were erroneous.  He took issue with the figure of £23,000 notwithstanding the agreement in the joint minute to which we have already referred.  That agreement was entered into at a stage when he did not, he said, have all the information.  That information showed him that the figures were wrong and had been, he said, tampered with.  The evidence against him was not, he said, substantiated.  In any event, his director’s responsibility was confined to the terms of the contracts with the individual residents.  That said, he did accept that the FPC monies were not Ascot’s property.  Thirdly, regarding the evidence of Mr Wilson and Mr Robson, it was full of lies.  The truth was that Endless infact had no cash resources at all although they had given the impression that they had.  That was an inference he drew from a handwritten note on a certificate attached to documents produced in response to a court order.  It stated that neither Endless nor an investment body (AHI) had facilities from Lloyds Bank during a specified period.  Mr Hamilton concluded from that that they had no cash resources at all.  It was he said a matter of mitigation.  He was trying to grow a company and all he got in return was to be, as he put it, slammed and made a scapegoat. 


Case for the Secretary of State

[11]      For the Secretary of State, in response, we were provided with a detailed note of argument which we were also able to consider fully in advance of today’s hearing.  We note that there are essentially three strands to the Secretary of State’s opposition to this reclaiming motion.  First, it is said that Mr Hamilton is seeking to have this court interfere with the Lord Ordinary’s findings in fact in circumstances where it is not, for the reasons explained by the UK Supreme Court in the cases of McGraddie v McGraddie 2014 SC (UKSC) 12 and Henderson v Foxworth Investments Limited 2014 SC (UKSC) 203 entitled to do so.  The contention for the Secretary of State is that, on the evidence led, the Lord Ordinary was clearly entitled to make the findings in fact which he made.  There was ample evidence to support them and furthermore his conclusions are clearly explained.  Secondly, insofar as Mr Hamilton’s grounds of appeal criticised the Lord Ordinary for failing to canvass peripheral matters such as whether Endless or anyone else caused Ascot to be in a position which led to their administration, or whether they or anybody else were to be criticised in relation to the decision to call in administrators or in relation to the conduct of the administration, the Lord Ordinary had infact dealt with all of these matters at paragraph 70 of his opinion.  Thirdly, insofar as Mr Hamilton’s grounds of appeal relied on his status as a party litigant and contended that he was at a disadvantage, counsel for the Secretary of State referred to the guidance of this court in Martin Wilson v Lanarkshire Counsel 2014 CSIH 26 and submitted that no relevant criticisms could arise in the present case. 



[12]      We turn to our decision.  The question for the Lord Ordinary was whether or not it had been shown Mr Hamilton was unfit to be responsible for the management of a company.  If it had, then he required to disqualify him for such period as he considered appropriate.  He did disqualify him and ordered that his disqualification be for a period of nine years, in accordance with the guidance as to the appropriate length of a director’s disqualification provided in R v Sevenoaks Stationers (Retail) Ltd 2001 [1991] Ch. 164 . No issue is taken with the period of disqualification.  The only issue was whether or not Mr Hamilton’s lack of fitness has been demonstrated. 

[13]      We have given careful consideration to all the points made by Mr Hamilton in the written arguments presented in his 32 grounds and in his note of argument.  We take account of his being a party litigant and not, accordingly, familiar with the law.  We have carefully scrutinised his arguments to see if there is anything in them which ought to be regarded as a point of law rather than a disagreement with the Lord Ordinary’s findings in fact on the evidence before him.  We cannot, however, find any such point.  Mr Duthie is, we consider, correct in his submission that the Lord Ordinary’s findings cannot be impugned because there was ample evidence in support of them and it was evidence which he found to be credible and reliable.  Insofar as the criticisms of his opinion were in relation to his reasoning we cannot accept that there is any deficiency in his opinion in that regard.  Indeed, his reasons for finding as he did are lucid and clear.  Furthermore, when he had to consider the relevant law not only in relation to the provisions of the 1986 Act but as to what, according to company law, is required before a director is entitled to remuneration, his analysis and application of it is not challenged in any way. 

[14]      Regarding the various matters relied on by Mr Hamilton other than his director’s remuneration and FPC, the Lord Ordinary deals with these at paragraph 70 of his opinion and he explains there with some care why in the end of the day he did not accept that Mr Hamilton’s view of these matters was correct and how they did not in any event affect the central conclusions regarding the unauthorised payments and FPC monies.  As for Mr Hamilton’s position as a party litigant again we have scrutinised his arguments less there was some merit in the argument that he was put at an unfair and uncorrected disadvantage.  None of the potential difficulties highlighted in the Wilson guidance arose here however, and we cannot identify any other point which satisfies us that he suffered any injustice on this account. 

[15]      In all these circumstances we will refuse the reclaiming motion and adhere to the interlocutor of the Lord Ordinary.