TRAVEL TIME, EMBASSY ENTERPRISES, HARMONY HOLIDAYS, MALBOROUGH PROMOTIONS LTD v. THE UNITED KINGDOM
Inadmissible
Christos Rozakis;Nicolas Bratza
The applicants, Travel Time (UK) Limited, Embassy Enterprises UK Limited, Harmony Holidays Limited and Marlborough Promotions Limited, are companies registered in the United Kingdom. They are represented before the Court by Messrs Foot Anstey Sargent, solicitors, in Exeter. The respondent Government are represented by Mr D. Walton of the Foreign and Commonwealth Office. The facts of the case, as submitted by the parties, may be summarised as follows. The applicants were companies involved in the timeshare industry, being responsible for finding potential purchasers of timeshare slots in holiday resorts. Two of the applicants were telesales companies, whose role it was to persuade members of the public to attend a timeshare presentation. The other two applicants were responsible for issuing certificates at the end of the presentation which entitled their bearers to a one week holiday in a resort abroad. On 7 October 1998, the Secretary of State for Trade and Industry (“the Secretary of State”) issued petitions to wind up each of the applicants pursuant to section 124A of the Insolvency Act 1986. The petitions contained allegations of fraud and deceit by the applicants. The central allegations were that the two telesales companies deliberately deceived members of the public into attending the presentations, partly by false statements made on the telephone and partly by the omission of matters that the public ought to have been told. The two holiday certificate companies were said to have collected a significant amount in processing fees (58 pounds sterling per couple) and then deliberately organised matters so as to get away with sending the minimum possible number of people on holiday. In effect, the case against them was that, having extracted processing fees out of thousands of couples, they then cheated most of them out of a holiday. On 8 October 1998, the Secretary of State, without notice to the applicants, applied to the High Court for the appointment of a provisional liquidator. The application was granted by Mr Justice Lloyd in the absence of the applicants, without any requirement upon the Secretary of State to give an undertaking in damages (an undertaking that, should the application prove subsequently to have been ill-founded, damages could be payable for losses suffered by the companies). Mr Justice Lloyd’s Order appointed the official receiver as the provisional liquidator. His powers included the ability to (i) enter onto the applicants’ premises and take possession, collect in and protect the applicants’ assets, whether within or outside the jurisdiction, (ii) take possession of and secure the books and records of the applicants, (iii) retain and pay or dismiss employees at his discretion, (iv) terminate, complete or perfect any contracts or transactions relating to the applicants’ businesses, (v) retain and operate the existing bank accounts of the applicants and (vi) open and operate new accounts with liberty to pay therefrom any necessary expenses incurred on behalf of the applicants by the official receiver while carrying out his powers and duties under the Order. Mr Justice Lloyd’s Order further ordered that (a) notice of it was to be given to the applicants forthwith and that (b) the applicants were at liberty to apply to the court to vary or discharge the Order on 48 hours notice given to the official receiver or to the Secretary of State’s solicitor. The applicants did not make any such application. On 8 October 1998, immediately after the appointment, the Department of Trade and Industry (“the DTI”) issued a press release concerning the appointment of the provisional liquidator that, it is alleged by the applicants, was grossly misleading and damaged the applicants’ reputations. The official receiver immediately took control of the applicants and their premises. He dismissed employees and then closed down the applicants’ businesses as quickly as he could. He was in control of the applicants for more than one year following his appointment, during which time he failed to deal with customers’ telephone queries and did not administer any holiday breaks. The applicants allege that this resulted in a loss of income to them and destroyed their businesses and reputations. On 6 January 1999, the applicants applied for permission to seek judicial review of the Secretary of State’s decision both (i) to bring the winding up petitions and (ii) to seek the appointment of the provisional liquidator for the companies. On 7 May 1999, the question of whether such permission should be granted was ordered by Mr Justice Latham to be determined by the judge hearing the petitions. The action was tried in July 1999. By his judgment of 6 October 1999, Mr Justice Park dismissed the Secretary of State’s petitions to wind up the applicants and he discharged the provisional liquidator. The Secretary of State’s applications for permission to appeal were dismissed by both Mr Justice Park and the Court of Appeal. Mr Justice Park found that there was no substance in the above allegations made by the Secretary of State. In relation to the two holiday certificate companies he further found that the DTI had fundamentally misunderstood the nature and the economics of the applicants’ businesses. In relation to other regulations, Mr Justice Park did not find any infringements that would have justified winding up any of the applicants. Mr Justice Park further expressed his opinion about the DTI’s investigation and actions. He stated that Mr Hill, the official at the DTI in charge of the investigations into the four applicants: “...conducted his investigations almost entirely on the basis of documents...He had no prior knowledge of the usual way that timeshare marketing was organised, and if he tried to find out about it from other sources he did not say so. He decided to take action against the companies, including the drastic step of applying for the appointment of a provisional liquidator without the companies having notice of the application, almost entirely on the basis of inferences which he drew from the documents. He did not put any of his concerns to P or A [the directors of the companies] and ask whether they had an explanation. ...If, before launching the petition, Mr. Hill had spoken to P and A (with their solicitor present if they had wished, as they probably would) they might have been able to convince him, as they have convinced me, that his conclusions were mistaken. Even if they had not, and Mr. Hill had still decided to petition for the companies to be wound up and to apply for the appointment of a provisional liquidator, the judge on that application would have been told that the DTI’s allegations were disputed by the companies and the directors. I take it for granted that, if explanations by P and A had been given to Mr. Hill, he would have described them in his affidavit as fairly as he could, even if he did not accept them himself. As matters happened, however, the DTI launched the petition without any warning. It applied for the appointment of a provisional liquidator without notice to the companies. The only evidence before Lloyd J was Mr. Hill’s affidavit which presented the matter on the basis that the companies’ operations were indisputably and incontrovertibly dishonest. That is, of course, how Mr. Hill saw the matter and neither I nor Mr. Joffe (counsel for the companies) suggest for a moment that Mr. Hill was influenced by any motive other than his sincere belief about what the protection of the public required. On the material before Lloyd J I do not see how the judge could have done other than accede to the application for the appointment of the provisional liquidator. But thereby the businesses of four companies were destroyed.” Mr Justice Park awarded costs to the applicants on the “standard” basis, but declined to award on the “indemnity” basis. After Mr Justice Park had delivered his judgment, the applicants referred to their application for permission to seek judicial review of the Secretary of State’s decision to bring the winding up petitions and to seek the appointment of the provisional liquidator. Mr Justice Park indicated to the applicants that he was not minded to grant such permission on the basis that there was no obligation on the Secretary of State to provide compensation for losses caused by the appointment of a provisional liquidator at his request. Therefore, as no compensation could be awarded in judicial review proceedings, no purpose would be served by an application by the applicants for judicial review. The applicants thereafter decided not to pursue the application, on the grounds that to do so would have been pointless. The applicants allege that the effect of the appointment and subsequent continuation in office of the provisional liquidator was to destroy the applicants’ goodwill and to devastate their businesses. All the applicants are now in liquidation. The applicants allege that, in effect, the Secretary of State has a common law immunity from having to give a cross-undertaking in damages upon the appointment of a provisional liquidator at his request, in circumstances in which a private litigant would be obliged to do so. In the absence of any right to seek compensation from the Secretary of State, the applicants do not have any means of obtaining financial redress for losses caused by the appointment of the provisional liquidator. Section 447 of the Companies Act 1985 empowers the Secretary of State to require a company to produce documents during the course of an investigation into its affairs. Section 124A of the Insolvency Act 1986 provides that: “Where it appears to the Secretary of State from- (a) any report made or information obtained under Part XIV of the Companies Act 1985 (company investigations, &c.) ... that it is expedient in the public interest that a company should be wound up, he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so.” Section 135 of the Insolvency Act 1986 allows the court, at any time after the presentation of a winding up petition, to appoint a liquidator provisionally. Under section 144(1) of the Insolvency Act 1986, a provisional liquidator is required to take into his custody or under his control all property and things in action to which the company is or appears to be entitled. The effect of an undertaking in damages is that the applicant agrees to abide by any order the court may make as to damages if the court later determines that the company sustained loss as a result of the application. The applicant will also be required to give an undertaking to be responsible for the acts and defaults of the provisional liquidator in such circumstances. In Re Highfield Commodities Limited [1984] BCLC 623 at page 629g-i, Sir Robert Megarry V-C set out the position on the general law as follows: “First, the general practice is to require an undertaking in damages if a provisional liquidator is appointed ex parte. Second, the general practice is not to require an undertaking in damages if the appointment is made inter partes. The distinction, I think, or a distinction, must be that the protection of the undertaking will be given where the company has had no opportunity of providing any answer or explanation to contentions which may prove to be wholly unfounded, whereas if the company has at least had the opportunity of being heard, the court will be making the appointment after considering what the company has said, if it has chosen to speak, and so can better assess the propriety of making the appointment.” However, in Re Highfield (at page 630e), the position of the Secretary of State was said to be different: “...where, as here, the Secretary of State is seeking to have the company wound up not in order to assert some proprietary claim of the Crown but by virtue of the Companies Act 1967, section 35, [the then equivalent of section 124A of the Insolvency Act 1986] I think that the doctrine of the Hoffman case provides sufficient authority and guidance to provide an exemption of the Crown from being required to offer an undertaking in damages as the price of obtaining the appointment of a provisional liquidator, save where the company can establish special circumstances which justify such a requirement being made.” The applicants state that the phrase “special circumstances” remains undefined by the courts.