Home Information Cases Kappler v Secretary of State for Trade & Industry (2006)

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Kappler v Secretary of State for Trade & Industry (2006)

Summary

Where the claimant secretary of state had reformulated his allegations against the defendant director during a civil trial in disqualification proceedings, the key question was whether the defendant fairly knew and understood the substance of the allegations he had to meet and whether he would suffer injustice as a result of the court allowing the claimant to rely on the amended, altered or additional allegations.

Facts

The appellant (K) appealed against a disqualification order made against him for a period of 11 years under the Company Directors Disqualification Act 1986 . K was a director of a company (P) together with one other director. P went into administrative receivership owing £3.5 million. The debt largely arose from an invoice discount facility afforded by P's bank. The respondent secretary of state alleged that K had dishonestly been instrumental in P issuing false invoices in order to enable P dishonestly to obtain substantial amounts of money from the bank. The secretary of state did not allege that K had personally written the invoices but that he was personally involved and was instrumental in the entire fraudulent scheme. The other director gave an undertaking that he would not be a director of a company for 12 years and proceedings against him were consequently discontinued. The secretary of state's case at trial was that, although K had not personally created the invoices, he had known that the invoices were fraudulent, he had failed to stop them and was, therefore, responsible for "causing" P to raise them. K complained that that was not the way the case had been opened. K's case was that he had no knowledge of the invoices being raised and that when he did become aware of them he alerted the police. The judge held that K did know of the invoices and did not take the appropriate steps to stop them and that such conduct amounted to "causing" the offending invoices to be raised. K argued that (1) the judge was wrong to conclude that K knew of the false invoices; (2) the secretary of state's closing case did not fall within the ordinary meaning of "caused" but was essentially one of "allowing" and such an allegation was never formally amended or altered; (3) there was a serious procedural irregularity in that the secretary of state's revised, closing case should not have been permitted; (4) the disqualification period was excessive.

Held

(1) There was copious evidence to justify the judge's conclusion that K knew of the false invoices. (2) What was put forward by the secretary of state at trial was not a wholly new case on new evidence but a different way of interpreting the existing case and the existing evidence. The case in opening had been that K had "caused" P to raise the false invoices in the sense that he had dishonestly been instrumental in P issuing false invoices in order to enable P to obtain money from the bank. The revised case in closing was that K had "caused" P to raise the false invoices by being aware of them, knowing they were fraudulent and doing nothing to stop them. Allegations in a civil case were not to be viewed as a criminal indictment, Re Clean & Colour Ltd, Unreported, June 7, 2001 applied. The court had a complete discretion, according to the circumstances of each case, to decide whether to allow new, additional, extended or even reformulated allegations. There was no formal master document to amend. The key question was always whether the defendant fairly knew and understood the substance of the allegations he had to meet and whether he would suffer injustice as a result of the court allowing the claimant to rely on the amended, altered or additional allegations. The defendant had to have had a fair opportunity of dealing with the substance of the case, including modified allegations. The secretary of state was entitled to advance the case as he did. A director who knew about a state of affairs and appreciated it and its consequences might, if he failed to do anything about it, depending on the circumstances, be just as much "causing" the consequences as "allowing" them. The crucial factor in the case was knowledge, which the judge found that K had. (3) The judge should have expressly addressed the question as to whether K had had a fair opportunity to deal with the issue. However, the fact that the judge did not do so had not resulted in an unfair trial. There was no procedural irregularity and the trial was not unfair to K. There was ample evidence to conclude that K was unfit based on the specific conduct alleged against him at trial, and K knew the substance of the case he had to meet and had a fair opportunity of dealing with it. (4) The period of disqualification was well within the range of permissible periods that could be awarded in the instant case.

Appeal dismissed.

Chancery Division
Judge Roger Kaye QC
Judgment date
11 May 2006
References

​LTL 12/9/2006 : (2006) BCC 845 : (2008) 1 BCLC 120 

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