Insolvency — Administration — Leave to bring proceedings — Waste-management licence — Criminal proceedings for breach of licence conditions — Whether Environment Agency requiring leave to bring and continue criminal proceedings relating to waste-management licence — Whether leave should be granted
In January 1999 the
respondent was appointed the administrator, in accordance with the Insolvency
Act 1986, of a company that operated a landfill site pursuant to a
waste-management licence issued by the appellant agency. The company had previously
petitioned for an administration order and the order was made on 21 January
1999. Following many complaints, the agency had introduced modifications to the
licence, and had served notice on the company requiring works to be carried out
to mitigate certain problems with the site. Those works had not been carried
out as required and, on 19 January 1999, the agency laid an information before
the local magistrates’ court alleging contraventions of certain conditions of
the licence. The administrator applied for, and was granted, a direction from
the court that the agency needed leave under sections 10 and/or 11 of the 1986
Act to bring or continue criminal proceedings against the company. However, the
judge, in the exercise of the discretion given to the court by the 1986 Act,
refused to give leave to the agency. The agency appealed: (1) the decision on
statutory construction; and (2) the refusal to grant leave to prosecute.
Sections 10 and 11 of the 1986 Act did not fall to be construed narrowly; the ejusdem
generis rule had no place in the construction of the sections. The words
‘no other proceedings and no execution or other legal process’ in those
provisions included criminal proceedings. However, the judge was in error in
the exercise of his discretion. There were compelling reasons why leave should
have been given. There had been serious breaches over a long period of time. On
the facts known at the date of the appeal, leave should be given to the agency
to prosecute.
The following cases are referred to in this report
Air Ecosse Ltd
v Civil Aviation Authority (1987) 3 BCC 492
Atlantic Computer
Systems plc, Re [1992] Ch 505; [1992] 2 WLR 367; [1992] 1 All ER 476
Barrow Borough
Transport Ltd, Re [1990] Ch 227; [1989] 3 WLR 858
Biosource
Technologies Inc v Axis Genetics plc (in administration) [2000] 1
BCLC 286
Bristol Airport
plc v Powdrill; sub nom Re Paramount Airways Ltd [1990] Ch
744; [1990] 2 WLR 1362; [1990] 2 All ER 493; [1990] BCC 130
Carr v British
International Helicopters Ltd [1993] BCC 855
Celtic Extraction
Ltd (in liquidation), Re [2000] 2 WLR 991; [1999] 4 All ER 684; sub nom
Official Receiver (as liquidator of Celtic Extraction Ltd and Bluestone
Chemicals Ltd) v Environment Agency [1999] 3 EGLR 21; [1999] 46 EG
187
J Burrows (Leeds)
Ltd, Re [1982] 1 WLR 1177
Olympia & York
Canary Wharf Ltd (No 1), Re; sub nom American Express Europe Ltd v Adamson
[1993] BCC 154
Quazi v Quazi
[1980] AC 744; [1979] 3 WLR 833; [1979] 3 All ER 897
R v Dickson
[1991] BCC 719
Smith (a
bankrupt), Re, ex parte Braintree District Council [1990] 2 AC 215; [1989]
3 WLR 1317; [1989] 3 All ER 897; (1990) 88 LGR 393
This was the hearing of two
appeals by the Environment Agency against decisions of Judge Moseley QC,
sitting as a judge of the High Court, in applications by the administrator for
Rhondda Waste Disposal Ltd, Paul Clark, for declarations as to the effect of
the Insolvency Act 1986.
Stephen Hockman QC and Stephen Moverley Smith (instructed by the solicitor
to the Environment Agency) appeared for the appellant; Stephen Davies
(instructed by Palser Grossman Solicitors, of Cardiff) represented the
respondent.
Giving the first judgment, SCOTT
BAKER J said: These two appeals by the Environment Agency (the
agency) are brought with his permission from decisions of Judge Moseley QC
sitting as a deputy High Court judge of the Chancery Division on 5 July 1999
and 6 August 1999. On 5 July he held that the agency required leave under
section 10 of the Insolvency Act 1986 (the 1986 Act) to commence criminal
proceedings against Rhondda Waste Disposal Ltd (in administration) (the
company) and leave to continue such proceedings under section 11 of the same
Act. On 6 August he refused leave. The issues on the appeals are whether: (i)
leave was required; and (ii) if it were, the judge was correct to refuse leave.
Factual background
The case involves a landfill site operated by the company at
Nant-y-Gwyddon in the Rhondda Valley pursuant to a waste-management licence issued
by the agency. The site, which occupies some 24ha, has been problematic for a
number of years and has caused great concern to local residents. The company is
a limited company and is wholly owned by a local authority, namely Rhondda
Cynon Taff County Borough Council (the council). It was formed in furtherance
of the government’s policy of taking waste management, ie the collection,
keeping and disposal of waste, out of direct local authority control and
putting it into the hands of arm’s-length companies. The site became
operational in 1988 and was developed and originally operated by the then
Rhondda Borough Council. In March 1995 that council, which were, prior to local
government reorganisation in 1996, the relevant council, granted the company a
waste-management licence. Thereafter, the company had the benefit and
obligation of managing the site under the terms and conditions of the licence.
The licence permits the disposal of up to 300,000 tonnes pa of household,
commercial and industrial waste, excluding special wastes, with a monthly
maximum total of 25,000 tonnes. The company’s income derived mainly from
waste-disposal contracts with the council, although waste was also received
from waste-disposal contractors. The company also managed, under contract, four
civil amenity sites; this included the transportation and disposal of waste.
Between March 1995 and December 1998, the site was operated on behalf of the
company by 3C Waste Ltd, of Chester, under a management consultancy services
agreement. This agreement also provided for environmental and technical
support, marketing, financial
In 1996 the agency took over waste-regulation responsibility for
the site from Rhondda Borough Council. Between then and March 1997, it received
over 200 complaints from local residents about obnoxious odours from the site.
This figure had risen to 1,500 by March 1999. In December 1996 a formal warning
was sent to the company, complaining about lack of adequate cover of the
operational areas of the site, leading to problems with odour and leachate
production. There were some improvements, but the agency regarded them as
inadequate. Consequently, in January 1997, it modified the conditions of the
licence and required:
(i) a technical review of the landfill gas and leachate management
controls; and
(ii) cessation of the deposit of calcium sulphate filtercake,
which, when it reacted with other waste, produced foul-smelling hydrogen
sulphide gas.
The company appealed against the second condition to the Secretary
of State under section 43 of the Environmental Protection Act 1990 (the EPA),
but later withdrew the appeal following the technical review that identified
significant levels of hydrogen sulphide gas generation within the site. The
problem became worse, rather than better. Local residents picketed the site and
there were demonstrations.
On 9 July 1997 the agency wrote expressing concern that pollution
control equipment was not operating. On 11 July 1997 the agency modified the
licence conditions for a second time. This modification required:
(i) daily inspection of the integrity of the leachate collection
and monitoring systems;
(ii) the instalment of a whole-site landfill gas collection system,
so as to prevent the uncontrolled migration or venting of landfill gas, with a
purpose-designed flare system; and
(iii) daily inspection of the integrity of the landfill gas
collection and flaring systems.
On 21 July 1997 the agency served an enforcement notice on the
company under section 42(5) of the EPA requiring it to comply with the licence
conditions. This was followed by an injunction in the High Court on 25 July
1997 to the same effect. That injunction apparently remains in force.
Meanwhile, the agency had appointed consultants, who reported in January 1998
that there were many deficiencies at the site and that the landfill gas and
hydrogen sulphide, although well below a level likely to cause a danger to
health, were the cause of unpleasant smells in the surrounding communities. On
8 May 1998 the agency served a third notice of modification on the company.
This notice, which remains in force, requires:
(i) capping of the existing tip area with a gas barrier to prevent
uncontrolled emission;
(ii) the design, construction and maintenance of a landfill gas
management and control system, to be approved by the agency;
(iii) air-quality monitoring within the site boundaries;
(iv) a system of appropriate data storage and retrieval;
(v) financial provision, acceptable to the agency, sufficient to
discharge the obligation to provide air quality monitoring;
(vi) leachate management;
(vii) risk assessment to assess the performance of the liner system
in the untipped area of leachate and gas management; and
(viii) a moratorium on the deposit of waste in the untipped area
until the liner system study is complete.
By a letter dated 24 December 1998, the company sought an extension
of time in which to appeal to the Secretary of State against the third
modification. The normal period for appealing is six months. The appeal remains
undetermined. It should be noted that the company had been given six months to
complete the modifications. Furthermore, the notice of modification
specifically disapplied section 43(4) of the EPA, ie the terms of the
modification are effective, notwithstanding an undetermined appeal to the
Secretary of State, and this has not been challenged by the company. Just
before the expiry of the six-month period the company wrote, on 26 October
1998, setting out the reasons why it was not going to be able to comply
timeously with the modifications, saying that the work had been started and
asking for an extension of the deadline. The agency conducted a site inspection
on 13 November. It showed that the work had not progressed as promised. Most
significantly, capping, the most important of the modifications under the third
variation, had not been effected. Consequently, another enforcement notice was
served requiring:
(i) capping by 31 March 1999;
(ii) a programme of air quality monitoring to be submitted by 28
February 1999; and
(iii) meteorological monitoring by 28 February 1999.
On 23 December 1998 the directors of the company petitioned for an
administration order to be made in relation to the company. On 19 January 1999
the agency laid an information before the Llwynypia justices, alleging
contravention of the capping condition (condition 108) imposed by the third
modification of the waste-management licence. On 21 January 1999 an
administration order was made by the High Court over the company.
On 15 February 1999 the administrator applied to the court for a
direction as to whether the agency required leave under sections 10 and/or 11
of the 1986 Act to bring or continue criminal proceedings. After various
adjournments, the application was eventually heard on 17 May 1999, judgment
being given on 5 July 1999, holding that leave was required.
The administrator records that the company has been in financial
difficulty for some considerable time. For the accounting years ending 31 March
the company’s post-taxation results have been:
1996 — (£71,000)
1997 — £4,000
1998 — (£578,000)
Draft management accounts for the nine months to 31 December 1998
show a further loss of £304,000 on a turnover of £1,221,600. The trading losses
had caused erosion of the company’s reserves, and, consequently, the company
could not finance the work necessary at the site to satisfy the agency and meet
the licence conditions. There was said to be a shortfall of about £1.6m.
Matters went as far as the issue of a winding-up petition that was due to be
heard on 9 July 1998, but, following discussions, the council agreed to provide
£1.1m of the £1.6m needed to carry out the remedial work, and the petition was
withdrawn. The administrator says that after the works were commenced in
September 1998, technical difficulties were encountered and the estimate of the
money needed increased from £1.6m to £2.6m. It was this that led to the
administration order.
Legislation
Failure to comply with a condition of a waste-management licence is
an offence under section 33(6) of the EPA. The offence carries a penalty of a
fine not exceeding £20,000 in the magistrates’ court and unlimited in the Crown
Court. Imprisonment is available when the defendant is an individual.
Conviction carries consequences under section 74 from the viewpoint of holding
a waste-management licence in the future.
Section 10 of the 1986 Act provides:
(1) During the period beginning with the presentation of a
petition for an administration order and ending with the making of such an
order or the dismissal of the petition —
(a) no resolution may be passed or order made for the winding up
of the company;
(b) no steps may be taken to enforce any security over the
company’s property, or to repossess goods in the company’s possession under any
hire-purchase agreement, except with the leave of the court and subject to such
terms as the court may impose; and
(c) no other proceedings and no execution or other legal process
may be commenced or continued, and no distress may be levied, against the
company or its property except with the leave of the court and subject to such
terms as aforesaid.
(2) Nothing in subsection (1) requires the leave of the court —
(a) for the presentation of a petition for the winding up of the
company.
(b) for the appointment of an administrative receiver of the
company, or
(c) for the carrying out by such a receiver (whenever appointed) of
any of his functions.
The remaining provisions of the section are not relevant.
Section 11(3) provides:
During the period for which an administration order is in force —
(a) no resolution may be passed or order made for the winding up
of the company;
(b) no administrative receiver of the company may be appointed;
(c) no other steps may be taken to enforce any security over the
company’s property, or to repossess goods in the company’s possession under any
hire-purchase agreement, except with the consent of the administrator or the
leave of the court and subject (where the court gives leave) to such terms as
the court may impose; and
(d) no other proceedings and no execution or other legal process
may be commenced or continued, and no distress may be levied, against the
company or its property except with the consent of the administrator or the
leave of the court and subject (where the court gives leave) to such terms as
aforesaid.
The criminal proceedings were commenced in the present case after
the petition for an administration order but two days before the order was made,
and the question is whether those proceedings fall within the words ‘no other
proceedings’ in sections 10(1)(c) and 11(3)(d). The company argued, and the
judge held, that the criminal prosecution could not be continued without the
consent of the administrator or the leave of the court. There is no authority
on whether ‘other proceedings’ in these sections includes criminal proceedings.
Mr Stephen Hockman QC, for the agency, submits that, upon their
true construction, these subsections are concerned only with proceedings to
enforce rights relating to the recovery of money or property. The words ‘no
other proceedings’ should be construed narrowly with that in mind. Certainly,
he contends, parliament never intended to impose a filter for criminal prosecutions.
The present case involves an alleged offence under Part II of the EPA that
concerns waste, but if leave is required to bring or continue this prosecution,
the same must be true for all other criminal offences committed by corporations
where an administration order has been made or applied for. Companies are
capable of committing offences across a wide spectrum, both by statute and at
common law. Examples include manslaughter and offences under the health and
safety legislation, and there are many others. It cannot be right that a
prosecution should be dependent upon the permission of the administrator or a
judge of the Chancery Division.
Criminal proceedings are normally brought in the public interest by
the Crown or some other public body. They are wholly distinct from civil
proceedings. While they may affect the financial position of the person against
whom they are brought (eg by the imposition of a fine) that is not their
primary purpose. Their purpose is to uphold and enforce criminal law, punish the
offender and deter others, and, especially perhaps in pollution and health and
safety cases, to mark down particular conduct as disapproved of by society. One
should not, therefore, argues Mr Hockman, expect to see criminal offences
generally brought under the umbrella of a requirement of leave in a statute
dealing with insolvency. Also, it is perfectly possible that the administrator
himself may be the perpetrator of a criminal offence while he is running the
company, and yet, if leave to prosecute is required under section 11(3)(d), it
is he to whom the prosecuting authority must first go to seek consent. In these
circumstances, it is to be expected that parliament would have used clearer
language if the intention was to cover criminal proceedings. Thus runs the
argument for the appellant.
In my judgment, the starting point is to look at the circumstances
in which an administration order can be made. These are set out in section 8(1)
of the 1986 Act. The court has to be satisfied a company is, or is likely to
become, unable to pay its debts and to consider that the making of an order
would be likely to achieve one of the following purposes:
(a) the survival of the company and the whole or any part of its
undertaking as a going concern;
(b) the approval of a voluntary arrangement under Part I;
(c) the sanctioning under section 425 of the Companies Act of a
compromise or arrangement between the company and any such persons as are
mentioned in that section; and
(d) a more advantageous realisation of the company’s assets than
would be effected upon a winding-up.
In the present case the order specified grounds (a), (b) and (d).
An administration order is therefore permitted for clearly and
narrowly defined purposes only, and there is a good reason why the legislation
should prevent steps being taken that might thwart those purposes. This
legislation is concerned with corporate defendants and not individuals. There
is no similar filter for the prosecution of officers of a company in administration.
In an appropriate case, a prosecution could perfectly well be started or
continued against a director of a company in administration or, indeed, the
administrator himself. Also, there is very limited power to stay a prosecution
in either the magistrates’ court or the Crown Court, and an untimely or
inappropriate prosecution could torpedo an administration order.
While there is no direct authority upon whether sections 10(1)(c)
and 11(c)(d) apply to criminal proceedings, there has been considerable debate
about the ambit of these subsections. Mr Hockman relied strongly on Air
Ecosse Ltd v Civil Aviation Authority (1987) 3 BCC 492, a decision
of the Court of Session. Air Ecosse Ltd held air transport licences for the
Aberdeen-Wick-Sumburgh air routes. British Airways applied to the Civil
Aviation Authority under the Civil Aviation Act 1982 for its licences to be
revoked and for new licences to be granted to it. Air Ecosse Ltd was in
administration, and the issue arose as to whether the British Airways application
was within the definition of ‘other proceedings against the company’. Lord
McDonald said at p494, having referred to section 11(3):
I have come to be of the view that these restrictions are directed
against activities of creditors of the company which might otherwise be
available to them in order to secure or recover their debts. The fact that an
administration order has been made at all necessarily implies that the court is
satisfied that the company is or is likely to become unable to pay its debts.
This, in my opinion, excludes any possibility of a members’ voluntary
winding-up being included in para. (a) above. Such a process involves a
declaration of solvency which the directors in this case would be unable to
give. (Companies Act 1985, sec 577; see now Insolvency Act 1986,
sec 89). The resolution referred to must therefore be a resolution for winding
up in a creditors’ voluntary winding-up. The order referred to is an order for
winding up by the court or subject to the jurisdiction of the court. These are
all courses of action which are open to creditors generally but which are now
restricted while an administration order is in force.
He continued at p495:
sec 11(3) of the Act of 1986 is confined to the activities of
creditors of a company subject to an administration order. It does not extend
beyond that to courses of action which may be open to persons who are not
creditors, eg competitors, under a different statute. It seems to me that sec
11(3)(a)-(c) disclose a genus, viz creditors of a company subject to an
administration order, whose rights as creditors are to be restricted, and the
use of the word ‘other’ in sec 11(3)(d) is simply to bring within that genus
those species of creditor who complete the genus, but who have
been omitted in the earlier, paragraphs.
Lord Robertson said at p500:
I agree with the conclusions of the Lord Ordinary and would refuse
the appeal. On the narrow reading of sec 11(3)(d) of the Act I think that the
phrase ‘no other proceedings’ in its context must be taken as ejusdem
generis with subsec (a)-(c) to refer to proceedings by creditors or in
relation to actual assets or property of the company.
And a little later:
I am not convinced that the hearings can be said to be
‘proceedings… against the company or its property’ within the meaning of sec
11(3)(d). They are not in the strict legal sense proceedings against the
company at all.
The Lord Justice-Clerk said the vital question was whether the
words in section 11(3)(d) were to be given a wide meaning or a restricted meaning,
but his approach was rather different. He said at p502:
Mr WM Campbell for the first respondents and Mr MacLean for the
second respondents argued for the application of what was in effect the ejusdem
generis rule. Although the matter is not without difficulty, I have come to
the conclusion that the submission for the respondents is well-founded. I agree
with Mr McEachran that the matters referred to in sec 11(3)(a)-(c) do not
relate solely to rights of creditors. In so far as the Lord Ordinary appears to
accept that they do, I am of opinion that he was in error. Section 11(3)(a)
refers first of all to a resolution being passed for the winding up of the
company. This is a clear reference to a members’ voluntary winding-up, and in
such a situation there is no question of insolvency, and the remedy is not a
remedy available to a creditor. Nonetheless the remaining matters in (a) and in
(b) and (c) all relate to steps which are available to persons who are in some
sense creditors of a company. In my opinion the whole flavour of sec 11
(3)(a)-(c) is that it is dealing with steps which may be taken by a creditor
against a company. In my opinion, this colours the interpretation which falls
to be placed upon the words, ‘no other proceedings… may be commenced or
continued… against the company,’ where these appear in (d). The situation might
have been different if the word ‘other’ had not appeared, since (d) would then
have contained a clear prohibition against any proceedings being taken against
the company. However, the word ‘other’ does appear and effect must be given to
it. The whole basis of the ejusdem generis rule is that the word ‘other’
falls to be read as if it meant ‘similar’. (Quazi v Quazi [1980]
AC 744, per Lord Diplock). In my opinion the word ‘other’ in sec
11(3)(d) falls to be read as if it meant ‘similar’. That being so it is plain
that what is prohibited by (d) is any proceedings against the company which are
similar to those described in (a), (b) and (c). This would confine the
prohibition to proceedings which might be taken by someone such as a creditor
against the company and which was in some way related to a debt due by the
company. That interpretation would be entirely consistent with sec 8(3) which
describes the purposes for which an administration order may be made: In my
opinion, however, the prohibition in (d) does not extend to proceedings such as
those which were before the first respondents on 23 April 1987. The hearing
before the first respondents on 23 April 1987 may have constituted proceedings
against the petitioners in the wide sense of these words, but, in my opinion,
it did not amount to proceedings similar to those described in sec
11(3)(a)-(c).
The judge examined the judgments in Air Ecosse Ltd with
great care. He pointed out that while the three judges were unanimous in their
conclusion that an application by another airline to the civil aviation
authority for revocation of an air transport licence was not ‘other
proceedings’ for the purposes of section 11(3)(a) of the 1986 Act, their
reasoning differed. What the court plainly did not consider was whether ‘other
proceedings’ included criminal proceedings. I therefore agree with the judge
that Air Ecosse Ltd is not authority for the proposition that a criminal
prosecution falls outside the ambit of the term ‘other proceedings’ in section
11(3)(d) of the 1986 Act.
It is unnecessary for present purposes to explore in any more
detail the judgments in Air Ecosse Ltd. Suffice it to say that neither
Harman J in Re Paramount Airways Ltd [1990] BCC 130, nor Ferris J in Biosource
Technologies Inc v Axis Genetics plc (in administration) unreported
2 November 1999* considered the ejusdem generis rule applied to construction
of ‘other proceedings’ in sections 10 and 11 of the 1986 Act. Indeed, Ferris J
pointed out at p12 that nothing was said by Sir Nicolas Browne-Wilkinson VC in Paramount
Airways (also referred to as British Airport Plc v Powdrill)
[1990] Ch 744 on appeal from Harman J to suggest that he regarded the ejusdem
generis rule as applicable. This court differed from Harman J in concluding
that the proceedings in question had to be either legal proceedings or
quasi-legal proceedings such as arbitration. But there is a passage in the
judgment of the Vice-Chancellor (with whom the other members of the court
agreed) that bears on the construction of sections 10 and 11. At p758F he said:
Before dealing with the issues summarised above, it may be helpful
to state what, in my opinion, is the correct approach to the construction of
the provisions dealing with administrators contained in Part II of the Act. The
judge was very much influenced in his construction by the manifest statutory
purpose of Part II of the Act. I agree with this approach. The provisions of
Part II themselves, coupled with the mischief identified in the Cork Report,
show that the statutory purpose is to install an administrator, as an officer
of the court, to carry on the business of the company as a going concern with a
view to achieving one or other of the statutory objectives mentioned in section
8(3). It is of the essence of administration under Part II of the Act that the
business will continue to be carried on by the administrator. Such continuation
of the business by the administrator requires that there should be available to
him the right to use the property of the company, free from interference by
creditors and others during the, usually short, period during which such
administration continues. Hence the restrictions on the rights of creditors and
others introduced by sections 10 and 11 of the Act. In my judgment in
construing Part II of the Act it is legitimate and necessary to bear in mind
the statutory objective with a view to ensuring, if the words permit, that the
administrator has the powers necessary to carry out the statutory objectives,
including the power to use the company’s property.
On the other hand, however desirable it may be to construe the Act
in a way calculated to carry out the parliamentary purpose, it is not
legitimate to distort the meaning of the words Parliament has chosen to use in
order to achieve that result. Only if the words used by Parliament are fairly
capable of bearing more than one meaning is it legitimate to adopt the meaning
which gives effect to, rather than frustrates, the statutory purpose.
* Editor’s note: Reported at [2000] 1 BCLC 286
That passage suggests to me that the Vice-Chancellor did not regard
a narrow construction of sections 10 and 11 based on the principle of a ejusdem
generis as appropriate or applicable. While he did not refer specifically
to criminal proceedings, there is no reason to believe he thought sections 10
and 11 should be construed so as to exclude them.
Next comes Carr v British International Helicopters Ltd
[1993] BCC 855. This was a decision of the Employment Appeal Tribunal sitting
in Scotland presided over by Lord Coulsfield. An employee claimed reinstatement
following alleged unfair selection for redundancy by an administrator. The
tribunal held that complaints and applications to industrial tribunals as a
whole fell within the description ‘other proceedings’ in section 11(3)(d), and
were subject to the conditions and limitations laid down by the section unless
they could be excluded by some other argument. The tribunal then went on to
consider Air Ecosse Ltd, and said it was unable to find a genus
in section 11 that was capable of definition and excluded industrial tribunals.
Lord Coulsfield said at p862:
It seems to us that there is no way of construing sec 11 so as to
exclude from its scope claims under the employment protection legislation…
In my judgment, it is, therefore, now clear that sections 10 and 11
of the 1986 Act do not fall to be construed in the narrow manner suggested by
some passages in the judgments of the Court of Session in Air Ecosse Ltd.
The correct approach is that outlined by the Vice-Chancellor in the passage I
have cited. The critical factors are the ordinary meaning of the words used and
the statutory objectives of the sections.
Having concluded that ejusdem generis has no place in the
construction of these sections, I turn to the natural meaning of the words. It
seems to me that they have a plain and clear meaning. The words:
No other proceedings and no execution or other legal process may
be commenced or continued… against the company or its property
cover on their face all judicial and quasi-judicial proceedings.
There is no qualification to ‘other proceedings’. The sections do not say ‘no
other civil proceedings’, nor is there any reference to excluding any
particular category of proceedings, eg criminal proceedings. The words used are
entirely apt, submits Mr Stephen Davies, for the respondent, to include all
judicial proceedings. There are other sections in the 1986 Act that specify
offences by a company, eg section 30. It is to be inferred that the draftsman
intended that proceedings for such offences should fall under the umbrella of
‘other proceedings’ in sections 10 and 11, otherwise they would have been
expressly excluded.
Furthermore, as Mr Davies pointed out, it is not as if there is
nowhere in the Act mention of criminal proceedings: see section 219(3).
Likewise, there are references to family proceedings in section 281. There are
various instances in the Act where the draftsman uses the word ‘proceedings’
compendiously to include all proceedings, and this lends support to the
contention that sections 10 and 11 mean what they
and 311(1). Looking at the Act as a whole, therefore, there are indicators that
where, as in sections 10 and 11, the draftsman used the words ‘other
proceedings… or legal process’, he was using an all encompassing description
intended to cover all forms of legal proceedings.
Given that the words, on their natural construction, are in my
judgment entirely apt to include criminal proceedings, is there any convincing
reason why they should not be so construed? Nothing is to be found in any of
the cases to which we have been referred to suggest there is anything
inherently wrong in the Chancery Court acting in appropriate circumstances as a
filter for the criminal process. Indeed, if anything the reverse is the case.
Some help is to be found in looking at the comparable situation on a
winding-up.
R v Dickson [1991] BCC 719 was concerned not with administration,
but with section 130(2) of the 1986 Act, which reproduces section 231 of the
Companies Act 1948 and reads:
When a winding up order has been made or a provisional liquidator
has been appointed, no action or proceedings shall be proceeded with or
commenced against the company or its property, except by leave of the court and
subject to such terms as the court may impose.
There were before the Court of Appeal (Criminal Division) two
appeals against conviction on counts of supplying goods to which a false trade
description was applied. The defendants were directors of a company and all
were convicted on the same counts, the directors on the basis that they had
connived at or consented to offences committed by the company. The defendants
submitted that, because the Official Receiver had been appointed provisional
liquidator of the company, leave was required to bring criminal proceedings.
The trial judge held that section 130(2) related to civil proceedings only. The
Court of Appeal dismissed the appeal on the basis that the presence of the
company at the trial was a notional presence only and made no material
difference to the conduct of the case against the defendants. However, the
court proceeded on the basis of assuming that section 130(2) covered criminal
proceedings. The basis for this assumption was the decision of Slade J in Re
J Burrows (Leeds) Ltd [1982] 1WLR 1177.
Mr Hockman pointed out that the decision in Dickson did not
depend on whether section 130(2) included criminal proceedings and that not
only was Dickson concerned with a different statutory provision but also
the decision in Burrows followed a concession by counsel. However, Dickson
does, in my view, illustrate that a filter through the 1986 Act on criminal
proceedings is in certain circumstances appropriate.
Mr Davies also referred to observations by Millett J in Re
Olympia & York Canary Wharf Ltd (No 1) [1993] BCC 154 at p156H, which
suggest that he thought the compendious expression ‘proceedings’ in sections 10
and 11 was apt to denote criminal as well as civil proceedings.
Approaching sections 10 and 11 purposively, it is helpful to bear
in mind what this court said in Re Atlantic Computer Systems plc [1992]
Ch 505 at p528, namely that administration is intended to be only an interim
and temporary regime. There is to be a breathing space while the company under
new management in the person of the administrator seeks to achieve one or more
of the purposes in section 8(3). There is a moratorium on the enforcement of
debts and rights, proprietary and otherwise, against the company, so as to give
the administrator time to formulate proposals and lay them before the
creditors. Such a purpose would be hindered were all prosecutions to be allowed
to proceed without the possibility of restraint and whatever the circumstances.
Mr Hockman submits that it is against public policy that criminal
process should be restricted by a filter through a court considering the
administration of a defendant company. Whilst such a restriction may at first
sight seem surprising, on examination there do seem to be convincing reasons.
First, the restriction applies only to a corporate defendant, and, second, only
to a limited class of corporate defendant, ie those cases where administration
or insolvency is involved. The number of cases is likely to be small. Also, the
ambit of criminal offences that may be committed by corporations is very wide,
ranging from very grave, eg manslaughter, at one end of the scale to the quite
trivial at the other. Sometimes, the fact that a company is in administration
will be of little or no significance when weighed against the public interest
in proceeding with the prosecution. But in others the interests of the
creditors, for example, may be the critical consideration. There may be a very
good reason for not proceeding with a prosecution during the administration, as
the consequence may be to tip the company into irretrievable insolvency. Also,
as was pointed out in argument, refusal of leave is not necessarily permanent;
the court could entertain a further application. The court dealing with the
administration is, in my judgment, particularly well placed to weigh up the
arguments for and against granting leave. When the public interest so dictates,
leave to pursue criminal proceedings ought readily to be given, but that will
not be every case.
It is true, and the point was made on behalf of the agency, that
the agency and other prosecuting authorities make decisions whether or not to
prosecute under a well established code and that proceedings can, in
inappropriate cases, be stayed for abuse of process. But the prosecutor will
not have the detailed financial information about the company that will be in
the hands of the administrator and the court. Furthermore, there is no restraint
on prosecuting directors or officers of the company, who can be proceeded
against quite apart from the company when it is appropriate to do so.
My conclusion on the first appeal is that ‘other proceedings’ in
sections 10 and 11 of the 1986 Act includes criminal proceedings. Such a
construction accords both with the literal wording of the sections and the
statutory purpose of Part II of the Act as described in the passages of the
judgments of this court in Paramount Airways at p758F and Atlantic
Computers at p528 to which I have referred.
Discretion
When the judge came to exercise his discretion on 6 August 1999, he
said that the difference between this case and what he described as the normal
run of case, in which a company operating a waste-disposal site is in breach of
its obligations under a waste-management licence, was that in the present case
the company was insolvent. He observed that any fine that might be imposed
could only be paid at the expense of the creditors. He said that although the
company could pay, it could only do so out of assets available for distribution
to the creditors. He referred to the principle in bankruptcy cases that leave
should only be given to pursue civil proceedings if there is no prejudice to
the creditors or to the orderly administration of the bankruptcy. He also
referred to the observations of Morritt LJ in Re Celtic Extraction Ltd (in
liqidation) [1999] 4 All ER 684* at para 39, where he said that the
polluter pays principle should not be applied so as to require that the
unsecured creditors of the polluter pay to the extent of the assets available
for distribution among them.
* Editor’s note: Also reported sub nom Official Receiver (as
liquidator of Celtic Extraction Ltd and Bluestone Chemicals Ltd) v Environment
Agency [1999] 3 EGLR 21; [1999] 46 EG 187
It is true that the judge mentioned that he had before him an
affidavit from Mr Weare setting out the reasons why the agency felt there
should be a prosecution of the company, but he made no specific reference to
those reasons nor did he say what, if any, weight he gave to any of them. The
only comment he made was that there was no explanation why the directors had
not been prosecuted.
Mr Weare’s reasons why the agency sought leave were:
(1) it has a published policy as to the circumstances in which it
will bring criminal proceedings for breach of the terms of a waste-management
licence;
(2) it was concerned that the company’s liability for its criminal
conduct was not evaded by the institution of insolvency proceedings;
(3) it had to be seen to be acting fairly in its policy of
prosecuting those who act in breach of the terms of waste-management licences;
(4) the company had been in consistent breach of the terms of its
licence and the breach sought to be prosecuted was a sample breach only;
(5) there was considerable local concern about the harm caused to
the environment and the agency wished to be seen to be acting effectively; and
(6) in the event of the company’s conviction, those who were
officers at the time of the offence could be precluded from holding a licence
in the future, as could any company of which they were an officer: see sections
40(4) and 74.
Mr Weare made the point that often companies that commit offences
under the EPA are those that, through poor management, have inadequate
financial resources to comply with their obligations.
In my judgment, the judge was in error in the exercise of his
discretion. He should not have regarded the interests of the creditors of the
company as trumping all other considerations. He failed to take into account
and give due weight to the evidence of Mr Weare. Furthermore, in the event of
conviction, there is a statutory obligation on the court fixing the amount of
any fine to take account of all the circumstances, including the financial
circumstances of the company (see section 18(3) of the Criminal Justice Act
1991).
I consider there were compelling reasons why leave should have been
given in this case. The purpose of licensing is to ensure that the disposal of
controlled waste does not give rise to:
(i) pollution of the environment;
(ii) harm to human health; and
(iii) serious detriment to the amenities of the locality.
These are collectively known in the waste-management industry as
‘the three evils’. The case was a bad one involving the first and third of the
above. Also, the breach of licence had continued over a long period and the
agency was well justified in having in mind the consequences of a conviction
from the viewpoint of section 74 of the EPA.
As the judge failed to exercise his discretion properly, it is open
to this court to exercise the discretion afresh. This should be done on the
facts as they are today. As to this, the evidence is sparse. We are told that
ultimately the negotiations have been successful and the waste-management
licence has been transferred to a third party. The company, it is said, remains
little more than a shell, although there are said to be some personal injury
claims outstanding against it. Mr Davies points out that the agency has
sanctioned the transfer of the licence, but I am not impressed that this should
weigh against a prosecution. What else was the agency to do to ensure that the
licence conditions were met? The administration is now complete. This was a
serious breach of licence, and I can see no reason why the agency should not
have been given, and now be given, leave to prosecute. Whether, in all the
circumstances, it now chooses to proceed with the prosecution is, of course, a
matter for it.
Accordingly, I would dismiss the first appeal but allow the second
appeal and grant the agency leave to prosecute.
Giving his judgment, ROBERT
WALKER LJ said: I agree that the first appeal (as to the point of
statutory construction) should be dismissed and that the second appeal (as to
the judge’s exercise of discretion) should be allowed, in each case for the
reasons stated by Scott Baker J, whose judgment I have had the advantage of
reading in draft. I add some comments of my own only because we are differing
from the views expressed by the Inner House of the Court of Session in Air
Ecosse Ltd v Civil Aviation Authority (1987) 3 BCC 492. That was one
of the earliest reported cases on administration under Part II of the
Insolvency Act 1986, which came into force on 29 December 1986. The
administrators of Air Ecosse were appointed on 17 February 1987 and the
judgment of the Court of Session was delivered on 3 July 1987.
All three members of the court construed the reference to ‘other
proceedings’ in section 11(3)(d) of the Insolvency Act 1986 as limited to
‘steps which may be taken by a creditor against a company’ (as Lord
Justice-Clerk Ross put it at p502). They reached that conclusion by applying
the rule of construction known as the ejusdem generis rule (‘of the same
kind’). The rule was described as follows by Lord Diplock in Quazi v Quazi
[1980] AC 744 at p807G-808B (a case on
the meaning of ‘judicial or other proceedings’ in section 2(a) of the
Recognition of Divorces and Legal Separations Act 1971):
As the latin words of the label attached to it suggest, the rule
applies to cut down the generality of the expression ‘other’ only where it is
preceded by a list of two or more expressions having more specific meanings and
sharing some common characteristics from which it is possible to recognise them
as being species belonging to a single genus and to identify what the essential
characteristics of that genus are. The presumption then is that the draftsman’s
mind was directed only to that genus and that he did not, by his addition of
the word ‘other’ to the list, intend to stray beyond its boundaries, but merely
to bring within the ambit of the enacting words those species which complete
the genus but have been omitted from the preceding list either inadvertently or
in the interests of brevity.
The rule should not be applied in a mechanistic fashion, since
(except in the simplest cases) the recognition of expressions as ‘sharing some
common characteristics’ may involve the exercise of judgment. Nor should the
rule exclude other matters that may help to indicate the legislative purpose.
In this case, there is ample material indicating that the general
legislative purpose of Part II of the Insolvency Act 1986 is, as Nicholls LJ
put it in Re Atlantic Computer Systems plc [1992] Ch 505 at p528B:
an administration is intended to be only an interim and temporary
regime. There is to be a breathing space while the company, under new
management in the person of the administrator, seeks to achieve one or more of
the purposes set out in section 8(3). There is a moratorium on the enforcement
of debts and rights, proprietary and otherwise, against the company, so as to
give the administrator time to formulate proposals and lay them before the
creditors, and then implement any proposals approved by the creditors.
So the primary aim is to provide a company with a breathing space
from pressure from its creditors, either in the hope of its surviving as a
going concern, or for one of the other purposes specified in section 8(3) of
the Insolvency Act 1986. But that primary aim does not automatically exclude
other considerations. Nicholls LJ went on to say, in a passage that is relevant
to both the appeals before this court:
Parliament must have intended, for instance, that, in appropriate
circumstances, and for a strictly limited period, … a lessor or owner of
goods [occupied or used by the company in administration] might not be given
leave [to enforce his rights] if giving leave would cause disruption and loss
out of all proportion to the loss which the lessor or the owner of goods would
suffer if leave were refused. Indeed, Parliament must have intended that when
exercising its discretion the court should have due regard to the property
rights of those concerned. But Parliament must also have intended that the
court should have regard to all the other circumstances, such as the
consequences which the grant or refusal of leave would have, the financial
position of the company, the period for which the administration order is
expected to remain in force, the end result sought to be achieved, and the
prospects of that result being achieved.
Although the Court of Session was (in my respectful view) plainly
right in discerning proceedings, or other actions by creditors, to establish or
enforce their claims, as much the most important subject-matter of paras (a) to
(c) of section 11(3), it was wrong to regard such proceedings as the only
subject-matter of those paragraphs. In particular, para (a) applies to every
sort of resolution or order that may be passed or made for the winding-up of a
company. It is true that, in order to be in administration at all, a company
must be (or be likely to become) unable to pay its debts, so that a members’
voluntary winding-up is in practice excluded. But a creditors’ voluntary
winding-up is brought about by a resolution of the company in general meeting
and can hardly be described (as Lord McDonald appears to have done at p495) as
a course of action open to creditors. Moreover, section 11(3)(a) would bar a
petition for the winding-up under what is now section 124A of the Insolvency
Act 1986, on grounds of the public interest, of a company that might be in
administration but still carrying on some potentially harmful business. An
administrator is, of course, an officer of the court and ought not consciously
to carry on any business that is against the public interest. But the facts of
the appeals now before this court show that even the most responsible
administrator may find himself involved in a situation where the implications
of continuing a
the health and welfare of the community. When this point was raised in the
course of argument, Mr Stephen Davies (for the administrator) pointed out,
against his client’s interest, that so long as an administration continues the
court has no power to give any permission overriding the prohibition on
winding-up in section 11(3)(a). That is so, and the same is true of section
11(3)(b). But that has no bearing on whether the courses of action referred to
in section 11(3)(a) to (c) have the common characteristic of being courses of
action available to creditors (and not to others).
These points raise doubts as to whether there is, in section
11(3)(a) to (c), sufficient homogeneity to enable the court to conclude that
the scope of section 11(3)(d) is restricted. In the light of the decision of
this court in Re Atlantic Computer Systems, Mr Stephen Hockman QC
(appearing with Mr Stephen Moverley Smith for the Environment Agency) modified
his support for Air Ecosse by widening the category of claims by
creditors so as to let in claims by landlords, hire-purchase companies and
others with proprietary claims. In Re Celtic Extraction Ltd [1999] 4 All
ER 684, this court has held that a waste-management licence granted under the
Environmental Protection Act 1990 is property for the purposes of section 436
(and moreover can be disclaimed as onerous property). Re Celtic Extraction
underlines the importance of Mr Hockman’s concession, since the Environment
Agency clearly has a very close interest (if not what would normally be
described as a proprietary interest) in the waste-management licence that it
granted to Rhondda Waste Disposal Ltd.
But even that widened category does not give section 11(3)(d) its
full force. Air Ecosse has now been consciously departed from in three
first instance decisions in England and Wales: Re Paramount Airways
[1990] BCC 130 (Harman J), the decision now under appeal, and the decision in Biosource
Technologies Inc v Axis Genetics plc 2 November 1999*, in which
Ferris J approved and followed the decision now under appeal. It was cited in Re
Barrow Borough Transport Ltd [1990] Ch 227 but Millett J made no comment on
it; it received only a passing and neutral mention when the Paramount
Airways case came to this court (as Bristol Airport v Powdrill:
see [1990] Ch 744 at p752); and it was distinguished by the Employment Appeal
Tribunal in Carr v British International HelicoptersLtd [1993]
BCC 855. In my view, the decision in Air Ecosse, based as it is on the ejusdem
generis rule, should not be followed, and section 11(3)(d) should be given
its wide natural meaning so as to include criminal proceedings.
*Editor’s note: Reported at [2000] 1 BCLC 286
In the exercise of his discretion, the judge, having correctly held
that the range of proceedings relevant to section 11(3) was not limited to
steps taken against a company by its creditors (or others with proprietary
claims against it), then misdirected himself by limiting his attention to the
interests of the company’s creditors. He paid insufficient attention to the
wider public interest in the prosecution of what may be proved to have been
serious offences arising out of operations that have, for three years or more,
plagued the lives of many residents in this part of the Rhondda.
Giving his judgment, HENRY
LJ said: I agree with the judgments of Robert Walker LJ and Scott
Baker J, and wish merely to add a word on the Paramount Airways case, Bristol
Airport plc v Powdrill [1990] Ch 744 (CA).
In that case the Court of Appeal, presided over by Sir Nicolas
Browne-Wilkinson V-C, dealt with an airport authority’s statutory claim under
section 88 of the Civil Aviation Act 1982 for the detention and sale of the
aircraft of an airline, in administration but still operating commercially, in
satisfaction of unpaid airport charges. The court there found that the
statutory right of detention was a ‘ lien or other security’, and its exercise
constituted a ‘[step] taken to enforce [a] security’ within the meaning of
section 11(3)(c) of the Act. Accordingly, the leave of the court was required.
That was the ratio of the court’s decision on that issue, and so it
was not strictly necessary for it to go on to consider the second point, namely
whether that leave would equally have been required under section 11(3)(d), but
they expressly did so at p265. The submission was that statutory detention
required the leave of the court as being ‘other proceedings… against the
company or its property’. The Vice-Chancellor, with whom the other judges
agreed, said at p765F:
I have no hesitation in rejecting that view. In my judgment the
natural meaning of the words ‘no other proceedings… may be commenced or
continued’ is that the proceedings in question are either legal proceedings or
quasi-legal proceedings such as arbitration. …
Further, the reference to the ‘commencement’ and ‘continuation’ of
proceedings indicates what Parliament had in mind was legal proceedings. The
use of the word ‘proceedings’ in the plural together with the words ‘commence’
and ‘continue’ are far more appropriate to legal proceedings (which are
normally so described) than to the doing of some act of a more general nature.
So the thinking was that the act of detention was not part of any
legal proceedings, but was a statutory act of self-help, a ‘step to enforce a
security’ as referred to in section 11(3)(c), and not a legal proceeding as, say,
an application for an interim injunction would be.
While we are not strictly speaking bound by the court’s finding
that under section 11(3)(d) ‘proceedings’ are restricted to legal or
quasi-legal proceedings (and so would include criminal proceedings), as that
finding was clearly carefully considered, so it should be given proper weight.
But the question of what weight it should have with us is crucially dependent
upon whether the court intended the meaning of ‘legal proceedings’ to be
restricted to ‘civil legal proceedings’. In my judgment, that was not its
intention, and there is nothing to suggest that it was. Indeed, everything
points to the fact that it had specifically in mind the possibility of criminal
prosecution coming within that definition.
First, for reasons set out by Scott Baker J, the internal
construction of the Act points strongly to ‘other proceedings’ including
criminal proceedings.
Second, subsections (5) and (7) of section 64 of the Civil Aviation
Act 1982 are offence-creating sections, and it is clear from the judgment at
p774H that the court had in mind the possibility of the airline or its
employees committing a criminal offence.
Third, Lord Justice Woolf at p771D considered what he regarded as a
parallel case, namely Re Smith (a bankrupt), ex parte Braintree District
Council [1990] 2 AC 215. That case concerned section 285 of the Insolvency
Act, and dealt with the courts’ power to stay:
any action, execution, or other legal process against the property
or person of the debtor or, as the case may be, of the bankrupt.
For those reasons, it seems to me to be clear that the court in the
Paramount Airways case had criminal proceedings well in mind, that it
intended to include criminal proceedings in ‘legal proceedings’, and that,
accordingly, its construction should be followed by us.
Accordingly, the first appeal will be dismissed, and the second
allowed.
First appeal dismissed; second appeal allowed.
