Frankice (Golders Green) Ltd v The Gambling Commission [2010] EWHC 1229 (Ch)

Case No 21651 of 2009

21652 of 2009 and

21655 of 2009

[2010] EWHC 1229 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Thursday, 6 May 2010

Before

MR JUSTICE NORRIS

Between

IN THE MATTER OF FRANKICE (GOLDERS GREEN) LIMITEDClaimant

HUDSON AND ORSClaimant

THE GAMBLING COMMISSIONDefendant

IN THE MATTER OF FRANKICE (GOLDERS GREEN) LIMITED

HUDSON AND ORS

THE GAMBLING COMMISSION

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Ms Raquel Agnello Qc And Mr Phillip Hinks (Instructed By Messrs Lawrence Graham) Appeared for Applicant

Mr George Bompas Qc And Mr Alistair Tomson (Instructed By Messrs Eversheds) Appeared for Respondent

Judgment

[1]The question raised for decision is one that I find difficult. It is whether certain steps now being taken by The Gambling Commission in relation to the business of three companies fall within the scope of the moratorium imposed by paragraph 43(6) of schedule B1 to the Insolvency Act 1986. It is regrettable that the issue actually falls for decision given what I regard as the exemplary dialogue that has hitherto been conducted between The Gambling Commission on the one hand and the administrators of the three companies on the other, but it is plain that matters have got to a stage at which The Gambling Commission regards any entrenchment upon its regulatory powers as something that is not up for negotiation.

[2]The context in which the application is made is that there was yesterday due to be held a crucial hearing by The Gambling Commission but, because argument had not concluded at the close of the day, I requested, and The Gambling Commission unhesitatingly granted, an adjournment of that hearing so that it now stands over until 20 May. Nonetheless, the question must be decided immediately in view of its importance in these administrations.

[3]On 7 December 2009, the Agora Group entered administration as the result of the appointment of administrators by a qualifying charge holder. The group which entered administration has a deficiency of the order of £84 million, a substantial part of which consists of accumulated Crown debts for PAYE, NIC and Amusement Machine Licence duty. The Agora Group consists of three operating companies, Frankice (Golders Green) Limited, Leisure World (UK) Limited and Caesar's World Limited. In addition, there is a property holding company. The business of the three operating companies is that of the conduct of amusement arcades at some 100 sites. The conduct of that business requires certain licences under the Gambling Act 2005. The companies themselves need an operator's licence. They must employ persons who have personal management licences (“PML”): and the business must be conducted at premises which themselves are licensed. The Gambling Commission is responsible for the operational licences and for the PMLs. Local authorities are responsible for premises licences, but it is part of The Gambling Commission's function to secure that the operational business is conducted properly by reference to the available premises licences.

[4]Section 33 of the Gambling Act provides that a person commits an offence if he provides facilities for gambling unless certain conditions are satisfied. But that prohibition does not apply if the person holds an operating licence authorising the activity and the activity is carried on in accordance with the terms and conditions of the licence.

[5]The three operating businesses in administration are trading administrations. The object of each administration is to secure a better return for the creditors than would be achieved if the companies were immediately to enter into liquidation, making some 600 employees redundant and closing the 100 trading premises.

[6]The proposals of the administrators to achieve this objective were set out in proposals dated 27 January 2010. The proposals state that the administrators hope to achieve the objective through a sale of the company's assets at a higher value than would be achieved had they not traded the businesses and had sold on a break-up basis. Accordingly, the continuation of trading until sale is a fundamental part of the strategy to achieve the objective.

[7]The appointment of the administrators constituted a change of management structure for the purposes of the Gambling Act and accordingly there commenced a dialogue between the administrators and The Gambling Commission as to the conduct of the trading businesses. In the course of this, it rapidly came to light that the directors whose places were taken by the administrators had not been conducting the businesses in strict conformity with the licence conditions. In particular, the number of gambling facilities that each company was permitted to provide was not in conformity with the business actually conducted. The administrators undertook a considerable overhaul of the management of the companies to the extent that the administrator's evidence is that the collective business of the group now conforms to all of the necessary gambling legislation and to the conditions contained in the operating licences.

[8]The conduct of the business by the administrators relies on the retention of certain individuals who have PMLs granted by the Commission. This, too, has been the subject of examination and amendment by the administrators in conversation with The Gambling Commission. The overall picture presented by the evidence is that, whatever may have occurred in the past, the administrators are, in essence, conducting a compliant business.

[9]The administrators were aware on their appointment that The Gambling Commission had concerns about the previous conduct of the business and were anxious to secure that the they rectified the relevant defaults. The Gambling Commission had in fact, on 2 November 2009, already begun an investigation into suspected breaches of the licence conditions and of the requirements of the Act by the directors and the holders of PMLs in the three operating companies. As well as trading the businesses, the administrators have taken considerable efforts to provide The Gambling Commission with material to enable The Gambling Commission to further those investigations. No criticism has been level by The Gambling Commission at the administrator's response to requests for information.

[10]As well as trading the businesses and assisting in the investigations of The Gambling Commission, the administrators also undertook a marketing of the businesses of the companies. They did so with the assistance of professional agents. This resulted in over 100 expressions of interest and approximately 30 offers for the business and assets of the trading companies. The joint administrators and their professional agents spent much time evaluating these offers and considering which ought to be accepted. Certain high offers were rejected on the grounds that it was suspected that they were made by parties connected to the former management. The administrators were alive to the risk that, if they selected such a purchaser, that purchaser would have to obtain an operating licence of its own from The Gambling Commission, and that process would be difficult if The Gambling Commission took the view that the new purchaser was connected with the deficient previous managers.

[11]On 25 February 2010, the administrators entered into a contract with a purchaser called Minmar. Under the terms of the contract, it is intended that the businesses should be transferred to Minmar as a going concern with effect from completion, Minmar undertaking that, after completion, the business will be carried on by it as a going concern and that the assets acquired will be used in carrying on the business of the companies or a business of the same kind. In this way, the interests of employees are protected. The completion date for the contract is set for 11 May 2010. Until completion, certain interim arrangements are in place. First, the purchaser has the obligation to pay for the current trading losses of the businesses by payments of a stated amount, approximately £250,000 per month, which payments conclude on 11 May 2010. Second, the purchaser has the right to put in place consultants to advise the administrators as to the conduct of the business pending completion. Third, the purchaser undertakes forthwith to make an application to The Gambling Commission for an operating licence in order that, at completion, it should be able to continue the business.

[12]Those arrangements have been effective and the company has continued to trade. There is, however, the prospect that completion will not take place on 11 May. That is because, in breach of its contractual obligation, Minmar did not forthwith apply to The Gambling Commission for the grant of an operator's licence. It only made that application on 30 April and the process leading to the grant of an operator's licence takes between six and eight weeks. In the circumstances, the administrators might be entitled to call upon Minmar to complete the purchase, notwithstanding the absence of an operator's licence (and at the risk of not preserving the employees’ jobs, leading to further claims in the administration); or alternatively, the administrators might be able to serve a notice to complete.

[13]What is in fact occurring is that negotiations are taking place between the administrators and Minmar for an extension to the completion date, for an extension of the interim funding arrangements and for an extension of the consultancy arrangements. But these negotiations are not concluded and the outlook is not certain. It may, however, be anticipated that an extension of some sort is likely to be granted, since Minmar is unlikely to wish to write off its very considerable investment in the trading losses pending completion, and the administrators for their part, are unlikely to want to lose what they are advised is an advantageous price.

[14]The investigations by The Gambling Commission which began on 9 November have been taking their course. They reached the stage on 9 April at which The Gambling Commission was prepared to indicate that they were approaching their conclusion. On that date, a meeting took place between the administrators and officials of the Commission. The prospect of the contract not completing on 11 May was discussed. The Gambling Commission expressed the view that it wished to conclude its investigations before the completion because they were concerned that, if, after completion, the administrators were to surrender the relevant company's operating licences, then The Gambling Commission would have no means of expressing a view about the earlier conduct of the directors of the relevant companies. The administrators offered an undertaking that they would not surrender the relevant operating licence without notice to The Gambling Commission (thereby enabling The Gambling Commission to take whatever steps of a regulatory nature it thought fit).

[15]On 19 April, The Gambling Commission served on the administrators what are called “preliminary findings” as a result of their investigations (including a case summary which set out the material matters). They provisionally made some twelve adverse findings. Of these, all but one relate to the conduct of the business by the directors who were replaced by the administrators. One possibly extends to the conduct of the administrators themselves, namely that there had been changes to the management structure of the company such that the Commission could not be clear about what roles and responsibilities were held by whom.

[16]At the conclusion of the letter, The Gambling Commission set out a preliminary assessment of seriousness of the preliminary findings which was in these terms:

"Our assessment at this stage is that the seriousness of the above matters, if found proven, is such that the conditions for revoking a licence under section 120 of the Gambling Act 2005 appear to be met. However, the principal purpose of the Commission exercising its regulatory power is to protect the public interest and the fact that the licensee is now in the control of Administrators and that the licensed activities are likely to be provided by new operators in due course is clearly a highly relevant factor in the Commission's decision making."

The Commission pencilled in 6 May as the possible date for a regulatory panel to be convened to "consider this matter".

[17]The case summary referred to one further matter about which The Gambling Commission was unclear. It noted that, whilst some action had been taken by administrators to address the situation regarding premises licences, it was not sufficient to ensure that the estate was fully compliant in this regard. This was a reference to the discovery that some of the premises from which the company traded did not have an appropriate premises licence. The administrators had rectified that by making immediate applications for the relevant licences and, as the relevant statute provided, requested that the licence be backdated to the date when their trading as administrators commenced. But The Gambling Commission appears still to have concerns about the issue.

[18]The threat that the trading licences may be revoked or suspended because of the seriousness of the previous directors' defaults, naturally caused the administrators alarm. If either event occurred, then, on 6 May, the companies would cease to be lawfully trading companies. A sale as a going concern would have to be abandoned.

[19]They accordingly wrote to the Commission to indicate their view of proceedings before a regulatory panel could not continue because of the moratorium imposed by paragraph 43 of Schedule B1 the 1986 Act. But the administrators made clear that they had no objection to the Commission proceedings being allowed to continue after the sale had completed and they immediately granted their consent (under paragraph 43) to that course being taken.

[20]However, on 28 April, the Commission declined to take that course. It explained that it was not prepared to postpone the then current reviews of the operating licences until after the sale of the assets had been completed. The Commission said that it did not accept that a licence review under the Gambling Act 2005 necessarily fell within the scope of the moratorium, but expressed the view that, even if it did, the Commission considered that the licence review must be allowed to proceed. It said that it considered that the outcome of the current review was relevant, both to the PML reviews (then also under way) and "may also be relevant to the determination of the application from the prospective purchaser of the business".

[21]It is in these circumstances, and I have skated over much of the dialogue between the Commission and the administrators, that the present application is made by the administrators for directions as to whether indeed the present proceedings of The Gambling Commission are caught by the legal moratorium.

[22]In order to consider that question, it is necessary to understand the mechanics of the Gambling Act 2005. Section 1 of that Act sets out what I will call “the licensing objectives” by reference to which the Commission must act. These are threefold. First, preventing gambling from being a source of crime or disorder; secondly, ensuring that gambling is conducted in a fair and open way; and thirdly, protecting children and vulnerable persons from being harmed or exploited by gambling.

[23]The Commission has, under section 22, a duty to promote those objectives and to permit gambling insofar as the Commission thinks it reasonably consistent with the pursuit of the licensing objectives. The Commission is empowered to investigate whether any offence has been committed under section 33 of the Act to which I have already referred, and empowered to institute criminal proceedings in respect of any such offence.

[24]Section 116 of the Act provides that the Commission may conduct a review of the manner in which licensees carry on licensed activities. They may review any matter connected with the provision of facilities for gambling as authorised by an operating licence. If the Commission has reason to suspect that the activities are not in accordance with the condition of the licence, or for any reason suspects that the licensee may be unsuitable to carry on the activity or thinks that a review would be appropriate. In conducting the review, the Commission has a statutory duty to give the licensee an opportunity to make representations.

[25]Section 117 then sets out the regulatory powers. It provides that:

"(1) Following a review under section 116 … the Commission may - (a) give the holder of … a licence a warning; (b) attach an additional conditional to a licence … (c) remove or amend a condition attached to a licence … (d) … suspend a licence… (e) … revoke a licence; or (f) … impose a penalty."

[26]Section 118 and section 119 (which deal with suspensions and revocation) enable the Commission to invoke the powers of suspension or revocation, not only after the conducting of a review, but also as an interim and immediate measure in other defined circumstances.

[27]By section 141, a right of appeal is provided from any determination of the Commission. That right of appeal now lies to the first tier tribunal and then lies on a point of law to the Upper Tribunal.

[28]To supplement these statutory power, the Commission has set out certain policies and procedures which it intends to follow. One of those policies is that the Commission will take regulatory action in preference to commencing criminal investigations unless it is appropriate to do otherwise. That is part of its function of enforcement. Paragraph 5 of its Licensing Compliance and Enforcement Policy Statement notes that in its widest sense the Commission's enforcement power includes the regulatory or criminal investigation processes which may result in the exercise of the Commission's regulatory powers under the Act or the commencement of a prosecution and the laying of criminal charges. Of the two alternatives though, as the policy statement makes plain, there is a preference for regulation over prosecution.

[29]If the Commission decides to exercise its regulatory powers and in particular to exercise its powers to suspend or revoke, then those powers can only be exercised by three Commissioners sitting as a panel under a chairman. The summary interim suspension powers to which I have referred may, on the other hand, be executed by the Chief Executive, the Deputy Chief Executive or the Director of Regulation. A procedure is set out for the Panel. It is contained in a document entitled "Licensing and Regulatory Decisions - Procedures and Guidance". Paragraph 4.2 of that document states as follows:

"The purpose of the procedures which follow is to ensure a fair process, which accords with the requirements of natural justice and the Human Rights Act 1998."

[30]Under the procedure, where a case is referred to the regulatory panel, a set of case papers is prepared for the Panel, which includes the provisional findings and evidence obtained by the Commission during the review and any representations and evidence provided by the licensee. An attempt will be made to agree a statement of facts, but where the facts of the case are disputed, then the licensee or their representative and the Commission's representative, will each have the opportunity to put their version of events to the Panel. The Panel will then approach the decision making process in two stages. First, the Panel will make brief findings of fact. In doing so, the Panel will decide the facts by adopting the balance of probabilities test. The Panel will then determine what action, if any, to take. That process is described as "an exercise of judgment to be made in the light of the facts the Panel have found".

[31]The chair of the Panel is encouraged to adopt an investigative rather than an adversarial approach at the hearing, in order both to secure that the proceedings do not become adversarial in nature and to ensure that all issues are explored. The Panel is assisted by a legal adviser. His role is to provide the Panel with any advice they require properly to perform their functions - on questions of law and mixed fact and law, on matters of practice and procedure, on the range of outcomes or penalties available, on any relevant decisions of the superior courts and on any other matter relevant to the issue before the Panel. It is the duty of the legal adviser to ensure that the proceedings do not become overly legalistic, but his role is confined to providing advice in an unobtrusive manner.

[32]Advice is given as to the management of witnesses at the hearing and as to their oral examination. There is then detailed advice as to the conduct of the hearing itself, including an opportunity for the licensee to sum up and the Commission's employees to sum up (though it is made clear that the employees may not take part in the decision making process of the Panel).

[33]The Panel's decision is to be made and confirmed in writing within 14 days of the conclusion of the hearing. The decision letter will identify the matter considered by the Panel, contain a summary of the evidence, contain the findings of fact, set out the Panel's decision and give the reasons of the Panel.

[34]That is the nature of the hearing that was scheduled for 6 May. The issue is whether, in the terms of paragraph 43(6) of Schedule B1, it constitutes "legal process including legal proceedings, execution, distress and diligence", which may not be instituted or continued against the company without the consent of the administrator or the permission of the court.

[35]Nothing I say in the course of this judgment will in any way affect the summary powers to suspend and revoke which are exercisable by officials of the Commission in the circumstances indicated in the Act. I am concerned with the intended review hearing. It is important to identify that as the matter on which to concentrate because, in some of the correspondence, it might be thought that the administrators were complaining about the review process as a whole, including investigation.

[36]The precise question is whether the intended review hearing scheduled for today but postponed at my request yesterday evening, is “legal process”. The importance of identifying the precise question was noted by the Court of Appeal in Re Railtrack

[2002] 1 WLR 3002

at page 3006 in paragraph 9. The administrators, of course, say that such intended hearing would be legal process. The Gambling Commission say that it is not, that what is going on is the taking of an administrative decision in a fair way and, indeed, that is the way in which it is described in their “Guidance on Regulatory Decision Making after a Licence Review”, paragraph 1 of which declares:

"The decisions to be taken, whether by the Regulatory Panel or by employees acting under delegated powers are all administrative decisions, which must be taken in accordance with the framework set out in the Gambling Act 2005 … and the principles of fairness and natural justice."

[37]The issue is whether that is right. The nature of English law is to define the boundaries of a term by the accumulation of single instances. It is common ground before me that those instances will include decisions made under slightly but immaterially different wording in the original section 11(3) of the Insolvency Act 1986 and also under section 130 of the Insolvency Act 1986 (on which see the recent observations of Stanley Burnton LJ in Bloom v Harris

[2010] 2 WLR 349

at 357).

[38]It is unnecessary to go through each of the decisions to analyse the relevant reasoning and indeed time does not permit. But the following description will suffice. First, it is clear that legal process and legal proceedings are not confined to claims by creditors against the company; they include claims against the company by third parties, see: Biosource Technologies v Axis Genetics

[2000] 1 BCLC 286

. Second, it is plain that the legal process and legal proceedings are not confined to civil proceedings. Criminal proceedings are also caught by the moratorium, see: Rhondda Waste

[2001] Ch 57

, where a prosecution for breach of environmental regulations was permitted against the company, though the court plainly held that the criminal proceedings were caught by the moratorium. Thirdly, it is plain that the relevant legal process or legal proceedings are not confined to proceedings before a court of law. It covers proceedings before tribunals, before arbitrators and before statutory adjudicators.

[39]The question is: what guidance do those single instances give in relation to the instant case? For my part, I have looked at the words "legal process… against the company”. I think the word "process" suggests something with a defined beginning and an ascertainable final outcome and which, in the interim, is governed by a recognisable procedure. I think the word "legal" indicates that that process must in some sense invoke the compulsive power of the law, and it suggests that the procedure must be quasi-legal in nature. One indicator of that might be that the process results in an appeal rather than, for example, reconsideration by means of judicial review, but I accept the submission of Mr Bompas that an appeal, of itself, does not determine whether a process is a legal or administrative one.

[40]This morning he drew to my attention the decision in Cavanagh v Chief Constable of Devon & Cornwall

[1974] 1 QB 624

where, under the Firearms Act 1968, there was an appeal from the Chief Constable to the Crown Court. The Court of Appeal held that the decision of the Chief Constable was an administrative decision and that the nature of that decision did not alter, even when it was reconsidered by the Crown Court because the Quarter Sessions (to which the appeal had originally lain), had an extensive jurisdiction in the administrative field as well as a judicial jurisdiction in the criminal field.

[41]It is also important that this legal process is brought against the company, a matter that was underlined by Lord Woolf in Railtrack (supra) at paragraph 24. Railtrack is the key to Mr Bompas' submissions that regulatory decisions are not correctly described as legal process. He suggested that in some sense the legal process against the company must be adversarial and that the legal process must determine the dispute between the company and another party and that regulatory decisions fell outside the scope of such a description. I do not think that either Railtrack or the Air Ecosse case referred to in it, is actually authority for that analysis.

[42]In Railtrack, Railtrack was made the subject of a railway administration order. A train operator applied to the rail regulator for directions requiring Railtrack to enter into an access contract permitting it to use the track for operating trains. The railway administrators of Railtrack objected to a number of terms about the contract. However, the administrators and the train operator resolved their differences. But the regulator then brought proceedings against the railway administrators seeking a declaration that the statutory moratorium imposed by section 11(3) of the 1986 Act, would not cover a determination by the regulator under the relevant Act. The Court of Appeal granted the declaration that the regulator sought, but it is important to see the context in which they did so.

[43]The rail regulator's functions were set out in section 4 of the Railways Act 1993. They are summarised in paragraph 16 of the judgment in Railtrack and I will not lengthen this judgment by repeating them. In essence, they emphasised the duty of the regulator to protect the interests of users of railway services and to facilitate the furtherance of strategies formulated by the strategic rail authority so as to contribute to the development of an integrated system of transport and passengers, and enable people to plan railway services for the future with a reasonable degree of assurance.

[44]The Court of Appeal held that whatever the nature of the section 17 procedure which enabled the rail regulator to give directions to a facility owner to grant an access contract, the rail regulator himself could have a separate agenda from the applicant or from the facility owner when discharging his functions. Accordingly, whilst the procedure for obtaining a section 17 direction had many of the qualities of a procedure associated with legal or quasi-legal proceedings, the true nature of the decision was different from that in such proceedings and the similarity in procedure was simply designed to achieve fairness which was, in any event, a requirement of all administrative decision-making. Accordingly, the Court of Appeal attached less significance to the procedure than had the Vice-Chancellor at first instance, and gave greater weight to the strategic role of the regulator. The Court of Appeal noted that it would be to turn the rail regulator's role on its head to make him subject to the consent of a body, namely the railway administrators, who it was his responsibility to regulate while the administration continued.

[45]In reaching that view of the facts, Lord Woolf said that he could understand why the decision in Air Ecosse

[1987] 3 BCC 492

had gone the way it had. Air Ecosse also involved a decision by a regulator (the CAA) . Mr Bompas said that there were two grounds on which the decision by the Inner House of the Court of Session proceeded. The first was the (now disapproved) ground that the legal proceedings had to be of the nature of proceedings by a creditor against the company. But Mr Bompas drew attention to a passage in the judgment of Lord Robertson at page 496 of the report in which Lord Robertson said:

"I also take the view that it is unlikely that Parliament would intend to limit the powers which it has conferred upon the CAA by the terms of an insolvency statute. It must be assumed that the CAA will exercise these powers strictly in accordance with their statutory remit in a judicial fashion. I find it difficult to envisage what benefit will accrue to members of the public who make use of air transport if leave of the court has to be obtained before the CAA can consider an application for the revocation of a licence held by an operator company which is subject to an administration order. It may be of importance to the survival of the company or to the advantageous disposal of its undertaking that its licence should not be revoked. It may also be … that some procedure can be devised within the administration process whereby leave of the court can quickly be granted or refused. These are not, however, matters which fall within the general objectives of the CAA under section 4 of the 1982 Act, to which their activities must be directed."

[46]None of the other members of the court appear to have supported that view, but I apprehend it is that passage which received the approval of Lord Woolf in Railtrack.

[47]In the instant case, I consider that the nature of the decision which the regulatory panel is called upon to make and the circumstances in which and the procedure according to which the decision is made, fall within the description of “legal process”. It is difficult to articulate why I have formed this impression. There is undoubtedly a “process”. It is governed by a procedure. The whole process has about it the stamp of a case being presented by the Commission, being answered by the licensee and being decided upon according to legal advice and for declared reasons by an independent and impartial regulatory panel from whose deliberations employees of the Commission are excluded.

[48]It may well be that the Commission in advancing its case to the regulatory panel will pray in aid matters of public interest, having regard to the licensing objectives which are set out in the Gambling Act. But I do not think that the quality of the regulatory panel's decision is the same as the quality of the decision which the rail regulator himself had to take in Railtrack. It is much closer to an adjudication upon presented cases than to strategic decision making undertaken irrespective of the wishes of either contending party. It has a defined beginning, namely the presentation of the preliminary findings and the preparation of the case for the regulatory panel. It has a defined and recognisably legal procedure for the conduct of the hearing itself. It has a defined outcome, namely a reasoned decision which reviews the material before the court, and it is subject to what is plainly a legal appeal.

[49]I do not think that there can be any general public policy that regulatory decisions or decisions to enforce regulated conduct cannot fall within the scope of the moratorium. That argument was advanced in the Rhondda Waste case where it was suggested that criminal proceedings are normally brought in the public interest by the Crown or some other public body and that, whilst they might affect the financial position of the person against whom they were brought, that was not their primary purpose. Their purpose was to uphold and enforce the criminal law, to punish the offender and to deter others, and especially in pollution and health and safety cases, to mark down particular conduct as disapproved of by society. But notwithstanding those features, Scott-Baker J (with whom the other judges agreed) at paragraph 29 of the judgment said that there was nothing to be found in any of the cases to suggest that there was anything inherently wrong in the Companies Court acting in appropriate circumstances as a filter for criminal process. Indeed, he thought, if anything the reverse was the case: he referred to decisions under section 130 of the Act including that of the Court of Appeal in R v Dickson

[1991] BCC 719

[50]He concluded at paragraph 35:

"Mr Hockman submits 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."

He then set out those reasons. First, that the filter applies only to a corporate defendant (and only to a limited class of corporate defendant). Secondly, that there may be a very good reason for not proceeding with a prosecution during an administration if the consequence may be to tip the company into irretrievable insolvency. Thirdly, that a court dealing with an administration was particularly well placed to weigh up the arguments for and against granting leave. He noted:

"When the public interest so dictates, leave to pursue criminal proceedings ought readily to be given: but that will not be every case."

There was no suggestion that in passing the Insolvency Act 1986 Parliament should be taken not to have interfered with the regulation of polluting activities or the enforcement consequences of a breach.

[51]I have endeavoured to reach this conclusion by a consideration of the authorities and by wrestling with the meaning of the words, but at bottom, the question which is raised is whether The Gambling Commission should be free to deal in an untrammelled way with the fundamental business interests of a company in administration, or whether the should the court exercise a measure of control by taking into account all relevant interests (including both financial and regulatory) . I unhesitatingly in the end come down in favour of the latter.

[52]This then raises the question whether leave should be granted. I was referred to familiar passages in Atlantic Computers

[1992] Ch 505

at 541-544. The guidance there given was specifically directed to the question of how the court is to balance property claims against the claims of other creditors in the administration (see p.542B). It is dangerous to extract much more from the guidance as of general application; but I agree with the submissions made(a) that it is for The Gambling Commission to make out a case for leave to be granted, if leave is required, and

(b) that the decision whether leave should be granted involves weighing up competing interests, and assessing the impact of granting leave upon the achievement of the purposes of the administration on the one hand, and the impact of refusing leave upon the interests of the applicant on the other.

[53]I acknowledge, as Mr Bompas said I would encounter, the immediate difficulty in weighing up what are not really commensurable interests: the public interest regulatory requirements on the one hand, and the private interest of creditors on the other. But the task is performed in a number of contexts (not least in deciding whether to lift the moratorium to permit criminal proceedings to be taken) and I see no insuperable difficulty in endeavouring to do it here. My instinct would be to give the public interest weight over private interests of particular groups, and that indeed appears to have been the approach adopted in the Rhondda case itself.

[54]The following features stand out in the exercise. First, it is not a fundamental part, though it may be an incidental feature, of The Gambling Commission's case that there is substantial, current, non-compliance. It is true that there may be a loose end as to whether permission has ultimately been granted in respect of some premises licences. It may also be true that in the management structure of the company, it is not entirely clear at present who, under the ultimate responsibility of the administrators, has particular functions and whether those functions are being discharged by PML holders. But The Gambling Commission has not seen fit to suspend any of the licences of the current active PML holders, and it has seen fit to grant a PML licence to the purchaser's consultant who is assisting and advising the administrators. The Commission does not say that it urgently needs to intervene because of some present failure to conduct matters properly which requires immediate regulatory interference to the extent of suspension or revocation of licences (and that executive power remains unexercised).

[55]Secondly, there can be no criticism of the administrators in relation to the past conduct of the business, and none is really advanced by The Gambling Commission. It is not the conduct of the administrators in relation to past trading that triggered the review: it appears to be acknowledged that (whatever the faults of the previous directors) the administrators have a good track record.

[56]Thirdly, the focus is on the former conduct of the past directors, and the case against them has substantially been made with the assistance of the administrators and at the expense of the creditors. It is not immediately apparent why it is fair that those present creditors should have their hopes of a return dashed because The Gambling Commission wish to consider revoking or suspending the current trading licence by reason of the historic defaults of earlier directors.

[57]Fourth, there is no doubt that, if licences are suspended or revoked, the operating companies will not be able to trade as going concerns and that will ravage their marketability. It is clear that the administrators stand to lose a significant sale if they cannot deliver a trading business. They will then be faced with the prospect of remarketing the business at additional expense and at a lower price. The consequences of suspension or revocation are therefore severe.

[58]Finally, it is not apparent why it is vital that the present review should proceed immediately to a regulatory panel hearing. Some attempt was made at this hearing to explain the connection between the fact-finding concerning the earlier directors, the current review of PML licences, and the fresh question of whether Minmar should be granted an operating licence. I confess I could not see any real connection. In any event, if it is important to find the facts for the purposes of considering those other issues, then there seems to be nothing standing in the way of The Gambling Commission agreeing, as was suggested at a meeting on 9 April, that it would split its review hearing into two parts: the first, the fact-finding and the second the decision making, postponing the second until after completion of the sale. I cannot understand why that convenient procedure was not adopted.

[59]Doing my best to balance these features, I have concluded that it would be appropriate to refuse permission for a review hearing to take place before the completion of the contract with the intending purchaser. This will not bar The Gambling Commission from undertaking whatever investigations and reviews it considers fit against the present operating companies and their directors following the conclusion of the sale; and the administrators have already given consent to that course being adopted. Nor will it inhibit the current investigations into the PML holders or the current consideration of the grant of an operating licence to the purchaser. Nor will it prevent The Gambling Commission renewing an application for permission in the event that the present uncertainties relating to the contract and any fresh discoveries relating to the way the administrators are currently conducting the business, raise regulatory concerns of a sufficient public interest that they require immediately to be addressed.

[60]I will accordingly dispose of the administrator's application in that way. MR JUSTICE NORRIS: What arises out of that? MISS AGNELLO: My Lord, I was going to propose to draw up a minute of order and then send it to my friend so hopefully we can put an agreed minute before your Lordship. That leaves, for my part, the issue of costs. My Lord, it is quite late in the day and I know your Lordship is busy from 2 o'clock. MR JUSTICE NORRIS: Yes. MISS AGNELLO: We have prepared a schedule of costs. As the hearing went over a day, your Lordship may simply say that the costs should be, if your Lordship is giving me an order for costs, to be assessed if not agreed. MR JUSTICE NORRIS: I cannot tell you how strong that temptation is, but there is a question of principle to be addressed first. You are asking for your costs? MISS AGNELLO: I am asking for my costs. We brought the application. We did make, as your Lordship knows from the correspondence, various suggestions as to how this matter could be accommodated without coming to court and we have had to come to court and we have succeeded. MR JUSTICE NORRIS: Mr Bompas, do you want to say anything? MR BOMPAS: I do not on the question of costs. MR JUSTICE NORRIS: Thank you. MR BOMPAS: But there are a couple of points to mention. First, when your Lordship comes to approve this judgment, the appointment of the administrators did not in fact involve, for the purposes of the Act, what would technically be a change of control under section 102. Had it, the administrators would have been obliged to apply for a fresh licence. What it actually did was it involved a change in the existing management structure, which is a reporting matter. MR JUSTICE NORRIS: It is a management structure not control. MR BOMPAS: It would have been an altogether different state of affairs if there had been a change of control. That deals with the Financial Services Act's definition of controllers, which essentially means people with shareholding interests and votes. It is a surprising point, but that is so. The second point was just to pick up this. Your Lordship referred to the meeting -- MR JUSTICE NORRIS: 9 April? MR BOMPAS: The 9 April meeting, and a suggestion that had come from The Gambling Commission. I think that that is not altogether correct. There was discussion of the point. It was tentative and I do not believe that they put forward something, "This is a proposal we can do." Your Lordship may want again just to look back at the note of the meeting. It was discussed; it was not quite in the terms that your Lordship suggested. MR JUSTICE NORRIS: Neill McCarther stated that the regulatory panel may want to make findings of fact but then defer any decision in relation to the operating licence until after the business had been sold. MR BOMPAS: Yes. MR JUSTICE NORRIS: That is the passage I had in mind. MR BOMPAS: That is the passage. He said there is a possibility that it had gone on. What is here being discussed is actually not that this is something which I know, sitting as I am, that it can be organised. It has less force as your Lordship mentioned it. The other matter, my Lord, was in connection with PMLs, where your Lordship -- I cannot remember precisely where it was -- it was a point that the PML position, if you like, was history. There have been suspensions of PMLs. MR JUSTICE NORRIS: I think I said that they had decided not to suspend the current PML holders. MR BOMPAS: The people who were, as I have put it, in the lower tier management who had been named by the administrators in their letter. MR JUSTICE NORRIS: I knew that one had been surrendered and I believe that three had been withdrawn. MR BOMPAS: There has been this interim suspension of a number of the old management. MR JUSTICE NORRIS: Yes. MR BOMPAS: My Lord, that is that. I would like also, if your Lordship would, to have permission to appeal. There is the point of principle. It affects us -- MR JUSTICE NORRIS: Yes, you can have permission to appeal. You do not need to persuade me on it. It is a difficult point. I have reached a view and Sir Andrew Morritt V-C, had exactly the same experience in Railtrack, so you can have permission to appeal. The order for costs I will make then is that The Gambling Commission will pay the costs of the applicants, those costs to be the subject of a detailed assessment on the standard basis in default of agreement. Thank you for taking me through that at such a rapid pace. - - - - - -

Frankice (Golders Green) Ltd v The Gambling Commission [2010] EWHC 1229 (Ch)

Cited in 2 later judgments