Portland Place (Historic House) Ltd, Re [2012] EWHC 4199 (Ch)

Case No CH/8097/2011

[2012] EWHC 4199 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Rolls Building,, 110 Fetter Lane,

Date Friday, 22 June 2012

London EC4 1NL

Before

MR JUSTICE MORGAN

Between

IN THE MATTER OF PORTLAND PLACE (HISTORIC HOUSE) LIMITEDApplicant

Digital Transcript of Wordwave International, a Merrill Communications CompanyApplicant

165 Fleet Street, 8th Floor, London, EC4A 2DYApplicant

Tel No: 020 7421 4046 Fax No: 020 7422 6134Applicant

Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.comApplicant

(Official Shorthand Writers to the Court)Applicant

IN THE MATTER OF PORTLAND PLACE (HISTORIC HOUSE) LIMITED

Digital Transcript of Wordwave International, a Merrill Communications Company

165 Fleet Street, 8th Floor, London, EC4A 2DY

Tel No: 020 7421 4046 Fax No: 020 7422 6134

Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com

(Official Shorthand Writers to the Court)

MR DUDDRIDGE appeared for Applicant.

MR ASHWORTH QC appeared for Secretary of State.

Judgment

Introduction

[1]On 1 September 2011 Mr Davenport was disqualified by an order made in the Southwark Crown Court under section 2 of the Company Directors Disqualification Act 1986 (“the 1986 Act”) following his conviction for fraud. He now applies to the Companies Court pursuant to sections 1 and 17 of the 1986 Act for permission from this court, which will enable him to give instructions to solicitors acting on behalf of a limited company in relation to litigation brought against that company in respect of a substantial residential property in London, the freehold of which is registered in the name of the company. The Secretary of State has been represented on this application and has expressed the view that it is inappropriate for the court to grant Mr Davenport the permission which he seeks. Mr Duddridge of counsel appears on behalf of Mr Davenport and Mr Ashworth QC appears on behalf of the Secretary of State.

[2]Mr Davenport was convicted of fraud on 19 May 2011. The fraud was a serious one which caused considerable harm to a large number of victims. I have been provided with considerable detail as to the nature of the fraud and Mr Davenport’s involvement in it. I need not recite the relevant facts, but I have taken them fully into account. On 1 September 2011 Mr Davenport was sentenced to a term of imprisonment of 7 years and 8 months. On the same day, the judge in the Crown Court made a disqualification order under section 2 of the 1986 Act in relation to Mr Davenport. I have not been provided with a copy of the order, but I proceed on the basis that the order followed the wording of section 1 of the 1986 Act (as it should have done) and ordered that Mr Davenport should not be a director of a company or act as a receiver of a company’s property or in any way, whether directly or indirectly, be concerned, or take part in the promotion, formation or management of a company unless he has the leave of the court. The period of disqualification is ten years from 21 September 2011. Mr Davenport maintains that he is innocent of the fraud of which he has been convicted. He says so in his witness statement in support of the present application. Mr Davenport wishes to appeal to the Criminal Division of the Court of Appeal against his conviction. On 19 April 2012 Ramsey J refused him permission to appeal. Mr Davenport has since renewed his application for permission to appeal to the full court. No decision has yet been made on the renewed application.

The property in question

[3]I referred earlier to litigation about a certain property. The property in question is 33 Portland Place and 4 and 4A Weymouth Mews, London W1 (“the Property”). The freehold of that property is vested in Portland Place (Historic House) Limited, a company incorporated in Nevis in the West Indies (“the Company”). The evidence states that the Property is a Grade 2 star listed building with 110 rooms and extending to 25,000 square feet. One indication of its value suggests that it is worth £20 million. The evidence before me states that prior to November 2005 Mr Davenport personally was a long lessee of the Property. He took steps to acquire the freehold of the Property under the Leasehold Reform Act 1967. On his acquisition the freehold title was vested in the Company rather than in Mr Davenport personally. This was said to be for unidentified tax reasons. The Company executed a deed of trust in relation to the property. The deed of trust is dated 12 October 2005, which was shortly before the freehold title to the property was vested in the Company. The deed of trust provides as follows:

“We, Portland Place Historic House Limited of [address given] hereby acknowledge and declare that we hold the property situated at 33 Portland Place, London W1B 1QE (‘the Property’) registered in our name as nominee for and on behalf of Mr Edward Davenport (hereinafter called ‘the Owner’) and we undertake and agree not to transfer or dispose of the said property save as the Owner may from time to time direct and we expressly declare that this authority is irrevocable by us and we further undertake and agree to account to the owner for all rental income or any other income derived from the property which maybe paid to us from time to time upon the said property and for all other monies or profit which may be payable to us in respect of the property and we further agree and undertake to exercise our rights over the said property in such a manner and for such purposes as the Owner may from time to time direct or determine.”

That deed of trust is signed by Mr Edward Davenport, describing himself as “a director”, for and on behalf of the Company.

[4]The freehold cost some £3 million in 2005. That figure is very different from the value of £20 million now placed on the property. However, I imagine that the figure of £3 million was arrived at under the relevant legislation, which does not provide for the long lessee to pay the open market value of the property with vacant possession when he is acquiring the reversion on his lease. The Company borrowed a substantial part of the £3 million from HSBC Private Bank (Monaco) SA (“the Bank”). On 1 November 2005 the Company mortgaged the freehold to the Bank to secure repayment of the loan.

[5]It is relevant to refer at this point to a restraint order dated 1 December 2009. This order was made in the Central Criminal Court pursuant to the Proceeds of Crime Act 2002. The order was addressed to Mr Davenport and to the Company, amongst others. Paragraph 8 of the restraint order froze Mr Davenport’s assets. The assets frozen included the Property and Mr Davenport’s share in, or other interest in, the Company and any assets of the Company. The order also froze the assets of the Company, and those assets were described as including the Property. As I understand it, that order remains in force.

The Company

[6]The Company was formed on 11 October 2005. One of the purposes for its formation (perhaps the only purpose) was for it to take the freehold title to the Property. There is one issued share in the Company. On 11 October 2005 the registered shareholder executed a deed of trust in favour of Mr Davenport. I need not read out the entirety of the deed of trust. Suffice it to say that the registered shareholder declared that he held the share on behalf of Mr Davenport. He further agreed and undertook to exercise the voting power of the share in such a manner and for such purposes as Mr Davenport might from time to time direct or determine. Mr Davenport has been in the past the sole director of the Company. However, following the disqualification order and the further proceedings in the Companies Court (to which I will refer below), Mr Davenport is no longer a director of the Company. The Company now has two directors, namely Mr John Whitcomb and Mr Nathaniel Michael Ricardo-Hall. I do not have any evidence from these directors. I have no information about them. I have not seen any communication from them as to their attitude to the affairs of the Company, nor as to this application. In his witness statement, Mr Davenport says that he understands that the directors are willing to take appropriate steps to allow solicitors previously instructed by Mr Davenport personally to act also for the Company and to take from Mr Davenport instructions relating to the Company’s defence of the Bank’s proceedings (to which I will refer below).

The litigation

[7]On 16 January 2012 the Bank, as mortgagee of the Property, appointed LPA Receivers in relation to the Property. On 6 March 2012 the Bank, as mortgagee of the Property, claimed possession of the Property, and also sought payment from the Company of the sums due under the mortgage. In the particulars of claim served in those proceedings, the Bank contends that the Company owes some £2.44 million and also refers to alleged breaches by the Company of the terms of the mortgage. Initially the Company was the only defendant to those proceedings. Mr Davenport applied to be joined as a second defendant and on 16 April 2012 the Master ordered that Mr Davenport be joined as a second defendant. I was not shown the terms of the application which had been made by Mr Davenport, nor was I offered any specific explanation as to why Mr Davenport wished to be joined as a defendant. It may be that it makes sense for Mr Davenport to be a defendant insofar as he claims an interest in the Property and insofar as he claims to be in possession of the Property, although at the present time he is not resident in the Property, being involuntarily in prison. On 16 April 2012 the Master gave directions as to the service of defences and further directions leading to an intended trial in the period March to May 2013. As yet, there is no pleaded defence to the Bank’s claim. In his evidence in support of the present application Mr Davenport refers to a number of defences and other applications. As to defences, he wants the Company to argue that the mortgage was not what he calls a “regular” mortgage. I understand that there is an intention to argue that the mortgage did not conform to the requirements of the Financial Services and Markets Act 2000. The evidence also appears to raise questions as to misrepresentation by the Bank as to the nature of the mortgage. There may also be issues as to the Bank’s allegations that the Company has not complied with the other terms of the mortgage. Mr Davenport also says that it may be appropriate to apply to the court for the removal of the LPA Receivers, who Mr Davenport says are both unnecessary and extremely expensive.

The earlier application

[8]This is not the first application which Mr Davenport has made for leave to act pursuant to Sections 1 and 17 of the 1986 Act. On 16 September 2011 Mr Davenport applied in the Companies Court to remain a director of the Company and of three other limited companies. On the same day, which was after the disqualification had been made but before it took effect, Mr Davenport applied for an interim order pending final determination of his application to remain a director of the Company. I imagine that some interim order was made, but I have not seen precisely what interim relief was granted. On 14 December 2011 Mrs Registrar Derrett heard Mr Davenport’s application to be allowed to remain a director of the Company and other companies. By the time of that hearing there were only two other relevant companies, Maverick Enterprises Limited and Lawrence Pountney Investments Limited. At the hearing on 14 December 2011 Mr Davenport was represented by counsel; so too was the Secretary of State. Counsel for the parties on that occasion were different from the counsel before me.

[9]I have been provided with a copy of the observations of the Secretary of State which were put before the Registrar. I also have a transcript of the judgment of the Registrar. In the observations made by the Secretary of State to the Registrar the following was said:

“It is difficult to imagine a more meritless application. Apart from the obvious difficulties of managing a company from prison with all its restrictions, Mr Davenport has been convicted of a crime involving the abuse of a company. Yet he wishes to be the sole director of companies with substantial assets and be free to trade with them as he wishes. The Secretary of State is not aware of a person in prison ever being given leave to act as a director, let alone as a sole director. Nor is the Secretary of State aware of a convicted fraudster being given leave to act as a director, let alone a sole director.”

The Registrar heard Mr Davenport’s application and gave her decision at a time which was before the appointment of the LPA Receivers and before the Bank brought its proceedings for possession of the Property. Nonetheless, the Property was referred to in the application before the Registrar and in her judgment. My attention was drawn in particular to certain remarks made in the Registrar’s judgment as follows:

“The property held by Portland Place Limited is understood to be worth some £20 million. HSBC Monaco have a mortgage over this property and I am told that some £2.5 million is presently owed on that mortgage. I believe that the company received some rental income in respect of the property. It is also apparent from Mr Davenport’s evidence that HSBC Monaco have now called in their mortgage, and on his behalf counsel submits that it is important that he has leave to continue as a director of Portland Place Limited so that he can be involved in negotiations with HSBC Monaco in an effort to avoid them appointing a receiver over the property.”

Later in her judgment the Registrar said this:

“It is argued on behalf of Mr Davenport that it is essential for him to remain as a director of the companies in order for him to maintain the status quo. It is submitted that if he is not allowed to be a director any action he might take in order to assist or protect his assets would mean that he would in effect be acting as a shadow director. Therefore it is said to be in everybody’s interests to allow him to continue to be a director as in reality he is going to do nothing other than effectively to preserve the assets pending the outcome of the confiscation proceedings.”

Later in her judgment the Registrar said this:

“In relation to Portland Place Limited Mr Davenport has in his evidence stated that he wishes to conduct the negotiations with HSBC Monaco. This has to be considered in light of the fact that he has been convicted of very serious fraudulent misrepresentations in relation to other companies. Whilst I accept that the companies are different in nature to the companies which formed the subject matter of the fraud, nevertheless it would require Mr Davenport to have an active role in the management of this company if he were to be granted leave and to conduct these financial negotiations.”

Later still the Registrar said this:

“In this case he is inviting the court to grant him permission to act in relation to companies where he is undoubtedly going to have to deal with third parties if the assets are to be preserved. Even though there may be agents in place to collect in rents and profits they are still the agents of the companies and would have to act on his instruction.”

The Registrar considered a number of other matters which were argued before her, and her conclusion was that Mr Davenport should not be granted leave to act as a director of the Company or indeed the other companies the subject of the application before her. Mr Davenport did not appeal that decision.

The 1986 Act

[10]The relevant provisions of the 1986 Act are in Sections 1, 2, 13, 15 and 17. The disqualification order in this case was made under Section 2. The disqualification order, following the terms of Section 1 of the 1986 Act, prohibits Mr Davenport from doing a number of things. Amongst those things he is prohibited from directly or indirectly being concerned or taking part in the promotion, formation or management of a company. Section 13 imposes criminal penalties for contravention of a disqualification order. Section 15 imposes personal liability for relevant debts of the company on someone who acts in contravention of a disqualification order. Section 15(1)(b) provides for the same personal liability being imposed on a person who is involved in the management of the company who acts on instructions given “without the leave of the court” by a person who is known to be the subject of a disqualification order. This plainly has implications for the directors of the Company in the present case. Section 17 provides for the present application to be made to the Companies Court. Section 17(5) provides that, on the hearing of an application such as this, the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses.

[11]There is little between the parties as to the principles to be applied on the present application. I can conveniently take a statement of principle from the skeleton argument of Mr Duddridge, where he says the following:

“On this application the court has a general discretion and must take into account and balance the relevant factors. The most important considerations are the importance of protecting the public from the conduct that led to the disqualification order. The deterrent purpose of a disqualification order and the need, or legitimate interest, of Mr Davenport to be permitted to act in the way he seeks leave to do. Where a disqualification order has been made following dishonesty, that is obviously likely to be a very important factor in deciding whether or not to grant permission – Re Barings & Others (No 3) [2000] 1 WLR 634 at 637G. However, it does not follow that permission must be refused in every such case.”

Plainly, the protection of the public is a matter of the greatest importance, but Mr Duddridge expressly accepts that the deterrent purpose of a disqualification order is also material. I did not understand Mr Ashworth on behalf of the Secretary of State to quarrel with that part of Mr Duddridge’s submissions. Mr Ashworth did stress the part of that submission which referred to the “deterrent purpose” of a disqualification order.

[12]The submissions made to me appear to be supported by the discussion in Directors’ Disqualifications and Insolvency Restrictions, Walters and Davis-White 3rd Ed at paragraph 1528, where the authorities on this point are considered and discussed. There is discussion in the authorities as to how much an applicant for permission has to show that there is a need for the permission to be granted. The view ultimately taken by the authorities appears to be that the court should have regard to all the circumstances of the individual case when deciding what is appropriate, but a typical case will involve the applicant for permission supporting his application by explaining the reasons for seeking the grant of permission. Normally an applicant will hope that the more cogent his explanation of those reasons, the stronger his application will appear to be. Mr Ashworth repeated before me the submissions made to the Registrar, which I have read from the skeleton argument drafted by other counsel placed before the Registrar. I was invited not to give what he said would be the first decision ever which granted to a dishonest former director permission to do anything under Section 1 of the 1986 Act. I can see that a court will often take the view that it is wholly inappropriate for a dishonest former director to be given any permission under Section 1 of the 1986 Act. There are obvious reasons for that being the typical response. For example, the purpose of protecting the public may be undermined by granting any such permission. Further, it may be appropriate to refuse permission in the case of a dishonest former director in view of the intended deterrent purpose of a disqualification order. However, as a matter of legal principle, there is no rule which says that in all cases involving dishonest former directors the court is disabled from granting a permission of the kind contemplated by Section 1 of the 1986 Act.

[13]On this question of whether a court should ever grant a permission under Section 1 of the 1986 Act to a dishonest former director I bear in mind the remarks of Sir Richard Scott VC in Re Dawes & Henderson (Agencies) Limited (No 2)

[1999] 2 BCLC 317

at 326. This was not a case of a dishonest director, but the remarks I will quote are of general application. “The discretion given to the court under the 1986 Act to grant leave to an individual against whom a disqualification order has been made enabling him during the currency of the disqualification order to act as a director of a particular company is a discretion unfettered by any statutory condition or criterion. It would in my view be wrong for the court to create any such fetters or conditions. The reason why it would be wrong is that no one, when sitting in a particular case to give judgment, can foresee the infinite variety of circumstances that might apply in future cases not before the court. Where Parliament has given the courts an unfettered discretion I do not think it is for the courts to reduce the ambit of that discretion. But in exercising the statutory discretion courts must, of course, not take into account any irrelevant factors. The emphasis given in a judgment in a particular case on particular circumstances in that case is not necessarily a guide to the weight to be attributed to similar circumstances in a different case. Anything I say in this case about the circumstances it seemed to me of weight in this case must be read subject to that warning.”

The further submissions for Mr Davenport

[14]Mr Duddridge submits as follows in his skeleton argument:

“Mr Davenport wishes to give instructions on the Company’s behalf and conduct its defence in the possession proceedings and any application to remove the receivers or stay the receivership. It makes sense for him to do so. (a) He is the beneficial owner of the property. (b) The Company is bound by the trust to give effect to his directions, would be bound to consult under Section 11 of the Trusts of Land and Appointment of Trustees Act 1996 and could delegate the conduct of the litigation to him under Section 9 of that Act. (c) The property is Mr Davenport’s home. (d) Mr Davenport’s defences depend largely on the facts and circumstances surrounding the taking of the mortgage. Mr Davenport has first-hand knowledge of those matters and the current directors of the Company do not. (e) It would save costs for the Company and Mr Davenport to have common representation rather than, as at present, being represented separately.”

Later Mr Duddridge said this in his skeleton argument:

“Mr Davenport has been convicted of a serious offence of fraud. The court can be expected to be hesitant about granting him permission to be involved in any way in the management of a company. However, this case is somewhat exceptional. (a). The permission sought is very limited in its scope – Mr Davenport is not seeking permission to be a director or generally concerned in the management of the Company. (b). Other than the litigation referred to above, the day-to-day conduct of the Company’s affairs will remain in the hands of the current directors. (c). There is no real prospect that the grant of such limited permission will enable Mr Davenport to engage in fraudulent activity or deceive the public – the rents are collected by a professional property agent, the property is subject to the restraint order, Mr Davenport is in prison, the costs are subject to scrutiny by the SFO (because of the restraint order) and the litigation will be subject to the directions of the court. (d). On the other hand, Mr Davenport is the beneficial owner of the property and it is his home. (e). The disqualification order should not hinder him and the Company from effectively conducting the defence of possession proceedings or, if so advised, proceedings to do with the receivership – this should not be part of the purpose of a disqualification order. Further, the court should take into account that Mr Davenport’s human rights are engaged under Article 6 (fair hearing), 8 (respect for private and family life) and Article 1 of the First Protocol (protection of property) and weigh them in the balance in considering the exercise of its discretion.”

[15]In his oral submissions Mr Duddridge told me that originally the Company and Mr Davenport had separate solicitors. Now the company was unrepresented. This was because the SFO was prepared to release only one set of legal costs for the purpose of defending the Bank’s proceedings from the monies which were subject to the restraint order to which I have referred. Mr Duddridge also told me that Mr Davenport would submit to a condition that the defence of the legal proceedings would be conducted by solicitors rather than by Mr Davenport acting as a self-represented litigant.

[16]The observations of the Secretary of State were presented by Mr Ashworth. He submitted that Mr Davenport was an unrepentant fraudster. He further submitted as follows:

“What Mr Davenport actually seeks is to act as the effective sole director of the Company as regards the litigation between the Company and the Bank. It is noted that these issues were dealt with by Registrar Derrett in her judgment. There is no real change of substance between the position as it was before her and where things are now. The Bank had called in the loan on the mortgage by then. Now they have taken steps to enforce the mortgage. It was inevitable that they would do so having called the mortgage in, and therefore it must have been in the Registrar’s mind when refusing permission to act in December 2011. She was concerned that if allowed to be the director of the Company Mr Davenport would be the person involved in the negotiations with the Bank. That concern has not been addressed. Rather he makes the same submission in his witness statement. In essence, this is an appeal against the Registrar’s decision very much out of time, albeit that this application (which has the same claim number as the application before the Registrar) is limited to one company and is for an apparently more limited purpose, although it is not clear what else this company does. As a matter of principle, Mr Davenport should not be allowed a second bite, having chosen not to appeal the Registrar’s decision.”

Apart from that submission based upon the fact of the earlier application being dismissed by the Registrar, Mr Ashworth then addressed the circumstances relied upon by Mr Davenport in the application before me. He said this in his written submissions:

“Mr Davenport has still not demonstrated any need for the Property to be in the Company. It appears that he has intended to acquire the freehold of the properly in his own name, but for tax reasons it was to be held by an offshore company. However, no details have been given of the alleged tax advantages in it being held by an offshore company and whether they still exist. It is incumbent upon someone in Mr Davenport’s position to provide full disclosure of such tax reasons if he seeks to justify involvement in that property holding company. Absent such, there is no apparent reason why, for example, the property could not be transferred out of the company to be held in his personal name. The property would still remain subject to the Bank’s mortgage. Were this to be done, there would be no need for the current application. It cannot be proper for the effect of a disqualification order, in particular one imposed following conviction for fraud, to be negated because the disqualified director has for his own tax purposes arranged his affairs in a way which involves the use of limited liability companies.”

Mr Ashworth next submitted that the directors of the Company would have a conflict of interest if they were asked by Mr Davenport to act on his instructions pursuant to the trust of the Property (to which I have referred). He further said that the directors of the Company could defend the Bank’s claim on behalf of the Company if they saw fit. They could rely on Mr Davenport as a witness if they thought it appropriate to do so. The burden of proving the facts relied on in support of the application lay on Mr Davenport. The suggested need for the permission which was sought had not been made out on the evidence.

My approach

[17]I will first consider Mr Ashworth’s point that this application should be dismissed on the ground that it is an impermissible challenge, otherwise than by way of an appeal, to the earlier decision of the Registrar. Mr Ashworth did not spell out the legal principle which he asked me to apply in determining this question. Speaking generally, during the often lengthy period of a disqualification it must be open to a disqualified person to apply more than once for leave under Section 1 of the 1986 Act if he can show a change of circumstances from the time of an earlier application. Insofar as this case is governed by CPR 3.1(7) and insofar as Mr Ashworth would wish to argue that the case does not fall within that Rule because it is in substance an appeal, I would not accept that argument. The substance of what is being sought in this application is sufficiently different from the substance of what was refused by the Registrar. In any case, the substance of what I am prepared to permit (as I will explain below) is quite clearly different from the substance of what was refused on the earlier application.

[18]Insofar as Mr Ashworth would seek to argue that this second application is an abuse of process because it could have been made to the Registrar in the earlier proceedings, then the principle I should apply is that stated in Johnson v Gore Wood

[2002] 2 AC 1

– see in particular per Lord Bingham at pages 30-31 and per Lord Millett at pages 58-61. I must focus on the particular facts of this case. I must adopt a broad merits-based approach. I agree with Mr Ashworth that the present application could have been made to the Registrar at the same time as the earlier application. However, I do not think that Mr Davenport is abusing the process of the court by bringing forward this second application for much narrower relief, even though the relevant matters overlap with the matters considered by the Registrar and even though the particular matters on which Mr Davenport relies, namely the existence of litigation with the Bank, were something that could have been contemplated at the time of the earlier hearing. In any event, in my judgment, the extent of the permission which I am prepared to grant in this case (as I will explain below) does not involve Mr Davenport abusing the process of the court.

[19]I turn then to consider the substance of the application made by Mr Davenport. I think that the right place to start is with the trust deed apparently entered into by the Company in his favour. The submissions before me were made on the basis that the trust deed was valid and effective. Mr Davenport’s evidence explains the circumstances in which the freehold was acquired as a result of his personal rights under the Leasehold Reform Act 1967 and the decision to vest the freehold title to the Property in the Company as his nominee, effectively on a bare trust. Mr Davenport’s explanation makes reasonable sense. However, the only evidence in this matter is from him. I do not know what the directors might want to say in relation to the deed of trust. The Secretary of State is not in a position to call any contrary evidence about the efficacy of that deed. Accordingly, it seems to me that I should guard against the possibility that this apparent deed of trust might not be effective. Insofar as I will later permit Mr Davenport to give instructions to the Company pursuant to the deed of trust, any order must be prefaced by the words “If and insofar as the deed of trust is effective as between Mr Davenport and the Company”. I will therefore proceed in the remainder of this judgment on the basis that the deed of trust is effective.

[20]The deed of trust commits the Company to exercising its rights over the Property in the manner and for the purposes directed by Mr Davenport. That seems to me to allow Mr Davenport to give directions to the Company as to how it should defend the proceedings brought against it by the Bank. It would also appear to allow Mr Davenport to give directions to the Company as to whether the Company should apply for the removal of the LPA Receivers. The Company would be entitled to be indemnified either by Mr Davenport personally or out of the trust property in relation to the cost to which it will be put. On the evidence before me, it appears that the net value of the trust property is substantial. Mr Ashworth submits that the terms of the trust deed place the directors of the Company in a conflict of interest. He says their duty is to the Company, whereas the trust deed places them under a conflicting duty to Mr Davenport. I do not agree. Assuming that the trust deed is effective, the Company is a nominee only of the Property. The Property is not an asset of the Company. There is no legal barrier to a company being a trustee, even a bare trustee or a nominee. There is no legal barrier to a company undertaking to act on the direction of the beneficial owner of an asset. The duty of the directors to the Company is to ensure that the Company acts consistently with its duties under the deed of trust. If Mr Davenport gives directions to the trustees in the way contemplated by the deed of trust, will Mr Davenport act in breach of the disqualification order? Will the directors become liable under Section 15(1)(b) of the 1986 Act? Mr Davenport does not ask the court to declare that such conduct is not a breach of the order. There are well-recognised difficulties about the court giving declaratory relief in this area. Instead Mr Davenport asks the court to give him permission to exercise his rights under the deed of trust so as to avoid any argument as to whether he would otherwise be in breach of the order. The court’s permission will also remove risk or uncertainty as to the position of the directors.

[21]In my judgment, it is appropriate to permit Mr Davenport to exercise his rights under the deed of trust. If that is all that I permit Mr Davenport to do, I do not see that there is any conceivable risk of harm to the public. Mr Davenport plainly wants to resist the Bank’s claim. If he were able to do so successfully, then that could be of benefit to all those interested in any later confiscation order which might be made in relation to his assets. Of course, an unsuccessful defence of the Bank’s claim will result in a liability for costs – both the costs of the Company and of the Bank. However, the Company’s ability to expend sums on costs is subject to the control that the Company will have to go to the SFO for funds to be released from the restraint order. If all that happens is that Mr Davenport gives directions to the directors of the Company, then he will not be dealing with the public; not even if the Bank or the Bank’s solicitor are there to be regarded as a section of the public. Mr Ashworth accepts that Mr Davenport, as the beneficial owner of the Property under a bare trust, would be entitled to require the Company to transfer the title to the freehold to himself subject to the mortgage, and then he would be able to defend the Bank’s claim without any limited company being involved. Mr Ashworth is no doubt right about the position under the bare trust, but I do not know whether the terms of the mortgage would allow such a transfer. In any case, I do not see any real benefit to the public interest in requiring Mr Davenport to call for a transfer of the Property into his own name. I note that I was not given any reliable information as to whether Stamp Duty would be payable on such a transfer, nor as to the amount of any such Stamp Duty.

[22]I am therefore prepared to permit Mr Davenport to give instructions to the Company in accordance with the deed of trust. Should I go further? Mr Davenport wants permission to act directly as the agent of the Company in giving instructions to the Company’s solicitors and in conducting any negotiations there might be with the Bank. In effect, in relation to the Property and the litigation he wants to manage the affairs of the Company in the place of the directors. I do not know what the directors think about that proposal. I do not consider that the sections of the Trusts of Land and Appointment of Trustees Act 1996 have anything to do with this point. Under Section 9, the Company could delegate to Mr Davenport its functions as trustees. I have not specifically heard from the directors that they want to do that. The Company’s duty to consult beneficiaries under Section 11 of the 1996 Act does not add anything to the express terms of the trust deed. But even if the directors were content to allow Mr Davenport to act as the agent of the Company in relation to the litigation and any negotiations with the Bank, should the court be prepared to grant the necessary permission? As a practical matter, I can see advantages in the directors retaining control of the litigation and negotiations, subject to any duty they may have to act on the directions of Mr Davenport. Mr Davenport is in prison. There are considerable restrictions on his ability to make telephone calls, to write and receive letters, and to have visits at the prison. It seems to me to be quite undesirable, so far as the efficient conduct of the litigation is concerned, for it to be conducted by Mr Davenport rather than by the directors of the Company. The job of the directors may be difficult enough, but they will have to take instructions from Mr Davenport and rely upon him as a source of evidence of fact as to the grant of the mortgage in 2005. However, whilst the litigation and negotiations are being conducted by the directors, there will then be someone available on behalf of the Company to deal with those matters rather than those matters being dealt with or not dealt with by Mr Davenport from his prison cell. Mr Davenport says he will be able to deal with the litigation and negotiations in a more effective way than the directors will, because he knows the facts as to what happened in 2005 and the directors do not. However, I do not see any difficulty in this respect. The directors will have access to Mr Davenport as a witness. No doubt he will wish to cooperate with them. The conduct of litigation by company directors who do not have personal knowledge of the underlying facts in dispute is an everyday occurrence. Mr Davenport says that unless I allow him to conduct the litigation and the negotiations, there will be a waste of costs. He says there will have to be two sets of costs. Further, the SFO will only allow one set of costs, and that should be made available to him so the Company will not have any funds to defend itself. I am not prepared to accept that submission. The substantial defendant in the Bank’s claim is the Company. The Company is the registered proprietor of the Property. The Company is the mortgagor. The Company covenanted to repay the loan. It was not explained to me why Mr Davenport was added as a defendant. I am prepared to assume in his favour that he is a proper party on the basis that he has an interest in the outcome and/or may be argued to be in possession of the Property. However, if the Company successfully defends the claim, his interests are protected. If the SFO will only allow one set of costs, in my judgment the costs should be made available to the Company and not to Mr Davenport. In any case, I do not consider that Mr Davenport can attempt to improve his arguments on this application by saying that he will intercept the one set of costs leaving the Company without any funds to defend itself.

[23]Mr Davenport says that he wishes to negotiate with the Bank. I do not see why the directors of the Company cannot carry out any appropriate negotiations. If anything, the Bank might pay more attention to points made by the directors than they would pay to points made by Mr Davenport, given that he is a convicted fraudster.

[24]Accordingly, I am not persuaded that the right thing to do in this case, taking account of the interests of the Company, of the public, and even of Mr Davenport himself, is to allow Mr Davenport to conduct the litigation and negotiations on behalf of the Company. I consider there is a real advantage in leaving the litigation and negotiation to be conducted by the Company through its directors, who will consider whether the deed of trust is effective and, if so, they will be obliged to act in accordance with the directions of Mr Davenport, which I will permit him to give. That result gives Mr Davenport all of the benefits of the arrangements he created in 2005 when he vested the title in the Company and caused the Company to enter into the deed of trust. The only difference is that Mr Davenport was in 2005 a director of the Company, and now he cannot be a director of the Company. But that does not change the substance of the matter. Conversely, the involvement of directors of this company conducting the litigation and any negotiation, even in a case where they are acting on the directions of Mr Davenport, will, or at least might, provide a worthwhile control on Mr Davenport’s conduct.

[25]I will grant permission under Sections 1 and 17 of the 1986 Act to Mr Davenport to give instructions to the Company in accordance with the deed of trust of the Property, if and insofar as that deed of trust is effective as between Mr Davenport and the Company. __________