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Scottish Court of Session Decisions
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Cite as:  ScotCS 262
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OUTER HOUSE, COURT OF SESSION
OPINION OF LADY PATON
in the Note of
THOMAS CAMPBELL McLENNAN, Chartered Accountant, Tenon, 1 Royal Terrace, Edinburgh, Liquidator of TAY SQUARE PROPERTIES LIMITED, a company incorporated under the Companies Acts and having its registered office at The Business Centre, 10 Tay Square, Dundee, DD1 1PB
An order under section 236 of the Insolvency Act 1986 to summon and examine and to produce documents
Noter (liquidator): Holroyd, Advocate; Anderson Strathern W.S.
Examinee (company director): Beynon, Advocate; Donaldson & Co, Dundee
3 December 2004
Whether privilege against self-incrimination applicable during inquiry into company's dealings: section 236 of Insolvency Act 1986 Tay Square Properties Limited (TSP) went into liquidation in 2003. Thomas McLennan, Chartered Accountant, was appointed as liquidator. In the course of his duties, the liquidator noted certain disposals of heritable property to another company, Gowrie Homes Limited. He considered that those disposals might constitute gratuitous alienations. He required more information. He accordingly presented a note to the Court of Session, seeking to have the following persons examined on oath in terms of section 236 of the Insolvency Act 1986:
(1) James Griffin, director of TSP
(2) Scott Taylor, director of TSP
(3) John Justice, company secretary and legal consultant, Legal Direct (Scotland) Limited
(4) Michelle Georgeson, director of Legal Direct (Scotland) Limited.
Inquiry into company's dealings, etc
236 ...(2) The court may, on the application of [inter alios the liquidator], summon to appear before it -
(a) any officer of the company,
(b) any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or
(c) any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company ..."
Court's enforcement powers under s.236
237 ...(4) Any person who appears or is brought before the court under section 236 or this section may be examined on oath, either orally or (except in Scotland) by interrogatories, concerning the company or the matters mentioned in section 236(2)(c)."
Submissions on behalf of the examinee Mr. Beynon, on behalf of Mr. Taylor, submitted that the question of self-incrimination during investigatory proceedings in terms of section 236 had been considered extensively and authoritatively by courts in England, but had yet to be ruled upon by courts in Scotland.  Prior to the Human Rights Act 1998, the leading authority was Bishopsgate Investment Management Limited v Maxwell  Ch. 1,  2 W.L.R. 991. The Court of Appeal there held that any privilege against self-incrimination had been abrogated by section 236 of the Insolvency Act 1986. Reference was made to pages 30-32, 46-48, and 60-63 in Bishopsgate.  Following upon the coming into force of the human rights legislation, the House of Lords had occasion to reconsider matters in R. v Hertfordshire County Council, ex parte Green Environmental Industries Limited  2 AC 412. In that case, Lord Hoffmann held that the serving of a notice under the Environmental Protection Act 1990 requiring the occupier of land to provide certain information did not constitute criminal proceedings, but rather an investigatory exercise conducted as part of a regulatory process. In any subsequent criminal proceedings, any information obtained in terms of the notice could be ruled inadmissible by the trial judge in terms of section 78 of the Police and Criminal Evidence Act 1984.  Reference was then made to Palmer, Company Law, Volume 3, paragraphs 15.316.7 to 15.316.8, where the authors gave their view that even someone charged with criminal proceedings in connection with the running of a company was compelled to answer questions relating to the company.  Accordingly the position in England seemed settled. If the present proceedings had been commenced in England, Mr. Taylor would be obliged to answer all questions, without any warning. However matters were less clear in Scotland. There were some significant differences between English law and Scots law in the context of corporate insolvency and individual bankruptcy. For example, in the context of corporate insolvency, there was no equivalent in Scotland to section 78 of the Police and Criminal Evidence Act 1984. By contrast, in the context of individual bankruptcy, there was in Scotland a statutory protection in the form of section 47(3) of the Bankruptcy (Scotland) Act 1985. That section provided greater protection to examinees on oath in Scotland, in that there was a prohibition against using the information given by the examinee in any subsequent criminal proceedings against him (except proceedings for perjury). The issues were clearly focused in McKenzie-Skene, Insolvency Law in Scotland (1999) pages 227 to 228.  Mr. Beynon submitted that in view of the differences between the insolvency and bankruptcy laws in England and Scotland, section 236 should be construed differently in Scotland. Bearing in mind (i) the greater protection available in individual bankruptcies in Scotland provided by section 47(3) of the 1985 Act; and (ii) the lack of protection in corporate insolvencies in Scotland equivalent to the protection provided in England by section 78 of the Police and Criminal Evidence Act 1984, the proper construction of section 236 of the Insolvency Act 1986 in Scotland was that it did not abrogate the privilege against self-incrimination. Mr. Taylor should therefore be allowed the same protection as an examinee under the Bankruptcy (Scotland) Act 1985. On that basis, the court was invited to give the examinee the standard warning that he was not obliged to answer any question if in so doing he might incriminate himself.  At a later stage in the debate, Mr. Beynon confirmed that, standing the views expressed by Lord Hoffmann in R. v Hertfordshire County Council, cit. sup., it was conceded that the investigatory proceedings into the affairs of TSP in terms of section 236 did not engage Article 6 of the European Convention on Human Rights.
Submissions on behalf of the liquidator Mr. Holroyd, advocate, on behalf of the liquidator, noted that there appeared to be no Scottish decision directly in point. In England, the law required an examinee under section 236 to answer questions even if the answers were incriminating. Counsel submitted that Scots law should likewise require an examinee to answer, whether or not there was a risk of self-incrimination. The Insolvency Act 1986 was a United Kingdom statute. It would be inappropriate to have one construction of section 236 in England, and a different construction in Scotland.  It was clear that parliament could abrogate any privilege against self-incrimination. It was parliament's intention to make officers of a company assist in an inquiry into the company's affairs, even although there might be a risk of self-incrimination. Reference was made to Bishopsgate, cit. sup., particularly Dillon L.J. at pages 18, 21, 24, 30-31, Stuart-Smith L.J. at pages 46-47, and Mann L.J. at pages 60-62.  In Hamilton and others v Naviede  2 A.C. 75, Lord Browne-Wilkinson analysed the patchy nature of the protection afforded by the Criminal Justice Act 1987. It was nevertheless held that the fact that someone might not benefit from the Act's protection did not necessarily mean that transcripts obtained under section 236 proceedings should not be released. With reference to the dicta of Lord Hoffmann at pages 419 to 423 of R. v Hertfordshire County Council, cit. sup., counsel invited the court to conclude that even if Article 6 of the European Convention on Human Rights was engaged, there was good reason to apply Lord Hoffmann's reasoning to an inquiry conducted in terms of section 236. In any event, there was a measure of protection afforded to the examinee by the presence of a judge: the examinee was arguably in a less vulnerable position in a section 236 procedure than he might be in other forms of investigative procedure. Also the decision of the Court of Appeal in Official Receiver v Stern  1 W.L.R. 2230 suggested that the use of compelled evidence was not necessarily precluded by Article 6. Reference was made to pages 2241, 2244 to 2245, 2248, and 2257 to 2258.  Counsel accepted that in England, section 236 placed an officer of a company in the same position as an individual bankrupt, whereas in Scotland, an individual bankrupt enjoyed the protection of section 47 which prohibited the use of compelled evidence in most forms of proceedings. But counsel submitted that it did not follow, as a matter of principle, that company officers and individual bankrupts must be treated in the same way.  In relation to Mr. Beynon's reference to the Police and Criminal Evidence Act 1984, counsel submitted that a judge in any subsequent criminal trial in Scotland could entertain an objection to evidence based on Article 6. Such an objection would have the same effect as an objection to evidence based on section 78 of the Police and Criminal Evidence Act 1984.  If therefore Article 6 of the Convention were held not apply to the present proceedings, Mr. Taylor should be compelled to answer the questions without any warning. Article 6 might nevertheless prevent any information recovered in the present proceedings from being admitted in any subsequent criminal trial.  If, however, the court were to take the view that the terms of Article 6 were engaged by an inquiry in terms of section 236, the court would have to resort to a balancing exercise, which might produce different results according to the nature of the proceedings, and in particular whether the proceedings were civil or criminal: cf. Heaney and McGuinness v Ireland (2001) 33 E.H.R.R.12 at page 264. The court would have to take into account a wide variety of factors. The primary purpose of an inquiry in terms of section 236 was to investigate a company's affairs and to ingather the company's assets. An element of compulsion in the obtaining of the information would not necessarily mean that the procedure was contrary to the Convention. A court might be more willing to entertain compelled evidence in civil proceedings than in criminal proceedings. Whatever the nature of the primary proceedings, the court might wish to bear in mind any secondary purposes to which any answers or material recovered could be put, and to carry out a balancing exercise.  The House of Lords in Brown v. Stott  1 AC 681,  2 W.L.R. 817, provided an example of a balancing exercise being carried out in the context of the Convention. Brown was followed in DPP v Wilson  R.T.R. 37. An analogy could perhaps be drawn between car-drivers (who took on a certain status but also certain duties which might limit their privileges), and officers of limited liability companies (who enjoyed the benefits of incorporation but who also undertook responsibilities which might result in the loss of certain privileges). Someone who had undertaken the role of an officer of a public limited company should be accountable to the public: cf. Lord Steyn in Brown, cit. sup. The margin of appreciation permitted by European Convention jurisprudence suggested that, in an area where parliament had recognised that there must be accountability to the public, the liquidator's submissions were to be preferred: cf. the opinions of Lords Hope, Clyde, and Kirkwood in Brown, cit. sup. Brown made it clear that even when a case fell within the European Convention, answers or material obtained under compulsion were not necessarily inadmissible.  Counsel then summarised the liquidator's position. When interpreting section 236, the court should take into account the social context in which that section had been enacted, and the mischief which it sought to address, namely failing limited companies, disappearing assets, and the risk of a lack of co-operation from the officers of the company. Section 236, when properly construed along with section 235, meant that answers had to be given to questions even if that gave rise to some type of incrimination in other proceedings. The fact that such an interpretation would put an officer of a company in a different position from that of an individual bankrupt was not a reason for departing from that construction of section 236. Someone who voluntarily took on the role of company director or secretary undertook certain responsibilities in the same way as a person who voluntarily drove a car (who could be compelled to answer questions about the identity of the car-driver). Someone who stepped into the role of a company officer should be prepared at any time to answer questions about the company's assets.  Concerns that information obtained for the primary purpose of investigating the company's affairs might give rise to unfairness in other proceedings were misconceived. If subsequent proceedings comprised a criminal trial, the human rights legislation would apply to that trial, and the judge would have to weigh up the various factors bearing upon the fairness of the trial. One element of the balancing exercise would relate to the compelled nature of the information or material obtained: but merely because information had been compelled did not necessarily mean that it should not be admitted. The balancing exercise would be carried out in different contexts depending on the type of proceedings (for example, civil or criminal). It might well be that a court conducting a civil case would be more willing to admit compelled material than would a court presiding over a criminal trial. The Scottish criminal courts were well used to weighing up the rights of an individual accused and the interests of society in the prosecution of crime.
Reply on behalf of the examinee Mr. Beynon gave a brief reply. First, he submitted that section 236 gave the court power to oblige anyone who had information about a company's affairs to answer questions, not merely the office-bearers in the company. Thus the analogy between company officers and car drivers was not entirely apt.  Secondly, with reference to R. v Hertfordshire County Council, cit. sup., it was counsel's primary position that Article 6 was not engaged by the current section 236 proceedings because the Lord Ordinary would not determine or adjudicate upon any issue; there would be no finding or order; Mr. Taylor was not a "party" to any litigation; the court could not make any recommendations: cf. Lord Hoffmann at page 423, and contrast with proceedings enquiring into the actings of a director. Thus the investigation conducted in terms of section 236 could not be described as an adjudication, either in form or substance, which might engage Article 6. If, contrary to that submission, Article 6 was indeed engaged, Mr. Beynon adopted Mr. Holroyd's submissions that a balancing exercise would have to be carried out. Mr. Beynon agreed that the nature and result of any balancing exercise might vary according to the context (whether, for example, the proceedings were civil or criminal).  Thirdly, Mr. Beynon confirmed that he relied upon the protection offered to a Scottish individual bankrupt by section 47(3) of the Bankruptcy (Scotland) Act 1985 as a reason for construing section 236 in Scotland as containing a right against self-incrimination and accordingly the right not to answer questions.  Finally, there had been special features in the case of Heaney, cit. sup. The decision reflected those special features.
Opinion The question at issue is focused in McKenzie-Skene, Insolvency Law in Scotland (1999) at pages 227 to 228:
"... There is, however, no specific requirement in [sections 236 and 237 of the Insolvency Act 1986] to answer questions and in the absence of specific provisions such as those applying in sequestrations, the issue of whether an examinee must answer questions, or whether he may refuse to do so (either altogether or only those which would or might incriminate him or would involve the disclosure of confidential information), is a difficult one. In the English case of Bishopsgate Investment Management Ltd (In Provisional Liquidation) v Maxwell, it was held that an examinee was not entitled to refuse to answer questions on the ground that the answers might incriminate him. One of the reasons for this decision was that an individual bankrupt in England and Wales could not do so, and that parliament could not have intended a company director to be in any better a position. Indeed the court thought that to allow an examinee to refuse to answer questions on this ground would defeat the whole purpose of the section. The difficulty in simply applying this decision to Scotland is that the analogy with bankruptcy will not work in a Scottish context: although a bankrupt cannot refuse to answer questions on the ground that the answers may incriminate him, it is expressly provided that such answers will not be admissible in any subsequent criminal proceedings except those for perjury in relation to the statement itself. In the absence of any express provision to this effect in the 1986 Act, and in the light of the fact that it is extremely doubtful that the court could competently impose a condition that any answers should not be used in subsequent criminal proceedings, following the decision in Bishopsgate not to allow examinees to refuse to answer questions on the grounds that they might incriminate themselves would mean that examinees under section 236 and bankrupts were in fact in a different position from each other in Scotland. On the other hand, refusing to follow it would mean that examinees in Scotland and in England and Wales were in a different position from each other, which may be an even bigger anomaly, given that the statutory provision in question is the same. The position in Scotland will only be clarified by a decision in an appropriate case or by legislation."
"(1) In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law ...
(2) Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law ..."
"Thus the European jurisprudence under article 6(1) is firmly anchored to the fairness of the trial and is not concerned with extrajudicial inquiries. Such impact as article 6(1) may have is upon the use of such evidence at a criminal trial. Although it is true that the council, unlike the D.T.I. inspectors, had power to prosecute in criminal proceedings, I do not think the request for information under section 71(2) could be described as an adjudication, "either in form or in substance". The Saunders case [Saunders v United Kingdom (1996) 23 E.H.R.R.313] is therefore no authority for allowing the appellants to refuse to answer."
Conclusion For the reasons given above, Mr. Taylor and any other examinee in the current section 236 proceedings must answer questions without any warning about self-incrimination.