FIRST SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 57824/00 by Travel Time, Embassy Enterprises, Harmony Holidays, Malborough Promotions Ltd against the United Kingdom

The European Court of Human Rights (First Section), sitting on 18 September 2003 as a Chamber composed of

Mr C.L. Rozakis , President , Mr P. Lorenzen , Sir Nicolas Bratza , Mrs F. Tulkens , Mrs N. Vajić , Mr E. Levits , Mr V. Zagrebelsky, judges , and Mr S . Nielsen , Deputy Section Registrar ,

Having regard to the above application lodged on 3 April 2000,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,

Having deliberated, decides as follows:

THE FACTS

The applicants, Travel Time (UK) Limited, Embassy Enterprises UK Limited, Harmony Holidays Limited and Marlborough Promotions Limited, are companies registered in the United Kingdom. They are represented before the Court by Messrs Foot Anstey Sargent, solicitors, in Exeter. The respondent Government are represented by Mr D. Walton of the Foreign and Commonwealth Office.

A. The circumstances of the case

The facts of the case, as submitted by the parties, may be summarised as follows.

The applicants

The applicants were companies involved in the timeshare industry, being responsible for finding potential purchasers of timeshare slots in holiday resorts. Two of the applicants were telesales companies, whose role it was to persuade members of the public to attend a timeshare presentation. The other two applicants were responsible for issuing certificates at the end of the presentation which entitled their bearers to a one week holiday in a resort abroad.

The winding up petitions

On 7 October 1998, the Secretary of State for Trade and Industry (“the Secretary of State”) issued petitions to wind up each of the applicants pursuant to section 124A of the Insolvency Act 1986.

The petitions contained allegations of fraud and deceit by the applicants. The central allegations were that the two telesales companies deliberately deceived members of the public into attending the presentations, partly by false statements made on the telephone and partly by the omission of matters that the public ought to have been told. The two holiday certificate companies were said to have collected a significant amount in processing fees (58 pounds sterling per couple) and then deliberately organised matters so as to get away with sending the minimum possible number of people on holiday. In effect, the case against them was that, having extracted processing fees out of thousands of couples, they then cheated most of them out of a holiday.

The appointment of the provisional liquidator

On 8 October 1998, the Secretary of State, without notice to the applicants, applied to the High Court for the appointment of a provisional liquidator. The application was granted by Mr Justice Lloyd in the absence of the applicants, without any requirement upon the Secretary of State to give an undertaking in damages (an undertaking that, should the application prove subsequently to have been ill-founded, damages could be payable for losses suffered by the companies).

Mr Justice Lloyd’s Order appointed the official receiver as the provisional liquidator. His powers included the ability to (i) enter onto the applicants’ premises and take possession, collect in and protect the applicants’ assets, whether within or outside the jurisdiction, (ii) take possession of and secure the books and records of the applicants, (iii) retain and pay or dismiss employees at his discretion, (iv) terminate, complete or perfect any contracts or transactions relating to the applicants’ businesses, (v) retain and operate the existing bank accounts of the applicants and (vi) open and operate new accounts with liberty to pay therefrom any necessary expenses incurred on behalf of the applicants by the official receiver while carrying out his powers and duties under the Order.

Mr Justice Lloyd’s Order further ordered that (a) notice of it was to be given to the applicants forthwith and that (b) the applicants were at liberty to apply to the court to vary or discharge the Order on 48 hours notice given to the official receiver or to the Secretary of State’s solicitor. The applicants did not make any such application.

The actions of the provisional liquidator

On 8 October 1998, immediately after the appointment, the Department of Trade and Industry (“the DTI”) issued a press release concerning the appointment of the provisional liquidator that, it is alleged by the applicants, was grossly misleading and damaged the applicants’ reputations.

The official receiver immediately took control of the applicants and their premises. He dismissed employees and then closed down the applicants’ businesses as quickly as he could. He was in control of the applicants for more than one year following his appointment, during which time he failed to deal with customers’ telephone queries and did not administer any holiday breaks. The applicants allege that this resulted in a loss of income to them and destroyed their businesses and reputations.

The application for judicial review

On 6 January 1999, the applicants applied for permission to seek judicial review of the Secretary of State’s decision both (i) to bring the winding up petitions and (ii) to seek the appointment of the provisional liquidator for the companies. On 7 May 1999, the question of whether such permission should be granted was ordered by Mr Justice Latham to be determined by the judge hearing the petitions.

The judgment of Mr Justice Park

The action was tried in July 1999. By his judgment of 6 October 1999, Mr Justice Park dismissed the Secretary of State’s petitions to wind up the applicants and he discharged the provisional liquidator. The Secretary of State’s applications for permission to appeal were dismissed by both Mr Justice Park and the Court of Appeal.

Mr Justice Park found that there was no substance in the above allegations made by the Secretary of State. In relation to the two holiday certificate companies he further found that the DTI had fundamentally misunderstood the nature and the economics of the applicants’ businesses. In relation to other regulations, Mr Justice Park did not find any infringements that would have justified winding up any of the applicants.

Mr Justice Park further expressed his opinion about the DTI’s investigation and actions. He stated that Mr Hill, the official at the DTI in charge of the investigations into the four applicants:

“...conducted his investigations almost entirely on the basis of documents...He had no prior knowledge of the usual way that timeshare marketing was organised, and if he tried to find out about it from other sources he did not say so. He decided to take action against the companies, including the drastic step of applying for the appointment of a provisional liquidator without the companies having notice of the application, almost entirely on the basis of inferences which he drew from the documents. He did not put any of his concerns to P or A [the directors of the companies] and ask whether they had an explanation.

...If, before launching the petition, Mr. Hill had spoken to P and A (with their solicitor present if they had wished, as they probably would) they might have been able to convince him, as they have convinced me, that his conclusions were mistaken. Even if they had not, and Mr. Hill had still decided to petition for the companies to be wound up and to apply for the appointment of a provisional liquidator, the judge on that application would have been told that the DTI’s allegations were disputed by the companies and the directors. I take it for granted that, if explanations by P and A had been given to Mr. Hill, he would have described them in his affidavit as fairly as he could, even if he did not accept them himself.

As matters happened, however, the DTI launched the petition without any warning.  It applied for the appointment of a provisional liquidator without notice to the companies. The only evidence before Lloyd J was Mr. Hill’s affidavit which presented the matter on the basis that the companies’ operations were indisputably and incontrovertibly dishonest. That is, of course, how Mr. Hill saw the matter and neither I nor Mr. Joffe (counsel for the companies) suggest for a moment that Mr. Hill was influenced by any motive other than his sincere belief about what the protection of the public required. On the material before Lloyd J I do not see how the judge could have done other than accede to the application for the appointment of the provisional liquidator. But thereby the businesses of four companies were destroyed.”

The discussions in court after the judgment of 6 October 1999

Mr Justice Park awarded costs to the applicants on the “standard” basis, but declined to award on the “indemnity” basis.

After Mr Justice Park had delivered his judgment, the applicants referred to their application for permission to seek judicial review of the Secretary of State’s decision to bring the winding up petitions and to seek the appointment of the provisional liquidator. Mr Justice Park indicated to the applicants that he was not minded to grant such permission on the basis that there was no obligation on the Secretary of State to provide compensation for losses caused by the appointment of a provisional liquidator at his request. Therefore, as no compensation could be awarded in judicial review proceedings, no purpose would be served by an application by the applicants for judicial review. The applicants thereafter decided not to pursue the application, on the grounds that to do so would have been pointless.

The consequences for the applicants of the Secretary of State’s actions

The applicants allege that the effect of the appointment and subsequent continuation in office of the provisional liquidator was to destroy the applicants’ goodwill and to devastate their businesses. All the applicants are now in liquidation.

The applicants allege that, in effect, the Secretary of State has a common law immunity from having to give a cross-undertaking in damages upon the appointment of a provisional liquidator at his request, in circumstances in which a private litigant would be obliged to do so. In the absence of any right to seek compensation from the Secretary of State, the applicants do not have any means of obtaining financial redress for losses caused by the appointment of the provisional liquidator.

B. Relevant domestic law and practice

The Secretary of State’s power to require the production of documents

Section 447 of the Companies Act 1985 empowers the Secretary of State to require a company to produce documents during the course of an investigation into its affairs.

Winding up petitions

Section 124A of the Insolvency Act 1986 provides that:

“Where it appears to the Secretary of State from-

(a) any report made or information obtained under Part XIV of the Companies Act 1985 (company investigations, &c.) ...

that it is expedient in the public interest that a company should be wound up, he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so.”

The court’s power to appoint a provisional liquidator

Section 135 of the Insolvency Act 1986 allows the court, at any time after the presentation of a winding up petition, to appoint a liquidator provisionally.

The duties of a provisional liquidator

Under section 144(1) of the Insolvency Act 1986, a provisional liquidator is required to take into his custody or under his control all property and things in action to which the company is or appears to be entitled.

The appointment of a provisional liquidator upon the application of a private applicant

The effect of an undertaking in damages is that the applicant agrees to abide by any order the court may make as to damages if the court later determines that the company sustained loss as a result of the application. The applicant will also be required to give an undertaking to be responsible for the acts and defaults of the provisional liquidator in such circumstances.

In Re Highfield Commodities Limited [1984] BCLC 623 at page 629g-i, Sir Robert Megarry V-C set out the position on the general law as follows:

“First, the general practice is to require an undertaking in damages if a provisional liquidator is appointed ex parte. Second, the general practice is not to require an undertaking in damages if the appointment is made inter partes . The distinction, I think, or a distinction, must be that the protection of the undertaking will be given where the company has had no opportunity of providing any answer or explanation to contentions which may prove to be wholly unfounded, whereas if the company has at least had the opportunity of being heard, the court will be making the appointment after considering what the company has said, if it has chosen to speak, and so can better assess the propriety of making the appointment.”

The appointment of a provisional liquidator upon the application of the Secretary of State

However, in Re Highfield (at page 630e) , the position of the Secretary of State was said to be different:

“...where, as here, the Secretary of State is seeking to have the company wound up not in order to assert some proprietary claim of the Crown but by virtue of the Companies Act 1967, section 35, [the then equivalent of section 124A of the Insolvency Act 1986] I think that the doctrine of the Hoffman case provides sufficient authority and guidance to provide an exemption of the Crown from being required to offer an undertaking in damages as the price of obtaining the appointment of a provisional liquidator, save where the company can establish special circumstances which justify such a requirement being made.”

The applicants state that the phrase “special circumstances” remains undefined by the courts.

COMPLAINTS

The applicants complain that:

(1) the Secretary of State’s application for the appointment of a provisional liquidator in circumstances in which the appointment was wholly unjustified and there was no obligation to give a cross-undertaking in damages to the applicants for any loss occasioned as a result of that appointment; and/or

(2) the English common law immunity afforded to the Secretary of State from having to give a cross-undertaking in damages upon the appointment of a provisional liquidator at his request, save in exceptional circumstances,

constituted an unjustifiable interference with the applicants’ property rights, contrary to Article 1 of Protocol No. 1 to the Convention.

Specifically, the applicants submit that the Secretary of State’s application and its consequences constituted a deprivation of the applicants’ possessions and/or a taking of control of the use of the applicants’ property and/or an interference with the applicants’ peaceful enjoyment of their possessions.

The applicants further submit that any such interference with the applicants’ property:

(i) was not in the public interest in that:

(a) the Secretary of State’s judgment as to what was in the public interest in applying to have the provisional liquidator appointed was manifestly without foundation on the facts; and

(b) the English courts’ rationale for the immunity (that were the position otherwise the Crown might be deterred from enforcing the law) is manifestly without foundation in that a requirement for the Secretary of State to give an undertaking in damages would not in reality deter the Secretary of State from making an application to appoint a provisional liquidator;

(ii) was not proportionate, in particular in the absence of provision for any compensation and imposed upon them an individual and excessive burden; and

(iii) did not satisfy the requirement of legal certainty, in particular the right of the Secretary of State to have a provisional liquidator appointed without having to give a cross-undertaking in damages save in “special circumstances” – a term which has not been defined by the courts – is too vague to satisfy the test of legal certainty.

THE LAW

The applicants allege a violation of Article 1 of Protocol No. 1 to the Convention in connection with the Secretary of State’s decision to apply to the courts for the appointment of a provisional liquidator, and the consequences of the subsequent appointment. Article 1 of Protocol No. 1 provides as follows.

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The Government contend that the applicants make inaccurate assumptions as to the state of domestic law, and in particular contend that an application to the courts in October 1998 could well have brought about an undertaking from the Secretary of State comparable to the undertaking required of a private applicant for the appointment of a provisional liquidator. They add that a number of other applications could have been made to the courts: the applicants could have applied for an order limiting the powers of the provisional liquidator, or for an order that the provisional liquidator should honour the contractual obligations of the companies, or for an order replacing the provisional liquidator with an injunction restraining the companies from engaging in specified activities, or for an order discharging the appointment of the provisional liquidator outright. They also note the existence of an action for malicious prosecution. The Government conclude from the applicants’ failure to pursue any of these remedies that they have failed to exhaust domestic remedies.

The Government also contend that the applicants have failed to comply with the six months’ rule as the events complained of took place in October 1998, but the application was introduced only on 3 April 2000. They underline that the judgment of 6 October 1999 (which was given less than six months before the application was introduced) cannot have been the “final decision” for the purpose of Article 35 of the Convention because the applicants do not make complaint of it.

The Government consider that any interference with the applicants’ right to peaceful enjoyment of their possessions represented a legitimate balancing exercise between the protection of the public and the applicant’s property rights. In particular, they point to the facts available to the Secretary of State before the application for a provisional liquidator was made, and to the possibility of an application to the court for variation of the order (and the express wording of the order, which gave the applicants liberty to apply to the court within 48 hours). They give a number of grounds why the application for a provisional liquidator was reasonable at the time - that it appeared that the applicants’ businesses were being carried on dishonestly and contrary to the public interest; that complaints had been received about the applicants; that a large sum of money had been received from members of the public, and that the directors of the companies were paying themselves handsome remuneration. They do not regard the ultimate outcome of the case - in which the trial judge after consideration of all the evidence came to a different conclusion from the judge determining the ex parte application - as conclusive of a discussion of the proportionality of the initial events.

The applicants consider that they have complied with the requirements of Article 35 of the Convention. They give reasons why, in their opinion, none of the remedies proposed by the Government constituted an effective remedy. They consider that the need to show “special circumstances” before an undertaking in damages will be granted (see the reference to Re Highfield at p. 7 above), together with the facts of the present case, indicate that there were no prospects of obtaining an undertaking in damages. They contend that they could not have applied to the court for an order relating to the provisional liquidator’s powers (or for an injunction) as such an application would only have made sense if there had been a continuing business - but by the time they could have made an application, the businesses had been destroyed by the combination of the press releases and the provisional liquidator’s refusal to deal with the ongoing business.

As to compliance with the six months’ rule, the applicants take the view that they are complaining about a continuing situation, such that the six months’ rule does not apply - they were not deprived of their proprietary rights by a single act, but were deprived of control on a day to day basis whilst the appointment of the provisional liquidator continued. In any event, they consider that the decision of the trial judge of 6 October 1999 was the “final decision” within the meaning of Article 35 as it was in those proceedings that the applicants mounted a root and branch attack on the Secretary of State’s case, with a view to having the provisional liquidator discharged automatically on dismissal of the petitions. They chose to seek the discharge of the provisional liquidator by way of full challenge (as opposed to a challenge to the interim appointment) as it was unlikely that the court would have been prepared to find on an interim application that the Secretary of State’s case was baseless.

The applicants accept that the Secretary of State’s purpose in applying to the court for a provisional liquidator was legitimate, but they consider that none of the grounds listed by the Government to justify the application is adequate. In particular, they state that an appropriate investigation before the application for a provisional liquidator would have made clear that there was a good answer to all the points. They refer to the findings of the trial judge. The applicants conclude that the decision to apply for the appointment of a provisional liquidator without offering an undertaking in damages was not proportionate to the public interest being served.

The Court recalls that Article 35 of the Convention provides, so far as relevant, as follows:

“1. The Court may only deal with the matter after all domestic remedies have been exhausted, according to the generally recognised rules of international law, and within a period of six months from the date on which the final decision was taken...”

The applicants’ complaint in the present case is that the Secretary of State applied for, and the court appointed, a provisional liquidator in circumstances in which adequate prior investigations had not been carried out, and where the absence of an undertaking in damages meant that by the time of the judgment on the merits of the case, it was too late for the errors to be rectified as the companies were in liquidation.

The Court notes that in connection with the Government’s contention that the applicants have not exhausted remedies, the applicants give reasons as to why each suggested remedy was not effective.

The Court recalls that the rule of exhaustion of domestic remedies obliges those seeking to bring a case against a contracting Party first to use the remedies provided by the national legal system. It is an important aspect of the principle that the machinery of protection established by the Convention is subsidiary to the national systems safeguarding human rights (see generally Akdivar and Others v. Turkey , judgment of 16 September 1996, Reports of Judgments and Decisions 1996-IV, p. 1210, § 65). Normal recourse should be had by an applicant to remedies which are available and sufficient to afford redress in respect of the breaches alleged. Article 35 also requires that the complaints should have been made to the appropriate domestic body, at least in substance ( ibid., § 66).

In order to address the complaints made by the applicants in the present case, it would have been open to the applicants, on hearing about the appointment of a provisional liquidator, to apply to the court which made the order on 8 October 1998 and ask for whatever amendment to it they thought appropriate. In particular, it would have been open to them to claim that in the present case there were “special circumstances” which militated in favour of an undertaking in damages from the Secretary of State (see Re Highfield, referred to above), or that some other form of order was appropriate. It is beyond doubt that it was open to the applicants to return to court, as the order of 8 October 1998 expressly provided that the applicants were at liberty to apply for it to be amended, and given the ex parte nature of the order of 8 October, the Court would expect the High Court to listen particularly attentively to “the other side”, even if relatively little time were available for preparing the case. In that way, the applicants could have made to the High Court precisely the points they now make to the Court, and could have done so before the damage was caused.

The Court does not accept that the challenge the applicants made to the petitions as such was capable of being an effective remedy in respect of the complaints about the initial application and order as it was more than likely that, by the time that action was terminated, any damage caused by the initial events would be irreversible. The mere fact that the judgment of 6 October 1999 gave the applicants arguments by which to challenge the order of 8 October 1998 does not mean that the action was the effective remedy required to be exhausted by Article 35.

As regards the applicants’ application for judicial review of the decision of the Secretary of State, the Court notes that the applicants did not pursue the application, and that in any event, by the time it was revived before the trial court in October 1999 (and in the absence of an undertaking for damages) it was clear that it could not have resulted in an award of compensation for the applicants. The judicial review application was therefore not an effective remedy, either.

It follows that the applicants have failed to exhaust domestic remedies within the meaning of Article 35 of the Convention, and that the application must be rejected pursuant to Article 35 § 4.

For these reasons, the Court unanimously

Declares the application inadmissible.

Søren Nielsen Christos Rozakis              Deputy Registrar President