Thursday Law Report: Limits of requirement for explanation

6 May 1999 Attorney General's Reference (No 2 of 1998) Court of Appeal, Criminal Division (Lord Justice Beldam, Mr Justice Butterfield and Mr Justice Gray) 28 April 1999

THE REQUIREMENT imposed by section 447 of the Companies Act 1985 on a company to provide "an explanation of any of" the documents produced to examiners authorised by the Secretary of State for Trade and Industry was not limited to a requirement to provide an exposition of the text of the document.

The Court of Appeal considered a reference by the Attorney General pursuant to section 36 of the Criminal Justice Act 1972, on the following point of law:

Whether the following words in section 451 of the Companies Act 1985, namely "a requirement imposed under section 447 to provide an explanation" (which is itself a reference to a requirement under section 447(5)(a)(ii) "to provide an explanation of any of" the documents produced under that section) is as a matter of construction, either:

(a) limited to a requirement to provide an exposition of the text of the document so produced; or

(b) capable of including a requirement to provide an explanation covering not only the contents, but also the date of creation, the authorship, provenance, accuracy, completeness, intended purpose, destination and significance of the document or its contents, and of the use to which it was in fact put; and/or

(c) capable of including a requirement to provide an explanation of any discrepancy or apparent discrepancy between two or more documents produced under section 447; and/or

(d) capable of also including a requirement to provide an explanation of any discrepancy or apparent discrepancy between any explanation provided under section 447 and the contents of any documents produced under section 447.

The respondents were charged with furnishing false information contrary to section 451 of the Companies Act 1985. The charges arose from the activities of L, a person disqualified from acting as a director of, or being concerned in, the management of a company, who was suspected of taking part in the management of X Ltd behind the screen of the respondents.

The case against the respondents was that they had given false answers to questions about documents which had been obtained by the Department of Trade and Industry exercising powers under section 447 of the Act. The respondents' counsel had submitted that contemporary records of the respondents' explanations of the documents were inadmissible in law.

The judge upheld that submission, and, the Crown having acknowledged that the remaining evidence was insufficient to support a conviction, the respondents were found not guilty.

Clare Montgomery QC and J.R. Crow (Solicitor to the Department of Trade and Industry) for the Attorney General; J.C. Causer (Barker Gillette) for the respondents.

Lord Justice Beldam said that an officer authorised by the Secretary of State under section 447 to require an explanation of a document was entitled to ask questions about its contents designed not only to enable him to understand the context in which the document came into existence but any transaction referred to in it and any other matters which would enable him to understand the significance of the document for the purposes of his investigations.

How far questioning about the relationship of a document with other documents should extend and whether it should include an explanation of discrepancies would depend on how closely the documents and explanations were connected.

Ultimately the question was one of degree under the general limitation that the questions must be reasonably necessary to enable the examiner to decide whether the reasons which had led the Secretary of State to authorise the enquiry in the first place had any foundation.

The question referred would, accordingly, be answered as follows: the requirement imposed under section 447 to provide an explanation was as a matter of construction not limited to a requirement to provide an exposition of the text of the document and was capable of including the requirements set out in paragraph (b) of the question referred. Subject to the limitation indicated, it was capable of including the requirements set out in paragraphs (c) and (d).

Kate O'Hanlon

Barrister