Operator's Licence Revoked for Non-compliance - Upper Tribunal Upholds Decision

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UKUT 0442 (AAC)

Appeal No. T/2016/35 IN THE UPPER TRIBUNAL ADMINISTRATIVE APPEALS CHAMBER TRAFFIC COMMISSIONER APPEALS

ON APPEAL from the DECISION of [NAME_2], Deputy Traffic Commissioner for Scotland dated 11 May 2016

Before: Her Honour Judge J Beech, Judge of the Upper Tribunal [NAME_5], Member of the Upper Tribunal [NAME_8], Member of the Upper Tribunal

Appellants:

[redacted]

Attendances: For the Appellants: [redacted]

Heard at: [NAME_4] House, 126 [NAME_4] [ADDRESS], [POSTCODE] Date of hearing: 4 October 2016 Date of decision: 10 October 2016

DECISION OF THE UPPER TRIBUNAL

IT IS HEREBY ORDERED that the appeal BE DISMISSED forthwith save that the penalty ordered under s.39 of the [NAME_14] (Scotland) Act 2001 is to be paid by (28 days of this decision).

SUBJECT MATTER:- Financial Standing; good repute; whether the Appellant had established a reasonable excuse for the cancellation of a registered bus service.

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CASES REFERRED TO:- [COMPANY_15] & [NAME_16] v Secretary of State for [NAME_14] (2010) EWCA Civ. 695.

REASONS FOR DECISION

1. This is an appeal from the decision of the Deputy Traffic Commissioner for Scotland (“the DTC”) made on 11 May 2016 when he revoked the operator’s licence of [COMPANY_10] (“[NAME_10]”) upon the grounds of lack of professional competence, inadequate financial standing and loss of good repute under s.17(1) of the Public Passenger Vehicles Act 1981 (“the Act”) resulting in [NAME_10] being disqualified from holding or obtaining an operator’s licence for a period of two years under s.28 of the [NAME_14] Act 1985. [NAME_10] was also ordered to pay a penalty of £4,750 under s.39 of the [NAME_14] (Scotland) Act 2001 as a result of the cancellation of a registered bus service, such payment to be made within three months. In respect of the present director [NAME_12] (“[NAME_13]”) and [NAME_18] (who had been a director and who was found to be acting as a shadow director), the DTC found that they had lost their good repute and were disqualified from holding an operator’s licence or from being a director of any company which holds such a licence for a period of one year under s.28 of the 1985 Act. The orders were to come into effect at 23.59 on 27 May 2016. A stay was subsequently granted. There are no appeals in respect of the revocation of the operator’s licence or in respect of the finding that [NAME_19] had lost his good repute.

Background

2. The factual background to the appeal appears from the documents, the transcript and the DTC’s written decision. On 12 April 2012, [NAME_10] was granted a standard national public service vehicle operator’s licence authorising the use of nineteen vehicles. On 13 May 2013, [NAME_10] was called to a public inquiry subsequently held on 26 August 2013 for the DTC to consider an adverse maintenance report triggered by the issuing of an “S” marked PG9; the lack of a nominated [NAME_14] Manager since the resignation of the previous nominated [NAME_14] Manager on 22 May 2012; a change of operating centre with effect from 8 April 2013 without notification to the Traffic Commissioner (“[NAME_20]”); the failure to operate a registered service (no.38) according to its timetable; deficiencies in the checks on drivers entitlement to drive; drivers hours infringements; and finally, financial standing. The DTC accepted the nomination of [NAME_22], the person who had been acting as [NAME_14] Manager since May 2012; he accepted the change of operating centre to [ADDRESS], South Nitshill Industrial Estate, Glasgow; he found that changes had been made by [NAME_10] in respect of [NAME_10]’s other shortcomings. He was not however satisfied that [NAME_10] was of the appropriate financial standing and determined that he would revoke the operator’s licence unless further evidence of

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financial standing was produced within fourteen days of the date of his decision (the fourteen days expiring at the close of business on 8 October 2013). The decision was not in fact posted until two days after it had been signed. On 9 October 2013, further evidence of financial standing was submitted to the office of the Traffic Commissioner (“OTC”). This was deemed to be “too late” by the DTC and the licence was revoked on 13 October 2013. On the 13 February 2014, the Upper Tribunal allowed an appeal from that decision (T/2013/76 [COMPANY_10]) and the matter was remitted to the DTC for further consideration of financial standing. At this stage, [NAME_13] and [NAME_19] were directors.

3. At the reconvened public inquiry held on 12 May 2014, the DTC concluded that [NAME_10] was of appropriate financial standing but nevertheless required [NAME_10] to demonstrate that it continued to be of appropriate financial standing on a monthly basis for the following three months. Financial evidence was produced by [NAME_10] in accordance with the direction, reliance being placed upon a letter from [COMPANY_24] dated 22 August 2014, providing a facility of £100,000 to 15 January 2015. The DTC was not satisfied by this letter and requested that [NAME_10] and [COMPANY_24] complete a finance agreement which was submitted on 13 October 2014. The agreement was not accepted by the DTC and on 10 November 2014, a further letter was issued to [NAME_10] requiring full bank statements for the months January to March 2015. No response to this letter was received by the OTC.

4. A follow up letter was sent on 11 May 2015, informing [NAME_10] that in the absence of the bank statements previously requested, the DTC was proposing to revoke its operator’s licence. [NAME_10] was given until 25 May 2015 to provide the bank statements. On 18 May 2015, [NAME_19] (who had resigned as a director on 29 August 2014 without the OTC being informed) telephoned the OTC to say that he had posted the “bridging letter” in November 2014 and that he would call back as soon as possible. On 18 May 2015, he contacted the OTC and advised that he could submit the required bank statements but that they would not show sufficient financial standing. Those statements were subsequently received on 27 May 2015.

5. In the meantime, on 29 May 2014, the OTC wrote to [NAME_10] advising that it had come to the [NAME_20]’s attention that [NAME_10] was without a [NAME_14] Manager. [NAME_10] was given until 12 June 2014 to provide information concerning its professional competence. In response, [NAME_25], who was the workshop foreman for [NAME_10] notified the OTC that he had been fulfilling the role as [NAME_14] Manager since April 2014 and that a TM1 form along with his CPC certificate had been submitted to the OTC. Following the departure of [NAME_10]’s general manager, [NAME_26] could not find any trace of either the application or [NAME_26]’s original CPC certificate. He had applied for a replacement. A TM1 form was subsequently submitted on 15 August 2014. It would appear that the OTC did not deal with that application once the replacement certificate

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was submitted. On 8 June 2015, the OTC received a letter from [NAME_28], who identified himself as the new [NAME_14] Manager for [NAME_10], [NAME_26] having resigned on 8 June 2015. Before his nomination could be considered, Mr [NAME_27] notified the OTC of his resignation on 25 June 2015. [NAME_10] did not nominate an alternative to Mr [NAME_27], neither did it ask for a period of grace.

6. On 28 April 2015, the [NAME_20] received a letter from [COMPANY_36] on behalf of [COMPANY_30] concerning [NAME_10]’s operating centre at [ADDRESS], Glasgow. The letter read:

“I refer to the premises noted above and [COMPANY_10] who until recently were the tenants of the property. At the outset of their tenancy we were asked to provide a letter to be passed to the Traffic Commissioner confirming their tenancy and their permitted use of the premises. In the circumstances my client has asked that we inform you that the tenancy to City Sprinter has now been terminated for non-payment of rent, we are now raising court action to recover the arrears of rent and associated costs. I have attached a copy of the formal termination notice for your information. ..”

The termination notice was dated 3 April 2015 and was headed “Notice of termination of lease – irritancy”. The notice identified [NAME_10] as “the tenant under the lease” and the subject of the lease being “more particularly described in the said lease”. It referred to the “Pre-Irritancy Warning Notice dated 17 February 2015” in which [NAME_10] was given notice of [NAME_31]’s right to terminate the lease (that notice was not disclosed to the [NAME_20]). The termination notice went on to refer to “clause 11 of the lease” and that the notice had also been served on [NAME_10]’s registered office and [NAME_13]’s registered address ([ADDRESS], [NAME_32], [POSTCODE]). The termination date of the lease was the 5 April 2015.

7. The OTC wrote to [NAME_10] asking for an explanation of the circumstances in which the lease of the operating centre had been terminated. On 21 May 2015, [NAME_13] responded stating that [NAME_10] had spent substantial monies on the premises and had been waiting over 18 months for a lease to be provided and [NAME_10] was now in dispute with its landlord. [NAME_10]’s legal representatives had made it clear that the company would not be vacating the premises until the matter had been resolved.

8. Then on 23 June 2016, the [NAME_20] received an email from [NAME_44] concerning [NAME_10]’s fleet insurance. It read:

“I write to inform you that we have received instructions from City Sprinter’s insurance broker [NAME_33], to cancel the motor fleet insurance .. due to non payment of premium. Cancellation was effective 13th May 2015.

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The purposes (sic) of this email is firstly to inform you of the withdrawal of motor insurance and secondly highlight that there may be possibility (sic) the cancellation has been ignored by City Sprinter. We have no evidence to suggest that any alternative insurance arrangements have been made and therefore the potential of City Sprinter operating in breach of the Road Traffic Act. ..”

Provided to the [NAME_20] was the Notice of Cancellation dated 6 May 2015, addressed to [ADDRESS] and giving notice of the cancellation date of 13 May 2015 due to non-payment of premium. Also provided was a Notice of Cancellation dated 23 June 2015 confirming cancellation of the policy on 13 May 2015. That too was addressed to the operating centre.

9. At 11.22am on 1 July 2015 the OTC sent an email for the urgent attention of [NAME_13] and [NAME_19]. The email from [NAME_44] was attached. The OTC email continued:

The Traffic Commissioner is extremely concerned about (the cancellation of the fleet insurance) and requires the company to provide the following evidence to this office by no later than 5pm tonight: evidence of motor insurance for the company’s entire fleet. .. failure to produce this information .. as required .. will result in the matter being referred to Police Scotland.”

As a result of that email, [NAME_19] telephoned the OTC and spoke to [NAME_34], [NAME_35] of that office and expressed his “shock” at receiving the cancellation notice. He stated that legal advice had been received that they should dispute the insurance cancellation because of the lack of notice. [NAME_13] then wrote in an email at 15.30 in the following terms:

“Further to your discussion with [NAME_17] we did not receive any 7 day notice of cancellation from ERS as is required by law so as we can make alternative arrangements our legal team advises this is a requirement with this type of policy. We did receive a copy of a letter yesterday which was sent on Monday stating ERS have already cancelled our policy. We have tried to contact them today to find out what is happening. Our policy clearly states we have cover until 10th July 11.59pm. We are going to suspend our services immediately if we cannot get clarification today. Any advice would be appreciated as we must take action now. Please contact us as a matter of urgency”.

10. [NAME_19] then forwarded the insurance certificate and spoke to [NAME_34] again stating that whilst the cancellation notices had not been received at the operating centre, they may have been sent to [COMPANY_42], an associated company. It was noted however, that the address on the notices was clearly that of the operating centre. Nevertheless, [NAME_19] advised that he had been in contact with another insurance provider and that cover could be arranged at a cost

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of £16,000 which “they” were prepared to pay. Nothing else was heard from [NAME_10].

11. At 17.28 on the same day, [NAME_34] emailed [NAME_10] reminding the directors of the [NAME_20]’s concerns and that the responsibility to comply with the law was upon the company. At 23.18, [NAME_13] responded stating:

“Due to both our concerns with regard the lack of clarity regarding cover we have no option but to suspend our service until further notice. We will be in contact tomorrow”.

12. On 3 July 2015, the Evening Times published an article entitled “Police launch probe into bus company Sprinter”. It noted that commuters had been “left stranded” the day before as a result of the unexpected withdrawal of the 38 registered bus service. One of the drivers stated “many customers had paid up front for weekly and monthly tickets costing £10 and £30 ..I’ve sold quite a few of them this week. I actually picked up the phone to a woman who was asking what she was going to do now. I didn’t know”. The article asserted that [NAME_13] had said that he was unaware of investigations by the police or the [NAME_20] and “insisted it was his decision to stop running the service. He said: “The company just couldn’t afford to run anymore, to be honest. We’ve been struggling for a while now, trying to run against First Bus. It’s impossible. Last week they had seven buses out to every one of ours. It’s just been an uphill struggle” .. He was unable to say whether customers who paid up front for weekly and monthly tickets will be refunded. He added: “We’ll see what we can do about that. We will probably be putting the company into voluntary liquidation”.

13. On the day before the publication of the article, a call up letter was sent to the directors of [NAME_10] notifying them of a public inquiry scheduled to take place on 3 August 2015. Financial standing, the letter from [COMPANY_36], professional competence, the cancellation of the fleet insurance policy, the failure to operate and “effectively abandon” the 38 registered service and good repute were all in issue.

14. On the morning of the public inquiry, two letters were hand delivered to the OTC. The first, dated 27 July 2015, gave notice to the DTC of [NAME_10]’s “wish” to surrender its nineteen discs which were enclosed with the letter and to cancel the number 38 registered bus service. The second letter date 30 July 2015 requested an adjournment of the public inquiry on medical grounds. A medical certificate dated 31 July 2015 was enclosed stating that [NAME_13] was unfit to travel for one week due to illness. Despite the unsatisfactory nature of the medical certificate and the very late delivery of the letters, in the interests of fairness, the DTC adjourned the hearing to 3 September 2015.

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15. On 1 September 2015, a further request for an adjournment was made by [NAME_37], solicitors instructed by [NAME_13], upon the basis that his instructions had been received very late, there had been no opportunity of meeting [NAME_13] (he lives in Ireland) and further medical evidence was available vouching for [NAME_13]’s ill health. As a result, the public inquiry was adjourned to 18 November 2015. On 2 September 2015, [NAME_38], a firm of solicitors based in Ireland, wrote to the OTC on behalf of [NAME_19]. The letter informed the DTC that [NAME_19] rejected the contention that he was a shadow director of [NAME_10] and enclosed a letter from [NAME_13] which confirmed that [NAME_19] had resigned as a director of [NAME_10] in 2014 and asserting that [NAME_19] “has not attended this office since then”.

16. Two days prior to the public inquiry, [NAME_38] wrote to the OTC advising that [NAME_19] would not be attending the hearing as he would be abroad on business. A witness statement signed by [NAME_19] was enclosed. That stated that [NAME_19] had not been a director of [NAME_10] since 29 August 2014 when it became apparent to him that he could not fulfil his duties as a director due to other business commitments. He did not attend the operating centre for about eight months thereafter and did play any role in the company. [NAME_19]’s family had invested heavily in [NAME_10] both financially and in terms of time. They were the “big losers in all of this”. [NAME_13] had “put his heart and soul into the business and tried to protect the customers and the employees .. to the detriment of both his health and financial well-being”. In relation to the fleet insurance, [NAME_19] had been in touch with the OTC because [NAME_13] was “under huge mental stress”. The figure of £16,000 mentioned by him during the course of conversations in relation to the cost of insurance represented a monthly payment. [NAME_13]’s decision to stop the registered bus service and hand back the vehicle discs was a “brave and correct decision”.

The Public Inquiry

17. At the hearing on 18 November 2015, [NAME_40], solicitor of [NAME_37] represented [NAME_10] and [NAME_13]. No one appeared on behalf of [NAME_19]. At the outset, [NAME_39] stated that there was a “story to be told” and that he could make submissions in relation to it or he could ask [NAME_13] appropriate questions “as and when”. The DTC endorsed the former suggestion.

18. [NAME_39] told the DTC that [NAME_13] had grown up in the bus industry. His father owned a company in Ireland and [NAME_13] had commenced his own [NAME_14] business in Ireland which had done “relatively well”. That was [COMPANY_41]. [NAME_13] then spotted a gap in the Scottish market and incorporated [NAME_10]. He invested in that business to a significant extent along with “other parties” and much of that investment had been lost. Financial advice

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had been received after the business was established and that led to the public inquiry in 2013. After the second hearing at which the DTC was satisfied that the financial standing requirements were met, it would appear that [NAME_19] had sent letters concerning a bridging facility in November 2014 which had not been received by the OTC which led to the request for bank statements for the period January to March 2015. He submitted that those statements were “sufficiently robust to have met financial standing if they had been presented in a timely manner” although he accepted that the “events” would give rise to a natural suspicion given the impending failure to provide the registered service. [NAME_39] submitted that the press report in the Evening Post contained inaccuracies and contrary to the reported statement by [NAME_13] that the company was not making any money, there was in fact an intention to continue operations.

19. The catalyst for the fleet insurance being cancelled was that [COMPANY_42], of which [NAME_13] is sole director, had been forced into administration in England. [NAME_39] stated that the fleet insurance for both [COMPANY_42] and [NAME_10] had been arranged through a finance company and a broker so that the ultimate insurer (Equity Red Star) received a payment on behalf of [NAME_10]. It was “questionable” whether the notice of cancellation was received by [NAME_10] but in any event, [NAME_10] had continued to pay the premiums and in the circumstances, the insurers had no power to terminate the insurance. When [NAME_13] had contacted the insurers asking for a copy of the insurance policy, he was told that he was not entitled to a copy because [NAME_10] was in administration. It was assumed that “the insurer being in known receipt of premium or part premium for one entity has taken a view, whether or not they were entitled to”. It was contemplated that [NAME_10] had a right to bring proceedings against the insurer. [NAME_39] went onto describe the insurance arrangements of [NAME_10] as being “circuitous”. The payment of the insurance premium to the broker was through [NAME_43] and “to the operator’s knowledge there was no failure to pay any premium” for [NAME_10]. There was a failure to pay a premium by [NAME_42] because it had been placed in administration arising out of a dispute over the financing of a vehicle. As a result, the insurer cancelled both fleet policies. If it transpired that [NAME_10] had in fact been operating without insurance, then that was out with the company’s knowledge. The first “proper” notice of the cancellation of the fleet insurance was the email from the OTC on 1 July 2015. [NAME_10] then immediately attempted to deal with the issue. [NAME_19]’s statement referred to his attempts to arrange alternative insurance cover but the monthly premium quoted was £16,000 when the previous monthly premium had been £12,800. Further the alternative insurer was insisting upon the annual payment up front which [NAME_10] could not pay. It was in those circumstances that [NAME_13] made the decision to cease the operation of the registered service. If the fleet insurance had not been terminated, then [NAME_10] would have continued to operate.

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20. In relation to [NAME_19]’s involvement in the organisation of alternative insurance cover, [NAME_39] submitted that this was only because of the type of stress that [NAME_13] was under at that time and this was contributed to by a “developing dispute” over the operating centre. Whilst it was asserted in the letter sent to the OTC by [COMPANY_36] informing the [NAME_20] that the lease had been irritated as a result of non-payment of rent, that was not the case. It was [NAME_13]’s case that the lease of the operating centre had never been finalised. An English firm of solicitors had represented [NAME_10]’s interests in the matter and “there had been missives”. It transpired that rent had been paid by [NAME_10] up to the point when the premises were no longer wind and water tight as a result of significant problems with the roof and at that point, rental payments were withheld. Once [NAME_10] ceased operating the registered bus service, the operating centre was “essentially abandoned”. [NAME_39] was suspicious of the motives of [COMPANY_36] for bringing the termination of the lease to the attention of the OTC. He submitted that it was evident that Kendall was more concerned with putting pressure on [NAME_10] to resolve the dispute rather than the fulfilment of a public duty. [NAME_39] characterised the dispute as “technical” with “ongoing rumblings” but the overall relevance of it was whether it was a sign that the company was failing to meet its commitments at that time against the background of the public inquiry in 2013 when one of the issues was financial standing.

21. [NAME_39] referred to the letter from [COMPANY_24] which had been relied upon in support of financial standing. Was it a “true” document or an “enabling” one? The broad answer to “all of this” was the level of investment made by the parties into [NAME_10]; the fact that it was not a rogue operation; the fact that [NAME_10] was not in liquidation or administration at the time of the public inquiry; the drivers and staff had been paid off; there were no significant creditors. Indeed, there was a significant outstanding claim against [NAME_14] and it was [NAME_13]’s case that the assets of the company should easily cover all debts outstanding, leaving a surplus.

22. The issue or professional competence was then dealt with. [NAME_22], the [NAME_14] Manager accepted by the DTC following the 2013 public inquiry, left [NAME_10] and [NAME_26] took over although [NAME_10] continued to look for a “very capable, ambitious, competitive” [NAME_14] Manager and they “happened” upon [NAME_27]. His employment was however, short lived as his expectations were different to those of [NAME_10]. [NAME_26] nevertheless continued to work for the company and he remained available to be nominated as a [NAME_14] Manager although he was not [NAME_10]’s “ideal choice” and he had not confirmed that he was willing to be nominated a second time.

23. [NAME_39] then turned to [NAME_13]’s other business interests. [COMPANY_41] continued to trade in Ireland. [COMPANY_42] had gone into administration at relatively short notice and the assets of

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the company were transferred to [COMPANY_41] (which does not hold an operator’s licence) with some of the [NAME_42] fleet returning to Ireland to be operated by [COMPANY_41]. The finance agreements with [NAME_43] had been re-negotiated.

24. [NAME_39] accepted that he did not have any documentation to support the submissions he had made and he accepted that in the absence of any up to date financial standing evidence or an operating centre, [NAME_10]’s operator’s licence fell to be revoked. However, [NAME_13] hoped that once [NAME_10]’s accounts had been finalised, he would be in a position to go “back to basics” and commence operation with [NAME_26] as [NAME_14] Manager. It was submitted that [NAME_13] had overstretched himself geographically and that this would be addressed.

25. Returning to the issue of [NAME_19]’s role in the business once he had resigned as a director, this was not a case where a director was acting as a shadow director so as to avoid responsibility and penalties in the event that a business failed. [NAME_39] had spoken to [NAME_19] and had told him that his attendance at the public inquiry was important for his reputation. However, the key issue was [NAME_13]’s good repute which he could not afford to lose. He submitted that the short way of dealing with the issues was for the DTC to revoke [NAME_10]’s licence and not make any adverse findings in respect of good repute or alternatively, the longer way would be to look in more detail at the submissions made and obtain support from them.

26. The DTC expressed concern about the assertions that important correspondence (such as the insurance termination notices) had not been received by [NAME_10] at the operating centre although he considered that the key issue was the situation with the insurance itself. [NAME_13] confirmed that there had not been any problems on a day to day basis with receiving post at the operating centre. The DTC highlighted that whilst the position adopted by [NAME_10] was that the insurance company did not, as a matter of law, have any authority to terminate the insurance, the DTC could not recall an insurer ever writing to the OTC regarding cessation of vehicle insurance. Good repute was in issue along with the failure to continue with the registered bus service. There were significant consequences for not giving notice of the cancellation of a service or for failure to obtain short notice cancellation of it. The insurance situation was linked to that and needed to be vouched. The DTC was surprised that [NAME_10] did not have in its possession a copy of its own fleet insurance policy and he considered there to be “a lot riding” on that document. [NAME_39] advised that the insurance company would not provide a copy of the policy because it was under the mistaken impression that [NAME_10] was in administration. This was to be obtained. The DTC then adjourned the hearing to allow [NAME_10] to “look further into the issues we have identified this morning all with a view to vouching the situation to assist me in really considering the repute of the company and its directors”. The DTC indicated that the hearing

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would either reconvene or written submissions could be provided depending upon the outcome of the investigations.

27. On 17 December 2015, [NAME_39] sent a number of documents to the DTC which had been provided by the insurance company. They did not include the policy document itself and [NAME_39] asked for the DTC’s forbearance. On 5 January 2016, the OTC wrote to [NAME_39] highlighting that the issue of insurance featured in the call up letter sent out on 2 July 2015. In the circumstances, the DTC would not give [NAME_10] any further time and required final written submissions to be submitted by 29 January 2016.

28. On 29 January 2016, [NAME_39] wrote to the OTC advising that the policy document remained outstanding. [NAME_13]’s good repute was balanced on the issues arising out of the cancellation of the fleet insurance and it was [NAME_39]’s submission that there was no legal basis for the insurers to have acted in the way they did without warning the company of its precipitate decision. In essence, the insurers had taken “umbrage” at the fact that another related entity had not paid its insurance premium and had cancelled the insurance for both entities despite the fact that a contract of insurance could not be qualified in that manner. This precipitate decision meant that the whole operation was jeopardised and [NAME_10] was bound to take a decision to cease to operate in the absence of insurance, which could only be regarded as the “correct moral and legal route” at that time. The DTC was reminded that there were no “substantial creditors” nor had the company gone into liquidation. [NAME_39] indicated that he did not intend to make submissions at that point in respect of the other failures of [NAME_10] as the DTC was already aware of [NAME_10]’s position in relation to them. In essence, the events which gave rise to the failure to operate a registered service are connected to the cancellation of the insurance.

29. Then on 8 February 2016, [NAME_37] provided the OTC with the policy of insurance. Condition 10 of the General Conditions states:

“We, or your insurance advisor may cancel this insurance by sending seven day notice, in writing to your last known address ...”.

It was accepted on behalf of [NAME_10] that the policy allowed for cancellation of insurance without cause. However, it was reiterated that the insurers conduct was unpredictable and out with the control of [NAME_10].

The [NAME_20]’s decision dated 11 May 2016

30. The DTC began by revoking [NAME_10]’s operator’s licence upon the grounds that the operator lacked appropriate financial standing and professional competence. The Tribunal should add at this stage that the DTC’s rejection of the documentation purporting to demonstrate a bridging

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facility of £100,000 was plainly right and the fact that it was not drawn upon at the time when [NAME_10] was seeking alternative insurance cover supports the DTC’s findings (indeed it was never drawn upon). The DTC described [NAME_10]’s financial standing as “precarious”. We note that the bank statements covering the periods January to March 2014 and January to March 2015 did not even begin to demonstrate the financial standing necessary to operate nineteen vehicles and there was no basis upon which [NAME_39] could properly submit (as he did) that the evidence of financial standing was “sufficiently robust” to meet the requirements if the issue had been dealt with in a more timely fashion.

31. The DTC then turned to good repute. He determined that the management [NAME_10] had become less effective in 2014 and continued to be so up to the date when the company ceased trading. This was evidenced by the resignation of [NAME_22], the [NAME_14] Manager. When his resignation came to the attention the OTC, [NAME_10] was required to nominate a new [NAME_14] Manager. From that date, no [NAME_14] Manager had been formally accepted by the [NAME_20] and no period of grace had been sought. This was a “very serious matter”. [NAME_13] had been the sole nominated director for [NAME_10] since August 2014. He accepted that he was not at the operating centre on a daily basis and the DTC had gained the “distinct impression” that the day to day management of the company was in the hands of an Accounts Administrator and a [NAME_14] Manager who had not been accepted by the OTC. The DTC did however acknowledge that [NAME_13] had not been enjoying the best of health in 2015.

32. A recurring theme of the operator was that it was claimed that some correspondence had been sent to the OTC which had not arrived and that some correspondence had not been received at the operating centre, for example, the “all-important” Notice of Cancellation of the fleet insurance dated 6 May 2015 which informed [NAME_10] that its insurance would be terminated on 13 May 2015 and the further Notice of Cancellation dated 23 June 2015 confirming the termination of insurance on 13 May 2015. The Notices were correctly addressed. It was the responsibility of the operator to ensure that there was a facility for where correspondence was to be delivered at that address.. The DTC determined that he did not accept that [NAME_10] did not receive either or both of those Notices. He further determined that the cancellation of the policy had been “proper and lawful” having been in accordance with Condition 10 of the General Conditions of the policy. It followed that [NAME_10] had knowingly used its fleet of vehicles without insurance from on or about 13 May 2015 to 1 July 2015 which was “another most serious matter”. The directors must have been aware t there were insufficient funds to pay the insurance premiums.

33. In undertaking the required balancing exercise in relation to good repute, the DTC noted that there had not been any adverse reports from any enforcement agency or third party; there were no issues to do with maintenance, the use of vehicles, drivers hours offences or record

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keeping and no notifiable convictions or prohibitions. There were however issues to do with the management of [NAME_10]; the continuing failure to have a [NAME_14] Manager accepted on the licence; the failure to remain of appropriate financial standing; the failure to notify the [NAME_20] that [NAME_10] had ceased to be of appropriate financial standing with the continuation of operations in those circumstances; permitting the use of vehicles whilst uninsured; the cessation of a registered service without the required notice of cancellation or seeking or obtaining from the [NAME_20] cancellation at short notice.

34. In considering the actions of the “directors” of [NAME_10], the DTC was satisfied that despite [NAME_19]’s resignation as director of [NAME_10], he nevertheless continued to act as a “shadow director” in accordance with s.251 of the Companies Act 2006. He was involved in establishing financial standing in November 2014 and again in May 2015. He was involved with the issues arising out of the cancellation of the fleet insurance policy in July 2015. Further, the bank statements for [NAME_10]’s Wages Account continued to be addressed to him. The DTC was satisfied that the adverse findings set out in paragraph 33 above demonstrated that the directors had not discharged their duties in a bona fide manner. Added to the adverse findings was the fact that [NAME_10] had continued to occupy the operating centre after the termination of the lease on 5 April 2015. [NAME_10] did not have an operating centre after that date. The combination of the adverse findings led the DTC to conclude that [NAME_13] and [NAME_19] had breached the relationship of trust between [NAME_10] and the [NAME_20] and the DTC could not trust either director to comply with the undertakings of an operator’s licence and [NAME_10] deserved to be put out of business as a result of the identified shortcomings. The DTC then made the orders of disqualification as set out in paragraph 1 above and concluded that in the absence of a reasonable excuse for failing to operate a registered service, the appropriate figure for a penalty under s.39 of the [NAME_14] (Scotland) Act 2001 was £250 per vehicle and ordered a total penalty of £4,750.

The Upper Tribunal Appeal

35. At the hearing of this appeal, [NAME_13] failed to appear and was unrepresented, [NAME_37] having given notice to the Upper Tribunal that they had withdrawn from the appeal due to lack of instructions. In the circumstances, we considered the grounds of appeal previously submitted by [NAME_39]. The first point was that the submissions made on behalf of [NAME_10], established that financial standing had been in place throughout the life of licence, the availability of the operating centre had been addressed by reference to the civil dispute between [NAME_10] and its landlord and whilst no [NAME_14] Manager had been accepted on the licence, there had been someone fulfilling that role throughout the life of the licence. It followed that the only issues of significance by the end of the hearing was the lack of insurance and uninsured operations. The DTC accepted that it was the

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“pivotal issue” regarding the management of [NAME_10]. In the circumstances, the DTC had erred in law in that “he had regard to facts which he ought not to have given regard and failed to have regard to facts which he ought to have, nor was it the case that the DTC advised the operator at the inquiry that these facts were still outstanding in terms of the need for an explanation”. The sole purpose of the adjournment was for [NAME_10] to obtain more information upon the issue of insurance. In the absence of an indication that further information or explanation was required on the other matters, the DTC should not have taken them into account when considering good repute.

36. We are satisfied that there is nothing in this point. The call up letter, which was dated 2 July 2015, clearly set out the issues to be considered by the DTC. He did not take into account any matter which had not been referred to in the call up letter and which had not been addressed by [NAME_39]. In effect, [NAME_13] and [NAME_10] had the benefit of four months in order to prepare the company’s case on the issues raised. It is striking that not one document or piece of evidence (apart from a letter written by ERS refusing to disclose the fleet insurance policy) was produced during the course of the hearing to support any of the submissions made by [NAME_39], which in the circumstances were nothing more than bare assertions. This is not a criticism of [NAME_39]’s conduct of the case. We have no doubt that if documents had been made available to him which supported or tended to support the submissions he had made, he would have placed them before the DTC. The DTC’s findings on loss of repute concentrated upon the cancellation of the insurance policy, [NAME_10]’s knowledge of that cancellation and the continued operation of vehicles thereafter. That alone would have been sufficient to find a loss of good repute. However, the DTC relied upon the following additional grounds:

a) The absence of financial standing and the continuation of operations without notifying the [NAME_20] of the material change: the DTC had previously determined that the purported bridging facility could not be relied upon by [NAME_10]. Nothing was put before the DTC to persuade him to change his mind on that issue. The only evidence of financial standing was the bank statements and it was self evident on the face of them that from January 2014 that financial standing was not satisfied, contrary to [NAME_39]’s assertions that the requirement was met throughout the life of the licence until shortly before the public inquiry. As at the date of the hearing, it was accepted that [NAME_10] did not meet this requirement. We fail to see what other evidence could have been obtained if required upon this issue when the bank statements clearly demonstrated the true position;

b) The failure to vacate the operating centre upon the termination of the lease: [NAME_10] was given notice of termination of the lease by reason of a Pre-Irritancy Warning letter dated 17 February 2015 (not within the papers but referred to in the termination notice).

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There then followed the Notice of Termination dated 3 April 2015. It is surprising to say the least that [NAME_10] did not have any available documentation concerning the alleged dispute with the landlord which was relied upon to justify its failure to pay rent and to vacate the operating centre upon the termination of the lease or to support the assertion that the lease had never been finalised despite “missives”. Neither was it suggested that such documentation could be made available if necessary and we reject [NAME_39]’s submission in the grounds of appeal to the contrary. It was incumbent upon [NAME_10] to show that the termination of the lease was not something that should be considered to be adverse to the good repute of either company or the directors but in any event, the DTC did not rely upon the termination itself due to non-payment of rent but the fact that [NAME_10] did not vacate the premises once that had taken place (and we note, inform the [NAME_20] of the position);

c) The lack of an accepted [NAME_14] Manager from April 2014: we fail to see what else could have been provided in relation to this point. The DTC’s findings were based upon the position as accepted by [NAME_10] and [NAME_13].

We repeat that upon the basis of the findings made by the DTC in relation to the cancellation of the insurance and the continued operation of vehicles thereafter, that good repute was lost.

37. The next point in the grounds of appeal was that the DTC gave insufficient weight to the criticisms made of the evidence relating to insurance. The “broad submission” was that the insurers were driven by some motive other than public interest and altruism in informing the [NAME_20] of the cancellation of the fleet insurance and that ERS had taken a precipitate decision for reasons which were not reasonable or in accordance with the terms of the contract. Neither was there evidence of the Notice of Cancellation having been sent by recorded delivery. Further, the DTC “recorded” that [NAME_10] had paid its insurance premiums and therefore the email sent by [NAME_44] was wrong. The DTC appeared to have made a finding of fact based either on the letter from [NAME_44] or based upon the contractual condition allowing for cancellation when there was no proper reason for terminating the insurance policy. The DTC should in fact have reconvened the public inquiry in order to test the evidence of [NAME_13] on the issues going to his good repute.

38. We reject this submission. The motive of the insurers in informing the [NAME_20] that [NAME_10]’s fleet insurance had been cancelled is irrelevant to the issues, indeed they are to be applauded for doing so as in the absence of such notification, it was likely that public service vehicles would have continued to be operated without insurance cover until 10 July 2015 when the insurance policy would otherwise have come to an end. Neither is the method of service of the notices of cancellation relevant.

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There is no requirement in the policy for the notices to be served by recorded delivery, whatever the industry norm. Whilst the DTC “recorded” submissions made about the payment of insurance premiums by [NAME_10], he did not find that they were in fact paid. Rather, he found that there were insufficient funds to pay for the insurance premiums and we note that the bank statements produced do not appear to show any such payments. It was incumbent upon [NAME_10]/[NAME_13] to provide some evidential support for the payment of the premiums. If the payments were being made, whether via [NAME_42] or otherwise, then a financial trail should have been put before the DTC and explained. The bottom line is that the DTC found that [NAME_10] did receive the notices sent to the operating centre and that finding cannot be categorised as being plainly wrong. The DTC rightly found that there was a recurrent theme of important documents either not being received at the operating centre or not being received by the OTC when it was asserted they had been sent by [NAME_10]. It is incredible that both notices of cancellation were not received at the operating centre and the assertion to the contrary is not worthy of belief. It follows that the DTC’s finding that [NAME_10] knowingly continued to operate public service vehicles without insurance was inevitable once he had found that the notices had been received by [NAME_10].

39. Turning then to the penalty imposed by the DTC under s.39 of the [NAME_14] (Scotland) Act 2001, the next point was that once [NAME_10] had discovered that they were uninsured and “having been held to ransom” by another insurance company from whom [NAME_10] sought insurance, the only correct and inevitable decision to take was the cancellation of the registered service. [NAME_13] was suffering from stress and [NAME_19] was trying to help (and as a side, there was no evidence upon which to infer he was a shadow director) and accordingly a penalty should not have been imposed. Alternatively, the amount was excessive in all of the circumstances.

40. We are not satisfied that the DTC’s approach to the imposition of a financial penalty was wrong. This was a serious case. Having found that [NAME_10] had continued to operate public service vehicles knowing that the fleet insurance policy had been cancelled and without making any attempt to cancel the registered service or apply for short notice cancellation, it was inevitable that the DTC would impose a financial penalty. Indeed, [NAME_10] did not attempt to formally cancel the registered service until the morning of the public inquiry on 3 August 2015 and only stopped operating vehicles on 1 July 2015 when the [NAME_20] and Police Scotland became involved. No reasonable excuse for the failure to operate the service was available to [NAME_10] and there was little mitigation to be relied upon. The aggravating features were that public service vehicles had been operated without insurance, no application was made to the [NAME_20] for short notice cancellation and [NAME_10] continued to permit drivers to accept payment for weekly and monthly tickets from passengers. The public were then left “high and dry” by the abrupt termination of the service with some being out of pocket. The

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maximum penalty is £550 per authorised vehicle. It would have been open for the DTC in this case to impose near to the maximum figure per vehicle. Instead, he stepped back from that and imposed a figure of £250 per vehicle and bearing in mind the aggravating features, that was an entirely proportionate figure particularly against the background of the submissions made on behalf of [NAME_10] at the public inquiry that the company was essentially solvent.

41. We note that there is no specific reference in the grounds of appeal to the length of the periods of disqualification of either [NAME_10], [NAME_13] or [NAME_19]. For the avoidance of doubt, we are satisfied that all three orders are entirely proportionate bearing in mind the circumstances of this case and we note that against the background of this case, it was open to the DTC to find that [NAME_19] was a shadow director justifying a period of disqualification.

42. To conclude, we are satisfied that the [NAME_20]’s decision is not plainly wrong in any respect and that neither the facts or the law applicable in this case should impel the Tribunal to allow these appeals as per the test in [COMPANY_15] & [NAME_16] v Secretary of State for [NAME_14] (2010) EWCA Civ. 695. The appeals are dismissed.

Her Honour Judge J Beech 10 October 2016