Upper Tribunal Sets Aside Licence Revocation and Disqualification Order

Appeal No: T/2019/26

[2019] UKUT 0265 (AAC)

IN THE UPPER TRIBUNAL ADMINISTRATIVE APPEALS CHAMBER [NAME]

ON APPEAL from the DECISION of the [NAME] FOR THE SCOTTISH TRAFFIC AREA ([NAME])

Dated: 18 February 2019

Before:

[NAME] QC Judge of the Upper Tribunal [NAME]

Member of the Upper Tribunal [NAME] Member of the Upper Tribunal

Appellant:

[redacted]

For the Appellant: [redacted]

[NAME], 126 [NAME], Edinburgh. Date of Hearing: 2 July 2019 Date of Decision: 27 August 2019

DECISION OF THE UPPER TRIBUNAL

The appeal is allowed to the extent that we (1) set aside the [NAME]’s decisions (i) revoking the appellant’s licence; (ii) disqualifying the appellant from holding or obtaining an [NAME]’s licence until 19 May 2002; and (iii) refusing variation applications to nominate a new transport manager, add additional operating centres, and increase the licence authorisation; and (2) we remit to the [NAME] for redetermination the appellant’s variation applications made on (a) 10 October 2016, for substitution of a new transport manager for the existing transport manager; (b) 25 January 2017, for authorisation of an additional operating centre; and (c) 22 February 2017, for authorisation of an additional operating centre and to increase the licence authorisation from 5 vehicles and 5 trailers to 15 vehicles and 8 trailers.

Subject Matter

Shareholder of [NAME] which was a limited company. Disqualified Company Director. Shadow director. Loss of [NAME]’s repute. Revocation. Disqualification.

[2019] UKUT 0265 (AAC) 2 T/2019/26

Cases referred to:

[COMPANY] & [NAME] –v- Secretary of State for Transport [2010] EWCA Civ. 695 [COMPANY] [2019] EWCA Civ 1022 [NAME] t/a [NAME] v. Department of Transport North Western Traffic Area [2003] RTR 34 [NAME] v. Secretary of State for Transport 2006 SC 664 In Re [COMPANY] v Secretary of State for Transport [2006] RTR 9 Revenue and Customs Commissioners v Holland [2010] 1 WLR 2793 Salomon v A Salomon & Co Ltd [1897] AC 22 HL (E) Introduction

1. This is an appeal from the decision of the [NAME] for the Scottish Traffic Area given on 18 February 2019. The appeal was considered at an oral hearing at which [COMPANY] was represented by [NAME].

2. In summary, the [NAME] revoked the goods vehicle [NAME] licence held by the appellant on the ground of loss of repute in terms of section 27 of the Goods Vehicle (Licensing of Operators) Act 1995 (“1995 Act”); refused variation applications to add two additional operating centres, to increase vehicle authorisation and to nominate a new transport manager. In addition, the appellant was disqualified until 19 May 2022 from applying for or holding an [NAME] licence in the Scottish or any other traffic area in terms of section 28(1) of the 1995 Act with conditions in section 28(4) applying. The Relevant Legislative Provisions 3. Section 2 of the 1995 Act provides that no person shall use a goods vehicle on a road for the carriage of goods, for hire or reward, or in connection with any trade or business carried on by him, except under a licence issued under the Act.

4. In terms of section 13A of the 1995 Act, the holder of a standard [NAME] licence must be, in addition to some other requirements, of good repute. (Section 13A(2)(b) and paragraphs 1-5, 9 and 12 of schedule 3 to the 1995 Act.)

5. Paragraph 1 of schedule 3 provides: (2) In determining whether [COMPANY] is of good repute, a [NAME]

shall have regard to all the material evidence including, in particular, -

(a) any relevant convictions of the company or of any of its officers, servants or agents; and

(b) any other information in his possession as to the previous conduct of -

(i) any of the company’s officers, servants or agents, or

(ii) any of its directors, in whatever capacity,

If that conduct appears to him to relate to the company’s fitness to hold a licence.

[2019] UKUT 0265 (AAC) 3 T/2019/26 6. Section 26 of the 1995 Act provides that the [NAME] may direct that a licence be revoked on any of a number of grounds. Those grounds include failure to fulfil any undertaking recorded in the licence (s 26(1)(f)) and that since the licence was issued or varied there has been a material change in any of the circumstances of the licence holder that were relevant to the issue or variation of the licence (s26(1)(h)). That would include change of ownership of the [NAME]

7. In terms of section 27, the [NAME] must revoke an [NAME] licence if it appears to him that the [NAME] is no longer of good repute (s27(1)(a)). Section 28 provides that where a licence has been revoked, the [NAME] may order that the person who was the holder of the licence be disqualified from holding or obtaining a licence for either a fixed or indefinite period.

Background

8. The following is a summary of the background to this appeal taken from the decision of the [NAME] dated 18 February 2019 and other documentation within the bundle for the [NAME] and public inquiries in this case.

[NAME] and [COMPANY]

9. [NAME] was a director of [COMPANY] (“[NAME]”) from 30 November 1994. [NAME] was a director from 1 January 2009. [NAME] was granted a standard [NAME] licence in 1995. In June 2010 a receiver was appointed to [NAME]. The [NAME] licence was revoked on 6 September 2010 due to the receiver not wishing to make use of it. [NAME] failed with losses in excess of £9m. Both directors resigned on 5 May 2014. [NAME] and [NAME] admitted that they had misapplied company funds by arranging payments to connected parties and had unlawfully disposed of assets subject to hire purchase, resulting in further loss to creditors and the [COMPANY]. [NAME] admitted that he had diverted company funds to his own [NAME]. [NAME] and [NAME] respectively signed a form of company director disqualification admitting their unfit conduct and undertaking that for a period of 8 years (in [NAME]’s case) and 6 years (in [NAME]’s case) commencing on 20 May 2014 not to act as (i) a director of [COMPANY], (ii) a receiver of [COMPANY]’s property or (iii) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of [COMPANY] except with the leave of the court. (Pages 580 to 585 and 989.)

10. Shortly before [NAME] and [NAME] were required to resign as directors of [NAME], the appellant company in this case, [COMPANY], was incorporated on 5 March 2014 with 1 share issued and paid. The director was [NAME] who held the share. [NAME] is [NAME]’s son. On 23 October 2015, [NAME] was appointed as a director. [NAME] is [NAME]’s wife. On 3 November 2015 the issued share was transferred to [NAME].

11. On 8 March 2016 the appellant was granted a standard [NAME] licence for 5 vehicles and 5 trailers. The transport manager nominated was [NAME]. He is not related to [NAME].

[2019] UKUT 0265 (AAC) 4 T/2019/26

12. On 16 September 2016 [NAME] was appointed a director of the appellant and on 19 September 2016 [NAME] and [NAME] resigned as directors. These changes were intimated to the [NAME]. In October 2016, [NAME] was to be replaced as transport manager by [NAME]. On 14 November 2016 the share in the appellant company was transferred to [NAME] who was then listed at [NAME] as the Person with Significant Control. The change of ownership of the share in the appellant was not intimated to the [NAME].

13. On 25 October 2016 a variation application was submitted to add [NAME] as transport manager and to remove [NAME]. On 25 January 2017, the appellant made a variation application to add Kyleakin Quarry, Isle of Skye as a new operating centre for 4 vehicles and 2 trailers. On 22 February 2017 variation applications were made to add Lairgandour, Inverness as a new operating centre and to increase authorisation to 15 vehicles and 8 trailers.

[NAME]’s other business interests 14. Prior to his disqualification as a director, [NAME] had been a director of many other companies. These are listed in paragraphs 18 and 19 of the [NAME]’s decision (page 989-993). He has also been involved in other businesses. Some of the companies and businesses with which he has been involved had held [NAME] licences. In particular, he had been a director and shareholder of [COMPANY] (“[NAME]”) and an owner of a business trading as [NAME] were called to a public inquiry before the [NAME] in June 2011. Following that public inquiry, the [NAME], among other things, suspended the [NAME] licence for 4 weeks and [NAME] and [NAME] (the latter being transport manager) were given a warning as to their repute (page 139). There was a public inquiry before the [NAME] on 20 March 2013 to consider a variation application by [NAME] to increase authorisation to 6 vehicles and 3 trailers and an application for a licence made by [COMPANY] of which [NAME] was a director. [NAME]’s variation application was granted. At a later public inquiry in 2014 the [NAME] was made aware by them that [NAME] and [NAME] were likely to be disqualified as company directors (pages 335 to 383). 15. [NAME] was a director and secretary of [COMPANY] from 14 July 2010 to 28 February 2014. [NAME] was a director from 1 August 2011 until 28 April 2014. [COMPANY] held an [NAME] licence. The resignations of [NAME] and [NAME] as directors were intimated to the [NAME]. [NAME] and [NAME] continued to work for the company after resignation as officers. [COMPANY] changed its name to [COMPANY] on 30 July 2015. [NAME] was a shareholder in that company until about late 2016.His contract with [COMPANY] precluded him from having control of any other company. He left [COMPANY] in about late 2016. [COMPANY] went into liquidation and was wound up in October 2017.

The Public Inquiry

16. The [NAME] wished to investigate the appellant’s variation applications. A call up letter was issued on 13 September 2017 (page 15) to consider, inter alia, whether the appellant had breached the conditions of its licence, whether there had

[2019] UKUT 0265 (AAC) 5 T/2019/26 been a material change of circumstances since the licence was granted and whether the appellant was of good repute. The letter stated that the [NAME] would consider, among other things, the fact that there had been a change of ownership of the appellant to [NAME] which had not been notified to the [NAME]; that [NAME] and [NAME] had given an undertaking not to act as directors, manage or in any way control [COMPANY], and that had not been declared to the [NAME]; and, that there were links between [NAME] and the appellant. [NAME] was also called to the inquiry.

17. In addition to the matters mentioned in the previous paragraph the [NAME] intended to consider the variation applications. As we have remitted these matters for determination by the [NAME], these issues will not be addressed except where relevant to the decision of this tribunal.

18. The Public Inquiry commenced at Inverness on 20 October 2017. The [NAME] heard evidence from [NAME], director of the appellant, [NAME], transport consultant, and others.

[NAME]’s evidence

19. [NAME] said that the appellant had been set up by [NAME] as a small groundworks business but that had not worked out for him. He said that he, [NAME] and [NAME] left [COMPANY] as a team. When he and [NAME] were exiting [COMPANY] they planned to take over the appellant company and restructure it. [NAME] would be director running the business, [NAME] would own the company and be operational. He said that they had taken legal advice and been advised that even with the director’s disqualification there was nothing to prevent a disqualified director being a person with significant control of the company. [NAME] had taken the shareholding in trust until [NAME] could take on ownership. He described the nature of the appellant’s work and their workforce. [NAME] said he was the sole director with statutory responsibility and he ran the business. The staff and others were aware of that. He was responsible for [NAME] licensing. He also had a construction/commercial director role. He had a good working relationship with [NAME] and [NAME] did not push him around. [NAME] made the decisions. He accepted that they should have advised the [NAME] of the change of ownership. He took responsibility for that.

[NAME]’s evidence

20. He agreed with the evidence of [NAME]. He said that whilst he remained a shareholder of [COMPANY] his agreement precluded him from taking control of any other company. [NAME] said his role in the appellant was “hands on”, on site, and that was what he liked. That was what he had done all his working life. He would take instructions if instructions were needed. He said that it was important to the outside world that he was seen as the owner of the business because of his history. [NAME] decided what happened within the business. [NAME] said he could give advice if asked about contracts, but jobs were taken on without consulting him.

21. [NAME] said that he had no issue with telling the [NAME] what she needed to know. He had previously discussed the forthcoming director

[2019] UKUT 0265 (AAC) 6 T/2019/26 disqualification with the [NAME] at a public inquiry. Regarding the change of ownership of the appellant to himself, he would be relying on others to provide that information to the [NAME]. He had not been trying to hide that change from the [NAME].

[NAME]’s evidence

22. [NAME] said that he was a transport consultant who assisted [NAME] and [NAME] on the transport side of the business. He makes the variation applications. He had never been involved in intimating anyone’s shareholding; it was not something he would have discussed. He had not been aware that the shareholding in the appellant had changed. He did not feel that anyone had been trying to hide the fact that [NAME] and [NAME] had been disqualified. He had advised them to tell the [NAME] at the public inquiry in 2014 about the disqualifications.

[NAME]

23. [NAME] gave evidence that he was seeking appointment as transport manager for the appellant. His current role with the appellant was looking after the [NAME] licence and all that went with that. He had attended the public inquiry into [COMPANY] which was heard by the [NAME]. He said they had written to the [NAME] to advise him of the pending directorship ban. He said the failure to inform the [NAME] of the change of ownership of the appellant was purely an oversight by the company. He said that it was news to him that a change of shareholding had to be intimated to the [NAME].

24. The [NAME]’s Note of Directions following that inquiry and dated 4 July 2018 is at pages 262 to 275. As the [NAME] made plain in her Note of Directions, she regarded director disqualification as a very serious matter; it was a mark of there having been dishonesty in relation to the duties of [COMPANY] director. She stated that the evidence she had seen showed that [NAME] was someone who would place family members in convenient roles (page 274). At that stage, she said, she was tending in the direction of ordering the revocation of the appellant’s licence. She decided to reconvene the inquiry to obtain for consideration the papers relating to the public inquiry into [COMPANY] which had been held before the [NAME] in 2014 and to allow the appellant to lodge further documentation. In addition, she wanted further information about a serious incident that had occurred on 21 May 2018 when a wheel detached from one of the appellant’s vehicles whilst travelling.

25. The Public Inquiry reconvened in Edinburgh on 20 December 2018. The transcript is at pages 729 to 796. This was mainly concerned with the wheel detachment incident and submissions.

The [NAME]’s Decision 26. The [NAME]’s decision is at pages 987 to 1010. The [NAME] stated that there were two issues at the heart of the public inquiry, “Firstly the role and place of [NAME] in both licences and the relevance of his presence to repute and fitness of the respective licences. Secondly in relation to [NAME] (the appellant) there was an adverse report from DVSA concerning an adverse

[2019] UKUT 0265 (AAC) 7 T/2019/26 maintenance investigation, an ‘S’ marked wheel related prohibition at annual test on 22 January 2018, and a trailer wheel loss incident and ‘S’ marked prohibition of 21 May 2018.” (Paragraph 68.) This decision will not address the maintenance issues.

27. In her consideration of the evidence and submissions and the relevance of [NAME] to the appellant’s licence, the [NAME] found as follows (some spelling and name errors have been corrected): 120. The requirements for an [NAME] licence include good repute – section 13A of the 1995 Act refers. Schedule 3 provides that in determining whether [COMPANY] is of good repute, a [NAME] shall have regard to all material evidence, including in particular any relevant convictions of the company or any of its officers, servants or agents and any other information in possession of the [NAME] as to the previous conduct of any of the company’s officers, servants or agents or any of its directors in whatever capacity if that conduct appears to the [NAME] to relate to the company’s fitness to hold a licence.” 121. [NAME] (the appellant) was incorporated on 5 March 2014 with registered office at Lairgandour. The director history is set out at paragraph 10 above. When application was made for this licence, [NAME] was not a director or shareholder. At no time did [NAME] or anyone connected with the licence intimate to the [NAME] that ownership and control had transferred to [NAME]. Over the years, [NAME] has used his son or wife to be his place people in directorships or shareholding of his businesses. 122. [NAME] was concerned about the impact of the Company Director Disqualification on his businesses and he took advice. Within the Public Inquiry brief were productions relevant to how [NAME] organised his businesses. The names of his wife [NAME] and of his son came to be used. It is plain for the discussions with his advisers, that [NAME] was determined to stay in business and to continue the civil engineering and groundworks undertaking by his companies including [NAME] and [COMPANY]. For him this line of business was not only enjoyable but hugely remunerative for him personally. He discussed using himself as a sole trader and or models of sub-contracting. To get the shelter of limited liability again and to secure lender interest, he had to take on board a script. 123. I pause here to say that I am in agreement with the submissions by [NAME] that nowhere in statute is there a provision which expressly prevents a person who has been disqualified under the Company Directors Disqualification Act 1986 whether by order of the court or following from a signed Undertaking such as given by [NAME] from either being the 100% shareholder and owner of [COMPANY] or from being the Person with Significant Control which a 100% or majority shareholder such as [NAME] is with [NAME] and with [NAME]. If there is such a provision or argument, then alas I have not found it or been steered to it. 124. I also pause to record that I am sure that it is not for me as [NAME] to fill what some might see as a lacuna in the law, a gap which allows persons such as [NAME] with significant unfit conduct as set out in the Schedule to the Undertaking to own companies outright or significantly with others. A person can be disqualified as a director but yet benefit from his or her shareholdings (wealth) having the protection of limited liability even where their shareholding is 100% or such as to make them a PSC. It does not seem right and especially so where the extent of the shareholding is such as to out-vote all others. Thus, a disqualified director can appoint directors. It is for Parliament to provide such

[2019] UKUT 0265 (AAC) 8 T/2019/26 prohibition on shareholding and ownership, not for me as a [NAME] to decide as if the law were different. 125. It might then be thought that would be an end to my involvement with [NAME]’s Companies Act disqualification and its relevance to repute and fitness of [COMPANY] holding an [NAME] licence. I do not find that to be so simple given the terms of Schedule 3 of the 1995 Act and that [NAME] licensing is a fair competition jurisdiction. 126. If [NAME] had applied for the [NAME] licence and I knew that its owner was a person of such unfit conduct as to have been disqualified under the Companies Act for 8 years, I would not have granted it. I would have used my gatekeeping powers to keep the company out of [NAME] licensing. I could not have found the necessary trust between Commissioner and [NAME]. 127. Here I find myself dealing with an extant licence, in which members of the [NAME] family were used to get the licence; where the difficulties with [NAME] were not disclosed; where [NAME] secured a licence and the difficulties with [NAME] were not disclosed; where [NAME]’s disqualification was not disclosed; and where his becoming 100% owner was not disclosed. All of this goes to trust between [NAME] and [NAME] and to the repute of the entity which holds the [NAME] licence. Quite simply [NAME] has lost my trust and that imperils the licence. 128. I heard the evidence of [NAME] at this hearing and also back in October 2017. He comes across well. He has confidence and can assert that he is in control. I am not in the slightest doubt that he was chosen by [NAME] to be the confident front for him and to do what he required. Mr [NAME] has true belief in himself and is skilled and competent. However, I am not in the slightest doubt that [NAME] fully engaged with the advice given by his legal advisers and that [NAME] knew that there had to be “a line to take” should anyone come near and ask about his involvement. I am not in the slightest doubt that [NAME] controls [COMPANY]. The legal advice was the script. Everything thereafter is a carefully orchestrated play. 129. There are questions which a [NAME] must pose to herself – the [NAME] question, the Priority Freight question and she must also bear in mind the integrity and purposes of the regulatory regime as considered in the Court of Session Thomas Muir case. I have posed these questions to myself and I have reminded myself of [NAME]’s history in this jurisdiction as well as the 8 year director disqualification. Fundamentally I do not trust a person who has been disqualified for 8 years. 130. Do I have to put this [NAME] out of business – can I trust this [NAME] in future? I am in not the slightest doubt having heard the evidence, that the loss of the [NAME] licence will affect the profitability of this business but it will not put this company out of business. As to future trust, I cannot trust [NAME]. I do not doubt his competence at his trade but I cannot trust one who has affected fair competition as he has done. Fair competition is at the heart of [NAME] licensing as is trust. Whilst I listened to [NAME]’s evidence in relation to the process of disqualification and how expensive and unsatisfactory he found it, that evidence cut no ice with me in face of the undertaking and the Schedule of Unfit Conduct. I was not persuaded by [NAME]’s submissions thereanent.

[2019] UKUT 0265 (AAC) 9 T/2019/26 131. Having decided that I must revoke the [NAME] licence, I now consider my powers of disqualification. I consider that this case is one for disqualification. The period of disqualification comes to me as an obvious one. It should march with that made under the Undertaking which in [NAME]’s case runs from 20 May 2014 to 19 May 2022. That will be the period of disqualification. Should there be a change of ownership of [NAME] (the appellant) prior to 19 May 2022, then it would be for the new owners to intimate that material change and to make an application for the removal of the disqualification.

28. The [NAME] went on to decide that the appellant had lost its good repute in terms of section 27 of the 1995 Act, she revoked the licence and disqualified the appellant.

The appeal to the Upper Tribunal

The role of the Upper Tribunal in an appeal from a decision of a [NAME]

29. Paragraph 17(1) of Schedule 4 to the Transport Act 1985 provides:

…. the Upper Tribunal are to have full jurisdiction to hear and determine all matters (whether of law or of fact) for the purpose of the exercise of any of their functions under an enactment relating to transport.

30. The following principles are drawn from the decision of the Court of Appeal in the case of [COMPANY] & [NAME] –v- Secretary of State for Transport [2010] EWCA Civ. 695:

The Tribunal is not required to rehear all the evidence by conducting what would, in effect, be a new first instance hearing. Instead it has the duty to hear and determine matters of both fact and law on the basis of the material before the [NAME] but without having the benefit of seeing and hearing the witnesses.

The Appellant ‘assumes the burden’ of showing that the decision appealed from is wrong.

In order to succeed the Appellant must show not merely that there are grounds for preferring a different view but that there are objective grounds upon which the Tribunal ought to conclude that the different view is the right one. Put another way it is not enough that the Tribunal might prefer a different view; the Appellant must show that the process of reasoning and the application of the relevant law require the Tribunal to adopt a different view. Grounds of Appeal 31. The grounds of appeal are at page 967. [NAME] kindly provided an outline note of argument upon which he expanded at the Upper Tribunal hearing. The outline argument summarised the principal legal propositions on which the appellant relied as follows:-

(i) in considering the questions of revocation and disqualification it is important to bear in mind the distinction to be drawn between the appellant, its

[2019] UKUT 0265 (AAC) 10 T/2019/26 employees and its shareholders. See, by analogy, [COMPANY] v Secretary of State for Transport [2006] RTR 9;

(ii) in considering whether revocation is appropriate on the basis of loss of repute, the question is not whether the relevant conduct has been so serious as to amount to a loss of repute but whether it is so serious as to justify revocation: [COMPANY], (above).

(iii) a “shadow director” is “a person in accordance with whose directions or instructions the directors of the company are accustomed to act”: Companies Act 2006, section 251(1).

(iv) in determining whether a person who is not a de jure director of a limited company is nevertheless a “de facto” director relevant factors to be considered are ‘First, whether the person was the sole person directing the affairs of the company (or acting with others equally lacking in a valid appointment), or if there were others who were true directors, whether he was acting on an equal footing with the others in directing its affairs… Second, whether there was a holding out by the company of the individual as a director, and whether the individual used the title… [and] Third, taking all the circumstances into account, whether the individual was part of “the corporate governing structure’: Revenue and Customs Commissioners v Holland [2010] 1 WLR 2793, per Lord Collins of Mapesbury at para 91 (citations omitted).

(v) a person who has been disqualified from acting as a director of any limited company is not, in consequence, disqualified from owning shares in a limited company, even if he holds a controlling interest in that company’s shares: See Companies Act 2006, sections 790A and 790C, and Schedule 1A, paras 1,2 and 4. 32. [NAME] said the essence of the [NAME]’s decision was in paragraphs 127 to 131 (see above). In reviewing the [NAME]’s decision and the evidence, it was submitted that the [NAME] had erred in law by (i) taking into account irrelevant matter; (ii) materially misdirecting herself in law; (iii) making perverse or irrational findings on matters which were material to her decision; and, (iv) reaching decisions to revoke and disqualify which no reasonable tribunal properly directing itself on the law could have reached.

33. It was submitted that the [NAME] placed weight on her findings that:

(i) members of [NAME]’s family had “been used” to obtain the

appellant’s licence; that when the licence had been obtained the

“difficulties with [NAME]” (i.e. [COMPANY]) had not been

disclosed; that [NAME]’s disqualification from acting as a

director of a limited company from 20 May 2014 until 19 May 2022 had not

been disclosed; and that [NAME]’s acquisition of the whole

shares of the appellant had not been disclosed (all para 127);

(ii) [NAME] controls the appellant (para 128); and

(iii) in those circumstances the appellant had lost the [NAME]’s trust and the Commissioner could not in the future trust a person who has

[2019] UKUT 0265 (AAC) 11 T/2019/26 affected fair competition as [NAME] had done (paragraphs 127 and 130).

34. We shall deal with each ground, and our decision on that ground, in turn. However, at this point it should be borne in mind that as the [NAME] was considering a decision which was liable to lead to the revocation of the appellant’s licence and the likely closing or significant curtailment of the business, the burden of proof was on the [NAME]. There was no burden of proof on the appellant to prove that it was still of good repute. ([COMPANY]. v Secretary of State for Transport [2006] RTR 9). As a matter of general principle, the burden of proof is on the party alleging that the state of affairs has changed, rather on the one maintaining that it has remained the same. ([NAME] v. Secretary of State for Transport 2006 SC 664, paragraphs [22] - [23]).

Ground (i) 35. [NAME] submitted that the [NAME] had before her evidence that when the licence was obtained, [NAME] was precluded by his contract with [COMPANY] from holding shares in a competing company. His contract was lodged as a production and was at page 705. [NAME] gave evidence that the appellant company had originally been for [NAME]’s son, but that had not worked out. Then when [NAME] left [COMPANY], he took the shareholding. (This evidence is narrated by the [NAME] at paragraph 33 of her decision). [NAME] submitted that this evidence had not been dealt with by the [NAME]; nor had she explained on what basis she inferred that [NAME]’s family was used to get the licence.

36. We agree with the submissions for the appellant, for the reasons given, that the [NAME] has made insufficient findings in fact to conclude that [NAME]’s family were used to obtain a licence on his behalf. The [NAME] has not explained on what basis she reached that conclusion. While the [NAME] may have had her suspicions, she has not explained on what evidence she relied to draw this inference. Nor has the [NAME] explained what she made of the evidence from [NAME] and [NAME] about the appellant being set up by [NAME]’s son and, initially, run for the son’s own purposes. Clearly, she rejected that evidence. The appellant is entitled to know why the evidence was rejected however; the [NAME] has not explained this. Therefore, her fact finding and reasoning on this issue are inadequate.

37. The appellant submitted that in placing weight on what the [NAME] characterised as a failure to disclose “difficulties with [NAME]” the [NAME] had regard to an irrelevant matter. There was no evidence to suggest that either [NAME] or [NAME], who were the directors and shareholders of the appellant when it applied for its licence, had any involvement with [COMPANY].

Accordingly, they had no obligation to disclose information on the financial position of [COMPANY] either when the application for the appellant’s licence was made or at any time thereafter.

38. Nor was there any obligation, it was submitted, on the appellant to disclose any information on [NAME]’s financial position or difficulties after [NAME] acquired his shareholding in the appellant in November 2016. He sold his shares in [NAME] in late 2016 and had no further connection with that company ([NAME]’s evidence

[2019] UKUT 0265 (AAC) 12 T/2019/26 and [NAME]’s evidence, respectively narrated at paragraphs 32 and 47 of the [NAME]’s decision). Had it been known that the [NAME] intended to place weight on the fact of [COMPANY]’s financial difficulties it could have been established in evidence precisely when [NAME] sold his shares in [COMPANY] but there is no finding that he continued to hold any shares in [COMPANY] after he acquired his shareholding in the appellant. In any event, [COMPANY] was placed in liquidation in October 2017 (para 21 of the [NAME]’s decision). There is no finding (nor was there any evidence) to the effect that it had been experiencing any financial difficulties a year earlier, when [NAME] was one of its shareholders. Even if [COMPANY]’s entering into liquidation in 2017 were to be treated as giving rise to the inference that it was in financial difficulties a year earlier (which is not accepted), the repute of the appellant cannot reasonably be considered to be affected simply because its shareholder had been connected, in the capacity of a shareholder only, with another limited company which experienced financial difficulties. In the absence of any finding that [COMPANY] was in fact in financial difficulties in 2016, it was submitted that the [NAME] plainly had regard to an irrelevant matter in placing weight on [COMPANY]’s financial difficulties in late 2017.

39. We agree that the [NAME] seems to have attached some weight to the fact that the appellant had not disclosed information about [COMPANY] having financial difficulties. It is correct, as the appellant submits, that there is no evidence and no findings in fact that when the licence was applied for, the appellant had any connection with [COMPANY] or that [COMPANY] was in financial trouble. [NAME]’s evidence was that he had got out of [COMPANY], in late 2016, disposing of his shares and ceasing to work for them. There was evidence that his contract with [COMPANY] meant he could not have a shareholding in a competing company. While there was no precise evidence as to exactly when [NAME] sold his shareholding in [COMPANY], what evidence there was tends to suggest this was before, or around the time, he acquired the share in the appellant. Nor is there any evidence which was before the [NAME] that, even if there had been a connection which placed a duty of disclosure on the appellant, [COMPANY] had been in financial trouble at that time. The only finding the [NAME] makes about [COMPANY]’s financial state of affairs is at paragraph 21 where she records that a liquidator had been appointed to [COMPANY] in October 2017; that was about 18 months after the licence had been granted, 11 months after [NAME] ended his involvement with [COMPANY] and 11 months after the share in the appellant had been transferred to [NAME].

Accordingly, the fact that the [NAME] took into account a failure to disclose information about [COMPANY] was immaterial and irrelevant to the issues she had to decide. 40. [NAME] submitted that the [NAME] erred in law in placing weight on what she characterised as a failure by the appellant to disclose [NAME]’s disqualification from acting as a director of a limited company. In doing so she has had regard to an irrelevant matter or alternatively has misdirected herself in law. There was no obligation on the appellant to disclose that a shareholder (even if a person with significant control) was disqualified from acting as a director.

41. It was submitted that even if there had been a duty on the appellant to disclose that [NAME] was disqualified from acting as a director (which was not accepted) the [NAME]’s finding, effectively being a finding that the appellant sought to conceal that disqualification from her, is perverse or irrational. The [NAME] herself recorded that the disqualification proceedings brought against

[2019] UKUT 0265 (AAC) 13 T/2019/26 [NAME] and [NAME] were voluntarily disclosed by them, and copies of the undertakings given by them which resulted in their disqualification, had been provided to the [NAME] at a public inquiry in September and November 2014 relating to [COMPANY] (later [COMPANY]), notwithstanding that the disqualification proceedings related to another company (paragraphs 97 to 101). She attaches no weight to that previously volunteered information about the disqualification.

42. The appellant accepted that it ought to have informed the [NAME] when [NAME] became its sole shareholder in November 2016. [NAME], the sole director of the appellant since 16 September 2016, accepted responsibility for that failing (para 39 of the [NAME]’s decision). He said he did not know that this should have been intimated. There was also evidence from [NAME], a transport consultant, that even he had not realised that the change in shareholding should have been intimated. [NAME] submitted that that was not the same as saying that [NAME] was concealing his ownership. If he had wished to do that, he could have taken the shareholding in the name of a nominee. Further, the failure to intimate the change in shareholding by the appellant was not conduct so serious as to warrant the revocation of the licence.

43. We agree that the [NAME] does appear to have taken the view that [NAME]’s disqualification as a director was “not disclosed”, the implication being that it was deliberately concealed. To reach such a conclusion she must have rejected the evidence of [NAME] and [NAME] on this issue. She has not explained why she rejected their evidence. We agree that the [NAME] has not explained how she reconciles the open admission of the director disqualification to the [NAME] in 2014 with her conclusion that the disqualification had been deliberately concealed from her on this occasion. She may have had good reasons for so finding. For example, she may have considered that the earlier admission to a different [NAME] was an attempt to obtain advice from the [NAME] as to future applications, the disclosure having been made at a time [NAME] was no longer a director or majority shareholder of the [NAME] concerned. However, this is speculation. Whatever her reason, she has not explained it. Her reasons for this finding are therefore inadequate and an error of law and may have tainted her approach to the evidence on other issues.

44. The [NAME] licence is at pages 42 to 46. Conditions attached to the licence under section 22 include that within 28 days the [NAME] is informed of any changes in the ownership of the business; this would include changes in shareholding that cause a change in the control of the company. Events which affect the repute of the licence holder must also be notified. (See also section 22(2) and (4)).

Accordingly, as the appellant accepts, the change of 100% ownership ought to have been notified to the [NAME]. As regards, notification of [NAME]’s disqualification as [COMPANY] director, the [NAME] does not specify in her decision when she considers this should have been notified. We consider that, at the same time as the change in ownership ought to have been notified, the appellant would have been bound to inform the [NAME] that the owner of the company was a disqualified director, as this is a matter which, potentially, could affect the good repute of the licence holder. Matters relevant to good repute are not confined to unlawful conduct or to conduct related to road transport operations. The requirement of schedule 3 it to have regard to all the material evidence. In a regulatory system based on trust, previous evidence of dishonest conduct of the 100% owner of the [NAME], could be highly material to the good repute

[2019] UKUT 0265 (AAC) 14 T/2019/26 of the [NAME]. [NAME] t/a [NAME] v. Department of Transport North Western Traffic Area [2003] RTR 34 and [COMPANY] [2019] EWCA Civ 1022 (paragraphs 5 to 7). We therefore do not agree that there was no requirement that the appellant advise the [NAME] that the owner of the [NAME] was disqualified from acting as [COMPANY] director.

Ground (ii)

45. [NAME] submitted that in finding that [NAME] controlled the appellant, the [NAME] further misdirected herself in law in failing to distinguish between the roles and powers of the members of [COMPANY] and the directors of that company. Thus, it is correct to say, as the [NAME] has found at para 128, that [NAME] as sole shareholder “controls” the appellant in the sense that any sole or majority shareholder has a controlling interest. The implication of her finding was that [NAME] was a mere cat’s paw. That, he said, was the foundation of her conclusion that the [NAME] (that is, the company) had lost its repute. However, the [NAME] has made no finding, nor was there any evidence, to the effect that [NAME] had in any way sought to ignore or circumvent his disqualification as [COMPANY] director by attempting to act as a shadow director or de facto director of the appellant. On the contrary, the [NAME] found that the sole director of the appellant, [NAME], is “skilled and competent.” Mr [NAME] is, in addition, subject to the common law and statutory duties imposed on directors of limited companies and there is no finding that he has ever failed to comply with those duties.

46. It was submitted that the [NAME] had failed to have proper regard to the distinction between [COMPANY] and its shareholders. He referred to the distinction made between [COMPANY] and its subscribers clarified by Lord Macnaughten in Salomon v A Salomon & Co Ltd [1897] AC 22 HL (E), at page 51. Relying on that, in Holland Lord Hope of Craighead distinguished between [COMPANY] and its directors:- “One can properly say… that [COMPANY] is at law a different person from its directors…” . (At paragraph 42.)

47. We consider that the [NAME]’s fact-finding and reasoning on this issue are flawed. She has not made a specific finding that [NAME] occupied the position of director, even although not expressly called that. However, we agree that is the implication of her finding that he “controlled” the appellant. The [NAME]’s determination implies that [NAME] had obtained legal advice to circumvent his disqualification; that he had treated the legal advice like a script and a “line to take” should anyone ask about his involvement in the company. However, she has not identified any evidence that led her to infer that. To reach such a conclusion she must have rejected the evidence of [NAME] and [NAME] that the legal advice was sought and was being followed to comply with the law, that [NAME] was the only person who acted in a director role, with [NAME] confining himself to operations. It is implicit in her finding that she considered that the reality of the situation was that [NAME] was a director in name only and that [NAME] was a shadow director, that is someone who was the sole person directing the affairs of the appellant, or acting on an equal footing with the true director; or that he was held out as a director; or that he was part of the corporate governing structure (See Holland). That may have been what the [NAME] believed; however, she has not explained what the evidence was that would allow her to draw such inferences and to conclude that [NAME] controlled and directed the appellant. Nor has she explained why she rejected the

[2019] UKUT 0265 (AAC) 15 T/2019/26 evidence of [NAME] and [NAME] on these issues. On those aspects therefore her reasoning is inadequate and materially flawed. Ground (iii)

48. It was submitted that given her erroneous findings, the [NAME] erred in holding that the appellant could not be trusted and had lost its repute simply by reason of a shareholder’s disqualification from acting as a director. Responsibility for the management of the appellant’s affairs rested with [NAME] as the sole director. There was no finding that the appellant/[NAME] had done anything justifying a finding that it has lost its repute or could not be trusted in the future, as a consequence of anything done or omitted to be done by the appellant or by Mr [NAME] as its sole director. She had failed to have proper regard to the distinction between [COMPANY] and its shareholders.

49. [NAME] argued that the [NAME] had also misdirected herself in law in holding that the appellant could not be trusted because [NAME] had “affected fair competition”. That finding failed to have regard to the fact that [NAME] and the appellant were separate legal entities and the fact that [NAME] was not a director, de facto director or shadow director of the appellant.

50. He submitted that a shareholder of an [NAME] may previously in his conduct as a director of an entirely different limited company have affected fair competition in that other company’s market but that does not provide an adequate or reasonable basis for a finding that the appellant has affected fair competition in such a way as justifies revocation and disqualification. There is no finding, nor was there any evidence to suggest, that the appellant had done or attempted to do anything which might affect fair competition in any way.

51. It was submitted that, given her approach to the evidence before her and her reasoning, that the only reasonable inference was that the [NAME] had penalised the appellant because [NAME] had acquired the share in the appellant, something he was legally entitled to do, whilst he was disqualified as a director. She had identified the appellant with [NAME]. This was apparent from the fact that the disqualification imposed was for the remaining period of [NAME]’s disqualification.

52. [NAME] said the [NAME] should have distinguished between the conduct of the shareholder and the conduct of the appellant company. It was not relevant that she could not trust [NAME], he was not controlling the company.

53. It is clear from her decision that [NAME] did not have the [NAME]’s trust. This, she held, was because he had been disqualified as [COMPANY] director for 8 years and such disqualification was a mark of dishonesty (paragraphs 59 and 129). Likewise, she found that [NAME] had affected fair competition in the past and so could not be trusted within the regulatory regime not to affect fair competition in the future. The question then arises whether the [NAME] was entitled to attribute that past conduct of [NAME] to, and to identify it with, the appellant. As was accepted in the Court of Appeal in [COMPANY] paragraph 7: There must therefore be some connection between the conduct in question and the fitness of the person to hold the licence (though there is no requirement that the conduct be directly connected with road transport).

[2019] UKUT 0265 (AAC) 16 T/2019/26 54. The “person” in this case is the appellant company. A “company” is a different “person” at law from its shareholders (Salomon). Ownership of 100% of the shares of the [NAME] company does not necessary imply that the shareholder is acting as a director or managing the company. As we have previously noted, there was no evidence, nor has the [NAME] made findings in fact, that would satisfy the factors outlined in Holland, quoted at paragraph 31(iv) above, to allow her to conclude that [NAME] was acting as a “director” of the appellant company. In the absence of such a finding, her reasoning that the appellant could not be trusted because she could not trust [NAME], is flawed. ([NAME] , t/a [NAME]/2011/63 paragraph 6(ii) and [COMPANY] T/2004/36.)

55. On a subsidiary point, and for completeness, in deciding that [NAME], and thus the appellant, could not be trusted, the [NAME] made reference to [NAME]’s history in this jurisdiction. However, she does not specify what it was about his history she considered relevant. There is a reference in her decision to the fact that she had issued a warning to him about his good repute in 2011. If she considered that warning and the conduct giving rise to it relevant to her finding that she could not trust [NAME], she has not explained why. However, this issue is not material in the absence of a finding that [NAME] was acting as a shadow or de facto director of the appellant.

56. Given the material errors of law we have identified in the [NAME]’s decision, her decision that the appellant had lost its repute in terms of section 7 cannot stand and must be set aside together with the disqualification. We agree with [NAME]’s submission that the failure to intimate the change of ownership of the appellant, of itself, is not sufficiently grave to warrant revocation in terms of section 26(1)(f) or (h).

57. The powers of the Upper Tribunal in disposing of an appeal are (a) to make such order as it thinks fit; or (b) to remit the matter for rehearing and determination the [NAME] (paragraph 17(2) of Schedule 4 to the Transport Act 1985).

Decision 58. The appeal is allowed to the extent that we (1) set aside the [NAME]’s decisions (i) revoking the appellant’s licence; (ii) disqualifying the appellant from holding or obtaining an [NAME]’s licence until 19 May 2002; and (iii) refusing variation applications to nominate a new transport manager, add additional operating centres, and increase the licence authorisation; and (2) we remit to the [NAME] for redetermination the appellant’s variation applications made on (a) 10 October 2016, for substitution of a new transport manager for the existing transport manager; (b) 25 January 2017, for authorisation of an additional operating centre; and (c) 22 February 2017, for authorisation of an additional operating centre and to increase the licence authorisation from 5 vehicles and 5 trailers to 15 vehicles and 8 trailers.

[NAME] QC

Judge of the Upper Tribunal

Date: 27 August 2019