Supreme Court allows appeal dismissing disqualification order as appellant posed no danger to public.

THE SUPREME COURT

[Appeal No: 392 of 2008]

Denham J.

Fennelly J.

Macken J.

Between/

The Director of Corporate Enforcement

Applicant/Respondent

and

Patrick Byrne

Respondent/Appellant

Judgment delivered the 23rd day of July, 2009 by Denham J.

1. This is an appeal by Patrick Byrne, the respondent/appellant, referred to in this judgment as "the appellant", from a

judgment of the High Court (Murphy J.) delivered on the 26th day of

May, 2008, and from an order made on the 31st July, 2008. It was ordered, pursuant to s.160(2) of the Companies

Act, 1990, that the appellant be disqualified for a period of four years from

being appointed or acting as an auditor, director, or other officer, receiver, liquidator or examiner or being in any way,

whether directly or indirectly, concerned or taking part in the promotion,

formation or management of any company or any society registered under the Industrial and Provident Societies Act

1893 to 1978. However, it was also ordered, under s.160(8) of the

Companies Act, 1990, that the appellant be permitted to continue to act as a director of and be involved in the

management of Business Consultancy & Advisory Services Limited Company, a

company which he had set up and through which he provided consultancy services, with effect from the 31st July,

2008.

2. The Director of Corporate Enforcement, the applicant/respondent, referred to in this judgment as "the Director",

has cross appealed from the failure to make orders under s.160(2)(b)

and (d).

3. This application by the Director was brought to the High Court after the publication of the "Report of the Inspectors

Appointed (Under Section 8 of the Companies Act 1990) to Investigate

the Affairs of National Irish Bank Limited and National Irish Bank Financial Services Limited", referred to in this

judgment as "the Inspectors' Report". The Inspectors' Report was published by

order of the court on the 23rd day of July, 2004. National Irish Bank Limited and the National Irish Bank Financial

Services Limited are referred to as "the bank".

4. Counsel for the appellant informed the Court that this is the first of a series of cases heard by the High Court

(Murphy J.) arising after the Inspectors' Report. This appeal refers to a narrow

and net part of the Inspectors' Report. The Inspectors' Report held that there had been improper practices by the

bank. However, this case relates only to two specific criticisms of the

appellant by the Inspectors. The decision is limited to those two matters insofar as they refer to the appellant. Counsel

for the Director acknowledged that the conduct of the appellant was at

the lower end of the scale.

5. The proceedings were issued approximately one year after the publication of the Inspectors' Report when the

Director sought an order pursuant to s.160(2)(b), and/or (d) and/or (e) of the

Companies Act, 1990 disqualifying the appellant from being appointed or acting as an auditor, director or other officer,

liquidator, receiver or examiner or being in any way, whether directly or

indirectly concerned or taking part in the promotion, formation or management of any company or any society

registered under the Industrial and Provident Societies Act, 1893-1978. The

application was grounded on the Inspectors' Report.

6. The Director's application was heard over five days in the High Court, commencing on the 5th February, 2008,

during which the appellant was cross-examined. Judgment was delivered on

the 26th May, 2008, in which it was indicated that the High Court was mindful of making an order pursuant to

s.160(2)(e).

7. On the 15th July, 2008 submissions were heard as to what, if any, period of disqualification should be imposed on

the appellant. A judgment was delivered ex tempore by Murphy J. on the

31st July 2008, in which he imposed a disqualification order with effect for a period of four years, with the exception

of the company referred to, through which the appellant provided

consultancy services.

The High Court

8. The High Court reviewed the Inspectors' Report. The learned High Court judge also referred to the DIRT Theme

Audit Report which was circulated in January, 1995, hereinafter referred

to as "the Theme Report". The learned trial judge stated that the major findings of the Theme Report were that there

was a lack of care and concise guidelines on DIRT (Deposit Income

Retention Tax) compliance issues in relation to non-resident and special savings accounts; that SSA notice

requirements were not being properly imposed and that an unacceptably high

proportion of declarations were missing or incomplete. The High Court held:-

"The court finds that, notwithstanding the role of Mr. Bowden as Head of Tax – Europe, Mr. Byrne retained

responsibility for making the interim and end of year returns. Whatever about the position prior to the DIRT Theme

Audit Report and the meeting of 9th February, 1995; after that point, Mr. Byrne could no longer assume that the

returns made by the branch managers were accurate. Returns made, especially after that meeting, without verification

from the General Managers as to their accuracy, could not have merited the declarations made.

If it were not clear that there was a retrospective liability even on the narrow grounds contended in respect of early

withdrawals from special savings accounts, then advice could and should have been sought. Mr. Byrne had a

responsibility to seek such advice. While Mr. Byrne may have had no responsibility with regard to what he did not

know before the DIRT Theme Audit, he failed to consider the issue of a retrospective liability to DIRT after the

meeting of 9th February, 1995. In respect of the returns made after February, 1995, he ought to have sought

verification and obtained advice. He should have notified the Executive Committee and Mr. Seymour, the Executive

Director, before Mr. Seymour retired on 15th July, 1996. The court has heard no evidence that Mr. Bowden had any

responsibility to notify any of those parties. Mr. Byrne's evidence was that tax issues, such as that encompassed by

DIRT, were the function and responsibility of the European Head of Tax. If this were so, then Mr. Byrne should have

notified Mr. Bowden that the retrospective liability to DIRT was a concern."

Also it was held:-

"It would seem to me to be a misunderstanding on the behalf of a finance department and, more particularly, of the

Head of Finance, to assume that the figures appearing on Livelink could be simply aggregated and downloaded by the

computer into a statutory return to the Revenue Commissioners. Mr. Byrne's evidence seems to suggest that such

returns were automatic and that his department had no function, whether professional or otherwise, to verify the

accuracy of the data. It seems to the court that, in the exercise of his function, Mr. Byrne as Head of Finance could

not regard the data as given to be accurate."

The learned trial judge held that the appellant ought to have known that the reference to non-compliance affected the

accuracy of the DIRT returns being made by him. The learned trial judge turned to the issue of whether the findings of

the Inspectors' Report "in the light of the evidence to this Court relating to Mr. Byrne", justified disqualification.

Murphy J. asked the following questions: Did this failure amount to a lack of commercial probity? Does it go far

enough that it should be categorised as being grossly irresponsible or being a danger to the public? Or is such failure

ordinary commercial misjudgement?

He held:-

"There appears to have been a systemic corporate failure of tax compliance within the Bank which was disclosed by

the DIRT Theme Audit. The court accepts that this represented an oversight on the part of Mr. Byrne as Head of

Finance who had responsibility for tax liability. However, the court, having heard the evidence of Mr. Byrne, confirms

the findings of the Inspectors. Moreover, as Head of Finance and Planning, Mr. Byrne was held to share responsibility

for the deficiency in circular S11/95. Mr. Byrne's conduct would appear to be a departure from the ordinary standard

of conduct of a professionally qualified Head of Finance.

It is this departure from ordinary standards of conduct, rather than any misfeasance or specific breach of duty to the

company, which underlies s. 160(2)(d) and (e) of the Act of 1990 and which renders a person unfit to act as director

or other officer of a company."

The High Court made clear findings:-

"The court finds no evidence of gross negligence or total incompetence, nor a danger to the public."

However, the High Court went on to conclude:-

"Mr. Byrne told the court that no-one raised the issue of tax evasion or of irregularity with him in relation to non-

resident accounts and special savings accounts. He stated that the DIRT Theme Audit Report did not mention tax

evasion. References to non-compliance were understood by him as being documentary in nature. He felt that

declarations were a matter for branch managers and tax was a matter for London.

The court, for the reasons given, is not satisfied with such explanation. It believes that, in the circumstances, following

the meeting of 5th February, 1995, Mr. Byrne had the responsibility to raise the issue and failed to do so.

The court finds that Mr. Byrne, in the circumstances, displayed a lack of commercial probity.

Accordingly, the Court is mindful of making an order under s.160(2)(e) and will hear Counsel in relation to a period

for such disqualification."

The Appeal

9. The appellant filed a notice of appeal, with thirty nine grounds of appeal, seeking to set aside the order of the High

Court.

The Director filed a cross appeal, on the grounds that the High Court erred: in failing to make an order disqualifying

the appellant pursuant to s.160(2)(b); in failing to make an order disqualifying the appellant under s.160(2)(d); in failing

to consider whether there was sufficient evidence that the appellant had acted in breach of his duty as an officer of the

National Irish Bank; and that the learned High Court judge misdirected himself in holding that s.160(2)(b) and/or

s.160(2)(d) applied only to directors of National Irish Bank Ltd. and/or National Irish Bank Financial Services Ltd.

Submissions

10. Very full written and oral submissions were made on behalf of the parties. They included the following.

11. Counsel for the appellant submitted that:-

(i) The Director expressly acknowledged, openly and without qualification, that there was no suggestion by either the

Director or the Inspectors' Report that the appellant acted dishonestly.

(ii) The High Court expressly found that there was no evidence of gross negligence on the part of the appellant.

(iii) The High Court expressly found that there was no evidence of total incompetence on the part of the appellant.

(iv) The High Court expressly found that there was no evidence that the appellant was a danger to the public.

(v) As accepted by the High Court judge, the Inspectors' Report made no finding of actual knowledge on the part of

the appellant of any of the improper practices within National Irish

Bank. The DIRT tax returns which his department submitted to the Revenue Commissioners were, in the honest belief

of the appellant, true and accurate in respect of each and every return.

(vi) The uncontradicted evidence was that the appellant has had no blemish on his professional career of more than

twenty five years bar the two criticisms made by the Inspectors' Report.

(vii) The Institution of Chartered Accountants concluded that the criticisms in question did not amount to even a prima

facie case of misconduct against the appellant.

12. It was submitted on behalf of the appellant that the test for a disqualification order was not met in this case.

13. Counsel for the appellant submitted that the Inspectors' Report made two criticisms only of the appellant, neither

of which made any suggestion of dishonesty by the appellant. The criticisms

may be seen at pp. 173 and 174 of the Inspectors' Report.

Law

14. Section 160(2), of the Companies Act, as amended, contains subsection (e), which was applied by the learned

High Court judge. It provides that:-

"Where the court is satisfied in any proceedings or as a result of an application under this section that—

(e) in consequence of a report of inspectors appointed by the court or the Minister under the Companies Acts, the

conduct of any person makes him unfit to be concerned in the management of a company;

the Court may, of its own motion, or as a result of the application, make a disqualification order against such a person

for such period as it sees fit."

The legislation requires a finding that a person such as the appellant is unfit to be concerned in the management of a

company.

Inspectors' Report

15. The Director's application to the High Court was based on the Inspectors' Report, as was the judgment of the High

Court. The Inspectors' Report is at the foundation of the case and is

crucial to the issues on this appeal.

At pp.173 and 174 of the Inspectors' Report, in relation to the appellant, it was stated:-

"Mr Byrne was appointed Head of Finance on 11 April 1994; his title subsequently became Head of Finance and

Planning.

The Head of Finance had responsibility for ensuring that the Bank made returns of DIRT to the Revenue

Commissioners within prescribed time limits. The accuracy of these returns was critically dependent on the proper

categorisation of deposit accounts at branch level between those exempt from DIRT, those liable to DIRT at the

standard rate of tax and those liable at a reduced rate.

In the respective periods throughout which Mr Hunt and Mr Byrne were responsible for returns of DIRT to the

Revenue Commissioners, neither was on the circulation list for branch internal audit reports. Accordingly, neither was

aware through this medium of the extent of the deficiencies or "irregularities" in the declarations held by branches in

support of claims for DIRT-exempt non-resident status."

16. It is clear that the Inspectors' Report does not criticise the appellant for activities prior to the Theme Report.

17. The Inspectors found that it was the responsibility of Mr Brennan, the General Manager Retail Banking, and Mr

Keane, the General Manager for Banking, to ensure that accounts classified

as DIRT-exempt non resident accounts were correctly classified as such and to see that Regional Managers secured

full compliance with the statutory provisions relating to D.I.R.T. While the

Inspectors made findings as to their responsibilities, the appellant was not held to have a responsibility for the accuracy

of the returns.

Earlier Draft Report

18. The absence of a finding of liability for the accuracy of the returns is emphasised by the fact that there was such a

finding in an earlier draft of the Inspectors' Report, but which, after

correspondence, was deleted.

An earlier draft had included the following:-

"The Head of Finance had responsibility for ensuring that the Bank made accurate returns of DIRT to the Revenue

Commissioners within prescribed time limits. The accuracy of these returns was critically dependent on the proper

categorisation of deposit accounts at branch level between those exempt from DIRT, those liable to DIRT at the

standard rate of tax, and those liable at a reduced rate.

As Head of Finance, you had a responsibility to take reasonable care to ensure that all returns of DIRT made to the

Revenue Commissioners correctly recorded the Bank's liability for the DIRT payable on all interest paid or credited on

relevant deposits. In the light of the internal audit reports of deficiencies and "irregularities" in the non-resident

declarations held by branches, it is evident that the returns could not have been correct."

However, this was altered and the Inspectors' Report ultimately did not make a finding that the appellant had a

responsibility to make accurate returns. The Inspectors' Report found that he had a responsibility to make timely

returns. The Inspectors did point out that the accuracy of the returns was mutually dependent on the proper

categorisation of deposit accounts at branch level. While the appellant had no responsibility for that, the Inspectors

found that the situation changed after the Theme Report.

Inspectors' Report - final draft

19. The Inspectors' Report referred to the Theme Report and stated at p.174 that:-

"Mr Byrne was on the circulation list for the DIRT Theme Audit report of December 1994 and attended the meeting

on 9 February 1995 to discuss the results of the audit and the issues arising therefrom. He was thus aware of the

extent of non-compliance in the operation of DIRT-exempt non-resident accounts and ought to have known the

consequences of such non-compliance for the accuracy of the returns of DIRT being made by him, or persons under

his control, to the Revenue Commissioners.

And later:-

Mr Byrne, in common with Mr Seymour, Mr Keane and Mr Brennan, has given evidence to the Inspectors that the

issue of a potential retrospective liability to the Revenue Commissioners for DIRT arising from the findings of the

Theme Audit was not considered at the meeting of 9 February 1995. The Bank has confirmed to the Inspectors that

no payment of retrospective DIRT was made to the Revenue Commissioners prior to their appointment.

Mr Byrne, as Head of Finance at the time of the DIRT Theme Audit, had a responsibility to raise the issue of potential

retrospective liability for DIRT due in respect of interest on accounts wrongly classified as DIRT-exempt, and failed to

do so."

This last paragraph cited above is the most serious finding against the appellant. The Inspectors find that because the

appellant received the Theme Report and attended the meeting of the 9th February, 1995, he "Mr. Byrne ought to

have known the consequences of such non-compliance for the accuracy of the returns of DIRT being made to him."

The Inspectors find that the appellant had a responsibility:-

"to raise the issue of potential retrospective liability for DIRT due in respect of interest on accounts wrongly classified

as DIRT-exempt, and failed to do so."

Circulars

20. The Inspectors' Report also considered the issue of the circulars, which were the responsibility of the appellant. At

p.28 the Inspectors' Report states that:-

"Special Circular No.S11/95 introduced documentary requirements for the opening of new non-resident accounts. It

required that before any new non-resident account could be opened, documentation had to be produced as evidence

that the depositor was resident outside the State (e.g. a driving licence or passport or other identification with details of

the person's address and signature). But there was still the same omission as before. Branch staff were not instructed

that DIRT had to be deducted unless the Bank was satisfied that the depositor was non-resident. Because of this, an

individual who was resident, but happened to have a foreign passport, or a foreign driving licence, would have been

able to open a non-resident account. In regard to existing non-resident accounts, the circular was also deficient. The

only direction given was that DIRT had to be deducted at the standard rate "unless a valid declaration is held which

has been signed, dated and in all other respects fully completed by the customer."

Circular S22/95, issued on 15 May 1995, refers to a DIRT aide memoir prepared by Finance and Planning

Department as a guide for use by cashiers and other branch staff. It is stated that it summarises the contents of

Circular S11/95 but in fact it does more than that. It contains for the first time in any Bank documents relating to non-

resident accounts an instruction that "The official who opens the account must be fully satisfied that the customer is a

non-resident …" This instruction, however, concerns the opening of new accounts only. The Guide does not deal with

existing accounts."

And at p.174 it is stated that:-

"At the meeting on 9 February 1995, Finance and Planning Department was charged with responsibility for drafting

revised instructions to staff in relation to the operation of DIRT. These instructions were issued on 8 March 1995, as

Special Circular No. S11/95. As already stated, this Circular introduced documentary requirements in relation to the

opening of new non-resident accounts, but did not address the position in regard to accounts which had been opened

previously apart from indicating that a valid declaration must be held "which has been signed, dated and in all respects

fully completed by the customer", nor did it inform the branches of the provisions of Section 32(2) of the Finance Act,

1986 … As Head of Finance and Planning, Mr Byrne shares responsibility for the defects in this Circular."

Thus the drafting of the circulars, which were the responsibility of the appellant, was criticised.

21. Counsel for the appellant submitted that the legal test was not applied to the facts of the case and that the s.160

order should not have been made. I have considered a number of legal propositions which were before the Court.

Legal Propositions

22. I am satisfied that the following are useful legal propositions.

(i) There is a distinction between a restriction order under s.150 of the Companies Act 1990 and a disqualification

order under s.160 of the same Act. A restriction order merely precludes a person from acting as a director or being

otherwise involved in a company unless certain requirements are met, the main one being that the company has a

certain minimum paid up share capital. By contrast, a disqualification order disqualifies the person from acting in

virtually any capacity in relation to any company, no matter what its size, and is a far more severe order than a

restriction order.

(ii) The conduct necessary to justify the making of a disqualification order has to be much more grave and

blameworthy than the conduct which justifies a restriction order.

As Murphy J. stated in Business Communications Limited v. Baxter and Parsons (Unreported High Court, 21st

July, 1995):-

"Clearly, it is the comprehensive nature of a disqualification order which is seen as constituting an appropriately severe

sentence for conduct which is manifestly more blameworthy than merely failing to exercise an appropriate degree of

responsibility in relation to an insolvent company in liquidation of which the person was a director."

(iii) Incompetence, even when occurring with irresponsibility, is not sufficient to ground a disqualification order. As

McCracken J. stated at p.592 in Re Newcastle Timber Ltd. (In

Liquidation) [2001] 4 I.R. 586:-

"As I have already said, many faults can be found in the conduct of the respondents in the present case. I have no

doubt that they acted incompetently, and, particularly in relation to insolvent trading and preference of trade creditors,

I think they behaved irresponsibly. However, the applicant has not satisfied me that the respondents were so much in

breach of their duties that they are unfit to be concerned of the management of a company, particularly in view of the

undoubted discretion which I have in this regard. The applicant did rely to a considerable degree on the fact that the

Revenue debts remained unpaid, and cited a number of authorities as to the importance of this aspect of the case, but

taking the overall behaviour of the respondents into account I do not think it could be said that a disqualification order

is necessary to protect the public against their future conduct."

(iv) The conduct necessary to justify a disqualification order must be manifestly more blameworthy than merely failing

to exercise an appropriate degree of responsibility. Commercial

misjudgement is not sufficient. The conduct complained of must display a lack of "commercial probity", although in an

extreme case of gross negligence or total incompetence, disqualification

could be appropriate. "Probity" is used in the sense of dishonesty, lack of integrity.

In the case of Cahill v. Grimes, Re Readymix Limited, [2002] 1 I.R. 372 the Supreme Court at p.381 approved the

analysis of Browne-Wilkinson V.C. in Re Lo-Line Motors Limited (1988) B.C.L.C. 698:-

'What is the proper approach to deciding whether someone is unfit to be a director? The approach

adopted in all the cases to which I have been referred is broadly the same. The primary purpose of

the section is not to punish the individual but to protect the public against the future conduct of

companies by persons whose past records as directors of insolvent companies have shown them to be

a danger to creditors and others. ... … Ordinary commercial misjudgment is in itself not sufficient to

justify disqualification. In the normal case, the conduct complained of must display a lack of

commercial probity, although I have no doubt that in an extreme case of gross negligence or total

incompetence disqualification could be appropriate.'

Murphy J. referred to the above analysis as "a correct statement of law and represents a proper approach to the

application and interpretation of s.160 of the Companies Act, 1990." In Re N.I.B. Ltd.: Director of Corporate

Enforcement v. D'Arcy [2006] 2 I.R. 163 Kelly J. referred to the differences between s.150 and s.160, and to the

words of Browne-Wilkinson V.C. in In Re Lo-Line Motors Limited at p.175 and stated that:-

"Whilst the observations of Browne-Wilkinson V.C. were related to the unfitness of a director and dealt with an

insolvent company, a similar line of reasoning is applicable to the question of the disqualification of a person whose

conduct is alleged to have made him unfit to be concerned in the management of a company. His conduct must show a

lack of commercial probity or gross negligence or total incompetence before disqualification can be ordered."

I would adopt and apply this approach.

(v) The primary purpose of a disqualification order is not to punish the individual but to protect the public against the

future running of companies by persons whose past records have shown them to be a danger to creditors and others.

(vi) The Court should take into account the entire history of the person in question and not just the alleged act or acts

of wrongdoing in isolation.

(vii) There is an element of deterrence in the exercise of the Court's discretion.

(viii) The matter is not to be judged with the inevitable benefit of hindsight.

(ix) In the exercise of its discretion, the Court is entitled to take into account the fact that the effect of a disqualification

order may be greater on a professional person. The Court should

exercise its discretion proportionately.

(x) The burden of establishing that a disqualification order is warranted rests on the Director, and this is a substantial

burden.

As Murphy J. stated in Business Communications Limited v. Baxter and Parsons (Unreported, High Court, 21st

July, 1995):-

"Again, in relation to a disqualification order it is clear that there is a substantial burden to be discharged before the

Court has jurisdiction to make the appropriate order."

23. I apply those propositions to this case. Applying them to all the circumstances of the case I am satisfied that the

High Court fell into error. This legal test is considered in some detail later in

the judgment.

24. The High Court found that in relation to the appellant there was no evidence of gross negligence or total

incompetence, nor of him being a danger to the public. I would affirm these findings.

They are primary findings, and they favour the appellant.

25. However, the High Court went on to ask the question whether the conduct of the appellant displayed a lack of

commercial probity, and the learned High Court judge referred to definitions

of probity, incorporating integrity and honesty. I am satisfied that a key ingredient of "probity" is honesty. In this case

the Director did not allege dishonesty on behalf of the appellant, and it was

not an issue.

26. There was no finding in the Inspectors' Report of tax evasion by the appellant. Yet the High Court referred to this

in the following terms:-

"Mr. Byrne told the court that no-one raised the issue of tax evasion or of irregularity with him in relation to non-

resident accounts and special savings accounts. He stated that the DIRT Theme Audit Report did not mention tax

evasion. References to non-compliance were understood by him as being documentary in nature. He felt that

declarations were a matter for branch managers and tax was a matter for London.

The court, for the reasons given, is not satisfied with such explanation. It believes that, in the circumstances, following

the meeting of 5th February, 1995, Mr. Byrne had the responsibility to raise

the issue and failed to do so.

The court finds that Mr. Byrne, in the circumstances, displayed a lack of commercial probity."

I am satisfied that the High Court fell into error in this analysis. There was no issue of a finding by the Inspectors of

tax evasion in relation to the appellant. Quite simply the Inspectors held that the appellant having seen the Theme

Report and having attended the meeting on the 9th February, 1995, and ought to have been aware of non-compliance.

The height of their criticism was that he:-

"… ought to have known the consequences of such non-compliance for the accuracy of the returns of DIRT being

made by him, or persons under his control, to the Revenue Commissioners."

There is no question of the appellant acting dishonestly. Consequently, I am satisfied that the learned High Court judge

fell into error in the conclusion of his judgment.

Criticisms in context

27. The criticisms found by the Inspectors of the appellant are that he should have realised after the Theme Report

and after the meeting of the 9th February, 1995 that the data on the Livelink

from the branches was not accurate and he should have raised the issue of whether the bank had a retrospective

liability. This has to be seen in the context that others with a responsibility for the

accuracy of the returns of DIRT did not raise this issue.

Theme Report

28. The problems identified by the Theme Report were documentary. The Inspectors' Report at p.44 pointed out that

branch audit reports were consistently critical of the standard of

compliance of non-resident deposit accounts. As to the Bank's obligation to hold a non-resident declaration in a form

prescribed by the Revenue Commissioners pursuant to s.37 of the Finance

Act 1986 for each account designated as a non-resident account, the deficiencies most commonly reported were:-

a. failure to produce non-resident declaration form at time of audit;

b. holding a "charities" declaration instead of a non-resident declaration form;

c. relying on "obsolete" non-resident declaration forms;

d. undated non-resident declaration forms;

e. incomplete non-resident declaration forms;

f. incorrect account number on non-resident declaration forms.

Thus there were problems with the documentation identified. It was recommended that branches comply with the

statutory requirements.

Retrospective tax liability

29. No one in the Bank raised the issue of a retrospective tax liability. The Head of Internal Audit did not raise the

issue in his report, nor at the meeting on the 9th February, 1995, nor

afterwards. The internal audit function would have included responsibility for the branches and monthly internal audit

reports highlighting problems.

30. The appellant gave evidence that the issue of possible retrospective tax liability never occurred to him. The

appellant gave evidence that he did not consider that the account would be

deprived of its DIRT-free status provided any documentary error was corrected. He was cross examined as to the

inferences he should have drawn from the Theme Report. On day 3, at

p.118, the transcript provides the following answer from the appellant:-

"A. No, Judge, what I said was there was nothing in [the Theme Report] which stated that there were issues with the

bona fides of the accounts. What I've said was that there were documentation issues with the accounts which was

putting those bona fide accounts into jeopardy.

Q. Well, did you discuss with Mr. Harte or anyone else in the Internal Audit team whether in their opinion all of these

accounts were bona fide accounts? Is that something that was discussed or was it something you simply assumed?

A. No, Judge. As I said a moment ago, the [Theme Report] did not suggest or state that there was an issue with the

bona fides of any of the accounts they dealt with.

Later, counsel for the Director asked the appellant, on Day 4, transcript at pp.54-55:-

"Q. Is it premised on a conclusion that the accounts are bona fide. I am asking you on what basis did you form that

view, i.e. that the accounts are bona fide?

A. Judge, as I said earlier, I formed that view on the basis of my reading of the [Theme Report] that it did not in any

way question the bona fides of those accounts. And nothing else had come to my attention since I joined the bank in

April 1994 to indicate that there was an issue with the bona fides of the accounts."

31. It is clear that the appellant considered that if a bona fide depositor had a non-resident account on which there was

a documentary error, that no one had suggested that the owner of the

deposit account would not be entitled to continue to hold a DIRT-exempt account, provided the documentation was

corrected. The circulars, of which he was in charge, were to advise how to

correct the documentation. Indeed, ultimately, that exercise proved to be satisfactory. The appellant's evidence was

that he honestly believed that for that reason the calculation of the DIRT

liability was correct and that therefore the returns from his department were correct.

32. While the appellant had the responsibility for making the returns to the Revenue Commissioners he did not have

the responsibility to oversee or check their accuracy. The Inspectors' Report

noted that he has a responsibility for the timely return to the Revenue Commissioners. As referred to previously, while

an early draft of the Inspectors' Report referred to him having a liability for

accuracy this was dropped in the final report. The final Inspectors' Report did not find that he was responsible for the

accuracy of the returns. The figures came to his office, on Livelink, from

the branches, and were compiled onto a Revenue Commissioners form manually, the total sum determined, and the

form sent to the Revenue Commissioners under his direction.

33. Evidence was received by the Inspectors that the issue of retrospective liability to the Revenue Commissioners for

DIRT arising from the Theme Report was not considered at the meeting of

the 9th February, 1995. However, the Inspectors' Report found that a consequence of the Theme Report and the

meeting of the 9th February 1995, was that the appellant "had a responsibility

to raise the issue of potential retrospective liability for DIRT due in respect of interest on accounts wrongly classified

as DIRT-exempt and failed to do so."

34. While that may be a finding of the Inspectors' Report it has to be considered in context. The appellant joined the

Bank in 1994 and had responsibilities pursuant to his job description.

There had been a change within the bank as to areas of responsibilities prior to his appointment. The situation in his

office was that the figures came in over Livelink from the branches and under

his direction they were manually put on a Revenue Commissioners form and sent to the Revenue Commissioners. The

appellant did not have responsibility for the accuracy of the returns. His

responsibility was to gather the returns from the branches (who had the responsibility of returning accurate accounts)

and to compile the figures into a general return to be made in a timely

manner to the Revenue Commissioners.

Circulars

35. As a consequence of the Theme Report and the meeting of the 9th February 1995 the appellant was requested to

prepare circulars for all branches explaining what should be done to

comply with the procedures. Circulars and a laminated sheet were issued to guide the branches as to how they should

comply with the documentary requirements for such accounts.

36. These circulars were criticised in the Inspectors' Report, as set out earlier. It appears to me that two matters are

relevant to this criticism. First, having considered the circulars and

laminated sheet, I agree that they might have been drafted more clearly. Secondly, at its height this criticism is a

drafting criticism and clearly is not the type of conduct which should lead to a

disqualification. Indeed, the High Court viewed the circulars only as part of the context. Thus, in effect, the only issue

before the Court is the first identified, that is the issue that he ought to have

realised the potential of retrospective tax liability.

Application of the legal propositions

37. I shall apply the legal propositions set out earlier in the judgment to this case.

(i) There is a distinction between a restriction order under s.150 of the Companies Act, 1990 and a disqualification

under s.160 of the Companies Act 1990. At issue in this case is a disqualification order under s.160.

(ii) The conduct necessary to justify the making of a disqualification order has to be much more grave and

blameworthy than the conduct which justifies a restriction order. Therefore, more grave and blameworthy conduct is

required to be identified in this case if the Director's application is to succeed.

(iii) The conduct necessary to justify a disqualification order must be manifestly more blameworthy than merely failing

to exercise an appropriate degree of responsibility. The Inspectors' Report in this instance held that having read the

Theme Report and attended the meeting of the 9th February 1995 he "ought to have known the consequences of such

non-compliance for the accuracy of the returns of DIRT being made by him, or persons under his control, to the

Revenue Commissioners." At its height the Inspectors' Report criticised the appellant for not exercising a responsibility,

which he did not have, and which he did not realise arose.

Commercial misjudgment is not sufficient. However, this did not arise as an issue in this case.

The conduct complained of must display a lack of "commercial probity", although in an extreme case of gross

negligence or total incompetence, disqualification could be appropriate. The High Court held that there was no

evidence of gross negligence or total incompetence. There was no issue of dishonest behaviour by the appellant. Thus

these aspects of the legal test are not met.

(iv) The primary purpose of a disqualification order is not to punish the individual but to protect the public against the

future running of companies by persons whose past records have shown them to be a danger to creditors and others.

The learned High Court judge held that the appellant was not a danger to the public, and I would affirm that finding.

(v) The Court should take into account the entire history of the person in question and not just the alleged act or acts

of wrongdoing in isolation. The appellant has had an unblemished record, apart from the criticisms in the Inspectors'

Report.

(vi) There is an element of deterrence in the exercise of the Court's discretion. This discretion arises especially if the

person involved is a danger to the public. The High Court found that the appellant was not a danger to the public and

as the appellant is no such danger there is no necessity to exercise a discretion relating to deterrence.

(vii) The matter is not to be judged with the inevitable benefit of hindsight. In this case the appellant had entered his

role in 1994, he complied with the requirements of his position, neither he, nor others in the Bank, were alerted to the

danger of a retrospective tax liability by either the Theme Report or the meeting on the 9th February, 1995. The

benefit of hindsight is not given to any one party, or to be so assessed.

(viii) In the exercise of its discretion, the Court is entitled to take into account the fact that the effect of a

disqualification order may be greater on a professional person. While the appellant is a professional person, I am

satisfied that the issue of a discretion to be exercised, and whether it is proportionate or not, does not arise in this case,

as the Director has not presented a case such as should ground a disqualification order.

(ix) The burden of establishing that a disqualification order is warranted rests on the Director. In this case I am

satisfied that the Director has not discharged the burden of raising the Court's jurisdiction to make an order under

s.160 of the Companies Act, 1990.

Cross appeal

38. The Director sought to bring a cross appeal seeking findings under s.160(2)(b) and (d). This cross appeal is

grounded also on the Inspectors' Report. I am satisfied that the conduct

described in the Inspectors' Report does not make the appellant unfit to be concerned in the management of a

company. The conduct described does not warrant the making of a

disqualification order. I would dismiss the cross appeal.

Conclusion

39. The appellant was a relatively new employee of the bank, having joined in April, 1994, when it is submitted that

these issues arose in 1995. The Inspectors made two criticisms of the

appellant. The second related to the drafting of circulars and is not a basis upon which to ground an order of

disqualification. The first ground of criticism was that the appellant, after the Theme

Report and the meeting of the 9th February, 1995, had a responsibility to raise the issue of a potential retrospective

liability for DIRT due in respect of interest on accounts wrongly classified as

DIRT-exempt, and that he failed to do so. I am satisfied that the correct legal test was not applied to the facts of the

case and I would allow the appeal. I am satisfied that, applying the legal

test, the jurisdiction to make a disqualification order does not arise. I would allow the appeal and dismiss the cross

appeal.