Court allows use of PWC report against Baileys

The High Court has ruled that the Director of Corporate Enforcement is entitled to rely on an investigation by accountants Price Waterhouse Coopers (PWC) into the affairs of Bovale Developments Ltd over a two-year period in his bid to have developer brothers Michael and Thomas Bailey disqualified from managing any company on grounds of alleged misconduct and fraud in relation to the affairs of Bovale Developments Ltd.

However, Ms Justice Mary Irvine also held the director is not legally entitled to use certain other materials, including reports of the planning tribunal, as additional evidence of wrongdoing by the brothers, or evidence of alleged wrongdoing over a 12-year period from 1988 to 2000.

The judge further ruled that a District Court production order issued under Section 63 of the Criminal Justice Act 1994, under which certain documents relating to the Bovale companies were seized by gardaí from certain financial institutions in 2002, was invalid.

There had to be an investigation into whether a person had benefited from an offence to justify a production order, and there was no such investigation when the order was made in November 2002, the judge said. A production order could not be secured for the purpose of prosecuting an alleged offence of fraudulent trading.

The consequences of that finding of invalidity will not be determined until a later stage, but the Baileys have claimed PWC relied on the unlawfully seized documents in its report.

The effect of the judge's rulings means the director can rely on the PWC report, which is confined to an analysis of the affairs of Bovale for the years to end-June 1997 and end-June 1998. The director had suggested alleged wrongdoing over a longer period, from 1988 to 2000, and based that claim on much of the material now excluded by the judge.

Ms Justice Irvine was delivering her lengthy reserved judgment on the brothers' preliminary application to have certain documents excluded from the forthcoming disqualification proceedings, brought under Section 160 of the Companies Act against Mr Thomas Bailey, Coolcommon, Batterstown, Co Meath, and Mr Michael Bailey, Killamonan House, The Ward, Co Meath.

The director wants the brothers disqualified from involvement in the management of any company on grounds of alleged serious misconduct and fraud in the conduct of the affairs of Bovale, and also wants orders directing the brothers to pay the costs of the four-year investigation by his office into the Bovale affairs.

The director claims the reports from PWC and the planning tribunal, in addition to a €22 million settlement by the company with the Revenue Commissioners, made clear the alleged misconduct was of a very serious character.

In their preliminary application, the brothers contended the director could not introduce the reports of the planing tribunal, documents from the auditors of Bovale, the Revenue report or material in the report of PWC in affidavits submitted on behalf of the director.

Yesterday, Ms Justice Irvine, having considered case law and submissions, directed the removal from affidavits filed on behalf of the director of all evidence that emanated from the tribunal report, certain Revenue documents and two memos from an accountant relating to his meeting with the Baileys on July 26th, 2000, in which he concluded that proper books of account were not kept by the brothers.

None of those documents could legally be admitted as evidence and nothing in the Company Law Enforcement Act 2001 permitted the director to depart from the normal rules of evidence, the judge found.

It was not open to the director to use the tribunal reports as "a weapon of attack" against the brothers in these proceedings, the judge said. While the Law Reform Commission had stated that the final report of a tribunal of inquiry was admissible in later civil proceedings as an exception to the law on hearsay evidence, that view appeared to fly in the face of a significant number of court decisions.

The judge said she also attached great weight to the fact the Oireachtas had not sought to introduce any legislation to enable the director to rely, in subsequent civil proceedings, on any findings of a tribunal of inquiry.

While the director could use the tribunal report as a source to help him in finding admissible evidence to put before the court, he could not produce the report as proof of any facts allegedly found in it or as corroboration of findings of PWC.

She said the director could also not use the Revenue material as evidence in the absence of sworn affidavits by Revenue officials supporting the opinions expressed by them relating to Bovale.

In the absence of a sworn affidavit or direct evidence from the accountant who compiled the "highly prejudicial" memos following his meeting with the brothers in July 2000, the judge said those memos were not admissible. The director was not entitled to produce those to corroborate the PWC opinion.

However, she ruled the director could rely on a July 2000 notice filed by the auditors to Bovale as evidence of the opinion of the auditors that Bovale had failed to keep proper books of account for the two years ended June 30th, 1997, and June 30th, 1998. Because the auditor was an agent of the company when fulfilling his statutory duty under Section 160, the notice was admissible.

The judge also rejected the Baileys' arguments that the director had unlawfully delegated some of his functions to PWC in requesting that firm to investigate the Bovale affairs. PWC was at all times acting as a lawfully appointed officer of the director for the purpose of assisting him in carrying out his functions and the director was entitled to rely on the PWC report in the disqualification proceedings, she ruled.

The judge adjourned the proceedings for two weeks to allow the sides consider her decision. The issue of who will pay the costs of the four-day hearing of the preliminary application will also be decided at that stage.