RE: THE JOINT OPINION OF LORD PANNICK QC, MICHAEL
TODD QC, HANIF MUSSA AND BEN SHAW (“THE OPINION”)
NOTE
Introduction
I have been asked to provide a concise note of advice to the Select Committees involved in
the BHS Inquiry, namely the Work and Pensions Committee and the Business, Innovation
and Skills Committee (together, “the Committees”) in relation to the Opinion sent to the
Committees by Taveta Investments Ltd (“Taveta”) regarding the Committees’ Report
published on 25th July 2016. Although this Note may be shown to other parties, no duty or
responsibility for anything in this Note is undertaken towards any such other party.
In view of pending proceedings and enquiries relating to the subject matter of the Report, I do
not in this note express any view as to the criminal or civil responsibility of any named
individual.
Summary
Taveta describes the Opinion as “an independent review” of the Select Committees’ Inquiry
process and Report. I do not consider that the Opinion can accurately be described as “an
independent review” of the Select Committees’ Inquiry process and Report. It does not itself
claim to be such. Moreover, without in any way criticising the authors of the Opinion, the
personal connections of the leading authors, very properly disclosed by them in the Opinion,
also suggest that the Opinion cannot accurately be described in this way. The nature of the
Opinion moreover is not that of a purely objective and neutral review of the law and evidence
but consists of a forceful legal and factual argument on behalf of Taveta, Sir Philip Green
(“SPG”) and the other persons in the same camp. As Taveta’s covering letter indicates, the
Opinion is actually intended to be the “formal response” of Taveta to the Select Committees’
Report”. As such, it is an argument and not an independent report.
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The first half of the Opinion operates on the hypothesis that the Inquiry and Report are a
different type of process from that which they actually are and makes criticisms based on this
hypothesis. However such criticisms cannot apply, at least automatically or directly, to the
type of process actually carried out by the Select Committees. In the end, there is a value
judgment to be made about the fairness of the Committees’ procedure on which different
people may well take very different views. In particular, outsiders might take the view that
the Committee chairs were giving voice to powerless pensioners and employees left in an
impossible situation and for whom the de facto billionaire agent of the controlling
shareholder had accepted moral responsibility.
With regard to the second half of the Opinion, to the extent that this is not simply argument
based on a particular interpretation of the law, facts and evidence, there is a rather dry setting
out of certain points of company law which appear to be incomplete and which do not purport
to deal with the commercial realities or with the question of moral blame.
The question of moral blame is ultimately once again a value judgment on which people may
differ, but any value judgment should bear in mind the fact that SPG has accepted moral
responsibility for the BHS pensioners by saying that he would fix the pension position and
has also accepted moral responsibility for the employees by saying that they are important to
him. It is the acceptance of these moral responsibilities that forms an important basis for
making value judgements about the actions of SPG and others.
It should be noted of course that the taking on of moral responsibility in this case is not an
entirely gratuitous matter. SPG formerly enjoyed a very high reputation in the retail world
and received the very significant honour of a knighthood. It would seem obvious that SPG,
consistently with his former reputation and as a knight of the realm, necessarily had to accept
the moral responsibility which he has in fact accepted. The Committees have made value
judgments on his performance of these moral responsibilities up to the time of the
Committees’ Report and no doubt value judgments will continue to be made by others,
depending on how SPG fulfils these moral responsibilities.
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The nature of the Opinion
The Opinion was supplied to the Committees under cover of a letter of 18th October 2016
from Taveta. The letter describes the Opinion as “an independent review” of the Select
Committees’ Inquiry process and Report. Taveta also issued a Press Release (“the Press
Release”) referring to the Opinion as an “Independent review”.
The Opinion cannot in my opinion accurately be described as “an independent review” for a
number of reasons.
Firstly, the Opinion itself, very properly in my view, does not describe itself as an
“independent review”.
Secondly, at paragraph 64 of the Opinion, Lord Pannick QC, a very distinguished human
rights lawyer, very properly mentions that “ … for some years he has known Lord Grabiner
QC as a friend and colleague at the Bar and in the House of Lords, and has also known
Baroness Brady as a friend, sometimes client (in relation to her role as Vice-Chairman of
West Ham United FC) and a colleague in the House of Lords”. In the light of this disclosure
alone, and without the slightest criticism of Lord Pannick, I would not myself describe the
Opinion as “an independent review”.
It is the opinion of counsel who include a very
distinguished human rights lawyer who is a friend of one of the principal parties dealt with
both in the Committees’ Report and in the Opinion. I note that in the “Notes to Editors” in
the Press Release a brief description is given of Lord Pannick, omitting any mention of the
matters he very properly discloses at paragraph 64 of the Opinion.
At paragraph 163 Michael Todd QC, a leading company law QC, states that “…he has known
Lord Grabiner for many years as a friend and colleague at the Bar and has previously worked
with him.” The connection here seems less than that in the case of Lord Pannick, but in my
view sufficient, again without the slightest criticism of Michael Todd QC, to make it
inappropriate for Taveta to describe the Opinion as an “independent review”. The Press
Release mentions Mr. Todd QC without referring to this connection.
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I can add that I also have known Lord Grabiner for many years and have acted professionally
both with and against him. For that reason, if I wrote an Opinion regarding his activities as a
director I would not feel able to call that an “independent review”.
Moreover, the Opinion itself is not simply a neutral review of the law and evidence but puts
forward arguments in a forceful manner seeking to justify the actions or omissions of various
parties, and in particular Sir Philip Green (“SPG”). That is not in any way a criticism of the
authors of the Opinion, which I assume simply does what the authors were asked to do. In
my opinion “an independent review” cannot be an accurate description of a document which
presents an argument in favour of one set of parties.
In the covering letter of 18th October 2016 from Taveta Investments Limited, the Committees
are invited to “ … treat the Opinion, together with this letter, as the formal response of Taveta
Investments Limited to the Select Committees’ report”. Again, that suggests that the Opinion
is actually designed to be a legal and factual argument in response to the Committees’ Report
and cannot be considered to be an “independent review”.
The nature of the Inquiry and Report
The first half of the Opinion accepts that by reason of Parliamentary privilege the Report is
not subject to any form of judicial review in the courts. However, the first half of the
Opinion then takes the form of a hypothesis which supposes that the Committees’ Report “
… had been produced by any statutory body or other public law authority which did not
enjoy Parliamentary privilege” and then proceeds to make a judgment whether on this
hypothesis the hearing was unfair. It seems to me that the only purpose served by such a
hypothetical process is once again to advocate on behalf of SPG and others the view that the
Inquiry and Report were unfair.
The first half of the Opinion then adds a value judgment, namely the suggestion that the fact
that the Inquiry was conducted by Members of Parliament “ … cannot excuse the unfairness
of the procedure”.
It is not my role in this Note to either make or argue with value judgments. The value
judgment of Lord Pannick QC as the author of the first part of the Opinion and the value
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judgments of the Committees and outside parties may each be very different. I would point
out however that the comparison made in the Opinion and the argument advocating, on
behalf of SPG and others, that such a process would have been unfair and challengeable, can
have only limited use in the context of an Inquiry and Report which does enjoy Parliamentary
privilege and has taken place in a Parliamentary and therefore political context.
At paragraph 61 of the first part of the Opinion, Lord Pannick QC quotes Sir Robert Rogers
(now Lord Lisvane) as saying that inter alia “ … that due process of investigation weighing
of evidence needs to be all the more exacting …”. He is reported as having recommended
that “ … the perceived fairness of proceedings in Select Committees might be enhanced by
the adoption of a Code requiring Select Committees “to follow the rules of natural justice”
again. The authors of the Joint Opinion agree with this idea.
It is of course a value judgment whether the proceedings of Select Committees “might be
enhanced” by the adoption of a Code requiring Select Committees “to follow the rules of
natural justice”. The fact that this has been recommended however suggests that such a
requirement may not be currently present.
I do not in this Note enter into the same hypothetical exercise as set out in the first half of the
Opinion. However, as well as pointing out the political nature of the Parliamentary Inquiry
conducted by politicians as the peoples’ representatives, it seems to me that one can bear in
mind the following matters when considering the nature of the Inquiry and Report.
The Inquiry and Report in question deals with matters relating to a de facto billionaire
employing teams of high-powered City lawyers and well able to hire and deploy specialists in
public relations, as evidenced by the Press Release. As against that, those who are suffering
immediate financial harm from the collapse of BHS are relatively powerless employees and
pensioners. In my view, a politician could reasonably consider that his role included taking
steps to try and look after the interests of workers and pensioners in order to try to achieve
some balance and justice for these powerless groups. The value judgments made by outside
parties in relation to the mode of conducting the Committees’ Inquiry could well be different
from the value judgments advocated by the first half of the Opinion.
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In considering a value judgment about the nature of the Inquiry and the Report it is also my
view worth bearing in mind the fact that SPG has in effect accepted moral responsibility for
the BHS pensioners by saying that he would fix the pension problem. He has also stressed
the importance of the BHS employees to him. Even the Press Release accepts that the sale to
Retail Acquisitions Limited and Dominic Chappell was a “mistake”. It would seem to be on
the face of it reasonable for members of the Committees to take SPG at his word and expect
him to deliver a fix to the pension scheme and to act appropriately in relation to the
importance of the BHS employees to him.
Another factor worth bearing in mind when considering the fairness of the procedure of the
committees is that SPG was given a very long period of oral evidence in which to set out his
case and his explanation in relation to all the matters which related to him and his family
interests. Altogether, he appears to have been given the fullest possible opportunity to
explain his position both in oral evidence and in writing and as far as I could see took
considerable advantage of the opportunity by putting forward his views on all relevant
subjects in a characteristically forceful manner. In this, he was assisted by a considerable
team of leading City lawyers sitting behind him. In the light of the Press Release, he also has
employed a high-powered media campaign on his side. The pensioners and employees,
unlike a de facto billionaire such as SPG, do not have this opportunity or advantage and must
rely on the peoples’ representatives to assist them.
Corporate governance etc.
The second half of the Opinion deals with corporate governance, due diligence and directors’
duties, as well as the particular positions of Lord Grabiner QC and SPG. There is also a
section on responsibility for the pension deficit and the view that SPG was on both sides of
the deal. There are also sections about the sufficiency of the cash at BHS and Mr Chappell’s
expectations.
In the covering letter of 18th October 2016 from Taveta Investments Limited, the Committees
are invited to “ … treat the Opinion, together with this letter, as the formal response of Taveta
Investments Limited to the Select Committees’ report”. As the cover letter suggests, the
second half of the Opinion is also not an independent review of the legal and factual position
or of the evidence but a forceful argument on behalf of SPG and others attempting to
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undermine and rebut the Committees’ Report. An independent observer can consider the
Committees’ Report, the evidence before the Committee and this Opinion and make up his
own mind in relation to the legal, factual and moral position. I would however make the
following points.
Firstly, it seems obvious to all concerned that for practical, as opposed to legal, purposes,
SPG acted as the agent of Lady Green as the ultimate controlling shareholder of the Taveta
and BHS companies.
This apparently undoubted fact needs to be contrasted with the point made time and again in
the second half of the Opinion, and summarised at paragraph 7(4), namely that it mattered
little what the directors of the Taveta companies did or did not do because the ultimate
majority shareholder, Lady Green, could simply remove the directors or force the companies
to do her will. Whilst the second half of the Opinion emphasises this de facto control of Lady
Green, presumably to be exercised from a practical point of view by SPG, the second half of
the Opinion rejects the idea that the evidence establishes that “ … Sir Phillip has been able
routinely to dominate the boards of companies within the Taveta Group”.1 Given the
Opinion’s view that the ultimate majority shareholder, Lady Green, no doubt through SPG,
could and would sack any dissenting director and compel the Taveta companies to do her
will, there is little further that needs to be added, beyond the evidence already before the
Committees and SPG’s performance when giving oral evidence, to come to the conclusion
that SPG was the dominant figure on the boards on which he sat.
Much of the second half of the Opinion deals with dry company law matters. As an Opinion
on the law, however, it could not be expected to and does not deal with the question of moral
responsibility of SPG or any other party. Such moral responsibility is not something set out
in the Companies Act 2006 but is a value judgment on which opinions can differ. The same
goes for the evaluation of the facts and evidence discussed in the second half of the Opinion.
Again, it must be remarked that the discussion in the Opinion makes no attempt at balance
but consists of a forceful attempted critique of the Committees’ conclusions.
1
See paragraph 7(13) of the Opinion.
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An important example of the dry nature of the legal analysis consists of points such as the
fact that a director of a parent company of BHS has no duties towards BHS, its employees or
pensioners. Another dry point is that the vendor of shares in the BHS companies has no legal
obligation to conduct due diligence on a purchaser or to ensure that the purchaser is a
responsible party who will look after the interests of employees or pensioners.
Even assuming that the legal analysis in the second half of the Opinion is correct on these
points, this would not in any way deal with the moral position, especially in a situation where
SPG has accepted moral responsibility for the BHS pensioners and has stressed the
importance of the BHS employees to him.
As far as the law is concerned, if the second half of the Opinion is correct, the law could
certainly do with a radical overhaul and that is a matter which could be considered by the
Committees. I am not myself certain however that the position is quite as bleak as the legal
analysis in the Opinion suggests. Thus for example Section 172(1) requires a director of a
company to act in the way he considers, in good faith, “would be most likely to promote the
success” of his company for the benefit of its members as a whole and in doing so to have
regard (amongst other matters) to “(e) the desirability of the company maintaining a
reputation for high standards of business conduct …”.
Accordingly, it does not appear to me to be a complete statement of the law to suggest that
the directors of the Taveta holding companies simply had to look to the best interests of their
shareholders. The best interests of the shareholders had to take into account the reputation of
the companies. There could be few things more likely to damage that reputation than to sell
the shares in BHS to a party who could not be relied upon to look after the interests of the
employees and pensioners. The suggestion in the second half of the Opinion, as summarised
at paragraph 8(2)(b) that the relevant Taveta holding company “was under no such duty and
could sell its shares in BHSGL to RAL (or any other person) on any terms it wished” would
not seem to me to be a complete statement of the legal position.
Another aspect in which the second half of the Opinion takes an arid and commercially
unrealistic approach is in relation to the so-called sale to RAL. Whilst there was a sale with a
“dowry” in a strict legal sense, that was not the commercial position. In commercial terms a
“sale” is the transfer of an interest in a valuable asset for a financial quid pro quo. In the
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present case the shares being “sold” were valueless and the purchaser was in effect being paid
a reverse premium for them. The control given by the shares gave control over companies
with failing businesses, lumbered with potentially huge pension liabilities which could not be
met. This kind of commercial reality necessarily makes an observer wonder what in fact was
going on.
On the face of it, SPG and the holding companies and the controlling shareholder appeared to
be involved in a process of shedding, as far as the law allowed, future responsibility, legal or
moral, for the employees and pensioners. If things went well, the business might recover and
a deal might be done with the Pensions Regulator. If things went less well, the entire group
would sooner or later collapse into insolvency and produce a disastrous situation for
employees and the pensioners. Nevertheless, in that case, all or some of the potential moral
blame and possibly all or some of the legal vulnerability of holding entities might be avoided
or lessened.
It is in this situation that the moral questions relating to this type of behaviour, namely selling
shares in a group in financial difficulties, without Pensions Regulator clearance, to an
unsatisfactory buyer, arise.
They cannot be answered simply by pointing to arid
technicalities of company law.
Moreover, even if the view were taken, which seems
doubtful, that any ultimate shareholder or company can simply shake off subsidiaries in
financial trouble without any moral blame, and leave employees and pensioners to their fate,
that would be an even more surprising conclusion where the representative of the ultimate
shareholder has accepted moral responsibility for the pensioners and has said that the
employees were important to him.
For the representative of the ultimate majority shareholder who accepts responsibility for
pensioners and proceeds on the basis that the employees are important, the vital thing to do is
to ensure that on any sale the employees and pensioners are left in safe hands and have the
best possible chance of surviving the financial problems of the BHS group. I can see nothing
in the second half of the Opinion which demonstrates or even suggests that this moral
responsibility was fulfilled. Indeed, that is not the issue that appears to have been raised with
the distinguished company law counsel who worked on the second half of the Opinion.
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GABRIEL MOSS QC
South Square
3-4 South Square
Gray’s Inn
London, WC1R 5HP
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