We write after the recent disappointing Judicial Review (JR) decision (link here) , published on 18th May.
The Trustees make no apology for seeking to protect the public interest in line with our charitable objectives. The case was progressed on clear formal advice that there had been clear breaches of law that it was in the public interest to pursue.
The ruling is deeply troubling in its impact on the public interest.
Our actions were taken only as a matter of last resort after both the Secretary for Transport and the Insolvency Service failed to act (with no adverse comment on our information or claims). We also had advice from the Police including advice from the Hants Constabulary, Economic Crime Unit.
A consultation with our KC and Junior Counsel was held on Friday, which informed a Trustee meeting later that same day. The Trustees are unanimously satisfied that our actions were appropriate, and they fully support the continued efforts to protect the public interest.
Subject to further advice, the ruling appears to open a Pandora’s Box that leaves the Statutory Harbour Authority (SHA) now able to lend, or offer security, or use harbour funds on non-harbour matters, or sell any harbour land (including that covered by water) – so long as its deemed in the interests of the shareholders. This is quite shocking.
The judge found that because BHIC (the SHA) was not a corporation created by Parliament, then Company Law takes precedence:
“…. the SHA functions, and the ownership and running of the harbour, were consciously and deliberately vested in a private company, a corporate ‘person’ the powers and duties of which, as such, are statutorily supplemented but not limited otherwise than as the Act provides for” (our emphasis).
This completely turns on its head the understanding since the SHA’s inception in the 1960s that an SHA can only work within the limits of its powers; it means the SHA may now do anything that is not specifically prohibited. For instance directors of some SHAs could decide to, ‘asset strip’ the harbours they were empowered to manage.
We cannot see how this can be right since it negates the raison d’etre of the Act. Now the only statutory restriction is on use of harbour profits under Section 31 (see below).
An important positive
Very importantly, the decision affirms that Section 31 of the 1963 Local Harbour Act (profits to be used in the Harbour) applies to Bembridge Harbour. As such artificial reduction of profit, eg by sales at under value, must be unlawful. There are several examples, including sale of a houseboat plot for £1, resold later that same day for £87,500. Also, the sale of the rights to dredge and sell aggregates, independently valued at £650,000, for which the SHA received no recompense, appears highly questionable.
Other notable points from the ruling
1. Ruling may have negative repercussions nationally
2. Ruling appears to contain errors
3. Core issue of the claim not dealt with
4. Judge queries whether JR was the appropriate route
5. Judge said there were “no loans” – in conflict with the evidence
6. Crucial misunderstanding regarding use of SHA profits
7. How may the public hold the SHA to account?
These points are expanded upon below, along with our response to Mr Thorpe’s comments.
The judge’s ruling is deeply troubling, with far reaching consequences.
It appears to be based on misunderstanding of the evidence of both parties, and an interpretation of law governing privately owned SHAs which is both new and damaging to the public interest, both locally and nationally.
The merits of an appeal will be considered on receipt of a report from our KC.
Chris Attrill, Jonathan Bacon, William Bland , Jeremy Gully (chair), Phil Jordan, Norman Marshall, Sara Smith, as Trustees
Other notable points from the ruling
1 Ruling may have negative repercussions nationally
This ruling is a setback in our endeavour, appearing, as it does, to conflict with a Statutory Harbour Authority’s (SHA’s) “key objectives in managing harbours in the broad public interest” as set out in National Guidance: PGGG 2018. We believe this matter is of national importance, affecting the many private SHAs empowered by a Local Act*. And many of those SHAs don’t even have the statutory protection of profits, as we do.
*Clearly this is not in BHT’s remit. We will engage with national bodies, including the RYA.
2 Ruling appears to contain errors
The decision fails to address highly relevant issues of our claim. Additionally the ruling contains clear conflicts with the evidence presented.
3 Core issue of the claim not dealt with
A core issue in the claim – the use of SHA assets to secure other companies’ borrowings – was simply not dealt with. This is a fundamental issue as this was exactly what brought the SHA into administration in 2011.
4 Judge queries whether JR was the appropriate route
It is perhaps unfortunate that one Judge granted leave for these matters to be addressed at JR, and then Judge Collins sets out in this decision why the matters should not be addressed at JR. Despite this, and her reservations on the capacity of the court to deal with these issues, she nevertheless proceeds to far-reaching conclusions.
5 Judge said there were “no loans” – in confict with the evidence
Also a fundamental aspect of the case was the issue of whether BHIC (the SHA) lent large sums to the Thorpes’ separate investment company, BIL, for non-harbour purposes, and without BHIC receiving interest.
Bafflingly, the judge pursued a narrative of “no loans”, despite clear evidence to the contrary – on both sides. Even the defence accountant’s formal statements point to loans being made (eg “BHIC was owed £488,731 by BIL” . The defence further confirmed that funds were used to provide ‘‘some liquidity to repay some of its [BIL’s] bank debt during the year”. They also confirmed “the repayment of the outstanding inter-company balance on the BHIC/BIL”.
It is very difficult see how the judge reached her conclusion of “no loans”.
6 Crucial misunderstanding regarding use of SHA profits
We do not understand how the judge concluded that a figure of £101,532 was used in “paying down historic indebtedness” when the defendant’s own accountant’s evidence was that “this sum [£101,532] did not represent payments to creditors”.
This was most unfortunate since this issue was critical to the understanding of whether profit was properly employed in line with the upheld Section 31.
7 How may the public hold the SHA to account?
This ruling leaves the SHA largely insulated from scrutiny. Whilst the Department for Transport may have powers, there is no process by which it receives adequate information on which to assess compliance; the abbreviated accounts supplied simply do not contain enough detail.
Only through voluntary full disclosure in JR can evidence be brought into the open. JR is (or was) the only feasible route – a route which this judgement appears to cut off for the future by concluding that such considerations are not for the public courts. Again, this is deeply troubling.
However, this ruling sets out that the minister should act if concerned, and BHT do now hold sufficient evidence on a large range of issues that we firmly believe warrant investigation.
Mr Thorpe’s comments
You may have seen the statement made by Mr Thorpe on 18th May, published online and circulated to various parties. We take the comments made by Mr Thorpe seriously and these were considered at a Trustee meeting on 19th May. This note responds generally (above) and on the specifics of the financial consequences below.
Has the SHA really spent £160,000 on JR?
One of the accusations Mr Thorpe makes (whilst writing as ‘Bembridge Harbour Authority’) is that £160,000 has been spent on JRs. While this may be true overall, detail sheds a different light, as follows:
1. Mr Thorpe refers to money spent on not one, but two JRs – one of which did not in fact incur costs for the SHA, but for BIL.
2. A proportion of the £160,000 refers to the BIL case, not this JR.
3. If those BIL costs were indeed paid by the SHA, this would be an apparent breach of the upheld Section 31 of the 1963 Local Act
BHT pressure may have prompted repayment of the loans in question
BHT believes that the pressure it exerted by calling into question loans of £480,000 in the 2019/20 accounting year, and then following through with this JR, was likely instrumental in those loans being repaid just prior to the hearing (as revealed in the SHA’s evidence).
Was the case based on “general suspicion, mistrust and innuendo”?
Mr Thorpe has made much of the judge’s comment that the case was based on “general suspicion, mistrust and innuendo“. This is emphatically not so.