Findings
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39. Four events preceded the opening of the section 447 investigation in November 1995 which distinguished the vet carried out by CIB in October/November from their earlier vet in March/April. They were the anonymous telephone call which CIB had received on 20 September 1995, the information forwarded by DTI's regional office on 9 October, the concerns expressed on 20 October by SIB (paragraph 18), and the receipt of brochure 2 with 'guaranteed' rates of monetary return (paragraph 12). CIB opened a new file on 3 October, and considered for a second time whether a section 447 investigation into the corporation was warranted. Vetting officer B recommended an investigation on 30 October because of various factors, including the level of guaranteed returns then being promised; the uncertainties surrounding new markets for ostrich products on which those returns were based; the high level of investments then being made in the corporation; the high minimum level for those investments; the suspicion that the corporation was merely a front for a money-making scheme which relied on new investors coming forward to sustain it; and doubts that the ostriches concerned actually existed (paragraph 19). On 3 November the vetting supervisor approved vetting officer B's recommendation that a section 447 investigation be initiated. Given the nature of the issues needing to be considered, I do not consider that vetting officer B or the vetting supervisor delayed unnecessarily in their tasks, or that there was any maladministration on their part.
40. On 14 November authorisation for a section 447 investigation was given (paragraph 20), and prompt action then ensued. On 16 and 17 November officers E and F visited the corporation's premises; they were authorised to require the corporation to produce such documents as they might specify. After a further visit to the corporation on 21 and 22 November a case conference was held on 23 November, with an internal DTI legal adviser, which reviewed the documents and information obtained thus far. On 13 and 14 December, after further legal advice had been given on two occasions by the internal legal adviser, officers E and F interviewed Mr Q and Mr R in the presence of their solicitor (paragraph 22). That was an important interview, and one for which officers E and F needed to be fully prepared. I see it as commendable that they were able to undertake it within a month of authorisation for the section 447 investigation having been granted. I do not see it as maladministrative that it took DTI eleven days from the date of the vetting supervisor's approval to grant that authorisation, given the potential seriousness of a section 447 investigation for the corporation and others.
41. More contentiously, it then took DTI just under a further eight weeks before they sought urgent advice from TSD on 6 February (paragraph 27), a further month before papers were put to counsel, and three weeks more before a winding-up petition was presented to the court on 26 March. The joint liquidator later contended that that last step could, and in his view should, have been taken by early January 1996 at the latest (Appendix B - paragraph 13). The issue I have to decide is whether it was maladministration which meant that the winding-up petition was not presented until late March.
42. What happened in the intervening period? DTI, after considering what Mr Q and Mr R had said at the interview on 13 and 14 December, concluded that further documents and information needed to be obtained from the corporation. Officer E made that request promptly. Other DTI officials on 8 January began related section 447 investigations into company X and another company, also suspected of having received unwarranted payments from the corporation (paragraph 24). DTI had also decided that they needed advice from an expert on ostrich farming; that was Mr Z. Although it would have been better had a deadline been set at the outset for receipt of what turned out to be Mr Z's initial report (paragraph 25), CIB had reminded Mr Z of their need for it on 4 January. When he did report, on 18 January, the investigations into company X and the other company were still in progress. Shortly after those investigations were completed, and after officer E had received some of (but not all) the outstanding documents and information sought from the corporation, officers E and F concluded their section 447 investigation on 5 February 1996. The next day CIB began to consult TSD on how a winding-up petition could best be made and supported. The case that DTI elected to put before the court could not have been constructed in its entirety from what was known before, or came out of, the interviews with Mr Q and Mr R on 13 and 14 December 1995.
43. After further advice had been obtained from Mr Z and draft affidavits which he, officer E, and others might swear had been prepared, TSD referred the papers to leading counsel on 7 March. Leading counsel advised that the proposed affidavits needed strengthening, and Mr Z was asked to augment his input. On 26 March the winding-up petition was presented to the court; and on 3 April the court granted an order to appoint a provisional liquidator. The order winding up the corporation was made on 17 June (paragraph 29).
44. Events after the petition was presented are not matters for me (paragraph 13), but what of the events between January and March 1996? Were all the steps that were taken during that period necessary, or at least steps which DTI and TSD might reasonably conclude were necessary? And if they were, were they taken without avoidable delay? Notwithstanding the joint liquidator's views, I find in favour of DTI in all these respects. In my view, it was reasonable for DTI and TSD to conclude that the actions they were taking were necessary actions if they were to have the necessary confidence that matters would be brought to an appropriate conclusion. DTI and TSD reached their conclusions conscious of the end in view and of the implications that could arise were that end to be delayed avoidably on the one hand, or pursued unsuccessfully on the other. It was not a matter of events being allowed to drift by default. Instead, discretionary decisions reached without maladministration were taken and, that being so, the Parliamentary Commissioner Act 1967 says explicitly that it is not for me to question their merits (paragraph 13). So I say only this. It is undeniable that a winding-up petition could have been presented to the court earlier than it was; but it does not follow from that, given the extent of DTI's knowledge and aims, that it should have been or, if it had, that it would have been successful. When the petition could best have been presented was a matter for DTI's (and TSD's) discretionary judgement; they were entitled to reach the decisions they did reach on those matters.
45. What of events before October 1995? Whether or not to conduct a section 447 investigation is also a discretionary decision taken on behalf of the Secretary of State (paragraph 3). It is not for me to question the merits of that decision unless there was maladministration in its making. The information on the corporation available to DTI in April 1995 was that contained in brochure 1A (paragraph 10), plus whatever emerged from the internal enquiries that vetting officer A then judged to be necessary - itself also a discretionary decision. I am satisfied that at that stage DTI had no other evidence to hand. Moreover, despite later suggestions in the press to the contrary, neither SIB nor members of the public had brought concerns about the corporation to CIB's attention at that time or earlier.
46. When brochure 1A was referred to him, vetting officer A looked at whether it was possible to breed ostriches in the United Kingdom and found that it was. The note from the pre-vetting officer (paragraph 14) had identified three other issues, namely whether the corporation was "just another network marketing/money making" scheme, the claim that Mr Q had had another company successfully floated, and whether the club should be considered separately. There is little in vetting officer A's submission to the vetting supervisor to show how deeply he delved into those issues. A conclusion can be drawn from his comment that there appeared to be nothing suspicious about the network element, or obviously suspicious about other aspects of the corporation's business as described, that he was satisfied in his own mind that at that stage at least not only no section 447 investigation but also no further enquiries on his own part were then required. His recommendation was endorsed by the vetting supervisor, the same one as it happened who later agreed there should be a section 447 investigation following the October vetting. The judgements reached in April 1995 were different from those reached later; but that of itself does not make them maladministrative.
47. Both vetting officer A and his supervisor have said that they took into account the level of returns being indicated in brochure 1A (paragraph 36). The figures in brochure 1A are said to have been seen at the time as "puff", part of the process of trying to attract investors. At first blush, that view is not easy to reconcile with the emphasis later placed by the vetting supervisor on the essentially similar rates of return referred to in brochure 2 when he advocated a section 447 investigation in November 1995. However, enough other things had changed to make a distinction tenable. That vetting officer A could have done more to probe the implications of the rates of return referred to in brochure 1A is undeniable. But how far he took his probing was a matter for his discretion. I see no maladministration in his deciding not to take the matter further than he did at that stage; and, that being so, it is not for me to question the merits of the view that he reached.
48. The same is true of the action taken to check out the reference in brochure 1A to Mr Q having had another company floated successfully. Brochure 1A did not identify the company in question (paragraph 14), and its identity could not readily have been established. (It was not established at the time of the second vet.) The information about Mr Q which vetting officer B later unearthed did not emerge as a result of an attempt to check whether or not Mr Q had been involved in a successful flotation. It emerged as a result of enquiry of the Insolvency Service disqualification unit (paragraph 18). So even if officer A had sought to pursue further an enquiry about the flotation in which Mr Q was said to have been involved there are no grounds to suppose that at that stage information would have been forthcoming to change the view then reached. Officer A could have made an enquiry of the Insolvency Service at the time of the first vet, but he did not have the grounds that officer B later had (paragraph 17) to make such an enquiry. Moreover, even if officer A had decided to contact the Insolvency Service in March/April 1995 he would not have learned that disqualification proceedings against Mr Q had been initiated - that decision was only reached in September 1995 (paragraph 18).
49. In short, even if in April 1995 vetting officer A had decided to research some matters further, it is unlikely that that would have resulted in a significantly earlier decision to initiate a section 447 investigation. Neither the corporation's circumstances in April 1995, nor CIB's knowledge of what the corporation were saying, were the same as they were in October. In April the corporation had yet to issue brochure 2 (paragraph 10), while even in July and August the volume of its trading (as later reported by the joint liquidator - Appendix B, paragraph 6.3) was relatively modest. CIB had not then received either the information they later received from DTI's regional office or that from SIB; nor had they received any complaints from members of the public.
50. Before CIB received the anonymous telephone call on 20 September (paragraph 17) it is by no means clear that they would necessarily have made any connection between Mr Q and Mr S (and company M with which Mr S was involved). (Officer E later saw that connection as significant (paragraph 23) because of the indication it gave that the corporation was involved with money circulation schemes.) Unlike brochure 2, brochure 1A, which was the only brochure before CIB in April, did not make claims which included a 'buy back option' (paragraph 12); in contrast, it included both a 'Statutory Warning' and a disclaimer (paragraph 11).
51. In the event matters moved very quickly in November 1995 when DTI did initiate a section 447 investigation. They committed resources to that investigation and then more resources to the related section 447 investigation of company X and the further company (paragraph 24). In November DTI were aware that the level of investment into the corporation had reached £2 million a month (paragraph 19). I do not doubt that that awareness influenced both the resources committed and the urgency with which they were applied.
52. Central to this complaint is the contention that had a successful petition been presented earlier some of those who chose to invest in the corporation in the later stages of its life, and so made losses, might have been spared those losses. I do not take the view that even if that argument were accepted it would follow, in the circumstances of this case, that I should recommend that the taxpayer rather than those who chose to invest should bear the burden. Those who invested in the corporation in the later stages of its life did so at a time when it was much clearer what the corporation were purporting to offer by way of guarantees and allowances than it was from the information available at the time when CIB were carrying out their March/April 1995 vet. The investors were under no compulsion to put funds into what, on any reasonable view, was a high-risk venture: not only was there a risk that the corporation's forecasts of profit would prove to be unrealistic, but the guaranteed 'buy back option' (paragraph 12) significantly increased the risk that the corporation would become insolvent. Unlike the Barlow Clowes case referred to earlier, the corporation was not a company licensed by DTI, nor one in respect of which it could fairly be said, notwithstanding the corporation's participation in an export mission (paragraph 17) at a date before the section 447 investigation was recommended and authorised, that DTI had given assurances or any indications of assurances to potential investors. I do not see in the circumstances of this case cause for recommending that the investors' losses should be reimbursed.
Conclusion
53. I have not found that DTI or TSD delayed unnecessarily from the beginning of the section 447 investigation before presenting a winding-up petition to the court. They were heedful of the interests of the investors, but also of the evidence that might be required by the court. DTI had taken a discretionary decision in April 1995 not to initiate a section 447 investigation at that stage but I did not find maladministration accompanying that. Nor in the circumstances of the case do I consider that the complainant's unfortunate financial losses should be reimbursed by DTI.
