DECISION AND REASONS OF THE LICENSING COMMITTEE

A) Introduction

1. On 12 January 2011 this Committee decided to refuse to renew Mr Harris’s trainer’s licence for the period 1 February 2011 to 31 January 2012. It was decided that Mr Harris had not satisfied the condition requiring him to be a suitable Person. He appealed that decision. He did not challenge any of the findings made by this Committee. The ground of his appeal was that evidence available for the appeal would have resulted in a materially different decision had it been available at the hearing before us. His grounds of appeal accepted that the absence of such evidence was his fault and he did not contend that this Committee was at fault.

2. On 24 February 2011 the Appeal Board decided to give permission to adduce the new evidence and to remit Mr Harris’s application for a licence to this Committee on the basis that he had permission to adduce the new evidence. The Appeal Board did so:-

2.1. On the ground that there was new evidence concerning the ownership, business and financial position of the company that would employ Mr Harris, Equine Enterprises Limited (“EEL”), which passed any test of cogency and would have been material to deliberations of the Committee had it been available [pages 60-61 of the transcript].

2.2. Making clear that they should not be taken as indicating that we should have reached a different decision and stating that the new decision would be entirely a matter for us. That nothing said during the appeal hearing “should, in any way, inhibit” us when reaching our decision based upon the new evidence and upon any other material provided and/or submissions made [page 65 of the transcript].

2.3. Confirming [page 74 of the transcript] that the findings in our original decision and the decision that Mr Harris is not a suitable Person to be granted the licence for which he applies have not been disturbed.

3. We heard the new evidence on 22 March 2011. We note for the purposes of this hearing that the Appeal Board observed that this Committee [page 65 of the transcript]:-

“still have to go on and decide whether [the new evidence] is sufficient, given the other findings that have been made and the views that they take on other failings, … to carry the day in Mr Harris’s favour [by finding that he has satisfied the suitable Person condition]”.

B) This Further Hearing

4. Mr Harris was represented by Mr Piper, Counsel, and his solicitor, Mr Stewart-Moore, also attended. We read witness statements from Mr Harris (16 February 2011) and Mr Fox (16 February 2011) together with an undated “gist notice” of the evidence of Mr Allen all of which had been before the Appeal Board We read the transcript of the hearing before the Appeal Board which included evidence received from each of those three gentlemen. We read the grounds of appeal and the additional documentation that had been presented to the Appeal Board. This was included within the sections of the new black bundle before us entitled “New Evidence” and “Additional Material before the Appeal Board”. We also read the “Post Appeal Documentation” contained in that bundle. Also a further, yellow bundle containing the submissions for Mr Harris and further documentation. In addition we heard oral evidence from Mr Harris and from Mr Fox.

5. The British Horseracing Authority (“the Authority”) had objected to the appeal. We read their Response to the Appeal and we heard from Counsel instructed, Ms Joliffe. She also asked questions of Mr Harris and Mr Fox.

6. In reaching our decision we have taken account of all that further information. It is information which we have considered and assessed within the context of our original decision.

C) The Original Decision

7. This decision must be read together with our “Decision and Reasons of the Licensing Committee” (“the Original Decision”) handed down following the hearing on 12 January 2011. The original findings and their reasoning remain unchallenged except to the extent that they may be affected by the new evidence.

8. At paragraph 64 of the Original Decision we provided a summary of matters to be taken into account when deciding whether Mr Harris was a suitable person to be granted a trainer’s licence. For convenience we will repeat it (subject to minor, necessary contextural changes) as follows:-

8.1. The training skills of Mr Harris and the other matters raised by him as summarised at paragraph 2.

8.2. The history of previous decisions last year, the causes for them and the decisions made.

8.3. The failure to comply with conditions of the current licence in regard to the obligations to provide accounts.

8.4. The failure to keep the training business of EEL separate from Mr Harris’s financial affairs which was an underlying reason for conditions of his current licence and the failure to comply with the condition not to enter into transactions on behalf of EEL which do not relate to the training of racehorses.

8.5. Mr Harris’s failure to provide information concerning the sums paid to EEL and subsequently used for his personal finances and the failure to be able to clearly demonstrate what happened.

8.6. The failure to disclose a debt owed to Tattersalls prior to this hearing including at the hearing of 18 June 2010.

8.7. The consequences of Mr Harris’ bankruptcy.

8.8. The financial position of EEL.

8.9. The dealings of Mr Harris and/or Mr Frankland with other companies.

9. The reason for the decision that he had not satisfied the Committee that he was a suitable person can be found at paragraphs 65-83 of the Original Decision. The following is a summary for the purposes of this Decision:-

9.1. Mr Harris came across to us as a pleasant, indeed affable man who is committed to training and to the horses. He obviously loves his work as well as being a successful trainer.

9.2. Mr Harris failed to comply with two conditions of his existing licence concerning the provision of accounts. He blames Mr Frankland, the director of EEL, but whether that is right or wrong, they were his obligations. He did not write to the Committee forewarning of, apologising for or explaining his non-compliance. He did not inform the Committee that he was unable to comply or that he was doing his best to ensure compliance. He still has not ensured compliance.

9.3. Mr Harris has a history of not being candid with and of providing misleading and untrue statements to the Licensing Committee. The decision notified by letter dated 1 February 2010 “emphasised that in his future dealings with the Authority Mr Harris must be open and transparent and not deal in untruths or half truths”.

9.4. Despite this there was a serious absence of openness and transparency when it came to explaining the transactions which involved monies provided by Mr Allen being transferred to EEL by Cotswold Racing Enterprise Limited in order that those monies could be paid by EEL for the benefit of the personal affairs of Mr Harris. There were untruths and half truths. The information provided to the Committee was contradictory and the answers remained opaque. Mr Harris did not provide the information required of him and should have done so. Furthermore having now asserted that the transfer of monies to EEL was not a loan, his attempt to explain a previous written answer to the Authority’s enquiries in which it was described as a loan as “bad grammar” was very disappointing.

9.5. We would have expected an apology combined with a written statement from Mr Allen identifying the agreement. That would have enabled not just the Committee but also EEL to identify what liabilities, if any, EEL might have to Mr Allen and whether it should and could recover monies from Varringtons. It would have made the financial position of EEL in respect of this transaction transparent not opaque. That did not happen.

9.6. The involvement of EEL in the personal financial affairs of Mr Harris through those financial transactions also gave rise to a breach of the existing licence conditions. If condition 2 of the current licence had been complied with, EEL would only have been involved in transactions that related directly to the training of racehorses. It would not have been involved in receiving, holding and paying monies to be used for the purposes of Mr Harris’ IVA.

9.7. Even when dealing with that issue a further non disclosure was identified. The debt of Tattersalls and the use of part of £50,000 to pay it had not been previously disclosed. Mr Harris did not refer to this debt to that Committee determining his application on 18 June 2010 and only identified it at this hearing for the first time (see paragraph 37 above).

9.8. Mr Harris’ bankruptcy evidences a history of not paying business debts concerning and arising from racehorse training, although in this instance we do not give great weight to it and treated it as a background feature. The bankruptcy means that he can not be a director or take part in the management of a company whilst undischarged.

9.9. The financial information provided concerning EEL did not establish that the business is financially sound for the year 2011. There appear to be good prospects of a capital injection amounting to a further £40,000 but no evidence has been provided from Mr Fox and there are no details presented to show that the business will be placed on a sound financial footing. Mr Harris suggested there is likely to be further investment, further income from additional horses being trained and a further significant involvement by Mr Fox. There may be new management and Mr Fox may become the sole owner. However all this is currently speculative. We would have expected at least a written statement of support from Mr Fox detailing his intentions. We do not have this.

10. Those matters resulted in the following conclusions at paragraphs 80-82:-

Mr Harris is a good trainer and he puts forward a case of a business which after one year is successful with its racing and has prospects of receiving further investment. Whilst we believe that he probably has the best of intentions in that he wants the training business of EEL to succeed and he really wants to train horses, nevertheless he breaches conditions of his current licence. Furthermore he is not open and honest in his dealings with the Authority. In addition he does not provide factual information to enable us to be satisfied that the business has a secure future.

We would have expected him to have approached this hearing on the basis of ensuring that he provided full and proper explanations for the matters raised in the Reasons and suitable apologies for his failings. We would have expected him to make proposals to reassure the Committee that he was a suitable person who could be granted a licence notwithstanding his failings and breaches of conditions described above. We would have expected a detailed statement from Mr Allen to establish the true position with regard to the monies received by EEL from Cotswold Racing Enterprise Limited. We would have expected a clear financial plan from or based upon the proposed commitment of Mr Fox. We would have expected to have heard from Mr Frankland.

Mr Harris provided none of that. Our underlying assessment is that this is attributable to a failure to appreciate the seriousness of the matters raised by the Authority throughout 2010 and for the purposes of this application. That failure is in itself troubling. He should have appreciated the need to comply with the conditions of his existing licence. As a result of the previous hearings and the Guidelines he should have appreciated the need to be open and honest and the fact that an applicant’s fitness includes an assessment of personal and business dealings including financial soundness of the business for which he will provide his services as a trainer.

D) The New Evidence

11. We will identify the most salient features of the new evidence relied upon in submissions to us before considering its effect on our findings in the Original Decision.

D1) Mr Fox

12. The position with regard to Mr Fox is that he has become a shareholder of EEL and is to become its effective owner as a result, apparently, of having an agreement to purchase the remaining shares from Mr Harris’s trustee in bankruptcy for £2,500. He was portrayed as a “Dragons Den” type investor, although in this case he is purchasing the company rather than investing with existing shareholders. We accept from the evidence that he is a successful businessman and that his “take over” of EEL will be significant for its financial position and relevant to its management operation.

13. The background to Mr Fox’s involvement starts with the fact that Mr Harris became bankrupt on 28 July 2010. During that month he had tried to avoid bankruptcy through an IVA and it was this that led to the issues involving the receipt of monies by EEL that originated from Mr Allen considered further below. The result of the bankruptcy was that a trustee was appointed and as a matter of law the beneficial interest in the shares held by Mr Harris in EEL vested in the trustee.

14. As set out at paragraph 45 of the Original Decision, a letter to the Authority from EEL’s director, Mr Frankland, dated 6 January 2011 described “Good news on the Milton Harris front”. That news referred to a capital injection of £50,000 at the end of December 2010 from an “existing patron Mr David Fox”. It explained that £18,000 was to pay for shares that had been issued and £32,000 was a long term loan repayable not before January 2013. Mr Harris informed us at the last hearing that Mr Fox was a 50% shareholder of EEL.

15. It was explained to us by Mr Fox that the shares he received were newly issued. He told us that the trustee in bankruptcy had agreed to this (as presumably he must have) and that Mr Harris’s shares will be sold to him for £2,500. Although we have not seen documentation supporting those facts, we have no reason not to accept this information. We also note that the trustee supported the application at the last hearing for the reasons set out in his letter dated 4 January 2011 without raising any issues concerning the issuing of the shares [page 362 at 365 of the bundle before us at the last hearing]. That stance and absence of issue is repeated in a letter dated 4 April 2011 received after the recent hearing. The result is that for a sum of £20,500 Mr Fox will become the owner of EEL, although we understand that some shares are held by his partner, Ms Adams.

16. The new evidence of Mr Fox includes cash flow projections for EEL based first upon a proposed move of stables to “High View Stables” in Lambourn and second upon EEL remaining at Collingbourne Ducis, Wiltshire. The licence, if granted, will relate to the business at the current stables but we accept that there is a likely to be a move and that the Lambourn cash flow projections are relevant. In both projections Mr Fox will receive fees as a director of £2,000 per month from July 2011, although these may be shared with Ms Adams. The first proposal (based upon a move) anticipates a profit of £127,876 for the year to 31 December 2011 and £77,476 if the business stays at Collingbourne Ducis.

17. We note that those figures do not appear to be entirely consistent with a share purchase for only £32,000 nor with previous accounts. They suffer from being only projections and we asked questions about them. We were concerned that Mr Fox had not provided us with up to date management accounts whether in the form of a balance sheet or a profit and loss account. The latest unsigned accounts provided in the new evidence are dated 17 February 2011 and were for a 15 month period to 31 December 2010 revealing an operating loss of £12,764 and net liabilities of £12,764 but without the balance sheet recording Mr Fox’s loan. Previous unsigned accounts (seen at the last hearing) for the 12 months to 31 December 2010 showed a profit of £4,444 and net assets of £43,286. They treated Mr Fox’s loan of £32,000 and a loan from Mr Harris of £6,842 (which is now an asset of the bankruptcy) as shareholders’ funds and therefore as deferred loans.

18. Mr Fox agreed that we were right to be concerned and explained that Baker Tilly, whom EEL will now retain, were unable to provide those accounts at this stage. Nevertheless he relied upon the fact that his cash flow projections were based upon actual trading figures and that those figures identified not only an ability to trade whilst paying debts as they fell due but also a healthy profit. Furthermore Mr Fox decided and informed us at the hearing that he will secure a £100,000 overdraft facility for EEL which will be personally guaranteed by himself. This commitment depended upon Mr Harris receiving his licence and upon that licence being for the full period applied for.

19. Mr Fox has therefore superseded Mr Harris as owner of EEL. He is the paid director and Mr Harris is and will remain purely an employee. Mr Harris currently receives a basic salary of £24,000 per annum, 50% of the percentage of prize money payable to the trainer under the Rules of Racing and lodgings at the stables. We referred in the Original Decision to the fact that Mr Harris has entered into an income payments agreement with his trustee whereby he will pay £2,000 per month for 3 years to the bankruptcy estate. We still do not understand how he will comply with that agreement but Mr Fox has stated that there will be an increase in salary. For our purposes, however, the position is that Mr Fox has taken over, he will have overall control and Mr Harris will act as an employee training the racehorses in return for a salary with no investment or interest in EEL.

20. We have raised concerns in the past and in this hearing as to whether in practice Mr Harris will be involved in the management of EEL. It was explained that his role will be limited to training. Management decisions will be taken by the directors. Whilst Mr Fox does not live near to either training yard and may only spend a day a week at most there, he will be available on the telephone and take an active management involvement. It was stressed in that context that he had cause to do so as the owner and guarantor to be. In addition another company of his is now sponsoring the business. The day to day control and management at the training yard will continue to be handled by Denise Hopkins, who was first engaged as a book keeper by Mr Harris in January 2006. She spends and will continue to spend one/two days a week in the office at the stables (including if there is a move) and also is able to and does work at home. She is responsible for the book keeping, for ordering goods and equipment and for administration. She has recently had training provided through Mr Fox’s existing company.

D2) Mr Allen

21. Mr Allen gave evidence before the Appeal Board and we have read the transcript. His evidence is concerned with the transaction which resulted in £40,000 being received by EEL and then paid to Mr Harris’s proposed IVA supervisors, the Insolvency Practitioners, Varringtons. He has now stated that he has no claim against EEL for the money transferred to it and then transferred to them. He is claiming repayment, however, from Varringtons.

22. We refer to paragraphs 17-36 of the Original Decision concerning the facts of this transaction as disclosed to the Authority and ourselves. It is apparent that the underlying problem is that £40,000 provided by Mr Allen was paid to Cotswold Racing Enterprise Limited, a company then owned by Mr Harris, and then to EEL before being paid to the Insolvency Practitoners, Varringtons. The monies were provided specifically and only to pay creditors of Mr Harris under the terms of his proposed IVA should that IVA be accepted. There has been no IVA yet Mr Harris through Mr Frankland procured a transfer of the monies and they have in fact been used partly for the payment of Varringtons fees. The balance is claimed by the trustee. The Original Decision identified the potential problems which this scenario gives rise to. It also identified in detail (see paragraphs 17-36) the facts and matters which led the Committee to findings of a serious absence of openness and transparency by Mr Harris when it came to explaining the transaction and that there were untruths and half truths (see paragraph 9.4 above).

23. Mr Allen’s new evidence led to the submission on behalf of Mr Harris that such findings can not stand in the light of this evidence. We were surprised at and concerned by such a submission and sought assurance that this was indeed Mr Harris’s instructions rather than Counsel’s analysis during submissions. The opportunity to adjourn to take instructions was offered but declined. It was confirmed that this was Mr Harris’s primary position and Mr Harris confirmed in answer to Mr Piper’s questions that he accepted the submissions made.

24. We have also considered and refer to the relevant paragraphs of the witness statement of Mr Harris at pages 99-100 of divider 4 of the black bundle. Mr Harris in his further evidence to us stated that he had not intended to mislead and that such an incident could not happen again with Mr Fox now in charge of the cheque book.

D3) Mr Frankland

25. Mr Frankland did not provide oral evidence and it is clear that Mr Harris attributes some of his problems to Mr Frankland’s actions or omissions as a director of EEL. Mr Fox endorses that approach and as from 21 February 2011 Mr Frankland has had nothing more to do with and no position in EEL.

26. Certain documents produced as new evidence were relied upon to support that attribution including a letter from the Chartered Accountants Gerarld Edelman which states that Mr Frankland first instructed them to carry out an audit of EEL’s accounts on 16 February 2011. This is relevant to Mr Harris’s position concerning breaches of the condition to provide management accounts and audited accounts. In that context Mr Harris also relied upon a letter from Mr Frankland to the Authority dated 17 February 2011 in which he states that EEL’s year end was extended to 31 December 2010.

27. Another document relied upon was an email dated 23 February 2011 in which Mr Frankland informs Mr Harris that there has been no breach of the condition that EEL should not acquire racehorses because the transactions concerned involved “the purchase of stock which had been ‘pre-sold’ to new/existing patrons” and therefore “we never took ownership of those horses”.

28. That e-mail concerns 3 transactions identified before the Appeal Board as transactions which took place in November 2010 involving the individual sales of 3 horses. Of those transactions we need only consider 2, the 2 which have been admitted by Mr Harris to be in breach of the following condition of his licence:-

“Save as set out below [it is accepted that those exceptions do not apply], you shall not engage in any activity relating to the buying or selling of racehorses either on your own behalf or on behalf of any other person or business, including but not limited to EEL; nor shall you procure or authorise any other person to do so on your behalf or on behalf of any other person or business …”.

29. The first transaction recorded in EEL’s accounting records as “Tom Malone Bloodstocks, Spirit is Needed” was explained as a commission arrangement of “the normal 5%” for the supply of a horse via the yard. The second recorded as “Paul Nicholls Racing, Marc Aurelle (Ire)” concerned the purchase of a horse by owners known to Mr Harris who paid the purchase money to EEL for payment to the vendor. We will refer further to these transactions below.

30. There was also new documentation concerning issues over the use of Cotswold Racing Enterprise Limited for training. We accept that this issue has been dealt with and need not be considered further.

D4) Mr Harris

31. There is a considerable amount of further evidence from Mr Harris: his witness statement; his evidence before the Appeal Committee; and his additional evidence before us. We will refer to the parts we consider of particular relevance within the context of considering the new evidence and of reaching our decision below.

E) Tests

32. We set out the tests to be applied when considering the application for a licence within paragraphs 58-63 of the Original Decision. They are to be treated as incorporated within and were applied to this decision.

33. We also note that we made the following observations within the Original Decision which remain pertinent for the purposes of our current decision.

33.1. The test of “suitable Person” and the Guidelines (which we read as guidance) require other matters to be taken into account when deciding whether to grant an application for a trainer’s licence in addition to whether a person is a good trainer.

33.2. There are wider interests at stake, including that of maintaining the reputation of the field of activity in question and sustaining public confidence in its integrity.

33.3. A suitable person will be one who deals openly with the Authority and provides the information requested. A licensed person is expected to give “full and frank disclosure” and an applicant who does not comply with what is expected “may not be considered suitable and therefore may be refused a licence”.

33.4. The Rules make clear that the applicant must satisfy us that he meets all the criteria contained within the Guidance Notes which accompany each application form. Where there have been failings, it is reasonable to expect a satisfactory explanation and/or a reliable apology combined with evidence of a sufficient commitment that this will not happen again.

33.5. A suitable person should comply with the conditions of an existing licence. Furthermore the Guidelines at paragraph 25 expressly provide that the Committee when assessing honesty and integrity should consider an applicant’s record of compliance with regulatory requirements which will include compliance with the conditions of an existing licence. The Guidelines at paragraph 25 also draw attention to the criteria of an applicant being candid, open and truthful when dealing with the Authority in respect of past and present licences.

F) Effect of the New Evidence

F1) Training Skills

34. The new evidence does not affect the training skills of Mr Harris and the other matters raised by him as summarised at paragraph 2 of the Original Decision.

F2) Previous History

35. There has been a history of previous decisions during 2010 that raised serious issues and concerns in particular with regard to business competence and capability, honesty and integrity and the financial soundness of the company for whom he would train. We refer in particular to paragraphs 8-9 of the Original Decision.

36. The previous decisions included findings that Mr Harris provided misleading statements to the Authority concerning his financial position, misleading information concerning specific liabilities and numerous instances of Mr Harris having stated matters relevant to his financial position that were untrue. It was made clear to Mr Harris that he must be open and transparent in his future dealings with the Licencing Committee “and not deal in untruths or half truths”.

37. As a result of the findings made in those decisions, although Mr Harris was granted licences for periods running throughout the 2010/11 period, they were subject to conditions on each occasion. One underlying condition was that Mr Harris should not be involved with the buying or selling of racehorses and that EEL should limit its business to transactions concerning training. Another was the requirement for accounts to be provided. Another was that Mr Harris should not act as a director of EEL. It is clear that the licences would not have been granted without such conditions and that they were necessary to address the adverse findings made. This emphasises the importance of compliance and the fact that Mr Harris was aware of this, although compliance ought to occur in any event.

38. Understandably those previous decisions and their relevance are neither challenged nor in any sense attacked for the purposes of this further hearing. They stand as a background of concern when considering suitability. On their own they do not prevent the grant of a licence but any further breach of the conditions laid down or other cases of want of openness and truthfulness etc must be considered very seriously when deciding whether to grant the licence for 2011/12.

F3) Breach of Conditions – Accounts

39. It remains the case that Mr Harris failed to comply with conditions of the current licence in regard to the obligations to provide accounts. It remains the case and is still admitted by Mr Harris that he did not and has not provided:

39.1. Management accounts, including a balance sheet, for EEL for 1 July to 30 September 2010 by 24 October 2010 as required by condition 6.1. of his previous licence or at all.

39.2. Audited accounts for EEL for the period 1 January 2010 to 30 September 2010, such accounts to have been prepared by an independent Chartered or Certified accountant, by 10 December 2010 as required by condition 7 or at all.

40. Mr Piper submitted to us on behalf of Mr Harris that the failures to provide those accounts and the breach of the conditions “lies at Mr Frankland’s hands”. He emphasised that Mr Harris as a bankrupt could not be involved in management, that Mr Frankland as the director was responsible for obtaining them and that he did not instruct Gerarld Edelman to carry out an audit until 16 February 2011 (see paragraph 26 above). Mr Piper’s submission was that “the problem was that Mr Frankland just did not [obtain audited accounts]”.

41. Mr Piper also relied upon the fact that Mr Frankland extended the year end (see paragraph 26 above). In addition it was said, as it was at the previous hearing, that Mr Harris had asked Mr Frankland to comply with the condition on a number of occasions and had not realised that he had not done so.

42. We do not accept the submission that no blame can be cast upon Mr Harris because Mr Frankland was at fault. At paragraph 69 of the Original Decision we said this:-

We have found that Mr Harris failed to comply with two conditions of his existing licence concerning the provision of accounts (see paragraphs 11-15 above). He blames Mr Frankland (see paragraphs 13-14 above) but whether that is right or wrong, they were his obligations. He did not write to the Committee forewarning of, apologising for or explaining his non-compliance. He did not inform the Committee that he was unable to comply or that he was doing his best to ensure compliance. He still has not ensured compliance. These and the other matters set out at paragraph 15 above are serious issues to take into account when applying the suitability test and reaching our decision.

43. In the light of those findings, which were not challenged on appeal, we find the above-mentioned submission and the approach of Mr Harris in this further hearing unsatisfactory. He has not acknowledged his failings but instead takes the view that it was Mr Frankland who is at fault not himself. We do not consider that any of the new evidence alters those findings and conclusion drawn from them. They remain in place and indeed we consider the submission, which was made on instructions, to be a further indication of unsuitability. The conditions were prescribed to enable a licence to be granted and it was incumbent upon Mr Harris to ensure they were complied with. Of course there may be circumstances in which he could not ensure this was done but he could and should have informed the Authority and explained the position as a matter of urgency. We do not accept the submission from Mr Piper that the failure to do so is “a small thing”. That submission does not reflect the importance of the conditions, the reasons for them or the basic premise that a suitable person would be expected to comply with l