Case Digest
Horlick & Ors v Cavaco & Ors (Costs) [2022] EWHC 3096 (KB) (02 December 2022)
This case examines the issues of costs in a misrepresentation matter, and in particular considers the steep threshold that must be satisfied to secure indemnity costs. As outlined, an award of indemnity costs is only warranted where a party’s conduct or the circumstances of the case take it “out of the norm” that is “something outside the ordinary and reasonable conduct proceedings.” The factors on which indemnity costs were applied for by the defendant were as follows: the notion that there was unsatisfactory evidence to substantiate the claimant’s claim, the unreasonable unwillingness to mediate, and the unreasonable rejection of various offers to settle.
Despite the conduct of the claimant, as outlined above, indemnity costs were not awarded in this case of misrepresentation. Therefore, this demonstrates the high threshold that must be satisfied for this to be the case in civil litigation.
Royal & Sun Alliance Insurance Ltd & Ors v Tughans [2022] EWHC 2589 (Comm) (14 October 2022)
The arbitration between the parties took place at a point in time at which there had been no factual findings in any form of proceedings (criminal or civil) as to the underlying events, but where allegations had been made in proceedings against Tughans, and Tughans wished to ascertain its insurance coverage position in relation to those allegations.
The issue of insurance became prevalent upon the acquisition and management of impaired loans from NAMA to various banks in Ireland.
It was alleged that the scope of the activities taken on by the Irish banks in relation to these loans was not explicitly covered in the Letter of Engagement between NAMA and these banks. Consequently, it was alleged that this Letter of Engagement amounted to misrepresentation.
This case highlights the importance of a Letter of Engagement explicitly stating the obligations owed by a firm to its client.
This also emphasises the importance of policy arrangements between parties, and the need to review these carefully to ensure that these arrangements manifest the terms outlined in the Letter of Engagement. In this case, the policy terms and Letter of Engagement terms appeared to have disparities.
Haviland v The Andrew Lownie Literary Agency Ltd & Anor [2022] EWHC 1688 (QB) (01 July 2022)
This relates to an application to strike-out a claimant’s submission that he has suffered serious harm to his reputation as a result of the publications of the defendant.
This case concerns five email messages that were sent by the defendants to a website named Reedsy.com. This site allows people in the publishing industry to promote their services. The business model takes a percentage of fees generated between service providers and clients.
The defendants raised objections with the claimant’s editor profile on Reedsy, requesting that a number of changes be made to the profile in the interests of honest representation. Reedsy implemented the changes accordingly.
The claimant felt the changes amounted to misrepresentation.
In the Judge’s submissions, it was noted that, to amount to defamation, the statement must cause serious harm to their reputation. It was submitted that no serious harm was done, because the emails amounted to accusations that the claimant had claimed credit, in a marketing context, for matters of which he was no entitled to claim credit for.
Therefore, the claimant was not successful in his application for misrepresentation.
Simon v Tache & Ors [2022] EWHC 1674 (Comm) (01 July 2022)
This case pertains to a qualified medical practitioner, who is currently practising in the field of modern and contemporary art and interior design. This claimant liaised with the defendants, who had opened an art gallery in Brussels, and established a professional relationship, wherein there was a dispute concerning the governing law of the relevant contractual relationship. The claimant claimed she had been deceived by the defendants in relation to the value of a specific artwork.
This claim was deemed unsuccessful, as it was stated by the Judge that, in the context of a claim for negligent or fraudulent misstatement, the place where the harmful event giving rise to the damage has occurred is where the misstatement was made rather than where it was received. In Newsat Holdings Ltd v Zani (supra) at [30] et seq, David Steel J explains that it is a well established matter of English law that the tort of fraudulent misrepresentations is committed in the place where the misrepresentation was received and acted upon and not the place from where it was sent.
HDR Global Trading Ltd v Shulev & Anor [2022] EWHC 1685 (Comm) (01 July 2022)
This case relates to stakeholder proceedings brought by the Claimant in relation to an account opened on HDR’s cryptocurrency derivatives exchange and trading platform in the name of the Defendant.
The central issue of the dispute was whether the settlement agreement between the parties was enforceable, which determined ownership of the account.
The first defendant was a senior employee at Nexo, which specialises in trading cryptoassets and lending against them. Nexo opened some crypto-trading accounts in its own name, Nexo, but opened other accounts in the name of employees, one of which was the Defendant.
The Defendant ceased to wish to be considered the owner of the account in Nexo. He expressed concern that the funds in the account could be stolen. As part of the thrust of his case, he stated that there was misrepresentation in the Settlement Agreement between himself and Nexo as to the ownership of the account.
However, it was deemed that no misrepresentation existed in the Settlement Agreement, as the terms made out were sufficiently clear to be valid and binding.
Dwyer (UK Franchising) Ltd v Fredbar Ltd & Anor (Rev1) [2022] EWCA Civ 889 (30 June 2022)
This case relates to the enforceability of post-termination restrictive covenants in a ten year franchise agreement between the claimant and one of its former franchisees, the first defendant.
The appellant claims that the restrictive covenants are unenforceable, on the grounds of misrepresentation and undue influence at the time of entering into the agreement.
The Judge found that the appellant had committed repudiatory breaches of the franchise agreement, including a failure to comply with the force majeure clause. However, the Judge also found that the defendants had affirmed this failure to comply with the force majeure clause, by continuing the agreement. Therefore, the defendants attempts to terminate the agreement amounted to a repudiatory breach.
Photobooth Props Limited v [2022] EWHC 1634 (IPEC) (27 June 2022)
This case relates to an application from the Claimants for judgment on the pleaded issues of substance, ownership and infringement by the Sixth and Seventh Defendants in respect of eight Assigned Works and five New Works.
The main liability issues concern the alleged misrepresentations during the negotiation of the disputed contract of sale in July 2019 between the claimants and defendants. This leads into whether the Claimants can rescind that contract or whether, if those misrepresentations became terms of that contract, the Defendants breached them.
In this case, it was decided that the predominant dispute pertained to the Assigned Works, rather than the New Works, where copyright issues pertaining to the New Works could not be properly assessed.
Sheridan v Allied Irish Bank Plc (Unapproved) [2022] IECA 139 (23 June 2022)
This case relates to an appeal against the order of the High Court (Allen J.) dated 14 May 2021 striking out the appellant’s claim under O.19 r.28 of the Rules of the Superior Courts for failing to disclose a reasonable cause of action.
The applicant looked to sue the respondent for the tort of negligence, for failing to recognise him as the standing executor of the estate of Pauline Sheridan and, thus, failing to access relevant documents in relation to this estate.
As part of his claim, the applicant alleged that, as a consequence of the negligence to recognise him as the standing executor, that fraud and misrepresentation have occurred. To substantiate this, he claimed that the respondent had failed to properly carry out the due diligence required when deciding who to appoint executor.
However, the Judge in this case found that the claimant’s claim was “frivolous and vexatious and bound to fail.” This demonstrates the high threshold required when alleging fraud/misrepresentation in connection with allegations of negligence.
Hannam v RPA Systems Ltd & Anor [2022] EWHC 1354 (Ch) (15 June 2022)
This case relates to dealings between the Petitioner Mr Hannam and his former friend Mr Michael Markham. Mr Markham was a practising solicitor and businessman and formerly the sole shareholder in RPA, the respondent. Both had a 50% shareholding in POL but, as a result of a falling out between them, deadlock ensued.
Mr Hannam alleged misconduct on the part of Mr Markham, therefore feeling he should be forced to revoke his investment such that Mr Hannam could have sole control over POL. Mr Hannam claimed that he had been induced into the contract by misrepresentation.
This demonstrates the importance of ensuring a decision-making protocol in the event of a dispute between two parties owning 50% of the shareholdings in a single venture, and of the importance of not entering into such a venture on the grounds of a misrepresentation.
Davis v Ford & Ors [22 September 2021] EWHC 2550 (Ch)
Mr Davies was an assignee of the company Greenbox Recycling (“GBR”), and claimed relief against Defendants Mr Ford and Mr Monks (GBR directors) for breach of fiduciary duty, and against Greenbox Recycling Kent (“GBRK”) for knowing receipt.
Default judgment was entered against Ford in the liability trial for breach of fiduciary duty, and held that Monks was guilty of breaches of fiduciary duty and held GBRK was liable in knowing receipt.
This judgment relates to the quantum trial.
The issues included how much equitable compensation was payable for all business, business opportunities, property, assets, income and benefits obtained by Ford and Monks for GBRK; whether there could be an election for a declaration of constructive trusteeship / account of profits; the extent of liability for knowing receipt and whether it was restricted to pre-existing property in breach of duties or whether it extended further; whether the court should refuse an account of profits by way of discretion; whether an equitable allowance available to a knowing recipient, among others.
Monk’s defence to the breach of fiduciary duty allegation was that GBR was insolvent in late 2010 and early 2011, and could not lawfully have traded. Therefore the incorporation and operation of GBRK was not a breach of his fiduciary duties to GBR. The pre-existing obligations hold one to what may be an unfair standard, but this was said to be the conventional view, i.e. duties held to the earlier position as director at GBR. The liability trial judge commented that a director’s “no duty” conflict would prevented promoting another company.
There were questions as to whether certain claims were time-barred due to the passage of time. It was said the breaches identified as potentially falling into this category would only be barred unless fraudulent. In considering whether there was fraud, the trial judge stated that Monks was acting dishonestly and therefore fraudulently and therefore these claims were not time-barred.
The quantum trial judge found that Monks was dishonest in setting up GBRK, and that his subjective intention was a dishonest one.
Davies’ case is that the judge held that Monks participated in a dishonest scheme to divert a business opportunity from GBR to GBRK and that Davies is entitled to seek relief for all steps taken by Monks furthering that scheme.
Where one does not have a fiduciary duty, they may get mixed up in a breach by another with a fiduciary duty, e.g. as a knowing recipient of trust property or as a dishonest accessory to the fiduciary’s breach of duty.
Maranello Rosso Limited v Lohomig BV & Ors [6 September 2021] EWHC 2452 (Ch)
Various defendants sought to strike out claims against them pursuant to CPR r.3.4 / summary judgment under CPR r.24.2.
Claimant is a Guernsey registered company, set up by Graham Sullivan, one of its ultimate beneficial owners to specifically buy a company owning a classic car collection to then sell at auction.
The Defendants consist of an automobile industry company, an auction house (Bonhams) and its US affiliate, and chairman of the auction house., and a classic car specialist at Bonhams, and non-executive director at Bonhams.
The claim was for unlawful means conspiracy, breaches of fiduciary duty regarding a collection of 71 classic cars worth over £150 million. The Defendants were said to have acted dishonestly and conspired to force a sale of a selection of cars within the collection so as to break up the collection, whereas keeping the collection sold as one would have obtained the best price as previously agreed. This was to raise Bonham’s international profile prior to sale of the business to a private equity investor, putting their interest above their client in breach of their fiduciary duties owed by Bonhams.
It was said that there was a refusal to consent to selling certain cars dur to relying on a valuation that could not have been honestly given. This was to force the sale of certain cars at an undervalue.
There was some synopsis of summary judgment and strike out provisions.
There were negotiations as to a commercial agreement between the parties, with some drafts stating that the cars in the collection would e sold at auction by Bonhams and would be sold at their discretion.
One of the conditions included that cars under a $1 million would not have a reserve. This was said to be negligent, i.e. in its recommendation to sell without a reserve. This, along with other factors such as not allowing sufficient time to promote sales, were said to be negligent in its promotion of the auction. An expert would have recommended a reserve.
As relevant for deceit, one of the issues was whether there was fraudulent or negligent misrepresentation, i.e if the exclusivity agreement was not a contract.
There was discussion of a settlement agreement, which was considered to be clear and final.
It was said that MRL’s assertion that a conspiracy to target MRL was beyond the scope of parties’ contemplation when the settlement agreement was made and that allegations were not merely negligent but deliberate wrongdoing, and which was sought to be prevented in the agreement.
As an aside, it was submitted that fraud or dishonesty is not needed for unlawful means conspiracy, as knowledge of the unlawfulness of the means is not needed for the tort of unlawful means conspiracy.
MRL’s claim for unlawful means conspiracy were held to have no real prospect of success as it was released by the settlement agreement.
Regarding dishonesty, it was quoted from case law that a pleading of dishonesty must plead facts, matters and circumstances relied on to show that a defendant was dishonest and not merely negligent – that consistent with negligence does not do so.
There was discussion as to whether it was arguable that there were implied terms preventing or interfering with a disposition, and whether such was reasonably arguable. It is clear from the lengthy judgment that there were many moving parts to the facts to this matter. There were comments that there is no general principle of good faith in contract law.
As is relevant for deceit, the judgment also reiterated that the tort of procuring breach of contract involves a mental element and cited case law that established that it is not enough to know that one is procuring an act, which is a breach. There must be the realisation that such is the effect. Therefore, turning a blind eye and proceeding may be seen as having intended the consequence brought about. However, in this case the relevant parties were not considered to have persuading others to breach the contract, but simply at most facilitated it, with the breach occurring for other reasons. Therefore, procuring breach of contract was not made out.
In conclusion, the claims did not progress to trial.
Philip Warren & Son Limited v Lidl Great Britain Ltd & Ors [26 August 2021] EWHC 2372 (Ch)
Previous judgment dismissed Claimant’s and Defendants’ counterclaim for passing off.
Claimant was a butcher with a whole-sale and restaurant supply business.
Lidl rebranded its fresh meat range to “Warren & Sons”, but did so not to imitate the Claimant, and the Claimant did not suggest this. Instead, Lidl wanted to replicate a brand mark of a provincial English butcher. The Claimant did not have a registered trademark – Lidl was aware of the Claimant before launching the mark and did not think it had a right to object.
Lidl abandoned the brand subsequently.
The Claimant argued that their brand, especially those in the local area, would have been deceived by the Lidl branding, and thought that it was the Claimant’s product. Lidl customers also contacted the Claimant in error. The court found that this showed that Lidl were liable for causing materially damaging deception of the public into a connection with the Claimant to damage its goodwill.
Passing off looks at whether there is misrepresentation as to trade origin and it must prove that the defendant has misrepresented its products as being connected with a specific undertaking.
Various Part 36 offers were made, and there was criticism of whether they should have been accepted, or entered mediation, though there was an acceptance that parties were poles apart.
It was argued that Lidl should provide most of its profits on the brand, irrespective of whether customers were aware of a perceived connection with the Claimant or even heard of them, and was in fact more than the Claimant’s profits made during its existence.
The Claimant sought to use reputational damage as a means to pressure Lidl to settle.
The misrepresentation allegations were said to be based on no / thin evidence. In circumstances where the Claimant did not lose sales, and its business was never stronger, solid evidence was required but not provided.
The Claimant argued that trial costs payable to Lidl should reduce by roughly 50% due to the failure to mediate. Also, the Claimant pursued in the High Court as opposed to IPEC, which would have had a £50,000 costs cap. To then complain about costs is unreasonable.
There was discussion of media interest in this, e.g. Daily Mail, pitching this as a David versus Goliath matter, with Lidl being the latter and having adverse publicity as a result, with comparisons to the Samsung v Apple litigation (which also involved Apple stating Samsung tablets infringed their designs). Here the claimant state they did not court the press, save to provide fair comment on the case and on its skeleton arguments.
Lidl were willing to settle, but the historical compensation and the Claimant’s no-win-no-fee lawyers requested sums at a level never previously awarded in case of this kind in the UK, and would have resulted in those lawyers being multi-millionaires from sharing profits.
Gary Goodwin v Avison & Ors [23 August 2021] EWHC 2356 (Ch)
Related to a costs order relating to a claim from Gary Goodwin in respect of the will of the deceased, Thomas Goodwin, the Claimant’s father.
Jaqueline Avison and Nicola Smith, mother and daughter, were the daughter and grandchild of Thomas, and argued that the will was invalid, including among other things the undue influence of Gary. These two defendants counterclaimed for an order declaring against the will’s validity.
Another three defendants joined, who are the children of Nicola.
By way of background, it was argued that a 2017 will was invalid and that either costs be paid out of the deceased’s estate or there be no order as to costs. The issue was the reasonableness of the defendants’ conduct in opposing the 2017 will’s validity.
The fraud element relates to Gary seeking to procure a testator to execute a will, knowing that they did not know or approved of its contents nor would have much such a will and that their conduct was to overcome his will be asserting undue influence, and that the defendants should have their costs paid from the estate / not pay Gary’s legal costs.
The court is allowed to decide whether costs are payable from one party to another or from the testator’s estate.
Cases involving fraud and are lost or withdrawn usually result in not just an adverse costs order but costs on the indemnity basis.
The judge’s view was there were no grounds to raise an undue influence / fraud case for it to be appropriate for costs to be paid from the estate. The costs should therefore be paid by the defendants.
Claimant (trustee in bankruptcy) of Bedzhamov issued two applications, which considered whether they could obtain the right to possession and sell a property, and in other proceedings to which they were a non-party to vary a WFO to sell a property to use for living / legal expenses.
The Bank claimed against Bedzhamov in Russia for unjust enrichment in relation to 42 credit agreements between Bedzhamov and the Bank prior to its insolvency. The Russian courts entered judgement against Bedzhamov, although Bedzhamov states there were procedural irregularities and inadmissible evidence. Bedzhamov applied to set aside judgment, but the unjust enrichment debt is outstanding. Bedzhamov was said to have been unjustly enriched through receipts of funds from the bank.
The unjust enrichment judgement was said to have been procured improperly and was maintained by fraud. The credit agreements from the Russian litigation were fictitious, derived from loans that were not made.
Bedzhamov argued his appeal being dismissed was procedurally irregular and against natural justice, e.g. the decision was based on documents from the bank that he was not allowed to see.
The judge, in any case, stated that it was not necessary to explore the complex details of the unjust enrichment judgment, as even if Bedzhamov could argue fraud, breach of natural justice, etc. it would not bar the English court from recognising the Russian bankruptcy. The bankruptcy petition was not based on an unsatisfied unjust enrichment debt. It was also said that there was insufficient evidence to conclude that the trustee was acting as a nominee for the bank and therefore did not taint the unjust enrichment judgment. Therefore, the Russian bankruptcy was concluded as being recognised in this jurisdiction.
As to other matters, there was some analysis of case law, and the judge concluded that there is no common law power to make an order vesting the property in the trustee or ordering it be transferred to the trustee.
Hussain, Ali v Waqar Ahmed and Farhat Ahmed [9 August 2021] EWHC 2213 (Ch)
The Claimants applied to amend Particulars of Claim, which was refused. Defendants applied to strike out / for summary judgement of parts of the particulars, which was allowed. There was also, among other things, the Claimant’s application for a stay of enforcement, which was refused; and the Defendants’ application to stay proceedings pending payment of outstanding costs, which was allowed; and various costs orders that were previously made.
The Claimant’s position was that they and Ali’s company FCCL paid money to the Defendants or their company FCPL on the understanding that they would in return takeover a food court business. The premises were under a non-assignable lease under FCPL, although the claimants did not know about this initially. There were various outlets including a Subway franchise.
The parties met to discuss the basis of acquiring the food court. The Claimants say express representations were made, and further express or implied representations made thereafter, which they relied on and were induced by. As such, they entered into contractual arrangements.
The judgment outlines how various representations were false or irrelevant / unsustainable.
The judge said that the claimant’s claim for fraudulent misrepresentation from the outset lacked clarity and did not reconsider this aspect of the claim in the iterations of the amended Particulars of Claim. The fraudulent misrepresentation claim was also said to be inconsistent with the claimant’s own evidence. The fraudulent misrepresentation claim was also said not to have a real prospect of success.
Shill Properties Limited v Anne Bunch [5 August 2021] EWHC 2142 (Ch)
The Claimant, an investment company, applied for summary judgment against the Defendant, owner of a property. The parties contracted for the sale of the property and exchanged contracts.
Terms included how neither party could rely on the other’s representations, but did not exclude liability for fraud or recklessness.
The Defendant, via solicitors, stated that she did not wish to complete, stating it was procured by undue influence and/or duress.
Claimant sought specific performance in a claim, and various losses. The defence was that the Defendant lacked capacity to enter the contract, or did so under duress, although this defence was later abandoned. Instead, a new draft defence sought to argue she was induced to enter the contract by misrepresentation that the claimant was a cash buyer (as opposed to with finance), but no formal application to amend the defence was made.
The defendant was elderly and had difficulty getting up the stairs.
There are references to estate agents referring to the Defendant as being muddled, and agreeing to sell her property for £40,000 less than an agreed sum. At the time of exchange there was another increased offer. The Claimant sought a valuation to obtain finance, but the Defendant’s solicitors stated that the contract was void as having been entered under duress and undue influence.
Issues arising were whether the Defendant could rely on the defence raised in the draft amended defence despite no formal application to amend, and whether that defence has no real prospect of success and whether the Defendant is estopped from raising it, and whether there are real prospects of establishing the facts of the defence.
As to summary judgement, it was noted that the judge’s role is to assess the evidence not the pleadings.
The Claimant argued that the lateness of the new misrepresentation defence should preclude the Defendant from relying on it, which the judge did not accept. Case law established that the court can look at evidence irrespective of the state of pleadings.
As to the misrepresentation defence, it was considered whether the Defendant was precluded from alleging that she was induced to enter the contract by misrepresentation by the contract itself, and also whether the misrepresentation itself was made fraudulently so that it fell outside of being precluded. The contract was compared with others in case law, which were said to have a clause that acknowledged that a part was not entering into the agreement in reliance on any representations, which was not the case here.
Whether the misrepresentation was made recklessly or fraudulently, as the representation is with regard to the Claimant’s intentions / expectations, the Claimant must have known or been reckless as to its truth.
In conclusion, the Claimant did not persuade the judge that the Defendant has no real prospect of defending the claim and the application was dismissed.
Van Zuylen v Whiston-Dew and GBT Global Limited [4 August 2021] EWHC 2219 (Ch)
Van Zuylen (“VZ”) entrusted her entire fortune of £2.1 million to Whiston-Dew (“WD”), a former solicitor and New Zealand barrister, of which only half was returned, and is unaware of what became of the remainder, although some is represented by advances made on the security of land.
WD was introduced to VZ by a mutual friend – VZ was considering various actions against her previous financial advisers who unsuccessfully invested her money. At that time WD was retired but said to have the relevant international experience of dealing with trusts and trustees. Discussions concluded with no positive result as to the previous financial advisers, but did discuss VZ’s investment portfolio of £2.1 million of stocks and shares. VZ believed was impressed by WD and believed in WD’s proposal that he would arrange for her money to be directly invested that would involve higher and safer returns with a substantial monthly income for life by investing in property and using offshore trusts. VZ also signed a power of attorney for VZ to essentially do all things, sign and execute documents, and made him an executor of her will.
VZ seeks to recover against WD and GBT, a Seychelles incorporated company.
WD was in custody for a fraudulent tax evasion scheme, and to date had some issues with anxiety, which meant adjournments, and some discussion as to whether he lacked capacity, but this was not the case.
WD filed for bankruptcy.
It was commented that WD has a modus operandi of excessive use of overseas companies and trusts in jurisdictions with minimal transparency, and may have placed some of his own assets beyond the reach of his trustee.
The Azure Trust was said to be an instrument of fraud and indicates where monies were entrusted to WD or GBT, and should be taken as being held on contrastive or resulting trust [due to the fraud], as opposed to a purported trust deed.
WD created correspondence that was said to give VZ false comfort and stated that VZ retained control – this was said to be regarded as a fraudulent intention as WD knew this not to be true.
In respect of the trusts involved, funds were ultimately passed through various solicitors in GBT’s name. There were references to curious documents including how trustees were both trustees and beneficiaries. GBT was said to hold funds as a bare trustee or on constructive or resulting trust. No documents have been provided as to the purported investments.
VZ was required to sign loan letters to get monies – she did not read these carefully and was not given copies. Any such meetings were hurried, with small talk predominantly, and WD would say he had an urgent meeting.
It was said that the Claimant was the victim of a fraudulent Ponzi scheme.
In assessing whether the elements of deceit were established, it was identified that the representation was that money would be looked after a trust. The setting up arrangements implied investments would be looked after in a business-like manner. However, these representations were never made by GBT. There is also a fiduciary duty to reveal information, which would otherwise amount to fraud. It was said that the trust was never intended to be above board.
WD as a solicitor of many years would have known his representation to be false and the implications of this, as well as continued dealings with VZ and his false assurances all was in order. VZ acted in reliance of WD’s representations. The judge concluded that VZ had a deceit claim against WD but not GBT.
WD argued the acts were not undertaken by him personally, but by GBT and not when he was operating as GBT’s director. The judge emphasised that the representations were made by WD personally, and in any case VZ had no awareness of GBT at that stage, no engagement letter from GBT, etc. There was also a reference to piercing the corporate veil, and references to case law in which the court will not allow a person to keep an advantage obtained from a fraud, and the court may justifiably pierce the corporate veil if it was abused for relevant wrongdoing, as is well established.
Robert Sofer v Swissindependent Trustees SA [3 August 2021] EWHC 2196 (Ch)
Claimant applied for permission to re-amend his Reply and Defence to Counterclaim.
The Defendant was a professional trustee. The Claimant sought to replace the Defendant as trustee of a trust and that the Defendant pay compensation into the trust fund, and for declarations as to the nature of payments made out of the trust fund, among other things.
The claimant alleged breach of trust regarding monies out of the trust to the Claimant’s father. The Defendant alleged these were loans, which the Claimant denied.
Previously before the court, the Defendant’s application to strike out the claim was granted.
The Claimant was only aware of the trust structure after his father died and after the involvement of lawyers. He had otherwise never even heard of the trusts involved, although later clarified that he had heard of them, but thought they were simply the names of footballers, rather than relating to him.
As to the application, the Defendants argued that the amendments would fail and therefore the amendment should not be allowed (in the context of applying the test of a whether there was a real prospect of success).
The issue was that the proposed amendments back track from previous allegations, and the test of real prospect of success cannot be applied to what is effectively being abandoned. The Defendant means that what is left after the abandoned parts does not satisfy the real prospect test. The correct thing here, the judge said, was to apply for reverse summary judgment, though the Defendant did not do this.
The amendments were more specific narrower terms, and was considered not to affect the substance of the claim. Scope was reduced as a result, and the judge said it would be wrong to apply the real prospect test to the part being abandoned or the part being retained.
The amendment was sought early on in proceedings, before disclosure, and narrowed issues. In conclusion, the amendments to the reply sought were allowed.
Appeal considered whether it was wrong for the judge to find that fourth respondent Siddhant Varma (“SV”) was not unjust enriched at the expense of Grosvenor and that it was wrong to find that SV could rely on a change of position defence.
Appellants state that a fraud was perpetrated against Grosvenor, which was incorporated to redevelop a hotel. There are related judgments to this appeal, including a matter relating to diamonds, which some maintained were family heirlooms. In brief, the Appellants state that Grosvenor’s money was misappropriated.
The original decision was that SV did not have knowledge that the sums were traceable proceeds of a fraud, namely that it was his inheritance and did not question as his father that he inherited from was a successful and wealthy businessman. Knowing / unconscionable receipt was therefore rejected due to a lack of knowledge. A lack of reasoning as to why unjust enrichment failed was the subject of this appeal. In coming to this conclusion, the judge presumed the existence of diamonds, i.e. accepted the inheritance story, albeit commenting that it was an “extraordinary story”.
The Appellants argued that no reasonable judge could have concluded this on the evidence, including the submission that there were no photographs, insurance details or diamond valuation and therefore the judge did not undertake any real analysis to support the finding of an inheritance.
The appeal found that no judge could reasonably conclude either that the diamonds existed or that they were bought by Grosvenor.
As to the change of position defence, SV incorporated a company in which he invested the funds, and thereafter transferred the sums to his solicitors. These transferred to another firm in respect of a property purchase. Funds were used for refurbishment, but delays and a lease not being extended ultimately led to the property being sold at public auction for a loss, all of which the judge accepted in the first instance, and rejecting the counter argument that SV was no worse off.
The appeal judge commented that if there is little chance of recovery, an unjust enrichment claim does not require the defendant using a change of position defence to pursue litigation to prove recoverability.
Change of position was said to be a complete defence, subject to whether it was established that he had good faith in changing his position to his detriment. The change of position defence was rejected and the appeal was therefore dismissed.
Refined London Limited & Ors v Gordon & Ors [14 July 2021] EWHC 1915 (Ch)
This judgment set out reasons for refusing the Applicants permission to re-re-amend their Particulars of Claim.
The Respondents committed frauds whilst the First Respondent was a director of the Applicant companies (one of the Applicants being joint liquidators of these companies, which were wound up on public interest grounds).
The liquidators alleged that the director, as the controlling mind of the companies, improperly filed misleading accounts, showing them as dormant / having minimal assets. However, £10 million in cash passed through these companies and HMRC filed claims in the liquidation totalling £4.4 million. The director was disqualified as a director for seven years due to his conduct.
The liquidators stated that the companies engaged in fraudulent transactions, including acquiring residential freehold properties via a secured loan facility from Natwest. The companies refurbished the properties, dividing them into 32 flats with leases which were sold to either the director, his girlfriend, or the director’s associates. Through further actions, it was alleged that the Respondents obtained leases without having paid the full purchase price and also had the benefit of mortgage payments from the companies.
The liquidators amended the Particulars that various property transactions were void due to being a sham, and added a claim to amend the register of title at HMLR. This was granted, but there were still eight mortgage lenders who held security over the leases, which were not parties, but were affected. These lenders resisted various proposals, and sought to be joined.
The originally pleaded case did not challenge the validity of the leases, whereas a fundamental change has now been introduced, affecting anyone that had a registered interest in the properties. It was argued that rectifying the Land Register would cancel the leasehold entries in the register, such that derivative interests (i.e. lenders) would fall. This was the implicit relief sought, even though not particularised. If the leases were invalid, they should not have been registered and no leasehold title created at HMLR. The judge in the original decision took the view that if the lenders were to be joined and bound, they must have the full opportunity to participate, call their own evidence, and challenge others’ evidence, etc. This is because they have their own interests to protect.
The judge’s view was that the Land Register reflects the position at law, not in equity, and the Applicants were only challenging the latter. As the property transactions have effect in law, there was no mistake to correct. From this, it was concluded that the rectification of its claim in the amended Particulars had no reasonable prospect of success.
Marla International Limited v Ready4S Limited [14 July 2021] EWHC 1968 (Ch)
Decision to set aside application to set aside default judgment regarding breach of contract and misrepresentation.
The Claimant is a seller of accounting computer software. The Defendant is a software developer. The Defendant was instructed to develop software allowing users to file tax returns with HMRC online. The Defendant previously produced Apple versions of the applications and were engaged to produce new Android operating system versions.
The Defendant’s challenge to set aside default judgment was whether the Claim Form and Particulars of Claim were actually physically dispatched and therefore validly served on the Defendant’s service address, albeit it accepts that it received these by email. The Claimant’s position was that the certificate of service was false. However, the Court’s view was that no basis for default judgment was wrongly entered was made out, and that service was effected – further, a certificate of service is considered sufficient evidence the Particulars were served.
Dealing with whether the Defendant had a real prospect of successfully defending the claim, the second strand of the Defendant’s application, it was said that the draft defence disclosed such a prospect, and also that the publicity order was inappropriate.
The Defendant stated that there was a fundamental disagreement as to the terms of the agreement, including a viable product (the application had to be removed three months after first appearing on Google Play Store as it was unusable), allegations it was not provided in time and that this was an express term (the argument being that delays were due to the Claimant increased the scope of the project), etc.
Challenging the misrepresentation claim, the Defendant denied that it was an express term of the agreement to complete the project by a certain time and denied giving any assurances by representation to this. Further, the Defendant accepted that it represented that it was able to deliver the products, but that these were incomplete due to the Claimant’s unlawful termination of the Development Agreement. The Defendant’s position is that it accepts certain representations as to its requisite skill and abilities, but denied that the application would be completed by a certain date. Instead, it argued that dates were aspirational and was ultimately impacted by scope changes. The judge concluded that he could not resolve the misrepresentation claim without conducting a mini-trial, and was satisfied of a realistic prospect of successfully defending this claim.
The draft defence does not engage with the claim, other than to refute it and put the Claimant to proof and was said not to carry any degree of conviction and was without substance. The Court’s view was that there was a real possibility of evidence emerging from disclosure, witness statements and cross-examination and so requires further investigation.
Notwithstanding the above, the Court still had discretion to consider whether there were any good reasons for the default, and to balance fairness in considering whether the Defendant should be allowed to defend the claim at trial to avoid damages / reputational damage or whether the Claimant would incur significant costs to pursue to trial. The Court held that as there were certain claims that the Defendant did not establish that it had a reasonable prospect of successfully defending, it proposed to vary the default judgment in part.
Ceredrigion Recylcing and Furniture Team v Pope & Ors [30 June 2021] EWHC 1783 (Ch)
The Claimant was initially a volunteer-run project, later incorporated, with one of the volunteers being the First Defendant, Pope. Pope became one of five directors. The second defendant, Ms Cann, was employed and subsequently became the only two directors.
The Claimant bought property, which was redeveloped and attracted considerable public funding. Pope and Cann arranged self-invested personal pensions (SIPPS) for themselves, funded partly by transfer of the property freehold to the SIPP providers – Suffolk Life.
After the resignations of Pope and Cann, the Claimant argued that the property transfers amounted to a breach of fiduciary duty, and sought the return of the property, among other things.
The Defendants asserted that as the only company directors at the time of the transfer to provide themselves with SIPPs, they acted lawfully, whereas the Claimant argued that such ignored the separate legal identity of the Claimant, and that the Defendants had duties to act in the best interests of the company. That included taking into account the interests of future as well as current company members.
Both Defendants discussed succession planning and emailed an accountant as to ensuring that their staff have their interests safeguarded, and were willing to pay for advice on this issue. After a meeting, another accountant took the view that this was to secure proper succession, to reinforce the not-for-profit ethos and to treat staff fairly.
The Claimant’s memorandum and articles of association referred to the company establishing, maintaining or joining a pension scheme, and stated that company income should be directed solely towards the promotion of its objects and should not be paid to members except by payment in good faith and proper wages, bonuses, and return for any services actually rendered.
In brief, most of the property value was needed for the level of pension provision for the Defendants. However, accountancy advice was that it would not be possible for the SIPPs to receive parts of the property as envisaged, and would not attract tax relief.
It was concluded that the pension payments were not proper, reasonable or in good faith. The Defendants did not act within the powers of the company, and by using the main company asset and by exposing the company to paying rent without being able to hire rooms was a failure to promote the success of the company, in breach of their fiduciary duties.
Further, pertinent in light of press attention about the Defendants’ pension (possibly exacerbated by the fact that the redevelopment was via public expense), the Defendants’ attempts to restrict information in the company’s accounts, and disciplining staff about talking about their pensions, as well as paying off another member with a greater amount than the statutory redundancy entitlement in return for a confidentiality clause, were considered as showing dishonesty. On balance, however, given the Defendants’ reliance on professional advice and that they did not consider to have committed any wrongdoing, and their concerns as to the company after retiring, and affection for the company and its ethos, it was concluded that it fell short of dishonesty.
Mark Brown v New Quadrant Trust Corporation Ltd and Arlene Brown [28 June 2021]
Mark Brown (“MB”) was the main beneficiary under two trusts arising out of his late father’s estate. New Quadrant (“NQ”) was a professional trust corporation and sole trustee of both said trusts.
MB sought an injunction / preservation order restraining NQ from selling or otherwise dealing with shares in a company called Lifetime Home Securities (“LHS”) held under one of the two trusts. The deceased set LHS up, which relates to home equity release arrangements. It does not actively trade, but retains property interests. NQ seeks an order to approve its decision to sell these shares.
MB alleged that the original trustees had mismanaged the investments of trust funds, causing loss to the trusts. Two additional trustees were appointed and retired in succession without this dispute being resolved. The original trustees appointed NQ as an additional trustee, before retiring themselves. NQ was therefore the sole trustee.
NQ’s appointment was without MB’s knowledge / consent, and threatened to remove it after its appointment. MB’s case relates to potential claims against the original trustees and provision of historic trust documents, arguing that NQ is in breach of trust and should be replaced with “fit and proper person”. It was argued that the sale would cause loss to the trust, which could not be compensated for by damages.
NQ intended that LHS would remain in a discretionary trust, with properties falling into its hands until no properties remained, after which LHS would be dissolved. However one of the original trustees wrote to NQ suggesting it would be better to sell LHS as a going concern, whereas MB wished for LHS to remain in the trust, partly due to the attachment to it as his father founded it, and also considered that it would gain more long term.
In response to NQ’s application that its counterclaim be determined at an application hearing (a declaration that NQ can sell the LHS shares), MB argued that this application was procedurally irregular and should not be considered at that hearing. MB argued that in effect NQ was seeking summary judgment on its counterclaim without the safeguards of Part 24 of CPR (summary judgment).
MB argued that NQ’s actions failed to take account of MB’s and his father’s wishes, and that NQ’s decision was reached negligently or improperly, and failed to take specialist advice, among other things. Therefore, it was said that the decision to sell the LHS shares was a breach of trust / breach of the trustee’s duty of care.
The Court was not concerned with the merits of the decision, only with whether there was a serious issue to be tried and whether the decision was lawful. The Court stated that there is no specific duty to take advice, but there is an overriding duty of care to exercise care and skill as is reasonable and if acting as a trustee as a business / profession (which NQ was, and was a relevant factor here, and said to be a reasonable view not to take specialist advice), to have regard to any special knowledge or experience reasonably expected of that profession.
In conclusion, the Court’s view was that MB would not succeed at trial regarding his objections of the NQ’s provision decision to sell the LHS shares. NQ took onboard MB’s input, but it did not outweigh the decision to sell. There was therefore no serious issue to be tried.
As to the breach of trust issue, whilst MB lost confidence, the specific breaches of truest relied on to remove NQ as trustee did not allege a general unfitness to act. The allegations raised simply were separate to whether NQ’s decision to sell the shares were entitled to take. The end result was that NQ’s decision to sell the shares was approved.
Cassonova v Cockerton (Trustee of Estate in Bankruptcy of Cassanova) [22 June 2021] EWHC 1688 (Ch)
The Applicant, Cassanova made an application against Cockerton, the Applicant’s trustee in bankruptcy following a bankruptcy order following an HMRC petition. The application related to the claim that the trustee misapplied or retained or became accountable for money or property in the Applicant’s estate and that the bankrupt’s estate suffered loss as a result of the trustee’s misfeasance or breach of fiduciary duty.
One of the properties in issue was one owned and occupied by the Applicant. The trustee obtained a writ of possession, and thereafter the Applicant challenged the lawfulness of the eviction. This application was dismissed and recorded as totally without merit, with the Applicant being ordered to pay the trustee’s costs. The Applicant later issued a claim for the trustee to give a detailed account of the bankruptcy estate and restraining the property sale.
The Court refused the application.
It was noted that if a bankrupt is dissatisfied by any act, omission, etc. of a trustee, they may apply to the court and the court may confirm, reverse or modify a trustee’s decision. If satisfied that the trustee has misapplied or retained the estate, etc. then the court may order the trustee to, for the benefit of the estate, repay, restore, etc money or property, etc.
Whilst not particularised, the Applicant’s witness statement in support of the application bordered allegations of dishonesty against the trustee.
The Court found that there was only a quantifiable loss to the estate of £7,500 and therefore a claim would be disproportionate and was not meritorious. The application therefore failed.
The Claim related to allegations of a bankrupt relating to deceit and breach of his director’s duty relating to the acquisition of a business, here, with regard to a personal injury claims management company.
Initially, firm of solicitors Poole & Co would either pursue the claim itself or refer to a Panel solicitor. Large volumes of claims meant substantial referral fees for Poole & Co, which became a vetting business for claims. Poole & Co’s director also became a director of the claims management company. The claims management company floated and became Claims Direct Plc and sought to acquire the original claims management company. The director of Poole & Co was said to be a conflict of interest (being a director of the claims management company and sole director of Poole & Co), which was unfavourable to potential shareholders.
The Poole & Co director was to / represented that he would divest himself of his shares in the vetting business prior to the claims management company being floated, but did not do so. This was particularised as deceit. The court considered that, as there was simply a representation of intention, it was not an untrue representation at the time. It was also stated that there was no contractual obligation for the director to dispose of his interest in Poole & Co.
The fraudulent breach of trust / breach of fiduciary duty was considered to be whether he acted in best interests of Claims Direct Plc, not to make a personal profit, not to place himself in a position where his personal interests may conflict, among other things.
The court took into account how agreements should be interpreted, and highlighted the need to focus on the meaning of words in their natural context and natural meaning, facts known at the time, commercial common sense, and the less clear the words the more ready the court will depart from the ordinary and natural meaning of words. Taking the lead from commercial common sense, the court considered that it made sense to treat disposal of the director’s interest as a precedent condition.
However, the court found that the director’s representation of fact and intended others to act on it and was false, or reckless as to whether what he stated was true.
The court did not come to a conclusion as to breach of duty / fiduciary duty as the loss of Claims Direct Plc was the same irrespective in light of a case for deceit being made out.
Axminster Carpets Group Retirement Benefits Plan (“the Plan”) was an occupational pension scheme to former employees of Axminster Carpets Ltd and Buckfast Spinning Co Ltd.
Axminster Carpets subsequently went into voluntary liquidation and is insolvent. Claims against it under the Pensions Act 2004 are estimated to be £69 million.
Buckfast also went into voluntary liquidation and is insolvent with pension debts of £18.3 million.
The Claimant is the trustee of the Plan. The Defendant is an experienced pensions solicitor. The proceedings related to the validity and effect of various deeds that fixed rates of increases for the pensions under the Plan.
Prior to the hearing, the parties reached a settlement as to the pension increase issues, as well as the non-increase issues. There was also a Joint Opinion for each partie’s counsel, which considered the advantages of compromise figures and different rates for different classes of members, opposed to continuing to litigate.
It was apparent from the length of this judgment alone that pension legislative frameworks were complex here. Some queries that arose as to scope were: whether the rules allowed forfeiture where underpayment might be categorised as a breach of trust by the Plan trustees; if a claim by a beneficiary to pension increase arrears was time-barred would the trustee be in breach of duty in declining to pay pension increase arrears on that basis? It was generally considered that claims by beneficiaries against trusts had no statutory time bar. A beneficiary relating to an intestate estate does not have a proprietary interest in specific assets.
The judge considered that there are two possible types of claim in this matter to fall under the no time bar exception of section 21 of the Limitation Act 1980. One for an account of sums due from the trustee to the beneficiary under the trust with an order of for payment of sums due on taking the account. The other was for an equitable compensation for breach of trust, where there was a failure by the trustee to pay the correct amount of pension as it fell due. Multiple questions such as whether beneficiaries had standing to bring a claim were raised. Parties did not argue that beneficiaries were restricted to where a beneficiary had a proprietary interest in the trust property. It was argued that most beneficiaries with an entitlement to a benefit out of trust assets do have a proprietary interest in the trust assets.
The judgment identified that this situation arose as the trustees did not do what they should have done. For the court to identify what went wrong it had to gauge the validity of the steps taken, though it was suggested that the court need not do this just to address the issues. Instead, the court worked on the basis that the beneficiaries were always entitled to the rights and that the trustees’ failure to make payments according to those rights was a breach of trust.
The trust obtained legal advice previously, which highlighted that previous deeds were invalid. This meant current practice was not in accordance with members’ rights and would involve a breach of trust.
Applications related to restoring four companies on the Register of Companies, as applied for by the Claimants.
The four companies are under a common control and/or ownership.
The four companies and related companies are said to have laundered proceeds of an international fraud via 13 companies in UAE, and then via UK and Ireland companies, with further entities unknown, effectively meaning that monies had disappeared with no visible trace for the outside world to follow. Each of the four companies placed into voluntary liquidation and then dissolved. The victims of the fraud were the Claimants.
One of the Claimants issued letters of credit for repayment obligations of a gold bullion trader. This trader defaulted on amounts totalling USD $774 million, leading to the call on the letters of credit. The Claimants were unable to enforce against the few assets the trader had, albeit leaving losses of $70 million. The Claimants therefore sought to restore the dissolved entities to the Register of Companies as part of asset-tracing.
The Claimants’ causes of action were breaches of constructive trust, knowing receipt, dishonest assistance and unlawful means conspiracy.
It was inferred that the trader’s drawdowns using its precious metal facilities were made with the intention to ever repay the loans. In summary, it was held that the Claimants had standing to apply for the four companies to be restored.
Whilst there was no detailed analysis of unlawful means conspiracy (the judgment instead referring to CMOC Sales & Marketing Limited v Persons Unknown [2018] EWHC 2230 (Comm) to set out the law relating to unlawful means conspiracy among other things), it did refer to how the four companies could not have received monies in good conscience, given their nature and business and the circumstances in which they received monies.
Appeal whether previous order was correct to conclude that it was clear that a claim for fraudulent misrepresentation in respect of a LIBOR misrepresentation claim was time barred to justify summary judgment in favour of the Defendants.
The Claimant was a registered trust company and held commercial property investments for the ultimate benefit of owners of a successful travel agent.
RBS acted as agent for Natwest Markets, collectively, “the bank”.
The Claimant had dealings with the bank and entered into two loan facilities with the bank. One enabled a property purchase and the second for acquiring a second property. The first facility was linked to the Bank’s base rate; namely 1% over LIBOR. A term meant that the Bank’s obligations were conditional on the Claimant entering into an interest rate hedging product (“IRHP”) acceptable to the Bank.
The Claimant entered into two IRHPs with the Bank but was forced to sell both properties at a substantial undervalue due to the IRHPs’ costs, affecting cash flow. The travel agent’s owners depended on these properties for pensions, although were not aware of facts giving rise to a LIBOR misrepresentation claim.
The Bank’s fixing of LIBOR rates become widespread, and the FSA identified serious failings in selling IRHPs to small to medium businesses by various financial institutions including the Bank. LIBOR rate-rigging later became a scandal.
In 2014, on a Without Prejudice basis, the Claimant accepted the Bank’s offer, namely what it paid to the Bank for the IRHPs.
The Claimant claimed for consequential loss, which the Bank rejected. Three years later the Claimant sent a letter of claim, which the Bank rejected after which proceedings were issued. The claims were a LIBOR misrepresentation claim – a claim in deceit that the Bank made implied misrepresentations as to setting the LIBOR benchmark that the Claimant relied on when entering into the IRHPs; that the Bank’s manipulation of LIBOR was a breach of implied contractual terms; and for deceit – i.e. the Bank made implied misrepresentations as to the suitability of IRHPs for the Claimant that the Claimant relied on when entering the IRHPs.
The Bank argued the claim was time-barred.
The original judge considered that the alleged breaches dated over six years before the claims were issued. The appeal focused on the judge’s decision that the Claimant could have discovered the alleged fraud more than six years before issuing the claim had it undertaken reasonable diligence, which was challenged. The Claimant argued that a proper evaluation of the facts and evidence did not entitle the judge to reach this conclusion.
The relevant law is that limitation did not begin until the Claimant discovered the fraud, or could with reasonable diligence have discovered it. Discovery meant discovery of the deceit alleged, or an awareness of material to plead the fraud. It was commented that facts arise over time as information becomes available and it is difficult to pinpoint the exact point of time in which to plead a claim.
The burden of proof is on claimants to establish they could not have discovered the mistake without exceptional measures, which could not reasonably be expected to take. Further analysis of previous case law also noted that there must have been something to put the claimant on notice, objectively. The original judge’s view was that selling properties at a loss should have put the Claimant on notice that something had gone wrong. The appeal judge concluded that the unexpected expense of the IRHPs did not and should not have prompted the Claimant to investigate an unrelated LIBOR manipulation fraud. However, the widespread awareness of LIBOR meant that the appeal judge ultimately sided with the original decision, i.e. a reasonably diligent person in the Claimant’s shoes would have been alerted to the widely available material. The appeal was dismissed.
Nicholson v Hardy [21 May 2021] EWHC 1311 (Ch)
Hardy applied for relief under s.212 of the Insolvency Act 1986 against Nicholson the liquidator, who was the previous liquidator of JEB Recoveries LLP. The relief was to contribute company assets for compensation for, among other things, misfeasance and breach of fiduciary duty.
Nicholson applied for strike-out or an abuse of process and summary judgment.
JEB was incorporated by Hardy to acquire and pursue claims against a wealthy businessman, Mr Binstock, who later died. Some pursued claims were unsuccessful and adverse costs orders were made against JEB. Binstock secured JEB’s winding up. Hardy was a creditor to Binstock’s estate.
Nicholson was liquidator of JEB, and on taking legal advice concluded that other claims relating to parties connected to Binstock were not worth pursuing. Hardy did not accept this, and made the application, identifying different types of claims such as unpaid invoices, and two unpaid promissory notes amongst others.
Nicholson argued that a s.212 application should plead a duty, breach, and loss suffered by that breach, whereas Hardy’s application is for the court to investigate whether a claim might exist and was said to be a fishing expedition.
Hardy criticised Nicholson by saying liquidators have a duty to be open and informative as opposed to be unwilling to explain the decision not to pursue claims. In contrast, Nicholson argued that Hardy was given an explanation and having investigated with legal advice concluded the claims not to be viable. Nicholson highlighted that Hardy did not substantiate his assertion that litigation funders would fund the claims. Further, that Nicholson did not have to share legal advice with Hardy.
The s.212 application was struck out as it did not disclose reasonable grounds for bringing a claim. The judge concluded that the application did not pursue a claim for misfeasance, but instead asks the court to determine if a misfeasance claim can be maintained, or whether it was an attempt by Hardy to force Nicholson to disclose his legal advice.
One point was that Hardy was an experienced litigator, who abused the court system using court time with personal vendettas. Hardy also reported Nicholson to regulatory bodies and made defamatory allegations about Nicholson to the CPS as to colluding with Binstock. The judge concluded that Hardy was willing to take any steps to damage Nicholson’s reputation.
The s.212 application was said to be totally without merit.
Crypton Digital Assets Limited & Ors v Blockchain Luxembourg SA & Ors [11 May 2021] EWHC 1172 (Ch)
The first two defendants, Blockchain Luxembourg SA and Blockchain (GB) Ltd (“Blockchain”) applied to for the Particulars of Claim’s causes of action for breach of contract, dishonest assistance, knowing or unconscionable receipt and unlawful means conspiracy be struck.
The other defendants were not involved in the application.
Crypton Digital Assets and Crypton Partner Management Ltd (“Crypton”) developed a trading platform using artificial intelligence, with a focus on cryptocurrencies.
Crypton engaged with various third parties to attract investment. This included Blockchain SA, who sought to acquire all of Crypton’s share capital. Blockchain instead combined with three other defendants that resigned from Crypton and were immediately engaged by Blockchain. Blockchain and these three individuals solicited staff from Crypton, and it is alleged used Crypton’s intellectual property to rebuild its platform, including the use of Crypton’s employees, skill and know-how from its development. These defendants sought to control the negotiation and to decide on the acquisition terms, and – in breach of duty – contrary to Crypton’s interests. This included a bonus to transferring employees.
The defendants gained control of the platform’s coding, cutting off Crypton’s access.
This destroyed the entire value of Crypton’s business.
Blockchain criticised the Particulars due to the extent of cross-referencing of earlier pleaded facts. Blockchain accepted that it infringed Crypton’s intellectual property rights. Facts were set out first, and causes of action set out thereafter, being cross-referenced to the facts.
Blockchain argued that the statement of case was an abuse of the court’s process / obstruct disposal of proceedings. The judge noted that cross-referencing made the allegations clearly made. The key issue was whether proper particulars were fully ascertainable. If not, they should not be allowed to be proceeded with in their current form.
Among the causes of action that were the subject of the strike-out application, the judge considered unlawful means conspiracy. The judge referred to the test of needing to plead a combination or agreement between a defendant and others, an intention of injuring the claimants by the use of unlawful means, the use of unlawful means pursuant to the combination or agreement and loss caused accordingly. Recent case law was said to establish that in respect of unlawful means conspiracy, the claimant does not need to plead and prove that the defendant knew that the means used were unlawful.
Blockchain criticised the pleading on the basis that there was no proper plead that Blockchain was party to a combination, or that it was an object to injure Crypton, or that Blockchain new of and agreed to the use of unlawful means, and that the unlawful acts themselves were not properly pleaded. The judge commented that whilst there was no express pleading that Blockchain knew that there was to be an infringement of Crypton’s intellectual property rights, it was implicit in the pleading that Blockchain entered into a common design to exploit Crypton’s platform. Blockchain was also aware non-competition and non-solicitation clauses.
In conclusion the judge held that the claim in part was not sufficiently particularised, for example in respect of breach of fiduciary duty, knowing or unconscionable receipt. Instead of strike-out, however, the judge considered that the statement of case could instead be cured by amendment. Unlawful means conspiracy was considered to be sufficiently pleaded.
The Defendant was the deceased’s daughter. The deceased was a successful businessman, later appointed chairman of Leeds Building Society, but the downturn from 2007 onwards led to debts and stealing from a charity that he managed.
The Claimant seeks recovery / compensation from Defendant for assets that are alleged to form part of the bankruptcy estate, including a life insurance lump sum. Death benefit, shares in a company, interest in a holding company, etc.
The Particulars require details of all breaches of trust the Claimant relies on. The Defendant’s defence included headlines such as following professional advice, how the claim was statute-barred for limitation and that the Claimant had failed to advise her as to the risk of petitioning for an insolvency administration order and this should preclude a remedy against her.
The Defendant had obtained legal advice from solicitors as to the estate.
The deceased’s nomination letter identified the Defendant as his nominee – in pension arrangements nominees commonly are not trust beneficiaries. Instead, they are those who are asked to consider who is to be paid a death benefit.
In assessing trust law, the judge stated that where a trust is not continuing, as applicable here, where the trustee does not / is unable to transfer a trust asset to the beneficiary, they must pay the beneficiary compensation.
Citing a practitioner text, the judge quoted that a trustee must not, without authority, put himself into a position where his personal interest or other fiduciary duties conflicts / may possibly conflict with his fiduciary duty to protect those he has a duty to. This is as they would have entered a transaction that is inconsistent with his fiduciary duty of loyalty to beneficiaries (as there is profit and there has been a misuse of position). Where this occurs a constructive trust is imposed so the trustee holds the tainted profit.
Whether a trustee acts honestly and reasonably is a factor as to whether the court relieves them wholly or partly from personal liability. Following legal advice is not considered to be getting out of relief.
Hellfire Entertainment Limited v ACIMAR Limited [28 April 2021] EWHC 1077 (Ch)
This was an appeal against an order striking out the claim and the recording the claim was totally without merit.
Emails between the parties were in respect of a potential purchase of a property, which the Claimant says was a concluded agreement, after which the Defendant would purchase and transfer a joint ownership interest in the property and associated leasehold land to the Claimant. The Claimant, in reliance, undertook work, including preparing a car park and clearing knotweed, as was a factor in an argument of proprietary estoppel (i.e. detrimental reliance, albeit not considered to amount to such here). The Claimant was established to operate a leisure and entertainment venue close to the property in question.
The Defendant purchased the property but later stated it had no intention to transfer to transfer any interest in the property.
The Claimant issued proceedings, and sought damages and specific performance for breach of the agreement against the Defendant. The Defendant denied there was any concluded agreement.
At the directions hearing it was noted that a contract for the purchase of land to be enforceable must be in accordance with the Law of Property Act 1925, namely: in a deed, in writing, contain or have within it references to allow you to obtain all terms and conditions of the contract and must be signed by both parties. Emails were said not to be a deed. Accordingly, there was no contract to enforce (or the formalities were not made out), and the case was struck out on the grounds that it is totally without merit.
The appeal argued procedural irregularity as it was a directions hearing – counsel was not instructed and parties were not briefed to discuss the case, and the judge struck out the case without hearing legal representations from the Claimant.
As to unjust enrichment, it was said that there needs to be a factor to make it unjust for a property owner to retain benefit without compensating the Claimant for the work done. As above, this ties in with the Claimant’s proprietary estoppel argument.
The judge observed that unjust enrichment applies where work is done where both parties jointly expect a contract will be entered into or a set of facts will take place but does not materialise.
Part of the alleged enrichment included who the Defendant benefitted from receiving rental income, but this was not considered to be a the Claimant’s expense. Unfortunately for the Claimant, the work undertaken in preparing the car park was not particularised and was not pleaded to state it was the expense of the Claimant or any joint understanding that it was done on behalf of the Claimant. Further, such work was undertaken after it was clear the property interest was not going to be transferred and therefore undertaken at the risk there was no contract, which did not materialise.
The claim for unjust enrichment was therefore not made out. The appeal was also dismissed.
Koza Ltd, Hamdi Ipek and Koza Altin [31 March 2021] EWHC 786 (Ch)
Altin applied for injunctions to restrain Mr Ipek from causing Koza Ltd to use its money to fund legal proceedings, fund a new set of proceedings against Koza Altin (a Turkish company) and to commit funds to a speculative mining exploration project. The core of the dispute was the control of Koza.
Articles of Association were amended to introduce a provision in which, among other things, required the consent of “A” shareholders to amend articles, put Kiza into administration and the appointment / removal of anyone as director. There was then a criminal investigation into the Koza group, leading to appointing various trustees with power to control Koza’s affairs. These trustees were then replaced by another board.
Ipek challenged the trustees’ authority to act or give instruction on behalf of Koza Altin.
Insofar as misfeasance is concerned, and given the application to effectively fund litigation, it was stated that if the issue was between parties other than the company itself, it will be misfeasance if the directors used company funds for legal costs as to that issue. Some legal expenditure would be proper, e.g. a shareholder dispute, subject to the situation. In this case, such an example (i.e. using company funds to fund the dispute between parties) would be considered misfeasance.
In conclusion, the court needs to decide whether the claim / counter claim was brought bona fide in the independent interests of the company or whether it was part of a shareholder’s dispute. In deciding this it needs to be determined whether the company was a genuine party or whether it was simply the shareholders themselves in dispute. Therefore, the substance of the dispute is what the court needs to determine.
Equitable Law Capital Limited & Ors v Milner & Ors [30 March 2021] EWHC 763 (Ch)
ELC ran an investment scheme – funding claims against financial institutions’ miss-selling. Investors put £3.3 million into the scheme, but only received £230,000 of payments, whereas the Respondents received under £2.2 million. ELC was put into insolvent liquidation.
The facts of this complex case involved a somewhat convoluted scheme involving commission (taken out of investors’ monies, which was queried as to whether this was fair), insurance premiums (albeit the insured was ELC as opposed to the investor), administration fees, success fees, etc. all of which were paid to various parties, and the involvement of a claims management company, which would receive the residue amount after the above were paid to the various parties. This residual amount was taken from the initial investor’s loan, which was in set units of £1,500. Of a residual pot of £1,000, however, approximately a third was only paid to the claims management company. A small number of successful claims were paid to investors. The investor brochure stated that capital was guaranteed to be returned – through a successful claim or from the insurance company. Some claims were fictitious, e.g. scheme’s purported track record of successful claims.
Complaints were made against the scheme by the FCA. Among many issues, some key questions were whether representations in the investors’ brochures were false, and whether the scheme was carried on fraudulently, and general regulatory financial services compliance. Issues relating to multiple Defendants were whether they were liable for wrongful or fraudulent trading.
ELC did not have working capital, but used investors’ funds to keep going and to pay other earlier investors their returns – the judgment comments that this was really a Ponzi scheme. That said, there was also comment that if ELC was properly capitalised and managed, it could have been a success, and therefore the argument that the scheme was a fraud simply as it was too good to be true is not valid. It was noted that mis-selling claims are actually highly likely to succeed and so would expect good recoveries.
In surmising the law on fraudulent trading, it was noted inter alia that a company has been carried out to defraud creditors / with a fraudulent purpose and the person was knowingly a party to the carrying on of the business in such a manner although need not be a director, and actual dishonesty must be shown. Where guilty of fraudulent trading, they are liable to contribute to the company’s assets to reflect loss to creditors. The scheme was concluded as being dishonest and fraudulent, and the introducer was liable for fraudulent trading.
As to wrongful trading, it must be shown that a company entered insolvent liquidation before commencement of winding up and that the person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation / entering insolvent administration and that person was a director at that time. This takes into account knowledge, skill and experience as reasonably expected of a person carrying out these functions and that director specifically. Wrongful trading does not apply where, at the point of concluding there was no reasonable prospect of avoiding insolvency, that person took every step to minimise potential loss to creditors. Where found to be guilty of wrongful trading, that person is liable to contribute to the company’s assets to account for any net deficiency.
As to misfeasance and breach of duty, the introducer as a de facto director owed ELC statutory duties. As to a company’s insolvency there is a duty to take into account creditors’ interests when deciding how the company should act, and to treat these interests as paramount. The Court has discretion if it considers he acted honestly and reasonably and so should be relieved of liability as fit.
Claimant applied for an on-notice freezing and proprietary injunction against Defendants, which were ultimately dismissed. There was an application to set aside the previous decision as it was procured by fraud.
Claimant agreed a loan to a Maltese company, VDMH, which had an English subsidiary owned by two individuals that were the original Defendants. The company designed, manufactured and sold luxury yachts.
The loan was not repaid, and the Claimant issued proceedings against the original defendants for breach of contract and misrepresentation or recission or damages in lieu. The court granted a proprietary freezing order regarding the security and ordered disclosure. Disclosure orders were not complied with and the relief granted then included a Worldwide Freezing Order (“WFO”).
The Claimant obtained default judgment against the original Defendants for the loan amount, interest and further damages to be assessed. The Claimant obtained permission to amend the claim to include, among other things, unlawful means conspiracy and join the Defendants to proceedings. Mr Khodabaksh was involved in a VDMH joint venture, NBT was owned by Khodabaksh and Rhino owned the intellectual property of VDML, and was the only valuable assets of the business.
The unlawful means conspiracy element related to the original and additional Defendants and entering agreements and/or making misrepresentations as to the ownership and status of Rhino to obscure its true ownership or the underlying assets of VDMH.
Individuals had disposed of Rhino but represented assets were still held.
There could not be a conspiracy to injure by negligent misrepresentation.
There were differences as to the conspiracy claim in the original and subsequent proceedings. The unlawful means included agreements to obscure ownership, sharing misleading information, and failing to provide disclosure as per court orders to provide a true explanation of ownership.
Claim relates to Defendants’ alleged misused data from DRSP Limited’s database and thereafter infringement of database rights, and there were amendments to the Particulars in which allegations such as lack of good faith and dishonesty were dropped. The case was then revised to incorporate misuse of confidential information and breach of fiduciary duty.
Some Defendants challenged the database right, or extracted data from the database and that any extraction was with DRSP Limited’s consent. The Defendants denied any misuse of confidential information or breach of fiduciary duty.
Claimant companies relate to PPI and SIPP claims management companies. Defendants say the true beneficial owner of Holdings / DRSP was Mr Mond, who denies having interest and stating he only worked in a consulting capacity. Mond was a shareholder in ClearDebt Group, which sourced PPI leads. Mond was looking for a claims management company for ClearDebt and considered that it should collaborate with DRSP.
Mr O’Connor was DRSP’s Operations Director, subsequently a consultant acting for Oxtax.
There appeared to be suspicions as to bringing certain individuals into the business from personal relationships and led to O’Connor’s resignation and thereafter shares being purchased.
Key was the interpretation of an Introducer Agreement and referral of cases to and from and back in respect of various parties and whether certain fees were uncommercial.
Issue is taken as to the drag and drop of approx. 2000 cases.
O’Connor’s fiduciary duties meant that accessing the case system/having network privileges should have only been for the benefit of DRSP.
The judge commented that close contact between parties meant that it was unlikely that it was unknown that various database searches were being undertaken.
The core issue of the breach of fiduciary duty relates to placing DRSP and Octax in a position where their interests conflicted and acted in breach of duty, albeit there was no malice. The judge concluded that as these issues fell within whether DRSP knew or consented to the database access, the allegations including breach of fiduciary duty could not succeed if the Claimants were unsuccessful as to the claim of infringement of database right. Therefore, this issue was not addressed further.
The Respondents were directors / de facto directors of the Claimant, now in liquidation. The Applicant was the liquidator of MSD. The Respondents caused MSD to give a credit note to Dale Wholesale Limited, which was in court and was declared to be false and void. The effect of the credit note was to release Dale from an obligation to pay the amount to MSD. Dale was therefore indebted to MSD for goods supplied, with interest.
In causing MSD to give the credit note to Dale, the Respondents were said to be guilty of misfeasance and in breach of fiduciary duties to MSD.
At trial it concluded that the Respondent’s misfeasance would cause loss if Dale failed to pay, but did not measure such loss.
Dale and MSD were connected companies, with shares being owned by the same family.
The credit note was argued as being justified as MSD acquired stock from a third party supplier, agreed to supply it to Dale, but never delivered. This account was rejected as being untruthful at trial. At trial the court found that the credit note was to net off the outstanding balance owed to a connected company when it was on the verge of entering insolvent liquidation.
The Applicant sought the Respondents to contribute a sum to MSD’s assets for compensation for their misfeasance or breach of fiduciary duty.
The Applicant argued that the burden of proof is on the Respondents as defaulting fiduciaries to show the should not have to account for the full principal amount of the credit note. At trial, the court held that the Applicants have the burden to establish breach of fiduciary duty.
The judgment concluded that the burden of proof was on the Applicant to establish the amount of loss suffered by MSD.
The Respondents did not adduce evidence as to what was taken into account in their accounts around the time of the credit note or to support the assertion that Dale was balance sheet insolvent. Dale’s liquidator, in contrast, was deprived of access to trading records.
Docklock Limited v C Christo & Co Limited [19 February 2021] EWHC 308 (Ch)
Relates to divorce proceedings between Mr Christakis Christoforou (“Chris”) and Ms Ibtissam Christoforou (“Betty”).
DockLock is a property company, in which Chris and Betty owned half of the shares.
Christo is a property management company, with Chris being director and Betty being the company secretary, albeit with some resignations and removal following the divorce.
Expert input in the form of surveyor valuations were used. There was some disagreement as to various rental incomes, whether Christo could charge DockLock management and professional fees in relation to letting out a property or renewing a tenancy. This would depend on whether the arrangement was a binding contract.
The judge turned to whether Christo could recover letting and renewal fees on the basis of unjust enrichment, and looked at case law guidance as to a claim for a quantum meruit for services is made without a contract. Usually a contract applies, in which case it is assumed – legally – that renumeration will be reasonable in the circumstances. What needs to be established is whether the defendant has been enriched, was this at the claimant’s expense; was the enrichment unjust; and are there any available defences.
As the services of Christo to Dockland included services such as advertising, lettings, viewings, credit checks, EPC and gas certificates, inventory services, these were said to confer a financial benefit to Dockland, i.e. an enrichment. It also saved instructing other agents. It was said to be at Christo’s expense and unjust if Dockland did not pay for the services.
The judge considered that it was unjust for DockLock not to pay for the services Christo provided. Indeed, a market rate was charged for their services.
There was some discussion as to whether services were not wanted and therefore would not have paid for the services, whereas in this case, it was established that DockLock did want the services in order to maximise its rental income from its portfolio. Therefore this was a situation in which unjust enrichment would have applied had Christo paid nothing, which was not the case here.
This relates to two claims and a counterclaim relating to concealing the ultimate beneficial ownership of corporate property investment vehicles.
Clarkson alleged that a short-term loan was taken out by Ten Acres Holdings Limited, which had a default, and asserted that he was the ultimate beneficial owner of a Manchester property called Ten Acres which was bought using the lender’s money and held in Ten Acres Holdings’ name.
Lenders said that Clarkson disguised his alleged ultimate beneficial interest in Ten Acres as they would have otherwise lent money to Ten Acres had they known Clarkson to be the UBO. This is as Clarkson had been convicted of mortgage fraud.
In another set of proceedings, a settlement agreement declared that Clarkson had no beneficial interest in Ten Acres or the property. The judge in the hearing stated that this agreement meant that Clarkson had released his claim as to being UBO of the property. The property was sold by receivers, but the sums did not cover sums due to the lenders as per the settlement agreement.
Various applications and hearings were involved, including a freezing order, applications to re-amend a defence, and summary judgment among other things.
It was commented that Clarkson came before the court with dirty hands, e.g. asking the court to recognise his alleged interest in the property despite having lied about that alleged interest to the lenders, inducing them to lend money to Ten Acres. Without that interest he suffered no loss.
The settlement agreement referred to how in the event of a default the lenders would be the legal and beneficial owners of Ten Acres, indirectly.
As to the unlawful means conspiracy, it was said to consist of breaches of the fiduciary duties owed by the directors of Ten Acres to it in failing to seek / secure funding to repay the lenders and refusing to allow a property as a security. The conspiracy was said to harm Clarkson by defeating any claim that he had to shares in a company whether legally beneficially or otherwise.
The judge commented that breach of an implied term of the settlement agreement would constitute unlawful means. It was said that intention to cause harm does need to show harm as the main predominant purpose of combination.
The elements of unlawful means were said to be sufficiently pleaded but that it needed full investigation with evidence at trial.
Other claims in deceit and breach of implied terms were said to rely on the conspiracy claim.
The issue was whether to order a public examination of Mr Deuss, alleged de facto director of Transworld Payment Solutions UK Limited as per the Official Receiver’s application and as per the requesting creditor’s request.
Transworld was dissolved in 2010 and brought back for winding up on a petition by TC Catering Limited in liquidation. These two companies had no interaction during trading, but its liquidator was connected to Transworld. This liquidator’s partner realised that on dissolution Transworld owed Chubb Electronic Security a sum. Catering acquired the debt and could restore and wind up Transworld. Transworld was restored and wound up in 2014 and the liquidator’s partner, Mr Hunt was appointed as liquidator. Mr Hunt was also the liquidator of another company, which was another creditor of Transworld. As liquidator of this other company Hunt requested that the Official Receiver publicly examine Mr Deuss.
Deuss was president and director of First Curacao International Bank NV [and whilst not stated in this judgment, FCIB is a bank associated with carousel frauds]. He stated that he was an ultimate beneficial owner of Transworld but not a director. Mr Ulrich was said to be Vice President of Transworld and involved in FCIB due diligence procedures, and it was suggested that he too should also be publicly examined.
Hunt argued that Transworld was involved in missing trader, intra-community VAT fraud (“MTIC” or carousel fraud), and involved FCIB, whereas Deuss argued it was FCIB that was the victim of the fraud.
Transworld sent FCIB Particulars of Claim regarding FCIB’s debt liability proved in Transworld’s liquidation. It was alleged that FCIB and Deuss acted dishonestly by causing, allowing, or assisting in the MTIC fraud.
Transworld and Mr Hunt as liquidator issued a claim against Deuss for damages for breach of his fiduciary duty as de facto / shadow director of Transworld in rendering Transworld liable to the MTIC companies for dishonest assistance and fraudulent trading.
The judgement reviewed case law that discussed how there needs to be distinction between an examination being used by liquidators to carry out duties versions obtaining an unfair advantage in the litigation.
Two letters before action were sent, highlighting that Transworld faced claims from English companies used as defaulting companies in the MTIC fraud. These companies would import goods from outside the UK and sell them on without accounting to HMRC for VAT due on sales. Purchase monies would not be received by these English companies or would immediately be paid away so they did not have assets to discharge their VAT liability. FCIB conducted business through Transworld – opening accounts in a sector that it ought to have concluded was fraudulent.
Factors against not permitting examination included how an examination should ask questions about a company’s banking arrangements and circumstances leading to dissolution. However, evidence did not indicate that Deuss was involved in the decision to dissolve the Company.
It was argued that Deuss knew Transworld traded in a high risk technology and computer sector for MTIC fraud and knew of illegitimate trading.
The court concluded that to pull in Deuss for examination where it was not proven that he was a de facto or shadow director was oppressive and accordingly refused.
The applications related to whether the administrators’ liabilities to the applicants were discharged. The applicants stated that the administrators were not validly appointed as their appointments were prohibited.
Documents stated that when an administrator stops being an administrator they are discharged from all liabilities in respect of any action of his before discharge, whether removed from office, or on resignation. The only exception for liability is where the administrator has committed misfeasance. In this scenario, discharge can still proceed but the court’s permission is needed.
The administrators’ appointments were said to be unenforceable, and under a floating charge they were not enforceable. The administrators were said to be in breach of statutory duty as they were not valid appointments or failed to apply to court to terminate the administrations and was said to involve trespass, breach of fiduciary duties, and in breach of agreement of a consortium of shareholders.
The basis of the applications was that as the administrators were no longer administrators, there will be a discharge from liability for any action as administrator at a time stated by the court. The Applicants say appointments are invalid and void. The applicants needed to argue that the administrator either misapplied / retained money / property, owes a duty to account for money or property, has breached a fiduciary duty /other duty owed to the company or is responsible for misfeasance.
The court has a discretion to specify when a discharge will take effect. There is also the consideration that a discharge date should be specified as soon as practicable as it protects former administrators against the unfair risk, including no longer having assets of the company to meet liability.
The court concluded that the administrators’ appointments were invalid.
Cage Consultants Limited v Naveed Iqbal and Rehana Iqbal [2 November 2020] EWHC 2917 (Ch)
This relates to an application for permission to appeal against the decision to dismiss / stay proceedings against Applicants.
Cage Consultants Limited (“CCL”) brings the claim as an assignee of Totalbrand Limited for transactions at an undervalue.
CCL argued that a company needs to be kept in existence so the Court can direct the proceeds of any successful action to be paid. Here, where Totalbrand was dissolved after claims being assigned, CCL as assignee could not pursue the claims unless / until Totalbrand is restored to the register of companies.
CCL pursued claims in misfeasance, fraudulent and wrongful trading and claims for recovery of payments that were at an undervalue.
Previous case law distinguished company assets at the time of liquidation commencing and assets arising only after liquidation, which were only recoverable by the liquidator under statutory powers. Assets before liquidation were a company’s property. A wrongful trading claim applied where assets arose after liquidation and its proceeds could therefore not be assigned.
Legislation changed this.
The Insolvency Service found that generally creditors were reluctant to pursue claims, in part as there was a lack of directors’ assets against which to enforce a successful claim. They suggested the right for administrators to bring claims for fraudulent and wrongful trading and, for liquidators and administrators, the right to sell or assign claims to a third party. They hypothesised that assignment would benefit unsecured creditors and increase actions against directors, with long term changes resulting as the threat of action against directors would be a deterrent.
The appeal was refused – the legislation envisaged an assignment of the entire right of action and all proceeds to the assignee (CCL);
The logic was that if an assignee could only make a claim for an order that proceeds by paid to the company it would have to bear all of the claim costs and also risk failure. This would not appeal to potential claimants. If this was the case, legislative changes would not achieve its aims.
In the previous judgment Natwest were liable for dishonest assistance and fraudulent trading to Bilta arising out of the Defendant’s involvement in the VAT MTIC fraud by Bilta’s directors in respect of carbon credits being sold by Bilta’s companies or through a company called CarbonDesk and thereafter sold credits to RBS. The fraud took place when VAT paid by RBS to CarbonDesk was paid on by CarbonDesk and diverted as requested by directors of Bilta companies. This judgement relates to matters post original judgment, in particular the basis of assessment of costs. Dishonest assistance and fraudulent trading were background to this judgment, and is more pertinent in the previous decision.
A point arose after the approved judgment had been handed down and parties essentially said that the decision should not be reopened. The Claimants’ position was that there was an error in the judgment which was inconsistent with the Defendants’ formal admissions.
The Defendants were previously found to be vicariously liable for the wrongs of traders and RSB was liable for dishonest assistance. The traders turning a blind eye to sustained trading with CarbonDesk was part of an MTIC fraud, but not part of these proceedings.
Of note, albeit not in the context of fraudulent trading, there was some analysis of whether indemnity costs were suitable, the defendant’s refusal of an offer was sufficiently unreasonable to take his conduct of the case out of the norm, as judged by the circumstances at the time. In this case refusing a drops hand offer was not unreasonable to be out of the norm.
The judge concluded that the Defendant’s conduct was not sufficiently unreasonable or out of the norm and so indemnity costs was not awarded.
Manolete Partners Plc v Robin Ellis [26 June 2020] EWHC 1674 (Ch)
Manolette was a litigation funder, and sought to obtain assignment of claims of Bright Future Software Limited. Ellis invested large sums into BFS over time, including from its inception. He was a non-executive investor director as a 30% shareholder.
Manolette pursued Ellis alone as the director, Ms Thompson, had no assets and was previously bankrupt. BFS went into liquidation.
Manolette, amongst other heads, claimed for wrongful trading. Had it been liquidated earlier, the net deficiency would have been less by circa £6 million.
It was argued that Ellis should have known that BFS could not avoid insolvent liquidation, referring to board meetings. Ellis argued that he could not have caused BFS to continue to trade so as to personally benefit as the expense of creditors. Instead, he lost his own personal money at a social venture to provide employment to deprived young people.
Ellis and Thompson appeared to not provide liquidators with passwords to access their systems.
There was government funding available, although it was queried whether it could be reduced due to Ellis’ personal contribution and the loan facility he funded in particular.
Ellis did receive reports from accountants as to the possibility of the company trading whilst balance sheet insolvent and therefore would depend on continued financial support of shareholders / investors. Ellis also agreed that declining sales against projections would increase demand for a loan facility, and how he should have paid attention to projected cash flow models and thus the possibility of insolvency. Some figures stand out, for example total sales were only circa £230,000 whereas to achieve the sales projections circa £400,000 of sales were required each month. This should have been apparent to Ellis that the revenue was minimal relative to costs and projected sales. Similarly, sales needed to increase significantly to afford the wage bill. However, other meetings referred to the how the business will be solvent going forward.
Ellis acknowledged all the salient sales, wage overhead figures, etc. were available to him at a board of directors’ meeting.
The judge accepted what Ellis said, regarding how he had provided 350 jobs for youngsters, who were being praised albeit does not provide a conclusive answer as to this comment as to whether a reasonable director in his position may have done or not done.
There was a question as to why Ellis’ loan facility (that he previously said he would provide for) was not used to pay wages, etc. especially where BFS’ prospects were believed to be good. Ellis’ position was that he was never asked to do so and never declined to assist.
The judge noted that, importantly, there was never a claim for breach of duty against Ellis, i.e. regarding the use of the loan facility.
Related to the hearing of Georgallides’ application for orders to rescind directors disqualifications and to use a prohibited company name.
Georgallides stated that the companies involved were fraud victims due to a highly leveraged division at Halifax Bank of Scotland (“HBOS”) and that the head of the division conspired with others to control distressed businesses to make dishonest personal gains, at the behest of David Mills, head of the Reading branch in question.
Georgallides operated various wine bars and restaurants with expenditure part funded by HBOS. A £10.5 million loan facility was applied for. Subsequently, the foot and mouth outbreak and 11 September adversely affected business, and coupled with new restaurant costs this led to a further loan. However, this did not increase the loan facility, and HBOS prepared a report with negative views of the business prospects, which Georgallides disagreed with, but it was later agreed to increase the loan facility to £12 million.
Further funding was needed, but it was only agreed if Mr Mills was to be a non-executive director, who was said to specialise in highly leveraged companies needing more capital. Mr Mills was appointed as a director on a monthly retainer paid to his own company. The loan facility then increased to £16 million.
Georgallides later focused on a new nightclub venture and ceased to be a director of a previous group of companies. This new club was purchased by Soiram, of which Georgallides was the sole director. There were issues as to an overstatement of Soiram’s profits, unpaid tax and NIC, etc.
Evidence was heard as to whether Georgallides was responsible for Soiram trading to HMRC’s detriment, e.g. looking at the fact that he sat down with people working out which creditors to pay and who to put off, and the view that creditors were to be favoured over HMRC. This also contradicted
Georgallides’ defence that he did not control Soiram’s finances and that he was not consulted abut HMRC issues.
HBOS staff, including those involved with Georgallides’ businesses attracted broadcaster scrutiny, e.g. a Channel 4 broadcast. It was discussed in Parliament and noted that HBOS individuals lent large sums to many businesses and required specific advisers to be engaged and have such advisers appointed on a company’s board. This adviser would then suggest increased borrowing and borrowed more than they would have. This led to business assets being acquired in some way by those advisers or those connected to the advisers.
This issue was raised with Georgallides.
A police investigation into HBOS was undertaken, leading to various individuals being charged with criminal offences, including laundering the proceeds of crime and fraudulent trading.
(Note: fraudulent trading here applied to the criminal investigation of HBOS staff, as opposed to being part of the claim in this matter).
The issue for consideration was whether Georgallides caused Soiram to adopt policies and trade in a certain way. In broad terms, it was considered that the evidence did not establish that the HBOS fraud caused the insolvencies of the companies involved.
The Secretary of State sought a director disqualification order against Steven, in this case regarding the director’s conduct of an insolvent company. The two insolvent companies were CQH1 Limited and RTD1 Limited.
It was said that Steven was unfit in that CQH and RTD did not comply with statutory duties as to filing returns.
Various creditors, mostly HMRC, were the victims as a result of insolvency, as well as utility suppliers, e.g. British Gas, etc.
It was believed that the companies would trade out of difficulty and pay its creditors in full.
There was a lack of VAT returns, which was said to be hindered by accounting software, partly as it was assumed that automated VAT retunes would be produced by the software and submitted to HMRC.
Steven accepted that, as the business was a restaurant, some creditors were favoured over others, e.g. suppliers of equipment, food and drink were paid, as well as rent to the landlord. These expenses were generally paid to keep the company trading. However, Steven accepted that he failed to prioritise VAT, and indeed sums that were payable were paid elsewhere.
It was concluded that Steven was not excused from being permitted to trade to the detriment of a particular creditor or creditors.
It was commented that involuntary working capital via HMRC, i.e. not paying, sustained cash flow at the outset, was a sign that the companies were not financially viable in a wrongful trading context. This was said to have been discriminatory treatment of HMRC, although there was much speculation as to whether the decision to continue to trade was reasonable.
It was concluded that the Secretary of State established that Steven was unfit to be concerned in the management of a company and thus was subject to disqualification order.
This matter relates to Claimants seeking payments from Defendants arising out of a share purchase agreement and whether a claim for statutory misrepresentation under s.2(1) of the Misrepresentation Act 1967 had realistic prospects of success, should be struck-out or made subject to summary judgment.
Alleged misrepresentation related to a spreadsheet – the club’s liabilities were lower than the true liabilities, which meant misrepresenting the club’s liabilities and resulting in a recoverable loss to NF. NFFC’s response was that the Entire Agreement clause had to be read and intended to preclude any claim for misrepresentation of the club’s liabilities. A clause in the share purchase agreement stated that NFFC would indemnify NF Football Investments and the Club against all losses suffered / incurred by NF Football Investments or the Club arising out of the Club’s liabilities being in excess of a figure that was the lower figure represented in the spreadsheet (i.e. not the true liabilities).
NF Football Investments’ rights and remedies under the agreement were in addition to and not exclusive to any rights or remedies under law, including any right to raise a claim in statutory misrepresentation and not to replace this right.
Drawing on the construction of clauses that purport to exclude liability for misrepresentation, one theme is that, firstly, excluding misrepresentation must be clearly stated. Secondly, this is by using well-established formulations, e.g. clauses recording that no representations have been made / relied upon / that there is no liability for misrepresentation. Otherwise, without these formulations, such a clause in itself will NOT absolve a party of a claim for misrepresentation that would otherwise be made out. Construction of clauses is therefore key, and as constructed in its particular context.
Here, it was held that the construction was to exclude misrepresentation claims and should be resolved within the contractual framework. Further, the share purchase agreement referred to extinguishing all previous representations, which could negate a previous factual statement. The agreement’s clear effect is to record between the parties that all previous representations are extinguished and as such, on execution of the agreement, no existing representations upon which a claim for misrepresentation could be founded.
Accordingly, there was no realistic prospect of a statutory misrepresentation claim succeeding, and the claim was struck out as it was doomed to fail.