Andrew Ian McTear and Another v Michael Conrad Engelhard and Others
| Jurisdiction | England & Wales |
| Judge | Richard Spearman |
| Judgment Date | 10 April 2014 |
| Neutral Citation | [2014] EWHC 1056 (Ch) |
| Docket Number | Case No: HC12C00705 |
| Court | Chancery Division |
| Date | 10 April 2014 |
2014 EWHC 1056 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Spearman Q.C.
(sitting as a Deputy Judge of the Chancery Division)
Case No: HC12C00705
Simon Davenport QC and Richard Samuel (instructed by Isadore Goldman, Lawrence House, 5 St Andrew's Hill, Norwich) for the Claimants
Jonathan Lopian (instructed by Hansells Solicitors) for the Defendants
Hearing dates: 5, 6, 7, 10 March 2014
Richard Spearman Q.C.:
Introduction
This trial concerns inter-company transactions between two companies in a group of companies, all of which were owned and controlled by members of the same family. The Claimants contend that the transactions give rise to a debt owed by the holding company to one of the subsidiaries, and to claims against the directors of the subsidiary for breaches of the duties that they owed to the subsidiary (and to its creditors). The Defendants contend the contrary, and that the Claimants are estopped from bringing these claims in any event. These claims form part of what was initially a wider dispute.
A number of applications were dealt with at the beginning of the trial. They are the subject of a separate judgment, which I handed down on 14 March 2014: McTear & Anr v Engelhard & Ors [2014] EWHC 722 (Ch). In sum, I dismissed the Defendants' applications for extensions of time or for relief from sanctions in respect of the late service of both their trial witness statements and a list of additional documents, I refused to allow them to rely on one of those statements on the additional ground that it contained expert evidence for which they had not sought permission, and I refused them permission to re-amend their Defence. I also granted some of the relief sought by the Claimants in their cross-application, but I refused to strike out the Amended Defence.
In the result, the trial proceeded without any witnesses being called by the Defendants.
However, both sides had previously provided standard disclosure by lists. In addition, both sides had filed witness statements in connection with aspects of the case that were not before me at the trial. Although I was not provided with copies of these materials, it is my understanding that the exhibits to these witness statements are voluminous, and that they include a number of documents that had not been disclosed by either side. My rulings did not have the effect of excluding any documents that had previously been disclosed or these materials, so they were available for purposes of cross-examination.
The parties and the issues
I set out these matters in my previous judgment. I repeat that part of my previous judgment, with a number of factual and textual modifications, for ease of reference.
The Claimants are the former joint administrators of Broadland Wineries Limited ("BWL") and the former supervisors of a Company Voluntary Arrangement ("CVA") that BWL entered into. BWL operated a winery that produced fruit and fortified British-made wines, carried out contract bottling and bag-in-box filling, and produced and bottled semi-sparkling wine. BWL went into administration on 10 March 2006 and came out of administration on 1 February 2007. BWL entered into the CVA on 18 October 2006 and the CVA came to an end on 20 November 2011. By a Deed of Assignment dated 20 September 2011, BWL's claims in these proceedings were assigned to the Claimants, and they hold them on trust for BWL's creditors.
Although BWL was sold to a third party on 20 November 2011, at all times material to this claim BWL was one of a number of companies that were owned or controlled by members of the same family. In this regard:
(i) The Seventh Defendant ("EHL") was the holding company in the group. EHL was incorporated on 26 June 1984 and is recorded at Companies House as providing Head Office services. EHL had no separate trading activity. EHL held 90% of the shares in BWL. EHL held the remaining 10% of those shares jointly with Paul Engelhard, a businessman who died on 2 December 2006, and who was chairman and managing director of EHL until his death.
(ii) Paul Engelhard was married to Anna Engelhard, who has been joined as the Third Defendant in her own right and as the Sixth Defendant in her capacity as his personal representative.
(iii) The First Defendant, Michael Engelhard, and the Second Defendant, Maria Risby, are the son and daughter of Paul and Anna Engelhard.
(iv) Maria Risby was BWL's company secretary, and she was also a director of EHL, but she is not relevant to the claims that are presently before me.
(v) The Fourth Defendant, Sylvia Engelhard, is the former wife of Michael Engelhard.
(vi) The Fifth Defendant, Natasha Risby, is the daughter of Maria Risby, but she is not relevant to the claims that are presently before me.
(vii) EHL's directors and shareholders were Paul and Anna Engelhard (who held 312,000 shares jointly), their son Michael Engelhard (who held 144,000 shares) and (as set out above) Maria Risby (who also held 144,000 shares).
(viii) BWL's directors were Paul and Anna Engelhard, Michael Engelhard (who was managing director from 1991), and Sylvia Engelhard ("the Directors").
The Claimants were represented by Simon Davenport QC and Richard Samuel. EHL and the Directors were represented by Jonathan Lopian. I am grateful to all counsel for their clear and helpful written and oral submissions.
It is common ground that EHL did not generate any trading income. Whether and to what extent EHL provided management and head office services ("the Services") to BWL, and, if it did so, the value of the Services are issues in the proceedings.
There is also an issue as to the extent to which the decision to make payments to EHL or to incur charges in respect of the Services placed the Directors in breach of duties that it is accepted that they owed to BWL, in light of BWL's financial predicament in the period before BWL went into administration. In this regard:
(i) It is common ground that the Directors' fiduciary duties to BWL, pleaded at paragraph 5 of the Particulars of Claim and admitted by paragraph 13 of the Amended Defence, comprised: (a) a primary obligation of loyalty, (b) a duty to act honestly and in good faith in the best interests of BWL, (c) a duty not to put themselves in (or allow themselves to remain in) a position where their personal interests conflicted with their duties to BWL; and (d) a duty to report their own wrongdoing or the wrongdoing of others to BWL.
(ii) It is also common ground (flowing from paragraph 27 of the Particulars of Claim, which is admitted by paragraph 37 of the Amended Defence) that (a) the Directors' obligations in relation to the management charges extended to giving consideration in any given year as to whether or not it was in the best interests of BWL to commit itself to the incurrence of such management charges and whether it was receiving value for such management charges and (b) during the 2005/2006 financial year BWL's financial fortunes deteriorated significantly.
(iii) It is denied, however, that the Directors were guilty of breach of their fiduciary duties or of negligence, whether by applying a pro rata charge for the Services down to 10 March 2006 to the inter-company account between BWL and EHL, or by causing or permitting that charge to be made when (it is alleged) (a) there was no such value for an ailing company, (b) it was a standard and routine fee, (c) no service of an equivalent value was provided, and (d) it preferred EHL over other creditors of BWL as a whole: see paragraphs 26 and 28 of the Particulars of Claim, and paragraphs 36 and 38 of the Amended Defence.
Some of the claims have been settled. The remaining claims revolve around payments in the total sum of £412,739.17 that were made by BWL to EHL between the start of BWL's financial year on 1 April 2005 and the date when BWL went into administration on 10 March 2006.
The Claimants contend that those payments comprised loans from BWL to EHL, and that those loans fell due upon demand, that was made at latest by service of the claim in the present proceedings. Accordingly, they claim £412,739.17 from EHL as a debt due from EHL to BWL. Among other things, in support of this claim they rely upon:
(i) the way in which these payments, and that total sum, were recorded in BWL's inter-company account with EHL;
(ii) the fact that they are not aware of any documents evidencing any agreement to treat these payments in any other way, and no such documents have been disclosed by the Defendants;
(iii) the facts that not only are these payments in irregular amounts but also that EHL raised no contemporary invoices in respect of any of these payments; and
(iv) the fact that, prior to BWL's insolvency, what happened is that EHL raised a charge at the end of the financial year end on 31 March for the sum of £450,000 plus VAT for the supply of the services, together with their contention that the Directors could not validly have met to approve such a charge after 31 March 2006 because by then BWL was in administration.
The Claimants further contend that, if BWL truly owed EHL monies, EHL should and would have proved in BWL's administration for the sums due from BWL to EHL.
Instead, on 27 April 2006, the then Financial Controller both of BWL and of EHL, Richard Coleridge, sent an email to Mr McKay of the Claimants. According to the Claimants, this gave notice of an intention to make adjustments to BWL's...
To continue reading
Request your trial