Anthony John Wright and Geoffrey Paul Rowley (Liquidators of BHS Group Ltd, SHB Realisations Ltd, Davenbush Ltd and Lowland Homes Ltd (All (in Liquidation)) v Dominic Joseph Andrew Chappell

Hearing dates: 24 and 25 June 2024

APPROVED JUDGMENT

I. Introduction

In this judgment I adopt the defined terms and abbreviations which I used in the principal judgment which I handed down on 11 June 2024 the NCN of which is [2024] EWHC 1417 (Ch) (the “ Judgment”). Where I refer to paragraphs below, I intend to refer to paragraphs in the Judgment unless otherwise stated. In the Judgment itself, I dealt with all issues of liability, causation and quantum except one. Given the potential amount at stake and the fact that it involved a developing area of the law, I reserved for further hearing the quantum of equitable compensation recoverable for the breaches by Mr Henningson and Mr Chandler in respect of what I described as the modified “ Sequana duty” and any set off or contribution to which they might be entitled to claim against each other: see [1131] and [1158]. In this judgment, I deal with the first of those issues.

On 21 June 2024 and shortly before the resumed trial I made a Tomlin Order in which the Liquidators and Mr Chandler agreed to compromise all of the claims which they made against him and he and his legal team played no part in the resumed hearing on 24 and 25 June 2024. On 15 November 2023 I had severed the claims against Mr Chappell from the claims against Mr Henningson and Mr Chandler and at the hearing on 24 and 25 June 2024 I also listed a series of applications relating to the claims against Mr Chappell. He did not appear on either day and I therefore proceeded in his absence. Having heard submissions by Mr Curl and Mr Perkins on behalf of the Liquidators and Ms Hilliard and Ms Earle on behalf of Mr Henningson, I reserved judgment in relation to the quantum of the Trading Misfeasance Claim.

On 25 June 2024 I gave an ex tempore judgment in which I held that Mr Chappell was bound by admissions under CPR Part 16.5 and that he had no real prospect of defending any of the claims against him. I made declarations which reflected the findings which I had made in the Judgment, I refused him relief from sanctions, I struck out his Points of Defence and I ordered summary judgment against him in respect of the Wrongful Trading Claim, the Trading Misfeasance Claim and all of the Individual Misfeasance Claims. In particular, I ordered that he make a contribution to the Companies' assets of £21.5 million under S.214. I also ordered that he make a contribution to the Companies' assets in an amount to be determined by the Court in relation to the Trading Misfeasance Claim.

In this reserved judgment, I set out the quantum of equitable compensation for which both Mr Henningson and Mr Chappell are liable in relation to the Trading Misfeasance Claim. Because Mr Chappell did not appear, he is arguably entitled to make an application under CPR Part 39.3 for a rehearing. He is also entitled to apply for permission to appeal. I make no observations about the application of CPR Part 39.3 to this judgment or his prospects of success on either application. But I direct that when the Liquidators serve this judgment upon him and any order which I make, they draw his attention to this paragraph.

II. Findings

A. Factual Findings

(1) Mr Henningson

It may be useful if I begin by summarising the relevant findings of fact or mixed fact and law which I made in the Judgment in relation to the Trading Misfeasance Claim. First, I found that Mr Chappell and Mr Henningson agreed to the terms of ACE II and that Mr Chappell signed both the ACE II Facility Agreement and the ACE II Mezzanine Agreement in breach of S.171(b) of the CA 2006 for improper purposes: see [981]. If it was necessary for me to do so, I also found that the dominant purpose was to enable Mr Chappell to obtain the ACE II arrangement fee of £2 million and to secure a secret commission of £300,000 for Mr Henningson which he had agreed earlier with Mr Dellal: see [978].

Secondly, I found that on 23 June 2015 Mr Henningson and Mr Chandler ought to have known that it was more probable than not that the Companies would go into insolvent administration because BHSGL had been unable to obtain a sustainable working capital facility to implement the July 2015 Turnaround Plan, that the board did not consider the interests of creditors before entering into ACE II or the Loan and Framework Agreements, that they ought to have concluded that the interests of creditors were paramount and that if they had done so (or put those interests first), they ought to have concluded that it was in the interests of creditors to put the BHS Group into administration immediately: see [982] to [991].

I considered Mr Henningson's position separately from the other members of the board and I held that he failed to consider the interests of creditors in breach of S.172 even though he was not present at the meeting to approve ACE II: see [992]. I also found that in breach of S.174 Mr Henningson and Mr Chandler failed to exercise reasonable care in relation to ACE II and, in particular, to take and act on the advice of Mr Roberts of Olswang: see [993] to [995].

Thirdly, I found that on 8 September 2015 Mr Chandler and Mr Henningson ought to have known that it was more probable than not that the Companies would go into insolvent liquidation for the detailed reasons which I had given in relation to the Wrongful Trading Claim: see [904] and [999]. I also found that they did not consider the interests of creditors and that if they had done so and balanced their interests against the interests of RAL, they would have come to the conclusion that the interests of creditors were paramount and that it was in the creditors' interests to put BHSGL and the other Companies into administration immediately and to instruct an insolvency practitioner before the September quarter day: see [908] to [1004].

Fourthly, I held that if Mr Henningson and Mr Chandler had complied with their duties under S.171(b) (in the case of Mr Henningson) and both S.172 and S.174 (in the case of both directors), then the Companies would not have entered into ACE II and continued to trade but would have gone into administration: see [1111] to [1113]. I also held that if Mr Henningson and Mr Chandler had complied with their duties under S.172 and S.174 the Companies would not have entered into the Grovepoint Facility and continued to trade but would have gone into administration: see [1114]. I set out my detailed reasons for reaching this conclusion in relation to the Wrongful Trading Claim at [1110](2) to (5).

(2) Mr Chappell

As I recorded at [19], I tried to avoid making findings of fact against Mr Chappell unless they were necessary to my findings against Mr Henningson and Mr Chandler. In relation to the Trading Misfeasance Claim, it was necessary for me to find (and I found) that in breach of S.171(b) Mr Chappell entered into ACE II for an improper purpose. But I made no findings against him in relation to the other allegations of breach of duty or causation. However, in my ex tempore judgment on 25 June 2024 I held that Mr Chappell had no real prospect of defending any of those allegations (or, indeed, challenging that finding) and I made a declaration to that effect: see the Order dated 25 June 2024, paragraph 1.2.

B. Legal Findings

In relation to causation, I held that the test was the same for both the Wrongful Trading Claim and the Trading Misfeasance Claim. In particular, I held that the Court had to consider whether the Company would have continued to trade and suffered the individual losses if Mr Henningson and Mr Chandler had not committed the relevant breaches of duty: see [508]. I also held that it was not necessary for the Joint Liquidators to prove that the conduct of Mr Henningson and Mr Chandler was the sole or only effective cause of the loss which the Companies had suffered: see [509]. Finally, I held that the Joint Liquidators had to give credit for £3.5 million for the settlement sum which they received from Mr Smith: see [1141].

III. The Law

C. Measure of Compensation

(1) The Issue

Mr Curl and Mr Perkins submitted that a “but for” test applied when assessing losses caused by a breach of fiduciary duty, the prima facie loss caused by misfeasance trading is the increase in net deficiency of the company's assets or IND and that where, as here, two or more directors have in breach of fiduciary duty caused the same loss to a company, their liability is joint and several. They relied on my original findings (above) and the agreement between the parties in relation to the IND at each of the relevant dates.

Ms Hilliard and Ms Earle submitted that in order to find Mr Henningson liable for the entire IND, his breach of...