BE Studios Ltd v Smith & Williamson Ltd
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr. Justice Evans-Lombe,Mr. Justice Evans-Lombe |
| Judgment Date | 02 December 2005 |
| Neutral Citation | [2005] EWHC 2730 (Ch) |
| Docket Number | Case No: HC04C0110 |
| Court | Chancery Division |
| Date | 02 December 2005 |
[2005] EWHC 2730 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon. Mr. Justice Evans-Lombe
Case No: HC04C0110
Peter Irvin (instructed by Constant & Constant) for the Claimant
Benjamin Pilling (instructed by Simmons & Simmons) for the Defendant
Hearing dates: 17/10/2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
On the 15 th July 2005 I gave judgment in these proceedings dismissing the claim. On the 27 th July I ordered that the Claimant pay 4/5ths of the Defendant's costs on the standard basis. I now have an application by the Defendant that Mr Christopher Dickens a director and shareholder and loan creditor of BES pay those costs under sub-section (3) of section 51 of the Supreme Court Act 1981 pursuant to the decision of the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965. For the purpose of this application I ordered the joinder of Mr Dickens as second claimant under CPR 48.2. I will hereafter refer to the first claimant company as "BES" and the second claimant as "Mr Dickens".
When the trial started there were two main issues in the case, the first, whether the defendant had been negligent and, the second, on the assumption that negligence was proved, whether such negligence had occasioned any damage to BES. At the outset of the trial negligence was admitted and the trial then proceeded on the issue of whether BES was ever entitled to recover R&D tax relief as alleged or at all. In the result I found that, notwithstanding that the Inland Revenue ultimately accepted and made payments in respect of alleged expenditure by BES on R&D, it was not established from the evidence that BES' claim for such relief was justified either in whole or part.
The background facts of the case are set out between paragraphs 7 and 15 of my judgment. It seems to me that for the purposes of this application the following are material facts:—
1) The proceedings were commenced in March 2004. By that time, in December 2001 BES had been "mothballed", an adjective used throughout the trial to describe the state into which BES was put at that time when all its staff were paid off, its premises and equipment disposed of and its outside creditors paid leaving only its loan creditors unpaid. Of its three directors, Mr Evans, on whose creative ability the success of BES seems entirely to have depended, had severed his personal relationship with Ms Berry and returned to his family and other employment apparently for good, Ms Berry had also left for alternative employment and only Mr Dickens remained available to take decisions with relation to BES' affairs.
2) BES remained possessed of certain intellectual property namely a number of computer games and programs, which BES had developed prior to its mothballing, most of which were not in any final state to be put on the market. Attempts were made in subsequent years to exploit this intellectual property but by March 2004 no significant income had been realised as a result of those attempts and it seems from Mr Dickens' evidence on this application that, although attempts are continuing, still nothing significant has resulted.
3) Between paragraphs 113 and 116 of my judgment I set out my view of the prospects of reviving BES
"113 I am quite unconvinced that BES would have been able, in the prevailing market conditions at the end of 2001 and extending on to 2003, to have realised sufficient net revenue to cover the costs of maintaining itself even in the partially mothballed state which has been suggested. "
114 It seems to me to follow from this conclusion, and notwithstanding the evidence of Mr Joshi and Mr Webb, that there was no real prospect in December 2001 for the raising of fresh capital, either from its existing shareholders or from outside investors, to carry BES forward until the market for its products recovered. The fact is that the general market for information technology products had not recovered even by 2004.
115 I have already pointed to the accepted view that BES' position in the market depended on the services of Mr Evans. By the end of 2001 his relationship with Miss Berry, which seems to have been the basis for launching BES originally, was over. The cause of that break up was not explored in the evidence and it does not follow that it would not have happened had BES continued in semi-mothballed form. I doubt whether BES was an investment prospect in the absence of Mr Evans. Be that as it may, BES' attempts to raise further capital in late 2001, but at a time when it still had its full staff, failed.
116 The present position of BES is that it is insolvent in the sense that its in-house loan creditors have not been paid and there is no prospect of them being paid. But it has no outside creditors who might wish to enforce payment of their debts. Theoretically therefore it could still be revived if it had assets, such as intellectual property rights capable of exploitation, which would make it worthwhile to revive. It is, however, apparent that such is not the case."
4) The claim for R&D relief which BES ultimately made was prepared by a Mr Price but submitted under Mr Dickens signature. In the course of my judgment I found that the preparation of that claim by Mr Price was "entirely inappropriate" (paragraph 53) and that the claims themselves were "grossly exaggerated" (paragraph 99(1)).
5) Mr Dickens holds 25 of the 85 issued shares of BES he is also BES' largest loan creditor. In Mr Pilling's skeleton argument it is submitted that his outstanding loans to BES amount to approximately £156,000. There is no evidence from Mr Dickens of the precise amount of his loans but no attempt was made to challenge that figure. Ms Berry is a loan creditor for approximately £76,000 and a Mr Novikov, who was one of the original investors in BES, is a loan creditor for £56,000. As at March 2004 BES did not appear to have any currently realisable assets and accordingly was insolvent and not able to pay any future order for costs against it. It cannot pay the order for costs which I have made.
6) At paragraph 12 of his most recent witness statement dated 5 th October 2005 Mr Dickens says, "it is true that the litigation was funded mostly through loans from companies in which I have an interest. It is also true that if I had not done this then there would have been no litigation and no chance of either proving the failings and negligence of S&W, repaying any of the long term creditors or ever resurrecting the Company."
7) It seems clear that, before proceedings were launched, BES obtained no expert advice as to whether any of the work that it was undertaking on the development of its products would actually meet the test prescribed by the relevant legislation and so constitute R&D in respect of which tax relief was available.
The following paragraphs appear in the written submissions of Mr Pilling for the purposes of this application.
"21. Mr. Dickens, and Mr. Dickens alone, has been in control of the litigation. According to Companies House, the directors of the Claimant are still Mr. Dickens, Ms Berry and Mr. Evans. However, it is clear beyond sensible doubt that, since early 2001, the only director playing any role in relation to the Claimant's management or business has been Mr. Dickens.
22 Mr. Evans quickly departed to work for Flextech and then returned to America. The Court is aware that the Claimant was unable to contact him during the trial to persuade him to give evidence. Ms Berry departed in early 2001 and has pursued an academic career. There is no evidence that Mr. Evans or M Berry subsequently had any real involvement with the Claimant's business. There is no evidence that any director was involved in formulating the claims for R&D tax credits which were submitted to the Revenue. Mr. Dickens was the only director involved in asserting a claim against the Defendant in the first instance (Mr. Dickens' letters to the Defendant not even being copied to the other directors). Mr. Dickens himself confirms that he authorised the Claimant to issue these proceedings, and there is no suggestion that he did so in consultation with any other director (see paragraph 50 of his first witness statement [Tab 19)). It must follow, also, that he was the director who had general control over the proceedings, and made any necessary strategic decisions. It was clear, when Mr. Dickens was in Court during the trial, that he was giving instructions to the Claimant's solicitors and counsel. It is also clear from the Claimant's solicitors' correspondence that they have been taking their instructions from Mr. Dickens (see the faxes dated 13 and 14 July 2005 [Exhibit EKJ1, Tab 3))."
I accept that the evidence and observation establishes Mr Pilling's summary of the facts contained in these two paragraphs. There is no evidence of the holding of any board meetings of BES at which the decision to launch the proceedings was discussed and, after those proceedings had been launched, discussing and taking decisions in relation to their prosecution. There is no evidence of Ms Berry ever taking a decision with relation to the proceedings. It seems to me to be clear that she was simply a source of information about past events, but only that.
Where a non-party can be shown to have intervened in litigation so as to take control of the prosecution or defence of a claim, substantially for his own...
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