Burnden Holdings (UK) Ltd v Fielding and Another

JurisdictionEngland & Wales
JudgeLord Lloyd-Jones,Lord Carnwath,Lord Sumption,Lord Briggs,Lord Kerr
Judgment Date28 February 2018
Neutral Citation[2018] UKSC 14
CourtSupreme Court
Date28 February 2018
Burnden Holdings (UK) Limited
(Respondent)
and
Fielding and another
(Appellants)

[2018] UKSC 14

before

Lord Kerr

Lord Sumption

Lord Carnwath

Lord Lloyd-Jones

Lord Briggs

Hilary Term

Supreme Court

On appeal from: [2016] EWCA Civ 557

Appellants

David Chivers QC

Matthew Parfitt

(Instructed by Addleshaw Goddard LLP)

Respondent

Christopher R Parker QC

Matthew Smith

(Instructed by Enyo Law LLP)

Heard on 7 December 2017

Lord Briggs

( with whomLord Kerr, Lord Sumption, Lord CarnwathandLord Lloyd-Jonesagree)

1

This appeal raises a well-formulated issue as to the construction of section 21 of the Limitation Act 1980, and a rather more diffuse question as to the meaning and application of section 32 of the Act, in both cases in relation to what is assumed to have been (although this is hotly contested in the proceedings) an unlawful distribution in specie by the Claimant company of its shareholding in a trading subsidiary by the directors of the Claimant (including the two defendants), six years and three days before the issue of the claim form in these proceedings.

2

The Defendants sought summary judgment dismissing the claim on the ground that it was statute-barred, and succeeded at first instance, before HHJ Hodge QC, sitting as a judge of the High Court. The Court of Appeal (Arden, Tomlinson and David Richards LJJ) held, first, that time did not run against the Claimant company because of section 21(1)(b) of the Act and that, in any event, there was a triable issue as to whether, within the meaning of section 32 of the Act, there had been deliberate concealment of the facts involved in the breach of duty constituted by the unlawful distribution.

3

Whatever the conclusion of this court as to the construction of sections 21 and 32, there could not now be summary judgment for the Defendant directors. This is because the Claimant has since amended its claim to include the allegation that the claimed unlawful distribution amounted to a fraudulent breach of trust to which the Defendants were party, within the meaning of section 21(1)(a). Nonetheless the issue as to the meaning of section 21(1)(b) is of sufficient importance to have made it appropriate for this appeal (for which permission had been sought prior to the amendment pleading fraud) to proceed.

The Assumed Facts
4

At all material times before October 2007, the Claimant was a holding company with a number of trading subsidiaries. The subsidiaries operated in two business areas, the supply and construction of conservatories and a combined heat and power business. Two trading subsidiaries in the conservatory business are referred to in the particulars of claim, K2 Conservatory Systems Ltd (“K2”) and Cestrum Conservatories Ltd (“Cestcon”). The combined heat and power business was carried on by Vital Energi Utilities Ltd (“Vital”).

5

The directors of the Claimant were at all material times the Defendants, Mr and Mrs Fielding, and three other executive directors, Mr Beckett, Mr Whitelock and Mr Kavanagh. The issued share capital of the Claimant comprised three classes of shares: 50,000 A ordinary shares, 50,000 B ordinary shares, and 50,000 D ordinary shares. The A and B ordinary shares were held by Mr and Mrs Fielding in equal parts, while the D ordinary shares were held by Mr Beckett, Mr Whitelock and The Burnden Group Trustee Limited (“TBGT”), the trustee of an employee share scheme. The controlling shareholders were Mr and Mrs Fielding.

6

In or about July 2007, Scottish & Southern Energy plc (“SSE”) offered to purchase a 30% shareholding in Vital for £6m, subject to a significant number of conditions including, in particular, the complete separation of Vital from the conservatory business.

7

In October 2007, the following pre-arranged transactions were carried out:

a. On 4 October 2007, the shareholders of the Claimant exchanged their shares for shares in a new holding company for the group, BHU Holdings Ltd (“BHUH”), with the shareholdings in that company precisely mirroring the former shareholdings in the Claimant.

b. On 12 October 2007, a distribution in specie of the Claimant's shareholding in Vital was approved by a unanimous resolution of the directors of the Claimant and by a resolution in writing of BHUH as the sole member of the Claimant. The distribution was effected on 12 October 2007, with the transfer of the only issued share in Vital from the Claimant to BHUH being registered in the register of members of Vital on that day. Although it is pleaded in the particulars of claim that Vital was a subsidiary of the Claimant until 15 October 2007, it is accepted by the Claimant for present purposes that the share in Vital was distributed in specie on 12 October 2007.

c. On 15 October 2007, BHUH went into members' voluntary liquidation. A special resolution to that effect was passed on that day by the members of BHUH, and the directors of BHUH made a statutory declaration as to its solvency. Also on 15 October 2007, pursuant to reconstruction agreements made on that day under section 110 of the Insolvency Act 1986, the liquidator of BHUH transferred the share in Vital to a new company, Vital Holdings Limited (“VHL”) and the shares in the Claimant to a new company, Burnden Group Holdings Limited (“BGHL”). The two new holding companies issued shares to the former shareholders in BHUH, again precisely mirroring their shareholdings in BHUH and, previously, in the Claimant.

d. On 19 October 2007, Mrs Fielding sold a 30% shareholding in VHL to SSE for £6m. Of that sum, £3m was lent to the Claimant and the balance was, according to the Claimant's case, put towards the purchase of a property for £8.3m by Mr and Mrs Fielding in May 2008.

8

Subsequently, on 2 October 2008, the Claimant, K2 and Cestcon all went into administration. In December 2009, the Claimant went into liquidation and the present liquidator was appointed in December 2012.

9

It is alleged by the Claimant that the distribution in specie of the Claimant's shareholding in Vital to BHUH was unlawful, and it is claimed that the Defendants breached their duties to the Claimant in making the distribution. The basis of the claim that the distribution was unlawful, at least when the matter was before the Court of Appeal, was that the Claimant company did not have sufficient accumulated, realised profits to enable the distribution of its shareholding in Vital to be lawfully made. The detailed basis of that allegation has changed over time and has, throughout, been firmly challenged by the Defendants. The detail is irrelevant to the limitation issues before this court. It is simply to be assumed that the distribution was unlawful, that the Defendants' participation in it amounted to a breach of their fiduciary duties to the Claimant and that, because the distribution was made to a company, BHUH, in which they were majority shareholders and directors, the distribution was one from which they derived a substantial benefit.

Section 21
10

Section 21 of the Limitation Act 1980 provides, so far as is relevant, as follows:

“21.—Time limit for actions in respect of trust property.

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action —

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any action brought by virtue of subsection (1)(b) above to recover that property or its proceeds after the expiration of the period of limitation prescribed by this Act for bringing an action to recover trust property shall be limited to the excess over his proper share. This subsection only applies if the trustee acted honestly and reasonably in making the distribution.

(3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued. For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.”

11

It is common ground (and clear beyond argument) that, as directors of an English company who are assumed to have participated in a misappropriation of an asset of the company, the Defendants are to be regarded for all purposes connected with section 21 as trustees. This is because they are entrusted with the stewardship of the company's property and owe fiduciary duties to the company in respect of that stewardship: see Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400; JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162, in particular per Chadwick LJ at paras 25–29; Williams v Central Bank of Nigeria [2014] AC 1189, per Lord Sumption at para 28 and, most recently, First Subsea Ltd (formerly BSW Ltd) v Balltec Ltd [2018] Ch 25, per Patten LJ at para 50. By the same token, the company is the beneficiary of the trust for all purposes connected with section 21. Complications have arisen where, although a director, the Defendant's breach of duty did not involve the misapplication of company property: see for example Gwembe Valley Development Co Ltd v Koshy (No 3) [2004] 1 BCLC 131, but those difficulties (if indeed they survive the decision of the Court of Appeal in the First Subsea case) do...

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