Charter Plc v City Index Ltd (Gawler and Others, Part 20 defendants)
| Jurisdiction | England & Wales |
| Judge | THE CHANCELLOR OF THE HIGH COURT,The Chancellor |
| Judgment Date | 12 October 2006 |
| Neutral Citation | [2006] EWHC 2508 (Ch) |
| Docket Number | Case No: HC05C00933 |
| Court | Chancery Division |
| Date | 12 October 2006 |
[2006] EWHC 2508 (Ch)
The Chancellor of the High Court
Case No: HC05C00933
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr George Leggatt QC And Mr Alan Maclean (instructed by Macfarlanes) for the Defendant/Part 20 Claimant
Mr Michael Brindle QC and Mr Daniel Stilitz (instructed by Ashurst) for the 1st to 12th Part 20 Defendants
Mr Simon Salzedo (instructed by Barlow Lyde & Gilbert) for the 13th Part 20 Defendants
Hearing dates: 3 rd & 4 th October 2006
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.
The Chancellor:
Introduction
Charter plc, the first claimant in the action, is the holding company of a multinational group of engineering companies. Charter Central Finance Ltd, the second claimant in the action, is one of its subsidiaries. Its main activity is the management of the group's finance and treasury functions. Mr Chu Wing Kit was employed by another subsidiary, Charter Central Services Ltd, as the treasury manager of Charter Central Finance Ltd with particular responsibility for sterling and dollar cash requirements and foreign exchange. City Index Ltd, the defendant in the action, carries on the business of spread betting primarily in relation to financial markets. Between February 2000 and his summary dismissal on 23rd August 2004 Mr Chu procured that funds of Charter, to an aggregate value of £9,080,939, were transferred to an account of City Index in order to finance his personal spread betting transactions with City Index. On 10th December 2004 Mr Chu was convicted of theft in relation to such transfers.
On 15th April 2005 Charter and Charter Central Finance Ltd served particulars of claim in their action against City Index for the recovery of £9,080,939. They set out the material facts, including three occasions in 2000 and 2001 when officers of the claimants brought their concerns in relation to the activities of Mr Chu to the attention of the National Criminal Intelligence Service or the Metropolitan Police. They averred in paragraph 42 that:
"…the funds transferred by Mr Chu to the City Index Account after 7th August 2000 were received by [City Index] with knowledge that the said transfers resulted from a breach of trust and/or fiduciary duty by Mr Chu. Accordingly it was unconscionable for [City Index], as it did, to take the benefit of the funds so transferred to finance Mr Chu's spread betting and [City Index] is liable to account to the Claimants as constructive trustee of those funds."
In its defence served on 13th May 2005 City Index admitted the transfers on which the claimants relied but denied that it was liable to the claimants whether as a constructive trustee or otherwise. On 8th February 2006 the claim was settled on terms that City Index paid the claimants £5.5m on or before 20th February 2006, which it did.
In the meantime, in August 2005, City Index commenced Part 20 proceedings against some, but not all, of the past and present directors of Charter (Defendants 1–12) and the group auditors (Defendant 13) claiming contribution or indemnity under Civil Liability (Contribution) Act 1978 ("the Act") in respect of any sum which it might be found liable to pay to the claimants. The Part 20 claim was amended on 19th July 2006 (and reamended on 28th September 2006) to reflect the settlement of the claim and to seek contribution or indemnity in relation to the sum of £5.5m. In that context City Index alleged:
"23A. None of the sums transferred by Mr Chu into the City Index account was retained by City Index. Further, the sum of £5,500,000 which City Index paid to the claimants in settlement of their claims against it was substantially more than the profit which City Index made on Mr Chu's account, which was approximately £3 million in total.
24B. Assuming, however, that the facts alleged by the claimants against City Index could be established, City Index would have been liable to pay the sum of £5,500,000 to the Claimants by way of compensation for the losses suffered by the claimants as a result of the unauthorised transactions."
In the succeeding paragraphs of the reamended Part 20 particulars of claim City Index sets out the facts on which it relies as justifying the conclusion set out in paragraph 52 that:
"…the Part 20 Defendants' breaches of duty… caused the Unauthorised Transactions to continue undetected and thereby caused or contributed to the losses allegedly suffered by the Claimants which formed the subject matter of the claim against City Index."
City Index claims to be entitled by Sections 1, 2(1) and 2(2) of the Civil Liability (Contribution) Act 1978 to recover from the Part 20 Defendants "such contribution (which may be a full indemnity) as the court may find just and equitable having regard to their respective responsibility for the damage in question."
By application notices issued on 2nd March 2006 the Part 20 defendants seek orders that the Part 20 claim be struck out or summarily dismissed under CPR Rules 3.4(2) and 24.2 on the grounds that the Part 20 particulars of claim disclose no reasonable grounds for bringing the Part 20 claim and/or that City Index has no real prospect of succeeding on the Part 20 claim. Their contentions may be summarised as follows:
(1) City Index's claim to contribution is not authorised by the Act; but even if it is
(2) City Index's claim to contribution has no real prospect of success because it received the funds transferred by Mr Chu from the claimants and either retained them or used them for its own purposes.
As the long title to the Act proclaims, it was enacted to make new provision for contribution between persons who are jointly and severally liable for the same damage and for certain other similar cases where two or more persons have paid or may be required to pay compensation for the same damage. For the purposes of these applications the material provisions are those contained in ss. 1(1), (2) and (4), 2(1) and (2) and 6(1). They are in the following terms:
1(1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).
(2) A person shall be entitled to recover contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, provided that he was so liable immediately before he made or was ordered or agreed to make the payment in respect of which the contribution is sought.
[(3)…]
(4) A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established.
2(1)…in any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question.
(2) … the court shall have power in any such proceedings to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity.
[3–5]
6(1) A person is liable in respect of any damage for the purposes of this Act if the person who suffered it…is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise)."
Is the Part 20 claim authorised by the Act?
Counsel for City Index submits that in any claim under the Act there are three questions to be answered, namely:
(a) what loss, harm or damage has the claimant suffered?
(b) is the defendant/Part 20 claimant liable for it?
(c) are the Part 20 defendants also liable for it?
He suggests that the answers in this case are that Charter lost £9m transferred from its accounts by Mr Chu to the accounts of City Index, City Index was liable for that loss at least to the extent of the £5.5m paid by them in settlement of the claim and that the directors and auditors are also liable for it if City Index proves the facts alleged in its re-amended Part 20 Particulars of Claim.
This simple analysis is disputed by counsel for the directors and the auditors. They contend that, whilst City Index may well have been liable to restore to Charter all or part of the £9m wrongfully taken by Mr Chu, such a liability is not "in respect of…damage" nor to make "compensation in respect of that damage" for the purposes of ss.1(1) and 6(1). They submit that the remedy of Charter is for restitution and that a liability to make restitution is not within the terms of the Act. For this proposition they rely on the speech of Lord Steyn in Royal Brompton NHS Trust v Hammond [2002] 1 WLR 1397 in which, with the agreement of the other members of the Appellate Committee, he stated that s.6(1) did not comprehend claims in restitution and disapproved of a passage in the judgment...
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