Claims Direct Plc (in Voluntary Liquidation) (Acting by its Joint Liquidators) v Lloyd Edward Hinton (Trustee in Bankruptcy of Colin David Poole)
| Jurisdiction | England & Wales |
| Judge | Brian Rawlings |
| Judgment Date | 18 June 2021 |
| Neutral Citation | [2021] EWHC 1613 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 8362 of 2017 |
| Date | 18 June 2021 |
[2021] EWHC 1613 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
Insolvency and Companies List (ChD)
Birmingham Civil Justice Centre
Bull Street, Birmingham B4 6DS
HHJ Brian Rawlings sitting as a High Court Judge
Case No: 8362 of 2017
Adv Thomas Robinson (instructed by Isadore Goldman) for the Applicant
Adv Elaine Palser (instructed by Charles Russell Speechlys LLP) for the Respondent
Hearing date: 11 May 2021
INTRODUCTION
This is an appeal, under Rule 14.8(1) of the Insolvency Rules 1986 (as amended) by Claims Direct Plc, acting by its liquidators (“the Applicant”). The Applicant appeals against the decision, dated 1 July 2020 of Lloyd Hinton (“the Respondent”) the Trustee in Bankruptcy of Colin Poole (“Mr Poole”) to reject the proof of debt dated 7 January 2020 submitted by the Applicant to the Respondent. (“the Proof of Debt”).
Mr Poole is a former director of the Applicant. Two claims are advanced in the Proof of Debt, both relate to the conduct of Mr Poole while he was a director of the Applicant in 2000. The first claim is that Mr Poole fraudulently breached the duties he owed as a director of the Applicant in relation to the acquisition, by the Applicant of a part of the business of Poole & Co, a solicitors practice of which Mr Poole was sole proprietor (“the Breach of Duty Claim”). The second claim is a claim against Mr Poole in the tort of deceit, again related to the acquisition of part of Poole & Co's business by the Applicant (“the Deceit Claim”).
The Breach of Duty Claim and the Deceit Claim both seek damages equivalent to the whole of the purchase price paid to Poole & Co by the Applicant (and therefore to Mr Poole as its sole proprietor) of £9,750,000 (“£9.75m”).
In this judgement I will (in separate headed sections):
(a) set out the relevant background to the Breach of Duty Claim and the Deceit Claim;
(b) refer to previous relevant proceedings, namely:
(i) Company Director Disqualification proceedings taken by the Secretary of State, against Mr Poole and Anthony Sullman (“Mr Sullman”) another director of the Applicant in connection with their conduct as directors of the Applicant (“the CDDA Proceedings”);
(ii) Proceedings commenced against Mr Poole in 2008 before the Solicitors Disciplinary Tribunal (“SDT”) in connection with matters relevant to this appeal (“the SDT Proceedings); and
(iii) a claim brought by Peter Edward Carroll (“Mr Carroll”) against Mr Poole in which Mr Carroll claimed that the Applicant had assigned to him the benefit of (in substance) the Breach of Duty Claim and Mr Carroll pursued that claim against Mr Poole (“the Carroll Claim”).
(c) describe briefly the Breach of Duty Claim and the Deceit Claim;
(d) confirm who represented the Applicant and the Respondent on the hearing of this appeal and the stance that they took on hearing of the appeal. I will also explain that other parties (including Mr Poole) were invited to participate in this appeal, but have not done so;
(e) describe the evidence that I have available to me to determine the appeal;
(f) set out:
(i) the basis upon which the Applicant advanced the Breach of Duty Claim and the Deceit Claim in the Particulars of Debt dated 7 January 2020 which the Applicant sent to the Respondent with the Proof of Debt also dated 1 July 2020 (“the Particulars of Debt” and “the Proof of Debt);
(ii) Mr Poole's response to the Particulars of Debt set out in a document dated 4 March 2020 (“the Response”);
(iii) the Applicant's reply to the Response, dated 29 May 2020 (“the Reply”);
(iv) the reasons given by the Respondent, in the “Trustee's Statement of Reasons” dated 1 July 2020 for rejecting the Proof of Debt (“the Trustee's Reasons”): and
(v) the grounds on which the Applicant appeals against the Respondent's rejection of the Proof of Debt
(g) explain my approach to the evidence that is available to me to determine this appeal;
(h) set out my decision on the Deceit Claim and my reasons for that decision;
(i) set out my decision on the Breach of Duty Claim and my reasons for that decision; and
(j) determine the value of the Applicant's claim.
BACKGROUND
In the mid 1990's the government took steps to restrict the availability of legal aid to fund civil proceedings.
In December 1995, Mr Sullman incorporated Claims Incorporated Plc (“Claims Inc”). Claims Inc, from 1996, started to offer a service to prospective personal injury claimants, by which, in return for 30% of the proceeds of a successful claim, Claims Inc would locate a solicitor to pursue the claim on behalf of the claimant and, if the claim was unsuccessful, would provide an indemnity to the claimant, both for the costs of the solicitor that pursued the claim on the claimant's behalf and for any costs of the defendant which the claimant was ordered to pay.
On 1 June 1996 Claims Inc entered into an agreement with Poole & Co, a firm of solicitors of which the sole proprietor was Mr Poole (“Referral Agreement”). Under the Referral Agreement prospective personal injury claimants who accepted the service offered by Claims Inc were exclusively referred, by Claims Inc to Poole & Co. The Referral Agreement provided that:
(a) Poole & Co could decide, either to pursue the claim on behalf of the potential claimant themselves or to refer the potential claimant to a solicitor which was a member of an approved panel (“Panel Solicitor”);
(b) Poole & Co would be entitled to charge a fee to any Panel Solicitor to whom it referred a potential claimant, the fee was stated to be for Poole & Co's costs for vetting the claim before it was referred to the Panel Solicitor. The fees paid to Poole & Co by Panel Solicitors, became over time, because of the large number of referrals made to Panel Solicitors very substantial (“the Vetting Business”); and
(c) the agreement lasted for the period of three years from 1 June 1996 and thereafter was terminable by either party, giving three months written notice to the other.
Mr Poole became a director of Claims Inc on 8 July 1997.
From August 1999, Claims Inc offered to provide to prospective claimants, at no cost to the prospective claimant, insurance against the risk of the prospective claimant having to pay the defendant's costs, if their claim was unsuccessful. The insurance was only provided if the prospective claim was assessed as having a better than 50% chance of succeeding. A premium was payable which Claims Inc indicated would not be payable if the claimant lost and would be recovered from the defendant if the claimant won.
In early 2000, the board of Claims Inc decided to float its claims business on the London Stock Exchange and the Applicant (Claims Direct Plc) was incorporated on 27 March 2000 to acquire the business of Claims Inc and to offer the Applicant's shares to the public (“the Floatation”).
In May 2000, as the Applicant was being prepared for its shares to be offered to the public, the board of Claims Inc (which still owned and operated the claims business at that point) discussed the possibility of ending the arrangement by which Poole & Co carried on the Vetting Business with a view to the Vetting Business being conducted by the Applicant after the Floatation. The reason presented to the board of Claims Inc for ending the running of the Vetting Business by Poole & Co was that Investec, who were underwriting the Floatation considered that Mr Poole's role as a director of the Applicant and as sole proprietor of Poole & Co would give rise to a conflict of interest which would not be viewed favourably by potential buyers of the Applicant's shares.
PwC were instructed to advise upon a fair value for the Vetting Business and on 12 June 2000 PwC produced what they referred to as a “indicative valuation” of £27 million for the Vetting Business (“the PwC Valuation”).
On 20 June 2000, the board of the Applicant met (Mr Poole not attending) and considered a draft of an agreement between the Applicant and Poole & Co for the acquisition of the Vetting Business by the Applicant, The board were told, in a memo dated 17 June 2000, prepared by Paul Doona, a director of the Applicant (“Mr Doona's Memo”) that a price of £9.75m had been agreed in principle, between Mr Sullman and Mr Poole for the acquisition of the Vetting Business by the Applicant from Poole & Co. A copy of the PwC Valuation was provided with Mr Doona's Memo and comments on the PwC Valuation, and the price agreed between Mr Sullman and Mr Poole were made in that memo. The board of the Applicant approved the purchase price of £9.75m and the draft agreement, which it was told was subject to amendment.
On 5 July 2000 there was a further board meeting of the Applicant, by this time the original proposal that the Applicant would acquire the Vetting Business from Poole & Co had changed to one in which Poole & Co would retain the Vetting Business, but Poole & Co would sub-contract the vetting of claims to the Applicant and pay the vetting fee that it received from Panel Solicitors to the Applicant. The reasons for the change, in simple terms was that Law Society Regulations did not allow a solicitor to pay a referral fee to anyone who was not another solicitor and so the new structure provided for Panel Solicitors to continue paying vetting fees to Poole & Co, (a solicitor practice). The final form of the agreement was approved by the board of the Applicant, with Mr Poole attending but not voting on the agreement and signed on 5 July 2000. Putting it neutrally, and in general terms, for the moment, the date of completion of the sale and purchase depended upon when Mr Poole disposed of Poole & Co (“the Vetting Business Agreement”).
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