Clark v Cutland
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Potter,Lord Justice Schiemann |
| Judgment Date | 18 June 2003 |
| Neutral Citation | [2003] EWCA Civ 810 |
| Docket Number | Case No: A3/2002/1575 CHANF |
| Court | Court of Appeal (Civil Division) |
| Date | 18 June 2003 |
[2003] EWCA Civ 810
Lord Justice Schiemann
Lord Justice Potter and
Lady Justice Arden
Case No: A3/2002/1575 CHANF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIS HONOUR JUDGE NORRIS QC
Royal Courts of Justice
Strand,
London, WC2A 2LL
David Stockill (instructed by FBC Solicitors) for the Appellant
Thomas Seymour (instructed by the Bar Pro Bono Unit) for the first Respondent
The other respondents were not represented and did not appear.
This is an appeal against the order of His Honour Judge Norris QC sitting in the High Court of Justice, Chancery Division, Birmingham District Registry, on 12 July 2002. In the proceedings the appellant, Mr Clark, has claimed relief under section 459 of the Companies Act 1985 in respect of unfairly prejudicial conduct by his fellow shareholder, Mr Cutland, in the management of the affairs of Tulgrove Limited ("the company"). Mr Clark succeeded in showing unfair prejudice and an order was made for the acquisition of Mr Cutland's shares.
So far as material, Mr Clark and Mr Cutland were equal shareholders in the the company. At all material times, they were also the only directors of the company. The judge found that, without Mr Clark's knowledge, Mr Cutland had misappropriated from the company sums totalling £517,734. The exact method of his misappropriation is not material for present purposes. When the misappropriation came to light, Mr Clark commenced a derivative action on behalf of the company against the trustees to recover the monies which had been misapplied. Later he commenced unfair prejudice proceedings under section 459 of the Companies Act 1985. The derivative action was in due course consolidated with the unfair prejudice proceedings but it was in the latter proceedings that relief was ultimately granted.
The judge also found that Mr Cutland had taken from the company, without authority, remuneration in the form of salary, pension contributions and other benefits in the further sum of £432,432. This sum included contributions of £45,000 and £50,000 made in 1998 and 1999 out of the company's assets and a further contribution of £50,000 made in 2000, which Mr Cutland paid personally but then recouped out of the company's funds. These payments were made to Mr Cutland's pension fund and were included in the judgment given against Mr Cutland in favour of the company in the sum of £1,150,753.
The judge also found that the company was indebted to the pension fund in the sum of £100,000. The circumstances in which this debt arose are not relevant for the purposes of this appeal. This appeal is only against the judge's refusal to order that that debt should be set against the contributions totalling £145,000 which Mr Cutland paid or caused to be paid on his behalf to the fund.
The judge rejected a defence to Mr Cutland's unauthorised drawings based on the alleged unanimous consent of both shareholders. The drawings were included in a balance sheet item for directors' remuneration in the annual accounts for the relevant years, and if Mr Clark had analysed the global figures, he would have appreciated that Mr Cutland was drawing remuneration which he had not approved. The judge held:
"… [T]o say that, because Mr Clark did not carry out that calculation he is bound by his 'approval', would be to substitute a test of non–objection to the test of positive approval which Re Duomatic lays down and I decline to do so.
This is all the more the case where, not only was the attention of the shareholders not drawn to the remuneration being paid to Mr Cutland, but their attention was specifically diverted away by the clear statement that he was not making any drawings. I am satisfied that taking money in pension contributions whilst not disclosing that he was doing so, and indeed asserting that he was not doing so, amounts to 'unfair prejudice' as well as being unlawful. It may well be that if Mr Clark had been asked, he would have approved some level of remuneration related to his own. However, that does not stop the fact that the money was taken without his being asked as 'unfair prejudice'" (judgment, page 17).
It is common ground that the trustees of the pension fund made loans to the company and that at the date of the trial the company was indebted to the trustees in the sum of £100,000. The only beneficiaries of the pension fund are Mr Cutland and his wife and dependants. The trustees of the pension fund are Mr Cutland and the third respondent. Neither the company nor the third respondent has played any part in these proceedings. Neither appeared before the judge or on this appeal. They have, however, been duly served.
The judge also found that there was unfair prejudice in that Mr Cutland obtained an allotment of shares intended for a new director. We are not concerned with that allegation. The judge directed that these shares should be acquired by the company. The judge ordered a purchase by Mr Clark of Mr Cutland's remaining shares on terms which are not material. The judge rejected a number of other allegations of unfair prejudice but we are not concerned with them and accordingly it is unnecessary for me to set them out.
The judge acceded to the submission that there was a wide jurisdiction under section 461 to give relief against third parties which could have been granted in a derivative action. The judge cited inter alia Re Hailey Group Ltd [1993] BCLC 459 and Lowe v Fahey [1996] 1 BCLC 262 and concluded that it was appropriate for him to treat the petition as if it were a derivative action, particularly as there was a derivative action in the background with which the petition had been consolidated. The same view of the law was taken by the Inner House of the Court of Session in Anderson v Hogg [2002] BCC 933.
Preliminary Issue
A preliminary point arises as to whether the appeal in this case can proceed at all. Mr Thomas Seymour, for Mr Cutland, contends that the remedy now sought on appeal was not pleaded below. Only very brief reference was made to it by the appellant in his opening and closing submissions at trial. What is sought on appeal is an order setting the amounts which Mr Cutland paid into the pension fund from the company's assets without authority against the loan owed by the company to the trustees of the pension fund. This order is at variance with Mr Clark's case in that in his petition Mr Clark accepted that he would have been content if Mr Cutland had drawn about the same remuneration as he did. In fact, Mr Cutland had only drawn about £128,000 in all more than Mr Clark.
Mr Seymour makes a number of further submissions. First, the order now sought is not set out in the petition; Mr Clark could not rely on the fact that the prayer in the petitions sought unspecified "further or other relief". To allow unpleaded points to be raised on an appeal would be to turn the appeal into a fresh hearing when it should in general be no more than a review of the judge's order ( CPR 52.11). Second, Mr Seymour submits that the judge refused the relief now sought on appeal specifically on the grounds that no such relief had been sought. Third, Mr Seymour submits that an unpleaded point should not have been taken against Mr Cutland who was representing himself. Mr Cave did not appear. The trustees were effectively third parties. Fourth, Mr Seymour submits that an action has been started by the trustees for repayment of the sums due to the trustees, in which it is open to the company to plead as a defence that it is entitled to a proprietary remedy against the pension fund by reason of the matters found in this action. He concedes, however, that if the company takes that course, it might be open to the trustees to rely on abuse of process ( Henderson v Henderson (1843) Hare 100). Likewise, if the appeal were dismissed and the company were to start a new action seeking to recover assets from the pension fund, the trustees might be entitled to have the proceedings dismissed as an abuse of process.
Mr David Stockill, for Mr Clark, submits that the relief now sought was in fact sought in the court below. He refers to his written submissions which he submitted on 8 July 2002 before making his closing speech. The written submissions state in material part as follows:-
"3.10 The company has, it is submitted, a straightforward case for recovery of the unauthorised pension contributions in the sum of £145,000. Clearly these funds remain in the pension scheme.
3.11 They should be used to offset the loan liability …"
Mr Stockill submits that, although arguments were addressed to the judge on set off, the judge did not deal with the point in his judgment. According to the transcript of the discussion after judgment, Mr Stockill pointed out to the judge that his judgment did not deal with the question of a proprietary remedy against the pension fund trustees and the judge replied that, as the monies were paid without authority, and the trustees had no notice of the lack of authority, the company could not retain title to the monies and accordingly no proprietary remedy lay against the pension fund trustees. Mr Stockill applied for permission to appeal against this ruling. The judge's reasons for refusing permission to appeal were that that relief had not been claimed in the petition and that there was no real prospect of success on appeal.
Mr Stockill submits that Section 461 of the Companies Act 1985 is wide enough to encompass relief of this...
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