Cooper v PRG Powerhouse Ltd

Hearing dates: 27/2/08–28/2/08

Approved Judgment

The issue in this case arises in the liquidation of PRG Powerhouse Limited (“the Company”) which went into administration on 1 ^st August 2006 and into liquidation on 17 ^th May 2007. Before entering into administration the Company had been conducting a substantial business in the retail market selling electrical goods, with an annual turnover of £215 million, some 580 employees and 110 superstore outlets. Simon Cooper (“Mr Cooper”) the Applicant, held, until his resignation on 28 ^th October 2005, the title of Managing Director. Although this was a senior managerial position it did not have the powers of a normal managing director. Mr Cooper reported to the Company's Chief Executive Officer, Mr Onslow.

The Company provided Mr Cooper with a motor car, a Mercedes, the registration number of which was BF55POV (“the Car”). In fact Mr Cooper purchased the Car himself from Godfrey Davis (Contract Hire) Limited (“Godfrey Davis”) on credit in September 2005. On 20 ^th September 2005 he entered into a finance agreement with Godfrey Davis whereby he undertook to pay the purchase price by instalments. The Company discharged the instalment payments on his behalf as part of the salary which he received.

Mr Cooper filed a witness statement in support of his application dated 17 ^th September 2007. Although tendered, he was not cross-examined on this statement. At paragraphs 9 and 10 of his witness statement Mr Cooper said this:-

“9. At around the time of my aforesaid resignation and subsequently (in particular in around early May 2006) I reached an agreement with Godfrey Davis whereby I would make a lump-sum payment to discharge the credit agreement. At around the same time, I reached an agreement with the Company (as part of the agreed termination provisions in relation to my employment with the Company) that the Company would pay £3,000 towards the lump sum agreed with Godfrey Davis and that it would arrange to transmit the balance of the said lump sum (namely £34,239.00) on my behalf to Godfrey Davis.

10. The reason it was agreed that the Company (and not I) should pay the lump sum to Godfrey Davis was purely for convenience. As stated above, it was the Company that had hitherto made payments (on my behalf) under the financing agreement, and the Company was itself making a contribution of £3,000 to the overall sum. It made good sense for the Company to make the final balloon payment, even though I was personally paying £34,239.00 towards the overall sum. The arrangements agreed between the Company and me are reflected in a letter from Mr. Chris Onslow (the Company's CEO) to me dated 24 October 2005, a letter from Mr. Sean Hoskin (the Company's payroll manager) to me dated 12 May 2006, and a further letter from Mr. Hoskin to me dated 27 July 2006, copies of which are exhibited at pages 50, 51 and 52, respectively.”

The material parts of the letter of 24 ^th October 2005 referred to by Mr Cooper read as follows:-

“I am writing to confirm the details regarding your departure from Powerhouse and severance payment in relation to this.

As agreed your employment will be terminated on 28 ^th October 2005. You will receive the following payments at this time:-

A Termination payment of £92,000 will be made to you within 14 days of leaving the Company. The first £30,000 of this payment will tax [sic] free and the remainder will be liable to lower rate tax and NI deductions. This termination payment includes payment in lieu of notice, 6 months Pension contribution and Healthcare cover.

You will be able to retain your Company mobile phone and all bills will become payable by yourself from the 28 ^th October 2005.

You will be able to retain your Company car for a period of 6 months from your leaving date along with your Company fuel card. You will have the opportunity to purchase the car at a reduced price and this will be agreed with you prior to the 28th April 2006.”

The material passage of the letter of 12 ^th May 2006 reads as follows:-

“With reference to your recent conversations with Chris concerning your vehicle, I can confirm the following.

The lease company have quoted a purchase price of £38,899.08. It has been agreed that the Company will fund £3,000 of the price and therefore we require a cheque from yourself for £35,899.08. Please note however that this price is only guaranteed until 31 ^st May 2006 and we will therefore require cleared funds by this date in order for the purchase to go through.

If you would like to make the funds direct into our account, the details are as follows:

S/C : 20–00–00

S/C : 00232815

If you have any queries please do not hesitate to contact me.”

The Company's bank account no. 00232815 referred to in this letter was the payroll account of the Company. The material parts of the letter of 27 ^th July 2006 were as follows:-

“I write with reference to your purchase of your car ownership vehicle – BF55POV.

I confirm receipt of your payment for £34,239 and can confirm that this payment is now being forwarded to Godfrey Davis.

On receipt of the monies Godfrey Davis will make the necessary arrangements to have the ownership documentation forwarded to you.”

On 7 ^th July 2006 Mr Cooper had paid £34,239 (“the Payment”) to the Company into its payroll account no. 00232815. The Company had agreed with Mr Cooper to contribute £3,000 to the purchase of his car as part of his severance agreement. Whereas the outstanding amount payable for the Car to Godfrey Davis had previously been fixed at the sum of £38,899.08, it was subsequently reduced by agreement to £37,239 which sum was to be paid by the Company to Godfrey Davis of which £34,239 was to be contributed by Mr Cooper. In fact, and notwithstanding what was said by Mr Hoskin, the Company's payroll manager, to Mr Cooper in the letter of 27 ^th July, it was not until 31 ^st July that the Company made the anticipated onward payment to Godfrey Davis which, as it turned out, was by a cheque for the by then incorrect figure of £38,899.08. The Company entered into Administration on 1 ^st August with the result that the cheque was dishonoured.

At paragraph 13 of his witness statement Mr Cooper said this in relation to the Payment:-

“13. I made this payment on the clear understanding with the Company, reached both with Mr Onslow and Mr Hoskin on its behalf and reflected in the terms of Mr Hoskin's aforementioned letter of 27th July 2006, that the Company would forward the monies on to Godfrey Davis (together with an additional £3,000 contributed by the Company itself) in full and final settlement of the sums due under the credit agreement between myself and Godfrey Davis.”

Then at paragraph 24.2 Mr Cooper says with relation to the Payment:-

“…When the sum of £34,239 was paid by me to the Company on 7th July 2006, it was – as stated above – paid for the specific purpose of paying a debt to a third party, Godfrey Davis. That was the basis (and the only basis) upon which it was paid by me and upon which the Company agreed to receive it, a matter which cannot be seriously disputed. There was no intention on either side's part that the sums transferred should be available to the Company's general creditors.”

Mr Cooper's application, dated 17 ^th September 2007 is made pursuant to Sections 112 and 167(3) of the Insolvency Act 1986 asking for the following orders:-

“1. A Declaration that the monies paid by the Applicant to the First Respondent on or around 7th July 2006 in the sum of £34,239 were held on trust for the Applicant for the purpose of paying them to Godfrey Davies (Contract Hire) Limited in connection with the completion of his purchase of a Mercedes Benz CLK Cabriolet with registration number BF55POV and, if that purpose failed for any reason, repayment to the Claimant.

2. Further, a Declaration that the purpose for which the said monies were paid to the First Respondent failed when the First Respondent entered into administration on 1 ^st August 2006, such monies by that date had not yet been paid to Godfrey Davis (Contract Hire) Limited.

3. Further, or in the alternative, a Direction that the Second to Fourth Defendants [the Liquidators] do cause the First Respondent to repay to the Applicant to the sum of £34,239 plus interest (or equitable compensation in lieu thereof), alternatively that the Second to Fourth Respondents do cause the First Respondent to pay such sum or sums to Godfrey Davies (Contract Hire) Limited on behalf of the Applicant.”

Was the Payment subject to a purpose trust?

It is Miss Hilliard's submission that Mr Cooper's claim should be treated like any other unsecured claim against the Company, in particular, like any of the Company's creditors whose claims are for money paid by them in advance for the delivery of goods which they have not received. While accepting that whether or not a payment was subject to a purpose trust was a question of fact, she submitted that the evidence before the court was insufficient to justify a finding of such a trust. She submitted that, whereas the Payment was self-evidently for the...