Craig v Humberclyde Industrial Finance Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Morritt,Brooke LJ.,Hirst LJ. |
| Judgment Date | 18 June 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0618-11 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CHANI 97/0981/3 |
| Date | 18 June 1998 |
[1998] EWCA Civ J0618-11
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM MR. JUSTICE CHADWICK
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord justice hirst
Lord justice morritt
and
Lord justice brooke
Case No: CHANI 97/0981/3
MR. G. MOSS Q.C. and Mr. S. ATHERTON(instructed by Messrs Pinsent Curtis for the Appellants)
Mr. M. BRINDLE Q. C. and MR. P. MARSHALL (instructed by Messrs Russell Jones & Walker for the second and third Respondents)
MR. R. RITCHIE (instructed by Messrs. Wragge & Co. for the Official Receiver)
The Hinckley Island Hotel Ltd ("the Company") was wound up by the court on 11th November 1993; the Official Receiver became and still is its liquidator. Its assets at that time included the freehold of a hotel complex at Hinckley, Leicestershire, the expansion of which had been financed by the Humberclyde Group, and alleged causes of action against four members of that group which the Company sought to enforce in three actions it had commenced. The Official Receiver was not in a position to pursue those actions and was considering assigning the causes of action to former directors of and shareholders in the Company, Mr Hicks and Ms Spence ("the Directors"). At that stage the Humberclyde Group made a counter-proposal for the compromise of the actions. By an order made by Chadwick J on 14th February 1997 the Official Receiver was directed to apply to the court for directions under s.168(3) Insolvency Act 1986.
The application was duly made and came before Chadwick J on 10th and 11th June 1997. Those present or represented at the hearing included the Official Receiver, Humberclyde Group and the Directors. The judge indicated that he proposed to adopt the procedure applied in the Chancery Division when trustees seek directions whether to take proceedings against a beneficiary and entertain evidence and submissions from other parties in the absence of that beneficiary. Accordingly on the morning of the second day he required the representatives of the Humberclyde Group to leave court. On their return, early in the afternoon, the judge indicated that he had entertained submissions from the Directors and invited counsel for the Humberclyde Group to deal with various points he described as arising "partly out of what Mrs Spence has been telling me and partly out of my own thoughts". At the conclusion of counsel's submissions on those points the judge indicated that he would reserve his judgment.
Chadwick J gave judgment on 20th June 1997. He described the complicated background to the application before him and the rival proposals of the Humberclyde Group and the Directors. He described the principal points made by the Humberclyde Group in opposition to the submission of the Directors that the causes of action should be assigned to them so that they might pursue them. The first of those points was the contention that, applying the provisions of Insolvency Rule 4.90 requiring the set-off in the liquidation of cross-claims as recently explained by Lord Hoffmann in Stein v Blake [1996] AC 243, there was nothing to assign because the balance was in favour of Humberclyde Group. This and the other points urged on him by Humberclyde were rejected by the judge. His orders, made on 20th and 30th June 1997, directed the Official Receiver to assign the causes of action to the Directors. This is an appeal by the Humberclyde Group from those orders.
The issues raised by the notice of appeal fell into two groups. The first group consisted of objections to the procedure adopted by the judge. There are two such objections; first, the judge was wrong to apply the procedure applicable in the Chancery Division to an application by trustees for directions whether to sue one of their beneficiaries; second, the judge did not in fact give to counsel for the Humberclyde Group adequate opportunity to address him on the merits of the actions the Directors sought to pursue if the causes of action were assigned to them. The second group comprised a number of wide-ranging issues of fact and law which arose on the merits of the application. One of those issues was whether the judge was right to conclude that the balance of debt, after applying Insolvency Rule 4.90 to the cross-claims of the Company and members of the Humberclyde Group, was in favour of the Company. The Humberclyde Group contended in the light of fresh evidence admitted on the hearing of the appeal that the judge was wrong in that respect. We heard argument on the two procedural objections and the question of where the balance lay assuming Insolvency Rule 4.90 to be applicable. In the light of that argument we did not consider it necessary to call on counsel to address us on the other issues raised by the notice of appeal and extensively elaborated in the written arguments submitted by the parties in advance of the hearing. What follows is, therefore, limited to my consideration of and conclusions on those three issues and such further description of the facts as is necessary to explain them.
In 1989 the Company wished to expand the hotel operations but needed additional finance for that purpose. On 24th October 1989 Mr Hicks, then the managing director of the Company, instructed Christie & Co. to prepare a valuation for finance purposes. Such a valuation was produced on 16th November 1989 putting different figures on the value of the property depending on the stage of its development which had been reached, rising from £7.9m. at phase 1 through £22.5m. at phase 4 to £37m. at phase 7.
The Humberclyde Group were prepared to provide the Company with finance and a series of complicated transactions were entered into on 22nd January 1990. In summary the transactions included a lease and leaseback realising a premium of £8.5m., a development agreement whereunder finance for the development would be provided by way of loan, a debenture conferring a floating charge over the whole of the Company's undertaking, property and assets both present and future and a put option whereby the Company might be required to enter into a further lease of the hotel. Further finance was provided by the Humberclyde Group on 10th December 1990 by means of a leasing agreement in respect of the chattel equipment in the Hotel.
The third of the issues I described earlier depends in part on the state of account between the Company and the Humberclyde Group in the period May to September 1991. At this stage it is sufficient to record that it is not disputed by the directors that during that period the Company owed the Humberclyde Group not less than £13.5m. On 10th June 1991 Robson Rhodes, a firm of accountants, reported that in their view the Company was insolvent. On 21st June 1991 the Humberclyde Group granted to the Company a further facility but one which required the Company to permit Robson Rhodes to monitor the Company's expenditure in order to safeguard the interests of the Humberclyde Group. Pursuant to the terms of this facility and a facility granted on 25th July 1991, the Company granted three further debentures to companies in the Humberclyde Group in June and July 1991.
On 9th September 1991 a company in the Humberclyde Group took possession of the Hotel as mortgagee and entered into a management agreement for the future management of the Hotel with another company in the Group. The first two of the three relevant actions were commenced by writs issued by the Company on 23rd October 1991. In the first, the Redemption Action, it was alleged that the complicated transactions by way of lease and lease-back and put option entered into on 22nd January 1990 were in substance a loan of £8.5m. on mortgage which might and should be redeemed. In the second, described as the Window Payment Action, the Company alleged that the Humberclyde Group were in breach of contract in failing to make a loan of £663,000 during a "window of opportunity".
On 7th January 1993 a statutory demand was served on the Company for non-payment of sums alleged to be due by the Company under the chattel equipment lease. The demand was not complied with and a petition for the winding up of the Company was presented to the Court on 5th March 1993. On 22nd October 1993 the Company commenced the third relevant action. This, the Conspiracy Action, alleged that four companies in the Humberclyde Group and Robson Rhodes had conspired together in the period May to September 1991 to deprive the Company of its hotel and business. The Company sought damages in respect of that loss but did not attempt to quantify it. For present purposes it is sufficient to record that the merits of that claim were considered by Mr Neuberger QC, sitting as a deputy judge of the Chancery Division, in his judgment on the petition to wind up the Company given on 11th November 1993 and by the Registrar of Civil Appeals in his judgment, given on 17th July 1995, on an application by the Humberclyde Group for security for their costs of the Company's appeal from the winding up order made by Mr Neuberger. Neither of them was impressed with the alleged merits of the Conspiracy Action. The Company's appeal against the winding up order was ultimately dismissed on 26th January 1996 for failure to provide the security for costs ordered by the Registrar.
On 23rd May 1996 the Official Receiver gave notice to the Company's creditors that he proposed to assign the causes of action relied on by the Company in all three actions to the Directors on terms that 40% of the recoveries (if any) would be paid to...
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