David James Coulter Cunningham v Lawrence Charles Alexander Ellis
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 30 November 2018 |
| Neutral Citation | [2018] EWHC 3188 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000727 |
| Date | 30 November 2018 |
[2018] EWHC 3188 (Comm)
Mr. Justice Teare
Case No: CL-2017-000727
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
The Claimant represented himself William BuckandDavid Gregory (instructed by Schofield Sweeney LLP) for the First to Third Defendants
Ian Wilson QC (instructed by DLA Piper LLP) for the Fourth Defendants
James Brocklebank QC and Ralph Morley (instructed by Orrick Herrington & Sutcliffe LLP) for the Fifth Defendant
Hearing dates: 15 and 16 October, 8 November 2018
Judgment Approved
INTRODUCTION
In April 2009 Allerton Group Limited (“AGL”), the holding company of a group involved in steel fabrication and the manufacture of bridges, went into administration and in June 2009 the business and assets of AGL were sold. The Claimant was the majority shareholder and feels very aggrieved by the events which led to that sale. He has commenced proceedings against the First to Third Defendants (three former directors of AGL), the Fourth Defendant (AGL's bank) and the Fifth Defendant (an accountant instructed to prepare an Independent Business Review of AGL (an “IBR”)). In these proceedings he seeks to recover the loss he says he suffered as a shareholder and, by way of an assignment to him of AGL's claim, the loss suffered by AGL. The total sum claimed is some £20 million plus some £18 million in respect of interest.
All the Defendants seek an order striking out the claims which have been brought against them; alternatively, they seek summary judgment.
The Claimant has alleged not only that the Defendants breached duties owed to AGL and/or himself but also that there was an unlawful conspiracy to injure him and that there have been fraudulent misrepresentations.
The matters giving rise to this claim took place in the first part of 2009. Since that time, the Claimant has pursued numerous avenues of complaint, before the police, UK regulatory authorities and the Isle of Man Courts.
The Claimant, who is aged 73, represented himself before me as a litigant in person, assisted by a Mackenzie friend. He described himself in his skeleton argument as impecunious. He prepared his oral submissions with care and made them clearly and firmly. When asked questions by the court his replies were realistic but, at the same time, he made clear, calmly and politely, that he maintained his case.
THE PARTIES
Long before the events giving rise to the present case the Claimant had qualified as an accountant in Scotland and then as an advocate at the Scottish Bar. He told me that he had had a career in business and finance. At the relevant times, the Claimant was the majority shareholder in AGL. He held these shares in the name of ‘Glencairn & Co’, an Isle of Man trading name with no independent legal identity. He is now retired, and resident in the Isle of Man.
On 3 September 2007, AGL acquired 100% of the share capital in Allerton Industries Limited (“AIL”) (of which the First Defendant had previously been the majority shareholder). It thereby became the parent company of AIL's two subsidiaries: Allerton Engineering Limited (“AEL”), a steel fabrication business, and Allerton Bridges Limited (“ABL”), a bridge manufacturing company. Collectively, I shall refer to AGL, AIL, AEL and ABL as the “Allerton Group”.
Glencairn & Co acted as Company Secretary to the companies in the Allerton Group. The Claimant was disqualified from acting as a company director in England and Wales, and concern was expressed by the company's auditors that the Claimant may have been acting as a shadow director, which would have been illegal.
The First to Third Defendants were Directors of AGL at various times. The Chairman of AGL was Mr Richard Kilner, who is not a party to these proceedings. Mr Kilner and the Second Defendant (via an Isle of Man company, Colorado Holdings Limited) were minority shareholders in AGL.
The Fourth Defendant (“the Bank”) provided banking services to the Allerton Group under contracts with AGL and AEL. These included in particular: (i) a £3.3m term loan facility to AGL; (ii) a working capital overdraft facility of £100,000 to AGL; (iii) a confidential invoice discounting facility (the “CID facility”) to AEL. Under the CID facility, the Bank released funds to AEL against invoices issued by AEL (prior to payment of those invoices by the debtors). Under the terms of the CID facility, the Bank would generally pay 85% of the value of each invoiced debt. The facility included a cap on the Bank's advance in respect of certain debtors, and provided that no advance would be made in respect of invoices to other Allerton Group companies.
The Fifth Defendant (“EY”) was instructed by the Bank and the directors of the Allerton Group companies, in February 2009, to perform an Independent Business Review (“IBR”) of the Group.
The scope of the IBR was set out in Appendix 3 to EY's Engagement Letter as follows: (i) ‘Analyse and comment on the short term cash flow to May 2009’; (ii) ‘Comment on the Group's recent trading and cash flow performance for the 13 months ended 31 January 2009’; (iii) ‘Analyse and comment on the Group's balance sheet position as at 31 January 2009’; (iv) ‘Comment on the Group's trading and cash flow forecasts for the year ending 31 December 2009’; (iv) ‘Provide options and recommendations for BoS and the Group based on our work and analysis’.
EVENTS GIVING RISE TO THE CLAIMS
The background to the present claims is the financial position of the Allerton Group at the start of 2009. There was substantial disagreement on some matters but some undisputed facts can be taken from the Allerton Group's accounts and other contemporaneous documents. In 2008 the combined turnover of the Group was £8.8m, but it made a combined net loss of £170,000. By the end of 2008 it was in arrears as to corporation tax, and PAYE. The Group was owed £331,000 under a loan made to the Claimant, via Glencairn & Co.
On 6 February 2009 (following a meeting with the Directors and Mr. Cunningham on 3 February 2009) the Bank gave formal notice to AGL's Directors that it considered that AGL was in breach of financial covenants in its contracts with the Bank. It noted that it had the right to withdraw its support of the Group. The Claimant did not accept that there had been a breach but there can be no doubt that the Bank made its views known in what the Claimant accepted was a “straightforward letter.”
On 11 February 2009 the Board and the Claimant discussed the Group's position.
The IBR was commissioned on 18 February 2009. The IBR was issued in draft in March 2009, and in its final form on 3 April 2009. The report concluded that the group needed between £500,000 and £1m in additional short-term funding; that it was ‘currently experiencing extreme creditor pressure’; that the Group's forecast of £1.935m of pre-tax profit in 2009 was ‘optimistic… based on assumptions which lack detail and are not supported by recent or historical trends’; and that the Group was ‘clearly insolvent’ and therefore ‘the Directors are at risk of wrongful trading’.
In a report dated 5 March 2009 1 in respect of the year ended 31 December 2007 Deloitte expressed concern as to the role of the Claimant in the company given that he had been disqualified from acting as a director.
By letter dated 18 March 2009 to AGL and the Claimant the Third Defendant expressed his concern that the further investment thought to be available (less than recommended by EY) would be lost and might expose the Directors to legal action in circumstances where insolvency was “unavoidable”.
At a meeting on 26 March 2009 at EY's Leeds offices, AGL instructed EY to assist in the sale of the Allerton Group's business and assets under an Accelerated Disposal Process (“ADA”). The terms of this engagement are set out in an Engagement Letter sent by EY dated 27 March 2009.
The meeting on 26 March 2009 was recorded by EY in a contemporaneous file note. The Claimant told me that the file note was not accurate but he accepted that any errors were not “deliberate”. He said there was no discussion of the short term cash position but the file note expressly recorded that that was discussed. He said that some matters were missing from the file note, in particular, a “tirade” by the First Defendant against himself. But the file note refers on several occasions to matters on which the First Defendant and the Claimant disagreed. He also said that Mr. Kelly of EY threatened not to pay wages and salaries. But the file note records Mr. Kelly as stating that the Directors must consider carefully whether the Group was solvent and could pay its debts as they fell due. Although there may be disputes between the Claimant and EY as to what was said or not said at the meeting on 26 March 2009 it is clear that those present decided that a sale of AGL's business and assets was required. EY's letter setting out the terms of its engagement recorded as follows:
“We have been retained by the Group, to assist in the sale of the share capital or business and assets of AGL and its subsidiaries (the Group). The Group is currently suffering a cash crisis and requires an urgent equity injection which is being pursued by the Directors/Shareholders. Given the current financial position of the Group and urgency of the situation, the Directors have also instructed us to pursue a sale of the Group's share capital or business and assets.”
The Third Defendant (Mr Penn) registered an interest as a prospective...
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