Gordon Louis Mcnally and Another v Alan Jackob Katz and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER |
| Judgment Date | 07 March 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J0307-3 |
| Docket Number | PTA 2000/5319/A3 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 March 2000 |
[2000] EWCA Civ J0307-3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR JUSTICE FERRIS)
Lord Justice Robert Walker
PTA 2000/5319/A3
The Applicant appeared in person
The Respondent did not attend and was unrepresented.
( )
Tuesday, 7th March 2000
This is an application by Mr Gordan McNally for permission to appeal against two orders of Ferris J, one dated 6th and one dated 7th October 1999, and for a stay of execution until the appeals are heard. It was originally launched as an application for permission to appeal one order only, but, as I shall explain in due course, it is apparent that two orders were made by Ferris J last October.
The general effect of the order mentioned in the application for permission to appeal was that there should be a sale of the freehold property known as the King's Mead Windmill at Caldbec Hill, Battle, in East Sussex. That is and always has been the sole property of Mr McNally but it is subject to two charging orders, the bases of which and the enforcement of which Mr McNally and his wife, Mrs Sylvia McNally, have challenged vociferously, but so far unsuccessfully, in litigation which has occupied several years.
Mr McNally is nearly 76 years old. There is undisputed evidence that his health is, and for some time has been, very poor; it is not necessary to go into detail because there is no dispute about it. The up-to-date details are set out in a letter dated 10th February 2000 from Mr McNally's General Practitioner, Dr Rivett.
Mr McNally has been represented by his wife, Mrs McNally, a lady of considerable intelligence and great determination and courage.
The matter has a long and painful history and I must at least sketch in the main outlines, since part of Mrs McNally's complaint is that past extravagance and misconduct by insolvency practitioners, acting as officers of the Court, has led to the sorry position that Mr and Mrs McNally now find themselves in. I should say at once that I am not much impressed by the allegations of misconduct, but I am greatly struck and greatly depressed, as the full Court was on an occasion that I shall mention shortly, by the disproportionate expense which seems to have been incurred in office holders trying to recover aggregate principal sums in the region of £200,000 for the benefit of creditors of companies within the Exchange Travel Group.
The companies principally involved were Exchange Travel (Holdings) Ltd, which I will call "Holdings" (the Group Holding Company as its name implies) and its two main trading subsidiaries, Exchange Travel Agency Ltd, which I will call "Agency"; and Exchange Travel Holidays Ltd which I will call "Holidays."
Mr and Mrs McNally were directors and shareholders of Holdings, and directors of all or most of the important subsidiaries; so was Mr Graham McNally, the son of Mr McNally, and other members of the McNally family. The group had some apparently flourishing travel businesses with a high turnover, but, like many companies in that sector, the group was vulnerable to changing market conditions. After the sale in 1985 of 39 profitable retail branches for a sum in excess of £6m the Group invested heavily in an unsuccessful property venture (called the "Leisure World Project") in Cornwall.
On 18th September 1990 an administration order under section 8 of the Insolvency Act 1986 was made in respect of the three principal companies. Statements of affairs sworn by the directors showed estimated deficiencies as follows: Holdings —£8.8m, Agency —£8.4m, Holidays £2.6m.
On 9th August 1991 the joint administrators of Holdings commenced proceedings to set aside substantial payments which had been made by that company to Mr and Mrs McNally, £127,000-odd to Mrs McNally on 3rd July 1990 and £73,000-odd to Mr McNally on 4th July 1990. Those payments were challenged as preferences within the meaning of section 239 of the Insolvency Act and the office holders sought to recover them with interest.
Those proceedings were eventually tried by Rattee J at a nine-day hearing in May 1996. Rattee J gave judgment on 9th July 1996 ( 1996 2 BCLC 524 and 1996 BCC 993) in favour of the office holders. By then, they had become liquidators after a contested three-day hearing in the Companies Court under a judgment of Mr Evans-Lombe, QC (as he then was), sitting as a deputy. That judgment was dated 9th October 1992: (See 1993 BCLC 887).
Rattee J said in his judgment on 9th July 1996 that he had received no satisfactory explanation as to why the litigation had taken such an unconscionable time. It appears that part of the reason may have been that disqualification proceedings against Mr and Mrs McNally were instituted by the Department of Trade and Industry but were subsequently abandoned, with, as Mrs McNally tells me, an order for costs against the Department in favour of the former directors.
Nevertheless, Rattee J ordered Mr and Mrs McNally to pay 75 per cent of the taxed cost of the proceedings. It is important to note that although his order created separate liabilities for the sums found to be have been preferences, the costs order created a joint and several liability.
Mrs and Mrs McNally appealed from the order of Rattee J, as they could then do without permission, and the liquidators cross-appealed. The appeal first came before the full Court on interlocutory applications by both sides. These were decided by Phillips J who gave the leading judgment on the applications: (See 1997 2 BCLC 579 at page 582):
"Unhappily the costs incurred by the liquidators in the proceedings have very substantially exceeded the amount at stake. They have spent in excess of £100,000 on fees and value added tax, for accountancy experts alone. No consideration appears to have been given to setting a budget for the s 239 proceedings that was proportionate to the amount that the liquidators were seeking to recover.
Mrs and Mrs McNally's own legal expenses made inroads into their not insubstantial wealth. In the result the position has been reached where, if Mrs and Mrs McNally fight and lose their appeal, their remaining assets are unlikely to suffice to discharge their liabilities in respect of the judgment debt and costs at first instance, together with the costs of the appeal. Ultimate success on the part of the liquidators will have transferred Mr and Mrs McNally wealth into the pockets of the accountants and the lawyers acting in the liquidation, without conferring any benefit on Holdings' creditors.
This lamentable state of affairs has led the parties to make the cross-applications that are before this court. The aim of the liquidators is to ensure that Mr and Mrs McNally do not further diminish their assets in pursuing an appeal which the liquidators contend is hopeless. The aim of the McNallys is to use so much of their remaining assets as they need to fund their appeal while preventing the liquidators from ruining them by executing the judgment of Rattee J, pending the hearing of their appeal.
The liquidators have obtained a charging order nisi over all the McNallys' assets and seek, in addition, an order that the McNallys provide security for the costs of their appeal.
They have agreed, pending the result of this hearing, to a stay of execution of Rattee J's order. Mr and Mrs McNally seek an order that the stay of execution remain in force until the result of their appeal is known. They intend, however, to seek the release from the charging order of sufficient funds to finance their appeal."
Those were the dilemmas, together with issues about champerty, conflict of interest and associated matters, which this Court had to resolve on the interlocutory applications. In doing so, this Court expressed the view that the appeal had no reasonable chance of success. This Court did not strike out the appeal, but it did lift the stay of execution and order security for costs of the appeal in the sum of £50,000 with added directions enabling part of the assets already affected by charging orders to be made available to provide that security. That explains this Court's rather elaborate order of 22nd May 1997.
Mr and Mrs McNally were ordered to pay the costs and this was again a joint and several liability.
On 24th March 1998 another constitution of this Court, Peter Gibson, Pill, and Ward LJJ dismissed the McNallys' appeal and the liquidators' cross-appeal in each case with costs. So in all this fiercely contested litigation the burden of costs has continued to increase. All that is in a sense background but it explains the strong feelings on both sides.
I should now identify the charging orders which the liquidators are seeking to enforce and the procedure by which the liquidators are seeking to do so. The liquidators are in the position of judgment creditors seeking to enforce their judgment debts under the provision of the Charging Orders Act 1979, as elaborated in terms of...
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