Haysport Properties Ltd and Another v Joseph Ackerman
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Peter Smith,Peter Smith J |
| Judgment Date | 02 March 2016 |
| Neutral Citation | [2016] EWHC 393 (Ch) |
| Docket Number | Case No: HC-2014-000850 |
| Date | 02 March 2016 |
| Court | Chancery Division |
[2016] EWHC 393 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
The Honourable Mr Justice Peter Smith
Case No: HC-2014-000850
Mr Iain Pester (instructed by Pinsent Mason LLP) for the Claimants
Miss Olivia Chaffin-Laird (instructed by FPG Solicitors) for the Defendant
Hearing dates: 12, 13, 14 & 19 January 2016
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
INTRODUCTION
This judgment arises out of a trial of a claim brought by two companies Haysport Properties Ltd ("Haysport") and Twinsectra Ltd ("Twinsectra") for a breach of fiduciary duty against their former director Joseph Ackerman ("Mr Ackerman"). The two Claimants are wholly owned subsidiaries of Delapage Ltd ("Delapage") a charitable company.
The Claimants' case against Mr Ackerman is that he caused the Claimants in 2005 to grant security over various properties held by them to support a facility obtained by another company New Liberty Property Holdings Company ("NLPH"). It is not related to the Claimants but was owned by a Gibraltar Discretionary Trust of which Mr Ackerman is a beneficiary. The other beneficiary of significance is his sister-in-law Naomi Ackerman ("Naomi").
In addition Twinsectra has brought a separate claim for breach of fiduciary duty on the basis that Mr Ackerman caused it to enter in to an unsecured loan note for £4m in favour of NLPH on terms that NLPH was to pay it 8% per annum. There is no evidence that any payments were ever made nor is there any evidence to suggest that Mr Ackerman sought a payment of interest let alone capital from NLPH.
Mr Ackerman was a director of Haysport from 1978 to April 2011 and of Twinsectra from 1976 to April 2011 when he was removed as a director of both companies. This arose as a result of an intervention in Delapage by the Charity Commission which on 19th October 2010 appointed an interim manager as a result of concerns over the corporate governance of Delapage in particular in relation to unsecured lending by Delapage to companies controlled by Mr Ackerman ("the Ackerman Group") in the sum of nearly £75m. The interim manager sought to replace the board of the Claimants and on 27th April 2011 a new independent board of directors was appointed to run the Claimants. They investigated the position and determined it was appropriate to bring the present proceedings which were issued on 30th June 2014.
BACKGROUND
In 1939 Mr Ackerman and his brother Jack came over to this country as fugitives from Czechoslovakia. From the early 1960s they began to build up a successful property empire known as the Ackerman Group. Eventually it comprised over 100 companies. They then jointly established Delapage as their joint charitable company. Mr Ackermans was one of the trustees of Delapage who initially numbered 7. Twinsectra was incorporated in 1975 and Haysport in 1978 Delapage was and is the sole shareholder of both.
Jack Ackerman died in September 1989. His widow Naomi inherited his share in the business. Thereafter Naomi joined the boards of all companies but acquiesced in Mr Ackerman running the Ackerman Group as a single entity. This continued until 2006 when relations between Naomi and Mr Ackerman broke down.
In 2003 a Gibraltarian Discretionary Trust was set up the NOF Trust. The settlor of the NOF Trust was a Mr Halpern who was Naomi's uncle. However Mr Halpern wrote a letter of wishes dated 11th June 2003 in which he stated the trustees "were to seek and consider the wishes and advice of Mr Joseph Ackerman of London England with regard to the general administration of the trust and investment of the trust fund".
As is the way with offshore discretionary trusts of this nature the initial object was the Imperial Cancer Research Fund but the Trustees had power to change the beneficiaries. Ultimately within six months after the NOF Trust was entered in to Mr Ackerman and his children and Naomi and her children were added as beneficiaries of the NOF Trust.
The trust in turn held shares in NLPH. It was set up in order to be the corporate vehicle which would undertake a specific property investment project known as Liberty One Project. Mr Ackerman was not a director of NLPH.
He was nevertheless however the driving force behind NLPH becoming involved in Liberty One and was also the person who caused the Claimants to grant security over their properties as appears below. He also caused Twinsectra to supply the remaining £4m which was the balance of the monies required to fund the purchase price of the Liberty One portfolio (see below).
LIBERTY ONE PORTFOLIO
Mr Ackerman was approached directly by RBS with a proposal that he purchase approximately 350 commercial bank units with residential units above. He took the view that it was a beneficial project which would produce a large amount of profit. He approached BDO the accountants who apparently advised him that the investment should be run through an offshore vehicle. That led to the incorporation of NLPH for that purpose. The project had apparently been advertised in the Estates Gazette and Property Week and the purchase price was £115m. RBS were prepared to lend back £90m. A deposit was required to complete the deal but NLPH did not have any funds of its own to invest or to pay for arrangement fees, survey fees and fees of other professionals which were substantial. The Ackerman Group ultmately invested £11m into Liberty One but a shortfall still remained.
Mr Ackerman then says in his witness statement (paragraph 45) "However a shortfall still remained. It was at this stage that I took the deal to the Claimants to invest the remaining funds." The apparent innocuousness of that statement by Mr Ackerman belies the true potential difficulties. First the monies were required to enable NLPH to acquire the properties in the Liberty One project. Second when he says he "took" the deal to the Claimants he means that he was taking it to himself. He was at that stage running the Claimants with the tacit agreement of Naomi. Although Mr Ackerman qualified as a solicitor in the mid 1960s he had never practised. Nevertheless in giving his evidence he appeared to be unaware of the potential difficulties he faced when he was negotiating on both sides of the transaction ("the self dealing rule"). He did not apparently even understand what the problem was.
NLPH had therefore exhausted its cash reserves and it needed the money from the Claimants and the security to enable it to complete the transaction. Once again Mr Ackerman clearly misunderstands his duties when as he said in paragraph 47 of his witness statement:-
"As a director of the Claimants I made the fully informed decision that the Liberty One project was a worthwhile and safe investment which would create income and financial profit for the Claimants with the result the Claimants could provide some level of security to enable the project to proceed."
TRANSACTIONS
On 8th June 2005 NLPH entered in to a Letter of Credit Facility ("the Security") with Lloyds TSB Bank Plc ("Lloyds") in the sum of £10m. The Claimants provided the security in respect of that facility and of all amounts due from NLPH in favour of Lloyds. On the same day the Second Claimant lent £4m to NLPH ("the Loan Note") which carried an interest rate of 8% per annum. This was an unsecured Loan Note. Lloyds had given a £10m standby letter of credit to NLPH under this arrangement. The purpose of the facility was a means to enable RBS to obtain due proper performance by NLPH of its obligations under the Master Agreement whereby NLPH acquired the properties and in particular in relation to the lease liabilities that it had taken over from various Group companies in the RBS Group. One of the conditions precedent under clause 6 was the provision of the security described in the Security Appendix (6 (G)).
The Security Appendix set out a number of properties owned by the Claimants and a sub mortgage over a charge in favour of Twinsectra over various properties.
The structure of this financial aspect therefore was that Lloyds were providing comfort to RBS to ensure that NLPH complied with its obligations on the leasehold properties which it took over. Lloyds were willing to provide that cover but it too wanted security. NLPH was of course a Gibraltar company with no assets save those that were being acquired under this agreement. It had nominal share capital. The security that Lloyds wanted to back up its exposure was provided by the Claimants.
The first question that arises is what was the benefit accruing to the Claimants for offering that security. The short and long answer is none compared with the exposure and potential losses.
I suspect Mr Ackerman who was controlling this transaction from both sides envisaged no payments would be paid to the Claimants for the benefit of obtaining their security. However DLA the solicitors acting for Lloyds asked that they be informed as to what commercial benefit was to be derived from the Claimants for giving the security. It was proposed that a Mr Stephen Koehne then a partner in Stephenson Harwood Solicitors would look in to that on behalf of NLPH (letter 20th May 2005 to Mr Koehne from Brian Beckman of DFM Beckman Solicitors). It is to be noted...
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