Henderson & Jones Ltd v David Jason Ross

JurisdictionEngland & Wales
JudgeMr Justice Richard Smith
Judgment Date26 May 2023
Neutral Citation[2023] EWHC 1276 (Ch)
CourtChancery Division
Docket NumberCase No: BL-2020-001435
Between:
Henderson & Jones Limited
Claimant
and
(1) David Jason Ross
(2) Stephen Roger Barnes
(3) Gerard Hugh Barnes
(4) Leila Jayne Fellows-Saunders
(5) Barclays Bank Plc
(6) The Wilkes Partnership LLP
Defendants

[2023] EWHC 1276 (Ch)

Before:

THE HONOURABLE Mr Justice Richard Smith

Case No: BL-2020-001435

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

7 Rolls Building,

Fetter Lane, London,

EC4A 1NL

Jeffery Onions KC, Hugh Sims KC, Stefan Ramel and Dan Butler (instructed by Harrison Clark Rickerbys, Inc. Sprecher Grier) for the Claimant

Ali Tabari (instructed by Thursfields) for the First and Second Defendants

Rebecca Page (instructed by Mills & Reeve LLP) for the Third Defendant

Adam Kramer KC and Hannah Glover (instructed by Addleshaw Goddard LLP) for the Fifth Defendant

Ben Hubble KC and Tom Shepherd (instructed by Browne Jacobson LLP) for the Sixth Defendant

Hearing dates: 9–11, 14–18, 21–22, 25 and 28–30 November 2022

APPROVED JUDGMENT

Remote hand-down: This judgment was handed down remotely at 10.30 am on 26 May 2023 by circulation to the parties or their representative by email and by release to the National Archives

Mr Justice Richard Smith

A. INTRODUCTION

1

. The Claimant, Henderson & Jones Limited ( Claimant), is a litigation investment company and assignee of the claim which is the subject matter of these proceedings. That claim concerns the restructure that took place from 30 November 2012 ( Restructure) of a group of companies ( Group) of which The Hospital Medical Group Limited ( Company or THMG) was formerly the main trading company. The Group provided various elective medical services, including cosmetic, bariatric and dental surgery as well as certain non-surgical procedures, operating principally from the private hospital at Dolan Park, Bromsgrove ( Dolan Park).

2

. THMG's immediate parent company was The Hospital Medical Group Holdings Limited ( Holdings), itself wholly owned by TWP (Newco) 66 Limited ( TWP (Newco)). Other companies within the Group included Surgicare Medical Limited ( Surgicare) and The Hospital Group (Ireland) Limited. The Hospital Group Healthcare Limited ( Healthcare) and Dolan Park Limited ( Dolan) were incorporated shortly before the Restructure.

3

. The First Defendant, David Ross ( DR or D1), co-founded THMG (with the majority shareholder, Steven McNerlin ( SM)). DR was de jure director of THMG from 2004.

4

. The Second Defendant, Stephen Barnes ( SB or D2) was de jure director of THMG between May 2012 and August 2015.

5

. The Third Defendant, Gerard Barnes ( GB or D3, no relation of D2) was de jure director of THMG between July 2009 and September 2011, later engaged as a consultant between October 2011 and March 2016.

6

. The Fifth Defendant, Barclays Bank plc ( Barclays, the Bank or D5), was secured lender to THMG. At the relevant time, Brian Sweeney ( BS) was (and he remains) a director in Barclays' Business Support Unit ( BBS). Julian Kilsby ( JK) was Barclays' relationship manager for THMG at the relevant time.

7

. The Sixth Defendant, The Wilkes Partnership LLP ( D6), were THMG's solicitors. At the relevant time, Nigel Wood ( NW) was the firm's senior partner and head of commercial litigation. Kathryn Hackett ( KH) was (and remains) a corporate partner at the firm. David Stevenson ( DS) was a solicitor and head of the firm's personal injury litigation department, later Group in-house solicitor.

(a) The Restructure in brief outline

8

. The Restructure is considered in detail below. However, as consummated, this comprised the following transactions entered into on, and from, 30 November 2012:-

(a) THMG transferred the freehold title to Dolan Park to Holdings for a stated consideration of £15 million;

(b) Holdings transferred the freehold title to Dolan Park to Dolan for the same stated consideration;

(c) Dolan granted a five year lease over the property to Healthcare at a stated annual rent of £750,000;

(d) THMG transferred its intellectual property rights ( IP) to Holdings for a stated consideration of £1.5 million, to be “ left outstanding as an interest free loan owing by the Transferee to the Transferor”;

(e) Holdings granted a non-exclusive licence to a number of companies in the Group (excluding THMG) to use the intellectual property rights in return for royalties;

(f) THMG transferred substantially all its remaining assets to Healthcare at book value, the consideration again to be “ left outstanding as an interest free loan owing by the Transferee to the Transferor”;

(g) THMG declared a dividend of £7.5m in favour of Holdings which took the form of a credit applied to the intercompany balance due from Holdings to THMG; and

(h) The intercompany balances between the Group companies were ‘simplified’ or ‘pooled’, including into one balance due from Holdings to THMG.

9

. It was common ground that the documents known as the ‘Whitehead year end pack’ represent the best evidence of the intercompany position within the Group prior to the Restructure and of how the Restructure accounting was actually carried out, ‘Whitehead’ referring to Mr John Whitehead, a self-employed accountant engaged in July 2012 to assist the Group's UK Financial Controller, Mr Skott Hughes. 1

(b) The claim in brief outline

10

. The Claimant says the Restructure took place against the background of serious problems faced by THMG from 2011, including creditor non-payment, banking covenant non-compliance and significant potential liabilities arising from the Poly Implant Prothèse company ( PIP) breast implant scandal and the threatened imposition of backdated VAT on cosmetic procedures. The end result of the Restructure was to cause THMG to divest itself of all its tangible assets and trade, leaving significant liabilities within the Company. Following the Restructure, THMG's main asset was a £6,025,808.23 interest free debt from Holdings but Holdings had no readily realisable assets, its net current assets were only £3,364,561, THMG no longer had recourse to Dolan Park, and the intercompany debt in its favour was rapidly reduced to nil through a series of improper transactions. The transfer of value out of THMG was intended to, and did, operate to put its assets beyond the reach of its creditors to their obvious detriment. The Claimant says the Restructure, and the conduct of various participants, were unlawful in the following respects:-

(a) The Restructure involved an unlawful distribution under Part 23 of the Companies Act 2006 ( CA06) and/ or unlawful return of capital and/ or ‘informal winding-up’ and a fraud on creditors;

(b) The Restructure was also a transaction at an undervalue defrauding creditors contrary to section 423 of the Insolvency Act 1986 ( IA86);

(c) D1, D2 and (as de facto director) D3 breached their fiduciary, statutory and common law duties to THMG in relation the Restructure including, in the case of D3, his tortious duty of care to THMG;

(d) D6 was liable in negligence through its failure properly to advise THMG, including as to the likelihood of the unlawfulness of the Restructure;

(e) D3 (if not de facto director of THMG), D5 and D6 dishonestly assisted in D1-D2's breaches of fiduciary duties; and

(f) D1-D6 2 acted in combination to use unlawful means with the intent to injure THMG.

11

. The Claimant seeks common law damages and/ or equitable compensation. 3 The Defendants deny liability. They say the Restructure was not unlawful but was reasonably and honestly undertaken for value, for good commercial reason and in THMG's interests, with the Company having sufficient distributable reserves to declare the dividend. As such, no liability can attach to D1-D3 for breach of duty (and D3 not being a de facto director in any event). As such, D3-D6 could not be liable as accessories in dishonest assistance but they were not dishonest in any event. D3 and D6 undertook such tasks as fell within the scope of their duties with reasonable care and skill such that no claim lies in negligence. Since the Restructure was lawful, there could have been no unlawful means conspiracy. The formulation of the parties' respective claims and defences is much more elaborate (and extensive) than this summary, and a number of further issues are set out in the agreed list of issues, but this reflects their core dispute.

(c) The factual evidence

12

. The Claimant did not adduce any factual evidence. DR, SB, GB, BS, NW and KH provided witness statements and gave oral evidence for the Defendants.

David Ross

13

. DR was a straightforward witness who made appropriate concessions and whose elaboration in oral evidence was generally measured and warranted. His recollection of specific events and documents was limited. Given the passage of time, this was unremarkable.

Stephen Barnes

14

. SB came across as a reluctant participant in these proceedings, perhaps unsurprisingly given his limited role in the Restructure. On occasion, he sought greater specificity than necessary in the questions asked of him. Nevertheless, I found him a generally straightforward witness. His recollection of events too was understandably limited.

Gerard Barnes

15

. GB was a confident but fair witness. He too had a limited recollection of events. This, and his former unrepresented status, may explain why he appeared to have spent considerable time reconstituting events from the documents, albeit he took care in his testimony to distinguish recollection from reconstruction.

Brian Sweeney

16

. BS was an impressive witness. His evidence was careful and balanced and his explanation of Barclays' needs and processes, and of his interactions with the Group, authentic and convincing. On a few occasions, his answers were unnecessarily long but this did not detract from his evidence overall. His recollection was limited.

Nigel Wood

17...

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