International Leisure Ltd and another v First National Trustee Company UK Ltd and Others
| Jurisdiction | England & Wales |
| Judgment Date | 16 July 2012 |
| Neutral Citation | [2012] EWHC 1971 (Ch) |
| Docket Number | Claim No: HC11C02930 |
| Court | Chancery Division |
| Date | 16 July 2012 |
[2012] EWHC 1971 (Ch)
Mr Edward Bartley Jones QC
(sitting as a Deputy High Court Judge)
Claim No: HC11C02930
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
Royal Courts of Justice
London EC4A 1NL
Mr Richard Fowler (instructed by Clarion of Elizabeth House, 13–19 Queen Street, Leeds, LSI 2TW) for the Claimants
Mr Ulick Staunton (instructed by Weightmans LLP of Second Floor, 6 New Street Square, New Fetter Lane, London, EC4A 3BF) for the Third and Fourth Defendants
Introduction :
This appeal raises, yet again, issues as to the ambit and limits of the rule against reflective loss as discussed in Johnson v Gore Wood & Co [2002] 2 AC 1. On this occasion the issue is whether the rule debars a secured creditor of a company who has suffered loss (as the result of breaches of duties owed both to the secured creditor and the company by a defendant) from recovering that loss because the company is also entitled to recover that loss. As argument developed on the appeal a subsidiary issue arose as to the effect of the crystallisation of a floating charge under a debenture. The subsidiary argument was advanced that the rule against reflective loss could not possibly be engaged because only the debenture holder (to the exclusion of the company) possessed the cause of action to sue for the loss.
The appeal is against a decision of District Judge Giles made on 27 July 2011. The District Judge struck out the claims of a debenture holder on the basis that the losses it claimed were merely reflective of the losses suffered by the company and, hence, offended against the rule against reflective loss. Whatever my decision it is impossible not to feel sympathy for the District Judge. As will be seen the problem was presented to him in stark form granted the way in which simultaneous claims for apparently the same loss had been mounted by both the debenture holder and the company and granted the way in which those simultaneous claims were pleaded. The District Judge had only some thirty minutes to consider the papers before the hearing and had to dispose of matters during the course of a two hour hearing. Unlike me he had no time whatsoever to reflect before making his decision. And he heard submissions far less detailed than those deployed before me.
The issue before me is of some importance. There is considerable force in the submission of Mr Fowler (who appears for the debenture holder) that if this appeal were to fail then the undoubted duties owed by an administrative receiver to his appointing debenture holder would be deprived of all meaningful effect and would be enforceable by the debenture holder only in the most limited of circumstances.
The Basic Facts :
International Leisure Limited ("ILL") operated the business of a leisure resort, initially providing short-term lettings of holiday accommodation (and various ancillary services) from Brockwood Hall, Millom, Cumbria. Brockwood Hall consisted of approximately 26 acres of land and contained 32 holiday lodges. In 1997 ILL began, also, to operate a business selling timeshare lettings at Brockwood Hall.
Citibid Securities Limited ("Citibid") provided funding to ILL. By a Debenture and Legal Mortgage dated 23 August 1991 ("the debenture") ILL provided security to Citibid for all monies due from ILL to Citibid. By the debenture ILL charged (a) all its freehold and leasehold properties (including Brockwood Hall) by way of legal mortgage (b) all its future freehold and leasehold property by way of fixed charge (c) all its present and future book debts by way of fixed charge (d) its chattels by way of fixed charge and (e) all its other undertaking and assets by way of floating charge to secure repayment of all moneys due from ILL to Citibid.
The business of ILL did not, ultimately, prosper and as at 7 October 2003 ILL owed Citibid £3,872,047 which was secured by the debenture. It is, I think, common ground that this debt has always substantially exceeded the realisable value of ILL's assets.
On 7 October 2003 Citibid, in exercise of its powers under the debenture, appointed Mr Anthony Kent ("Mr Kent") as administrative receiver of ILL. At all material times Mr Kent was a partner in the firm of Maidment Judd. Mr Kent resigned his appointment as administrative receiver on 25 May 2007.
Mr Kent's administrative receivership was, in part at least, funded by Citibid (in the sense the Citibid provided funding to enable Mr Kent to continue to trade the business of ILL). Citibid was dissatisfied with the manner in which Mr Kent conducted the administrative receivership. I must stress, immediately, that as this is a strike out application the complaints made against Mr Kent by each of Citibid and ILL are no more than mere allegations. They have not been tested at trial nor has Mr Kent's response thereto been articulated before me.
On 15 October 2009 Citibid commenced proceedings in the Chancery Division, Leeds District Registry (Claim Number 9LS30789). There were four defendants. The first two defendants were First National Trustee Company UK Limited and First National Trustee Company Limited. These defendants were said to be liable to account to Citibid for certain timeshare payments. Mr Kent was joined as fourth defendant and the essence of the claim against him was for professional negligence for breach of duties owed by him as administrative receiver to Citibid as debenture holder. Maidment Judd were joined as third defendant on the basis that Mr Kent was a partner in Maidment Judd and, hence, Maidment Judd were liable for his defaults. As it happens the claims of Citibid (and for that matter ILL) against First National Trustee Company UK Limited and First National Trustee Company Limited were settled by a Consent Order dated 22 March 2011 and I need not refer to these two defendants further.
It seems to me that, on the basis of the authorities to which I shall refer which establish that the primary duty of an administrative receiver is owed to the debenture holder, there was nothing surprising in the form and content of the proceedings as issued by Citibid. What was, perhaps, more surprising was that on the very same day ILL commenced its own proceedings in the Chancery Division, Leeds District Registry (Claim Number 9LS30788) against the same four defendants. The relief sought by ILL against Mr Kent and Maidment Judd broadly mirrored the relief sought in the Citibid proceedings and was based on breaches of duty which broadly mirrored the breaches of duty alleged in the Citibid proceedings. This was surprising because (1) it would seem extremely unlikely that any recovery by ILL as against Mr Kent and Maidment Judd would be sufficient (even when added to all other recoveries made) to satisfy the sums due under Citibid's debenture and (2) there could not, of course, be double recovery. The same solicitors acted for ILL and Citibid—which would again seem surprising if there were to be any competition between ILL and Citibid as to the entitlement to any damages recovered.
By Order of District Judge Flanagan made in both proceedings on 24 November 2010 it was directed that both claims should be "consolidated" and heard together, with Claim Number 9LS30788 as the "lead" claim. There are, perhaps, some problems with this Order. True "consolidation" would have created but one action—an action in which the two claimants would have to be represented by the same solicitors and counsel and where, in principle, there ought to be no conflict as between the interests of the two claimants. But, at this stage, each of ILL and Citibid appeared, simultaneously, to be seeking to recover the same loss for the same breaches of duty and, so, there was a potential conflict between them. Equally, were Claim Number 9LS30788 the lead claim then the lead claim would have been that of ILL and not that of Citibid. Further it is difficult to see why, had there been true consolidation, there could have been a "lead" claim.
I have not seen the original Particulars of Claim in either of the two actions. However, on 20 April 2011 Mr Kent and Maidment Judd served Defences (which I have not seen). They also indicated in a letter dated 20 April 2011 from their solicitors that Citibid's claims were for reflective loss and, thus, liable to be struck out. Following correspondence in which this was denied by the solicitors acting for Citibid and ILL, Mr Kent and Maidment Judd issued an Application Notice on 27 May 2011 seeking an order striking out Citibid's claims. It is to be noted that this Application Notice did not (and this was in accordance with the logic of the position of Mr Kent and Maidment Judd) seek to strike out the claims of ILL. The Application Notice also sought security for costs and an order that the claims be transferred to London.
Granted the order of District Judge Flanagan, ILL and Citibid produced Amended Particulars of Claim which were said to replace "in their entirety by substitution" the original Particulars of Claim of Citibid and ILL. These Amended Particulars of Claim are helpful in the sense that they combine within one document the claims of both ILL and Citibid. Whilst the Application Notice was directed at the original Particulars of Claim nevertheless at the time when the Application Notice came on for hearing before District Judge Giles all parties very sensibly accepted that the strike out application should be tested against the Amended Particulars of Claim, even though the Amended Particulars of Claim were still, at that point, in draft form. There was no contest by Mr Kent and Maidment Judd to the form of...
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