Kenneth Davies v Stephen Ford
| Jurisdiction | England & Wales |
| Judge | Adam Johnson |
| Judgment Date | 24 March 2020 |
| Neutral Citation | [2020] EWHC 686 (Ch) |
| Date | 24 March 2020 |
| Docket Number | Case No: HC-2017-001469 |
| Court | Chancery Division |
[2020] EWHC 686 (Ch)
Adam Johnson QC SITTING AS A DEPUTY HIGH COURT JUDGE
Case No: HC-2017-001469
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
Rolls Building, Fetter Lane
London, EC4A 1NL
Ben Shaw (instructed by Dentons UK and Middle East LLP) for the Claimant
John Brisby QC and Alexander Cook (instructed by Cripps LLP) for the Second and Third Defendants
The First Defendant appeared in person
Hearing dates: 11–18 November 2019
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.
Adam Johnson QC:
INDEX
| Paragraphs | |
| Introduction and Outline | 1–10 |
| The Witnesses | 11–24 |
| Claimant's Witnesses | 12–15 |
| Defendants' Witnesses | 16–24 |
| Background | 25–245 |
| The Ashford Site: prior to 2008 | 25–28 |
| The Ashford Site | 29–31 |
| The Greenbox Recycling Brand | 32–33 |
| Mr Davies' Difficulties | 34–38 |
| GAL, SIK and Nero | 39–69 |
| Mr Monks becomes involved | 70–81 |
| The Heads of Terms | 82–89 |
| Disqualification Undertakings | 90–91 |
| The Intended Handover | 92–101 |
| No Formalities Completed | 102–109 |
| Steps to Implement the New Structure | 110–128 |
| Barclays | 129–132 |
| O Licences | 133–137 |
| New Equipment | 138–141 |
| Mr Monks' Directorship | 142–145 |
| December 2010 | 146–152 |
| Year-end 2010 | 153–168 |
| Incorporation of GBRK | 169–176 |
| Termination of the Finance & Leasing Agreements | 177–181 |
| Further contact from Mr Davies | 182–186 |
| Clearing the Ashford Site | 187–195 |
| The Costs of Clearing the Site | 196–216 |
| O Licence for GBRK | 217–228 |
| Plant and Machinery | 229–237 |
| Further correspondence between Mr Davies and Mr Monks | 238–241 |
| Dissolution of GBR | 242 |
| Pre-Action correspondence | 243–244 |
| Restoration of GBR | 245 |
| Mr Monks and GBRK | 246–406 |
| Framework | 247–248 |
| Was Mr Monks in breach of contract? | 249–251 |
| Was Mr Monks in creach of his duties as a director of GBR? | 252–303 |
| Legal Framework | 252–259 |
| Breach of duty: the Parties' submissions | 260–261 |
| Breach of duty: State of the Ashford Site | 262–266 |
| Breach of duty: discussion and conclusions | 267–303 |
| Are Mr Davies' Claims Time-Barred? | 304 |
| Overview | 305–308 |
| Legal Framework | 309–321 |
| Limitation: Discussion and Conclusions | 322–350 |
| Can Mr Monks claim relief under CA2006, Section 1157? | 351 |
| Is GBRK fixed with relevant knowledge and are any claims against it time barred? | 352–354 |
| Are Mr Davies' claims in any event barred by Laches? | 355–363 |
| Does Mr Davies lack clean hands? | 364–370 |
| Is the current business of GBRK held on constructive trust? | 371–395 |
| Should Mr Monks be entitled to an equitable allowance? | 396–406 |
| Positon of Mr Ford | 407–413 |
| Overall Conclusion and Summary | 414 |
Introduction and Outline
Greenbox Recycling Ltd (“ GBR”) was incorporated on 1 March 2010 by the Claimant, Mr Kenneth Davies (“ Mr Davies”). Mr Davies' position is that he intended GBR to take over an existing skip hire and waste recycling business (referred to in the Particulars of Claim as “ the Business”) operating from premises near Ashford, Kent (the “ Ashford Site”), and run at the time through a company called Skip It (Kent) Ltd (“ SIK”). Mr Davies' case is that the Business was transferred from SIK to GBR in about November 2010.
The First and Second Defendants, Mr Stephen Ford (“ Mr Ford”) and Mr Richard Monks (“ Mr Monks”) were directors of GBR. Mr Ford was appointed on 28 September 2010, and Mr Monks on 30 November 2010. By late November 2010, Mr Ford and Mr Monks were also each 10% shareholders in GBR. Mr Davies held the remaining 80% of GBR's issued share capital. Additionally, Mr Davies says that both Mr Monks and Mr Ford were parties to contracts of employment entered into with GBR. Mr Davies' case is that this overall structure reflected his intention to entrust Mr Ford and Mr Monks with the growth and development of the waste management business at the Ashford Site, while he stepped back from any day-to-day involvement because of various personal difficulties which had affected him during 2010, and moved abroad.
The present claims arise because, in circumstances I will describe further below, another company was incorporated by Mr Ford and Mr Monks on 7 January 2011, this time called Greenbox Recycling (Kent) Ltd (“ GBRK”) Mr Ford and Mr Monks were both directors and shareholders of GBRK on incorporation, although Mr Ford resigned as a director after only a few days, on 15 January 2011, and later sold his shares to Mr Monks at some point in 2013.
The gist of the claims now advanced against Mr Ford and Mr Monks is that they diverted the Business, which was intended to be operated through GBR, to GBRK, and that such diversion involved them in breaches of contract and breaches of the duties they owed as directors of GBR.
Only Mr Monks has participated in the proceedings. Mr Ford failed to file any Acknowledgement of Service, and in consequence Mr Davies issued an application for judgment in default against him, which was adjourned to be dealt with at the present trial. Mr Ford thereafter played no role in the action until the first day of trial, when he made an application for permission to serve a Defence. I refused that application, and Mr Davies now seeks judgment in default against Mr Ford under his application. I will return to Mr Ford's position below.
As to Mr Monks, his position (broadly) is that the decision to incorporate GBRK in early 2011 was a response to the state GBR was in at the time. He says that the waste management business formerly carried on at the Ashford Site was never in fact transferred to it, and so it never had ownership of the Business; he says that although he became a director, he never became bound by any contract of employment with GBR; he says that by early 2011 GBR was insolvent (or close to insolvency) and for various reasons was not able to trade lawfully; and he says that in the circumstances he and Mr Ford were concerned about potential personal liabilities to which they might be exposed because of the physical state of the Ashford Site. Mr Monks also says that GBR had effectively been abandoned by Mr Davies, who had misled him (Mr Monks) in various ways, including by saying he was terminally ill and by failing to disclose that he (Mr Davies) was the subject of proceedings under the Directors Disqualification Act, which resulted in him being disqualified as a director for a period of 11 years with effect from 8 October 2010. In short, Mr Monks says that he and Mr Ford were justified in doing what they did in early 2011, and in reality had no choice about it given the situation they were left in by Mr Davies.
After GBRK had been operating for several months, GBR was struck off the register and dissolved on 18 October 2011. It is common ground that, at the time, neither Mr Ford nor Mr Monks had taken steps to resign as directors of GBR. In the period since then, GBRK has grown to be a successful business (its accounts for 2018 show that for the six months between 1 July and 31 December 2018, it had turnover of £3,592,689 and made profits before tax of £364,329). Mr Monks' position is that this is the result of the hard work he and others have put in, and of the capital they have invested.
In the meantime, Mr Davies says that although he continued to feel aggrieved about the way he had been treated, he was not in a position to do anything about it because he lacked the necessary funds to do so. Much later, in 2016, he says that position was remedied, and he then petitioned for the restoration of GBR to the register under ss 1029 and 1032 Companies Act 2006 (“ CA 2006”), and for its winding-up on the just and equitable ground under s 122(1)(g) Insolvency Act 1986 (“ IA 1986”). On 23 January 2017, Ms Deputy Registrar Jones made the Orders sought, restoring GBR to the register but immediately placing it in compulsory liquidation. Joint Liquidators were appointed on 15 March 2017, and on 22 May 2017, the Liquidators initiated the present proceedings. On 25 July 2017, the Liquidators assigned GBR's claims against Mr Ford, Mr Monks and GBRK to Mr Davies, and Mr Davies was later substituted as Claimant.
The proceedings have been bifurcated, and by Order dated 26 February 2019, the following are the issues for determination at the present (liability) trial (together with Mr Davies' application for judgment in default against Mr Ford):
“(1) Whether [Mr Monks] has acted in breach of duty or in breach of contract;
(2) whether [GBRK] is fixed with the relevant knowledge to ground a claim in knowing receipt;
(3) whether the business conducted by [GBRK] is derived from [GBR];
(4) whether [Mr Monks] is in principle entitled to an equitable allowance;
(5) whether [Mr Davies'] equitable claims are barred by [Mr Davies'] lack of clean hands or laches;
(6) whether the Defendant [presumably Mr Monks] should be relieved from liability pursuant to s. 1157 Companies Act 2006.
For the avoidance of doubt, the quantum of any equitable or proprietary interest in the Business (as defined in the Particulars of Claim) to which [Mr Davies] may be entitled if he elects for equitable relief shall be the subject of the trial of quantum, not liability.”
As will appear below, the factual background is complex, and involves many disputed issues of fact. Thus, many points of detail arise, which I will have to deal with. It is useful at this stage, however, both in order to provide a framework for the remainder of this Judgment, and...
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