Lloyd Christopher Biscoe v Graham William Milner
| Jurisdiction | England & Wales |
| Judge | Mr Justice Meade |
| Judgment Date | 30 March 2021 |
| Neutral Citation | [2021] EWHC 763 (Ch) |
| Date | 30 March 2021 |
| Docket Number | Case No: CR-2019-000812 |
| Court | Chancery Division |
[2021] EWHC 763 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANY AND INSOLVENCY LIST (ChD)
Rolls Building
Fetter Lane
London, EC4A 1NL
Mr Justice Meade
Case No: CR-2019-000812
As Joint Liquidators of
Reuben Comiskey and Katie Longstaff (instructed by HCR Sprecher Grier) for the Applicants
Brad Pomfret (instructed by Rahman Ravelli) for the Third, Fourth and Ninth Respondents
The Fifth Respondent appeared in person
Alexander Heylin and Annie Townley (instructed by Hemingways Solicitors) for the Sixth and Seventh Respondents
The First, Second and Eighth Respondents did not appear and were not represented.
Hearing dates: 20–22, 25–29 January 2021, 2–3 February 2021
APPROVED JUDGMENT
I direct that pursuant 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 | 4 |
| Overview | 4 |
| Outline of the Scheme | 4 |
| Dramatis Personae – key figures | 5 |
| Operation of the Scheme | 6 |
| The regulatory context, and advice on it | 7 |
| The Issues | 8 |
| Issues of general importance | 8 |
| Issues relating to David Clarkson | 9 |
| Issues relating to Mr Arnison/Belmonte | 9 |
| Issues relating to Mr Flaton | 10 |
| Other issues that fell away or do not need or merit decision | 10 |
| Addressing the issues in this judgment | 11 |
| Conduct of the trial | 11 |
| Witnesses | 12 |
| The Liquidators' investigations | 13 |
| Initial appointment | 14 |
| Relative scrutiny | 14 |
| The way the Milners provided disclosure | 14 |
| Consideration under the Milner Settlement Agreement | 15 |
| Not bringing evidence from Lillie Milner | 15 |
| Approach to the evidence | 15 |
| The Scheme documentation | 18 |
| The Brochure | 18 |
| The FRA | 23 |
| The Contract of Insurance | 23 |
| The bordereaux | 24 |
| The MS2U Agreement | 24 |
| The Misapplications | 24 |
| Financial position of ELC | 26 |
| Reasons for the collapse of the Scheme; “too good to be true” | 26 |
| Chronology of the main events | 27 |
| 2014 | 27 |
| 2015 | 29 |
| 2016 | 29 |
| 2017 onwards | 30 |
| The Agreed Points of Law | 30 |
| Legal standards – dishonesty and dishonest assistance | 31 |
| Dishonesty | 31 |
| Fraudulent representations | 32 |
| Dishonest assistance | 32 |
| Pleading dishonesty | 32 |
| Dishonesty — burden and standard of proof | 32 |
| David Clarkson | 33 |
| General observations | 33 |
| Points relating to David Clarkson's credibility and reliability | 34 |
| Inception of the Scheme | 35 |
| Introduction of Mr Flaton and Mr Arnison | 35 |
| The letter of advice, amended advice of Mr Anderson QC | 35 |
| The Client Source Terms of Business Agreement | 37 |
| The Hectary Agreements | 38 |
| Level of David Clarkson's involvement in the Scheme | 39 |
| Fraudulent trading | 42 |
| The law | 42 |
| De facto director | 43 |
| The law | 43 |
| Corporate Governance Structure | 43 |
| Decision making | 44 |
| Presentation to the outside world | 44 |
| David Clarkson's points | 45 |
| Wrongful trading | 46 |
| The law | 46 |
| Analysis | 47 |
| Misfeasance and breach of duty | 48 |
| Constructive Trustee | 49 |
| Transaction at an undervalue | 49 |
| Mr Arnison | 53 |
| Belmonte's position in relation to the Scheme | 54 |
| Allegations of dishonesty against Mr Arnison | 55 |
| Mr Arnison and Carter Rovali commission | 56 |
| Abbreviated Advice of Mr Anderson QC | 57 |
| The “pipeline” issue | 59 |
| Mr Arnison's contacts with investors | 64 |
| Mr Flaton | 65 |
| The Milner Settlement Agreement | 68 |
| Legal principles | 68 |
| Where a settlement is concluded with one or more joint tortfeasors | 68 |
| Settlements with one or more concurrent tortfeasors | 74 |
| Wider application of the Jameson principle? | 80 |
| The terms of the Settlement Agreement | 84 |
| The parties' submissions | 87 |
| Assessment – the key legal point | 91 |
| Application to the facts | 92 |
| Conclusions | 93 |
| Relief, further hearing | 94 |
INTRODUCTION
Overview
The First and Second Applicants (together “the Liquidators”), who are partners in Begbies Traynor, are the joint liquidators of the Third Applicant (which the documents refer to as “the Company” or “ELC” – I will use the latter except when quoting other documents).
This judgment, which follows a ten-day trial, concerns an application for various orders for payment and compensation against certain of the Respondents (others having settled or been struck off).
ELC's only business was the running of an investment scheme called “the ELC Legal Redress Scheme” (“the Scheme”). The idea behind the Scheme was the funding of claims against financial institutions for mis-selling of bonds. I will shortly explain it in a little more detail.
The Scheme ran for only a short time, during which investors put in about £3.3m. They received payments of only just over £230,000. The Respondents, on the other hand, received just under £2.2m, either in their own hands or through their companies. ELC was put into insolvent liquidation, in which liquidation there is alleged to be a deficit of just over £2m.
Outline of the Scheme
The idea behind the Scheme was as follows:
i) An investor would put in money by way of a loan to ELC, in units of £1,500.
ii) ELC would use the money to fund a bond mis-selling claim, which claim would be identified and managed by a claims management company, in particular one called Missold2U Limited (“MS2U”).
iii) If the claim succeeded, the claimant would be paid their compensation, less a success fee to MS2U, and that success fee would be shared with ELC, with the investor receiving a (fixed) return.
iv) If the claim failed, the loss of the £1,500 would be covered by insurance (“the Contract of Insurance”). The insurance was to be provided by a company called Gable Insurance AG (“Gable”), which went into liquidation on 17 November 2016).
v) The insured was ELC, rather than the investor – I return to that below. The insurance was brokered by the Sixth Respondent (“Belmonte”).
vi) The Scheme required investors, and these were identified by the marketing efforts of the Fifth Respondent (“Mr Flaton”), acting through his companies Fox and Co Limited and Carter Rovali Limited (“Fox and Co”, “Carter Rovali”).
vii) The Scheme was promoted to investors by a brochure, of which there were multiple versions. The Points of Claim refer to a specific version as “the Brochure”.
viii) The legal relationship between each individual investor and ELC was governed by a standard agreement called the Fixed Return Agreement (“FRA”).
It is not in dispute that the Brochure contained many serious misrepresentations, but a key issue at this trial was whether the remaining Respondents knew about them or were involved in their making.
Dramatis Personae – key figures
I will now identify the key individuals and companies; I will introduce other more minor players as they arise.
I have already mentioned the Applicants. It is the First Applicant, Mr Biscoe, who has taken the lead in the liquidation of ELC and who gave evidence before me.
The First and Second Respondents are a married couple. The First Respondent (“Graham Milner”) was the sole de jure director of ELC from 10 September 2014 onwards. He carried out mainly administrative functions.
The Second Respondent (“Lillie Milner”), by contrast, did not have a formal directorship but was on any view a key player in ELC and the Scheme. She was certainly a moving spirit, whether she was the sole moving spirit is one of the central factual issues between the Applicants and the Third Respondent (“David Clarkson”). It is accepted by the Third Respondent that Lillie Milner was a de facto and/or a shadow director of ELC.
Lillie Milner had two companies through which she received money from ELC. They can be referred to together as “Savvy Sister”.
The Applicants settled with the Milners by a written agreement dated 11 September 2019 (“the Milner Settlement Agreement”). An issue for me is whether the Milner Settlement Agreement bars the claims against the other Respondents.
David Clarkson is accepted to have been involved in ELC and in the Scheme. His case is that he was an arm's length introducer to ELC of the Fifth, Sixth and Seventh Respondents and never saw the Brochure. The Applicants' case is that he was central to ELC's running and to the Scheme and was a de facto and shadow director.
The Fourth and Ninth Respondents are, respectively, David Clarkson's son and wife (“Paul Clarkson”, “Carole Clarkson”). David and Carole Clarkson have been separated for many years but remain in contact and on at least reasonably good terms. Paul and Carole Clarkson settled with the Applicants during trial (“the Clarkson Settlement Agreement”).
I have already introduced Mr Flaton, the Fifth Respondent, and his companies. It is also worth mentioning that:
i) Belmonte appointed Fox & Co as its Appointed Representative (“AR”) in December 2014 (the appointment ended in October 2016) and this formed part of the Applicants' case, as the basis of an allegation that Belmonte was responsible under s. 39 of the Financial Services and Markets Act 2000 (“ FSMA”) for the dishonesty alleged against Mr Flaton. The argument was dropped late in the trial.
ii) Another company formed by Mr Flaton was...
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