Manolete Partners Plc v Paul Anthony Rutter
| Jurisdiction | England & Wales |
| Judge | Tindal |
| Judgment Date | 07 October 2022 |
| Neutral Citation | [2022] EWHC 2552 (Ch) |
| Docket Number | Case No: BL-2021-BHM-000005 |
| Court | Chancery Division |
[2022] EWHC 2552 (Ch)
HIS HONOUR JUDGE Tindal
(sitting as a Judge of the High Court)
Case No: BL-2021-BHM-000005
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
BUSINESS LIST (ChD)
Birmingham Civil Justice Centre
33 Bull Street, Birmingham, B4 6DS
( Mr Ali Tabari, instructed by HCB Solicitors) for the Claimant
The Defendants in person
Hearing dates: 13–16 th and 29 th – 30 th September 2022
Approved Judgment
HIS HONOUR JUDGE Tindal
Introduction
This case concerns Rut5 Limited (in Liquidation) (‘the Company’), registered number 08413363. The Defendants (who are married) are the Company's only directors and shareholders and ran it from its incorporation on 21 st February 2013 to the date it entered Administration on 1 st November 2017. I will refer to the First Defendant as Mr Rutter and the Second Defendant as Mrs Rutter. The Administrator was Mr Gerald Irwin (‘Mr Irwin’), who subsequently converted the Administration into a Creditors' Voluntary Liquidation (‘CVL’) from 5 th November 2019 and became the Liquidator. On 13 th March 2020, HHJ McCahill QC refused the First Defendant's application for a declaration that Mr Irwin's appointment as an Administrator was invalid. Shortly afterwards, on 1 st May 2020, Mr Irwin assigned all liquidator claims against the Defendants to the Claimant, who issued these proceedings on 28 th January 2021.
Following the Defendants' Defence on 25 th March 2021, DDJ Stewart at a Case and Costs Management Hearing on 16 th August 2021 gave directions through to trial. In February 2022, DJ Singh varied those directions and the matter was listed for trial on 13 th–15 th September 2022. On 23 rd May 2022, DJ Rouine stayed the claim until 1 st July 2022 to enable Mr and Mrs Rutter to bring an application to challenge Mr Irwin's appointment as Administrator and/or Liquidator. No application was made at that stage. That remained the position at Pre-Trial Review on 27 th July 2022, when HHJ Williams gave relief from sanctions to both sides, permitting each to rely on their late witness statements, for the Claimant from Mr Irwin and for Mr and Mrs Rutter from each of themselves and an associate, Mr Smith. However, HHJ Williams refused permission to Mr and Mrs Rutter to call the Company's accountant Mr Langham, in large part because there was not even a witness statement from him at that stage.
All this remained the case until the week before trial starting on 13 th September 2022. At that stage, Mr and Mrs Rutter made a flurry of applications which I heard on the first day of trial and on which I gave two oral judgments on that day. Their then-solicitors prepared and lodged those applications, including to stay the claim pending a challenge to the validity of Mr Irwin's appointment as Administrator and Liquidator, but then came off record, so Mr and Mrs Rutter represented themselves at the trial.
A creditor of the Company Mr Hickey also applied to become a claimant in the case, effectively seeking to consolidate his existing claim against Mr Rutter for a guarantee. I refused his application to become a claimant as there was insufficient legal connection, although he does feature briefly in the story. I also refused Mr and Mrs Rutter's application to adjourn the trial for them to obtain legal representation, which they had until very recently, then dispensed with in circumstances on which they asserted privilege (as was their right). This would have caused months of delay in the trial through no fault of the Claimant. I was satisfied that, with assistance from myself pursuant to CPR 3.1A, Mr and Mrs Rutter could have fair hearings of the trial and their application to challenge Mr Irwin's appointments. I refused the latter partly on the merits and partly as cause of action estoppel given HHJ McCahill QC's decision in March 2020. However, I also granted Mr and Mrs Rutter relief from sanctions to call Mr Langham who had since prepared a statement (in a change in circumstances).
Another reason I was content that Mr and Mrs Rutter could fairly represent themselves even facing a claim for almost £1 million, was that many of the issues were primarily factual – and of course Mr and Mrs Rutter know better than anyone what they factually did and why at the time. The claim for Conversion was abandoned and the date of the Company's insolvency under s.123 Insolvency Act 1986 (‘IA’) and Mr and Mrs Rutter's duty to act in the interests of the Company's creditors under s.172(3) Companies Act 2006 (‘CA’) goes hand in hand with the main issue: whether a dividend of £560,000 was lawful. So, there remain three key issues I must resolve:
(i) When a dividend of £560,000 reducing Mr and Mrs Rutter's directors' loan amounted to a ‘distribution’ under s.829 CA: 31 st July 2015, 29 th July 2016 or 12 th April 2017. That timing largely determines whether it was unlawful.
(ii) Whether Mr and Mrs Rutter owe £104,668.12 on their directors' loan and if so, whether they have in fact paid off and can off-set Company debt of £117,150.
(iii) Whether Mr and Mrs Rutter in fact spent the Company's money on their personal property without accounting for it, namely (1) up to £30,226.56 on their rental property, 4, Marsh Avenue (‘Marsh Avenue’); and/or (2) up to £225,852.48 on their home, Launde Farm Lodge, Launde, Leicester (‘Launde Farm’).
Issues (ii) and (iii) are almost exclusively factual. Issue (i) has a number of legal complexities, but really comes down to when the ‘distribution’ of £560,000 was made.
At trial I have done my best to assist Mr and Mrs Rutter to have a fair hearing. This included not only assisting them to articulate their legal submissions on their preliminary applications and at the end of trial; raising legal points and cases in their favour with Mr Tabari, but also taking stock of the issues once I had determined the trial should proceed; and encouraging each to ask supplementary and any re-examination questions of the other, Mr Langham and Mr Smith. Under CPR 3.1A(5), I also asked my own questions of Mr Irwin first before Mr and Mrs Rutter asked him their questions. This is a practice I have adopted on many occasions in different judicial roles over the years with litigants-in-person: to ensure all relevant points were covered, that their questions stay relevant and the represented party can fully re-examine.
However, when a Judge assists a litigant-in-person, they must not lose sight of fairness to the represented party, even a large company like the Claimant, expertly represented by Mr Tabari (whose skill in advocacy and the law was only matched by his patience with Mr Rutter). After I admitted Mr Langham's late statement (but before I heard his evidence) and after Mr Irwin and Mrs Rutter's evidence, I felt one potential finding of fact was that the dividend of £560,000 was decided upon and entered in the 2014–15 accounts (which might support it and indeed mentioned it) in July 2016 to reduce Mr and Mrs Fuller's indebtedness; but was not recorded in a journal by Mr Langham until April 2017. That seemed broadly consistent with the documents, Mr and Mrs Rutter's pleaded case and Mr Langham's statement (even if they did not specify those dates). But it was inconsistent with the Claimant's pleaded case that the dividend was paid in July 2015 based on the 2013–14 accounts (which did not support that dividend).
In fairness to the Claimant and to ensure any findings I made were fully ventilated in evidence (c.f. Satyam v Burton [2021] BCC 640 (CA)), I raised this and offered the Claimant the chance to recall Mr Irwin or ask further questions of Mrs Rutter. Mr Tabari declined and suggested (as I anticipated he might) this would mean the dividend was still not in law ‘distributed’ until April 2017 by when the Company was nearly insolvent, so was unlawful. I permitted the Claimant to argue that alternative case without amendment. To be clear: I did so in fairness to the Claimant because I had admitted Mr Langham's late statement. It meant it could fully address (before Mr Langham's evidence) a potential finding contrary to its pleaded case. It also meant that even if I made that finding, the Claimant had an alternative – if unpleaded — argument.
Moreover, as my first draft judgment was due to be handed down, Mr Tabari sought permission to re-open it, as he had overlooked in his closing submissions the alternative basis for the director's loan claim for £104,668.12: that even if Mr and Mrs Rutter were entitled to set off any payment against a debt, they could not do so for breach of duty. AIC v FAAN [2022] 1 WLR 3223 (SC), sets out the relevant principle in its headnote:
“[T]he task of a judge faced with an application to reconsider a judgment and/or order before the order had been sealed was to do justice in accordance with the overriding objective… [T]he…principle of finality of litigation…cut in not merely when an order was sealed but when it was made…[So, a] judge….should not start from a position of neutrality or evenly-balanced scales…. especially in the case of a final order [which is] a weighty matter in the balance against making a different order. Accordingly, on an application for reconsideration the question is whether factors favouring reopening the order were, in combination, sufficient to overcome the deadweight of the finality principle on the other side of the scales, together with other factors pointing towards leaving the original order in place..”
On one hand, the ‘deadweight of the finality principle’ is heavy here as this was a draft final judgment after trial, the Claimant omitted to deal with the point in submissions and Mr and Mrs Rutter represent themselves. On the other, breach of duty was always the...
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