Martin Coyne and Another v DRC Distribution Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lord Justice Jacob,Lord Justice Ward |
| Judgment Date | 15 May 2008 |
| Neutral Citation | [2008] EWCA Civ 488 |
| Docket Number | Case No: A2/2007/2349 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 May 2008 |
[2008] EWCA Civ 488
Lord Justice Ward
Lord Justice Jacob and
Lord Justice Rimer
Case No: A2/2007/2349
No. 4933 of 2007
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
(His Honour Judge Purle QC)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr Lance Ashworth QC (instructed by HBJ Gateley Wareing LLP) for the Appellants
Mr David Alexander QC (instructed by Addleshaw Goddard) for the First Respondent, DRC Distribution Limited
The Second Respondent, Mr Foster, did not appear and was not represented
Hearing date: 28 February 2008
Introduction
This appeal is by Martin Coyne and Matthew Hardy, licensed insolvency practitioners and partners in Poppleton & Appleby (“P & A”). Their appeal is against an order requiring them to pay costs to DRC Distribution Limited (“DRC”). The order was made by His Honour Judge Purle QC on 25 September 2007 sitting as a judge of the Chancery Division. It was a joint and several order also made against Christopher Foster; and as between the appellants and Mr Foster the judge apportioned 50% liability to each. Mr Foster has not appealed the order. The appellants were represented before us, as below, by Mr Lance Ashworth QC. DRC was represented before us, as below, by Mr David Alexander QC. Mr Foster was also represented below by leading counsel. He is a respondent to the appeal but took no part in it.
The proceedings concern Ulva Limited, of which DRC is a substantial creditor. Mr Foster was its managing director. Ulva became insolvent and on 14 August 2007 Mr Foster appointed the appellants as joint administrators. On 11 September 2007 DRC issued an application for orders removing them as administrators and other relief. That application came before Judge Purle on 17 September, when it was adjourned to 25 September. In circumstances I will explain, it was by then no longer necessary for DRC to press for the substantive relief it had sought. Costs, however, remained in issue and the judge made the order under appeal. DRC's claimed costs total some £116,000, of which the appellants have paid £35,000 on account. Although the order was made against them as administrators, it expressly imposed upon them a personal liability for which they have no right of indemnity out of Ulva's assets (Rule 7.39 of the Insolvency Rules 1986). They have a right of contribution for half from Mr Foster, but there is a question as to what that might yield.
The thrust of the appeal is that, in ordering the appellants to pay the costs, the judge adopted a summary procedure when he should not have done. It is said he should not have considered making the findings and order that he did without first giving the appellants the opportunity of explaining their position from the witness box. DRC's response is that there was nothing wrong with the procedure adopted by the judge and that he exercised his discretion unimpeachably.
The judge himself gave permission to appeal. He recognised that the circumstances were relatively unusual. The size of DRC's costs bill is such that the financial consequences upon the administrators of the judge's order are serious. In addition, the judge made critical remarks about them in his judgment which they regard as damaging to their professional reputations. The appeal is very important to them.
The background
The primary evidence in support of DRC's application was that of James Walker, the chairman of DRC's parent company. The evidence in response was from Mr Hardy, one of the two administrators. The story is as follows.
In 2003 DRC and Ulva entered into a long-term supply agreement by which Ulva agreed to purchase from DRC a product called UlvaShield (a thermal insulation product) and associated products. In about October 2005, in breach of the agreement, Ulva began to source product from a Californian supplier.
Ulva's last published accounts were those for the year ended 30 April 2006. They showed it as having: (i) net current liabilities of some £472,000 and net assets of some £39,000; (ii) acquired premises at Unit D, Hortonwood Enterprise Park, Hortonwood during the year, which at 30 April 2006 had a book value of £973,087; and (iii) plant and machinery with a book value at the year end of some £212,000 and fixtures and fittings valued at some £28,000.
In September 2006 DRC issued proceedings in the Queen's Bench Division against Ulva for breach of contract. On 16 January 2007, at the request of Ulva's accountants, Mr Hardy had a meeting with Mr Foster. Mr Hardy was told that Ulva had a significant tax liability to HM Revenue & Customs (“HMRC”), a debt which by July 2007 stood at some £835,000. His advice was that Ulva should either pay the debt or negotiate a payment plan. He had no further contact with Ulva until July 2007.
On 12 March 2007 Ulva's solicitors admitted to Addleshaw Goddard (“Addleshaws”), DRC's solicitors, that Ulva had breached the supply agreement with DRC under which it was being sued. They did not also admit liability for DRC's claim because Ulva was contending that DRC was anyway not entitled to terminate the agreement. Various preliminary issues in the litigation were tried by Flaux J in the first week of July 2007, with his judgment being handed down in draft on 13 July and in final form on 20 July. He found liability established against Ulva and gave directions for the assessment of damages, which was due to take place in December 2007. DRC estimated its recoverable damages and costs at about £1m. In circumstances I will explain, Ulva entered into compulsory liquidation in September 2007 and DRC later agreed its claim for damages and costs with the liquidator at £800,000.
In the meantime, following Ulva's admission of its breach of the supply agreement and before its entry into administration, Mr Foster carried out various actions to the detriment of Ulva. They were in the nature of an asset-stripping exercise directed at enabling him to carry on its business through another company with a similar name. The story was as follows.
Mr Foster's pre-administration actions
Mr Foster procured Ulva Holdings Limited, a dormant company he owned, to change its name to Ulva International Limited (“UI”). The change was achieved on 2 April 2007. He then obtained a valuation dated 25 April of Unit D at £810,000 from Andrew Dixon & Company; and a valuation dated 16 May from Bache Treharne of Ulva's plant and machinery at £121,000. On 25 May he caused Ulva's plant and machinery to be sold to UI for £121,000. That price (which UI did not pay) matched the recent valuation but is to be compared with the £212,000 book value shown in the 2006 accounts, which Mr Foster had signed on 15 May, the day before the Bache Treharne valuation. The administrators, subsequently appointed on 14 August, could find no documents evidencing the sale, but Mr Foster produced two documents between 17 and 25 September, the dates of the hearings before Judge Purle. The first was an invoice dated 25 May from UI to Ulva for £121,000 plus VAT of £21,175. That, of course, was the wrong way round. The second was an invoice of the same date from Ulva to UI. That difference apart, both invoices were identical and included a reservation of title provision until payment was made in full, a matter of which the administrators were ignorant until they saw these documents. Mr Foster's solicitors explained the position to Addleshaws on 20 September, saying that Mr Foster:
“… has arranged for an invoice to be issued correctly as it should have been on 25 th May 2007. We enclose copies of those documents. We appreciate that ULVA Limited as of today's date is not able to invoice in this form, but this is no more than a rectification towards the original intention. For the avoidance of doubt, [UI] considers that invoice to be a debt which it will satisfy at some time in the future.”
On 1 June Ulva transferred Unit D, its business premises, to Mr Foster for a price of £810,000 stated to have been paid, and he was registered as proprietor on 4 July. On 1 June he charged Unit D to HSBC Bank Plc, a transaction which amounted to taking over Ulva's mortgage and accounted for the bulk of the £810,000 purchase price, and he debited his Ulva loan account with the balance of £150,000. Unit D had been given a year-end book value in Ulva's 2006 accounts at the rather higher figure of £973,000, but before signing those accounts on 15 May 2007 Mr Foster had obtained the lower £810,000 valuation. On the same day as the transfer, he leased the property back to Ulva for 10 years at a rent of £60,000 a year subject to review.
Ulva ceased trading on 29 June and at about the same time UI commenced the same business. It traded from Unit D, using Ulva's employees who all switched to UI. None of this was mentioned to Flaux J at the hearing in early July. By 16 July Mr Foster was taking steps to transfer Ulva's trade mark “ULVA” to UI for £10, the necessary assignment being executed on 23 July and the mark being registered in UI's name on 15 August. At the same time he applied to have the “ULVAShield” trade mark registered in UI's name, one that had not previously been registered at all but had been used by Ulva. By then UI's registered office was at Unit D. It is not apparent that UI made or offered any payment to Ulva for the ULVAShield mark. Another noteworthy transaction occurred on 12 and 15 July when Ulva paid...
To continue reading
Request your trial
-
Blades v Isaac and another
...see egLong v Farrer & Co [2004] BPIR 1218, [57]–[61], applied in Shierson v Vlieland-Boddy [2005] 1 WLR 3966, CA, [56], Coyne v DRC Distribution Ltd [2008] EWCA Civ 488, [58]. This is a high threshold to reach. I add that, at the hearing, I was not invited to disregard any of the written ev......
-
Capitol Films Ltd ((in Administration)), Re; Rubin (joint administrators of Capitol Films Ltd) v Cobalt Pictures Ltd
...remaining rights Capitol has in relation to the library of 155 films. No doubt you are mindful of the recent decision in Coyne and Hardy v. DRC Distribution Ltd where the Court of Appeal criticised the administrators' actions in negotiating with the director to sell the business in circumst......
-
Lucy Burnford v Automobile Association Developments Ltd
...of fact. In this connection, I bear in mind what Rimer LJ (with whom Ward and Jacob LJJ agreed) said in Coyne v DRC Distribution Ltd [2008] EWCA Civ 488: “58. As regards the need for oral evidence, Mr Ashworth reminded us that it is well-settled practice that if a court finds itself faced ......
-
Dormco Sica Ltd ((in Liquidation)) v S B L Carston Ltd
...through a request for cross-examination. I refer as a result to the words of Lord Justice Rimer in Coyne v DRC Distribution Ltd [2008] EWCA Civ 488, [2008] BCC 612 at [58]: “… it is well-settled practice that if a court finds itself faced with conflicting statements on affidavit evidence,......