Merito Financial Services Ltd v David Yelloly

JurisdictionEngland & Wales
CourtChancery Division
JudgeMaster Matthews
Judgment Date11 August 2016
Neutral Citation[2016] EWHC 2067 (Ch)
Docket NumberNeutral Case No: HC-2015-000152
Date11 August 2016

[2016] EWHC 2067 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Master Matthews

Neutral Case No: HC-2015-000152

Between:
Merito Financial Services Limited
Claimant
and
David Yelloly
Defendant

Max Mallin ( Bobby Friedman on 11 August 2016)(instructed by Wright Hassall LLP) for the Claimant

Richard Devereux-Cooke ( James Couser on 11 August 2016)(instructed by direct access) for the Defendant

Hearing dates: 11 July 2016

Master Matthews

Introduction

1

This is my judgment on an application by notice dated 4 February 2016 by the Claimant for default judgment against the Defendant. The application notice asks for an order "that, pursuant to CPR 12.4(2)(a), judgment be entered against the Defendant for a sum to be assessed by the Court and directions for the assessment of quantum". But the application has moved on, as I will explain. At the hearing on 11 July 2016 Max Mallin of counsel appeared for the Claimant and Richard Devereux-Cooke of counsel appeared for the Defendant. In addition to the usual skeleton argument in advance, after the hearing they each produced a further written submission a week later, on 18 July 2016. I am grateful to both for their submissions, written and oral.

2

The application is made in a claim begun by Claim Form, with Particulars of Claim attached, issued on 16 January 2015. The Claim Form claims (1) damages and/or equitable compensation for breach of fiduciary duty and/or trust, (2) an account of all sums which the Defendant has caused the Claimant to pay and/or all sums which he had received in breach of fiduciary duty and/or trust, (3) an order for payment of all sums for which the Defendant is found liable upon the taking of the account, (4) further or alternatively restitution of all sums which the Defendant has received or is deemed to have received and by which he has been unjustly enriched, (5) restitution of sums advanced to the Defendant by way of unauthorised director's loan account, and (6) interest. All of these claims are alleged to arise from the Defendant's acts and omissions as a director of the Claimant between August 2011 and August 2014.

Procedure

3

The Defendant originally served a detailed Defence in March 2015. The usual Form 149C requiring the parties to do certain things in preparation for a case management conference was sent out by the Court on 2 November 2015. On 3 December 2015 the Claimant issued an application notice for an 'unless' order requiring the Defendant to comply with the directions by 11 December or else his Defence would be struck out. On 18 December 2015 I made such an 'unless' order requiring the Defendant to file and serve required documents by 4 January 2016. The Defendant having failed to do so, the Defence was automatically struck out. The Claimant issued the present application for default judgment on 4 February 2016. It was listed for hearing on 7 March 2016.

4

It was only on 2 March 2016 that the Defendant made an application by notice for relief from sanctions. In the light of that pending application, on 7 March 2016 I adjourned the Claimant's application due to be heard that day and gave directions for the hearing of the Defendant's application for relief. This was heard by Deputy Master Kaye on 6 June 2016, when it was dismissed. The dismissal has not been appealed.

5

As a result, the Defendant accepts that he has a liability towards the Claimant, but says that there needs to be a hearing to consider causation and quantum issues before he can be ordered to pay a specific sum to the Claimant. On the other hand, the Claimant, notwithstanding the terms of the application notice of 4 February 2016, which contemplated an assessment of damages, now says that there is no need for a further hearing. This, it says, is because it is entitled to an order now for payment of the sums specified in the Particulars of Claim.

6

The Claimant relies on CPR r 12.11(1), which provides:

"Where the Claimant makes an application for a default judgment, judgment shall be such judgment as it appears to the court the Claimant is entitled to on his statement of case."

This means that the court takes the factual allegations in the Claim Form and Particulars of Claim (and any other relevant statements of case) to be true, and then makes a judgment as to what, as a matter of law, the Claimant is entitled to. This is not the exercise of any discretion by the court. What the facts alleged justify in legal terms is a matter of law, and therefore the decision is one of legal judgment. It is therefore necessary to consider carefully the allegations in the statements of case, particularly the Particulars of Claim.

The allegations in the Particulars of Claim

7

First of all, there are allegations that the Claimant was established in 2011 and operates a financial services business regulated by the Financial Conduct Authority. The Defendant was a director from August 2011 to August 2014. The Claimant was appointed as a representative to carry on business as financial advisors by TenetConnect Ltd, a company authorised to carry on certain investment, mortgage and non-investment insurance mediation work in the UK.

8

Next it is alleged that the Defendant as a director owed fiduciary duties to the Claimant, including those under the Companies Act 2006 ss 171–176, and by reason of his control of the Claimant's assets and affairs was a constructive trustee of the Claimant's assets. It is then further alleged that, in breach of duty, the Defendant has

a. Dishonestly invented unauthorised transactions with clients resulting in the wrongful payment of commission of some £104,365.02 from client monies held by the Claimant;

b. Misappropriated monies from the Claimant in the total sum of £158,675.28;

c. Withdrawn various sums amounting to £54,231 as an unauthorised and unlawful loan (but all except £336 of this is subsumed within the sum of £158,675.28 under category b.);

d. Submitted false claims for business expenses in the sum of £264.49;

e. Secretly diverted business away from the Claimant, for which he has received payment.

9

As to a., the Defendant is alleged (at para 13) to have secretly and dishonestly executed transactions on behalf of the Claimant's clients but without their knowledge or approval, or that of the Claimant, with the aim of securing fees and charges for the Claimant, "which [the Defendant] then diverted for his own benefit", thereby exposing the Claimant to liability to pay back those sums to the Claimant's clients, "after the Defendant had diverted part of the sums originally received from the clients". The three transactions pleaded concerned a Mr and Mrs Sweeney, a Mr Gooden and a Mr Ketley.

10

As to Mr and Mrs Sweeney, it is alleged (at paras 14–18) that the Defendant forged documents by which Mr and Mrs Sweeney appeared to agree to invest £1.41 million in a particular fund, resulting in a commission payable to and received by the Claimant of £79,655.02. As to Mr Gooden, it is alleged (at paras 19–21) that the Defendant forged his signature on a document apparently creating an entitlement for the Claimant to charge the sum of £12,210, for which the Defendant procured the Claimant to raise an invoice to the trustee of Mr Gooden's SIPP, "which was paid out of Mr Gooden's SIPP fund". As to Mr Ketley, it is alleged (at paras 22–24) that the Defendant, having confirmed to Mr Ketley at his request that there would be no charge or commission for rolling over a maturing investment, dishonestly inserted a provision for charge amounting to £12,500 in a document already signed by Mr Ketley, and Mr Ketley's investment plan was debited with this sum.

11

It is then alleged (at paras 25–27) that these unauthorised acts caused the Claimant to be liable to repay the sums paid by their clients to them, and that the Claimant "has agreed" to do so. It is not alleged that the money has actually been repaid. Nor is there any allegation as to how much exactly of the sums concerned was diverted to the Defendant's own use or how much (if anything) has been recovered from him or anyone else to whom it was paid. The allegations in each of these three cases amount to this, that the Defendant in breach of duty owed to the Claimant has caused the Claimant to incur a liability to pay sums to its own clients, which it has since agreed to do.

12

As to b., it is alleged (at paras 28–50) that the Defendant in breach of duty or breach of trust procured the Claimant to make payments amounting in total to £158,675.28, without the knowledge or approval of the Claimant, and not in the ordinary course of its business This includes £53,895 by way of an unauthorised loan to the Defendant by the Claimant. There are detailed allegations as to how these figures break down.

13

As to c., it is alleged (at paras 50–53) that the Defendant procured the debiting of various payments by the Claimant to third parties to an (unlawful) loan account between them, in the total sum of £54, 231. Of this, £53,895 is included in the pleadings under category b. The remaining £336 was a payment by the Claimant to Jerroms Accountants.

14

As to d., it is alleged (at paras 54–55) that the Defendant in breach of duty and in breach of trust submitted receipts "falsely to support expenses claims in order to extract funds from the Claimant to pay for items of personal expenditure". The only three allegations pleaded concern payments of £70, £151.49, and £43 to various suppliers. It is alleged that the Defendant has received these sums.

15

As to e., it is alleged (at paras 56–64) that in breach of duty the Defendant has diverted clients to make investments through other entities "thereby depriving the Claimant of the opportunity to earn commission or fees", has caused the Claimant to breach its agreement with TenetConnect Ltd "by directing...

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