Mrs Adelle Challinor and 20 Others v Juliet Bellis & Company (Defendant and Part 20 Claimant) Mr Geoffrey Egan (Second Defendant and Part 20 Defendant)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 19 March 2013 |
| Neutral Citation | [2013] EWHC 620 (Ch) |
| Docket Number | Case No: HC10C03729 |
| Court | Chancery Division |
| Date | 19 March 2013 |
[2013] EWHC 620 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon. Mr Justice Hildyard
Case No: HC10C03729
and
Andrew Sutcliffe QC, Adam Kramer (instructed by Hewlett Swanson LLP) for the Claimants
Ian Croxford QC, Clare Stanley (instructed by Clyde & Co LLP) for the First Defendant Francis Bacon (instructed by Messrs Reynolds Porter Chamberlain) for the Second Defendant
Hearing dates: 25 & 27 February 2013
Approved Supplemental Judgment
Further to my main judgment in these proceedings, which was handed down on 25 February 2013, I now deal with consequential issues arising, including issues as to (a) the remedies appropriate; (b) the appropriate rate of interest; (c) who should bear the costs; (d) whether orders should be made for payments on account, and if so what orders; and (e) an application by the Defendant Firm for permission to appeal. I adopt the same definitions as in my main judgment.
(a) Remedies
There is no dispute between the parties that on the basis of my main judgment the Claimants are entitled to equitable compensation of some £2,280,000 in aggregate, divided between them in proportion to the monies they paid into the Defendant Firm's client account on dates set out in Schedule 1 to the Particulars of Claim. The Defendant Firm has made clear that the apportionment should be the responsibility of the Claimants' solicitors: and that is accepted by them.
However, as indicated in the postscript to my main judgment (at paragraph 807), there is (or was) a dispute as to whether the Claimants should also be entitled to compensation in respect of the costs (amounting to some £94,715) that they incurred in seeking an administration order in respect of AFL; and I invited and heard further argument on the issue.
The Claimants, relying also on paragraph 690 of my main judgment, where I described the application made as "understandable", in view of the conduct of Ms Cummings and Mr Cummings in wresting control of AFL away from Legis to themselves, contended that such expenses were incurred as a reasonable attempt to mitigate their losses, and should be reimbursed to restore the Claimants to the position they would have been in if the breaches had not been perpetrated.
The Defendant Firm, on the other hand, contended that such expenses are irrecoverable in the form of equitable compensation. In summary, the Defendant Firm submits that:
(1) The Administration Application was predicated on the 7 th and 9 th Claimants being creditors of AFL; they would otherwise have had no locus. The Court has found in this action that they were not creditors of AFL, having not entered into any loan or (seemingly) any other relationship with AFL. It follows that their application was made on a false premise, and a fortiori cannot have been reasonable.
(2) If it had been reasonable for the 7 th and 9 th Claimants to pursue the Administration Application they would have been entitled to claim those costs as part of the costs of the administration. The administrators considered the costs were not claimable because those Claimants' application was procedurally defective. In these circumstances, there is no justification for the Claimants to be able to recover such unreasonable costs from the Defendant Firm.
The Claimants' answer to these points was that
(1) The relevant Claimants did have standing on the basis of claims for unjust enrichment and dishonest assistance; and in any case, AFL's directors (Ms Cummings and Mr Cummings) could not have objected on that ground, since it was their case that the Claimants had indeed made immediate loans to AFL.
(2) Although in the event not pursued, because RBS appointed its own administrators as it was entitled to do under its security documentation, the application was made in a form sufficient, or at least in a form that could have been saved by amendment if not entirely compliant.
In the course of argument I indicated my provisional view that the relevant Claimants had sufficient standing (see Schedule B1 para.12(3) of the Insolvency Act 1986) and that the fact of a dispute as to the claim on which that standing was based did not necessarily preclude the application: the Companies Court is not as strict in its attitude to contested debts in the context of administration as in the context of winding-up: see Hammonds v Pro-Fit USA Ltd [2008] 2 BCLC 159 (Warren J).
However, I expressed concerns as to (a) whether the application was made in proper form; (b) whether the present evidence was such as to show that a sufficient basis was put forward as to how the purpose of administration was likely to be achieved; (c) whether there had been any sufficiently detailed analysis of the financial position, and any explanation of how trading whilst in administration was to be funded; and thus (d) whether the application was such as might reasonably have succeeded. I invited further written submissions to address these concerns.
In the event, whilst not accepting that these concerns could not be answered, the Claimants have decided not to pursue this claim; and in the circumstances I need say no more about it.
(b) Interest on principal sums
The Claimants claim interest in relation to the principal sums of £2,280,000, as follows:
(a) From the dates of receipt by the First Defendant of those monies (as set out in Schedule 1 to the Particulars of Claim) to 12 December 2007 (inclusive) at the rate earned by the First Defendant on its client account, namely 3.82%.
(b) From 13 December 2007 to the date of this order (inclusive) at Bank of England base rate ("base rate") plus 5%.
(i) Whether any interest payable in the circumstances
The Defendant Firm contends that neither claim for interest is justified. It made two overarching submissions, advanced as applicable to both claims:
(1) First, it is stressed on its behalf that the function of interest is to compensate claimants for being kept out of money which ought to have been paid to them (or, in the context of legal costs, for which they are out of pocket): it is not to compensate them for damage done, and it is not to be awarded at a rate that would be penal: see generally the White Book at 7.0.16.
(2) Secondly, it originally contended that in the particular circumstances, no interest should be awarded to the Claimants at all (alternatively it should be awarded only up to March 2010) because in the particular factual circumstances the Claimants have not, on analysis, lost anything by having been kept out of their money and thus interest is not required so as to effect restitutio in integrum. The basis for this contention was that the Claimants in fact made use of their claims against the Defendant Firm by contracting with each other and with Albemarle Fairoaks Airports Limited ("AFAL") to use the proceeds to subscribe for shares and loan notes in AFAL.
I can dispose fairly briefly of these two overarching points:
(1) I did not understand the first to be contested, as a matter of general principle.
(2) As to the second, it was based on a misunderstanding by the Defendant Firm and was, after it had been explained, and then queried, withdrawn.
(ii) What rate of interest on the judgment sums would be appropriate?
I turn to consider the two different interest rates contended for on behalf of the Claimants.
As to the first period for which interest on the judgment sum is claimed, from the date of receipt of funds (the earliest was 21 August 2007) until 13 December 2007, the Claimants seek interest at the rate at which interest was earned by the First Defendant on its client account. If the Claimants are right, this would give them an award of around £24,000 for this short period.
The basis of the Claimants' claim may be summarised as follows:
(1) The First Defendant should have returned the money at the latest by 13 December 2007 when Mr Dickinson told the First Defendant and RBS that the monies "simply do not belong" to AFL (Judgment para 580(2)) and the First Defendant was "on clear notice of a lack of authority by AFL and proprietary claim by the Claimants" (Judgment para 580(4)). An earlier date is arguable (and certainly on one view the date of an account is the date of breach of trust, which was paying the money away in August, September and October 2007) but the Claimants propose 13 December 2007 as the date on which the money would definitely have been returned to them but for the breach.
(2) As for interest before that date, the Claimants say that, either as an account of profits, or as interest under the discretionary statutory power, the appropriate rate is the rate that the Defendant Firm earned on its client account. The Defendant Firm would have been bound to pay that interest to the Claimants when returning their money. (Of course, the Defendant Firm in fact earned less interest than this, but only because it paid the money away before 13 December 2007.)
(3) It seems that the rate applicable on the Defendant Firm's Lloyds TSB client account is 3.82% per annum compounded monthly for all of the period August to December 2007 for a balance over £1m. Although each Claimant sent in a different sum, the money was all held on one ledger, and indeed all ledgers are simply separate accounting divisions with the money held in one physical bank account. Accordingly, 3.82% is what the First Defendant in fact earned on its client account on the Claimants' money until it was paid away, and would have earned and had to return to the Claimants if it had not breached the trust.
The Defendant Firm rejects this analysis, and indeed the Claimants' approach in...
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