Mullarkey and Others v Broad and another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date21 January 2009
Neutral Citation[2009] EWCA Civ 2
Docket NumberCase No: A3/2007/1670
Date21 January 2009

[2009] EWCA Civ 2

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MR JUSTICE LEWISON

Royal Courts of Justice

Strand, London, WC2A 2LL

Before: Lord Justice Pill

Lord Justice Lloyd and

Lord Justice Moses

Case No: A3/2007/1670

In the Matter of Southill Finance Limited (In Liquidation)
Between
(1) John Francis Mullarkey
Claimants
(2) Ivor Goodman
Appellants
and
John Peter Broad
Defendant Respondent

Michael Gadd for the Appellants, instructed by them by way of Direct Public Access

The Respondent was not present or represented

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Hearing date: 2 December 2008

Lord Justice Lloyd
2

Lord Justice Lloyd:

3

1. The Appellants in this case are Mr John Mullarkey and Mr Ivor Goodman, who were two of the three Claimants below. The Respondent is Mr John Peter Broad. Mr Mullarkey and Mr Broad were in business together in the 1980s and early 1990s. In particular they were the directors and, indirectly, shareholders of a company called Southill Finance Limited (“Southill”). This had been incorporated in 1984, it ceased trading in 1993 and it was ordered to be wound up in January 1995. Meanwhile Mr Mullarkey had resigned as a director in 1994.

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2. Mr Mullarkey and Mr Goodman brought these proceedings under section 212 of the Insolvency Act 1986 on 7 July 2005 on the basis that they were creditors of Southill. If they were, it was by way of assignment. The judge held that they were, by virtue of an assignment from Sedgemere Estates plc and that therefore they were entitled to bring the proceedings.

5

3. By the originating application by which the proceedings were commenced, claims were made against Mr Broad and also against his son Ian, but the claim against the latter was later compromised. The originating application alleged misfeasance and breach of trust in relation to Southill and sought payment of unspecified amounts. Mr Goodman made a witness statement in support of the application. At that stage, as for most of the course of the case until the appeal, the claimants acted in person and without legal representation. However the witness statement, although quite long, was reasonably clear and succinct in telling the story, in terms more similar to a pleading than to a discursive witness statement full of circumstantial detail. Mr Goodman, who had not been involved in the facts at the relevant time, could not have spoken of any such detail of his own knowledge. The witness statement therefore told the story in a reasonably pithy manner, including allegations as regards a freehold property known as 18/20 Mill Road Burgess Hill, and as regards loans to a company called Gentlesound Limited, as well as a fair number of other matters, some of which were relevant at trial but none are now pursued on appeal.

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4. At paragraph 82 the witness statement alleged fiduciary duties owed by the Respondent to Southill as well as common law duties of care, the latter of which are not now relevant. The fiduciary duties included, first, the duty not to make a personal profit or benefit by reason of the position as a director, save as disclosed to and properly authorised by the company, secondly, the duty to account to the company for any secret profit received by a director in connection with the company's affairs from his position as a director and thirdly, a duty not to place his personal interests in conflict with any duty owed to the company and not to misuse his fiduciary position for his own advantage.

7

5. Paragraph 83 of the witness statement was as follows:

“83. In wrongful and fraudulent breach of trust and fiduciary duties owed to the company, the First Respondent:

(1) Without authority and not for the proper benefit of the company transferred the property at 18/20 Mill Road Burgess Hill from the company to himself and the First Applicant without making payment therefor and thereafter transferred the property to his sole name by fraudulently obtaining the signature of the First Applicant to such transfer;

(2) Invested the proceeds of the mortgage moneys raised on the security of the property in the sum of £100,000 to invest in further property purchases at 22 and 24 Mill Road Burgess Hill and in the purchase of Life Assurance policies on the lives of third parties;

(3) Disposed of the property at 18/20 Mill Road for the sum of £300,000.”

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6. By paragraph 84 it was alleged that the Respondent held the profits so made on constructive trust for the company.

9

7. In turn, in paragraph 85 it was alleged that Southill was simply a vehicle by means of which Mr Broad transferred funds in order to make advances to himself or to companies under his control, and that such advances were unauthorised and involved on each occasion an inexcusable breach of his duty to the company. Paragraph 86 (so far as relevant) alleged as follows:

“86. In furtherance of a fraud perpetrated on the fellow subsidiary companies of the company, being, GFL, GFS, and GF, from which the First Respondent transferred monies to the company, without the authorisation of the company, paid away such monies to other companies of which he and / or his family owned such that the company derived no benefit therefrom, in particular:—

(1) Alone or jointly with the Second Respondent made payments to Gentlesound Limited in the sum of £36,941;”

10

Paragraph 87 was as follows:

“87. In making such advances without adequate security the First Respondent was seeking to further his own interests and not those of the company.”

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8. Paragraph 88 set out the allegations against Mr Ian Broad. The relief sought included an order that Mr John Broad held the funds of £300,000 received by him from the sale of 18/20 Mill Road as constructive trustee for the company and a declaration that he had been guilty of misfeasance and breach of trust in relation to Southill by making or causing to be made the payment by way of loan to Gentlesound which proved to be irrecoverable. The Claimants further sought an order that Mr Broad repay that sum to Southill together with interest under section 35A of the Supreme Court Act 1981 or under the equitable jurisdiction of the court.

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9. The witness statement was ordered to stand as Particulars of Claim, by order of His Honour Judge Weeks Q.C. dated 4 August 2005. Such an order was entirely normal in proceedings of this kind and, given the way in which the witness statement was drafted, entirely appropriate. A Defence was served on behalf of both Defendants by solicitors. All allegations were denied, with some detail as to what were said to be the true facts, and the Defence also pleaded both limitation and laches. No details were given in support of the allegation of laches. No Reply was served.

13

10. The case came to trial before Lewison J in Bristol starting on 19 June 2007. By then the claim against Mr Ian Broad had been settled, the Respondent continued to represent himself, and the Claimants were represented, on the basis of direct public access, by Mr Christopher Brockman of Counsel. He had put in written opening submissions dated 13 June. He opened the case orally on 19 June. It became clear that Mr Broad had not expected to have to cross-examine any witnesses that day and that he wanted to cross-examine three witnesses to be called on behalf of the claimants: Mr Mullarkey himself, Mr Ponsford and Mr Rawlinson who had been the auditor of Southill. Accordingly the judge adjourned the case, after the opening had been completed, to the following day. On 20 June those three witnesses were called by Mr Brockman and cross-examined by Mr Broad. Then Mr Ian Broad was called and cross-examined by Mr Brockman. By the morning of 21 June Mr Brockman's instructions had been withdrawn and the cross-examination of Mr Ian Broad was continued by Mr Goodman. After that Mr John Broad verified his witness statement and was cross-examined by Mr Goodman, that cross-examination continuing on Monday 25 June. The appeal bundles include transcripts of all the proceedings on the first day, and of all the oral evidence. As regards closing submissions they include lengthy written closing submissions from Mr Goodman, and a briefer document from Mr Broad, which it seems were put to the court, and presumably expanded on orally, on Tuesday 26 June. The judge gave a reserved judgment, handed down on 3 July 2007.

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11. In his judgment the judge summarised the allegations of misfeasance and the issue as to the status of the Claimants as creditors, he described the factual background to the allegations, he set out the relevant parts of section 212, he referred to the fact that the liquidator of Southill had made no claim arising from the matters now raised, and he addressed first the question whether any of the Claimants was a creditor so as to be entitled to bring the proceedings, with the result that I have already mentioned. He then dealt with the limitation issue. It had been accepted in opening that this was a complete bar to the claim unless Mr Broad could be shown to have acted in fraudulent breach of trust, so that section 21(1)(a) of the Limitation Act 1980 would apply. Section 21(1) is as follows:

“21(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.”

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I have set out the whole section because, although only paragraph (a) was relied on before the...

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