NBH Ltd v Kevin Peter Hoare, Richard George Hazell and Karin Margarete Hardman
| Jurisdiction | England & Wales |
| Judge | Mr Justice Park |
| Judgment Date | 30 January 2006 |
| Neutral Citation | [2006] EWHC 73 (Ch) |
| Docket Number | Case No: HC03CO4377 |
| Court | Chancery Division |
| Date | 30 January 2006 |
[2006] EWHC 73 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
MR JUSTICE PARK
Case No: HC03CO4377
Michael Lazarus (instructed by Clarkslegal LLP) for the Claimants
David Chivers QC and Edward Davies (instructed by Collyer-Bristow) for the Defendants
Hearing dates: 20 & 21, 24 – 28 & 31.10.2005 and 1, 4, 8 – 11.11.205
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
abbreviations, dramatis personae, etc
1. These are set out in the Table annexed at the end of this judgment. A reader who is unfamiliar with the case might find it convenient to detach the Table or make a copy of it so as to be able easily to refer to it as the judgment progresses.
Overview
2. In December 1997 ‘the investors’ (two venture capital companies, as described in the Abbreviations and Dramatis Personae) subscribed £9m for shares in HWG, the holding company for the trading subsidiary HWM. HWM was in the business of waste management. Mr Hoare, the first defendant in this case, was the other major shareholder in HWG. He was the Chairman and a director of that company. Through his own holding company, HHHL, he also owned several other companies, of which the principal ones were HTH and KPH. There had in the past been much inter-company trading between HWM, HTH and KPH, and so it continued after the investment. As this judgment progresses I shall have to say quite a lot about the events of the 18 months which came after the making of the investment, but at this stage I move forward some 20 months. In July 1999 the investors had, under provisions of the agreements which regulated the venture capital investment, dismissed Mr Hoare and had taken complete control of HWG and HWM. On 10 August 1999 HWM, being by then in desperate cash flow difficulties despite having apparently been profitable throughout, sold its business and assets to an unconnected waste management company, A&J Bull Ltd. The price was substantial, and enabled HWM's bank debts to be paid. It was also sufficient to recoup to the investors part of their original outlay of £9m, but not the whole of it.
3. At some time between 1999 and 2004 the names of HWG and HWM were changed to NBH Group Ltd and NBH Ltd, the names of the two claimants in this case. However, in this judgment I shall refer to them throughout as HWG and HWM. They were referred to in that way (or by a non-abbreviated form of words, typically ‘Hughes Waste Management’) throughout the trial, and were naturally thought of and spoken of in those ways by all of the witnesses who had been involved with the companies during the period which gave rise to the present case.
4. In December 2003 HWG and HWM commenced this case, a civil claim for damages against Mr Hoare and two other defendants, Mrs Hardman and Mr Hazell. Mrs Hardman is now retired. She had been the principal bookkeeper to the companies (including HTH and KPH as well as HWM), and she had handled the companies’ banking transactions on a day to day basis. Mr Hazell owns an accountancy practice, Hazell Minshall. He had been the accountant and financial adviser to Mr Hoare and Mr Hoare's companies for some 20 years. The claimants say that he was the de facto finance director of all of the companies, an issue which I will consider later. The claim is brought by HWG and HWM, but I take it that in substance the investors stand behind HWG and HWM. I was not specifically told, but it seems obvious that what the investors want is to recover the remainder of their original investment plus, depending on the amount of any damages which may be awarded, an element of the profit which they had originally hoped to make.
5. The claimants divide their claim into three parts, which they label claim 1, claim 2 and claim 3. Claim 1 is brought against Mr Hoare only. It fastens on an element in the complex of transactions all of which took place at the time of the investment. HWM purchased ‘the J and W assets’, a package of landfill sites and landfill rights in Hampshire, from an offshore company now known to have been connected with Mr Hoare. The price was £4.4m. The offshore company (or possibly a predecessor in the offshore structure) had acquired the assets a few years before for a price in the region of £400,000. The purchase of the J and W assets by HWM was not approved by formal resolution of HWM or HWG in general meeting. The claimants say that it ought to have been so approved, by reason of s.320 of the Companies Act 1985, and they claim that in consequence Mr Hoare is liable under s.322 to pay to HWM the whole of the profit (in the region of £3m) which the offshore company made on the assets.
6. In my judgment claim 1 fails for reasons which I will enlarge on later. Two significant points which I can usefully mention now are as follows. First, the transaction was clearly approved by Mr Hoare, who was the sole shareholder, direct or indirect, in HWM immediately before the investment took place. In my view, despite the absence of a formal resolution of HWM or HWG in general meeting, that suffices for purposes of s.320. This is an application of the well-known Duomatic principle: re Duomatic Ltd [1969] Ch 365. Second, at the time when the J and W assets were sold to HWM they were valued at more than £5m, so that the price which HWM paid, so far from exhibiting an improper extraction of the company's funds by Mr Hoare or by offshore interests connected with him, was financially advantageous to the company. Further, when HWM's assets were sold to A&J Bull Ltd the part of the total price attributable to the J and W assets was considerably greater than the £4.4m which HWM paid to acquire them. I do not believe that a case of such a nature should be covered by s.320 or by the associated provisions in s.322, nor do I believe that it is in fact so covered.
7. Claims 2 and 3 are advanced against all three defendants. The two claims tended to come together as the hearing progressed. The essence of what they alleged was that, over the period of 20 months from the investment until Mr Hoare and his colleagues were removed from management in July 1999, the funds of HWM were milked away from it to the advantage of the HHHL companies, especially HTH and KPH. The HHHL companies were (indirectly) owned as to 100% by Mr Hoare, whereas he had a smaller interest in HWG and HWM. It is contended that this process was achieved in two ways: (1) by HWM making inter-company payments to HTH or KPH for which in the event it (HWM) received no consideration, and which HTH and KPH were unable to repay; (2) by HWM continuing to provide goods and services to the HHHL companies on credit long after it ought to have withdrawn credit, so allowing further indebtedness to accrue which HWM was never going to recover and in the event never did recover. Although the particulars of claim allege negligence and breach of fiduciary duty by the defendants, Mr Lazarus made it clear in his submissions that he based claims 2 and 3 on the assertion that the milking away of HWM's funds was achieved through a fraudulent conspiracy between the three defendants. If I do not accept the case formulated in that way I do not understand Mr Lazarus to invite me to consider an alternative and less dramatic formulation revolving around some form of negligence or other non-dishonest breach of duty.
8. The issues presented by claims 2 and 3 are not easy, but I have concluded after reflection and study of the transcripts and of the submissions of counsel that the claims must fail. I cannot say with certainty that there is nothing in any of the allegations on which they are based. It is common ground that some plainly improper entries were made in some of the books of HWM, and there are undoubtedly suspicions about why they were made. However, I am unable to form any conclusion about who was responsible for the improper entries, and it is not in any event clear that in themselves they caused any loss to the company. The allegations of conspiracy and fraud against Mr Hoare, Mrs Hardman and Mr Hazell suffer from an inclination to see sinister features everywhere in circumstances where, to an uncommitted observer, it has simply been a matter of business transactions and decisions going wrong. There is no evidence of any specific occasion when the three defendants entered into the alleged conspiracy, and to a large extent the case in support of claims 2 and 3 rests on conjecture. Also, having observed each of the defendants being cross-examined rigorously at some length I do not see them as persons likely to have engaged in the kinds of nefarious conduct which would be required for the claimants to succeed. In various other respects, which I cannot realistically summarise at this early point in my judgment, I consider that specific allegations made by the claimants have not been made out. All of these matters I will enlarge upon in subsequent sections of this judgment.
An outline of the background facts
9. In this section of the judgment I will attempt to give a relatively brief description of the facts against the background of which the contested allegations are made. For the most part at this stage I will steer clear of the controversial issues, but I hope that what I will say will place those issues and my subsequent discussions of them in context. There are many detailed facts, often disputed, which I will not describe in this section, but to which I will refer as appropriate when I come to discuss the various issues which I need to consider and...
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