Neil Leslie Humphrey v Paul Craig Bennett
| Jurisdiction | England & Wales |
| Judge | Lord Justice Snowden,Lord Justice Bean,Lord Justice Lewison |
| Judgment Date | 29 November 2023 |
| Neutral Citation | [2023] EWCA Civ 1433 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-002093 |
and
[2023] EWCA Civ 1433
Lord Justice Lewison
Lord Justice Bean
and
Lord Justice Snowden
Case No: CA-2022-002093
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
His Honour Judge Rawlings (sitting as a Judge of the High Court)
28 June 2022 and 5 October 2022
Royal Courts of Justice
Strand, London, WC2A 2LL
Steven Reed and Harry Samuels (instructed by Else Solicitors LLP) for Mr. Bennett and Ms. Murphy
Gideon Roseman (instructed by Newhall Solicitors) for Mr. and Mrs. Humphrey
Hearing dates: 12–13 July 2023
Approved Judgment
Remote hand-down: This judgment was handed down remotely at 11 a.m. on Wednesday 29 November 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
There are two appeals before the Court in a derivative claim (the “Claim”) brought by Neil Humphrey and Fiona Humphrey (“Mr. and Mrs. Humphrey”) against Paul Bennett (“Mr. Bennett”) and his partner, Alison Murphy (“Ms. Murphy”). In the Claim it is alleged that Mr. Bennett and Ms. Murphy breached their statutory and fiduciary duties as directors of Esprit Land Limited (“the Company”) by causing the Company to dispose of a piece of land and diverting an opportunity to acquire an adjoining piece of land to a second company called Esprit Homes Construction Limited (“Construction”) of which Mr. Bennett and Ms. Murphy were directors, and Mr. Bennett was the sole shareholder.
The first appeal is by Mr. Bennett against the order of HHJ Rawlings (the “Judge”) made on 28 June 2022, finding that Mr. Bennett had no real prospect of being granted any relief under section 1157 of the Companies Act 2006 (“the 2006 Act”) and granting summary judgment and ordering an account of profits in respect of the breaches of fiduciary duty alleged against him.
The second appeal is by Mr. and Mrs. Humphrey against the subsequent order of the Judge made on 5 October 2022, refusing to grant summary judgment against Ms. Murphy and permitting her to amend her Defence inter alia to include a defence under section 1157.
The basic facts
The essential facts were not in dispute and can be shortly stated.
The Company was originally owned by Mr. Bennett and Ms. Murphy, who were also its directors. Mr. Bennett and Ms. Murphy carried out a property development business through a number of other companies, and in that capacity had formed a relationship with Mr. and Mrs. Humphrey, who owned and controlled a construction company (“NHC”) that had done some building works for them.
In 2015 Mr. Bennett and Ms. Murphy invited Mr. and Mrs. Humphrey to acquire a 49% shareholding in the Company and they were appointed directors of it in addition to Mr. Bennett and Ms. Murphy. The initial plan was that the Company was to be used to acquire and develop sites in Donington and Rugby, financed by a loan of £500,000 to the Company by Mr. and Mrs. Humphrey and external finance arranged by Mr. Bennett and Ms. Murphy.
On 20 June 2018, the Company also bought a piece of land at Wyken Grange Road, Coventry (the “Wyken Grange land”) for £107,500. It was landlocked and did not have planning permission, but the intention was to develop it. Mr. Bennett subsequently submitted a planning application on behalf of the Company in respect of the Wyken Grange land and an adjoining piece of land at 61 Ansty Road, Coventry (the “Ansty Road land”). The intention was for access to the Wyken Grange land to be provided over the Ansty Road land, and for the Company to build ten houses on the Wyken Grange land and two houses on the Ansty Road land. To that end, in February 2019, Mr. Bennett negotiated with the owner of the Ansty Road land for the Company to acquire that land for £450,000. I shall refer to the two adjoining plots of land collectively as “the Ansty Road site” and the proposal to develop them together as “the Ansty Road project”.
The Company's development of the Donington and Rugby sites was completed in February 2019 and all units were sold by August 2019.
On 23 January 2020, Mr. Bennett and Ms. Murphy caused the Company to transfer the Wyken Grange land, with the benefit of planning permission that had been obtained, to Construction for the same price that the Company had paid for it prior to the grant of planning permission.
On 1 April 2020, Ms. Murphy's nephew bought the Ansty Road land for £452,000 using loans provided by two other companies owned by Mr. Bennett and Ms. Murphy. He then agreed to transfer part of the Ansty Road land to Construction to enable it to carry out the Ansty Road project in accordance with the planning permission that had been obtained.
When Mr. and Mrs. Humphrey subsequently complained that they had not been informed about what had happened to the proceeds of sale of the Donington and Rugby sites, or about the transfer of the Wyken Grange land to Construction, they were removed by Mr. Bennett and Ms. Murphy as directors of the Company.
The Claim
On 17 December 2020, Mr. and Mrs. Humphrey obtained permission from the court pursuant to section 260 et seq. of the 2006 Act to bring the Claim on behalf of the Company against Mr. Bennett and Ms. Murphy.
In their Particulars of Claim, Mr. and Mrs. Humphrey alleged that as directors, Mr. Bennett and Ms. Murphy owed the full range of statutory duties to the Company as set out in sections 172–177 of the 2006 Act, together with equivalent fiduciary duties and duties of care at common law. They then alleged that Mr. Bennett and Ms. Murphy breached those duties,
a. by diverting monies from sale of the houses in Donington and Rugby to other developments in Buxton and around the Coventry area with which the Company was not involved;
b. by diverting the Wyken Grange land and the opportunity to acquire the Ansty Road land, “both of which had been intended and earmarked for purchase and use for profit by the [Company], for the benefit of unconnected third parties and/or themselves, thus depriving the [Company] of those assets and of the opportunity to profit therefrom”; and
c. by using the Company's money to pay for legal advice in connection with the issues in the Claim.
On 5 February 2021, a freezing order was made in respect of the proceeds of sale of properties from the Ansty Road project. Shortly thereafter, Mr. Bennett and Ms. Murphy filed a joint Defence which responded to the allegations regarding the Ansty Road project as follows, (using the abbreviations in this judgment),
“The Company did initially purchase the Wyken Grange land with a view to undertaking substantial works of redevelopment … However, the Company did not have the available resources to complete the Ansty Road project and, despite being given the opportunity to do so, Mr. and Mrs. Humphrey were not prepared to match Mr. Bennett and Ms. Murphy's proposed injections of capital required to fund the Ansty Road project. Accordingly, it was determined that the Ansty Road project would be undertaken by [another of Mr. Bennett's and Ms. Murphy's companies] 1, Construction, and the Wyken Grange land was sold to Construction for the price that the Company had paid for it, namely £107,500. The Ansty Road land was acquired after the Company had sold its interest in the Wyken Grange land, in order to allow access to the otherwise landlocked development.”
In May 2021, Mr. Bennett and Ms. Murphy were ordered to provide a response to a detailed request for further information in relation to their Defence. On 1 June 2021 a winding up petition that they had presented against the Company was struck out, and further interim injunctions were granted against them.
Mr. Bennett and Ms. Murphy eventually provided some answers to the request for further information in June 2021. Among other things, that response made clear that Mr. Bennett and Ms. Murphy were not contending that any board meeting or general meeting of the Company had been held to approve the sale of the Wyken Grange land to Construction. It was, however, asserted that prior to the sale, Mr. and Mrs. Humphrey had made clear to Mr. Bennett that they were unwilling to provide any investment to the Company in order to meet the costs of the proposed Ansty Road project and did not wish to pursue it, irrespective of whether the access issues were resolved.
On 1 July 2021 Mr. and Mrs. Humphrey applied to strike out the Defence and/or for summary judgment. Mr. Bennett filed evidence in opposition. On 4 November 2021, 5 days before the hearing of that application, solicitors acting for Mr. Bennett and Ms. Murphy sought consent from Mr. and Mrs. Humphrey to amend their Defence. That request was refused, and so a formal application was made to the court on 8 November 2021 for permission to rely upon a draft Amended Defence attached to the application.
After setting out an account of the developments in Donington and Rugby, the material parts of the draft Amended Defence continued, (again using the abbreviations adopted in this judgment),
“20. Throughout the development of the Donnington Site and the Rugby Site, Mr. and Mrs. Humphrey, either directly or through NHC, withdrew money from the Company. For example, Mr. and Mrs. Humphrey made use of the Company's supplier and CIS accounts in the approximate sum of £115,000 and, in addition to the return of their £500,000 investment, had
£306,000 (£255,000 plus VAT) returned to them by NHC invoicing for works it had not actually done.21. The books for the Donnington Site and the Rugby Site have now been reconciled. All parties and third parties have received the proper...
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