Norglen Ltd v Reeds Rains Prudential Ltd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,I |
| Judgment Date | 29 March 1996 |
| Judgment citation (vLex) | [1995] EWCA Civ J1124-2 |
| Docket Number | CHANI/94/0934/B FC3/95/7143/B |
| Court | Court of Appeal (Civil Division) |
| Date | 29 March 1996 |
[1995] EWCA Civ J1124-2
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
ON APPEAL FROM THE HIGH COURT OF JUSTICE,
QUEEN'S BENCH DIVISION
ON APPEAL FROM THE HIGH COURT OF JUSTICE,
QUEEN'S BENCH DIVISION
(Mr. Justice Morritt) Application and appeals
Before: The Master of the Rolls (Sir Thomas Bingham) Lord Justice Hobhouse Lord Justice Aldous
(Sir Peter Pain) Appeal
(Mr. R Walker, sitting as a Deputy Judge) Appeal and application
CHANI/94/0934/B
CHANI/94/0935/B
FC3/95/7143/B
QBENI/94/1656/B
QBENI/94/0003/B
FC 395/7175/B
MR. C PURLE QC & MR. D STERN (Instructed by Messrs. Betesh Fox & Co., Manchester) appeared on behalf of the Appellants
MR. D STERN (Instructed by Messrs. Abson Hall Loring, Cheshire) appeared on behalf of Norglen
MR. J GREENBOURNE (Instructed by Messrs. James Chapman & Co., Manchester) appeared on behalf of the First and Second Defendants
MR. P SMITH QC (Instructed by Messrs. Jones Maidment Wilson, Altrincham) appeared on behalf of the Third and Fourth Defendants
MR. A SALTER (Instructed by Messrs. Law & Co., Leicester) appeared on behalf of Appellant
THE RESPONDENTS WERE NOT REPRESENTED
MR M BELOFF QC & MR. K MACLEAN (Instructed by Messrs. Slaughter & May, London) appeared for the Appellant
MR. S ISAACS QC & MR. A WALTON (Instructed by Messrs. Cawdery Kaye Fireman & Taylor, London) appeared on behalf of the Respondents
Friday 24 November 1995
THE MASTER OF THE ROLLSThese appeals have been listed together and heard in succession because they all concern the litigious position of a party to whom a cause of action has been assigned. The facts of the three cases, and the issues raised, are different and the cases require separate treatment. This is the judgment of the court.
Norglen Limited v Reeds Rains Prudential Limited and others
On 3 February 1994 Morritt J, made two orders. First, applying the decision of this court in Advanced Technology Structures Limited v Cray Valley Products Limited [1993] BCLC 723, he dismissed a summons by Mr and Mrs Rodgers to be substituted for Norglen Limited as plaintiff in this action. Secondly, he ordered that Norglen give security for the defendants' costs of the action under section 726 of the Companies Act 1985. Mr and Mrs Rodgers appeal against the first order, contending that the judge should have made an order for their substitution. If this court allows that appeal and orders that they be substituted, they ask that the order for security be discharged.
Norglen Limited was incorporated as an English company in 1984. Mr and Mrs Rodgers were its only shareholders and directors. It acquired a plot of land at Irvine Drive, Moss, Manchester. Some of that land ("the retained land") it developed. There remained a cleared site of about 1.79 acres, described in the proceedings as "the plot". Norglen had no planning permission to develop the plot, and was thought to be unlikely to obtain such permission. But the plot had a value since it adjoined land owned by the Manchester City Council and provided a possible means of access to that land, which could be developed. Norglen wished to sell the plot and in 1987 it appointed the first and second defendants as its selling agents. In July 1987 the third defendant formed the fourth defendant as a development company, and early in 1988 the third defendant offered £10,000 for the plot. In May 1988 Norglen transferred the plot to the third defendant in consideration of payment of that sum and the giving of certain covenants in favour of the retained land. By the first of these covenants the purchaser bound itself not to build or erect any structure on the plot other than stabling without the consent of Norglen. The second covenant was directed to the possibility that planning permission might be granted for the development of the plot: in that situation the purchaser agreed to pay Norglen 33.33% of the agreed valuation of the plot with the benefit of planning permission, less a deduction for the cost of obtaining such planning permission and the purchase price of £10,000. These covenants were binding on any transferee of the plot. The third defendant transferred the plot to the fourth defendant. The fourth defendant in January 1989 negotiated the purchase from the Manchester City Council of the land adjoining the plot at a price of £400,000 per acre, and obtained planning permission to develop both that area and also the plot.
Norglen's accounts for the three year period from 1 April 1988 to 31 March 1991 show that the company was and remained insolvent throughout that period on a balance sheet basis. The accounts also show that during the year 1988/89 a director's loan account of £116,322 was repaid to Mr Rodgers. On 7 June 1989, Norglen transferred the retained land and the benefit of the covenants given by the third defendant to Mrs Rodgers. The judge rightly described this transfer as "a most curious document". Mrs Rodgers executed it both as the purchaser and as a director of Norglen, but her two signatures appear to be in a different hand and as transferee she used her maiden name. The document suggests, as the judge observed, that it was intended to imply, contrary to the fact, that the transfer was an open market transaction between two unconnected parties. The judge went on to record that it was not seriously disputed before him that this transaction was a breach of the duties of Mr and Mrs Rodgers as directors of Norglen. Before the judge, as before us, the defendants contended that the repayment of the loan account and the transfer of the retained land and the benefit of the covenants to Mrs Rodgers indicated that she and her husband were concerned to strip out the assets of Norglen before the action against the defendants was begun.
Norglen issued a writ endorsed with a statement of claim in November 1991. In this writ Norglen claimed rescission of the contract for sale of the plot to the third defendant and an order for its return to the company. Norglen also claimed damages for fraudulent misrepresentation and conspiracy against the second to fourth defendants and damages for negligence against the first defendant. The essence of its claim was that the plot had been worth £1.765 million and that the company had been deprived of two thirds of the development value of the site through the fraudulent conduct of the second, third and fourth defendants and the negligence of the first. With the statement of claim solicitors acting for Norglen, and also for Mr and Mrs Rodgers, wrote to the solicitors for the defendants and said:
"As you are probably aware and this is made clear from the pleading, Norglen Limited is a company of which Mr and Mrs Rodgers are the shareholders and directors, they will benefit personally from success in the action. They are material witnesses of fact as to relevant misrepresentations. Consideration has been given to the likelihood of your clients or other defendants applying for security of costs of this action. Mr and Mrs Rodgers will, in return for agreements not to make such applications, undertake personally to meet any liability which Norglen may prove to have for costs in this action".
The defendants were not deterred from applying for security. Norglen resisted their application. On its behalf Mr Rodgers swore an affidavit in which he deposed in paragraph 6.1:
"My wife and I have therefore always accepted that in reality and subject to paying off all the Plaintiff's creditors, this is our claim; hence our offer at the outset of this action to stand surety for the costs of the action…;
(1)First we are prepared to offer all that we have or can offer in support of the claim because of our belief in the justice of the claim;
(2)We are beneficial claimants; a stay of the Plaintiff's action would merely lead to our effecting an assignment of its cause of action into our personal names and seeking legal aid to pursue this claim; our impecuniosity ought not to be grounds for security for costs."
In a judgment given on 19 October 1992 District Judge Fish found the conditions of section 726 of the Companies Act to be satisfied and ordered that Norglen should give security for the costs of the defendants to his satisfaction, such security to consist of
"(a) an undertaking by Mr and Mrs Rodgers, directors of the Plaintiff company to the court that they accept joint and several liability for any order for costs that may be made during the course of this action against the Plaintiff company in favour of the defendants or any of them together with an undertaking that they will not charge, further charge or dispose of any asset belonging to them jointly or individually at the date of this order without leave of the court.
(b) an affidavit by each of them detailing all assets held by them jointly or individually at the date of this order and giving full particulars of any charge or incumbrance upon such assets including the...
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