Oxford Fleet Management Ltd v Mr Douglas Watson Brown (1st Defendant) Karen Tracey Clothier (2nd Defendant)
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Saffman |
| Judgment Date | 24 March 2014 |
| Neutral Citation | [2014] EWHC 3065 (Ch) |
| Docket Number | Case No: 2L530557 |
| Court | Chancery Division |
| Date | 24 March 2014 |
[2014] EWHC 3065 (Ch)
IN THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
The Courthouse
1 Oxford Row
Leeds
LS1 3BG
His Honour Judge Saffman
Case No: 2L530557
Mr Lewis on behalf of the Claimant
Defendants, Litigants-in-person
Judgment date: 24 th March 2014
Introduction
This is a claim by the Liquidator of Oxford Fleet Management Ltd (OFM), against Mr Douglas Watson Brown and Miss Karen Clothier. Both Defendants, who were married to each other but are now divorced, were directors of OFM from 1 st October 1997 until the 19 th August 2006 upon which date they both resigned.
They were reappointed as directors on 7 th February 2007. Miss Clothier resigned again on 22 nd August 2007. On 3 rd December 2007 OFM was placed into administration at which time the sole director was Mr Brown. It moved from administration to creditors' voluntary liquidation on 12 th December 2008. There is a substantial deficiency as regards creditors.
Mr Brown owned 37 of the 100 issued shares in the company. At one point at least Miss Clothier owned 36 shares and the balance of 25 shares were owned by the Fyfield Discretionary Trust. The Trustees of the Trust included Mr Brown and Miss Clothier and also an independent third party Trustee, Miss Julie Pope. The beneficiaries of the trust were Mr Brown and Miss Clothier and their children and remoter issue.
Between 26 th September 2006 and 25 th December 2006 various payments were made by the Company to Mr Brown or, if they were not paid to him, they were credited to him to reduce, or perhaps more accurately, to extinguish a directors loan account. The payments total £732,406.25 and they are identified in a witness statement dated 14 th February 2014 by the Liquidator of OFM, Mr John Hedger. I refer in particular to paragraphs 46 and 49 of his witness statement (pages 90 and 91 of bundle A of the four bundles provided for the trial). The payments made to or on behalf of Mr Brown are also set out in paragraph 21 of the Particulars of Claim (A12).
Mr Brown does not deny that these payments were made or credited to him but he does not necessarily accept that they were. He does not know how much he received. He does not suggest that the Company's records from where this information has been obtained are wrong, he simply does not have the records to either confirm or deny the information contained in the Company's records. It will be noted that all these payments were made during the six month period when Mr Brown was not a de jure director of the OFM, by which I mean that he was not recorded in the Company's books or at Companies House as a director.
The Claimant seeks the recovery of this money from Mr Brown which was paid to him over and above his annual salary of £200,000 per year. The Claimant does so on the basis that, while not recorded as an official director, Mr Brown was actually a de facto director of the Company. I will go into more detail shortly as to what a de facto director actually is. Suffice it to say at this stage that it encompasses somebody who, whilst not the holder of the official position of director, undertakes functions in relation to a company which could properly be discharged only by a director or where, as is contended in this case, a person who is not a formal de jure director acts on a footing equal to that of the actual de jure director in directing the affairs of the Company. In this case it is contended that in the relevant period Mr Brown acted on an equal footing to Mr Glynn Jones who was the de jure director.
The point is that if Mr Brown is a de facto director during those times when he was not actually a de jure director then he owes fiduciary duties to the Company in the same way as he would if he were a de jure director. As set out in paragraph 30 of the Particulars of Claim at page 12 of the bundle those duties include;
a. A duty to act in good faith and in the best interests of the Company.
b. A duty not to act for a purpose collateral to the purposes conferred by the Company's Articles.
c. A duty to exercise powers only for the purpose to which they are conferred and
d. A duty not to act so as to place oneself in a position in which personal interests do or might conflict with the interests of the Company.
It is contended that the payments now reclaimed were paid in breach of those duties.
On or about 31 st October 2007 a further payment was made by OFM to Mr Brown of a £151,833 and a few pence. At this point he was a de jure director of the Company and so the Claimant seeks to establish that this payment was in breach of Mr Brown's fiduciary duties as a de jure director without having to go to the trouble of establishing that he had those duties as a de facto director.
On 20 th December 2006 OFM made a payment of £130,000 to St Edwards School in Oxford. It was apparently to clear some arrears of school fees and also as a lump sum payment in lieu of termly fees going forward in respect of Mr Brown and Miss Clothier's three children. The Liquidator seeks repayment of this amount from both Mr Brown and Miss Clothier on the basis that they were both liable to the school to discharge this liability. It is contended in the first instance that this payment was no more than a loan by OFM to the Defendants for which a demand for repayment was made on 19 th October 2012. It is pointed out by the Claimants that this payment was actually treated as a loan in the Company's books. I have been referred to two documents that show how it is treated, one produced by the Company and one produced by Miss Clothier.
Alternatively, against Mr Brown it is contended that this payment of £130,000 was made when he was a de facto director and that the payment breached his fiduciary obligations, in the same way as the other payments made between September and December 2006 to which I have already referred.
As regards, Miss Clothier, this money is alternatively claimed on the basis that there was a total failure of consideration by her for its receipt. In other words it was money belonging to the Company had and received by her or if not by her, then received by the School for her benefit in the sense that it discharged a liability that she had to the School. It is contended that OFM got nothing out of the transaction and so the money should be repaid.
Finally, in the week commencing the 13 th December 2006 OFM made two payments, one very small one of about £15.00 and one much larger one of £374,995 or thereabouts totalling £375,000 in all to Miss Clothier. The Claimant argues that this too was a loan to Miss Clothier, which it is true was made against the background of discussions about a buyback by the Company of her shareholding in it. However, the buyback never actually took place and so it is contended that Miss Clothier received this money on the basis that it was simply a loan to her in respect of which a demand for payment has been made.
Alternatively, if not a loan then, because the Company never received the shares, it is once again alleged there has been a total failure of consideration and on that basis the money should be returned. In layman's terms the liquidator argues that, even if there was a contract for OFM to buy back Miss Clothier's shareholding, in the end OFM did not get what it contracted for and so it is entitled to its money back.
In addition, it is contended that Miss Clothier must have known that insofar as the payment of £375,000 was authorised by Mr Brown, it was not in the interests of the Company and was a breach of his fiduciary obligations. In other words she knew or ought to have known that the arrangement was tainted and so is obliged to repay the monies received.
The Claimant's position that this was a loan is supported to some extent by the way that this £375,000 was treated in the books and records of OFM, at page 252 in bundle B, the £375,000 is described as a loan to Miss Clothier then known as Mrs Brown. But Miss Clothier has produced another document from the Company described as a "nominal activity ledger" which indicates that it is described as "K Brown transfer agreement". She says that supports her contention that it was a payment pursuant to an agreement by her to transfer her shares back to the Company. It is also true to say however, that even the document produced by Miss Clothier is named "The Loan Account Karen Brown" ledger.
I note for completeness that the Particulars of Claim actually make reference to other payments called the KB Expenses Payments. I refer to paragraph 62 in respect of which some reimbursement is sought. It does not appear that this is a matter which has been pursued in these proceedings. In fact the Particulars of Claim include claims for that plus indeed the sums about which I am concerned but on the basis that such claims arise under the Insolvency Act 1986. As I understand it these Insolvency Act claims have been stayed pending the outcome of these proceedings.
I am not therefore concerned with any cause of action referred to in the Particulars of Claim which arises under the Insolvency Act. I am only concerned with claims in the Particulars of Claim which arise out of allegations of breach of fiduciary duty, claims for repayments of loans or alleged loans and or claims for money had and received on the basis that there has been a total failure of consideration.
In short therefore the liquidator claims £884,239.58 from Mr Brown in respect of payments made to him or on his behalf and £130,000 in respect of the school fees paid and the same £130,000 is claimed by the...
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