Paul Sutton and Ge Captial Commercial Finance Limitedanglo Petroleum Ltd and Ge Capital Commecial Finance Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Chadwick |
| Judgment Date | 19 March 2004 |
| Neutral Citation | [2004] EWCA Civ 315 |
| Docket Number | Case No: A2/2003/1507 +1507A |
| Court | Court of Appeal (Civil Division) |
| Date | 19 March 2004 |
[2004] EWCA Civ 315
Lord Justice Chadwick and
Lord Justice Rix
Case No: A2/2003/1507 +1507A
A2/2003/1508 + 1508A
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE McCOMBE
Royal Courts of Justice
Strand,
London, WC2A 2LL
Miss Geraldine Andrews QC & Nigel Dougherty (instructed by Stockler Brunton of 2/3 Cursitor Street, Chancery Lane, London EC4A 1NE) for the Appellant in each appeal
Miss Catherine Newman QC (instructed by DLA of 3 Noble Street, London EC2V 7EE) for the Respondent
This is the Judgment of the Court, to which both members have contributed.
These are appeals from orders made on 4 July 2003 on linked applications made (i) in proceedings brought by GE Capital Commercial Finance Limited ("GE") to enforce guarantees given by Mr Paul Sutton and others for the liabilities of Anglo Petroleum Limited ("APL"), a company in administrative receivership, and (ii) in proceedings brought by APL (acting or purporting to act by Mr Richard Sutton, a director) for the return of documents provided to GE by the APL receivers.
The documents which are the subject of the second proceedings ("the BT documents") were sent to the APL receivers by solicitors, Messrs Boyes Turner ("BT"), formerly acting for APL under cover of a letter dated 28 February 2003. The application made in the first proceedings ("the guarantee action"), by notice dated 2 June 2003, was for an order restraining GE, or the APL receivers, from using the BT documents – and, in particular, from adducing those documents as evidence in the guarantee action – on the grounds that (as alleged) those documents were, and always had been, "subject to legal professional privilege for the benefit of [APL] and/or Mr Paul Sutton". The application made in the second proceedings ("the APL action"), by notice dated 12 June 2003, was for an order in substantially the same terms and on the same grounds. The judge dismissed both applications and refused permission to appeal from his orders.
Applications for permission to appeal were made to this Court. Those applications were considered on paper by Lady Justice Arden. On 9 July 2003 she ordered that the application for permission to appeal in the guarantee action be adjourned for an oral hearing on notice, with the appeal to follow immediately if permission were granted. She refused the application for permission to appeal in the APL action. That application has been renewed before this Court. We have heard argument from counsel on the basis that both appeals were before us. In the course of the hearing we indicated that we were minded to grant permission to appeal. The judgment which we now deliver is a judgment on the appeals.
The underlying facts
On 6 December 2000 APL entered into a debt factoring agreement (the "finance agreement") with GE. The principal backer of APL, although not a director of it, is Mr Paul Sutton, a businessman living in Bermuda. His father, Mr Richard Sutton, is the sole director of APL.
Under the finance agreement GE agreed to advance to APL a percentage of certain of APL's invoiced debts as notified by APL to GE up to a facility limit of £4.2 million. Security for the advances was provided by an "all assets" debenture from APL and a corporate guarantee from APL's parent company, Anglo Oil Limited ("AOL"). The debenture permitted GE to appoint administrative receivers in the event of default by APL. GE is thus the debenture holder and the principal creditor of APL. GE appointed administrative receivers of APL on 14 November 2001.
The administrative receivership arose in the following circumstances. In early September 2001 APL was in breach of the finance agreement. It had obtained advances well in excess of its £4.2 million limit, in the sum of over £8 million. On 12 September 2001 GE gave notice of termination of the finance agreement and demanded immediate repayment. Over the next three weeks APL and Mr Paul Sutton participated in the negotiation of a compromise, which was made on 3 October 2001. APL agreed to repay the indebtedness in instalments over a short period and to provide further security; and Mr Sutton agreed to give a personal guarantee for some or all of APL's liability under the finance agreement. A further guarantee was also provided by Anglo Oil Trading Limited, a subsidiary of APL ("AOT"). For the purpose of these negotiations APL retained Messrs Boyes Turner ("BT") to act for it as its solicitors.
There are issues as to the extent to which, if at all, Mr Paul Sutton was personally involved in that or an ancillary retainer. He certainly received advice from BT concerning the giving of his personal guarantee, although it is relevant to point out that the idea of a such a guarantee appears to have been introduced into the negotiations only on 26 September 2001. AOT was separately advised by another firm of solicitors, Messrs Betesh Fox.
In the meantime a serious matter had been revealed by an investigation conducted by an auditor, Mrs Lyn Edwards, whom GE had instructed to look into the causes of APL's indebtedness. She discovered that some £3 million of the debts notified by APL to GE related to apparently fictitious transactions with a possibly associated company called Sutton Oil (Bermuda) Ltd ("Sutton Oil") : it seemed that no oil had been delivered by APL to Sutton Oil and no debts were due from Sutton Oil to APL. This had been reported to GE by the time that it terminated the finance agreement on 12 September 2001. The finance agreement had contained express prohibitions on the factoring of any debts incurred by "associated companies" or in respect of goods which APL had not yet delivered.
The obligations under the compromise of 3 October 2001 were not met and on 14 November GE appointed Mr Raymond Hocking and Mr Simon Michaels, both partners in BDO Stoy Hayward, as administrative receivers of APL. On 28 January 2002 the guarantee action commenced against Mr Paul Sutton, AOL and AOT under their respective guarantees of APL's indebtedness. A critical question has emerged in those proceedings as to whether, when Mr Paul Sutton gave his personal guarantee on 3 October 2001, he knew about the fictitious transactions between APL and Sutton Oil. He alleges that he did not, and on that ground submits that his guarantee is invalidated by this non-disclosure which he says radically altered the nature of the risk which he undertook as guarantor. GE alleges that he did know and that the matter of the fake transactions was discussed between GE and BT (albeit not in Mr Paul Sutton's presence) at meetings which had taken place on 17 and 25 September 2001.
On 23 April 2002 Mr Paul Sutton filed his defence to GE's guarantee action claim against him in the sum of £1,807,470. He said nothing in that defence on the subject of the alleged non-disclosure in respect of the fictitious transactions. On 15 October 2002 GE applied for summary judgment in its action. It was in response to that application that, in his witness statement dated 13 December 2002, Mr Paul Sutton first raised his ignorance of the fictitious nature of the transactions with Sutton Oil. As a result the summary judgment application against Mr Paul Sutton is still pending.
Mr Sutton's witness statement led to a response from GE, whose representatives' witness statements made the point that at the meetings in September 2001 BT, who was understood to be representing the Sutton family (including Mr Paul Sutton) as well as APL, was fully appraised of all relevant issues regarding APL's debts. Mr Sutton responded in turn with a second witness statement dated 27 January 2003 in which he said that BT was retained by APL and not by him.
That led GE, acting through its solicitors, DLA, to want to investigate the truth of what Mr Paul Sutton had said and his denial of knowledge of the fictitious transactions. As a result Mr Michaels wrote on 25 February 2003 to Mr Rice, a partner in BT with whom GE had been in contact at the September 2001 meetings, in the following terms:
"[APL] remains indebted to GE in a sum exceeding £1m. Raymond Hocking and I were appointed Joint Administrative Receivers of Anglo on 14th November 2001 by GE. In that capacity, we are investigating matters relating to that indebtedness and, in particular, the provision of the aforementioned security and guarantees.
You have in your possession correspondence, emails, attendance notes, drafts and other documents which came into existence during the period from 11th September 2001 until the date of my appointment which relate to APL's indebtedness to GE, the provision of security and of the guarantees by the aforementioned parties.
In accordance with our powers under Sections 234–236 Insolvency Act 1986, we hereby request that you deliver up all such papers and documents to us including, without limitation, all communications between your firm and [APL], any director, officer, shareholder or employee of the company and Mr Paul Sutton and in particular the execution by Mr Sutton of a guarantee and compromise agreement both dated 3rd October 2001."
On 28 February 2003 BT delivered to the receivers their files representing "all of the papers which we are holding on behalf of the company". On 4 March 2003 the receivers promptly sent on to Mr Boon, the partner acting for GE at DLA, the whole of what they had received from BT, without keeping any copies for themselves. DLA were also the...
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Subject Index
...[1997] 2 Cr App R 78 .....................2 65G v United Kingdom (1983) 35 DR 75 ..... 224GE Capital Commercial Finance Ltd vSutton [2004] EWCA Civ 315, [2004] 2BCLC 662 .......................................................1 94General Mediterranean Holdings SA v Patel[2000] 1 WLR 272 ..........
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