Robert Derek Smailes and Another v John McNally and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Birss |
| Judgment Date | 27 September 2013 |
| Neutral Citation | [2013] EWHC 2882 (Ch) |
| Docket Number | Case No: 3878 and 3879 of 2011 |
| Court | Chancery Division |
| Date | 27 September 2013 |
[2013] EWHC 2882 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Birss
Case No: 3878 and 3879 of 2011
HC12 E01467 and 2998 of 2012
In the Matter of Atrium Training Services Limited
And in the Matter of the Insolvency Act 1986
And in the Matter of Kimberly Scott Services Limited
And in the Matter of The Insolvency Act 1986
And in the Matter of Connor Williams Limited
And in the Matter of the Insolvency Act 1986
David Alexander QC and Stephen Robins (instructed by Mishcon de Reya) for Mr McNally and Mr MacLean
Simon Davenport QC and Daniel Lewis (instructed by Isadore Goldman) for the Liquidators
Lucy Frazer QC (instructed by Pinsent Masons) for the First to Sixth Respondents in the CWL action
Hearing dates: 17th, 18th September 2013
Atrium Training Services Ltd was a nationwide recruitment business operating through a number of group companies in various locations throughout England, which sourced and provided "operatives" in a wide range of industry sectors including construction, health and teaching. At its peak it had a turnover of more than £120 million per year and placed about 5,000 operatives per week.
In this action the liquidators of Atrium, Mr Smailes and Mr Ryman, contend that the respondents to the action, in particular Mr McNally a former director of Atrium and Mr MacLean, former company secretary, are liable for fraudulent trading contrary to s213 of the Insolvency Act 1986 and trading whilst insolvent contrary to s214 of the 1986 Act. There are other matters in issue but there is no need to set them out. A point at the heart of the dispute is the allegation that Atrium failed to pay about £45 Million in tax to HMRC between about 2003 and 2005. The liquidators contend that Mr McNally and Mr MacLean are liable and seek in excess of £50 million in damages. Mr McNally and Mr MacLean deny liability. Amongst other things they contend that there was no fraud and that any underpayment of tax was the responsibility of the group finance director, Mr English. There is also a closely related claim against the same respondents regarding a related company, Kimberly Scott Services Limited ("KSS"). The Atrium and KSS claims together can be referred to simply as the Atrium action. The liquidators bring a distinct action against shareholders of another company, Connor Williams Limited ("CWL"). The essential issue there is the allegation that Mr McNally and Mr MacLean transferred the business of KSS to CWL at an undervalue and wrongly paid dividends to the shareholders. The shareholders, Mr McNally and Mr MacLean all deny this allegation.
The applications before me relate to disclosure. In the applications the liquidators are represented by Mr Simon Davenport QC leading Daniel Lewis instructed by Isadore Goldman. Mr McNally and Mr MacLean are represented by Mr David Alexander QC leading Mr Stephen Robins instructed by Mishcon de Reya. Six of the eight respondents to the CWL action are represented by Ms Lucy Frazer QC instructed by Pinsent Masons. In this judgment I will refer to the liquidators of Atrium, KSS and CWL as the liquidators. Recognising Mr MacLean was company secretary, I will refer to Mr McNally and Mr MacLean as the former directors. I will refer to Ms Frazer's clients as the family members since they are related to Mr McNally or Mr MacLean. No other parties are represented before me but the solicitors for the eighth respondent in the CWL action wrote to the court on 11 September 2013, indicating that they supported the application of the family members in the CWL action. However on the basis that any orders made also applied for the benefit of the eighth and seventh respondent (for whom Clifton Ingram act) they did not propose to attend the hearing in order to save costs and avoid duplication. This was a sensible course.
The Atrium action began on 13th May 2011. In July 2011 Registrar Barber gave directions which included provision for statements of case, disclosure by 20th January 2012, witness statements and experts' reports and a trial not before 1 st November 2012. The timetable slipped substantially and further orders for directions were made. On 18 th April 2012 Registrar Barber gave fresh directions, with the former directors' defences to be served on 20 th April 2012 (subject to an unless order), disclosure by all parties to take place on 8 th June 2012 and a pre trial review in January 2013. The trial was then to take place in February 2013.
The former directors served their defences in April and gave disclosure on 8 th June 2012. Also on 8 th June the liquidators' then solicitors Howes Percival served a disclosure list in their behalf. It quickly became clear that the liquidators' disclosure exercise had not been conducted correctly. What seems to have happened was that essentially every conceivable document from Atrium (or KSS) in the liquidators' possession had been listed, often by reference simply to boxes. The number of documents was vast. The former directors objected and applied for an unless order.
The matter eventually came before Henderson J in November 2012. In the meantime and without telling Mishcon de Reya, Howes Percival had embarked on a massive fresh disclosure exercise examining the contents of hundreds of boxes of potentially relevant material and involving eight fee earners. The existence of the exercise emerged at the November hearing. Shortly before the hearing Isadore Goldman replaced Howes Percival as the liquidators' solicitors. In his judgment from the November hearing ( [2012] EWHC 3793) Henderson J recorded that he was being told that three more months would be needed for the exercise (which had started in August) to be completed.
A further development leading up to the November hearing was that the CWL action had been commenced.
The order of Henderson J of 28 th November 2012 provided that the Atrium action and the CWL action should be tried at the same time and the cases should be managed together. In the Atrium action the date for disclosure by the liquidators was set for 2 nd April 2013. In the CWL action 2 nd April was the date for disclosure by both sides. The order also provides that any document disclosed in one case will be disclosed to the parties in the other case. The February trial date was vacated and a 30 day trial set for the first available date after 4 th October 2013.
What happened next is explained in paragraphs 9 and 10 of a later judgment of Henderson J on 7 th June 2013 ( [2013] EWHC 1562 (Ch)):
"9. Isadore Goldman then set to work, the solicitor with day to day conduct of the matter on behalf of the Liquidators being Mr David Gibbs. As I shall explain in more detail later in this judgment, he contacted Howes Percival in early December, but it was only on 3 January that the lists produced by Howes Percival were received in incomplete form, and it was not until 14 January that the boxes of documents were delivered. On 23 January, Mr Gibbs conducted an initial review of the boxes, and on 25 January a meeting took place with Mishcons at which Isadore Goldman put forward two methodologies for consideration, their preference being for one whereby an e-disclosure provider would be engaged to scan and upload the documents into a database, or "e-disclosure platform". There is a dispute, which I cannot resolve, whether agreement to proceed in this way was reached at the meeting, but it is at least clear that no objection was raised by Mishcons, and it was they who suggested the use of a company called Unified as the e-disclosure provider. Mr Gibbs then obtained quotations from three providers, including Unified, and on about 4 February 2013 Unified were selected.
10. It soon became clear to Mr Gibbs that it would be impossible for Unified (or any of the other providers whom he had approached) to complete the necessary work by 2 April 2013, and he intended to raise the question of an extension of time with Mishcons as early as 7 February. Unfortunately, however, a letter which he drafted on that date was never sent, and it was not until 7 March that Isadore Goldman wrote to Mishcons requesting their agreement to an extension. By that stage, Mr Gibbs had undertaken a spot check of the files with the help of junior counsel, and they had concluded that certain categories of documents should be excluded from disclosure on grounds of irrelevance. On that basis, the total number of boxes of documents for disclosure, including the boxes in the CWL proceedings, had been reduced from 545 to 149. Unified said that they could scan and code this material in not more than three months, so the extension requested was until 30 June 2013."
So although the disclosure exercise using Unified's e-disclosure platform was underway, on 28 th March 2013 Isadore Goldman sought an extension of time. This was heard by Henderson J on 22 nd May 2013 and the judgment of 7 th June was the result. Henderson J decided to grant the extension of time but only on "unless" terms in the Atrium action. In relation to the CWL action he made it very clear that whether or not the Atrium proceedings were to be struck out for...
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