Robert Nicholas Jason Schofield v Matthew David Smith
Jurisdiction | England & Wales |
Judge | Simon Barker |
Judgment Date | 03 September 2020 |
Neutral Citation | [2020] EWHC 2370 (Ch) |
Court | Chancery Division |
Docket Number | CR-2019-004456 |
Date | 03 September 2020 |
[2020] EWHC 2370 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building, Fetter Lane,
London EC4A 1NL
HIS HONOUR JUDGE Simon Barker QC
CR-2019-004456
In the Matter of Rhino Enterprises Properties Limited
In the Matter of Askwith Investments Limited
And in the Matter of the Insolvency Act 1986
Representation
Stephen Davies QC and Neil Levy (instructed by Knights plc) for the Applicants
Tom Smith QC and Hannah Thornley (instructed by Stephenson Harwood LLP) for the Respondents
Hearing date: 5 March 2020
I direct that pursuant to CPR 39APD6 paragraph 6.1 no tape recording shall be made of this judgment and that copies of this version shall stand as authentic and be treated as the official transcript
HHJ Simon Barker QC:
Introduction
By this application the Applicants (‘the AAs’) seek an order that they be given permission under paragraph 75 of Schedule B1 to the Insolvency Act 1986 (respectively ‘paragraph 75’, ‘Sch.B1’ and ‘ IA 1986’) to pursue an application against the Respondents as former joint administrators (‘the JAs’). The application has already been issued, accordingly permission is sought — as it may be — retrospectively. The application is based on allegations that the JAs breached their fiduciary and other duties as administrators and/or have been guilty of misfeasance. The JAs have obtained their discharge under paragraph 98 of Sch.B1 to the IA 1986. Consequently, paragraph 75(6) of Sch.B1 is engaged, or potentially engaged, in that such an application may only be made with the permission of the court. It is common ground that the AAs are contributories and, in principle, have standing under paragraph 75(2)(e) of Sch.B1 to make such an application; however, the JAs contend that on the facts the AAs are bound, first, by their contrary conduct as members and, secondly, by an express undertaking not to bring any such claim.
A central issue or question in this application (‘the CRTPA issue’) is whether a company voluntary arrangement (‘CVA’) is a contract for the purposes of the Contract (Rights of Third Parties) Act 1999 (‘the 1999 Act’). So far as relevant, s.1 of the 1999 Act provides:
“1(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection 1(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description …”.
There is no definition of “contract” in the 1999 Act. The JAs contend that, on the authorities, CVAs are contracts and, therefore, that the 1999 Act applies to CVAs. The AAs accept that for some purposes CVAs are treated as if they are contracts, and it is common ground that the principles of construction applicable to contracts apply to the interpretation of the terms of CVAs, but the AAs maintain that CVAs derive their legal force from statute, not the law of contract. That said, the AAs accept that if a CVA is a contract and the 1999 Act applies the JAs satisfy the qualification criteria at s.1(1)(a) and (b) in that they are expressly identified in the relevant CVAs (‘the CVA’) and that a particular clause (‘cl.24.1’) purports to confer a benefit on the JAs. However, and by reference to s.1(2) of the 1999 Act, the AAs do not accept that on its proper construction the terms of cl.24.1 of the CVA are enforceable; further, the AAs do not accept that they are parties to the CVA.
The benefit purportedly conferred by cl.24.1 in the CVA, which is a release clause in favour of the JAs, is in the following terms:
“Each Creditor and the Companies 1 will release and undertakes not to bring a claim against the Administrators, their firms, fellow members, partners and employees, the legal and other professional advisors to the Administrators, and their fellow members, partners and employees from any Liability (whether present, future, prospective or contingent) arising in connection with:
(a) their acts, omissions or defaults as administrators or advisors since the Administration Date; and/or
(b) the preparation, negotiation and implementation of the Arrangement or any matter ancillary to the Arrangement”.
For present purposes the application is not challenged on the basis that it is unmeritorious. Mr Smith QC, who appeared with Ms Thornley for the JAs, made clear that that is not a concession on the JAs' part other than for the purposes of this permission application. Mr Davies QC, who appeared with Mr Levy for the AAs, acknowledged that if permission is given it will still be open to the JAs to seek summary judgment under CPR 24 on the basis, which is the JAs' position, that the application is totally without merit.
Background
As to the relevant factual background, the First Applicant, Mr Jason Schofield (‘JS’), is the controlling shareholder of the Second Applicant, Rhino Enterprises
Holdings Limited (‘REHL’). REHL's group structure comprises or includes two subsidiary companies, Rhino Enterprises Limited (‘REL’) and Rhino Enterprises Properties Limited (‘REPL’); the former is an operating company and the latter a property holding or property investment company. JS is also the controlling shareholder of Askwith Investments Limited (‘AIL’). These companies carried on a document storage, self-storage, and related activities business. From about 2007 JS financed the purchase of properties with loans from Barclays Bank plc (‘Barclays’). Barclays required JS to hedge against the risk of adverse interest rate changes through its interest ‘swap’ products (‘the Swaps’). Barclays' security for the property loans and Swaps included floating charges over the undertakings of REL, REPL and AIL (collectively ‘the Companies’)In 2013, and based on advice from leading counsel with expertise in interest swaps, JS was advised that there was a 60% chance of succeeding in a claim against Barclays based on LIBOR manipulation and mis-selling of the Swaps. On 29.5.13 the Companies, by their then solicitors, sent letters of claim to Barclays (‘the Swaps Claims’) asserting a right to rescind the Swaps. By letter dated 4.7.13 the Swaps were rescinded. Between 13.7.13 and 13.8.13 Barclays rejected the Swaps Claims, served a default notice on REPL and AIL, and, on 13.8.13, demanded repayment of property loans and sums claimed under the Swaps totalling £20.9m. On 14.8.13, the next day, Barclays, as holder of a floating charge, appointed the JAs as administrators of the Companies.
The JAs, Mr Matthew Smith (‘MS’) and Ms Clare Boardman (‘CB’), are partners in and members of Deloitte LLP. On the facts alleged in the Draft Particulars of Claim (‘the Draft P/C’), the JAs were provided with the advice obtained from specialist leading counsel as to the prospects of succeeding in the Swaps Claims but obtained their own advice from solicitors which put the chances of success of the Swaps Claims at just less than 50%, an important difference in the context of litigation funding and insurance. In consequence, the JAs accepted Barclays' claim to be owed £20.9m.
On 4.10.13 the JAs issued their statement of proposals pursuant to paragraph 49 of Sch.B1. By letters dated 10.12.13 and 11.12.13, which followed a meeting on 4.12.13, the AAs' then solicitors wrote to solicitors for the JAs setting out the AAs' complaints against the JAs for breach of duties and attempting to persuade the JAs not to exchange contracts for the sale of REPL's and AIL's properties representing almost 90% in value of their pre-administration property portfolios. These letters expressly referred to claims under paragraph 74 and paragraph 75 of Sch.B1. The JAs' then solicitors rejected the complaints on the basis that the JAs considered that it was in the interests of the Companies' creditors as a whole to achieve the certain and expedited sale of the properties at the currently offered market value. The JAs proceeded to sell the properties from REPL's and AIL's portfolios.
In 2014 JS persuaded Barclays to agree that the Companies could exit their respective administrations through CVAs, the terms of which were to include that Barclays' indebtedness would be reduced by £663k, which was the balance claimed by Barclays as owing, and JS could proceed with the Swaps Claims.
The JAs, or their solicitors on their instructions, prepared a combined CVA proposal for the Companies which they circulated on 9.6.14. The JAs draw attention to an email from JS on 9.6.14 stating that he had “no objection to the CVA proposal being issued in tonight's post”. The proposal recites that JS, with the support of Barclays, had approached the JAs with proposals to allow the companies to exit administration through the CVA. From the first draft, the CVA contained a release clause in the terms of cl.24.1. CB's evidence is that she is not aware of any objection being taken at the time to cl.24.1. On 23–24.6.14, following several intermediate drafts and a final draft prepared and circulated by the JAs, JS signed proxy consents as the shareholder in AIL and indirect controlling shareholder in REPL and REL and also on behalf...
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