Russell Crumpler v Candey Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Colin Rimer,Lord Justice Henderson,Lord Justice Patten |
| Judgment Date | 16 October 2018 |
| Neutral Citation | [2018] EWCA Civ 2256 |
| Docket Number | Case No: A3/2017/2374 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 October 2018 |
[2018] EWCA Civ 2256
Lord Justice Patten
Lord Justice Henderson
and
Sir Colin Rimer
Case No: A3/2017/2374
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
His Honour Judge Davis-White QC sitting as a Judge of the High Court
Royal Courts of Justice
Strand, London, WC2A 2LL
Felicity Toube QC and Stephen Robins (instructed by Stephenson Harwood LLP) for the Appellants
Robert Miles QC and Andrew de Mestre (instructed by Candey LLP) for the Respondent
Hearing date: 21 June 2018
Introduction
This appeal is against the declaration in paragraph 1(b) of the order made by His Honour Judge Davis-White QC, sitting as a Judge of the High Court, on 17 July 2017 following his reserved judgment of 23 June: [2017] EWHC 1511 (Ch). It was made on an application for directions by the applicants/appellants, Russell Crumpler and Sarah Bower, the joint liquidators of Peak Hotels and Resorts Limited (‘Peak’). The respondent to the application and appeal is CANDEY Limited (‘Candey’), solicitors, who, prior to its liquidation, acted for Peak in what the judge called a ‘plethora of international litigation.’
The declaration related to a Deed of Charge and Security executed by Peak in favour of Candey (‘the charge’). The judge declared that ‘on the assumption that [the charge] is in all other respects valid and enforceable’, it was effective to create a floating (but not a fixed) charge over two sums of US$10m and £1,648,000 paid out of court to Peak upon the settlement of the litigation. The charge had been granted by Peak before its entry into liquidation. The payment out was obtained by the liquidators after such entry.
If a charge was created, the liquidators do not dispute that it was a floating charge. But by their appeal, the liquidators, represented by Ms Toube QC and Mr Robins, assert that no charge was created over the two sums just referred to. The money paid out was part of larger sums that Peak had paid into court prior to the execution of the charge. The charge was purportedly of Peak's proprietary interest in the money paid in. The liquidators say that once Peak had paid the money in, it parted with such interest, with the consequence that it was no longer an existing asset of Peak that Peak was capable of charging. The most that could be said was that the charge was over a future asset of Peak that fell in during the liquidation when the money was paid out; but, say the liquidators, that money was a new asset belonging to Peak in liquidation and not one over which, prior to the liquidation, Peak could create a charge.
Whilst the judge stopped short of holding that Peak retained a proprietary interest in the money it paid into court, he held that Peak did retain an interest in it to the extent that it was entitled to apply to the court for its proper administration. That, in his view, was an interest sufficient to enable Peak to create a charge over the money. If he was wrong that Peak's interest was of such a limited nature, he held that its interest would have been greater, not less.
Candey, represented by Robert Miles QC and Andrew de Mestre, submitted that Peak retained a continuing proprietary interest in the money in court and so was entitled to charge it. The judge's declaration was therefore correctly made. If wrong in that submission, Candey submitted that the charge anyway created a valid equitable charge over the money formerly in court when it was paid out during the liquidation.
The facts
I take these from the judge's judgment. Peak was incorporated in the British Virgin Islands (‘BVI’) on 14 January 2014. Ten days later, it borrowed some US$35m from Jinpeng Group Limited (‘Jinpeng’) in order, as it did, to acquire a holding of about 32.5% in a joint venture vehicle, Peak Hotels and Resorts Group Limited (‘the JVC’). Its joint venture partner was Tarek Investments Limited, also a BVI company, which held about 64.8% of the shares in the JVC. The JVC indirectly owned the Aman Resorts hotel group, which operated about 26 hotels internationally. In April 2014, Peak borrowed US$50m from Sherway Group Limited (‘Sherway’).
Peak promptly became engaged in litigation arising out of disputes over the control of the Aman group and as to funding arrangements. There was litigation in the BVI and the Chancery Division of the High Court in England and an arbitration. Peak commenced its Chancery proceedings in June 2014. The defendants included Tarek, the JVC and Sherway. In June and July 2014, Peak obtained various interim injunctions, the price for which was its giving to the court the usual cross-undertaking in damages. On 19 September 2014, His Honour Judge Pelling QC, sitting as a judge of the Chancery Division, ordered Peak, as it did, to pay US$10m into court by way of fortification of its cross-undertaking. On 20 February 2015, Henderson J (as he then was) ordered Peak to provide £3,138,000 as security for the defendants' costs, which sum Peak also paid into court.
The Fixed Fee agreement
Candey acted for Peak in the litigation. To assist Peak's cash flow, Peak and Candey entered into a Fixed Fee agreement which (i) dealt with the arrears of fees owed to Candey, and (ii) provided that, for its future legal services, Candey was to be entitled to a fixed fee of approximately £3.8m.
The agreement was signed for Peak and by Candey on 10 and 21 October 2015 respectively. Candey agreed to continue to act in various pieces of litigation and on other matters agreed from time to time. The agreement included an English choice of law clause and an exclusive English jurisdiction clause. Clause 3 recorded that Candey's previous costs estimate had been revised from £5m to £6m, but could be significantly higher (or lower if an early settlement was achieved). Clause 4 provided:
‘[Peak] does not wish to pay [Candey's] invoiced and unbilled costs incurred to date or provide further funds in advance on account on a weekly basis and wishes instead to agree a fixed liability fee payable at a future date. It is therefore agreed that [Peak] will pay [Candey] a fixed fee of £3,860,637.48 (the “Fixed Fee”). It is agreed that to assist [Peak's] cash flow [Peak] is not obliged to pay the Fixed Fee before judgment on liability is handed down or a settlement is agreed in the Tarek proceedings unless [Peak] obtains cash from elsewhere as set out in this agreement. Interest at 8% per annum will accrue from judgment or settlement.’
Clause 5 provided for Peak to pay Candey's outstanding unpaid invoices of just over £941,000 in three tranches, namely on the signature of the agreement, 1 December 2015 and 1 February 2016. The agreement provided that the fixed fee excluded all disbursements, including Counsel's fees, for which Peak was to remain liable. Clauses 8 (termination) and 11 (security) provided:
‘8. [Candey] may terminate this agreement at any time for any reason without liability to [Peak]. In those circumstances, or if [Peak] wishes to terminate this agreement, [Peak] will remain liable for the Outstanding Costs, plus the Fixed Fee and all disbursements, subject of course to all its legal rights. The Fixed Fee and Outstanding Costs become immediately due for payment in the event that [Peak] is subject to any bona fide insolvency proceedings or arrangement or insolvency related Court order. …
11. As continuing security for the payment and discharge of all liabilities due from [Peak] to [Candey] pursuant to this agreement [Peak] shall execute a Deed of Charge and Security in the form annexed to this agreement. …’
The charge
On 21 October 2015 Peak executed the required Deed of Charge and Security (i.e. ‘the charge’). Neither party made any point turning on its terms. The words of charge and clauses (1) and (3) are as follows:
‘As continuing security for the payment and discharge of all liabilities to [Candey] pursuant to the fixed fee agreement of today's date … [Peak] hereby charges to [Candey]:
(1) by way of fixed charge, all assets and undertakings of [Peak], including shares, present or future, and including all monies in Court in all jurisdictions worldwide; …
(3) by way of floating charge, all such or further assets belonging to [Peak] that are not today capable of being charged by way of fixed charge (including any such assets described at ( 1) or (2) above in the event the fixed charge is defective for any reason).’ (My emphasis.)
Peak's entry into liquidation
Jinpeng had, in May 2014, served a statutory demand on Peak for the repayment of its US$35m loan. In September 2014, it commenced winding up proceedings against Peak. On 8 February 2016, Bannister J (Ag), sitting as a High Court Judge of the Eastern Caribbean Supreme Court in the BVI, made a winding up order. The appellants were appointed joint liquidators: Mr Crumpler is the managing director of KPMG (BVI) Limited, Ms Bower a member of KPMG China in Hong Kong.
By the time of Peak's entry into liquidation, Candey had carried out substantial work for it. Based on Candey's usual hourly rates, it would have been charged out at about £1.2m on a time basis. In the liquidation, Candey claims to be a secured creditor for the £3,860,637.48 fixed fee. The liquidators do not challenge the fixed fee. They do challenge Candey's claim that the charge gave it security for the fee over the money in court paid out to them.
When Peak entered into liquidation, the London litigation was at a crucial stage. The liquidators sought the directions of the BVI court as to what steps to take in it. On 26 February 2016, Bannister...
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