Specialist Group International Ltd v Deakin and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ALDOUS,LORD JUSTICE MAY |
| Judgment Date | 23 May 2001 |
| Neutral Citation | [2001] EWCA Civ 777 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2000/2269 |
| Date | 23 May 2001 |
[2001] EWCA Civ 777
Lord Justice Aldous and
Lord Justice May
Case No: A3/2000/2269
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE RIMER
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr J. Dagnall (instructed by Boyd & Hutchinson for the Appellants)
Mr L. Kosmin QC and Miss C. Roberts (instructed by Manches for the Respondent)
With leave of the judge Messrs Richard and Charles Deakin appeal the order of Rimer J of 22nd May 2000 which dismissed their application to strike out the proceedings brought by Specialist Group International Ltd.
The facts relevant to the appeal are not in dispute and the parties accept that they are correctly set out in the opening paragraphs of the judgment. That being so, I adopt them.
"1. SGI is a company whose principal business is the provision of the specialist skills needed for the purpose of rescuing people or property from confined spaces, whether tunnels, wells, caves, drains or collapsed buildings. It is a two person company, the two being Peter Faulding and his mother Nora. They each hold one of its two issued shares. There is a dispute between the parties as to whether Nora Faulding holds her share as a nominee or trustee for Peter, but I am not required or in a position to resolve that on this application, and am invited to assume for present purposes that she holds it beneficially.
Peter Faulding is and has always been a full-time working director of SGI. The Deakins became involved with SGI in about December 1995, although not on a full-time basis: they each have other employments, Richard Deakin being an employee of British Aerospace plc and Charles Deakin being a doctor employed by the NHS. They both became directors of SGI on 24 June 1997 and remained in office until they were removed on 10 February 1999. 3. In November 1997 £338,200 (less deductions of income tax and national insurance) was awarded and paid to the Deakins by way of directors' remuneration. In June 1998 a further sum of £120,000 (£60,000 each) was also awarded and paid to them (also less the like deductions). The net amount of the latter payments after such deductions totalled £68,008.48. That sum was not actually paid out to the Deakins, in the sense that no payment of it actually moved from SGI to them. What instead happened was that it was agreed that the Deakins should be treated as having received it and then immediately lent it back to SGI; and SGI was then treated as becoming a debtor of the Deakins in respect of the amounts so lent, the loans being repayable on demand. These loans were thereafter referred to as directors' loans and there is no doubt that is how everyone always regarded them. The remuneration awarded to the Deakins in November 1997 and June 1998 was referred to in the argument as "the 1997 bonus" and "the 1998 bonus" respectively.
By the autumn of 1998 relationships between the Deakins and Mr Faulding had soured. Both sides consulted solicitors. Boyd & Hutchinson acted for the Deakins. Morrisons acted initially for Mr Faulding, although by December 1998 Manches had taken over from Morrisons and they acted for SGI, Peter and Nora Faulding, as they still do.
Mr Faulding's stance in late 1998 was that he wanted the Deakins to sever their connection with SGI finally, although he recognised that money was due to them under the loans created on the occasion of the award of the 1998 bonus; and by their letter of 15 December 1998 Manches also recognised that SGI owed the Deakins this money although they there expressed an unwillingness on SGI's part to pay it as they said it would leave SGI with insufficient working capital to pay its other creditors as their debts fell due. The Deakins appear to have regarded their claim for payment of the directors' loans as unanswerable. Apart from this, they were also claiming that they were each entitled to one third of the issued shares in SGI, a claim based on an agreement said to have been made with Mr Faulding although he disputed that claim and still disputes it.
The differences between the parties led to the issue by the Deakins of two writs on 15 December 1998. In one action ("the loans action") they sued SGI for repayment of their directors' loans. The statement of claim comprised a mere four paragraphs, (two of them being devoted to claims for reimbursement of expenses and interest, which are irrelevant for present purposes). Paragraph 1, relating to the loans, reads:
"The Plaintiffs [the Deakins] seek repayment of monies lent by them to the Defendant [SGI] on 30th June, 1998 and in the total sum of £68,008.48. which monies were repayable on demand. By letter dated 1st December, 1998, the Plaintiffs demanded repayment of the monies, but the Defendant has failed to repay the same."
Paragraph 3 claimed interest on the loans under s.35A of the Supreme Court Act 1981 from 30 June 1998 at 8%. The other action ("the shareholders action") was one commenced against Mr Faulding alone and by it the Deakins claimed to establish their entitlement to two thirds of the issued shares of SGI.
The loans action was promptly settled. Julie Bond, a partner in Manches, said in a witness statement made on 17 April 2000 that it was settled on the basis that it was believed that SGI "had little or no defence to that claim at the appropriate time". The only defence which she appears to have considered SGI might have had was the point that a satisfaction of the claim might have left SGI with insufficient working capital, although that was obviously no defence to the action: it meant at most that the action might result in SGI having to enter some appropriate insolvency regime. For the purposes of this application it is agreed that no other line of defence had occurred to SGI or its advisers. The settlement of the loans action was effected by a consent order dated 18 January 1999 made by Master Moncaster. That recorded the written consent to it of both sides' solicitors and ordered SGI to pay the Deakins £71,687.69 in two instalments by 29 January 1999, plus costs. That sum was expressed to be in "full and final satisfaction of the [Deakins'] claims particularised in the Statement of Claim inclusive of interest". The judgment was satisfied in full and SGI continued to trade. Meanwhile the shareholders action proceeded towards trial, which was fixed to start on 2 May 2000. 8. That trial did not, however, start on that day because at some stage SGI and its advisers fell upon a new point. That is that SGI's articles of association incorporated regulation 82 of Table A in the Companies (Tables A to F) Regulations 1985. Under the heading "Remuneration of Directors" that provides:
"The directors shall be entitled to such remuneration as the Company may by ordinary resolution determine and, unless the resolution provides otherwise, the remuneration shall be deemed to accrue from day to day."
The new point is that it follows from this that the 1997 and 1998 bonuses would only have been validly declared and paid if they had been the subject of an ordinary resolution passed by Peter and Nora Faulding. It is said by SGI that there was no such resolution so that the two bonuses were invalidly declared and paid. The discovery of this point led on 6 March 2000 to the issue by SGI of a claim form against the Deakins. By it SGI claims from them the gross amount of those bonuses, a total of £458,200 plus interest ("the bonuses action"). There is no dispute between counsel that remuneration purportedly paid to directors in contravention of articles such as regulation 82, or otherwise than in accordance with the company's constitution or pursuant to a contract for service, is paid without the company's authority and can be recovered. Mr Kosmin referred me to various statements to this effect in some well-known text books on company law, and also to the decision of the House of Lords in Guinness PLC v Saunders [1990] 2 A.C. 663, in particular to Lord Templeman's speech at 689D to 692H.
The commencement of the bonuses action led to an application on 22 March 2000 by the Deakins to His Honour Judge Rich Q.C., sitting as a judge of the Chancery Division. The outcome was that the trial date of 2 May 2000 for the shareholders action was vacated and various other directions were given. One of them contemplated the making by the Deakins of a prompt application to strike out the bonuses action. That application was duly launched and is now before me for determination. I preface what follows by saying that, if the bonuses action is not to be struck out, the Deakins will, I am told, seek to raise various defences directed at avoiding the potentially painful impact of the regulation 82 point. But I am asked to approach this application on the basis that the point is on the face of it a good one, that is that the bonuses were not the subject of the required resolution and were improperly paid."
The judge in paragraph 4 of his judgment referred to the bonus payments made in 1997 and 1998. He accurately recorded how the 1998 payments were not actually paid over to SGI but were lent back to it by the Deakins. However it is important to note that the 1997 payments were actually paid over and that the application was to strike out the claim for their return, although they were not the subject of the loans action.
Before the judge and before us Mr John Dagnall, counsel for the Deakins, submitted that the bonuses action should be struck out because the claim should have been...
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