Starglade Properties Ltd v Roland Nash and Others
| Jurisdiction | England & Wales |
| Judgment Date | 26 January 2010 |
| Neutral Citation | [2010] EWHC 148 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No. HC O7 CO2860 |
| Date | 26 January 2010 |
[2010] EWHC 148 (Ch)
In the High Court of Justice Chancery Division
Before Mr. N. Strauss Q.C. (Sitting as a Deputy Judge)
Claim No. HC O7 CO2860
Mr. Adrian Jack, instructed by Messrs. Vance Harris LLP appeared for the claimant. Mr. Donald McCue, instructed by Shirley Griffiths LLB, appeared for the 1st defendant. The 2nd and 3rd defendants were not represented, as the claim against them had been settled..
Approved judgment
th January 2010
This action arises out of the events which were the subject matter of the decision of the Court of Appeal in Offer-Hoare v. Larkstore Limited [2006] 1 W.L.R. 2926. The claimant in the present action (“Starglade”) is a property company, which until 2001 owned some land in Hythe. The land sloped from north to south. In order to prepare for its development, Starglade instructed a firm of soil experts, Technotrade Limited (“Technotrade”), to report on the soil conditions, and it did so in 1998. Starglade sold the site to Larkstore Limited (“Larkstore”) which was a property development company. The 1 st defendant (“Mr. Nash”) was its managing director. Larkstore employed another company, Bess Limited (“Bess”), to carry out the work, but in October 2001 there was a landslip which caused damage to properties uphill from the site. The owners of those properties began proceedings for damages against Larkstore and Bess in March 2003.
Starglade was then asked to, and did, assign Technotrade's soil inspection report and its rights under it to Larkstore, which needed it in order to found a claim for damages against Technotrade in third party proceedings. Larkstore had been advised by counsel that, without an assignment, its claim against Technotrade would fail, as Technotrade did not owe it a duty of care; with the benefit of an assignment, the claim might succeed in contract. So it proved. This claim was upheld by the Court of Appeal, which gave judgment on 27 th July 2006.
Starglade did not offer its assistance free of charge. Its managing director, Mr. Forward, drove a hard bargain. He insisted on 50% of the proceeds. The negotiations started in August 2003, and were largely between Mr. Forward and Mr. Nash, with occasional conversations between the companies’ respective solicitors, the 3 rd defendant, Mr. Twining, the partner at the 2 nd defendant (“Warners”) handling the litigation for Larkstore, and Mr. Macdonald of Vance Harris for Starglade. Mr. Twining tried to negotiate wording which would enable Larkstore to reduce the payment due to Starglade. Predictably Starglade would not have it. Mr. Twining advised Mr. Nash, and Mr. Nash realised for himself anyhow, that Larkstore's bargaining power was non-existent.
After some unexplained delays the agreed terms were set out in a formal assignment dated 23 rd February 2004, and in a side letter on Larkstore's headed notepaper which read as follows:—
“In consideration of you making the assignment of even date, we undertake to pay you half of the net monies received from Technotrade Limited.
“Net monies” means all sums received from Technotrade Limited, whether by Court order or judgement or by compromise or otherwise and whether in respect of the cause of action assigned by you to us or otherwise, but after deduction of our costs of pursuing Technotrade Limited and deduction of any costs we may be ordered to pay Technotrade Limited.
We agree to hold all monies received from Technotrade Limited on trust for division in accordance with the foregoing. (my emphasis)
We also agree to keep you informed of all important developments in our pursuit of the claim against Technotrade Limited and to inform you of all such developments as there may be at least once every three months, starting with the date hereof.”
Despite the last paragraph of the letter, Larkstore did not report to Starglade about the progress of the action; Mr. Twining said that Vance Harris enquired once or perhaps twice, but there was no regular contact.
Following the Court of Appeal judgment, the action was settled on 26 th January 2007 and Warners sent Larkstore the net sum (after deducting their costs) of £309,154.98 on 31 st January 2007. It is common ground that (subject to possible further legal costs relating to the action) Larkstore held one half of that sum on trust for Starglade. It had no other funds. However, Larkstore paid Starglade nothing. Mr. Nash caused it to pay the whole amount to its other creditors.
According to Further Information given by Mr. Nash on 19th June 2008, the creditors were as follows:
| Creditor | Debt | Amount paid |
| Colomendy Ltd. (joint venture partner) | £591,795 | £250,000 |
| Lloyds TSB (guaranteed by Mr. Nash) | £10,670 | £10,670 |
| Sherwoods (accountancy fees) | £2,010 | £2,010 |
| Hollie Homes Ltd. (an associated company) | In excess of what was paid | £28,900 |
| Elizabeth Carter (Mr. Nash's partner) | In excess of £10,000 | £2,070 |
| Mr. Nash himself | £15,500 | £15,500 |
The last payment (of £1,000 to Mr. Nash) was made on 17 th April 2007. At around this time, according to Mr. Nash, further claims arising from the landslip were notified and on 26 th June 2007 he applied to have Larkstore struck off the Register of Companies: it was dissolved on 7 th December 2007.
It is not in issue that Larkstore acted in breach of trust. Starglade's principal case is that Mr. Nash knew from the terms of the side letter that half the money received from Technotrade was held on trust for it, and that he is therefore liable for dishonestly assisting a breach of trust. They also claim the £15,500 paid to Mr. Nash himself on the basis of knowing receipt.
Mr. Nash's case is that he did not know that half the money paid by Technotrade was held on trust for Starglade; he saw Starglade as an ordinary creditor. Asked on the pleadings why Larkstore paid its other creditors, but not Starglade, Mr. Nash responded frankly that he “preferred to procure that Larkstore paid other creditors”.
Only two witnesses gave oral evidence, Mr. Nash and Mr. Twining. I found both to be straightforward, truthful witnesses except in the case of Mr. Nash on two matters on which, as appears at §41 and §45 below, he was in my view not entirely frank, although not untruthful.
Mr. Nash's main focus in the period between August 2003 and February 2004 was on the commercial terms of the arrangement with Starglade, that is the 50% and the attempt to water this down through the wording of the side letter. There is no suggestion that the trust wording was discussed between either the principals or their respective solicitors. It was inserted in the draft by Vance Harris, but was of little significance to Mr. Nash at the time. I accept Mr, Nash's evidence that, whilst he read the letter in February 2004, and understood that it was valid and binding, he neither understood what holding on trust meant, nor asked Mr. Twining (who had no recollection of being asked). I do not think that this part of the letter made any impression on Mr. Nash at all or, if it did, it was no more than a fleeting one.
Apart from the direct evidence, and the fact that what concerned Mr. Nash was the 50% share taken by Starglade, this conclusion accords with the inherent probabilities. If Mr. Nash had known that half the money belonged directly to Starglade, he would have realised that he would probably be liable himself if he caused Larkstore to pay Starglade's money to other creditors. Whilst Mr Nash is not a highly educated man – he left school at 16 – and does not have a detailed knowledge of legal concepts, he came across as intelligent and astute, and capable of understanding their essentials if they are properly explained to him. For example he understood that a novation meant that a new party to a contract was stepping into an existing party's shoes. If what holding on trust meant had been explained to him, or if he had known from previous experience, I am sure that he would have realised the danger to himself of not paying Starglade, and – notwithstanding his undoubted desire to frustrate Starglade if he could – would not have taken the risk. His actions only make sense if he did not understand that the money belonged to Starglade, and that it was not just one among several creditors.
I must examine in some detail the advice given by Mr. Twining in 2007 in relation to Starglade's alternative case, described below, but the important point for present purposes is that neither he nor Mr. Nash, coming back to consider Starglade nearly 3 years later, saw any reason to examine the wording of the letter in any detail. The issues which Mr. Nash raised with Mr. Twining were whether the agreement could be avoided for duress, and whether Larkstore could prefer other creditors. Neither question required them to look at the detailed wording of the letter.
I accept Mr. Twining's evidence that he had no recollection of the trust wording, and that he looked at the letter only to satisfy himself that Warners had given no undertaking which would require them to collect the money and pay out half to Starglade. Clearly, if he had read the letter carefully, he would have seen the trust obligation, and would have advised Mr. Nash in no uncertain terms that Larkstore had to pay Starglade first, and not the other way round. In fact, not having reread the letter and seen the trust wording, his understanding of the legal position was that a company could prefer whichever creditors it liked, although this might lead to claims to recover the money. He suspected that this was what Mr. Nash would do, but did not advise him that he should not do it.
Equally, I am sure that Mr. Nash did not reread the letter and ask himself what holding on trust meant: if he had, no...
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