The Liquidator of the Property of West Mercia Safetywear Ltd Appellant) v Albert James Dodd (First Respondent) Respondent) Peter Prescott (Second Respondent)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DILLON,LORD JUSTICE CROOM-JOHNSON |
| Judgment Date | 19 November 1987 |
| Judgment citation (vLex) | [1987] EWCA Civ J1119-5 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 87/1173 |
| Date | 19 November 1987 |
and
[1987] EWCA Civ J1119-5
Lord Justice Dillon
Lord Justice Croom-Johnson
and
Mr. Justice Caulfied
87/1173
No. CCF 0728/87
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE WORCESTER COUNTY COURT
(HIS HONOUR JUDGE ROY WARD, Q.C.)
Royal Courts of Justice.
MR. MARK PHILLIPS (instructed by Messrs. Penningtons Ward Bowie, London agents for Messrs. Flint Hand of Gloucester) appeared on behalf of the Appellant.
MR. TIMOTHY A. JONES (instructed by Messrs. Alexander & Co. of Worcester) appeared on behalf of the Respondent.
This is an appeal from a decision of His Honour Judge Roy Ward, Q.C. given in the Worcester County Court on the 29th April, 1987. The question he had to decide was a question concerning fraudulent preference and misfeasance arising in relation to the liquidation of a company called West Mercia Safetywear Limited. The present appellant is the liquidator of that company. The respondent to the appeal is a Mr. Albert James Dodd, who was at the material time a director of that company.
There is another company involved of which Mr. Dodd was also a director, called A.J. Dodd & Co. Ltd. The West Mercia company was, on the affidavits, a wholly owned subsidiary of the Dodd company.
Both companies banked with Lloyds Bank. The account of the West Mercia company was in credit. The account of the Dodd company was very considerably overdrawn. The bank had a charge to secure the account of the Dodd company on the book debts of the Dodd company, and it also had a guarantee of the Dodd company's account from Mr. Dodd himself. The book debts of the Dodd company included a debt which in early May 1984, the relevant time, amounted to about £30,000 due to the Dodd company from the West Mercia company.
In May 1984 both the West Mercia company and the Dodd company were in financial difficulties and, as Judge Ward found, insolvent. The directors, including Mr. Dodd, called in an accountant, Mr. Nigel Halls, to advise them and to take any necessary steps towards the liquidation of the companies. Mr. Halls subsequently became liquidator of both companies when they were put into liquidation, and he is indeed the present appellant.
The evidence clearly establishes that Mr. Halls explained very clearly to Mr. Dodd and his co-director of the West Mercia company, a Mr. Prescott, with whom this appeal is not concerned, that the company bank accounts of the West Mercia company were not thereafter to be operated. The judge says, and I entirely agree:
"I cannot believe that the Directors thought that, whilst cheques were not to be drawn on either account, transfers of money between accounts would be permissible."
The necessary steps were taken to put both companies into creditors' voluntary liquidation, and the requisite meetings to that end were held on the 4th June, 1984. In the meantime, however, on the 21st May, 1984 Mr. Dodd instructed Lloyds Bank to transfer £4,000, which had just been paid in by a debtor to the West Mercia company's account, to the overdrawn account of the Dodd company. The plain and obvious intention of that was to reduce the overdraft of the Dodd company which Mr. Dodd had personally guaranteed.
The liquidations proceeded. The bank refused to repay the £4,000. The Dodd company had no other assets available to repay the £4,000. Accordingly in due course, by a notice of motion issued on the 30th January, 1985, the liquidator of the West Mercia company applied in the Worcester County Court for a declaration that Mr. Dodd was guilty of misfeasance and breach of trust in relation to the West Mercia company in obtaining and transferring the £4,000 to the Dodd company on the 21st May, 1984. The notice of motion asked also for an order for repayment of that sum with interest at 12 per cent per annum from the 21st May, 1984.
To my mind it is quite clear that there was a fraudulent preference of the Dodd company. It follows that there was misfeasance on the part of Mr. Dodd as a director who owed a fiduciary duty to the West Mercia company in making that transfer by way of fraudulent preference: see the decision of this court in In re Washington Diamond Mining Company [1893] 3 Ch. 95, and especially the judgment of Lord Justice Kay at page 115.
The learned judge nevertheless felt that, although Mr. Dodd had acted improperly, he had not misapplied any assets of the West Mercia company because he had used the assets merely to pay in part a debt owed by the West Mercia company to the Dodd company. He therefore concluded that he could not see that Mr. Dodd had been in breach of any duty of care, fiduciary or otherwise, to the West Mercia company or in relation to that company. On that ground he held that the proceedings were misconceived. In reaching that conclusion he relied in particular on some comments I had made in the case of Multinational Gas and Petrochemical Co. v. Multinational Gas and Petrochemical Services Ltd. [1983] 1 Ch. 258. The Multinational case was, however, a wholly different case from the present. In the present case the West Mercia company was at the relevant time insolvent to the knowledge of the directors. They had been expressly told not to deal with the company's bank account, and Mr. Dodd had, in fraud of the creditors of the company, made the transfer to the Dodd company's account for his own sole benefit in relieving his own personal liability under his guarantee. In the Multinational case, at the time of the transaction which was in question, the company concerned was amply solvent, and what the directors had done at the bidding of the shareholders had merely been to make a business decision in good faith, and act on that decision. It subsequently turned out to be a bad decision, but the position had to be decided on the facts at the earlier...
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