Tonstate Group Ltd v Edward Wojakovski
| Jurisdiction | England & Wales |
| Judge | Mr Justice Zacaroli |
| Judgment Date | 05 December 2019 |
| Neutral Citation | [2019] EWHC 3363 (Ch) |
| Date | 05 December 2019 |
| Docket Number | BL-2018-000544 |
| Court | Chancery Division |
[2019] EWHC 3363 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
DERIVATIVE ACTION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Zacaroli
BL-2018-000544
Andrew Fulton and Sam Goodman (instructed by Rechtschaffen Law) for the Claimants
Muhammed Haque QC (instructed by Candey Solicitors) for the 1 st Defendant
Hearing dates: 20 November 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
At a case management conference held in this matter on 20 November 2019, the claimants applied to strike out part of the defence of Edward Wojakovski (“EW”). I determined that application in favour of the claimants and made an order striking out the relevant parts of EW's defence, with reasons to follow. These are my reasons.
There is a long and complicated background to this matter. The following is a summary of that background so far as is relevant to the strike-out application.
EW is the former son-in-law of Arthur Matyas (“AM”), the fourth claimant. They worked together for many years in a property development business conducted through a group of companies (which I will refer to as the “Tonstate Group”). The genesis of these proceedings, according to the claimants, is the discovery by AM that EW had over a number of years caused payments to be made by one or other of the companies in the Tonstate Group to companies owned or controlled by or associated with EW (the “EW Companies”) without the knowledge of AM and in breach of EW's duty to the companies.
The claimants therefore commenced an action against (among others) EW to recover approximately £13.5 million alleged to have been extracted from the claimants by EW in breach of duty (the “EW Extractions”) and for certain other sums. I will refer to this as the “Main Action”. In a further action AM and his wife assert a claim to certain shares held by EW in the Tonstate Group, on the basis that they were procured by deceit. EW has himself commenced proceedings against AM, his wife and certain Tonstate Group companies by way of petition under s.994 of the Companies Act 2006 (the “Petition”).
EW's essential case in relation to the EW Extractions is that he and AM long ago agreed to adopt a practice, in connection with the property development deals they were involved in, of causing companies in the Tonstate Group to make payments, purportedly for the purposes of the relevant company in connection with the development, but in reality to benefit themselves at the expense of the companies. EW contends that these payments were used to disguise the profits made by the relevant company in the Tonstate Group with the purpose of defrauding, at least, the revenue. He contends that over the years AM also caused payments running to many millions of pounds to be made to companies controlled by or associated with AM (the “AM Extractions”). He says that there was an arrangement between him and AM that, at a point in time when AM decided to retire from the business, there would be an overall reckoning between them, such that they would each ultimately benefit from 50% of all the AM Extractions and the EW Extractions.
EW's defence to the Main Claim, therefore, is that while he accepts that the EW Extractions had no legitimate business purpose, and would therefore otherwise amount to a breach of duty, they were made with the agreement of AM and his wife and thus with the approval of all of the shareholders of the relevant companies. He relies on the Duomatic principle (named after Re Duomatic Ltd [1969] 2 Ch 365, although dating from much earlier) that the informal approval of all the members of a company is sufficient to ratify a breach of fiduciary duty.
Mr Haque QC, who appears for EW, accepts that – but for the Duomatic principle – EW's conduct in procuring the EW Extractions constituted a breach of fiduciary duty, including because the payments were made for the unlawful purpose of defrauding the revenue.
Mr Fulton, who appears for the claimants, contends that the Duomatic principle cannot be applied to ratify such a breach of duty.
I should add that among the matters raised in the Petition is an allegation that the EW Extractions are no different in substance to the AM Extractions and not therefore something about which the relevant companies can fairly complain. AM, for his part, has accepted that as a result of the AM Extractions the revenue has been deprived of tax that it should otherwise have been paid. He has, however, sought to put matters right by making voluntary disclosure to the revenue. I note that AM's defence to the allegation in the Petition concerning the AM Extractions includes the plea that the payments were approved by all of the members of the company. Mr Fulton, who appears for the claimants, accepts the logic of the conclusion that, if the strike-out application brought by the claimants succeeds, it must follow that...
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...company: Madoff Securities International Ltd v Raven [2011] EWHC 3102 (Comm) at [123] per Flaux J; Tonstate Group Ltd v Wojakowski [2019] EWHC 3363 (Ch), at [14]–[16] per Zacaroli J; c) The principle cannot apply where the transaction jeopardises the company's solvency or causes a loss to......