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Case No: A3/2000/2153 CHANI
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (HIS HONOUR JUDGE BEHRENS)
Royal Courts of Justice
Strand, London, WC2A 2LL
28 June 2000
B e f o r e :
LORD JUSTICE NOURSE
LORD JUSTICE ROBERT WALKER
and
LORD JUSTICE LATHAM
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|
DAVID
YABLON MINTON
|
Appellant
|
|
-
and -
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|
|
KENBURGH
INVESTMENTS (NORTHERN) LTD
|
Respondent
|
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Mr Jonathan Hirst QC and Mr Nigel Burroughs (instructed by James Chapman
& Co, Manchester for the appellant)
Mr Hugh Tomlinson and Mr Thomas Grant (instructed by Walker Morris,
Leeds for the respondent)
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Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE ROBERT WALKER:
Introductory
This is an appeal from an order made on 11 May 2000 by His Honour Judge
Behrens sitting at Leeds as a judge of the High Court, Chancery Division. The
judge decided adversely to the defendants David Yablon Minton ("the
solicitors") a preliminary issue which, had it been decided in their favour,
would have put an end to the substance of an action brought against the
solicitors by the claimant, Kenburgh Investments (Northern) Limited, in
liquidation ("KIN"). The judge gave the solicitors permission to appeal and
the appeal has been expedited because there is an early date for the trial of
the action.
The preliminary issue was concerned with the effect on KIN's action against
the solicitors of an antecedent settlement between KIN's liquidators and a
number of persons who have now been made Part 20 defendants in the action
against the solicitors. It is therefore necessary for this court to consider,
as the judge did, the decision of the House of Lords in Jameson v CEGB
[1999] 2 WLR 141, and also the case of Heaton v AXA Equity and Law Life
Assurance, in which Laddie J's judgment (delivered on 8 July 1999) was on
19 May 2000 (that is, since the making of the order under appeal) reversed by
this court.
The background to the matter was the redevelopment as offices of property
known as 47 and 51-53 Well Street, Bradford. This property had been owned by a
private company controlled by Mr Kenneth Norris, a Yorkshire builder. In
January 1994 Mr Norris agreed to transfer the property to KIN, in which the
shareholders were himself (holding half the shares) and Mr John Holmes, Mr
Graham Wood and Mr Malcolm Young (holding the other half equally). Later KIN
became a wholly-owned subsidiary of Kenburgh plc ("KPLC") and KIN's former
shareholders became shareholders in KPLC. KIN had no significant assets other
than the Well Street property, which was charged to United Bank of Kuwait to
secure funds raised for its redevelopment.
The main contractor for the redevelopment (under a contract entered into on 10
October 1994) was a company called Robert R Roberts (Leeds) Ltd ("Roberts").
The projected cost of the redevelopment increased and sums were due to Roberts
on architect's certificates but remained unpaid. Towards the end of 1995
Roberts issued proceedings against KIN claiming over £500,000.
KIN's particulars of claim against the solicitors allege that by the end of
1995 the solicitors had been instructed to act on the transfer of the Well
Street property from KIN to KPLC, and that the solicitors knew (a) that if KIN
did not receive the full consideration for the property from KPLC, it would be
unable to pay its creditors; and (b) that there was a serious risk that the
purpose of the proposed transfer was fraudulent.
On 1 February 1996 Roberts obtained summary judgment against KIN for the whole
amount of its claim (as then formulated). On the same day KIN transferred the
Well Street property to KPLC for a stated consideration of £3.5m. The
solicitors acted for both parties. It is now accepted that the only money
which changed hands was the sum of £2.8m which KPLC borrowed from the
Bristol & West Building Society. Of this £2.3m went to pay off the
United Bank of Kuwait and the balance was used for the benefit of KPLC. It was
at one time alleged that there were debts due from KIN to KPLC to be set off,
but that allegation has been abandoned. In their `Carecraft' statements
in disqualification proceedings the directors of KIN accepted that backdated
documents had been produced and that they were forgeries.
The proceedings under the Insolvency Act 1986
On 21 March 1996 KIN was ordered to be wound up. Mr Edward Klempka and Mr
David Waterhouse were appointed as liquidators (they had been provisional
liquidators since 8 March). On 18 October 1996 the liquidators made an
application under s.212 of the Insolvency Act 1986 against KPLC, Mr Holmes, Mr
Norris, Mr Wood and Mr Young. Mr Holmes, Mr Norris and Mr Wood had been
directors of KIN and Mr Young had acted as a shadow director. These four
individuals will be referred to as `the directors'. Section 212 provides a
summary remedy available to liquidators in cases where a director or other
person concerned in the promotion, formation or management of a company,
"has misapplied or retained, or become accountable for, any money or other
property of the company, or been guilty of any misfeasance or breach of any
fiduciary or other duty in relation to the company."
The transaction by which the Well Street property was abstracted from KIN was
one of the matters complained of in the s.212 application, but it was not the
only matter of complaint. There was also a large claim (quantified at about
£1.1m) for payments made by KIN to an Isle of Man company called Mentor
Project Management Ltd ("Mentor"), in which Mr Holmes and Mr Young were
beneficially interested. These payments were made between June 1994 and July
1995 and were alleged to have been made for no consideration, or for inadequate
consideration. There was a specific claim against two of the directors for
wrongful preferences in the form of payments to them totalling £50,000,
and an unquantified claim for wrongful trading under s.214 of the Insolvency
Act 1986. The transaction affecting the Well Street property was attacked as
an improper preference under s.239 of the Insolvency Act 1986 (although it now
appears that there was no genuine cross-indebtedness to be set off and that it
was simply an act of misfeasance and breach of fiduciary duty).
The s.212 proceedings were to have been tried in July 1997, with an estimated
duration of fifteen days. However there were negotiations for a compromise,
and after intensive negotiations a deed of compromise was entered into on 1
July 1997 under which a total sum of £1.25m was payable to the liquidators
by KPLC and the directors. In the terms of compromise `the respondents' were
defined as KPLC and the directors and `the compromising parties' were defined
as the respondents and three associated entities which were not parties to the
proceedings: Kenshield Ltd, Kenwood (Bradford) Ltd and the Holmes Young
partnership. There were fairly complex provisions about how the total sum was
to be secured, raised and paid by the various respondents, but those provisions
are no longer material because the whole of the agreed sum has been paid. The
Well Street property itself was not included in the compromise, presumably
because of the charge for £2.8m in favour of the building society.
Clause 2 (headed "settlement of the action") contained joint and several
covenants by all the respondents to pay £1.2m, and also further separate
covenants by the individual respondents to pay the sum of £12,500 each "in
full and final settlement" of the s.212 proceedings against the respondents.
Clause 5 bound KPLC to join in approving a company voluntary arrangement (CVA)
for KIN. Clause 6 (headed "waiver of claims") contained provisions affecting
all the compromising parties (that is, the associated entities as well as the
respondents):
"6.1 Subject to the terms of this Deed and (as between the Respondents) any
agreement entered into between the Respondents relating to the contributions to
be made by the Respondents to the Total Settlement Sum, KIN the Liquidator and
the Compromising Parties mutually undertake to waive and release each other
from and against all and any debts or other monetary claims or other
liabilities, whatsoever and howsoever arising, due owing or incurred by them
including (without limitation) claims in respect of any money due or owing or
arising by virtue of any right or alleged right of indemnity, contribution or
set-off or under the Insolvency Act 1986 or the Insolvency Rules 1986 or
otherwise.
6.2 The waiver at 6.1 above is without prejudice to the rights inter se of the
Compromising Parties referred to in 7.2 below
6.3 The Compromising Parties hereby agree not to seek to prove in the
liquidation or CVA of KIN or to amend or vote at any creditors' meetings of the
Liquidation of KIN or any creditors' meeting in relation to the CVA of KIN."
The judge had before him a good deal of material (in the form of evidence from
the liquidators' solicitors and from Mr Norris, and also the respondents' Part
20 defences) describing the course of the negotiations leading up to the deed
of compromise. Some of that material may be admissible as explanatory of the
commercial context (especially as regards the non-respondent compromising
parties) but much of it appears to be inadmissible on any issue as to the
meaning and effect of the deed.
It seems that no point on admissibility was taken before the judge, since he
recorded in his judgment, in relation to a meeting in February 1997, that it
was
"common ground between Mr Scott [the liquidators' solicitor] and Mr Norris that
during the course of the conversation Mr Scott made it clear that the
liquidators were considering further action against the professionals involved
in the transaction."
The judge also referred to other communications later in the course of the
negotiations. But it is clear that the question whether the liquidators were
free to proceed against the solicitors, after entering into the deed of
compromise, must (so far as it depends on the parties' intentions) be
determined by reference to what was said in that deed, rather than in
negotiations leading up to it.
The proceedings against the solicitors
KIN, acting by its liquidators, commenced proceedings against the solicitors
on 29 September 1998. Part of KIN's pleaded case against the solicitors has
already been summarised. It was also alleged that apart from the payment of
about £2.3m to United Bank of Kuwait, KPLC paid nothing to KIN for the
Well Street property, and that the solicitors negligently failed to use
reasonable skill and care in acting for KIN, did not draw attention to the
conflict of interest, and did not take proper steps to protect its interests.
The pleaded loss was approximately £1.08m. There was a further subsidiary
claim (not relevant to the preliminary issue) for a sum of approximately
£76,000 paid on 25 January 1996 on the grant of a lease of part of the
Well Street property which the solicitors were alleged to have paid on 2
February 1996 into an account of KPLC (instead of KIN). In its amended reply
KIN stated that it would give credit for having made recovery from the
respondents in the sum of about £390,000. This represented a
proportionate division of the liquidators' net recovery of about £770,000
(after fees and costs) between the total claim in respect of the Well Street
property and that in respect of payments to Mentor (each claim amounting to
about £1.15m).
The solicitors defended KIN's proceedings. They also issued Part 20 notices
claiming contribution under the Civil Liability (Contribution) Act 1978 ("the
1978 Act") from six parties: KPLC, the directors and a firm of accountants
called Lishman Sidwell Campbell & Price. The directors have all put in
defences to the Part 20 claims. Some of the defences are professionally
drafted. Others have been prepared by the litigants themselves. All of them
make the point that the directors had expected the deed of compromise to mark
the full extent of their liabilities in the matter.
The solicitors applied for permission to reamend their defence to raise an
issue as to the effect of the compromise. The point raised by the amendment
was directed to be heard as a preliminary issue, and was heard at once, on 3
April 2000. On 11 May 2000 the judge decided the preliminary issue against the
solicitors.
The judgment of Judge Behrens
In his careful reserved judgment the judge considered at length the decision
of the House of Lords in Jameson v CEGB [1999] 2 WLR 141. The facts of
that case are well known but can be shortly summarised. Mr Jameson had been
employed by Babcock Energy and had worked at a power station owned by CEGB at
which he had been exposed to asbestos. He developed malignant mesothelioma.
Babcock Energy (as his employer) and CEGB (as owner and occupier of the power
station) were liable to be sued. During his lifetime Mr Jameson sued Babcock
Energy and shortly before his death settled the action for £80,000 (which
was about two-thirds of the value of the claim if wholly successful). After
his death his personal representatives brought an action under the Fatal
Accidents Act 1976 against CEGB. On a preliminary issue it was decided at
first instance that the action was not barred and that decision was upheld on
appeal to this court. But the House of Lords held (Lord Lloyd dissenting) that
the action was barred, on the ground that Mr Jameson had during his lifetime
agreed to accept £80,000 in full and final settlement and satisfaction of
his cause of action.
The leading speech was that of Lord Hope, with whom Lord Browne-Wilkinson and
Lord Hoffmann agreed. The whole of Lord Hope's speech merits careful study,
and it does not readily admit of brief summary. But the thread running through
it is that damage is an essential element in an action based on tort, and that
an unliquidated claim in tort can be satisfied either by an award of damages or
by a compromise as to the amount to be paid. Lord Hope recognised that a
compromise usually involves an element of concession by each side. But (he
continued at p.152),
"whatever the nature and extent of the compromise, one thing is common to all
these cases. This is that the agreement brings to an end the plaintiff's cause
of action against the defendant for the payment of damages. The agreed sum is
a liquidated amount which replaces the claim for an illiquid sum. The effect
of the compromise is to fix the amount of his claim in just the same way as if
the case had gone to trial and he had obtained judgment. Once the agreed sum
has been paid, his claim against the defendant will have been satisfied.
Satisfaction discharges the tort and is a bar to any further action in respect
of it: United Australia Ltd v Barclays Bank Ltd [1941] AC 1, 21
per Viscount Simon LC; Kohnke v Karger [1951] 2 KB 670, 675,
per Lynskey J. I think that it follows that, if the claim was for the
whole amount of the loss for which the defendant as one of the concurrent
tortfeasors is liable to him in damages, satisfaction of the claim against him
will have the effect of extinguishing the claim against the other concurrent
tortfeasors.
There may be cases where the terms of the settlement, or the extent of the
claim made against the tortfeasor with whom the plaintiff has entered into the
settlement, will show that the parties have not treated the settlement as
satisfaction for the full amount of the claim of damages. In the same way a
judge, in awarding damages to the plaintiff in his action against one
concurrent tortfeasor, may make it clear that he has restricted his award to a
part only of the full value of the claim."
Lord Hope then referred to two Scottish decisions, Balfour v Baird &
Sons [1959] SC 64 and Carrigan v Duncan [1971] SLT (Sh Ct) 33 and
continued (at p.154),
"I think that these cases demonstrate the limits of the inquiry which the
judge may undertake in the event of a subsequent action being raised against
another alleged concurrent tortfeasor. He may examine the statement of claim
in the first action and the terms of the settlement in order to identify the
subject matter of the claim and the extent to which the causes of action which
were comprised in it have been included within the settlement. The purpose of
doing so will be to see that all the plaintiff's claims were included in the
settlement and that nothing was excluded from it which could properly form the
basis for a further claim for damages against the other tortfeasors. The
intention of the parties is to be found in the words of the settlement. The
question is one as to the objective meaning of the words used by them in the
context of what has been claimed.
What the judge may not do is allow the plaintiff to open up the question
whether the amount which he has agreed to accept from the first concurrent
tortfeasor under the settlement represents full value for what has been
claimed. That kind of inquiry, if it were to be permitted, could lead to
endless litigation as one concurrent tortfeasor after another was sued on the
basis that the sums received by the plaintiff in his settlements with those
previously sued were open to review by a judge in order to see whether or not
the plaintiff had yet received full satisfaction for his loss."
After considering Lord Hope's speech the judge observed, correctly, that
Jameson was a case concerned with concurrent tortfeasors liable in
respect of the same loss. That point is repeatedly emphasised in Lord Hope's
speech.
The judge also considered at some length the judgment of Laddie J in Heaton
v Axa Equity & Law (8 July 1999) which has since been reversed by this
court. The facts of that case were very different from Jameson because
the two sets of defendants were not concurrent tortfeasors but (as Chadwick LJ
put it in para.56 of his judgment) "successive contract breakers". Two large
groups in the financial services sector (Target and Equity & Law) had had
long-term contracts with the claimants under which the claimants were appointed
representatives for selling financial products to the public. After
allegations of improper "churning" raised at the beginning of 1993 by Target,
first Target and then (ten days later) Equity & Law summarily terminated
the contracts, so (it was said) destroying the claimants' business and
reputations. The claimants sued Target and a preliminary issue was directed,
that is (in substance) whether the allegations of impropriety were true. In
June 1997, after seven days of evidence on the preliminary issue, Target
conceded that it could not succeed and it submitted to judgment on the issue.
Moses J ordered it to pay the claimants' costs on an indemnity basis.
Subsequently Target agreed to pay £10m in settlement of the claimants'
claims. When they then took proceedings against Equity & Law in respect of
an alleged breach of contract by that company, Laddie J held that the
Jameson principle barred the action, on the basis that all the losses
which were claimed against Equity & Law had already been claimed against,
and had been the subject of a settlement with, Target. Laddie J also referred
to the possible argument (not, it seems, deployed before him) that litigation
of the claims against Equity & Law in new proceedings might in all the
circumstances be an abuse of process under the principle in Henderson v
Henderson (1843) 3 Hare 100.
The judge said that he could well understand the basis of the decision in
Jameson, but that he had far more difficulty with Laddie J's wide
formulation in Heaton. He concluded that the principle in
Jameson was not applicable in this case:
"... the insolvency proceedings were specialist proceedings which, by statute,
can only be brought against a limited class of persons for remedies set out in
the statute. They cannot properly be described as `causes of action in respect
of the same loss' at all. The policy in favour of discouraging successive
actions and terminating litigation has no application here."
For similar reasons the judge found that there was no abuse of process in the
commencement of the action against the solicitors. But he would have been
against KIN on implied reservation of rights, had that point been material.
Submissions on appeal
On the hearing of the appeal counsel have had to address not only the decision
of the House of Lords in Jameson but also the recent decision of this
court in Heaton. In Heaton Chadwick LJ (with whom Sir Roy Beldam
and I agreed) carefully analysed Lord Hope's speech and drew an important
distinction between what he called the "full satisfaction" question and what he
called the "final settlement" question. Chadwick LJ set out the distinction in
paragraph 45 of his judgment (A being the claimant and B and C concurrent
tortfeasors):
"More difficult questions arise where A sues B alone, compromises the action
for a sum payable by B to A "in full and final settlement and satisfaction",
and then sues C. The first question is whether A has, any longer, a claim
against C. If the amount payable by B to A does, indeed, represent a "full"
satisfaction of A's claim against B, then (where C is a concurrent tortfeasor
with B in respect of the same damage) it may be said that A's claim against C
in tort will have been extinguished by the compromise which A has made with B -
at the least, where B actually pays to A the sum due under the compromise. The
reason is that, if A has recovered an amount from B as "full" compensation for
his loss, there is no remaining loss upon which A can found a claim against C.
The second question is whether, if A does, notwithstanding the compromise with
B, continue to have a claim against C, it is consistent with A's "final"
settlement with B to allow A to pursue that claim. If A does pursue C, then C
will be entitled to seek contribution against B under section1(1) of the 1978
Act; and it will be no defence to that contribution claim for B to assert that
he is no longer liable to A by virtue of the compromise - see section 1(3). It
may be said that it is inconsistent with the "final" settlement which A has
made with B for A to pursue a course of action (by suing C) which will expose B
to the risk that he will have to make a further payment - indirectly, as a
result of a contribution claim brought against him by C - in respect of the
same damage. For convenience I will refer to the first of those questions as
the "full satisfaction" question; and to the second of those questions as the
"final settlement" question."
Counsel were in agreement that this appeal turns on the "full satisfaction"
question rather than the "final settlement" question, and that (at any rate in
this court; Mr Hirst, for the solicitors, reserved his position in case the
matter should go further) the crucial paragraph in Chadwick LJ's judgment is
paragraph 54:
"The importance of the decision of the House of Lords in Jameson, as it
seems to me, is that it shows that A's claim against one concurrent tortfeasor,
say C, may be extinguished not only by the satisfaction of a judgment obtained
against another concurrent tortfeasor, say B, but also by the payment by B to A
of an amount which A and B have agreed shall be accepted in full satisfaction
of A's claim. The unliquidated claim which A has against B and C may be
converted into a liquidated claim either by a judgment obtained against B or by
an agreement with B as to a sum to be accepted in full satisfaction of the
claim. In any given case, the question whether or not that is the effect of
the agreement between A and B will turn on the common intention to be
attributed to A and B when making that agreement. That is a question of
construction. But if, on interpreting the agreement between A and B, the court
is satisfied that they intended the sum to be accepted in full satisfaction of
A's claim, then (on payment of that sum by B) the claim is extinguished as
against C also, because there is no longer any loss upon which A can found that
claim."
Both counsels' submissions on the "full satisfaction" question were
commendably brief. Mr Hirst submitted that there was no good reason for
restricting the Jameson principle to the case of concurrent tortfeasors
liable in respect of the same damage, and that the position of the directors
and (on the assumption that the case pleaded against them can be proved) the
solicitors was in any case closely analogous to that of concurrent tortfeasors.
He emphasised that both sets of claims arose out of the same self-contained
transaction, that is the transfer of the Well Street property to KPLC on 1
February 1996. He urged that s.212 of the Insolvency Act 1986 is procedural in
character and does not amount to a special code of statutory wrongdoing.
Against that Mr Tomlinson, for KIN, submitted that the judge was right to take
account of the special nature of the insolvency proceedings, especially as they
included a claim in respect of wrongful preference under s.239 of the
Insolvency Act 1986. He challenged Mr Hirst's assertion that if both claims
had been pursued to judgment KIN might have obtained judgment against KPLC and
the directors in a sum greater than that for which it obtained judgment against
the solicitors, but that the converse (a larger judgment against the
solicitors) was inconceivable.
Neither side made any submissions based on the "final settlement" question.
Mr Hirst accepted that if he failed on his main submissions the language of the
deed of compromise was not going to help him, and on that basis Mr Tomlinson
did not seek to challenge the judge's conclusion about the absence of any
implied reservation. It is not therefore necessary to go into that part
(paras. 59-61) of Chadwick LJ's judgment in Heaton.
Discussion and Conclusions
Neither side placed any reliance on Cape & Dalgleish v Fitzgerald
(2 February 2000, Mr Colin Mackay QC) but it was included in the bundle of
authorities and it is of interest as being a good deal closer to the facts of
the present case. Mr Fitzgerald was the managing director of I M Properties
("IMP") until he was summarily dismissed for serious breaches of fiduciary
duty. While subject to a freezing order he rapidly negotiated a settlement
with IMP involving his transferring to IMP's ultimate holding company assets of
debatable value (that is, a minority holding of shares in a private company
which was IMP's intermediate holding company - there is a fuller statement of
the facts in I M Properties v Cape & Dalgleish [1999] QB 297, 301).
IMP then sued Cape & Dalgleish, its auditors. At trial the judge (Judge
Rivlin sitting as a judge of the Queen's Bench Division) assessed the damage
caused to IMP by Mr Fitzgerald's frauds, and the costs of investigating them,
at just over £700,000. He valued the minority holding, after hearing
expert evidence, at £430,000. He gave judgment for the balance, with
interest (the quantification of which led to the reported decision of this
court mentioned above).
Then Cape & Dalgleish sought contribution (amounting to a complete
indemnity) from Mr Fitzgerald. There was an order for preliminary issues as to
the effect of IMP's settlement with Mr Fitzgerald. Mr Colin Mackay QC decided
the substances of the issues against Mr Fitzgerald. He respectfully disagreed
with Laddie J's view that the principle in Jameson was not limited to
claims in tort. In giving his reasons for that view he said,
"It will not, in my judgment, at least not inevitably, be the case with
concurrent breakers of separate contracts that they cause the same damage, nor
will it necessarily be the case that settlement [with] one will only leave a
futile claim for nominal damages in the second or subsequent actions."
The pertinence of those observations has even more recently been underlined by
the decision of this court in Royal Brompton Hospital NHST v Watkins Gray
International (UK) (10 April 2000) which shows that in order to
establish liability of two persons for "the same damage" (within s.1(1) of the
1978 Act) it is not sufficient to show that both were liable in connection with
the same transaction (in that case, major building works at a hospital in
respect of which both the main contractors and the architects, among others,
were said to be liable).
The Royal Brompton Hospital case was not cited but it calls for mention
because it points up what may be a real difficulty about ordering a preliminary
issue in an action of this sort. The court may be asked to assume that the
defendant who has already settled (B in Chadwick LJ's terminology) is exposed
to the risk of a contribution claim from C (the defendant who is still facing
proceedings), and that for that reason both B and C should be shielded from
further claims; while in fact C's claim against B may depend on a difficult
issue (identity of damage for the purposes of s.1 of the 1978 Act) which can be
fully investigated only at trial. However Mr Tomlinson did not go so far as to
dispute that the solicitors might have claims under the 1978 Act against the
directors, and it is best to say no more about that aspect of the matter.
In order to resolve this appeal it is necessary to focus (as Lord Hope
indicated in a passage, [1999] 2 WLR at p.154 B-C, already set out in this
judgment) on the claims made in the first action, on the terms of the
settlement of the first action, and on the claims in the second action.
Section 212 of the Insolvency Act 1986 provides a summary procedure which has
been available (in similar but not identical form) since the enactment of s.165
of the Companies Act 1862 (see Re Kingston Cotton Mill (No 2)
[1896] 2 Ch 279, 283). Like its predecessors it has been described as a
procedural section, rather than one which creates new statutory wrongs (see
Re B Johnson & Co (Builders) [1955] Ch 634, 638; Re DKG
Contractors [1990] BCC 903, 905). Nevertheless the court has a wide range
of judgment as to what sanction (if any) to impose on individual ex-directors
found guilty of misfeasance or breach of duty, whether or not relief is
formally granted under s.727 of the Companies Act 1985.
That is strikingly illustrated by a case included in the bundle of authorities
but not actually cited to the court, Re D'Jan of London Ltd [1993] BCC
646, a decision of Hoffmann LJ sitting as an additional judge of the Chancery
Division. Mr D'Jan owned 99 per cent of the shares in a private company. He
carelessly made an error in signing a proposal form for fire insurance on his
company's premises, and after a serious fire at the premises the insurers
repudiated liability. The company went into insolvent liquidation and the
liquidator made an application under s.212 seeking an order against Mr D'Jan.
There was an issue as to whether the proposal form had been filled in by Mr
D'Jan personally or by the company's insurance broker. Hoffmann LJ resolved
that issue in favour of Mr D'Jan but held that he had still been in breach of
duty in signing the form. Mr D'Jan was partially excused under s.727, being
left to bear the loss to the extent of any unpaid dividend otherwise due to him
as an unsecured creditor.
Had the liquidator of D'Jan of London Ltd then caused the company to bring an
ordinary action for breach of contractual duty against the insurance broker, it
is reasonably clear that the defence of full satisfaction would not have been
open to the broker. The measure of indulgence shown by the Companies Court to
the director would have demonstrated that the company had not received full
satisfaction, but only partial satisfaction, for the wrong which it had
suffered.
That point is underlined, on the facts of this case, by the liquidators' claim
(so far as relating to the Well Street property) having been put forward as a
claim in respect of a wrongful preference under s.239 of the Insolvency Act
1986. Such a claim is a special claim because it does not effect an increase
in the net assets of a company in liquidation; it is a statutory mechanism for
upholding the pari passu principle as between unsecured creditors (see
generally the observations of Millett J in Re M C Bacon Ltd [1991] Ch
127, 137).
It has to be said that the relevant facts are not clear, partly because of
doubts (already mentioned) as to whether all the evidence before the judge as
to the course of the compromise negotiations was properly admissible. We were
told that the directors had initially relied on certain documents (now known to
be forgeries) in their efforts to defend the transfer of the Well Street
property. Mr Hirst told us, without objection from Mr Tomlinson, that the
liquidators became increasingly suspicious of those documents. But at the time
of the compromise the summons under s.212, although amended in other respects,
still attacked the transaction as a preference and not as a bare-faced
misappropriation. `The action' referred to in the deed of compromise was
constituted in that way when the deed was executed. The claim against the
solicitors, by contrast, is a claim for breach of professional duty which
relies on all the facts or allegations already mentioned.
For these reasons I cannot accept Mr Hirst's submission that the directors and
the solicitors are (on the pleaded cases) in a position closely analogous to
concurrent tortfeasors liable for negligence (and breach of statutory duty in
relation to the safety of the workplace). The causes of action were, as the
judge said, different, and it is by no means obvious that the claim against the
solicitors, if proved, might not exceed the pleaded claim in the s.212
proceedings.
That is sufficient to dispose of this appeal, and in this difficult and
developing area it is probably better not to go much further. Although in
Jameson Lord Hope seems to have been careful to restrict his
observations to the case of concurrent tortfeasors liable for the same damage,
I would not exclude the possibility of the principle being extended to closely
analogous situations (although where the two actual or potential defendants are
not liable in respect of precisely the same damage, abuse of process may be a
safer foundation for the court to restrict further proceedings, as Laddie J
seems to have thought in Heaton). The extension which the appellants
seek in this case is however exorbitant.
I have thought it right to mention the recent decision of this court in the
Royal Brompton Hospital case, and the possible issue which may arise at
trial as to identity of damage for the purposes of the 1978 Act. But I
emphasise that this court has not heard any argument on the issue and I express
no view about it.
For these reasons I would dismiss this appeal.
Lord Justice Latham:
I agree.
Lord Justice Nourse:
I also agree.
Order: appeal dismissed with costs; payment on account of costs to be
made in the sum of £10,000 within 28 days from today; permission to appeal
to the House of Lords refused.
(Order does not form part of the approved judgment.)
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