H.H. Judge Richard Seymour Q. C.:
Introduction
- Marini Ltd. ("the Company") was incorporated on 23 August 1984 by company formation agents. The two shares which had by then been issued in the Company were transferred on or about 3 September 1984 as to one to Mr. Gary Elliott Dickenson and as to the other to Miss Mandy Hayley Dickenson, his sister. On 3 September 1984 Mr. Gary Dickenson was appointed as the sole director of the Company and Miss Mandy Dickenson was appointed as the company secretary.
- The Articles of Association of the Company included, as Regulation 12:-
"Provided that he shall declare his interest in any contract or transaction a Director may vote as a Director in regard to any such contract or transaction in which he is interested or in respect of his appointment to any office or place of profit or upon any matter arising thereout and if he shall so vote his vote shall be counted.""
- The Articles of Association incorporated Table A in Companies Act 1948. Table A included:-
"114. The company in general meeting may declare dividends, but no dividend shall exceed the amount recommended by the directors.
115. The directors may from time to time pay to the members such interim dividends as appear to the directors to be justifIed by the profits of the company.".
- From the date of the acquisition by Mr. Gary Dickenson and Miss Mandy Dickenson of the entire share capital of the Company then issued the Company carried on business as a retailer of menswear, specialising, it seems in goods of Italian manufacture.
- Mr. Gary Dickenson is the son of Mr. Gerald Dickenson and Mrs. Pauline Dickenson and Miss Mandy Dickenson is their daughter. Mr. Gerald Dickenson and his wife were both born in 1938. They themselves have been involved in the retailing of menswear since about 1966. At that time they founded a business in a single shop which in a very short period grew to a chain of over 40 shops. In 1973 they sold that chain and moved to Canada, where they established a new menswear retailing business. They disposed of that business in 1984 and returned to England. What happened then Mr. Gerald Dickenson explained at paragraph 7 of his witness statement in this action dated 18 September 2002, in a passage which was not disputed and which I accept:-
"On our return to England, Pauline and I decided that we had had enough of retail management. The hours are long, and even in good times, it is a stressful way of life. We wanted instead to set up a consultancy, effectively capitalising on our substantial experience to act as troubleshooters for stores in difficulties. We discussed our plans with Norman Hanison [their accountant, a partner in a firm called Cavendish & Co ( Cavendish ) and shortly after our return through him set up Earlstar Management Limited ( "Earlstar" ) to act as the vehicle for the consultancy. As far as I can recall, I was never a director of, or shareholder in Earlstar. I think that when he first set up the company, Mr. Hanison may have advised me that it would be simpler for tax reasons if I had no direct interest in it, but I do not now remember the details…"
- Earlstar Management Ltd ("Earlstar") seems in fact to have been incorporated on 5 September 1985. From the material put before me, certainly by no later than 1 January 1996 the sole director of Earlstar was Mrs. Pauline Dickenson and the 100 issued shares were held as to 50 by Mrs. Pauline Dickenson and as to 50 by Miss Mandy Dickenson. The company secretary of Earlstar as from no later than 1 January 1996 was Mr. Gary Dickenson. Earlstar was in fact dissolved on 25 January 2000.
- At an Annual General Meeting of the Company held on 6 November 1985 it was resolved that Cavendish be appointed as auditors of the Company. Cavendish remained auditors of the Company until at least about 3 November 1998 when they signed the Auditors' Report included within the financial statements of the Company for the year ended 31 March 1998.
- On 6 December 1985 Mrs. Pauline Dickenson was appointed a director of the Company.
- At a meeting of the board of directors of the Company held on 16 January 1986 it was resolved that 389 ordinary £1 shares be issued at par for cash to Mr. Gary Dickenson, that 99 ordinary £1 shares be issued at par for cash to Miss Mandy Dickenson, and that 510 ordinary £1 shares be issued at par for cash to Mrs. Pauline Dickenson.
- With effect from 8 August 1988 Miss Mandy Dickenson resigned as company secretary of the Company. She was replaced by her brother. She remained a shareholder.
- At an Extraordinary General Meeting of the Company held on 7 March 1991 it was resolved, amongst other things, that the holding of Annual General Meetings and the obligation to appoint auditors annually be dispensed with.
- On 1 December 1997 Mr. Gerald Dickenson was appointed a director of the Company and the shares in the Company previously held by Miss Mandy Dickenson were transferred to him. The minutes of the meeting which recorded the appointment of Mr. Gerald Dickenson as a director of the Company did not record him as disclosing his interest in Earlstar. No formal meetings of the board of directors of the Company seem to have been held after 1 December 1997.
- At paragraphs 17 and 18 of his witness statement to which I have referred Mr. Gerald Dickenson dealt with the remuneration of himself, his wife and his son as a result of their respective activities on behalf of the Company. What he said was: -
"17. For the reasons I have explained in paragraph 7 above, originally, Pauline and I were employed and remunerated by Earlstar, Earlstar being paid consultancy fees in turn by the Company. I am asked about the contractual arrangements between Earlstar and the Company and between the Company and its directors. There were no written consultancy or service agreements, Pauline, Gary and I would decide what we should be paid in the light of what the Company could afford and advice from Norman Hanison. Earlstar would invoice the Company ... . and the Company would make payments to it and the directors by cheque. These cheques were written-out by Pauline as part of her weekly cheque- run (comprising also payments to staff, utilities, suppliers and so forth). Although I am advised that the absence of formal agreements was far from ideal from a legal standpoint, I would respectfully ask the court to remember that both the Company and Earlstar were small family concerns. It never occurred to me that the relationships needed to be formalised. I would have looked to Norman Hanison to advise us if the contrary were the case, and in all the many years in which he advised us, he never did. Mr. Davis [the solicitor representing Mr. Dickenson in these proceedings] has pointed out to me that from the bundle of copy minutes [of meetings of the Company or of its board of directors], it appears that in each of the years down to 1990, directors remuneration was expressly approved at the Company's annual general meeting or an adjournment thereof Mr. Davis further points out to me that at an extraordinary general meeting on 7 March 1991, a resolution was passed dispensing with future annual general meetings, and that thereafter, the only meetings were meetings of the board to approve the audited financial statements, a change in the Company's registered office, and my appointment as a director. I do not recall (if I ever knew,) why this change came about in 1991, although it has been suggested to me, and I agree, that it reflects the fact that the Company was a small family concern. I stress that we relied entirely and at all times on Norman Hanison to ensure that proper principles of corporate governance were adhered to. All the minutes [mentioned above] were drafted by him, and after presenting them to us for signature, he would invariably take them away and retain them for safe keeping.
18. As time went on, the relationship between the Company on the one hand, and Pauline and me on the other, became in practice more that of employer and employee than client and consultants.... It was for this reason that I eventually became a director and shareholder in the Company on 1 December 1997. I seem to recall having a conversation with Norman Hanison (presumably at about this time) in which we agreed that the original structuring of the relationship as one of consultancy had been superseded by the way things had developed in practice, and he advised that my role might as well now be put on a more formal footing. I see from my April 1998 and April 1999 tax returns ... that in 1998, I derived employment income from both Earlstar and the Company. The allocation of my income as between the companies would have been made by Norman Hanison (who also dealt with my family's personal tax affairs), and I do not now recall (if I ever knew) why in 1999 it was split in this way. In preparing this statement, I have considered copies of Pauline's tax returns to April 1998 and April 1999 ... from which I see that she was paid solely by the Company in both of those years... This accords with my impression that (at least by the date of the events to which these proceedings relate), she was paid by the Company, not Earlstar. As far as I am aware, Gary was only ever paid by the Company."
I accept that evidence. It was not the subject of any real challenge.
- There were put in evidence copies of the Directors' Report and Financial Statements of the Company for each of the years ended respectively on 31 March 1996, 31 March 1997 and 31 March 1998. In this judgment I shall call those documents respectively "the 1996 Accounts ", "the 1997 Accounts" and "the 1998 Accounts ".
- The 1996 Accounts showed a turnover for the year of £812,884 which produced a gross profit of £456,968. There were administrative expenses of £449,970, so that the operating profit was only £6,998. After allowances for interest and tax the profit for the year was only £230. However, the breakdown of administrative expenses showed that that element in the 1996 Accounts included directors' remuneration of £64,640 and consultancy fees of £102,500. Thus, on the assumption, which Mr. Gerald Dickenson said in his oral evidence before me was correct, and which I accept, that the element of consultancy fees in the 1996 Accounts, the 1997 Accounts and the 1998 Accounts related exclusively to fees paid to Earlstar, the performance of the Company in the year to 31 March 1996 was capable of producing income for members of the Dickenson family totalling £167,140. The balance sheet included within the 1996 Accounts showed total shareholders' funds of £55,305.
- The 1997 Accounts were, on their face, approved by the board of djrectors of the Company on 28 January 1998. They showed an increase in turnover to £879,107 and an increase in gross profit to £518,792. However, administrative expenses were also shown as having increased, to £492,152. That increase in administrative expenses was almost entirely referable to an increase in directors' remuneration to £102,540. Consultancy fees were slightly down at £97,500, and various other increases, for example in wages and salaries, were offset by an unexplained item of "Administrative charges recovered" in the sum of £26,615. The operating profit for the year was £26,640. Allowances for interest and tax reduced the profit on ordinary activities after taxation to £17,467, but that surplus was entirely eliminated by a dividend of £20,000, producing a loss for the year of £2,533. The declaration of that loss was, of course, not a true representation of the performance of the Company during the year from the perspective of the Dickenson family. They had drawn from the Company one way or another during the year a sum in excess of £220,000 out of income of the Company generated during the year. The balance sheet as at 31 March 1997 showed a slight reduction in the value of shareholders' funds, to £52,772.
- The 1998 Accounts were approved by the board of directors on 2 November 1998. They showed a further slight increase in turnover, to £884,418. There was, however, a reduction in gross profit to £484,484. Administrative expenses were also shown as having fallen sharply, to £374,361, so that operating profit had increased, on the face of the 1998 Accounts, dramatically to £110,123. Although the profit on ordinary activities after taxation shown was £84,336, again the apparent profit was entirely eliminated by a dividend of £120,000. Overall, therefore, the 1998 Accounts showed a loss of £35,664. The balance sheet as at 31 March 1998 showed shareholders' funds of only £17,108. The principal reason for the reduction in shareholders' funds appeared to be a reduction in stocks held at year end, although that was offset to a degree by an increase in debtors and an increase in cash at bank. The apparent reduction in administrative expenses was achieved despite an increase in directors' remuneration to £143,805. There was a reduction in consultancy fees to £84,000, but the main reason for the overall apparent reduction in administrative expenses was what was described as "Profit on disposal of tangible asset" which produced a credit of £l35,470.
- In his witness statement Mr. Gerald Dickenson gave an explanation for the item identified as "Profit on disposal of tangible asset" in the list of administrative expenses set out in the 1998 Accounts. By the autumn of 1997 the Company operated three shops under three different trading names. One of the shops traded under the name "Zanelli" and was located in premises at 3, Burlington Gardens, London Wl. What happened in relation to those premises Mr. Gerald Dickenson dealt with at paragraph 22 of his witness statement as follows:-
"At some point in the autumn of 1997, we were approached by the landlord of "Zanelli" in Burlington Gardens (Scottish Widows). Rents in the Bond Street area rose steeply in the mid/late 1990s, and the terms of the lease we had originally agreed had turned out to be highly advantageous for us. Scottish Widows wanted to know if the Company would be prepared to surrender the lease in return for a reverse premium. Since, as I have explained, "Zanelli" was by far the least successful of the Company's outlets, we had no hesitation whatever in agreeing to this suggestion in principle. The offer represented an opportunity to streamline the Company's business, while realising a substantial capital gain. After an extended period of negotiation, we agreed a figure of £150, 000 for surrender of the lease. Looking at the schedule of administrative expenses at the last page of the audited financial statements to 31 March 1998, I confirm that the £135,470 recorded there in respect of profit on disposal of a tangible asset represents the reverse premium received from Scottish Widows, less estate agents' and solicitors' fees. "Zanelli" shut at about the end of February 1998."
- At paragraph 23 of his witness statement Mr. Gerald Dickenson went on to explain how the dividend of £120,000 recorded as paid in the year ended 31 March 1998 came to be paid. He said:-
"At the date on which the net funds from Burlington Gardens were received, there was no question of the Company needing to retain any part of those monies for working capital purposes. Both previous financial years had been highly successful, and there was every reason to expect the Company's profitability, if anything, to improve with "Zanelli" disposed of. I consequently asked Norman Hanison whether we could pay out the net proceeds of surrender of the lease to the family. I recall that I was anxious, if possible, for payment to be made before the Company's year-end to avoid having to show a high profit figure (with attendant tax implications) in the accounts to 31 March 1998. Mr. Hanison told me that there was no difficulty in paying the money out in the form of a dividend. He never advised me that a dividend in the full net amount of the reverse premium might be improper (if that was indeed the case), and never mentioned any need for accounts to be drawn-up in advance. Mr. Davis again points out to me the apparent absence of any formal resolutions reflecting this dividend, and again I can only say that we left the relevant paperwork to Mr. Hanison. From note 7 to the accounts to 31 March 1998, I see that the dividend appears to have been paid on 26 February 1998, though I have no specific recollection of the date. I do, however, recall ... that it was divided up among the shareholders according to their holdings in amounts advised by Mr. Hanison — I believe I received £12,000, Pauline £61,200 and Gary £46,800."
- Unfortunately the year which began on 1 April 1998 did not prove a satisfactory one in trading terms from the point of view of the Company. On 13 July 1999 the Company went into liquidation and Mr. Solomon Cohen was appointed as liquidator. In advance of the meeting on 13 July 1999 at which Mr. Cohen was appointed the directors of the Company prepared a report for creditors, to which I shall refer in this judgment as "the Report". The Report included this:-
"Performance continued to be satisfactory during the period from February 1998 until September of that year.
There had been an amount of unfavourable publicity both in our own and the foreign press, highlighting the enormous price differentials between London and other comparable European Cities/Capitals. As the core business was targeted at overseas visitors this had a marked, indeed, disastrous effect on sales. Turnover plummeted from September of 1998 and the Company experienced extremely difficult trading conditions.
Cash flow became stretched and it was necessary to fully utilise the available overdraft facility. Arrangements were made with the Inland Revenue and H M. Customs and Excise for payment to be made by installments and extended credit terms agreed with the Landlord and suppliers.....
It was anticipated that there would be a recovery in the medium term, and in order to generate cash the Company's motor vehicle was sold to Mr. Gerald Dickenson for the sum of £15, 000 following a professional valuation.
With a view to stabilising the position, overheads were cut to the minimum, staffing levels were reduced, and both shops opened 7 days per week staffed only by the Directors to economise on running costs.
During this period, the Directors further supported the Company by declining to draw a salary from the business.
Despite the strenuous efforts made, the remedial action was not successful and the health of Mr Gerald Dickenson the principal Director deteriorated rapidly and the whole family experienced severe stress.
In June of 1999, the Company suffered two disastrous trading weeks and was unable to honour its commitments to both suppliers and Landlord.
The Directors seriously reviewed the Company's circumstances and reluctantly reached the conclusion that there was no alternative but for trade to cease and Marini to be placed in Liquidation….
The shops in Duke Street and Curzon Street were closed with effect from the 21st June 1999 and all staff were dismissed.".
- Concerning the decision to continue trading notwithstanding the poor results in September 1998 Mr Gerald Dickenson said this in his witness statement :-
"26.... I did not conclude in September 1998 that decreased turnover in that month signalled an irreversible decline in the Company's fortunes, and I emphatically deny any suggestion that anyone with significant experience in the retail sector would have reached that conclusion either. An experienced retailer knows that a bad week or month (at least for an established outlet) can just as easily be followed by a successful period as by further poor performance. Although, going into October, we were certainly worried about turnover I do not believe at that point that it had even crossed our minds to liquidate the Company — and nor do I accept it should have. To have done so would simply have made no sense commercially, for at least four reasons:
27. First, we had no reason to suppose the poor performance in September to be attributable to some fundamental problem with the business or an adverse long- or medium-term trend in the market within which it was operating. Quite the reverse. We thought the business was sound, and the downturn in sales was short- term.
28. Second, I was confident in my ability to claw back turnover. The difference between retailing success and failure often comes down to delicate (and almost imperceptible) factors such as window dressing, layout and stock placement. With the benefit of my many years' experience, I had every reason to believe that I could reverse the Company's decline, if it indeed proved due to anything more than short-lived bad luck.
29. Third, the Company was, in any event, well able to cope with a few months of lacklustre trading. As events were subsequently to prove, there was ample scope for cost reductions by cutting-back on shop staff and reducing the family's drawings.
30. Fourth, in common with virtually all other retailers, the Company's stronges period for sales was the run-up to Christmas and the subsequent January/February sales. It would have been a commercial nonsense to cease trading immediately prior to the most cashflow-positive period of the year. This point has particular force since the stock for the autumn/winter season had, by September, been ordered and already mostly delivered. This is standard practice in the clothing retail trade. Stock for autumn/winter collections is generally ordered the preceding February/March for delivery in late summer and early autumn. Stock for spring/summer collections is generally ordered the preceding July for delivery in February/March. Most of the Company's Italian suppliers effectively closed for business each August, and generally, I would try to ensure that as much autumn/winter stock as possible was delivered in July. Most of the balance would arrive in September, with the remainder in October. By the time the extent of the decline in turnover in September 1998 became apparent, the Company had already taken delivery of the bulk of its merchandise for the next four and a half months."
- How matters turned out Mr. Gerald Dickenson explained in his witness statement in this way:-
"As things turned out, a poor September was followed by a poor autumn generally. Turnover did not recover to the previous year's levels in the run-up to Christmas, and the New Year sales were disappointing too. Again, without reference to the Company's books, it is impossible for me to be more specific about figures or percentages. It would have been in about March, however, that we came to the view that we were experiencing a medium or long term trend and that the Company's future was seriously under threat, and, consequently implemented measures to try to save it. We started by putting a number of the sales staff on 2-3 day weeks. Soon we had to make redundancies — Pauline and I helping Gary to fill the staffing gaps by spending more and more time in the shops ourselves. We introduced Sunday opening. We reduced our drawings. Eventually, we were working full-time, seven days a week, for weeks on end without any payment at all. I cannot adequately describe to the court the stress and anxiety all of this caused the three of us. Pauline and I were both within months of our sixties by the date of all of this, and I have high blood-pressure for which I am on medication.
32. By about mid-April, we decided to go to Norman Hanison for advice about what we should do. He recommended us to the Liquidator (who, as I think he said, was the only insolvency practitioner he knew), and we made arrangements to meet him. I have been asked whether I can remember any specific event that prompted our decision to seek advice in April: I cannot. It may be that payment of rent on the quarter day at the end of March helped crystallise our thinking, but I am not sure about this. I can, however, say for certain that no proceedings of any kind had been threatened against the Company at that point. As far as I recall .... we were not even experiencing creditor pressure in the form of threatening letters or complaints about late payment. It is worth noting at this point that Abital was probably our principal supplier by value, and that its credit terms were generous. I do not now recall what the contractual payment terms may have been, but whatever they were, in practice, we were allowed up to six months' credit."
- Mr. Gerald Dickenson went on in his witness statement to describe a meeting with Mr. Cohen on 19 April 1999. He said that Mr. Cohen advised him that the Company should be placed in voluntary liquidation. He explained that he did not accept that advice and decided "to trade on for a limited period in one last try at turning the Company around, or, failing which, to find an assignee for the leases."
- At paragraph 35 of his witness statement Mr. Gerald Dickenson explained, concerning the strategy outlined at the end of the preceding paragraph of this judgment, that:-
"The key to that strategy was the one remaining valuable asset owned by the Company at that date which could be readily converted into cash — a Rolls- Royce Silver Sprit [sic — in fact Spirit] II (registered in 1991) purchased second- hand some years previously (I do not remember precisely when) for my use. I decided to buy it from the Company, and use the proceeds to meet essential outgoings for the further short period of trading I envisaged. Appreciating the importance of having it independently valued before I bought it (a point which I think was impressed on me by the Liquidator at our meeting), initially I contacted the well-known luxury car specialist, H. R.. Owen. They told me that to value it properly, they would have to keep it overnight for a thorough workshop inspection (to include an examination of the underside of the chassis), but that they were fully booked at that time, They recommended me instead to another specialist, DK Engineering Limited. I got in touch with them, and they collected the car. A day or so later (I do not remember when precisely), I received their valuation dated 25 April 1999 in the amount of £14,500 (page 68). Being anxious to ensure that the Company got proper value, the next day I bought the car by cheque for £15,000, and duly prepared a receipt to document the transaction (page 69). In procuring the Company to sell the car to me rather than an independent third party, it is right that I should accept that I was to some extent motivated by sentimental attachment to a vehicle of which I am very fond. I should also stress, however, that the only realistic alternative at this stage was to sell to a garage — inevitably, at a low trade price. The Company needed cash by then too urgently to risk waiting until an advertisement produced results, and the car needed work doing to it which I believed would probably have deterred a non-trade purchaser in any event."
- The registration number of the Rolls Royce Silver Spirit II ("the Car ") which belonged to the Company was J831 DYE Its book value at 31 March 1998, according to the 1998 Accounts, was £14,713, although it had apparently cost £62,000 when purchased.
- While broadly I accept as accurate the evidence set out in the witness statement of Mr. Gerald Dickenson, his evidence about the Car, and in particular about the valuation of it, was unsatisfactory. In contrast to the account given by him in his witness statement in cross-examination he told me that the reason that he had gone to DK Engineering Ltd. to value the Car was that Jack Barclay, not H. R. Owen, whom he had originally approached, had told him that the Car was too old for them to be interested in. He also said in cross-examination that he had taken the Car to DK Engineering Ltd., that company had not collected it. The document relied upon as the valuation of DK Engineering Ltd., of which a copy was put in evidence, had plainly had added to it in a typeface different from the main body both a date, 25 April 1999, and the words "MARINI LTD. C/O" after words which in the origina1 read, We understand that the above vehicle is the property of:", and continued with a statement of the name and private address of Mr. Dickenson himself .Mr. Dickenson was not himself able to offer any explanation of these obvious alterations, or of the fact that 25 April 1999 was a Sunday. He denied the suggestion put to him that the only relevance of the date 25 April 1999 was that it was the day before 26 April 1999 which was the date of the receipt acknowledging payment by him to the Company of £15,000 for the Car Mr. Gerald Dickenson was followed into the witness box by his wife who said that it was she who had added the date and the words "MARINI LTD. C/O" Her explanation for doing so was that the original document was undated, and she thought that it ought to be dated, and that the original document had been prepared in a form which indicated that DK Engineering Ltd. was offering to buy the Car from Mr. Gerald Dickenson personally for £14,500, when in fact the prospective vendor was the Company. I confess that I did not find any of this remotely convincing. I am satisfied that the original document produced by DK Engineering Ltd. was doctored in order to provide evidence that a valuation of the Car had been sought prior to purchase of it by Mr. Gerald Dickenson from the Company. However, despite that finding, I am satisfied that generally the evidence given by Mr. Dickenson, his wife and son was truthful and accurate.
- In the end the Company gave up the struggle and went into liquidation. Subsequent to the decision to place the Company in liquidation Mr. Gerald Dickenson prepared, or at any rate signed, a Statement of Affairs for the Company which included a summary of liabilities. That summary of liabilities indicated that the Company owed Mr. Gerald Dickenson £11,785, Mr. Gary Dickenson £20,340 and Mrs. Pauline Dickenson £8,800. That those sums were genuinely owed was not challenged before me and I find that those sums are in fact due from the Company to those recorded as the respective creditors. I am also satisfied that Mr. Gary Dickenson and Mrs. Pauline Dickenson were each called upon by Lloyds TSB Bank Plc ("Lloyds ") under personal guarantees of overdraft facilities afforded by Lloyds to the Company, and that they respectively paid in discharge of their liabilities under those guarantees sums of £9,618.55 and £13,712.88.
- According to a witness statement made by Mr. Cohen dated 20 January 2003 the liabilities of the Company as at that date totalled £147,823.83. That figure was not challenged and I find it to be correct as at the date to which it related.
The present proceedings
- By an Originating Application issued on 21 May 2002 Mr. Cohen, as liquidator of the Company, sought the following relief against Mr. Gary Dickenson, Mr. Gerald Dickenson and Mrs. Pauline Dickenson: -
"1. That, pursuant to section 212 of the Insolvency Act 1986, the First Respondent [Mr. Gary Dickenson] do pay back to the Company the sum of £88,228 with interest.
2. That alternatively, pursuant to section 212 of the Insolvency Act 1986, the Respondents and each of them do account to the Company for the sum of £88,228 with interest.
3.That, pursuant to section 238 of the Insolvency Act 1986, the Second Respondent [Mr. Gerald Dickenson] do pay the Company the sum of £1,500 or such other sum as the Court may determine with interest.
4.That, pursuant to section 212 of the Insolvency Act 1986, the Second Respondent do repay to the Company the sum of £122,898 with interest.
5. That [sic] a declaration pursuant to section 214 of the Insolvency Act 1986, that the Respondents and each of them are liable to make a contribution to the Company in the sum of £119,599.47 with interest.
6.That [sic] alternatively, a declaration pursuant to section 214 of the Insolvency Act 1986, that the Respondents and each of them are liable to make a contribution to the Company in the sum of £85, 275.22 with interest.
7. That, the Respondents do pay the costs of and incidental to this application."
- The Originating Application was amended by an order made by consent on 11 February 2003 and further amended by an order made by me on the first day of the hearing before me, 20 February 2003. The amendments affected only paragraphs 1 and 4 of the Originating Application. In the light of the amendments those paragraphs respectively read:-
"1. That, pursuant to section 212 of the Insolvency Act 1986, the First Respondent do pay back to the Company the sum of £120,000 with interest; alternatively that, pursuant to section 212 of the Insolvency Act 1986, the Respondents do pay back to the Company the following sums with interest:
a. (the First Respondent) the sum of £46,800 or such other sum as represents his portion of the dividend wrongly paid out on 26 February 1998;
b. (the Second Respondent) the sum of £12, 000 or such other sum as represents his portion of the dividend wrongly paid out on 26 February 1998;
c. (the Third Respondent) the sum of £61,200 or such other sum as represents her portion of the dividend wrongly paid out on 26 February 1998.
....
4. That, pursuant to section 212 of the Insolvency Act 1986, the Second Respondent do repay to the Company the sum of £122,898 with interest; alternatively that pursuant to section 212 of the Insolvency Act 1986, the Second Respondent do account to the Company for such portion of the consultancy fees paid by the Company to Earlstar Management Limited after 1 December 1997 as were paid by Earlstar Management Limited to the Second Respondent and repay such sums with interest."
- The amendments to the Originating Application made clearer two of what were in fact four matters of complaint in reliance upon which Mr. Cohen as liquidator of the Company was seeking payment of various sums by Mr. Gary Dickenson, Mr. Gerald Dickenson and Mrs. Pauline Dickenson to the Company. The first matter of complaint emerged fairly clearly from paragraph 1 of the Re-Amended Originating Application and was the contention that the payment of the dividend totalling £120,000 by the Company on 26 February 1998 (to which hereafter in this judgment I shall refer as "the Dividend") was wrongful and in consequence the Respondents were liable as directors of the Company at that time and as recipients of the Dividend between them to make good the loss to the Company caused by the distribution of the Dividend. The second matter clarified by the terms of the Re-Amended Originating Application, in fact by paragraph 4, was that Mr. Cohen was seeking repayment by Mr. Gerald Dickenson of the sums paid to him through Earlstar as consultancy fees after 1 December 1997, in fact on the ground that the interest of Mr. Gerald Dickenson in the transactions between the Company and Earlstar after he became a director of the Company should have been disclosed at a meeting of the directors of the Company, but had not been.
- The other two matters of complaint made by Mr. Cohen in the Re-Amended Originating Application were hinted at by the sections of Insolvency Act 1986 ("the 1986 Act") referred to rather than by express reference. The first was the contention as against Mr. Gerald Dickenson that he had purchased the Car from the Company for less than its true value. The second was the contention as against all of the relevant members of the Dickenson family that the Company had carried on trading after the time when they knew or ought to have concluded that there was no reasonable prospect that the Company would avoid going into insolvent liquidation. The dates suggested by Mr. Cohen in his affidavit sworn on 1 April 2002 in these proceedings as the relevant time for the purposes of the latter claim were 1 October 1998, alternatively 2 November 1998.
- It is necessary to consider separately each of the matters of complaint raised by Mr. Cohen.
The Dividend
- Until shortly before the hearing before me there was some confusion as to exactly what sums were being claimed in respect of the Dividend, from whom and on what alleged legal foundation. It was suggested to me by Mr. Andreas Gledhill, who appeared on behalf of the Respondents, that until he received the skeleton argument of Mr. Jonathan Miller, who appeared on behalf of Mr. Cohen, it had not been appreciated that the whole of the sum of £120,000 was sought to be recovered from those who had received it in the proportions in which they had received it. It had been understood, Mr. Gledhill told me, and I could readily understand why, that what was sought to be recovered was only that proportion of the Dividend which could not properly have been authorised, namely the amount by which £120,000 exceeded the profits of the Company available for distribution, share capital and reserves as shown in the 1997 Accounts, which totalled £51,772. The difference between those two figures is the sum of £68,228 mentioned in the Amended Originating Application. However, once it had become clear exactly what was being claimed, Mr. Gledhill indicated that whether the greater sum was recoverable as a matter of law in any event was a matter with which he could deal at the conclusion of the hearing, and on that basis I granted permission to Mr. Cohen to amend further the Originating Application so as to make plain precisely what the claim was.
- There was also at one stage in the hearing before me a degree of confusion as to upon what exact legal basis repayment was being sought of amounts of the Dividend paid to Mr. Gary Dickenson, Mr. Gerald Dickenson and Mrs. Pauline Dickenson. The issue seemed to be whether repayment was being claimed from them as directors who had misapplied money belonging to the Company in breach of trust and had received, as directors, payments made ultra vires the Company, or whether repayment was being claimed from them under s.277 of Companies Act 1985 ("the 1985 Act") or in equity as members who had received unlawful distributions. The significance of the point was thought to be the availability or not of a claim for relief under s.727 of the 1985 Act or the applicability or not of a defence of set-off. In the end it was made clear by Mr. Miller that the basis of the claim in respect of the Dividend was the status of the Respondents as directors of the Company. That was not a particularly surprising resolution, given that claim for relief in respect of the Dividend was made under s.212 of the 1986 Act.
- In his written skeleton argument prepared in advance of the hearing before me Mr. Gledhill indicated at paragraph 4 that:-
"The respondents do not dispute that the Dividend was, to the extent of £68,228 a distribution in contravention of part VIII of the Companies Act 1985."
As matters turned out there were two principal issues which I had to decide in relation to the Dividend claim. The first was whether the whole of the Dividend was unlawful, with the potential consequence that the whole sum of £120,000 was repayable, or whether the Dividend was only unlawful to the extent that the amount of it exceeded the available distributable reserves of the Company at the date of distribution, with the consequence that only the amount of the excess of the total of the Dividend over available distributable reserves was potentially repayable. The second main issue, which arose whatever was the result of my determination on the first, was whether relief should be afforded to any of the Respondents under s.727 of the 1985 Act, and, if so, on what terms. Subsidiary issues, relevant in the event I think only to the question of relief under s.727 of the 1985 Act, were whether the Dividend had in fact been declared and whether, as Mr. Miller put it in his written skeleton argument at paragraph 5f, "the relevant accounts recommended no dividend".
- The question of whether, where a dividend is paid in contravention of the requirement in s 263(1) of the 1985 Act that :-
"A company shall not make a distribution except out of profits available for the purpose."
the effect is that the whole of the dividend is unlawful, or only that part which exceeds the available profits, does not seem to have been the subject of clear, binding decision. I was referred to four decisions which were said to indicate what the answer to the question was. Two were rounds, respectively at first instance and in the Court of Appeal, in Bairstow v. Queens Moat Houses Plc. The first instance decision of Nelson J. is reported at [2000] 1 BCLC 549, while the decision in the Court of Appeal is reported at [2001] 2 BCLC 531. The only other decision of the Court of Appeal to which I was referred in the context of the argument in relation to this question was Precision Dippings Ltd. v. Precision Dippings Marketing Ltd. [1985] 1 Ch. 447. The other case to which I was referred was Inn Spirit Ltd. v. Burns [2002] 2 BCLC 780, a decision of Rimer J. Before turning to consider the authorities to which my attention was directed it is convenient to set out the relevant provisions of the 1985 Act.
- I have already quoted the terms of s. 263(1) of the 1985 Act. So far as is presently material it is provided in s. 263(3) that :-
"For purposes of this Part, a company's profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made."
- Section 270 of the 1985 Act is in the following terms: -
"(1) This section and sections 271 to 276 below are for determining the question whether a distribution may be made by a company without contravening sections 263, 264 or 265.
(2)The amount of a distribution which may be made is determined by reference to the following items as stated in the company's accounts-
(a) profits, losses, assets and liabilities,
(b) provisions of any of the kinds mentioned in paragraphs 88 and 89 of Schedule 4 (depreciation, diminution in value of assets, retentions to meet liabilities, etc), and
(c) share capital and reserves (including undistributable reserves).
(3)Except in a case falling within the next subsection, the company' s accounts which are relevant for this purpose are its last annual accounts, that is to say those prepared under Part VII which were laid in respect of the last preceding accounting reference period in respect of which accounts so prepared were laid; and for this purpose accounts are laid if section 241(1) has been complied with in relation to them.
(4) In the following two cases —
(a) where the distribution would be found to contravene the relevant section if reference were made only to the company's last annual accounts, or
(b) where the distribution is proposed to be declared during the company' s first accounting reference period or before any accounts are laid in respect of that period,
the accounts relevant under this section (called" interim" accounts" in the first case, and "initial accounts" in the second) are those necessary to enable a reasonable judgment to be made as to the amounts of the items mentioned in subsection (2) above.
(5) The relevant section is treated as contravened in the case of a distribution unless the statutory requirements about the relevant accounts (that is, the requirements of this and the following three sections, as and where applicable) are complied with in relation to that distribution. "
- Section 271 of the 1985 Act is concerned with the requirements to be met in relation to the last annual accounts of a company, if those are the only accounts relevant for the purposes of s.270 of the Act. The detail of the provision made by s.271 is not really material to any issue which I have to decide, but the flavour of that provision can be derived from subsection (2), which is in these terms:-
"The accounts must have been properly prepared in accordance with this Act, or have been so prepared subject only to matters which are not material for determining, by reference to items mentioned in section 270(2), whether the distribution would contravene the relevant section; and, without prejudice to the foregoing-
(a) so much of the accounts as consists of a balance sheet must give a true and fair view of the state of the company's affairs as at the balance sheet date, and
(b) so much of the accounts as consists of a profit and loss account must give a true and fair view of the company's profit or loss for the period in respect of which the accounts were prepared."
- Insofar as the 1985 Act deals with the consequences of a distribution which is unlawful as being in contravention of the requirements of Part VIII of the Act it does so in s. 277. The terms of that section which are presently material are :-
"(1) Where a distribution, or part of one made by a company to one of its members is made in contravention of this Part and, at the time of the distribution, he knows or has reasonable grounds for believing that it is so made, he is liable to repay it (or that part of it, as the case may be) to the company or (in the case of a distribution made otherwise than in cash) to pay the company a sum equal to the value of the distribution (or part) at that time.
(2)The above is without prejudice to any obligation imposed apart from thi section on a member of a company to repay a distribution unlawfully made to him; but this section does not apply in relation to —
(a) financial assistance given by a company in contravention of section 151, or
(b) any payment made by a company in respect of the redemption or purchase by the company of shares in itself."
- By s.727(1) of the 1985 Act it is provided that :-
"if in any proceedings for negligence, default, breach of duty or breach of trust against an officer of a company or a person employed by a company as auditor (whether he is or is not an officer of the company) it appears to the court hearing the case that that officer or person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or partly, from his liability on such terms as it thinks fit."
- In advance of a consideration of any authority it seemed to me that the effect of the provisions which I have set out in a case such as the present was that the fundamental prohibition in Part VIII of the 1985 Act was upon the making by a company of a distribution which did not satisfy the requirements of s.263, s.264 or s.265, as the case might be, as those requirements were elaborated in ss. 270 to 276 inclusive. So far as the prohibition in s.263 was concerned, the prohibition was on making a distribution other than out of profits available for distribution. Insofar as a particular distribution was made out of profits available for distribution, therefore, the section was not contravened, although it was contravened in relation to any excess of the distribution over profits available for distribution. While s.277 dealt with the position of a member who received a distribution which was unlawful as contravening whatever, in the particular case, were the relevant provisions of ss. 263, 264 or 265, that section had no impact upon the liabilities of directors, as such, to the company in respect of unlawful distributions. However, the contemplation in s. 277 that the liability of a member who knew at the time it was made that a distribution was unlawful was to repay only the part which represented distribution in excess of the amount permitted by the distributable profits of the company seemed to me to lend support to the interpretation of s.263 which initially commended itself to me. As a separate point, however, even if my initial view were incorrect, potentially a director who authorised a distribution which was unlawful could seek relief from liability under s.727(1), with some expectation that, at least in so far as a distribution could lawfully have been made of some lesser amount than the actual distribution, he would be afforded it. With that preliminary indication of view I turn to the authorities to which my attention was drawn.
- The earliest in time of the authorities to which I was referred was Precision Dippings Ltd. v. Precision Dippings Marketing Ltd. In that case the claimant company was a wholly owned subsidiary of the defendant company. The claimant company had declared and paid a cash dividend in favour of the defendant company in reliance upon accounts which were qualified and which, therefore, did not satisfy the requirements of the statutory predecessor of s.271 of the 1985 Act. The claimant company went into liquidation after the payment of the dividend and, so far as is material to the issues which I have to decide, claimed repayment from the defendant company of the amount of the dividend paid. There were a number of issues in the case with which I do not need to trouble. One of the bases upon which it was contended that the defendant company was liable to repay the amount of the dividend to the claimant company was under Companies Act 1980 s. 44(1), the statutory predecessor of s. 277(1) of the 1985 Act. There seems to have been no suggestion that the relevant dividend would have been lawful in some lesser amount than that in fact paid. The leading judgment was that of Dillon LJ. He stated the conclusion of the Court of Appeal at pages 457H — 458A of the report in this way: -
"I do not find it necessary to examine the wording of section 44(1) since by subsection (2) the provisions of section 44 are declared to be without prejudice to any other obligation imposed on a member to repay a distribution unlawfully made to him. I would put the position quite shortly. The payment of the £60,000 dividend to Marketing was an ultra vires act on the part of the company. Marketing when it received the money had notice of the facts and was a volunteer in the sense that it did not give valuable consideration for the money. Marketing accordingly held the £60,000 as a constructive trustee for the company…"
Although Mr. Miller relied quite heavily on the decision in Precision Dippings Ltd. v. Precision Dippings Marketing Ltd.., that case did not raise the question which I am now considering and in my view no observations helpful to that consideration were made in the judgments in it Dillon LJ did not find it necessary to address the wording of Companies Act 1980 s. 44(1), and it appears that the question now before me did not arise on the facts in that case.
- Mr. Gledhill did not go so far as to suggest that the decisions in Bairstow v. Queens Moat Houses Plc either at first instance or in the Court of Appeal had determined the question now under consideration, but he did submit that both Nelson J. at first instance and Robert Walker LJ in the Court of Appeal had implicitly accepted the interpretation of s. 263 of the 1985 Act for which Mr. Gledhill contended, which is that which I have indicated commended itself to me simply from a consideration of the relevant statutory provisions. In particular Mr. Gledhill drew to my attention this passage from the judgment of Nelson J.: -
"The second challenge to the amount of the first defendants' claim in relation to unlawful dividends is that they claim £47m in one part of their claim and £58m in another, and hence are inconsistent. The submission however is a misunderstanding of the basis upon which the first defendants make their claim. The allegation of insufficient reserves relates to all dividends paid both under the 1990 final accounts and under the 1991 final accounts. Thus, to the extent to which there were proper reserves they fall to be deducted, in the sum of £11.9m in 1990 and £11.5m in 1991 (£ 70.3m -£11.9m -£11.5m = £46.9m). The allegation that the dividends were unlawful because the 1991 accounts did not give a true and fair view however, relates only to those dividends paid under the 1991 final accounts and as it is contended that all the dividends paid under the 1991 final accounts are unlawful the company's reserves of £11.5m do not fall to be deducted. The claim on the basis of insufficient reserves is therefore £46.9m whereas the claim on the basis of insufficient reserves for the 1990 accounts but the failure to give a true and fair view in relation to the 1991 accounts is £58.4m."
Mr. Gledhill relied upon the apparent approval, or at any rate lack of any criticism, on the part of Nelson J. of the analysis which he explained in the passage from his judgment which I have set out as providing support for his submission. Robert Walker LJ considered at paragraphs 23 to 25 inclusive on pages 541 and 542 of his judgment the analysis of Nelson J. which I have just set out. He criticised the analysis on the figures, as Nelson J. had apparently overlooked some relevant entries in the accounts, but expressed no criticism of the explanation in principle as to why the sums claimed on the different bases differed.
- Mr. Miller did draw to my attention that Robert Walker LJ said at paragraph 36 of his judgment, on pages 544 and 545:-
"The strict and mandatory character of s.270 must be fatal to Mr. Purle's argument based on Duomatic, not only in relation to the dividends based on the 1991 accounts but also in relation to those based on the 1990 accounts. The former directors could not go behind the figures for Queens Moat's distributable profits disclosed by the accounts which they had prepared (and in the case of Mr. Bairstow and Mr. Marcus, signed) and laid before the company in general meeting. Even if it could be shown that wholly-owned subsidiaries had distributable profits which could lawfully and prudently have been paid up by way of dividend to Queens Moat, that would go to the issue of relief, not to that of liability."
- The passage quoted in the preceding paragraph was considered by Rimer J. in Inn Spirit Ltd. v. Burns. In that case the claimant company was a wholly-owned subsidiary of another company, Burns Leisure Ltd. The sole shareholder in Burns Leisure Ltd. was Mr. Stewart Burns, who was a director of both companies and the first defendant in the action. The second defendant was his wife, who was the company secretary of both companies. The claimant company owned some 21 public houses which it sold for £2.2 million. Of that sum, £300,000 was paid out to an associated creditor company, but the balance of £1.9 million was paid by the claimant company to Mr. and Mrs. Burns, supposedly as a dividend from Burns Leisure Ltd. That amount represented virtually the entirety of the assets of the claimant company at the time it was paid. Subsequently both Burns Leisure Ltd. and then the claimant company were wound up. The claimant company was insolvent with admitted liabilities of £586,374. The liquidator of the claimant company sought summary judgment against Mr. and Mrs. Burns for the whole of the amount of the supposed dividend of £1.9 million paid to them on the grounds that that sum had been wrongfully removed from the claimant company in breach of the fiduciary duties of the defendants. The defendants conceded that the supposed dividend had been paid unlawfully and that they had no defence to the claim insofar as it related to the admitted amount of the liabilities of the claimant company. However, they contended that it would be wrong to enter summary judgment against them for any amount in excess of the admitted liabilities of the claimant company. Having set out the passage from the judgment of Robert Walker LJ in Bairstow v. Queens Moat Houses Plc which I have quoted in the preceding paragraph, Rimer J. went on at page 786 of his judgment:-
"22. Mr. Collings' point was that the last sentence of that quotation showed that, even though a declaration of a dividend of say, £100,000 might have been unlawful, in consequence of which the director responsible for it was in theory liable to repay the whole £100,000, the court would nevertheless only order him to pay £60,000 if the evidence was such that, had the right hoops been gone through, a dividend of £40,000 could lawfully have been declared and paid. He said that it followed that if the debts of ISL proved at trial to be no more than £586,374, ISL could lawfully have declared a dividend of the difference between that and £1.9m, and Mr. and Mrs. Burns ought only to be ordered to pay at most a sum equal to the proved indebtedness of £586, 374.
23. I respectfully disagree with that submission and I do not accept that it is an accurate representation of what Robert Walker LJ was saying. I do not propose to repeat it in detail, but Mr. Alexander gave me a careful analysis of the structure of Robert Walker LJ's judgment as a whole and submitted to me that Mr. Collings' interpretation of the phrase "issue of relief" in the last sentence of paragraph 36 was incorrect. Mr. Alexander submitted, and I accept, that the "issue" there referred to was simply the question of whether or not, and if so to what extent, the misfeasant director was or ought to be entitled to relief from liability under s. 727 of the Companies Act 1985, which was the fourth main issue in the appeal. Robert Walker LJ was not suggesting that, apart from the possibility of relief under that section, the judgment or order which ought to be made against the director was limited to the excess over the amount at which a lawful dividend might have been declared. I agree with and accept Mr. Alexander 's submission.
24. It follows, therefore, that subject only to s. 727 I can see no defence to ISL's claim to recover compensation from Mr. and Mrs. Burns in the full amount of the loss which their breach of duty has caused to ISL, namely the full £1 9m. That is money which either is or may be needed by ISL to meet its liabilities. To the extent that there is any surplus, it is payable to BLL to meet its liabilities.
- I respectfully agree with interpretation of Rimer J. of the reference in paragraph 36 of the judgment of Robert Walker LJ to "relief'. That plainly is concerned with relief under s.727 of the 1985 Act. However, the context of the comment was different from the issue which is now before me. What Robert Walker LJ was considering in paragraph 36 of his judgment was the possible relevance to the case before him of the contention that subsidiary companies of Queens Moat Houses Plc could lawfully have declared and paid dividends to the parent company, which, had they been declared and paid would have increased the distributable profits of the parent. That had not actually happened, and the point made by Robert Walker LJ was in effect that in the light of the terms of s.270 of the 1985 Act the relevant accounts of the parent company had to be taken as they in fact were, not as they might have been if some different course had been taken. Thus the possibility that some other course could lawfully have been taken could only be relevant to whether relief should be granted under s.727. In the case before me the issue now under consideration is not what might have been, but what was in law the effect of a distribution having been made which in the light of the relevant accounts was in excess of the available distributable profits. The short point is does the making of such a distribution mean that the entirety of the distribution is unlawful, or only that part which is in excess of the available distributable profits7
- The point which Rimer J. was considering in paragraphs 21 to 24 inclusive of his judgment in Inn Spirit Ltd. v. Burns was again a different one from that before me. What he had to consider was a situation in which there had simply been a payment from a company direct to the shareholder in its parent company. The point was similar to that considered by Robert Walker LJ in paragraph 36 of his judgment in Bairstow v. Queens Moat Houses Plc in that what he was being invited to contemplate was what the position would have been in relation to the distributability of a dividend had a course been taken different from that which was in fact taken. What was in fact done was simply to take money without formality. What Rimer J. was invited to consider was what the position would have been had the subsidiary company declared and paid a dividend to its parent in the sum of £1.9 million, and the parent then done the same. It is unsurprising that he should have concluded that the correct course, subject to keeping open the possibility of relief under s. 727, was simply to order that which had been taken unlawfully to be returned. In my judgment the comments of Rimer J. that, Robert Walker LJ was not suggesting that, apart from the possibility of relief under that section, the judgment or order which ought to be made against the director was limited to the excess over the amount at which a lawful dividend might have been declared." need to be considered in their context, namely that what Robert Walker LJ was considering, and what Rimer J. was commenting upon, was the case in which the suggestion was that it was appropriate for the court, in assessing the extent to which a distribution was unlawful, to disregard s. 270 of the 1985 Act and take account of what could lawfully have been done, but had not been done, to increase the extent of distributable profits.
- In the result, having considered the authorities to which my attention has been drawn I remain of the view to which I came on my initial consideration of the relevant statutory provisions, namely that the effect in law of making a distribution in excess of the amount of available distributable profits is that the distribution is unlawful to the extent of the deficiency in available profits, not in its entirety. The jurisdiction of the court is thus limited to making orders in respect of the part of the distribution which is unlawful.
- On the facts of the present case the distribution made by the Company on 26 February 1998 was unlawful to the extent of £68,228 being paid as to £26,608.92 to Mr. Gary Dickenson, as to £6,822.80 to Mr. Gerald Dickenson and as to £34,796.28 to Mrs. Pauline Dickenson, and I so find.
- In anticipation of my accepting his submissions as to the extent to which the distribution was unlawful, Mr. Gledhill urged me to exercise my discretion under s.727(1) of the 1985 Act to relieve each of Mr. Gary Dickenson, Mr. Gerald Dickenson and Mrs. Pauline Dickenson from all liability in respect of that unlawful distribution. He recognised that the discretion had to be exercised in accordance with the requirements of the section and having regard to the facts of the present case. He did not suggest that any previous authority bound me to exercise the discretion in any particular way. He did, however, submit that some assistance was to be derived from a consideration of how other judges in other cases had exercised the discretion. He drew attention to how the question had been addressed in Bairstow v. Queens Moat Houses Plc, both at first instance and in the Court of Appeal. He relied upon a comment of Nelson J. at page 572 of his judgment that, "I am prepared to accept that an honest and reasonable director may in fact overlook his obligation under the 1985 Act by placing too much reliance upon his auditors, even though he should not have done". He called attention, amongst other things, to the comments of Robert Walker LJ at paragraphs 57 to 61 inclusive, paragraphs 63 and 64, and paragraph 66 of his judgment. He also relied upon the judgment of Hoffman LJ, sitting at first instance, in Re D'Jan of London Ltd. [1994] 1 BCLC 561, in support of a submission that a relevant consideration is whether, at the date of the act giving rise to liability, the interests of creditors were foreseeably being prejudiced by what was done.
- In Re D'Jan of London Ltd. a director of a company signed a proposal for fire insurance which contained a declaration that neither he, nor any director or partner had been a director of a company which went into liquidation. That declaration was untrue, but the evidence was that the proposal form had been completed by a broker and the signatory had not read it before he signed on the assurance of the broker that the document had been properly completed. The insured event occurred, but the insurers repudiated liability on the ground of material non-disclosure. After the company had gone into liquidation the liquidator sought relief under s. 212 of the 1986 Act against the signatory in respect of his negligence in completing the proposal form. At the end of his judgment Hoffman LJ said this:-
"It follows that Mr. D 'Jan is in principle liable to compensate the company for his breach of duty. But s 727 of the Companies Act 1985 gives the court a discretionary power to relieve a director wholly or in part from his liability for breaches of duty, including negligence, if the court considers that he acted honestly and reasonably and ought fairly to be excused. It may seem odd that a person found to have been guilty of negligence, which involves failing to take reasonable care, can ever satisfy a court that he acted reasonably. Nevertheless, the section clearly contemplates that he may do so and it follows that conduct may be reasonable for the purposes of s.727 despite amounting to lack of reasonable care at common law.
In my judgment, although Mr. D 'Jan's 99% holding of shares is not sufficient to sustain a Multinational defence, it is relevant to the exercise of the discretion under s.727. It may be reasonable to take a risk in relation to your own money which would be unreasonable in relation to someone else's. And although for the purposes of the law of negligence the company is a separate entity which Mr. D'Jan owes a duty of care which cannot vary according to the number of shares he owns, I think that the economic realities of the case can be taken into account in exercising the discretion under s.727. His breach of duty in failing to read the form before signing was not gross. It was the kind of thing which could happen to any busy man, although, as I have said, this is not enough to excuse it. But I think it is also relevant that in 1986, with the company solvent and indeed prosperous, the only persons whose interests he was foreseeably putting at risk by not reading the form were himself and his wife. Mr. D 'Jan certainly acted honestly. For the purposes of s.727 I think he acted reasonably and I think he ought fairly to be excused for some, though not all, of the liability which he would otherwise have incurred. Mr. D 'Jan has proved as an unsecured creditor in the sum of £102,913. He has been paid an interim dividend of 40p in the pound and the liquidator has paid a further dividend of 20p but withheld payment to Mr. D 'Jan pending the resolution of these proceedings. In my view, having been responsible for the additional shortfall in respect of unsecured creditors, I do not think that he should be allowed any further participation in competition with ordinary trade creditors. On the other hand, I do not think it would be fair to ask him to return what he has received or make a further contribution out of his own pocket to the company's assets. I therefore declare that Mr. D 'Jan is liable to compensate the company for the loss caused by his breach of duty in an amount not exceeding any unpaid dividends to which he would otherwise be entitled as an unsecured creditor."
- Mr. Gledhill submitted that on the evidence the distribution of the Dividend had been made following the advice of Mr. Hanison, the auditor of the Company, and at a time when the Company appeared to be solvent, so that the only persons whose interests were possibly prejudiced by the distribution were those who in fact received it.
- Mr. Miller, on the other hand, relied upon the comments of Robert Walker LJ at paragraph 36 of his judgment in Bairstow v. Queens Moat Houses Plc as an indication that it might be appropriate in considering whether to grant relief, and if so to what extent, to consider the issue of the extent to which a distribution could lawfully have been made. Mr. Miller submitted that it was plain that the view of Robert Walker LJ was that it was only to the extent that a distribution could lawfully have been made that relief should properly be granted. Thus in the present case there could be no question of relief being granted in relation to that part of the distribution which was unlawful, even if, assuming the whole distribution to have been unlawful, it might have been appropriate to afford relief to the extent that a lawful distribution might have been made. Mr. Miller also submitted that, in contrast with the position in Re D 'Jan of London Ltd., in which the defaulting director had gained no advantage out of his breach of duty, here each of the Respondents was better off than he or she would have been but for the unlawful distribution to the extent of the unlawful portion which was received. He drew attention to paragraph 30 of the judgment of Rimer J. in Inn Spirit Ltd. v. Burns, in which the learned judge said: -
"In these circumstances I am prepared to accept that Mr. and Mrs. Burns have at least a real (meaning more than fanciful or imaginary) prospect of persuading a court that they acted "reasonably" for the purposes of s.727. By itself that would not entitle them to relief under s. 727 since they will also have to satisfy the court that they "ought fairly to be excused" for their breach of duty. As to that, I cannot see that the court could or should excuse them from liability at the expense of the creditors of the companies, and in my judgment it follows that it could and should order them to repay every penny of the £1. 9m (and interest) necessary to enable the companies to pay all creditors what would otherwise have been paid to them if the money had not been removed from ISL in the first place. But the other side of this particular coin is that it is at least arguable that they ought to be excused from having to repay to the companies more than is necessary to enable the creditors to be paid in full; and an obligation to do so could produce a real hardship on them, since although ultimately any surplus will be repaid to them, perhaps via Mr. Patel, it may in the meantime have inevitably been reduced by the incurring of the charge on all realisations in compulsory liquidations which are paid into the Insolvency Services Account. The resolution of the extent to which, if at all, they should be excused from having to make full repayment is, however, one which will probably require rather more information as to the claims of the creditors."
Mr. Miller submitted that, in keeping with the sentiments expressed in that passage, I should not grant relief to Mr. Gary Dickenson, Mr. Gerald Dickenson or Mrs. Pauline Dickenson if the effect of so doing was to leave them better off than they would have been had they not received unlawful dividends, whilst creditors were worse off.
- Mr. Miller did submit that on the evidence I should not find that Mr. Gary Dickenson, Mr. Gerald Dickenson or Mrs. Pauline Dickenson had acted honestly or reasonably in relation to the payment of the Dividend. He submitted that I should find that they just helped themselves, without thought, to the windfall sum generated by the disposal of the lease of the shop in Burlington Gardens. He submitted that I should reject their account of acting on the advice of Mr Hanison because of a reference in a letter written on their behalf by their solicitors to the distribution having been made on the insistence of the Inland Revenue. I am satisfied that the latter was a false point based on a misreading of the relevant letter. What it was actually concerned with was the accounting year to which the Inland Revenue insisted the dividend should be attributed. It did not, on a fair reading, assert that it was the Inland Revenue which had insisted that the distribution be made at all. That would have been a nonsense.
- I am persuaded on the evidence that the Respondents did seek the advice of Mr Hanison in relation to the Dividend before it was paid and did act honestly and reasonably upon that advice in making the distribution. The trigger conditions for the exercise of the discretion conferred by s. 727 of the 1985 Act are thus met. However, like Rimer J. I have the greatest difficulty in seeing that it is ever likely that"in all the circumstances of the case" it is going to be right that a defaulting director "ought fairly to be excused for the negligence, default, breach of duty or breach of trust", if the consequence of so doing will be to leave the director, at the expense of creditors, in enjoyment of benefits which he would never have received but for the default However honestly the director acted, however much it may have appeared at the time of the act complained of that the only person who might be harmed by the act would be the director himself, it just is not fair, as it seems to me, that if it all goes wrong the guilty director benefits and the innocent creditors suffer. For this reason I decline to exercise my discretion under s. 727 in favour of any of the Respondents in relation to their respective liabilities for breach of s. 263 in relation to the Dividend. Had I been persuaded that that breach extended to the entirety of the Dividend I should, however, have exercised my discretion in favour of the Respondents so as to relieve them of liability for so much of the distribution as could lawfully have been paid at that time. Had they limited the distribution to the amount of profits then available for distribution they would not now have incurred any liability in respect of that act.
The payment of fees to Earlstar
- By s. 317 of the 1985 Act it is provided, so far as is presently material, that:-
"(1) It is the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company.
(2)In the case of a proposed contract, the declaration shall be made —
(a) at the meeting of the directors at which the question of entering into the contract is first taken into consideration; or
(b) if the director was not at the date of that meeting interested in the proposed
contract, at the next meeting of the directors held after he became so interested;
and in a case where the director becomes interested in a contract after it is made, the declaration shall be made at the first meeting of the directors held after he becomes so interested.
(3)For purposes of this section, a general notice given to the directors of a
company by a director to the effect that —
(a) he is a member of a specified company or firm and is to be regarded as
interested in any contract which may, after the date of the notice, be made with that company or firm; or
(b) he is to be regarded as interested in any contract which may after the date of
the notice be made with a specified person who is connected with him (within the meaning of section 346 below),
is deemed a sufficient declaration in relation to any such contract.
(4) However, no such notice is of effect unless either it is given at a meeting of the directors or the director takes reasonable steps to secure that it is brought up and read at the next meeting of the directors after it is given.
(5) A reference in this section to a contract includes any transaction or arrangement (whether or not constituting a contract) made or entered into on or after 22nd December 1980."
- The case of Mr. Cohen that Mr. Gerald Dickenson had failed to disclose to his fellow directors of the Company, Mr. Gary Dickenson and Mrs. Pauline Dickenson, his interest in arrangements made between the Company and Earlstar for payment of consultancy fees exudes technicality, for Mr. Gary Dickenson was at all relevant times the company secretary of Earlstar and Mrs. Pauline Dickenson was at all relevant times the sole director of Earlstar. It is obvious that all relevant individuals knew at all relevant times of the interest of Mr. Gerald Dickenson in Earlstar. However, the minute of the meeting of the board of directors of the Company at which Mr. Gerald Dickenson was appointed a director of the Company contained no reference to any declaration by him of his interest and there were no minutes of any later meetings of the board of directors. I was invited by Mr. Miller to infer in that state of the evidence that no declaration was ever made. It does not seem to me that it would be correct to draw that inference. I have already set out the evidence of Mr. Gerald Dickenson in paragraphs 17 and 18 of his witness statement as to the nature of the arrangements between the Company and Earlstar. I accept that evidence. Neither Mr. Miller nor Mr. Gledhill gave much attention in their submissions to me to any legal analysis of the arrangements there described or the practical implications of such analysis. In my judgment what Mr. Gerald Dickenson described amounted to a situation in which he provided services on behalf of Earlstar at the request of the Company, but not pursuant to any pre-existing contractual arrangement. The consequence of him providing those services at the request of the Company was that Earlstar became entitled under the law of restitution to be paid a reasonable sum for services provided by it at the request of the Company. In purely practical terms, prior to the making of any payment by the Company to Earlstar or to any of the directors as such after Mr. Gerald Dickenson became a director of the Company must have involved a consideration of what sum was to be paid by what means to which party, and in particular, how much, if anything, should be paid to Earlstar. That discussion must have involved, in the light of the evidence of Mr. Gerald Dickenson, a consideration of how much should be paid to him directly as director's remuneration and how much should be paid to him indirectly through Earlstar as consultancy fees. The very nature of that discussion must, it seems to me, have involved a disclosure on his part of his interest in Earlstar, for what was being discussed was how payments intended essentially to benefit him should be split. Section 317 only requires disclosure at a meeting of directors. It does not require that that meeting should be a formal meeting or that it should be minuted. I therefore find that this item of claim fails on the facts.
- If I had been persuaded that after Mr. Gerald Dickenson became a director of the Company he had failed to disclose his interest in payments made to Earlstar, I should still not have found that there had been a breach of s. 317 in respect of which it would be right to afford a remedy.
- Mr. Gledhill drew to my attention the observation of Dillon LJ at page 33 in Lee Panavision Ltd. v. Lee Lighting Ltd. [1992] BCLC 22, with which the other members of the Court of Appeal agreed, that:-
"Apart from that, however, if the judge was entitled to make the findings of non- disclosure and non-declaration of interests that he did, the position is that each of the directors has failed to disclose formally at the board meeting an interest common to all the directors and, ex hypothesi, already known to all the directors. I would hesitate to hold that such an apparently technical non-declaration of an interest in breach of s. 317 has the inevitable result, as to which the court has no discretion, that the second management agreement is fundamentally flawed and must be set aside if Lee Lighting chooses to ask sufficiently promptly that it be set aside."
That comment was obiter, but it reflects a concern as to the technicalities of s.317 which is also to be found in other cases to which Mr. Gledhill drew my attention.
- In Runciman v. Walter Runciman Ltd. [1992] BCLC 1084 Simon Brown J. was concerned with a case in which an issue was whether a director of a company had failed to declare his interest in the agreement of an extension to his own contract of service. Having considered the comment of Dillon LJ which I have quoted in the preceding paragraph of this judgment and other relevant dicta, the learned judge concluded that the question whether to grant a remedy in respect of any technical breach of s. 317 depended upon the balance of justice. He went on to say, at page 1097B:-
"If then one poses the simple question: what does the balance of justice require in the present case, I am left in no doubt whatever as to the proper answer. The plain fact is that this plaintiff continued, from 1987 to 1990, to serve the company as its chairman understanding that his notice term had been increased to five years; that equally was the understanding of all his fellow directors; and Avena too, at the time of their take over of the company, clearly understood that to be the position an understanding in their case derived from the company's explicit letter published earlier in opposition to the bid. To hold in these circumstances that what was at most a merely technical breach of a statutory duty of disclosure should render that variation unenforceable would to my mind involve the most patent injustice."
- In MacPherson v. European Strategic Bureau Ltd. [1999] 2 BCLC 203 at page 219G — 220A Ferris J. indicated his agreement with those observations of Simon Brown J. He said:-
"If it was necessary for me to do so in order to decide this case, I would take the same line as that taken by Simon Brown J. in the Runciman case and hold that non-disclosure pursuant to s. 317 and the articles which I have mentioned does not in any way vitiate cl. 8.4 (or any other provision) of the 1991 agreement. I consider, however, that this case should be decided in the same sense on a narrower ground. As I observed earlier on, it was not suggested that the contravention of s.317 and the relevant articles did more than render the 1991 agreement voidable. It was not void from the beginning. Accordingly reliance on this contravention cannot benefit ESB unless it is open to ESB to rescind the agreement and ESB has actually done so. Moreover it would be essential for ESB to plead the fact that it has done so. Not only is there no pleading of this kind but ESB could not informally point to anything which amounted to rescission. On the contrary there are a number of documents, which I have not dealt with specifically, which suggest that over the years since 1991 ESB has, in a variety of contexts, treated itself as bound to pay a share of the GDRU fee to Mr. MacPherson and Miss Torevell. In any event the 1991 agreement has been fully performed in a number of respects. Mr. MacPherson has given up his directorship and both he and Miss Torevell have transferred their shares to Mr. Lyman in order to obtain the benefit of his guarantee, limited as it is. I find that not only has ESB not rescinded the 1991 agreement but it is now impossible to do so."
- It was common ground before me that on the face of s. 317 the only consequence of a breach for which the section provides is the imposition of a fine on a director in breach. However, it was also common ground that the consequence so far as the relevant contract is concerned was as explained in Hely-Hutchinson v. Brayhead Ltd. [1968] 1 QB 549, first by Lord Denning MR at page 585C-D:-
"It seems to me that when a director fails to disclose his interest, the effect is the same as non-disclosure in contracts uberrimae fidei, or non-disclosure by a promoter who sells to the company property in which he is interested: see Re Cape Breton Co., Burland v. Earle. Non-disclosure does not render the contract void or a nullity. It renders the contract voidable at the instance of the company and makes the director accountable for any secret profit which he has made."
and then by Lord Wilberforce at page 589F-G:-
"If the matter rested there, it would be plain that the civil law relations between a director and his company with regard to a contract or proposed contract would be governed by normal principles of law and equity relating to contracts made by persons in a fiduciary position, such principles as govern the position of such persons as trustees or solicitors or anyone else in a similar position. The normal consequences which follow from a contract made by a person in such a fiduciary position are that the contract may be voidable at the instance of, in this case the company and that in certain cases a director may be called upon to account for profits which he has made out of the transaction."
- As Lord Goff of Chieveley pointed out in Guinness Plc v. Saunders [1990] 2 AC 663 at
page 697G—H:-
"… it has long been the law that, as a condition of rescission of a voidable contract the parties must be put in statu quo: for this purpose a court of equity can do what is practically just, even though it cannot restore the parties precisely to the state they were in before the contract."
That being the position, it is well-established that rescission is not possible of a contract which has been wholly performed. In the present case, as it seems to me, each payment made by the Company to Earlstar after Mr. Gerald Dickenson became a director of the Company was in effect a compromise of the obligation to pay a reasonable sum for services rendered at the request of the Company. The compromise agreement in each case was fully performed upon the making of the relevant payment. Consequently rescission is no longer possible. Moreover, as each relevant contract was at best voidable, not void, it remained valid and binding on any view until avoided. There was no evidence in the present case that the Company had ever sought to avoid any relevant contract. Mr. Miller submitted that it was implicit in the commencement of the proceedings which I have tried that the Company was rescinding all relevant contracts. I do not accept that. In my judgment a decision to rescind a contract, to be effective, must be communicated clearly and promptly. The right to rescind is in effect a right of election. Unless it is exercised the relevant contract is valid and binding and continues in existence. The position was explained by Lord Pearson in Hely -Hutchinson v. Brayhead Ltd. at page 594E-F:-
"....the contract is voidable at the option of the company, so that the company has a choice whether to affirm or avoid the contract, but the contract must be either totally affirmed or totally avoided and the right of avoidance will be lost if such time elapses or such events occur as to prevent rescission of the contract..."
The relevant contracts in the present case were all made at the latest some four years ago. It would be far too late now, in my judgment, to rescind them, even if rescission were technically possible.
- For all the reasons which I have set out the complaint against Mr Gerald Dickenson in respect of alleged non-disclosure of his interest in arrangements between the Company and Earlstar fails.
Wrongful Trading
- So far as is presently material, s. 214 of the 1986 Act is in the following terms:-
"(1) Subject to subsection (3) below, if in the course of the winding up of a company it appears that subsection (2) applies in relation to a person who is or has been a director of the company, the court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company's assets as the court thinks proper.
(2) This subsection applies in relation to a person if-
(a) the company has gone into insolvent liquidation,
(b) at some time before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, and
(c) that person was a director of the company at that time;
but the court shall not make a declaration under this section in any case where the time mentioned in paragraph (b) above was before 28th April 1986
(3) The court shall not make a declaration under this section with respect to any person if it is satisfied that after the condition specified in subsection (2)(b) was first satisfied in relation to him that person took every step with a view to minimizing the potential loss to the company's creditors as (assuming him to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation) he ought to have taken.
(4) For the purposes of subsections (2) and (3), the facts which a director of a company ought to know or ascertain, the conclusions which he ought to reach and the steps which he ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both-
(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director to the company, and
(b) the general knowledge, skill and experience that that director has.
(5) The reference in subsection (4) to the functions carried out in relation to a company by a director of the company includes any functions which he does not carry out but which have beer entrusted to him.
(6) For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up."
- Mr Gledhill submitted, and it is, I consider, obvious, that before any question of invoking the powers of the court under s. 214 of the 1986 Act arises it must be demonstrated that, as a result of the continuation of trading after the point in time at which it is said that the person against whom a remedy is sought under s. 214 knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, the company was at the date of actual liquidation in a worse position than it would have been in had trading ceased at the time it is contended it should have done. Further, Mr. Gledhill drew to my attention the approach adopted to that issue by Park J. in the unreported case of Re Continental Assurance Company of London Plc, in which judgment was handed down on 24 October 2000. Park J. was persuaded that the appropriate comparison was between the net deficiency in the assets of the company as at the date at which it was contended that trading should have ceased and the date as at which trading did in fact cease. He rejected submissions that the appropriate test was whether new debt had been incurred after the first of the two dates, or how much cash had been paid out after the first of the two dates. I respectfully consider that the approach which Park J. adopted was plainly correct and the other alternatives are plainly unsustainable. The only proper question, in my judgment, must be whether, on a net basis, it is shown that the company is worse off as a result of the continuation of trading.
- The evidence put before me in relation to the wrongful trading claim was, to put it mildly, thin. Mr. Miller relied heavily on the comment in the Report that, "Turnover plummeted from September of 1998 and the Company experienced extremely difficult trading conditions." He submitted that that comment, which Mr. Gerald Dickenson confirmed in cross-examination represented his view at the time, was evidence that the directors of the Company knew at that time, or ought to have concluded, that there was no reasonable prospect of the Company avoiding going into insolvent liquidation. Mr. Gerald Dickenson disputed that, saying that one could not conclude from one poor month of trading that insolvent liquidation was inevitable, especially when the month in question preceded almost immediately the run-up to Christmas, which, with the subsequent January sales period, represented the most cash-flow positive time of the year and the goods to be sold in that period were already in stock, if not necessarily paid for. Mr. Miller also relied upon the profit and loss account and balance sheet included within the 1998 Accounts approved by the directors of the Company on 2 November 1998 as indicating at that date that there was no reasonable prospect of avoiding insolvent liquidation. In particular he relied on the declared loss for the year of £35,664 and the reduction in shareholders' funds from £52,772 as at 31 March 1997 to £17,108 as at 31 March 1998. However, in my judgment, with all respect to Mr. Miller, his was a rather superficial reading of the 1998 Accounts, ignoring, as it did, the contribution to the bottom line of the sums drawn by the directors as remuneration or consultancy fees and the obvious ability of the directors to control those elements to a substantial degree. Moreover, Mr. Cohen in cross-examination accepted, as it seemed to me he had to, that the 1998 Accounts did not show that as at 31 March 1998 the Company was insolvent either on an assets basis or on a cash-flow basis. Mr. Miller's other main reliance was upon the evidence of Mrs. Pauline Dickenson in cross-examination that at some point informal arrangements were made with the Inland Revenue and with H. M. Customs and Excise for payment of tax and Value Added Tax by instalments. Mr. Miller urged me to conclude that those arrangements, about which Mrs. Dickenson was extremely vague, were made shortly after the end of September 1998. He did not seek to reconcile that submission with his contention in the context of the defaults complained of that the directors did not seek seriously to address the financial plight of the Company until about March 1999. The evidence was that it was not until about March 1999 that the directors started to take measures to reduce outgoings by taking less by way of drawings and putting staff on short-time .I should have been fairly readily persuaded on the totality of the evidence that each of the Respondents ought to have appreciated by the time sales up to Christmas in 1998 had not produced any improvement in the situation of the Company that there was no reasonable prospect of insolvent liquidation being avoided in the absence of radical measures, but even at that stage the evidence did not indicate that insolvent liquidation was anything like inevitable. However, what is absolutely fatal to this element of claim, in my judgment, is that there was no evidence of any description that the net deficiency in the assets of the Company increased between any date, such as 1 October 1998 or 2 November 1998 or 1 January 1999, and 13 July 1999, when the Company went into liquidation. All Mr. Cohen told me, at paragraph 35 of his affidavit sworn on 1 April 2002, was that the trade debts incurred by the Company after 1 October 1998 amounted to £119,599.47, while those incurred after 2 November 1998 totalled £85,275.22. Consequently this element of claim fails.
The Car
- If the evidence in support of the wrongful trading claim was thin, that in support of the allegation that Mr. Gerald Dickenson had purchased the Car at an undervalue was almost non-existent. There was no dispute that the statutory justification for the claim, if supported by appropriate facts, was s. 238 of the 1986 Act. There was no dispute that the price at which Mr. Gerald Dickenson in fact purchased the Car was £15,000. It seems that it was at one point intended to support the contention that £15,000 was less than the true value of the Car by evidence from a Mr. Barry Tomkins. In the event that evidence was not put before me. What Mr. Tomkins might have said was indicated in paragraph 31 of the affidavit of Mr. Cohen sworn on 1 April 2002, where Mr. Cohen asserted that, "The lowest valuation available is some £1,500 in excess of the sale price ". That is, of course, if correct, a difference of 10%, which could in some circumstances represent merely a genuine difference in view between different valuers. However, whether in this case that may be so is entirely a matter of speculation, because the valuation referred to was not put before me. I therefore have no idea what was said to be the justification for that valuation. While I have indicated my unhappiness concerning the alterations made to the document from DK Engineering Ltd. to which I have referred, my feeling is that it was a genuine document which had been altered so as to make it appear to support a case which it was not produced to support. If that is so, it is some evidence of the opinion of DK Engineering Ltd. as to the value of the Car at some unknown date, but by inference from the fact of the alterations to it, later than April 1998. Mr. Miller urged me to draw conclusions adverse to Mr. Gerald Dickenson from the alterations made to the document from DK Engineering Ltd. That I do to the extent which I have indicated, but it does not supply the deficiency in the evidence as to what, if more than £15,000, was the true value of the Car at the end of April 1998. The only other evidence of the value of the Car before me was its book value as at 31 March 1998. I of course recognise that that represents the outcome of the application of accounting principles of depreciation to the original purchase price and not an attempt to assess what a purchaser in the market would pay.
- In the end, whilst not formally abandoning the claim in respect of the Car, I think that Mr. Miller recognised that there was really no evidence to support it. This claim also fails.
Conclusion
- For the reasons which I have given I direct that Mr. Gary Dickenson pay to the Company the sum of £26,608.92, together with interest thereon, that Mr. Gerald Dickenson pay to the Company the sum of £6,822.80, together with interest thereon, and that Mrs. Pauline Dickenson pay to the Company the sum of £34,796.28, together with interest thereon. I will hear Counsel as to the appropriate rate of interest and the period over which interest should run. My present feeling, in advance of hearing Counsel, is that interest should run in each case from 26 February 1998 to the date upon which this judgment is handed down and that interest should be at 1% over the average 3 month LIBOR during that period.
