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In Re TPS Investments Ltd [2018] EWHC 360 (Ch), administrators had been appointed as office-holders of three connected companies. A creditor applied to remove the administrators as office-holders of one of the companies on the basis that it had a potential TUV claim against one of the others and the administrators were in a position of actual conflict in dealing with the claim from both sides. However, HHJ Stephen Davies (sitting as a judge of the High Court) accepted James’ submissions that (1) the existence of an actual conflict of interest was not an absolute bar to the administrators continuing to be appointed and (2) in the instant case the conflict could be managed by a range of possible options. In so holding, the Judge held that the contrary suggestion in a leading textbook on conflicts was not consistent with authority, in particular the observations of Warren J in SISU Capital Fund v Tucker [2006] BCC 463. 

This case underlines the point that the court may, in the interests of creditors, adopt a more generous attitude to conflicts of interest in the case of office-holders holding multiple appointments over connected companies than in relation to fiduciaries more generally. That is because such appointments are likely to save costs, professional office-holders are well used to dealing with conflicts and there are ready mechanisms for applying to court for directions as required. 

The Judgement can be found here.

Decision: On 1 November 2017 HHJ Simon Barker QC (sitting as a Judge of the High Court in the Business and Property Courts in Birmingham) handed down judgment in the application of the Official Receiver (“OR”) to commit Mr. Brown to prison for contempt of court for failing to comply with his obligations under ss.288, 291, 312 and 333 of the Insolvency Act 1986 (“IA 1986”). Judgment on sentence was handed down on 7 November 2017 [[2017] EWHC 2762 (Ch)].

Mr. Brown was found guilty of contempt on all grounds put forward by the OR and there being no meaningful attempt to purge the contempt and only nominal mitigation, which the Judge referred to as being “nothing other than very late…and marred by untruth and persistence in denying the validity of court order”, Mr. Brown was given an immediate custodial sentence of 8 months. A warrant was issued for his arrest.

After a failed appeal to the Court of Appeal on 25 January 2018, where Mr. Brown once again represented himself despite being entitled to legal aid, the judgment of the lower court was upheld and the stay on the warrant of arrest was lifted.

Overview: Mr. Brown was adjudged bankrupt on 12 May 2016. In accordance with its powers and duties under the IA 1986 the OR (and the Trustee in Bankruptcy) required Mr. Brown to provide information and documentation as to his assets and liabilities.

After a dogged refusal to comply with any of the said requests and failure to answer any of the OR’s questions when he was called for public examination on 20 January 2017, DJ Shorthose suspended Mr. Brown’s automatic discharge from bankruptcy until such as the OR reported that he had satisfactorily complied. The OR was granted permission to bring committal proceedings against Mr. Brown. After a slight false-start, the committal application proceeded by way of the certification procedure under CPR 81.15.

There is much to be said about the voluminous representations made against the committal, which included allegations of fraudulent conspiracy against the Birmingham judiciary, bar, legal profession and the OR’s office. There was also a mildly comical moment when Mr. Brown served a statutory demand on HHJ Barker QC during the course of the hearing. Ultimately however, nothing Mr. Brown said against the application had any basis in law - the bankruptcy order was valid, the application(s) to set it aside and/or annul had failed, and the appeal(s) against it had been dismissed. The writing was very clearly on the wall, albeit unseen by Mr. Brown.

Unlike some applicants the OR had no vested interest in securing Mr. Brown’s committal to prison and only sought his compliance with his statutory obligations; the committal application was a measure of “last resort”.

The Court afforded ample opportunity to Mr. Brown at the hearing on 25 October 2017 to make representations against the application and/or otherwise argue why he had a reasonable excuse for failing to comply. Mr. Brown made no representations as to “reasonable excuse” and in fact left the Court before the hearing had concluded.

Judgment was handed down on 1 November. When the Court re-convened for judgment on sentence on 6 November 2017 Mr. Brown, whom had attended late, interrupted judgment part-way through to submit that he had not refused to purge his contempt and that he was prepared to answer the OR’s and Trustee’s questions. The hearing was adjourned to 7 November 2017 for such questioning. However, it became patently clear a short way into cross-examination that Mr. Brown was not prepared to be candid or compliant.

Sentence: In his judgment HHJ Barker QC acknowledged that the “modern approach” to sentence was to take a fine as the “starting point” and that for the purpose of sentence the Court is concerned with three elements: (i) punishment; (ii) deterrence; and (iii) coercion.

Taking Proudman J’s checklist of sentencing factors as set out in JSC BTA Bank v. Solodchenko (No.2) [2010] EWHC 2843 (Ch), HHJ Barker QC found that “In all the circumstances, it is impossible to view (Mr Brown’s) contempt as anything other or less than serious and deliberate... (he) has made clear that he has no intention of admitting contempt or apologising for his contempts. He refuses to acknowledge that he is in contempt if that means, as it must, recognising court orders which he regards as invalid”.

Having maintained his position that the bankruptcy order itself was “null and void”, Mr. Brown was sentenced to 8 months (the maximum sentence for contempt being 2 years under s.14(1) of the Contempt of Court Act 1981). He is entitled to immediate release after 4 months (pursuant to s.258 (2) of the Criminal Justice Act 2003) and at any point during that tenure can apply to the court for immediate release if he is willing to comply.

Comment: The function of the contempt process is to protect and promote the integrity of court orders and the administration of justice, in this case embodied as statutory provisions within the IA 1986. Whilst the committal procedure is rarely used against bankrupts, mainly because such patent disregard by a bankrupt to his/her statutory obligations is relatively unheard of, it remains a powerful weapon in the OR’s/TIB’s arsenal.

The case stands as a reminder that these statutory obligations must be taken seriously and, if they are not, a committal application may be deployed.

It is unknown whether Mr. Brown remains “at large”.

A somewhat antiquated title (though no-one seems to suggest anything better) for a principle that is long established in law and is underpinned by common sense. It has only recently been considered for the first time by the Court of Appeal since the late 19th century. 

Most of us would recognise the concept. It is part of the law of sureties: the principle is that where husband and wife (or other co-owners) jointly own property, and husband incurs a debt which is solely for his own benefit but which is secured over the whole property, wife is entitled to a charge over husband’s interest in the property to the extent that husband’s indebtedness is discharged out of wife’s share of the property. Where the property is sold the secured creditor will be paid out of husband’s share first, and will only have recourse to wife’s share of the property once husband’s interest in the property has been exhausted. 

The full article can be found here.

Wednesday, 15 November 2017 00:00

Agriculture Seminar Success

On the 7th November, our specialist Agricultural Team - which encompasses barristers from across our Wills, Trust and Probate, Property, Commercial and Family teams – held the inaugural annual 1 day Agriculture Conference in Leeds Park Square.

The Conference was fully booked with over 50 delegates from across Yorkshire, Lancashire, Teesside and Cumbria in attendance to hear presentations from our expert panel on the following topics -

If you would like any further information regarding this seminar and the topics that were covered, or would be interested in our speakers providing you with a tailored in-house talk, please do not hesitate to contact us.

Next Years conference is anticipated to take place in September 2018.

In Re BW Estates Ltd [2017] EWCA Civ 1201, a challenge to the appointment of administrators resulted in a reaffirmation by the Court of Appeal of the need for formality and strict compliance when managing the affairs of a company.

Background

The company initially had two shareholders, a husband and wife. The wife's shareholding was transferred to a company, Belvadere (an Isle of Man company), which was later dissolved but remained on the register as being a member of the company. The husband was disqualified from being a director, and his son became the sole director, while still being apparently accustomed to receiving instructions from the husband.

The son appointed the respondents as administrators over the company. The appellants, having a final charging order over the husband’s shareholding in the company and also having taken an assignment of debt from one of the company’s creditors, appealed against the administrators’ appointment, which they claimed was invalid.

At first instance, HHJ Purle QC found that the administrators’ appointment was valid.

The key issues

The key areas of dispute were:

  1. Given that the Company’s articles of association required any management decision to be taken by a quorum of at least 2 directors, whether HHJ Purle QC was wrong to find that the administrators’ appointment was valid even though the son had been the sole director making the decision
  2. Whether the administrators’ appointment was valid by reason of the Duomatic principle
  3. In any event, whether there was acquiescence by the appellants such that the administrators’ appointment could be deemed valid or their objections would be an abuse of process.

Decision and reasoning

The first point had three elements to it.

  • The first was the respondents’ argument that, when Belvadere was dissolved, the company then became a single-member company, thereby negating the need for a quorum of two directors. The Court of Appeal rejected this, saying that the list of members in the register was definitive, even if the members were dead or dissolved, and in this case Belvadere continued to be listed in the register as a member.
  • The second was the respondents’ argument that IA 1986, Sch B1, para 22(2) conferred a separate right on the director to appoint administrators, and that this was to be read separately from the quorum rules in the articles of association. The Court of Appeal rejected this, and found that any statutory powers must be exercised in accordance with the articles.
  • The third was that HHJ Purle QC had found that the articles had been varied by the conduct of the son and the husband to allow decisions to be taken by a sole director. The Court of Appeal also rejected this argument, saying that the articles could only have been varied by a properly constituted meeting, which it was not, or by the application of the Duomatic principle which, for the reasons below, did not apply.

On the second point, the Court of Appeal reiterated that the Duomatic principle was applicable only where all of the shareholders gave informed consent to a course of action. The Court of Appeal had already found that Belvadere remained a member of the company, and so was a shareholder which ought to have been informed of the proposed decision to appoint administrators (or, in respect of the first point of argument, above, to amend the articles). Given that it received no such notice nor gave notice of its consent, the administrators could not rely on the Duomatic principle to validate their appointment.

On the third point, the administrators argued that, before challenging the validity of their appointment, the appellants had first challenged their remuneration and, in doing so, acquiesced in their appointment such that they were debarred from now challenging it. After reviewing the authorities on abuse of process and acquiescence, the Court of Appeal rejected this argument. Not only did the facts not support such an argument, in any event the Court was concerned with the factual and technical issue of whether the respondents were validly appointed, and in that sense it did not matter whether a challenge by a third party was subject to issue estoppel.

The implications

This decision reiterates that the management of company affairs requires a strict degree of formality and compliance with the articles of association, and that a company cannot simply cure procedural defects in an informal manner. This is even so where, as in this case, strict compliance would have been difficult. The company should either have restored Belvadere from dissolution in order to provide its consent to the appointment of administrators, which would have been unlikely, given the passage of time. Alternatively, another director should have been appointed to provide the quorum for management decisions. In the absence of those steps, there was no curing the defective appointment.

The decision also demonstrated the outer limits of the Duomatic principle, which should not be seen as a simple fallback option to correct procedural defects.

Finally, it was useful for the Court of Appeal to emphasise that, whatever the merits of arguments about acquiescence and abuse of process, ultimately the court was primarily concerned with the technical aspect of the administrators’ appointment, which reduced the importance of such considerations.

A modified version of this article first appeared on the Lexis PSL website on 11th August 2017.

Thursday, 17 August 2017 00:00

Post Ilott Provision - Marisa Lloyd

I was recently involved in the case of Nahajec v Fowle [2017] EW Misc 11 CC in which judgment was handed down on 18th July 2017.This was possibly the first case of its kind under the Inheritance (Provision for Family and Dependants) Act 1975 since the Supreme Court decision in Ilott v Blue Cross [2017] UKSC 17. The facts were reminiscent of those in Ilott involving an estranged daughter who had had little contact with the deceased for many years preceding his death. Read the full transcript of the judgment

The claimant was one of three children of the deceased. She was the only child of the deceased’s second marriage, but had two half-brothers from the deceased’s first marriage. One of her half-brothers, Mark Nahajec had made a separate claim which was settled for £22,000 after being consolidated. Her other brother Philip Scott Nahajec (“Scott”) made no claim.

The deceased's relationship with the claimant had broken down shortly after her mother separated from him in 1996. On her account, there had been no relationship between the claimant and the deceased until about 2007. The relationship was rekindled for a period of around 2 years after she contacted the deceased. It then broke down again allegedly when the deceased disapproved of her choice of boyfriend. Since her mother and the deceased had separated, the deceased failed to answer letters she had sent to him as a child and made no efforts to communicate with her.

The claimant alleged that from 2009 she had tried to re-establish the relationship, but had been rejected by the deceased. It was not disputed that the absence of a relationship between her and the deceased was entirely his choice.

The deceased had known the defendant Mr Fowle since he was a child in 1969. Their relationship spanned both their working and social lives and culminated in the defendant caring for the deceased during his time of ill health. The deceased’s Will left the entirety of his estate to the defendant (also sole executor). The Will was accompanied by a letter of wishes which stated that the deceased had not seen or heard from any of his children for 18 years. The deceased also stated his belief that “all of my children are of independent means ... and are, to my knowledge, sufficiently independent of means not to require any provision from me”. The letter of wishes concluded that the deceased did not feel it was necessary or appropriate to make provision for his children in his Will.

The net value of the estate at the time of the hearing was around £264,000.

The claimant brought her claim under the 1975 Act for reasonable financial provision. The court had to consider what would be reasonable in all of the circumstances for the applicant to receive for her maintenance. In determining the claim, the judge considered all of the factors in section 3 of the 1975 Act.

At the date of the hearing, the claimant was in debt and despite having paid employment with two separate employers had limited income which did not cover her outgoings. One of her jobs was in a veterinary practice. The Claimant gave compelling evidence that she wished to train as a veterinary nurse in order to improve her financial situation and pursue a career in which she was passionate. Whilst she did not have the requisite GCSE grades to apply for the course she stated that she wished to study to get sufficient grades to make such an application. In order to assist any future application, the claimant worked around 15 hours per week on a voluntary basis in a veterinary practice to gain relevant experience.

Whilst section 3(3) of the 1975 Act was relied on by the claimant’s representative to assist in her claim for education and training, HHJ Saffman did not accept that it assisted her in this case. Section 3(3) required the court to have regard to the manner in which the applicant was being or in which he might expect to be educated or trained. At the time of the deceased death, the claimant was neither being trained nor expected to be trained at the expense of her father. On the facts of this case a consideration of the training element was regarded under section 3(1)(g) of the 1975 Act.

In relation to a “moral claim”, HHJ Saffman recalled Lord Hughes’ comments in Ilott that although it was not necessary for an adult child to show a moral claim upon the estate of the deceased, it would be difficult for a financially independent adult child to be successful in such a claim without showing some other special circumstance, such as a moral obligation, that would warrant an award under the 1975 Act. HHJ Saffman was impressed by the claimant’s evidence at trial and believed her account of the circumstances of her relationship with her father which was supported by witness evidence from Scott. He saw the Claimant as “a daughter who has very much regretted the absence of a relationship with her father” and as a daughter who had tried to rekindle the relationship. He was satisfied that the claimant’s claim was based on more than simply the qualifying relationship to which Lord Hughes referred in p20 of Ilott. It was accepted that there was no relationship between the claimant and her father but found that this was because the deceased appeared to be stubborn and intransient, which was through no fault of the claimant.

Limited weight was given to the letter of wishes which, whilst recognised as important, was premised on the mistaken belief that the deceased’s children were sufficiently financially independent not to require any provision under his Will. Further whilst the deceased stated that he had not seen his children for 18 years, this was inconsistent with evidence from the claimant and Scott that they had seen the deceased since his separation from the claimant’s mother.

HHJ Saffman concluded that the claimant was leading “a rather frugal existence” and only making ends meet with the help of expensive payday loans, even though in evidence she conceded that she could cope financially going forward if her debts were paid off. He accepted that she was “far from well off” and that she was not significantly profligate. He also accepted that she had a genuine aspiration to improve herself by undertaking training to become a veterinary nurse.

In his judgment HHJ Saffman held that the Will failed to make reasonable financial provision for the claimant and he found that an appropriate award was £30,000 (11.3% of the net estate), as against the claimant’s claim of approximately £70,000.

There have been many articles post the Supreme Court decision in Ilott regarding the implications of the judgment. In his judgment, HHJ Saffman spent some time discussing Ilott and it’s journey to the Supreme Court, however, he made it clear that his decision was based on consideration of the section 3 factors as applied to the facts of this case, and not on the basis that District Judge Mullion reached his decision in Ilott on essentially similar facts.

This case merely highlights the fact that despite some sensationalist headlines about testamentary freedom post Ilott, it is still possible for adult child claims under the 1975 Act claim to be successful where they can show special circumstances that warrant an award. In the case of estranged adult children, it may assist if they can show a history of attempts to reconcile or if they are able to give convincing evidence that the estrangement was through no fault of their own but solely or largely due to the behaviour or temperament of the deceased.

The financial basis of the claimant’s case was that she needed “maintenance” to undertake further qualifications and training to become a veterinary nurse and that the funds awarded would enable her to pursue this wish. If successful she would then be in a better position to support herself going forward. Whilst recognising that an award would be confined to maintenance needs, HHJ Saffman referring to the broad definition of maintenance in re Dennis Deceased (1981) 2 All ER 140 (p145-146) held the view that this could “include monies that would enable the claimant to undergo her retraining.” (p101)

In terms of the status of a letter of wishes, the case confirms that whilst a letter of wishes will be an important factor for consideration, it will not necessarily be the determining factor. A letter of wishes stating reasons for excluding adult children from a provision in the will, however elaborate, do not override the provisions of the 1975 Act and will be considered alongside the other section 3 factors.

The senior judiciary descended on Birmingham in force yesterday to mark the opening of the new Business and Property Courts. The Lord Chief Justice, Lord Thomas of Cwmgiedd, officially opened the new courts in a ceremony attended by the Chancellor (Sir Geoffrey Vos), the President of the Queen’s Bench Division (Sir Brian Leveson), the presiding judges of the Midland Circuit (Mr Justice Haddon-Cave and Mrs Justice Carr), the Chancery supervising judge (Mr Justice Newey), the Judge in Charge of the TCC (Mr Justice Coulson), the QB Liaison Judge for the Administrative Court (Mr Justice Singh) and Mr Justices Birss and Morris.

The new court structure brings together the Chancery Division and the specialist courts of the Queen’s Bench Division, namely the Commercial & Admiralty Courts, the Mercantile Court and the Technology and Construction Court. Effectively, it comprises the Rolls Building courts and their regional counterparts. The new Business & Property Courts mark the beginning of the end of the old divisional structure and the introduction of a user-friendly umbrella structure that does what it says on the tin. In similar vein, the Victorian name “Mercantile” is abandoned in favour of the new Circuit Commercial Courts.

At an official reception to mark the occasion, Sir Geoffrey Vos reiterated Lord Justice Briggs’ pledge that no case is too large to be tried in the regions, and that he and Sir Brian would ensure that the right judge (whether that be a specialist circuit judge or a full High Court judge) would be deployed to hear the case. Confirming that yesterday’s launch was the first step in a process of reform, Sir Geoffrey stressed the new courts’ flexible approach to listing and the advent of electronic filing right across the Business & Property Courts of England & Wales soon after the October launch.

In addition to sitting in London and Birmingham, there will be further openings to follow in Manchester, Leeds, Bristol and Cardiff, along with planned future expansion to Newcastle and Liverpool.

In association with the Midland Chancery & Commercial Bar Association, a guide to the new courts has been published by Lexis-Nexis, a full copy of which can be downloaded by clicking here.

BBPC 
Picture above (l–r): Mr Justice Newey, Ed Pepperall QC, Mr Justice Haddon-Cave and Mrs Justice Carr

The Birmingham Business & Property Court will commence sitting as of Monday 2nd October 2017.

St Philips Business and Property are delighted to announce that James Garnier is now a tenant in chambers after successfully completing his pupillage. 

James is a great addition to the team and has a broad commercial chancery practice, incorporating general commercial with a particular interest in insolvency law matters. 

His recent commercial experience includes:

  • Assisting as a pupil in advising on the use of a High Court judgment in subsequent litigation (where the total claims exceed US$100 million), involving questions of issue estoppel
  • Assisting as a pupil in advising on the appointment of arbitrators in a £100,000 claim
  • Assisting as a pupil in drafting a skeleton argument in a US$850,000 summary judgment application
  • Assisting as a pupil in advising on the liability of insurers to indemnify under an insurance policy following alleged material non-disclosure
  • Assisting as a pupil in advising on the exercise of a cancellation clause in a sale and purchase agreement
  • Assisting as a pupil in an application to appeal to the Supreme Court in The New Flamenco on the issue of the measure of damages for breach of contract
  • Assisting as a pupil in drafting a range of pleadings involving principles of contract and tort
  • Researching and drafting an article published on LexisNexis on asymmetric jurisdiction clauses: “Which way now for jurisdiction clauses?”
  • Appearing for insurers in credit hire litigation
  • Undertaking noting briefs in freezing injunction applications in the Commercial Court and Admiralty Court

Insolvency

James completed his final seat under the supervision of insolvency specialist Matthew Weaver and is keen to develop his insolvency practice. His recent insolvency experience includes:

  • Acting for a trustee-in-bankruptcy in a private examination application
  • Assisting as a pupil in advising on creditor priority
  • Researching unfair prejudice disputes
  • Researching liquidators’ applications to oppose creditors’ meeting to remove liquidators

James completed his legal studies at City Law School where he was awarded an Outstanding in his Bar exams and a Distinction in the GDL. James read French and German at Brasenose College, Oxford, graduating with a Double First. He came first in his year in his Preliminary Examinations and received a Double Distinction. 

James was awarded the Lord Mansfield Scholarship, the Lord Haldane Scholarship, the Hardwicke Award and the Buchanan Prize by Lincoln’s Inn. 

James was an Academic Scholar at Brasenose College and winner of six Principal’s Prizes for academic excellence; winner of the Gibbs Prize for best first-year results in the Modern Languages Faculty, and winner of the Erasmus Prize for best first-year results among Brasenose Humanities students.

Introduction

The litigation in The Ocean Victory raised a number of important issues, including whether, if there had been a breach of the safe port warranty by the demise charterer, the provisions for joint insurance in clause 12 of the Barecon 89 form precluded rights of subrogation of the hull insurers and the right of the head owner to recover against the demise charterer in respect of losses covered by hull insurers for such breach. Although the Supreme Court held that there had been no breach of the safe port warranty on the basis that there had been an abnormal occurrence, as the issue relating to the joint insurance provisions of the Barecon 89 charterparty was of general importance, the Court went on to consider it, albeit on an obiter basis.

The Charterparty provisions and factual background

The head owner and the demise charterer were related companies. Under clause 9 of the Demise Charter, the demise charterer had the usual obligation to maintain the vessel in good repair and efficient operating condition and to take immediate steps to have any necessary repairs carried out. 

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Should you have any further queries as to Elizabeth Blackburn QC or Andrew Dinsmore please do not hesitate to contact her clerks Luke Irons or Chris O’Brien by email or telephone 0207 440 6900.