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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.

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


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.


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. 


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.

Andrew has been selected to assist the editors of Dicey, Morris & Collins, The Conflict of Laws with Chapter 11 of the Fourth Supplement to the 15th Edition, which concerns in personnam jurisdiction. This follows Andrew’s involvement in the ComBar Working Groups that looked at the impact of Brexit on the Conflict of Laws and International Arbitration and it follows his publication of an article with Sir Richard Aikens entitled “Jurisdiction, Enforcement and the Conflict of Laws in Cross-Border Commercial Disputes: What are the Legal Consequences of Brexit?”(2016) 27 (7) EBLR 903.  

Andrew regularly advises on and acts in disputes with private international law issues. If you are interested in instructing Andrew or discussing the possibility of seminar on these topics please contact Luke Irons or Chris O’Brien.

This article was originally published on Thomson Reuters Practical Law.

Whilst it is always satisfying to win at trial, there is little which darkens the mood more than learning that your vanquished opponent is, in fact, impecunious and unable to pay your costs. The good news is that, depending on the circumstances, you could seek an order that a non-party pays the costs of the action ordered against the main opponent. Often, this will be a director of a company which, it transpires, has no assets with which to meet a costs order.

The court’s powers

The court’s power to make a non-party costs order (NPCO) is at section 51 of the Senior Courts Act 1981, and is governed by CPR 46.2. The court’s discretion is a wide one, and the only immutable principle is that it must be exercised justly (Deutsche Bank AG v Sebastian Holdings).

There is no scope to order costs against a non-party which were not ordered against the main defendant (Zanussi v Anglo Venezuelan).

The test for the court

Because of the wide wording of the court’s powers, there is a raft of case law expanding on this topic. The following points are essential considerations in any application for a NPCO:

  • The court must consider whether the non-party is considered to be the real party interested in the outcome of the litigation, or whether they have been responsible for bringing the proceedings and that those proceedings are brought in bad faith or for some ulterior motive, or there is some other conduct which makes it just and reasonable to make the order (Metalloy Supplies v MA (UK) Ltd).
  • Whilst the making of such an order is “exceptional” (Symphony Group plc v Hodgson), that only means that the circumstances put the case outside the ordinary run of cases which are properly brought or defended (Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Costs)).
  • A NPCO does not require a finding of impropriety on the part of the non-party (BE Studios v Smith & Williamson), and the crucial question is whether the non-party held a bona fide belief that the defendant had an arguable case and that it was in the interests of the defendant to advance the case.
  • It is not enough simply that the non-party is the sole director and controlling mind of a company defendant (Gardiner v FX Music). However, in certain circumstances where the interests of a company and its director were so close, it could be just to make a NPCO against the director personally (Alan Phillips Associates Ltd v Dowling).
  • An important indicator in favour of the application would be if the non-party provided a fresh cash injection to continue fighting the case, for example if the company was impecunious throughout the litigation and could only have been funded by the director (a good example is Weatherford Global v Hydropath Holdings).
  • Some degree of causation between the non-party’s intervention and the claimant incurring costs is important, although a causal link with the non-recovery of costs as opposed to the incurring of the costs might suffice, that is, the non-party caused the company defendant to dissipate its assets such that there was nothing to enforce against at the end of proceedings (Turvill v Bird).

External litigation funders

Non-parties who purely fund the litigation but have no interest in its outcome will not face a NPCO (Dymcock; Hamilton v Al-Fayed (Costs)), but it will be an important factor if the funder has a vested interest in the outcome. If a commercial third-party funder is providing access to justice and has capped its support to a figure, and the support is based on the continued good prospects of success at trial, then its liability under a NPCO will be capped at the level of funding it has provided to the defendant (Arkin v Borchard Lines).

However, a note of caution: the strong judgment in Excalibur Ventures LLC v Texas Keystone (Rev 2) demonstrated that third-party funders can be liable for indemnity costs(limited to the extent of their funding, as in Arkin), and that this can be justified when the funder did not take an active enough role in determining whether the litigation continued, for example by taking too much of a laissez-faire approach, and applying insufficient oversight and scrutiny of prospects and progress. The Court of Appeal found that, absent special circumstances, the funder should follow the fortunes of those from whom it hoped to derive a profit.


Insurers have been found to be liable for NPCOs where they have conducted the litigation for their sole benefit without reference to the needs or wishes of their insured, for example refusing settlement offers without reverting to their insured (Pendennis Shipyard v MargratheaPalmer v The Estate of Kevin Palmer & othersEwart Charles Legg v Sterte Garage Ltd & Aviva UK).

Practical steps

The following are crucial aspects of an application for a NPCO:

  • Put the non-party on notice of a potential NPCO application as soon as practicable, although a failure to do so is not necessarily fatal to the application (Deutsche Bank). NPCOs are particularly useful when litigating against companies with an uncertain asset base or credit history, or whose directors have a lengthy track record of involvement in insolvent companies.
  • Apply for the non-party to be added to proceedings solely for the purposes of costs by way of a formal application, supported by evidence, after the conclusion of the case (CPR 46.2(1)). The first stage is to obtain the court’s permission to add the non-party; the second stage is that the non-party will be given a reasonable opportunity to attend a final hearing of the matter and show cause why the order should not be made.
  • Usually the trial judge will hear the application, although the final hearing of the application should not resemble a mini-trial, and must be kept proportionate.

The court’s wide-ranging powers can be invaluable when faced with an opponent who sets out to frustrate the recovery of costs, and I have often found a successful NPCO application to have been the difference between an unhappy and a satisfied client

To view Ali's full profile, please click here.

Maritime practitioners have been eagerly awaiting the Supreme Court’s judgment in Gard Marine & Energy v China National Chartering Company Limited (“the Ocean Victory”) [2017] UKSC 35 and today they have it. The basic facts are relatively well-known: the vessel was demise, time, and further sub-time chartered with all charterparties containing a safe port undertaking. The sub-time charterers ordered the vessel to Kashima in Japan, a port whose quay was vulnerable to “long waves” which can require a vessel to leave the port. The route in and out at Kashima is through a narrow channel which can be subject to northerly gales. Coincidentally, the Ocean Victory, seeking to leave the port on 24 October 2006 due to long waves at the quay was subjected when so doing to severely northerly gales in the channel. The vessel grounded and became a total loss. Was there a breach of the safe port undertaking?

The test for a safe port derives from the dictum of Sellers LJ in The Eastern City [1985] 2 Lloyd’s Rep 127, 131 that ‘a port will be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship…’. The date for judging the safety is the date of nomination, i.e. is the port nominated a prospectively safe one in light of its predicted characteristics? As Lord Clarke, giving the leading of the Supreme Court this morning, put it at [28]:

‘In short, I would accept the charterers’ submission that the first question is whether a reasonable shipowner in the position of the particular shipowner trading the ship for his own account and knowing the relevant facts would proceed to the nominated port. If the answer is “yes unless there is an abnormal occurrence”, the port is prospectively safe for the particular ship and the promise is fulfilled. In a case where the vessel suffers loss or damage, a second question arises, namely whether there was damage caused by an abnormal occurrence as defined above.

In The Ocean Victory, the safe port point was in essence whether the coincidence of the long waves and the northerly gale in the channel constituted an abnormal occurrence.

In the High Court, Teare J had found no abnormal occurrence (essentially because both long waves and northerly gales in the channel were, in and of themselves, relatively normal) and that consequently there was a breach of the safe port warranty. The Court of Appeal disagreed, and the Supreme Court has this morning unanimously dismissed the owners’ appeal, upholding the judgment of the Court of Appeal. Lord Clarke noted that Teare J had erred in failing to answer the unitary question as to the effect of the simultaneous coincidence of the long waves and the northerly gales. Agreeing with the Court of Appeal at [41], Lord Clarke found support in his conclusion in the fact that no vessel in the port’s history had been trapped at the quay at the same time as the exit channel was not navigable. This led to the conclusion that the simultaneous coincidence was abnormal. The test is not unforeseeability, but abnormality. The coincidence may have been foreseeable, but that did not make it normal or characteristic.

The decision on the safe port point emphasises the factual nature of a safe port dispute. One is concerned with whether the event causing the damage is abnormal. That requires consideration of the sum of the event, rather than its parts.

Two other issues arose before the Supreme Court concerning (1) the scope and application of the rule that co-insureds cannot claim against each other in respect of an insured loss; and (2) the applicability of the 1976 Convention on Limitation of Liability for Maritime Claims in the circumstances where the ship itself is damaged. In brief, the Court ultimately concluded that had there been a breach of the safe port warranty, Gard (who were assignees of the owners and demise charterers but in their capacity here as assignees of the demise charterers) would not have been able to recover the insured value of the vessel from the time charterers on account of the demise charterparty providing for joint insurance and a distribution of insurance proceeds as between Gard’s insureds (the owners and demise charterers). The demise charterparty thus precluded the owners’ claim against the demise charterers, so the latter had no claim to pass down the line to time charterers. On the limitation point, the Court held, agreeing with the Court of Appeal in The CMA Djakarta [2004] 1 Lloyd’s Rep 460 that the Convention did not apply to loss or damage to the ship itself. 

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. for more information.

This article was originally published on Thomson Reuters Practical Law.

In line with international trends, commercial arbitration of disputes in South Africa has become more popular over the last 15 years. This is particularly so in disputes which require the arbitrator to have specialised commercial skills, for example, in disputes that are commercially complex or transnational in scope, or where a particular expertise is required, such as in construction or engineering disputes. Another major factor leading to the proliferation of consensual private arbitrations has been the significant delays in obtaining multi-day trial listings in the High Court (which can be up to 18 months from close of pleadings) and the ease with which trials are vacated on the first morning, for a variety of reasons, including the unavailability of judges to hear commercial matters.

The past

The principal legislation governing arbitrations in South Africa is the Arbitration Act 42 of 1965, which applies to international and domestic arbitration proceedings conducted in the country, although the common law (based on English law as developed by the courts) still applies to the extent that there is no conflict. Also relevant is the Recognition & Enforcement of Foreign Arbitral Awards Act 1977 (REFAAA) which gives effect to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

Although many arbitrations, including large commercial disputes, are conducted in an ad hoc informal manner, there are several accredited arbitral bodies that are well placed to administer arbitrations with their own sets of rules and highly competent and experienced body of arbitrators. There is a body of retired High Court and Court of Appeal judges with decades of commercial experience, who are available to act as arbitrators at relatively competitive cost.

Further, the Apartheid-era Protection of Businesses Act 1978, which restricts the enforcement of certain foreign arbitration awards (relating to punitive damages or to do with mining) by prohibiting any form of international judicial cooperation by domestic courts, has no place in the modern post-Apartheid world, as is demonstrated by its rather hostile and defensive language. This development is particularly important to South African mining houses, which are involved in global mining ventures well beyond South Africa’s borders.

Because this legislation dates from 40 or 50 years ago, and predates the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, the current South African legislation is not in alignment with international developments. One particularly noteworthy example is section 3(2) of the Arbitration Act 42 of 1965. It provides that the court may, where good cause is shown, set aside the arbitration agreement or order that any particular dispute referred to in the arbitration agreement shall not be referred to arbitration. In addition, the court may order that the arbitration shall cease to have effect with reference to any dispute referred. Another traditional problem has been the view held by some (and expressed by the Judge President of the Cape in 2005) that “to strengthen arbitration is to weaken the courts”, fortified by the need for racial transformation in South African judicial appointments.

The present

The perception of the current laws as “inadequate” and “outdated” dissuades parties from selecting South Africa as their seat of arbitration, with the result that South Africa is lagging behind other developing countries that have taken a more proactive stance, such as Mauritius.

There are several independent arbitration bodies in South Africa, including the International Chamber of Commerce (ICC)Association of Arbitrators of Southern Africa(formed in 1979, it has approximately 2000 members), and the Arbitration Foundation of South Africa (AFSA, founded in 1996). AFSA is a joint venture between organised business and the legal and accounting professions. It has two sets of rules: commercial rules for arbitrating complex or substantial matters, and simple rules for arbitrating smaller, less intricate disputes. AFSA also provides facilities for conducting hearings and sponsors a diploma course in alternative dispute resolution (ADR) in conjunction with the University of Pretoria.

AFSA is arguably the leading arbitral institution in South Africa and the one most involved in trying to fashion for South Africa a genuine international arbitration presence, seeking to capitalise on its position, financial and legal infrastructure, and accessibility. AFSA has partnered with the Shanghai International Arbitration Centre (SHIAC) to provide an umbrella organisation for Sino-African disputes. According to AFSA’s founder, Michael Kuper SC, the original initiative has now developed into services provided in Johannesburg and through South Africa and in Shanghai.

The future

Although South Africa has not adopted the UNCITRAL Model Law, it has at last enacted local legislation (in the form of a draft bill) that is intended to combine the best features of the Model Law and England’s Arbitration Act 1996, together with certain features of the Arbitration Act 42 of 1965, which have been found to work well in practice over the years. This legislation has been years in the making, since being recommended by the South African Law Commission as long ago as 1998.

The bill was approved by the South African cabinet on 1 March 2017 and is on its passage through Parliament, hopefully to be enacted into law by the middle of 2017. The bill demonstrates the government’s intention to transform and align its international commercial arbitration practice with global standards on the resolution of commercial disputes. It also shows a commitment to increase trade and investment in South Africa as an arbitration-friendly jurisdiction in the region and world at large.

In terms of the bill, any international commercial dispute which the parties have agreed to submit to arbitration under an arbitration agreement, and which relates to a matter which the parties are entitled to dispose of by agreement to be determined by arbitration, will be administered under the UNCITRAL Model Law, subject to the exclusions listed under clause 7.

Highlights of the bill are that:

  • It incorporates, with amendments, the Model Law as the cornerstone of international arbitration. Significantly, care has been taken not to tinker with the wording of the Model Law; this is welcomed, as the ultimate goal is uniformity with other Model Law jurisdictions.
  • Domestic arbitration will continue to be regulated by the Arbitration Act 42 of 1965.
  • Investor-state disputes will be governed by the Protection of Investment Act 22 of 2015 (not yet in force).
  • It allows for contracting parties to settle their commercial disputes through conciliation proceedings in accordance with the UNCITRAL Conciliation Rules, affording flexibility and the possibility of avoiding the significant costs of international arbitration itself.
  • It repeals the REFAAA, and provides afresh for the recognition and enforcement of foreign awards as follows: a foreign arbitral award will be binding between the parties to that arbitration, and enforced in the same as any judgment or order of court. However, an award is not recognised and enforced if it is not permissible under South African law, contrary to public policy or was made in bad faith.
  • It applies to and binds international commercial arbitrations to which public bodies (state departments, national or provincial government, municipality and so on) are party, to the extent not prohibited by the Protection of Investment Act.


The new legislation is welcome. Rather surprisingly, it shows South Africa to be one of the last members of the Southern Africa Development Community states to introduce similar legislation: Zimbabwe, Zambia, Mauritius and Madagascar have all done so.

Once enacted, this legislation will send a clear message to the international business and investment community that South Africa is a safe place to operate, and that disputes will properly be heard and dealt with in a manner consistent with international best practice. The legislation will also reduce avenues for delays and infractions of process that create procedural uncertainty, which is problematic for investors and a disincentive to use the South African legal system.

The most important development of these developments will be the curtailing of intervention of South African courts.

It is hoped that the introduction of this legislation will propel South Africa towards becoming a regional and international arbitration centre, in much the same way that Mauritius has done since 2008, when it adopted the Model Law into its domestic law. Globally impressive institutions, such as the Permanent Court of Arbitration at the Mauritius Chamber of Commerce and Industry, have set a benchmark which South Africa would be well-placed to follow. This is especially true if South Africa hopes to become an international arbitration centre for the whole of Africa and to establish the country as a venue of choice for international arbitrations in Africa.

Should you have any further queries as to Warren Bank please do not hesitate to contact his clerks Luke Irons or Chris O’Brien by email or telephone 0207 440 6900.

This article was originally published in LexisNexis' ‘In brief’ series.

The Court of Appeal considered the application of s.21(1)(a) of the Limitation Act 1980 to a director who had breached his fiduciary duty to his company dishonestly but who had not misappropriated company property. It held that s.21(1)(a) applied notwithstanding that there was no misappropriation.

The court also reiterated the well-known and longstanding principles on alleging and proving fraud.

What should Dispute Resolution lawyers take note of?

There are 3 things to note.

First, DR lawyers should note the expansive approach of the courts in interpreting s.21(1)(a) of the Limitation Act where company directors are concerned. That provision will apply notwithstanding that a director has not misappropriated property belonging to his company.

Second, DR lawyers are also reminded of the need to distinctly allege and prove fraud. Proof that the action itself was deliberate is not enough; it must also be proved that the action was taken while knowing or being reckless of the consequences of the action.

Third, it is also important to ensure that fraud is clearly put to the defendant in cross-examination. It was enough in this case that it was put to the defendant that he acted knowing that what he was doing was wrong and contrary to his company’s interests, such that there was a proper basis for the first instance judge’s findings on fraud. Nevertheless, the need for this part of the appeal may well have been avoided if fraud had been more distinctly and forthrightly put to the defendant in cross-examination.

What was the case about?

E, a director of the the Claimant company (F), set up with other individuals a rival company in order to prepare and make bids for contracts in competition with F. The rival bids resulted in F losing one contract, and forced it to lower its quoted price for another, causing F to suffer loss. However, at no point did E misappropriate property belonging F.

E’s breaches of fiduciary duty took place before December 2004. The claim form was issued on 22 December 2010. The claim was therefore time-barred under s.21(3), unless the limitation period was disapplied by s.21(1).

S.21(1) provides that:

“No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.”

The concept of ‘trust’ and trustee’ for these purposes include “constructive trusts… and to the duties incident to the office of a personal representative, and ‘trustee’ where the context admits, includes a personal representative…”: s.38(1), Trustee Act 1925 s.68(1)(17).

The first instance judge held that s.21(1)(a) applied, because E had acted knowingly or with reckless indifference to whether his conduct would injure F, which amounted to dishonesty and hence fraudulent conduct. The judge made an order for equitable compensation.

E appealed to the Court of Appeal.

What did the court decide?

The court reiterated that there are two classes of constructive trustee. Class 1 is where the defendant receives property under a transaction which both parties intended to create a trust and for the defendant to be a trustee from the outset, such that it is unconscionable for the defendant to assert his own beneficial interest over the property. If the defendant then appropriates that property for himself, it is a breach of constructive trust.

Class 2 is where the defendant has been party to a fraud, but was not a fiduciary in respect of the property at the time of the fraud. He is not in fact a ‘trustee’ properly so called. So, for example, someone who simply dishonestly assists in a breach of trust does not fall under s.21(1)(a) as he is not a true ‘trustee’.

Insofar as directors are concerned, they owe fiduciary duties to the company and breach of those duties amount to a breach of trust: s.38(1). A director is a fiduciary from the outset by virtue of his office, such that when he misappropriates property he falls under Class 1.

The remaining question was over a director who does not misappropriate company property, but nevertheless breaches his fiduciary duty and does so dishonestly. One example is the acquisition of secret profits from third parties. The director does not start off as a fiduciary of such property, because the property originates from a third party and not from the company itself. The director is therefore only a Class 2 trustee over the profits; thus, he is not a true ‘trustee’ and as such the property is not true ‘trust property’ under s.21(1)(b). However, the court held that, because the director is a Class 1 fiduciary and trustee in respect of the company from the outset, any breach of his duty towards the company remains a breach of trust, even if he has not misappropriated company property. S.21(1)(a) depends not on ‘trust property’, but on ‘breach of trust’. The latter phrase encompasses any breach of a director’s fiduciary duty towards the company, regardless of whether trust property has been misappropriated as part of the wrongdoing.

The court reiterated that, for a breach of trust to be fraudulent, it is not enough that the breach was deliberate. The breach must have been committed whilst knowing or being reckless that it would be injurious to the company. On the evidence, the first instance judge had sufficient evidence before him to hold that the breach was fraudulent.

For these reasons, the court held that, notwithstanding that E did not misappropriate company property, he had committed a fraudulent breach of trust towards his company under s.21(1)(a), which disapplied the limitation period.

This case raised what is an often-discussed issue amongst insolvency practitioners and lawyers but one which, until now, has not been addressed fully by the courts, namely "does a company (or its director(s)) have to have a "settled intention" to appoint an administrator in order to file a Notice of Intention ("NOI") pursuant to paragraph 27 of Schedule B1 to the Insolvency Act 1986 ("Schedule B1")?". This question often raises its head when companies are seeking to have CVAs approved or are attempting to re-finance but want or need the protection of a moratorium until those processes can be completed.

The relevant facts can be summarised as follows. The Company was a tenant which was behind on its rent. The Landlord (the Appellant in this case) threatened to take possession of the premises for rent arrears and, in due course, issued possession proceedings. Prior to issuing those proceedings, the Company's director filed an NOI in Court and served it on a QFCH as required under paragraph 26 of Schedule B1, thereby creating an interim moratorium for a period of 10 business days (or until appointment of an administrator if earlier) pursuant to paragraph 44 of Schedule B1.

The NOI stated on its face that the director intended to appoint an administrator and was accompanied by a record of the director's decision to appoint administrators. Two further NOIs in substantially the same form were subsequently filed, extending the interim moratorium in each case. No appointment of an administrator was subsequently made.

A fourth NOI was duly filed after the director had filed proposals for a CVA with the Court. The proposals confirmed that if the CVA was not approved, the directors would put the Company into administration. This fourth NOI was in the same terms as the first, second and third, stating an intention to appoint administrators.

The Landlord issued proceedings to have the fourth NOI vacated and removed from the Court file on the grounds that it was an abuse of process. In short, the Landlord's argument was, simply, that the director did not actually intend to appoint administrators, he wanted a CVA to be approved and appointing administrators was only an after-thought.

At first instance, the Judge dismissed the proceedings, concluding that NOIs could be filed in circumstances where directors intended to appoint administrators as an alternative to a CVA (or, indeed, as an alternative, or one of many alternatives, to rescuing the company some other way).

On appeal, the Court of Appeal (with David Richards LJ giving the leading judgment) took a different, and it might be said, more straightforward approach. The Court was content that when the first three NOIs were filed, the appointment of an administrator was, at most, one of a range of possibilities. By the time of the fourth NOI, the position was that an administrator would be appointed only if the CVA was rejected.

Given those facts, the Court was primarily conscious of two things. Firstly, an NOI and the relevant parts of Schedule B1 refer repeatedly to an "intention". Whilst paragraph 26 refers to the company or director as a person who "proposes" to make an appointment, this (in light of the repeated references to "intention") should not be seen as different from "intend".

Secondly, save for "eligible companies" (i.e. small companies as defined by s382 Companies Act 2006), there is currently no means for a company proposing a CVA to obtain a moratorium until the proposal is considered by creditors. A general moratorium is a regular topic of discussion within the Insolvency Service (and there is currently a consultation document in circulation which proposes a wider moratorium for companies seeking a CVA) but, as things currently stand, there is none.

As such, the Court held that for a company or director to file a valid NOI it is a statutory pre-requisite that there is a "settled intention to appoint". In short, considering appointing administrators if other options fail is not sufficient. As such, companies seeking re-financing or proposing CVAs cannot file an NOI to achieve a moratorium whilst they try to rescue the company in other ways. Any NOI filed in such circumstances stands to be vacated and removed from the Court file.

In addition, the Court of Appeal clarified an issue that the editors of Sealy & Milman have long since pondered. An NOI is only to be filed if a copy is to be served on a QFCH (or a person entitled to appoint an administrative receiver). If there is no person able to appoint an administrator or administrative receiver (as defined in paragraph 26(1) of Schedule B1) to whom a copy of the NOI will be given, no interim moratorium can be created by the filing of the same. The Company or its directors simply appoints an administrator as and when they are ready to do so in the absence of a QFCH.

This practice, of filing NOIs without serving them in order to create a moratorium, is therefore now confirmed as being invalid.

The full version of the Judgment can be found here.