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23-03-2021

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Judgments consequential on an earlier judgment are rarely of great interest. That of Judge Jonathan Richards, sitting as a deputy judge of the High Court, in Ingram (as liquidator of MSD Cash & Carry Limited) v Singh & Anor [2021] EWHC 639 (Ch) is an exception.

The facts of the case can be stated briefly. The respondents, who were directors or de facto directors of MSD, had caused it to give a false credit note for £996,494 to another company, Dale Wholesale Limited, as a result of which, after a trial, which took place in 2018, HH Judge Hodge QC, sitting as a judge of the High Court, had made declarations that the giving of the credit note amounted to a void disposition under s. 127 Insolvency Act 1986 so that Dale was still indebted to MSD for the sum involved plus interest; and that, the respondents were guilty of misfeasance and in breach of their fiduciary duties owed to MSD so were jointly and severally liable to compensate it for its loss if Dale failed to make good its liability. (See [2018] EWHC 1325.) The judge had declined, however, to determine the measure of loss at £996,494 plus interest but directed an inquiry as to what, if any, sum the respondents should be required to pay as compensation.

This not being a claim to recoup monies that were wrongly paid awat by the directors, the relief sought by the applicant liquidator took the form of a request for a contribution to MSD’s assets under s. 212(3) Insolvency Act 1986. The judge agreed with counsel for the parties that the principle in this case was correctly stated in paragraph 41.109 of Lewin on Trusts that it should be “the amount, if any, required to restore MSD’s estate to the value it would have had if the breach of fiduciary duty or misfeasance had not taken place.” He also agreed that the effect of s. 212(3)(b) was that compensation had to be limited to the actual loss caused to MSD and fell to be determined in accordance with  normal principles of causation.

The judge found that it was only following HHJ Hodge’s order in 2018 that the parties and Dale could have realised that the credit note was void, a statement that arguably fails to recognise the full significance of the meaning of “void” in s. 127; he went on:

“Therefore, between 5 November 2011 [the date of the credit note] and the July 2018 Order, the Respondents’ actions deprived MSD and its liquidator of the practical ability to demand that Dale repay it £996,494. That was particularly significant in relation to MSD’s liquidator because, whether or not MSD might otherwise have been content not to demand payment from its connected company Dale, once MSD was placed into liquidation, the Applicant came under a duty to gather in MSD’s assets for the benefit of its creditors and, accordingly, would have demanded that Dale repaid the sum owed.”

On that basis he held that MSD’s loss was the difference between the amount it would have received had it, or its liquidator, demanded payment at some point between 5 November 2011 and the date of the July 2018 Order, and the amount that MSD could realistically expect to obtain in Dale’s liquidation. Having examined Dale’s financial circumstances at the relevant times he concluded that the liquidator could realistically expect nothing from the liquidation, and on the balance of probabilities that, had MSD demanded payment of £996,494 at some point between 5 November 2011 and the date of HHJ Hodge’s order, Dale would have been able to pay in full together with interest. He thus assessed the compensation in the sum of £996,494.61 plus interest.

Apart from the approach the court took to the inquiry, the judgment is of procedural interest as well. The judge was critical of the respondents’ failure to file and serve evidence, which had resulted in a debarring order against them in respect of which they failed to get relief from sanction. As a result he curtailed considerably the scope of the submissions counsel was able to make on their behalf. He allowed him, however, to make submissions on where the burden of proof lay in establishing quantum. He rejected counsel for the liquidator’s contention that it rested with the respondents (she relied on Murad v Al-Saraj, GHLM Trading Limited v Maroo and Re Idessa (UK) Ltd) holding that “the burden of proof is on the Applicant to establish the amount of loss that MSD has suffered.”

He went on to say “That said, the amount of MSD’s loss depends heavily on matters that are within the Respondent’ knowledge but not within the knowledge of the Applicant….”.

The Learned Deputy Judge considered whether the Liquidator had established a prima facie case that MSD’s loss was the £996,494 claimed plus interest and whether the respondents had failed to rebut that case. He referenced an Australian case cited by Counsel for the Liquidator, namely per Handley JA in Houghton v Immer (No 155) Pty Ltd [1997] NSWLR at p59

“ ‘The court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party whose actions have made an accurate determination so problematic’ ”

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