England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR JUSTICE PARK)

		Royal Courts of Justice Strand London WC2 Friday, 8th February 2002

Friday, 8th February 2001

1. LORD JUSTICE JONATHAN PARKER: This is an application by Mr Michael Worwood and Mr Paul Pike, the claimants in the action, for permission to appeal against an order made by Park J on 2 November 2001 dismissing their appeal against an order made by Master Bowman on 12th December 2000 striking out their claims in the action. The applicants appear on this application by Mr Graham Platford of counsel, who also appeared for them before Park J. If the permission sought were granted, the appeal would be a second-tier appeal to which Rule 52.13 of the Civil Procedure Rules applies. That rule is in the following terms:

"(1) Permission is required from the Court of Appeal for any appeal to that court from a decision of a county court or the High Court which was itself made on appeal.

(2) the Court of Appeal will not give permission unless it considers that -

(a) the appeal would raise an important point of principle or practice; or

(b) there is some other compelling reason for the Court of Appeal to hear it."

2. The application for permission to appeal has not been dealt with on paper since the applicants were, until very recently, appearing in person. Mr Platford has only very recently been instructed.
3. The background to the orders made by Master Bowman and by Park J and to the present application, can be summarised as follows. Mr Worwood and Mr Pike owned and controlled a company called Concessions Contracts Limited ("CCL") which carried on business as a concessionaire selling souvenirs and other goods at various venues. In 1991 or thereabouts, they developed contacts with an American company called Nice Man Merchandising Inc ("NMMI"). Initially, it seems that a joint venture company was under discussion but in the event no such company was formed.
4. In 1992 NMMI made a number of large loans to the applicants. The judge records in his judgment (in paragraph 11) that by the middle of 1992 they owed NMMI the US dollar equivalent of a sum in excess of £500,000.
5. On 8th July 1992 they charged their shares in CCL to NMMI as security for their indebtedness.
6. By early 1993, relations between the applicants on the one hand and NMMI on the other had deteriorated. By that stage, it seems, the suggestion of a joint-venture company had been abandoned. At all events, NMMI took steps with a view to recovering its loans. On 23 April 1993 it served statutory demands on the applicants. Repayment was not made, and on 29 April 1993 NMMI commenced proceedings against the applicants seeking, among other things, enforcement of its rights as chargee of the CCL shares by having those shares transferred into its own name or that of its nominee.
7. On 26th November 1993 the court ordered the applicants to transfer the CCL shares into the names of two nominees for NMMI. The nominees were partners in NMMI's solicitors, Messrs Eatons. One of them, Mrs Hale, is a defendant in the present action.
8. Shortly thereafter bankruptcy orders were made against each of the applicants. In consequence of those orders they had to resign their directorships of CCL. At about the same time, NMMI, in exercise of its right as chargee of the CCL shares, appointed three individuals as directors of CCL.
9. In early 1994 CCL, under the management of its three new directors, ran down its business, and by mid-1994 it had ceased trading entirely. By this stage, a company called Leisure Merchandising Services Limited ("LMS"), the first defendant in the present action, had started to carry on a business very similar to that which had previously been carried on by CCL. LMS is an associated company of NMMI, both being companies in the same group.
10. CCL was in due course placed in creditors' voluntary liquidation, with a very substantial deficiency. In the event, therefore, the applicants have received nothing in respect of their CCL shares. Nor, for that matter, have NMMI as chargee of those shares.
11. In the present action the applicants claim relief against LMS, against NMMI, against other associated companies of NMMI, against three directors of LMS, and against NMMI's solicitors and a partner in that firm, Mrs Hale, whom I have already mentioned. In summary, their case is that NMMI exercised its powers as chargee for an improper purpose, in that it and the other parties involved were at all material times engaged in an improper scheme designed to deprive the applicants of the benefit of the CCL shares and to run down the business of CCL, to the advantage of NMMI and its associated companies including LMS.
12. I should record at this point that in so far as the claims made by the applicants in the present action are claims which originally belonged to CCL, the liquidator of CCL assigned those claims to the applicants, albeit on a revocable basis. Prior to the hearing before Master Bowman, however, the liquidator revoked that assignment. In the view of Master Bowman the revocation was fatal to the claims put forward by the applicants in so far as they derived from that assignment. In so far as the claims made by the applicants in the action are claims which are personal to them, their trustee in bankruptcy has, as I understand it, assigned the benefit of such claims to them.
13. The defendants applied to strike out all the claims. Master Bowman acceded to that application and struck out the claims. In so far as the claims derived from CCL were concerned, as I have already indicated, the Master held that the liquidators' revocation of the assignment was fatal to those claims. As regards the personal claims, the Master concluded, in effect, that there was no substance in them.
14. Master Bowman refused permission to appeal in relation to any of the claims. The applicants applied on paper to the High Court for permission to appeal. Park J refused permission on the papers in relation to the claims deriving from CCL, but he granted it in relation to the personal claims. The applicants then renewed their application for permission to appeal in relation to the claims deriving from CCL, but at an oral hearing Hart J refused such permission. Accordingly, so far as the claims deriving from CCL were concerned, there was no further possibility of appeal. The appeal in relation to the personal claims was heard, as it happens, by Park J, and resulted in the order against which the applicants now seek permission to appeal.
15. In a careful and thorough judgment, Park J analysed in great detail the personal claims sought to be made by the applicants. Central to those claims is the allegation that NMMI, as chargee in possession of the CCL shares, owed the applicants a duty to intervene, in effect, in the underlying business of CCL, so as to preserve their security; and that they had breached that duty by failing to take steps to bring about the winding-up of CCL. The judge rejected that contention, concluding, as a matter of law, that their duty was limited to a duty to act in good faith for the purpose of obtaining repayment of their indebtedness. He concluded that there was no basis for the allegation of bad faith or impropriety against NMMI. So far as the other defendants are concerned, the judge concluded that there was no basis on which they could be held liable as, in effect, accessories of NMMI. There was also a point of construction as to the entitlement of the applicants to bring their claims which the judge decided against them.
16. By their proposed grounds of appeal the applicants contend that the judge was wrong to conclude that NMMI's duty was limited in the manner which he had indicated. They further contend that the judge confused or conflated issues of liability with issues of quantum, and that he ought to have recognised that the allegation of bad faith was one which required answering.
17. Mr Platford, on behalf the of applicants, contends that the judge's conclusion as to the limited duty of NMMI was wrong in law and contrary to the principles set out by the Privy Council in Downsview Nominees Limited v First City Corporation Limited [1993] AC 295. It is accepted that there was no duty as such to intervene in CCL's business, but Mr Platford asserts that there was, rather, a duty upon NMMI to exercise its powers as shareholders "to prevent directors appointed by it causing the company to trade whilst insolvent or otherwise than for the purpose of preserving the underlying business." In my judgment, however, that amounts to effectively to the same thing. Mr Platford has repeated that submission orally this morning although he has put it in slightly different terms. Once again, however, it seems to me that the substance of the matter is the same. The crux of the matter, in my judgment, is that NMMI took its charge over the shares. It did not seek to realise the shares presumably because it considered that it would not achieve any benefit thereby. Nor did it see fit to take any steps to wind up the company. It is important to remember that NMMI's charge was over the shares and not over CCL's undertaking (as was the case in the Downsview Nominees).
18. Having considered carefully Mr Platford's written skeleton arguments and the oral submissions which he has made this morning, I have to say that I cannot see any substantial basis for challenging the reasoning or conclusions of the judge. As I indicated earlier, this is a second-tier appeal, and the test is accordingly a strict one. In my judgment the proposed appeal would not raise any important point of principle or practice, nor is there, in my judgment, any compelling reason why the Court of Appeal should hear it.
19. Accordingly, the application is dismissed.
(Application dismissed; no order for costs).