Case No: A3/2004/2726 & 2726 (A)

Neutral Citation Number: [2006] EWCA Civ 943
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (BRISTOL DISTRICT REGISTRY)
(HH JUDGE HAVELOCK-ALLAN QC)
High Court reference 23C02
Royal Courts of Justice
Strand, London, WC2A 2LL

Tuesday 04th July 2006
Before :

LORD JUSTICE CHADWICK
LORD JUSTICE DYSON
and
SIR MARTIN NOURSE
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Between :

	NEVILLE (as administrator of Unigreg Ltd) and another
 	Applicants/
Respondents	
	- and -		
	KRIKORIAN and others	Respondents/Appellant	

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(Transcript of the Handed Down Judgment of
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Mr Ian Clarke (instructed by asb law, Innovis House, 108 High Street, Crawley, RH10 1 AS)          for the Appellant, Avo Krikor Krickorian
Mr Stephen Davies QC and Mr Paul French (instructed by Stephens & Scown, 25-28 Southernhay East. Exeter, EX1 1RS) for the Respondents to the appeal

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Judgment
Lord Justice Chadwick : 
1.	There are before the Court (i) an appeal from an order made on 10 December 2004 by His Honour Judge Havelock-Allan QC, sitting as a Deputy Judge of the High Court in the Bristol District Registry of the Chancery Division, on an application for summary judgment in proceedings in the administration of Unigreg Ltd brought by its administrator against two former directors, (ii) an application by notice filed on 30 December 2004 for leave to adduce further evidence (subsequently set out in a witness statement dated 28 January 2005) and (iii) a further application by notice filed on 3 April 2006 to adduce evidence set out in a witness statement dated 30 March 2006. 
2.	Summary judgment was given against each of the two former directors for the amount standing to the credit of the company on his own loan account. It is not, now, in dispute that each former director was liable to repay that amount. The question raised by the appeal is whether the judge was right, in the circumstances of this case, to go further (as he did) and give summary judgment against the appellant (one of the two former directors) for an amount standing to the credit of the company on the loan account of the other former director; or, to put the point another way, whether the judge was right to hold one former director jointly and severally liable for the indebtedness of the other.
3.	That question arises in the circumstances that it is not in dispute that, in operating the loan accounts, the company was in breach of section 330(2)(a) of the Companies Act 1985, which provides that a company shall not make a loan to a director of the company. Section 341(2) of the 1985 Act is in these terms (so far as material):
“341(2)	Where an arrangement or transaction is made by a company for a director of the company . . . in contravention of section 330, that director . . . and any other director of the company who authorised the transaction or arrangement . . . is liable – 
(a) 	. . . ; and
(b)	(jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction..”

4.	The judge refused permission to appeal. The appeal is brought with permission granted in this Court on 31 March 2005 by Lady Justice Arden. 
The underlying facts 
5.	Unigreg Ltd (“the company”) is a company incorporated in England and Wales under the Companies Acts 1948-1967 for the purpose of carrying on business as distributors and dealers of pharmaceutical products.  At all relevant times until 18 July 2001 its issued shares were held as to 68% by Mr Avo Krikor Krikorian (“Avo Krikorian”), as to 30% by his son, Mr Krikor Avo Krikorian (“Krikor Krikorian”), and as to the remaining 2% by Seta Krikorian Nutrition Foundation.  For convenience I will refer to Avo Krikorian and Krikor Krikorian together as “the Krikorians”.  It is said on behalf of the Krikorians (but not accepted by the administrator) that, on 18 July 2001, all the issued shares in the company were transferred to Unigreg Group Limited, a company which they owned and controlled.
6.	Until 18 July 2001, the Krikorians were, together, the only directors of the company.  On 18 July 2001 they resigned that office and two others, Mr Alan Rutland and Mr Alan Booth, were appointed in their stead.
7.	The financial statements for the company in respect of the years to 31 July 1995 and 31 July 1996 showed a position of solvency. They disclosed no loans to directors. The auditors’ reports were unqualified. The position changed, however, during the next accounting period: a period of 17 months to 31 December 1997.  The balance sheet as at 31 December 1997 disclosed shareholders’ funds of £981,997; but, of that sum, £867,111 was represented by monies lent to Krikor Krikorian. The former auditors had resigned. The report of the newly appointed auditors, dated 29 July 1999, was qualified: “Because of the possible effect of the limitation in evidence available to us in respect of the director’s loan”. The notes to the accounts (at note 21) attributed the balance due from Krikor Krikorian “to cash drawings and payment of personal expenses by the company”; and recorded that the loan was interest free and repayable on demand. It was further noted that: “Loans to the directors are in contravention of Schedule 330 (sic) of the Companies Act.”
8.	The balance sheet at the end of the next accounting period, 31 December 1998, disclosed shareholders’ funds of £746,704; but assets included debtors of which £1,324,434 were monies lent to Krikor Krikorian and £109,719 monies lent to Avo Krikorian. There had been another change of auditors. The newly appointed auditors qualified their report, dated 21 June 2000, in much the same terms: “Because of the possible effect of the limitation in evidence available to us in respect of the directors’ loans . . .”. Note 21 to the accounts, again, drew attention to the apparent contravention of section 330 of the 1985 Act.
9.	 That pattern was continued in the financial statements for the accounting period to 31 December 1999. The balance sheet as at the year end showed shareholders’ funds of £552,230; but, again, assets included debtors of which amounts of £1,692,174 and £399,148, respectively, were monies advanced to Krikor Krikorian and Avo Krikorian on their loan accounts. The auditors’ report, dated 21 April 2001, was qualified as before; and, again, note 21 to the accounts drew attention to the apparent contravention of section 330 of the 1985 Act. 
10.	The financial statements for the accounting period to 31 December 2000 were signed off on 20 December 2001. By that date, as I have said, the Krikorians had resigned office as directors. But they were directors during the whole of the accounting period and outstanding loans to them were shown in the accounts in the amounts of £2,149,670 (Krikor Krikorian) and £63,815 (Avo Krikorian).    
11.	On 11 June 2002, on the company’s own petition presented on 7 June 2002, it was ordered that the affairs of the company be administered under Part I of the Insolvency Act 1986.  Mr Richard Neville, an insolvency practitioner, was appointed administrator of the company.  
These proceedings
12.	By an originating application in the administration, dated 15 October 2003, the administrator sought extensive relief against the Krikorians under section 212 of the Insolvency Act 1986 and under sections 151 and 322 of the Companies Act 1985. Relief was sought, also, against Unigreg Group Limited; but nothing turns on that. For the purpose of the present appeal it is sufficient to refer to the relief claimed in the following paragraphs of the originating application:
“4.  A declaration that Avo Krikorian and/or Krikor Krikorian were guilty of misfeasance and breach of duty as directors of Unigreg Limited by causing or allowing it:
4.1	to create and operate their directors’ loan accounts through which they caused or allowed Unigreg Limited to loan moneys to them in contravention of section 330 of the 1985 Act; 
. . .
6.  As against Avo Krikorian:
6.1	 A declaration that the sum due to Unigreg Limited on the directors’ loan account from Avo Krikorian as at 30 June 2001, namely £227,423 remains outstanding as a debt due to Unigreg Limited.
6.2	 An order that Avo Krikorian do pay the sum of £227,423 to Unigreg Limited, together with interest thereon.
. . .
7	As against Krikor Krikorian:
7.1	A declaration that the sum due to Unigreg Limited on the   directors’ loan account from Krikor Krikorian as at 30 June 2001, namely £2,253,336 remains outstanding as a debt due to Unigreg Limited.
7.2	An order that Krikor Krikorian do pay the sum of £2, 253,336 to Unigreg Limited, together with interest thereon.
. . .”

13.	Points of defence were filed on behalf of both Avo Krikorian and Krikor Krikorian. The allegation in paragraph 4.1 of the originating application was denied. But it was accepted (at paragraph 28 of each defence) that monies properly standing to the credit of the company in the two loan accounts (if any) were loans made in contravention of section 330 of the Companies Act 1985. 
The application for summary judgment
14.	On 8 October 2004 the administrator applied for summary judgment under CPR Pt 24 against both Avo Krikorian and Krikor Krikorian.  Again, it is sufficient to refer to the relief claimed under paragraph 5.1 (which repeats paragraph 4.1 of the originating application), paragraphs 14 and 15 (which repeat paragraphs 6.1 and 6.2 of the originating application) and paragraphs 7 and 8 (which repeat paragraphs 7.1 and 7.2 of the originating application). 
15.	The application for summary judgment was supported by a witness statement (his sixth witness statement) made by Mr Matthew Wald, a partner in the firm of solicitors instructed by the administrator. Mr Wald referred, in that witness statement, to a bundle of documents which included the financial statements of the company for the accounting period 1 August 1996 to 31 December 1997 and for the financial years to 31 December 1998, 1999 and 2000. 
16.	In response to the application for summary judgment, Krikor Krikorian made and filed a witness statement (his seventh witness statement) dated 26 November 2004. At paragraphs 13 and 14 of that statement he said this:
“13.	Mr Wald refers to the fact that the accounts were subject to disclaimers by the auditors.  The accounts prepared for the Company were only disclaimed by the auditors in relation to the recoverability of the directors’ loans.  The auditors, as far as I am aware, at no time criticised the lack of accuracy of the records or the quality and presentation of the accounts as prepared by Mr Rutland on behalf of the Company.
14.	At all times, my father and I believed that the loans to us from the company could be repaid, if required, due to the substantial value of the brands in the Company.  This would take place either by sale of the shares or assets and make a distribution.  . . .” 
At paragraph 85 of that witness statement he accepted that he owed the company £2,253,336 – the amount shown due from him on his loan account as at 30 June 2001.  
17.	Avo Krikorian, also, made and filed a witness statement (his second witness statement, dated 29 November 2004) in response to the application for summary judgment. That witness statement contains the following paragraph:  
“5.  	I have read paragraphs 9-20 of my son’s seventh witness statement and can confirm the truth of the facts contained therein.  I can also confirm that I fully support the arguments that have been made by him in his statement.”
  At paragraph 12 of his witness statement Avo Krikorian said this:
“12.  	The Administrator claims that I owe Unigreg £227,423.00 outstanding on my loan accounts.  I do not accept that all this money was loaned to me; nevertheless, on advice from my solicitor, I have decided to take a practical view and will not argue against the Administrator’s assertion that this money is due.  The costs in so doing seem to me to be too great in comparison with any benefit to be obtained.”

The hearing on 10 December 2004  
18.	The application for summary judgment came before the judge for hearing on 10 December 2004. Avo Krikorian – and, I think, Krikor Krikorian – were represented by counsel. The hearing proceeded on the basis that the only live issue between the parties was that identified by the judge in the second paragraph of his judgment:
“The first matter which is controversial relates to the Applicants’ application for a declaration that the First and Second Respondents are both severally and jointly liable to the company for the amount outstanding as at the 30th June 2001 on directors’ loan accounts in their favour. There is no dispute that as at that date on the directors’ loan accounts which have been established, there was a sum due and owing from the First Respondent to the company of £227,423 and there was due and owing from the Second Respondent, who is the son of the First Respondent, to the company, the sum of £2,253,336. It is now not disputed that those directors’ loans were made by the company to the First Respondent and the Second Respondent in breach of section 330 of the Companies Act 1985 and that they were accordingly illegal loan transactions, and that the monies are liable to be repaid. For the amounts outstanding on their respective loan accounts the First and Second Respondent are content that a monetary judgment be entered. The dispute is as to whether each has a liability for the other’s loan.”

19.	It is said – and I accept for the purposes of this appeal – that counsel for the Krikorians applied, at the commencement of the hearing, for an adjournment for the purpose of putting evidence before the court to meet the claim that Avo Krikorian was liable not only for the monies on his own loan account but also for the monies on Krikor Krikorian’s loan account. The judge did not refer to that application in his judgment. It is, I think, plain either that he had not appreciated that he had been asked to adjourn the hearing or, perhaps, that he thought that he had already disposed of that application. Whatever the true position, the judge proceeded to judgment on the basis that there was to be no adjournment.  
20.	After the judge had delivered his judgment – which he did ex tempore – counsel for the Krikorians drew attention to the fact that (as he saw the position) the judge had not ruled on the application for an adjournment. He explained – perhaps at greater length than he had done at the outset of the hearing – that he sought an adjournment so that Avo Krikorian could consider whether to put in evidence to the effect that he did not know of Krikor Krikorian’s loan account. The judge refused to re-open the matter. He said this:   
“		. . . I am not persuaded, having looked at the evidence filed by the Second Respondent, and the extent to which the First Respondent confirms and endorses it, that I should change the ruling that I have already made.”
The evidence which the judge had in mind – as is clear from an earlier passage in the discussion following judgment – is found in paragraphs 13 and 14 of Krikor Krikorian’s seventh witness statement and in paragraph 5 of Avo Krikorian’s second witness statement. I have already set out those paragraphs. The judge accepted that Avo Krikorian had not, himself, signed off the 1999 accounts; but he went on:   
“		. . . he was a director and I would read this [paragraph 5 of Avo Krikorian’s second witness statement] as him accepting his son’s account that they were both at all times aware of the directors’ loans and of the way in which the auditors had treated them.”

21.	It is the judge’s refusal to grant an adjournment to enable Avo Krikorian to consider whether to put in evidence to the effect that he did not know of Krikor Krikorian’s loan account that has led to the applications of 29 December 2004 and 3 April 2006 which are now before this Court. 
The defence to summary judgment raised before the judge
22.	The application for an adjournment of the hearing on 10 December 2004 arose from, and was linked to, the contention that joint and several liability on the part of the former directors – and, in particular, joint and several liability under section 341(2) of the Companies Act 1985 – had not been raised in the originating application, nor in the application for summary judgment, nor in the evidential material filed in support of that application. Whether or not that contention can be made out on a strict analysis of the documents, it is, I think, fair to say that those advising the Krikorians first became aware that the administrator was seeking to make each former director liable for the loan account of the other on or about 6 December 2004. The primary submission made to the judge on behalf of the Krikorians was that it was not open to the administrator to seek a finding of joint and several liability on the basis of the material which he had put before the court on the application for summary judgment.
23.	I have set out the relevant paragraphs of the originating application and of the notice of application for summary judgment. It is striking that there is nothing in paragraphs 6.1 and 6.2, nor in paragraphs in 7.1 and 7.2 of the originating application, nor in the equivalent paragraphs of the notice of application for summary judgment, which suggests that the administrator was seeking an order against each former director that he pay all or any part of the indebtedness of the other. The only indication that the administrator was seeking to hold each liable for the indebtedness of the other is found in paragraph 4.1 of the original application and paragraph 5.1 of the notice of application for summary judgment – which contain the allegation that both directors were guilty of misfeasance “by causing or allowing [the company] to create and operate their directors’ loan accounts . . . in contravention of section 330 of the 1985 Act”.   
24.	Nevertheless, as I have said, the point had emerged by the time of the hearing before the judge on 10 December 2004. In advance of that hearing the administrator had lodged a written note (extending over 29 pages of close type) of the outline submissions that were to be made on his behalf. Section 5 of that note is headed “Joint and several liability for s.330 loans”. It includes the following paragraphs:
“14	In paragraph 4.1 of the relief on page 2 of the notice of application . . . the Administrator seeks a declaration that Avo and/or Krikor were guilty of misfeasance and breach of duty as directors of Unigreg Limited by causing or allowing it to operate the Illegal Loans in breach of s.330 of the 1985 Act . . .
. . . 
20 	. . . it is now understood that the Krikorians admit liability to repay the Illegal Loans on the basis that £227,423 (plus interest) is owed by Avo and £2,253,336 (plus interest) is owed by Krikor. The only issue is whether they are jointly and severally liable for the Illegal Loans. This is an important issue because Krikor asserts that he is impecunious . . .
21		They are jointly and severally liable both under the statute and at common law:-
 	21.1	By s.341(2)(b) both the receiving director and any director who authorised the loan in contravention of s.330 are jointly and severally liable ‘to indemnify the company for any loss and damage resulting from the arrangement or transaction’
21.2	At common law, where more than one director is involved in the same breach of duty, they are jointly and severally liable to the company for the total amount misappropriated . . . The modern statement of the rule derives from Re Carriage Co-operative Supply Association (1884) 27 ChD 322.”
Paragraph 21.1 of the note contains, I think, the first reference to section 341(2)(b) of the Companies Act 1985 made in the material upon which the administrator relied in the proceedings.
25.	The assertion that Avo Krikorian was jointly and severally liable for the amount standing to the credit of the company on Krikor Krikorian’s loan account – alternatively, was liable to contribute to any shortfall which could not be recovered from Krikor Krikorian as primary debtor – was made, also, in a letter dated 6 December 2004 from the administrator’s solicitors to those acting for the Krikorians. The letter contains these paragraphs:
“3.	Further it was misfeasance for the directors (who were Avo and Krikor Krikorian) to cause or permit both loans to arise, and they are each liable to the company to “contribute” for doing so (paragraph 11 of the claim).
4.		It follows that while each director will be liable in debt for the loan to himself, each will also be liable to the company to make a “contribution” (ie to pay damages to the extent that the company fails to recover the debt owed by the other).
5.		It is Krikor Krikorian’s case that he is without the means to repay his loan.  The practical consequence is therefore likely to be that Avo Krikorian will be liable to the company to contribute a sum over and above that represented by the debt he himself owes the company.”

26.	A skeleton argument was lodged on behalf of Avo Krikorian at or very shortly before the hearing on 10 December 2004. It was said, in paragraph 10 of that skeleton, that it was not open to the administrator to advance a case on the basis of joint and several liability: 
“Joint and several liability
10.  	In particular it was indicated expressly for the first time on 6th December 2004 that [the applicants] will advance a case on the basis that [the first and second respondents] are jointly and severally liable for each other’s directors’ loan account. . . . It is not accepted that this case is made out on the pleadings or advanced in the witness statements or indicated by the relief sought against the named respondents . . .  Nor was it advanced in any letter before action.  It is not therefore a case that [the respondents] are prepared to meet or, absent amendment, one which is open to [the applicants] to advance.  The declarations that are relied upon in support of this allegation . . . accordingly should not be made in relation to this particular issue.  A fortiori, having regard to the clear terms of the relief sought in both the Notice of Application and the [summary judgment] application as to the judgment sum sought against [the respondents], this late extension of the claim should not be permitted.”

The judge’s decision  
27.	That was the position when the matter came before HH Judge Havelock-Allan QC on 10 December 2004. In addressing the contention that it was not open to the administrator to advance a case on the basis of joint and several liability the judge noted that the originating application had sought a declaration in the terms of paragraph 4.1. He went on to say this:
 “Whilst the declaration that is sought, and I quoted from paragraph 4.1, does it seems to me raise a case of joint and several liability even if those words are not used, [counsel for the Krikorians] points out that the subsequent monetary claim advanced was for the amount outstanding on that particular Respondent’s loan account, and not for the amount outstanding on the loan accounts of both of the Respondents.  There is force in that argument as a technical point of pleading, but in my judgment the Respondents ought not to have been misled by the way in which the claim was put in the application notice, when one reads that an order was also sought that both of them should contribute to the assets of Unigreg in such sums as the court deemed fit in respect of the misfeasance referred to in the previous paragraph of the application notice.  That paragraph included reference to the operation of both directors’ loan accounts.
Furthermore I do not consider, if there was an ambiguity, that it is one in the end which will cause either of these Respondents prejudice if the point is now allowed to be taken. . . . ”
Accordingly, the judge rejected the defence based on what he had described as “a technical point of pleading” and gave effect to the view which he had formed on the substance of the claim.
28.	The judge held that (subject to one qualification) the substance of the claim to joint and several liability had been made out by the administrator. He set out the argument advanced on behalf of the Krikorians: 
“The point made on behalf of the Respondents is this: the joint liability that emerges from section 341, subsection 2, or indeed at common law, is premised on the assumption that each director authorised the loans to be made.  It is plain from the Judgment in the case of Carriage Co-Operative Supply Association that the basis of the liability in that case of the one director to pay the share contribution of the other four [directors] was because the shares were originally allotted at a meeting to which they all subscribed and at which they were all present.  What [counsel] says on behalf of the Respondents is that the Applicants here cannot show that the First Respondent authorised the making of the illegal loans to the Second Respondent, or that the Second Respondent authorised the making of the illegal loans to the First Respondent.

29.	The judge pointed out that: “No case has been raised either in the defences served or in the evidence that has been filed by the First and Second Respondent which says in terms that they did not cause or allow, as it is put in the application notice, these illegal loans to be made”. He referred to the company’s financial statements to 31 December 1997, 1998 and 1999 which, as he said: “On each occasion . . . stated that there were balances owed to the company on directors’ loan accounts” and “recorded . . . the opinion of the auditors [that] these loans have been made in contravention of section 330”. He said that he regarded it as unarguable that Krikor Krikorian – who had signed the accounts and “was at all material times until July 2001 the managing director of the company” - did not authorise the loans which were outstanding on his father’s account. He accepted that it was less clear that Avo Krikorian “would have known of the amount of the loans that were being made to his son”. And he went on to say this:
“. . . I do not accept, however, that any arguable case can be made out by Mr Avo Krikorian that he was unaware of or did not approve and authorise the making of loans to his son at least until the point when the accounts were signed off to 31st December 1999, because those accounts could only have been signed off if the board had approved them, and at the point when the accounts were seized [signed] in October 2000 Mr Avo Krikorian was still a director.  At that stage the amount which his son owed to the company was less than the amount now claimed on this application but it was nevertheless a substantial figure, a sum of £1.692 million.  Thereafter it is less plain on the evidence as to whether Mr Avo Krikorian would have known and therefore approved of the increase in the amounts borrowed by the son from the company, either during the period when Mr Avo Krikorian remained a director between December 1999 and July 2001, or subsequently when he had ceased to have any direct involvement in the business.  In those circumstances it seems to me that there is a possible defence to joint liability that the First Respondent may have about the increase in the amount that was outstanding from his son after the end of December 1999.”

30.	The judge gave effect to his decision by the order which he made on the 10 December 2004. He ordered that Krikor Krikorian pay the outstanding balances (as at 18 July 2001) both on his own loan account and on Avo Krikorian’s loan account, with interest; and he ordered that Avo Krikorian pay the outstanding balance (as at 18 July 2001) on his own loan account and £1,692,174 “(being the sum due to Unigreg on Krikor Krikorian’s director’s loan account as at 31 December 1999)”, with interest. 18 July 2001 was, of course, the date on which the Krikorians ceased to be directors of the company.
31.	The judge refused permission to appeal from his order of 10 December 2004. He noted, as his reasons:
“Application was made for permission to appeal that part of the summary judgment against 1st Respondent which held him jointly liable up to a sum of £1.692 million for illegal loans made by the Company to 2nd Respondent (his son and co-director) on ground that adjournment should have been granted to allow 1st respondent to adduce further evidence.  Permission to appeal refused because no real doubt that joint as well as several liability was being alleged by Administrator, and evidence filed by 2nd Respondent, and confirmed by 1st Respondent, indicated that there was no real prospect of 1st Respondent of being able successfully to contend that he was unaware of, and did not approve, 2nd Respondent’s unlawful borrowings at least in the period covered by the signed accounts when both Respondents were directors.  In my view no real prospect of an appeal succeeding.”

The grounds of appeal 
32.	Avo Krikorian – but not, so far as I am aware, Krikor Krikorian – sought permission to appeal to this Court. As I have said permission was granted by Lady Justice Arden on 31 March 2005. Her reasons, after consideration on the papers, were noted in these terms:  
“Real prospect of success as to interpretation of Companies Act 1985, s 342(2) and as to whether either the approval by the appellant of the 1999 accounts (the sole reason given by the judge for entering summary judgment against the appellant for his co-director’s loan) or the evidence to which the judge refers at page 8 of the transcript (which formed the basis of the judge’s refusal of an adjournment) could of itself result in the appellant being jointly and severally liable under the general law for the whole of the loan to his co-director.”
She adjourned the application to rely on fresh evidence to be heard with the appeal. That was the application filed on 30 December 2004 to which I referred at the beginning of this judgment. At the time when the application was before her, Avo Krikorian had filed a witness statement (his third witness statement) dated 28 January 2005.
33.	Avo Krikorian appeals from so much of the order of 10 December 2004 as (i) refused his application to adjourn the hearing on that date and (ii) declared that he was liable for the sum of £1,692,174, being the amount outstanding on Krikor Krikorian’s loan account as at 31 December 1999. His grounds of appeal (after amendment) are set out under three heads and may fairly be summarised as follows: (i) that the judge was wrong to hold that the claim to joint and several liability in relation to Krikor Krikorian’s loan account was pleaded (or sufficiently pleaded) in the originating application of 15 October 2003; (ii) that the judge was wrong to hold that the claim to joint and several liability was the subject of the application for summary judgment or was established by the evidence filed in support of that application; and (iii) that, if the question of joint and several liability in relation to Krikor Krikorian’s loan account was adequately pleaded, or was raised in the application for summary judgment or by the evidence, the judge was wrong to refuse Avo Krikorian’s request for that aspect of the summary judgment application to be adjourned “pending his consideration and filing of evidence in response to the allegations made against him.”
The further evidence
34.	Although it might be said that a strict approach should require the court to consider whether the judge was wrong to refuse an adjournment of the hearing of 10 December 2004 (in so far as it related to the claim that Avo Krikorian was jointly and severally liable for Krikor Krikorian’s loan account) before considering the further evidence which, as Avo Krikorian contends, he would have wished to put before the judge if the adjournment had been granted, it is, I think, convenient – in the circumstances of this case – to set out, at this stage, what that evidence would have been. The following paragraphs – in Avo Krikorian’s third witness statement (28 January 2005) – are relevant:
“8.	In 1994, my wife Seta died. At that time I was 69 years of age. Although I remained a director of Unigreg Limited and resident in England until August 2000, my increasing age and the devastating sudden loss of my wife from cancer meant that I became much less involved in the business of Unigreg and I ceded the day to day running of the business to my son, and Mr Alan Booth, General Manager and Mr Alan Rutland, Financial Controller, as I describe below. From about 1997, my health began to deteriorate and I became less mobile and able to devote time to Unigreg. Even so, I remained available to be consulted by any of these individuals (especially if something concerned them as a group or individually).
. . . 
27.	I did not cause, allow or authorise my son’s substantial drawings from Unigreg nor was I aware of them prior to February 2001 when I met Mr David Jeffery, the company’s UK tax adviser, in Switzerland . . . 
28.	. . . I was very unhappy about the large drawings that my son had made and expressed this anger to both my son and Mr Booth in or around early 2001 when I met them both in Geneva.
29.	Having regard to the accounts exhibited [to Mr Wald’s sixth witness statement] the evolution of the amounts owed was as follows:-	
Year ended:	Date of approval: signatory	Balance of loan:  AKK	Balance of loan;  KAK	
31/07/94	28/04/95;  KAK	£98,163	Nil	
31/07/95	18/03/96; AKK + KAK	£26,771	Nil	
31/07/96	23/05/97; KAK	Nil	Nil	
31/12/97	21/07/99; KAK	£93,870	£867,111	
31/12/98	21/06/00; KAK	£109,719	£1,324,434	
31/12/99	06/10/00; KAK	£399,148	£1,692,174	
 
30.	Thus, the last accounts which I signed were for the year ended 31 July 1995 and were signed by me and my son in March 1996. It is clear from the accounts for that year and for the years ended 31 July 1994 and 31 July 1996 that my son had, at each year end, no debts owed to Unigreg. After March 1996 I was not present at any board meeting which considered the accounts . . . (or their draft form) or any accounts which disclosed the monies that were outstanding on my son’s loan account. The accounts for the later years were all signed by my son as Managing Director. By the time that the accounts for the year ended 31 July 1997 (sic) were signed in July 1999, I was aged 74 and, having secured the services of Messrs Booth and Rutland, would have relied on them (or indeed, the auditors) to draw my son’s substantial borrowings to my attention. None of them did so at any stage or, particularly, in 2000 when, in close succession, the 1998 accounts were signed (some 4 -6 weeks before I moved abroad) and the 1999 accounts (some 6-8 weeks after I had moved to Geneva). Nor do I recall receiving (whether from Unigreg or the auditors) any accounts (including those listed above) after those I had signed in March 1996 that showed my son had run up a director’s loan account or one that he had failed to repay such a loan. Nor did I discuss the matter or subject with my son, Messrs Booth or Rutland or the auditors. The first I became aware of his outstanding loan account was in February 2001, as I explain above. I was so shocked to hear of it and angry that I immediately asked my son, Mr Booth and Mr Rutland to sell the company as quickly as possible to pay the debts owed to creditors. . . .
31.	Furthermore, I can confirm that I did not sign any cheques or otherwise make or authorise any payments to my son forming part of the loan accounts for which he and I are being pursued. . . .
32.	I understand that His Honour Judge Havelock-Alan QC (sic) has stated that paragraph 14 of my son’s seventh witness statement and my confirmation in paragraph 5 of the truth of the facts contained therein meant that I understood that I was at least aware of, if not that I approved, the Second Respondent’s borrowings ‘at all times’ and thus liable to the extent ordered by him. The Judge’s reading of this aspect of the evidence is incorrect. I have explained the position above. However, when I became aware of my son’s loan account, I was not only shocked by its amount but also took action to repay it by insisting on a sale of the brands as explained above, within the company which (as later events have demonstrated) had substantial value. My agreement with my son’s evidence should only be understood to the extent that my belief only subsisted after I became aware of the loan in February 2001.”

35.	The administrator’s response to the evidence on which Avo Krikorian seeks to rely is set out in a further witness statement of Mr Wald, made on 4 May 2005.The assertion that Avo Krikorian did not discover the loan accounts until February 2001 is challenged as “not credible” having regard to “the nature and extent of the contemporaneous documentary evidence and his conduct of this litigation”. The administrator relies on material which was in the bundle of documents put before the judge at the hearing on 10 December 2004; although the judge’s attention was not, I think, drawn to that material at that hearing. In addition he relies on the copy of a minute of a board meeting held on 27 July 1999. 
36.	The minute, which is signed by Mr Booth as company secretary and was entered in the company’s minute book, records that the meeting was conducted by telephone conference call between Avo Krikorian, Krikor Krikorian and Mr Booth. It is in these terms:
“It was confirmed that all parties to the meeting were in receipt of the financial statements of the company for the 17 month period ended 31 December 1997.
Discussion took place concerning the results for the period and the proposed qualified opinion from the auditors, PricewaterhouseCoopers.
After due consideration it was resolved that the financial statements be approved in the format presented, and that the Managing Director be authorised to sign them on behalf of the directors.”

37.	Avo Krikorian has addressed that minute in a further witness statement made on 30 March 2006, which is the subject of the application notice filed on 3 April 2006 to which I referred at the beginning of this judgment. He says this:
“8.	I confirm I have no recollection of this telephone meeting nor can I recall being (and neither do I accept that I was) “In receipt of the financial statements of the company for the seventeen month period ended 31 December 1997”. I consider that it is curious that I should be examining accounts in a hotel room, as my usual method of conducting business was to have a face to face meeting with Mr Booth to discuss matters of such importance. I would certainly not discuss accounts with Mr Booth at the end of a telephone line and therefore I believe I probably did not have the accounts, even if the meeting did, in fact take place.”
It may be noted that Avo Krikorian does not challenge the authenticity of the minute. Nor, as it seems to me, is there any reason to doubt its accuracy. Given that BDO Stoy Hayward had resigned as auditors on 20 February 1998, that the 1997 accounts were well overdue and that the newly appointed auditors, PricewaterhouseCoopers, were proposing to qualify their audit report, it seems to me impossible to doubt that Mr Booth, formerly a senior employee of Barclays Bank plc, would have sought to ensure that the accounts were approved by the directors.  Further, it is pertinent to have in mind that, where minutes have been made of a meeting of directors and entered in books kept for that purpose, section 382(4) of the Companies Act 1985 provides that, until the contrary is proved, “the meeting is deemed duly held and convened, and all proceedings had at the meeting to have been duly had”.   
38.	The material in the bundle of documents before the judge on 10 December 2004 – and to which Mr Wald drew attention in his witness statement of 4 May 2005 – included an exchange of letters between Avo Krikorian and Barclays Bank plc in March, April and May  2000. On 3 May 2000, following a meeting with Krikor Krikorian on 28 April 2000, the bank wrote to Avo Krikorian to explain why it was unwilling to provide loan facilities of £1 million. The letter includes the following paragraph:
 “The Bank appreciates the difficulties which the company has had in China and the progress which has been made.  Unfortunately, the investment of £1.1m was not funded in a proper manner and has caused the present cash shortage.  In addition, the position has been exacerbated by the withdrawal of funds by the directors.  Over the past 12 months, loans to directors have increased by £617,000 and now stand at £2,261,000 against Net Tangible Assets of £428,000.”  [emphasis added]
The reply to that letter – which is addressed to the chairman of the bank, which purports to have been sent by Avo Krikorian and which demands reconsideration of the decision to refuse “as a matter of urgency” - contains this sentence: 
“. . . The bank is aware of the steps being taken by me personally to re-finance Unigreg Ltd, which will obviously re-dress and tackle the question of the directors loans alluded to in the letter of refusal.”

39.	In his witness statement of 30 March 2006, Avo Krikorian refers to that correspondence in these terms:
“3.	. . . I can confirm that I had no role whatsoever in this correspondence. I neither wrote nor signed these letters nor did I consider them at all until my solicitor sent me Mr Wald’s witness statement of 4 May 2005. . . .
4.		I have spoken to my son about the correspondence passing between Barclays Bank Plc and Unigreg Limited. He has informed me that he wrote the letters of 1 March 2000, 26 April 2000 and 4 May 2000 to the Chief Executive and Chairman of Barclays Bank Plc and that he had hoped that this would be more advantageous to Unigreg Limited due to my long relationship with Barclays Bank Plc. I played no role in composing or sending those letters. . . .  I can also confirm that I was unaware of the meeting on 28 April 2000 between my son and Barclays Bank Plc. I had by then yielded considerable control of the company to my son . . . ”
Avo Krikorian accepts that the letters on which the administrator relies were in the material which was before the judge on 10 December 2004 and that he did not, then, disclaim knowledge of those letters. His explanation is that the documents were not sent to him by his solicitor in advance of that hearing. But, it is pertinent to have in mind (i) that in his witness statement of 7 October 2004 – made in support of the application for summary judgment – Mr Wald had referred to those letters (at paragraphs 134 – 136); (ii) that in his witness statement of 29 November 2004 (at paragraphs 37 to 43) Krikor Krikorian notes that Mr Wald’s witness statement “illustrates some but not all of the ways that my father and I tried to assist the company” and “records the numerous attempts that were made by my father and I to seek assistance from the bank” and (iii) that in his witness statement of 29 November 2004 (at paragraph 7)Avo Krikorian states that: “I have read paragraphs 31-48 of my son’s statement and confirm the truth of the facts contained therein”.  
The obligations imposed by the Companies Act 1985 
40.	I have set out the further evidence in some detail because it explains the circumstances in which the administrator sought summary judgment in this case in a way which is, perhaps, rather fuller than that which was presented to the judge. But it is of importance, also, to have in mind the statutory obligations imposed on the Krikorians as directors of the company. They are to be found in Part VII of the Companies Act 1985.
41.	Section 221(1) of the 1985 Act requires that every company shall keep accounts which are sufficient to show and explain the company’s transactions and to enable the directors to ensure that accounts prepared under Part VII comply with the requirements of the Act. Section 226 of the Act requires the directors to prepare accounts which comply with the provisions in schedule 4 to the Act. Section 232 requires that the information specified in schedule 6 must be given in notes to the accounts.  Paragraph 16(a) in Part II of schedule 6 requires that the accounts must contain particulars of any transaction or arrangement described in section 330 of the Act. Section 233 requires that a company’s annual accounts shall be approved by the board of directors and signed on behalf of the board by a director of the company. If annual accounts are approved which do not comply with the requirements of the Act, every director of the company who is party to their approval and who knows that they do not comply or is reckless as to whether they comply is guilty of an offence; and, for that purpose, every director of the company at the time that the accounts are approved shall be taken to be a party to their approval unless he shows that he took all reasonable steps to prevent their being approved.  – section 233(5) of the Act.  
42.	The directors must lay a copy of the accounts before the company in general meeting – section 241 of the Act – and must deliver a copy to the registrar of companies – section 242. In the case of a private company the accounts must be delivered to the registrar within the period of 10 months after the end of the relevant accounting period.
43.	In the present case, the accounts for the accounting periods ended 31 December 1997, 31 December 1998 and 31 December 1999 purport to have been approved by, and to be signed on behalf of, the board of directors. They disclose the information required by paragraph 16(a) of schedule 6 to the 1985 Act. Avo Krikorian asserts, in his witness statement of 28 January 2005, that he was not aware of the contents of those accounts. But he does not disclaim responsibility for the accounts delivered to the registrar by the company of which he was a director; nor suggest that he thought, at any stage, that the board was failing to comply with the obligations which the 1985 Act imposed in relation to the preparation, approval and delivery of accounts. In my view he must be taken to accept responsibility for those accounts. Section 233(5) of the Act – although not directly in point in this case – points to the intention of the legislature that a director cannot escape responsibility for the accounts of a company of which he was director at the time when they were approved by mere inactivity.
The applications filed on 30 December 2004 and 3 April 2006
44.	As I have said, Avo Krikorian has applied for permission to rely on the evidence contained in his witness statements dated 28 January 2005 and 30 March 2006. Although it could be said with force that – if Avo Krikorian intended to oppose the claim made in paragraph 4.1 of the originating application (paragraph 5.1 of the notice of application for summary judgment) - the evidence in the first of those statements could and should have been put before the judge at the hearing on 10 December 2004, I would treat that evidence as before this Court. I find it surprising that the administrator failed to identify – with appropriate specificity – that the claim made in paragraph 4.1 of the originating application was based on section 341(2)(b) of the 1985 Act until very shortly before that hearing; and, although it may be said that paragraph 4.1 is sufficient to embrace a claim under that section, I have some sympathy with the contention, advanced on behalf of Avo Krikorian, that paragraphs 6.1 and 6.2 of the originating application (read with paragraphs 7.1 and 7.2) deflected attention from the fact that the administrator was claiming the amounts outstanding on the two loan accounts on the basis of joint and several liability. In the particular circumstances of this case, it seems to me more satisfactory that, if summary judgment against Avo Krikorian in respect of any part of his son’s indebtedness is to be upheld, the evidence on which Avo Krikorian seeks to rely in defence of that claim should be before this Court.   
45.	If Avo Krikorian is to be allowed to rely upon the evidence contained in the witness statement of 28 January 2005, the administrator must be allowed to rely on Mr Wald’s further witness statement of 4 May 2005; which (as I have said) largely consists of a commentary on documents which were before the judge and which, accordingly, are already in evidence in this Court. The new material is the minute of 27 July 1999. That, as it seems to me, is properly admissible as a response to Avo Krikorian’s contention (in his witness statement of 28 January 2005) that he had not seen the 1997 accounts. And, if that minute is allowed in, Avo Krikorian’s explanation, in his witness statement of 30 March 2006 should be admitted also.
46.	I should add, however, that – although the new evidence gives a fuller picture of the circumstances underlying the administrator’s claim – it does little, if anything, to advance Avo Krikorian’s defence to the claim that he is liable for his son’s indebtedness. He does not challenge the authenticity of the minute of 27 July 1999 – although the date of that minute is not easy to reconcile with the date (21 July 1999) on which the 1997 accounts purport to have been signed  - and, as I have said, in the absence of contrary evidence, the provenance of the minute is proof of its contents. And, even if (straining credulity) his evidence that he knew nothing of his son’s indebtedness until February 2001 were accepted, he cannot escape responsibility for the accounts which were prepared, signed and delivered by the board of which he was a member.
This appeal
47.	The effect of treating the evidence upon which Avo Krikorian wishes to rely as before this Court is that the grounds of appeal set out in the appellant’s notice (as amended) fall away. The question for this Court, as it seems to me, is whether a finding of joint and several liability, under section 341(2)(b) of the 1985 Act or under the general law, can stand on the facts which have now been disclosed. To my mind, the answer to that question does not admit of much elaboration. 
48.	Where an arrangement or transaction is made by a company for a director of the company in contravention of section 330 of the Act, section 341(2)(b) imposes liability “to indemnify the company for any loss or damage resulting from the arrangement or transaction” on any other director of the company “who authorised the arrangement or transaction”. Sub-section (2) of section 341 must be read with sub-section (5):
“(5)	In any case, . . . any such other director as is mentioned in subsection (2) is not so liable if he shows that, at the time the arrangement or transaction was entered into, he did not know the relevant circumstances constituting the contravention.”                      			
It is important, therefore, both in the context of sub-section (2) and in the context of sub-section (5), to identify the “arrangement or transaction” which is said to be in contravention of section 330 of the Act.
49.	The complaint in paragraph 4.1 of the originating application is that Avo Krikorian and Krikor Krikorian were in breach of duty in causing or allowing the company “to create and operate their directors’ loan accounts through which they caused or allowed [the company] to loan moneys to them in contravention of section 330 of the 1985 Act”. That, as it seems to me, goes beyond a complaint that individual payments were made to the directors by way of loan. Properly understood, it is a complaint that the Krikorians allowed a practice to arise and continue under which lending by the company to the directors was treated as acceptable. And, to my mind, it can properly be said that a director who knowingly allows a practice to continue under which lending by the company to his co-director is treated as acceptable has authorised the individual payments which are made in accordance with that practice notwithstanding that he did not have actual knowledge of each individual payment at the time that it was made.
50.	I would accept that it has not been established in the present case – to the standard required to support an application for summary judgment – that Avo Krikorian had actual knowledge of each individual payment made to his son at the time that the payment was made. I would accept, also – although with some hesitation – that it has not been established to the standard required that Avo Krikorian knew, before 21 July 1999 (or, perhaps 27 July 1999) when the 1997 accounts were approved by the board, that the company was lending to Krikor Krikorian. But, as it seems to me, there can be no doubt that, from and after the relevant date in July 1999, Avo Krikorian did know of the practice, that he took no steps to bring it to an end, and (in particular) that he took no steps to cause the company to call in the outstanding loan. In that context it is relevant to have in mind (i) that the loans were described in the accounts as repayable on demand (and there is no reason to think that they were not) and (ii) that Avo Krikorian controlled the company. 
51.	It follows that I would hold that, for the purposes of section 341(2)(b) of the 1985 Act, Avo Krikorian authorised so much of the lending by the company to Krikor Krikorian as took place after 27 July 1999; with the consequence that he is liable to indemnify the company for loss resulting from that lending. It is impossible, on the material available, to quantify the amount of the lending to Krikor Krikorian which took place after 27 July 1999; but, as it seems to me, it must amount, at the least, to the difference between £2,253,336 (the amount outstanding as at 30 June 2001) and £1,692,174 (the amount outstanding as at 31 December 1999). For my part I would give summary judgment for an amount equal to that difference (£561,162) and for such further sum as can be shown to have been lent by the company to Krikor Krikorian between 27 July 1999 and 31 December 1999.
52.	I would hold, also, that Avo Krikorian was in breach of duty in failing to take the steps which (plainly) were open to him to cause the company to call in the indebtedness outstanding at 27 July 1999. That goes beyond the amount shown in the accounts to December 1997. Having learnt on 27 July 1999 (if not before) of the practice which had been allowed to arise – and which inquiry would have shown to be continuing – his duty as a director required not only that he put a stop to that practice but also that he took steps to recover the indebtedness: a fortiori, in the circumstances that the auditors had qualified the accounts because, as they said, “of the possible effect of the limitation in evidence available to us in respect of the director’s loan”. I would make a declaration to that effect. The effect of the misfeasance, however, is not that Avo Krikorian is liable to repay the whole of Krikor Krikorian’s indebtedness as at 27 July 1999. He is liable to pay to the company the difference between what could have been recovered by the company if it had sought repayment of the indebtedness from Krikor Krikorian immediately after 27 July 1999 and the amount now recoverable in respect of that indebtedness. It seems to be common ground that the latter amount is nil.
Conclusion
53.	I would allow the applications of 30 December 2004 and 3 April 2006. I would allow the appeal to the extent that I would set aside paragraph 3.2 of the order of 10 December 2004 and (in place of that paragraph) order that Avo Krikorian pay to the company the sum of £561,162 and such further sum as may be shown to have been lent by the company to Krikor Krikorian between 27 July 1999 and 31 December 1999, with interest on those sums. And I would make the declaration as to misfeasance that I have indicated.  

Lord Justice Dyson:
54.	I agree.
Sir Martin Nourse:
55.	I also agree.