England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/08/2011

Mr Justice Sales:

Introduction

1. This is the judgment in proceedings brought by the joint administrators of the Claimant ("MAGE"), Mr Philip Duffy and Mr Nigel Atkinson ("Mr Duffy" and "Mr Atkinson", together "the Joint Administrators"), ordered to come on as a speedy trial. By an order dated 20 April 2011 receivers (Mr Atkinson and Mr Mark Fry) were appointed in relation to MAGE's business on a temporary basis, and by order dated 10 May 2011 MAGE went into administration and the Joint Administrators were appointed.
2. The main issues in the case relate to whether MAGE enjoys rights of occupation in respect of three aircraft hangars ("the hangars") and certain related storage buildings, workshops and offices (I refer to these together with the hangars as "the premises") at Fairoaks Airport, Chobham, Surrey ("the Airport"). In particular, MAGE claims that it is the tenant of the premises under an implied periodic tenancy. The First Defendant ("Longmint Aviation") disputes this, and contends that MAGE is a mere licensee in respect of its use of the premises.
3. The main office building used by MAGE is a building known as Unit A17. The older part of Unit A17 consists of a reception area and offices. It is used by employees of MAGE and persons working for it on a subcontractor basis. There is an issue regarding the extent to which it has been used by others. An extension to Unit A17 was completed in 2006 comprising workshop areas. Since 2006 these have been used by MAGE to carry out design and construction work for the interiors of small aircraft and helicopters.
4. The current ownership of the premises is as follows. The owner of the freehold of the premises and of the rest of the land at the Airport is a company called West Register (Property Investments) Limited ("West Register"), a subsidiary of the Royal Bank of Scotland. West Register assumed the freehold rights in relation to the Airport as a result of the operation of security arrangements over the land at the Airport when the previous freehold owner Albemarle Fairoaks Limited (a company associated with the Longmint Group, which seems to have acquired freehold title from a previous owner, Burbank Holdings SA - "Burbank") defaulted on loan repayments due to Royal Bank of Scotland. On 26 July 2007, Burbank granted Longmint Aviation a ten year lease of certain land at the Airport, including the premises ("the Longmint Aviation lease"). As mentioned above, there is an issue between the parties whether MAGE has rights as a tenant in relation to the premises.
5. In late 2010 Longmint Aviation fell into arrears with rent due under the Longmint Aviation lease and the question arose whether West Register would be entitled to forfeit the lease. The present position is that arrears of rent have been or are likely to be paid and West Register assesses it would not be able successfully to claim that the Longmint Aviation lease is terminated. Longmint Aviation therefore continues to have rights of ownership as lessee under the Longmint Aviation lease in respect of the premises.
6. In addition to the main issues in these proceedings regarding MAGE's rights in relation to the premises, an issue has arisen regarding the rights as between MAGE and Longmint Aviation in relation to an intercompany transaction booked on the instructions of Miss Lucy Cummings ("Miss Cummings"), a director of MAGE, on 3 May 2011 ("the inter-company transaction") – i.e. after the appointment of the receivers but before the appointment of the Joint Administrators. The inter-company transaction consisted of the booking of an entry on the inter-company account between MAGE and Longmint Aviation showing a debt due from MAGE to Longmint Aviation in the sum of £2.5 million. According to Miss Cummings, this was booked as an entry relating to a pre-existing debt owed by MAGE to another company, Longmint Group Limited, in respect of an agreement made in 2010, whereby Longmint Group Limited agreed to assume certain responsibilities and liabilities of MAGE concerning its staff pension fund in return for a payment of £2.5 million by MAGE to Longmint Group Limited. I examine the circumstances of the intercompany transaction in more detail in paragraphs [90]ff below.
7. The Joint Administrators made it clear shortly after their appointment that they proposed to challenge the validity of the inter-company transaction. They have issued a statutory demand against Longmint Aviation asserting that Longmint Aviation owes MAGE some £3,143,451, on the basis that the inter-company transaction and another inter-company transaction between Longmint Aviation and MAGE cannot be treated as a valid transactions. As regards the latter transaction, the Joint Administrators accept that there is an arguable dispute, the resolution of which is postponed to another hearing: it could not realistically be dealt with within the scope of the speedy trial that was ordered.
8. In the first witness statement of Mr Duffy, dated 31 May 2011, filed by the Joint Administrators in support of an application by them on behalf of MAGE to permit MAGE to regain entry to the premises (see para. [70] below), Mr Duffy made it clear that they challenged the validity of the inter-company transaction and asserted that it had no proper basis. Mr Duffy's second witness statement, dated 13 June 2011, maintained that position and explained further why the Joint Administrators adopted it.
9. Miss Cummings responded to that challenge by giving an account of the inter-company transaction in her third witness statement, dated 14 June 2011, in which she maintained that she directed the booking of the relevant entry in MAGE's books in good faith as part of an arrangement between Longmint Group Limited, Longmint Aviation and MAGE, whereby appropriate corresponding entries would in due course be made in the inter-company accounts of Longmint Aviation and Longmint Group Limited and Longmint Group Limited and MAGE.
10. As sometimes happens when a speedy trial is ordered, the pleadings at the start of the hearing did not fully reflect all the issues which the parties sought to place before the court at the trial. In this case it was only in his closing submissions that Mr Sutcliffe QC, for MAGE, sought to plead a case on behalf of MAGE to have the inter-company transaction set aside under section 238 of the Insolvency Act 1986 ("the 1986 Act"), even though the parties had in substance joined issue over it in the evidence put in on each side. Section 238 of the 1986 Act provides as follows:

"Transactions at an undervalue (England and Wales)

(1) This section applies in the case of a company where -

(a) the company enters administration; or

(b) the company goes into liquidation;

and "the office-holder" means the administrator or the liquidator, as the case may be.

(2) Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section.

(3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.

(4) For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if –

(a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or

(b) the company enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the company.

(5) The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied –

(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and

(b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company."

11. Mr Sutcliffe did not, by his proposed amendments, seek to plead a case based on breach of fiduciary duty on the part of Miss Cummings or breach of the order dated 20 April 2011 under which the court appointed receivers in respect of MAGE's business. It was not entirely clear to me why he did not. It may have been because he was somewhat at the mercy of the court in seeking to introduce an amended pleading at such a late stage in the trial and he did not wish to jeopardise MAGE's chances of obtaining permission to amend its pleadings at such a late stage in the trial by making the amendments more complex than he considered was absolutely necessary.
12. Mr Sisley, for Longmint Aviation, objected to the very late introduction of the proposed amendments to introduce the section 238 issue formally into the set of pleaded issues between the parties. I gave a ruling during the hearing giving permission to MAGE to amend its pleadings, on the basis that the substance of the Joint Administrators' complaint about the inter-company transaction was known to Longmint Aviation from well before the commencement of the trial; it had had and had taken the opportunity to respond to the complaint in the evidence adduced for trial and the Joint Administrators' complaints about the inter-company transaction had fairly been put to Miss Cummings in the course of her cross-examination, so that she had a further opportunity to explain it. However, since the amendment was introduced so late in the day, I gave Longmint Aviation permission to put in further written submissions on the inter-company transaction with permission to MAGE to reply in writing.
13. In its written submissions, Longmint Aviation submitted that I should direct that the section 238 issue and the challenge to the inter-company transaction be adjourned to be heard at a further oral hearing with further evidence. MAGE objected to that course.
14. I was not persuaded by Longmint Aviation's submission. In my view, the substance of the issues relating to the Joint Administrators' challenge to the validity of the inter-company transaction was appreciated by Longmint Aviation from before the start of the trial. That is why Miss Cummings was at pains to put in her third witness statement to explain the transaction and to maintain that it had been entered into in good faith on her instructions. I do not consider that it is necessary, fair, or appropriate to postpone ruling on that issue. There is a proper basis for me to rule on the issue now, having regard to the evidence presented at trial. I therefore dismiss Longmint Aviation's application for an adjournment in relation to consideration of the intercompany transaction and give a ruling on it at paras. [90]ff below.

Factual background

15. In 1990 a company called Burbank Properties Limited owned the freehold of the Airport. In that year it granted a lease of the land at the Airport to a company called Fairoaks Holdings Limited ("FHL"), which was part of a group of companies known as the Alan Mann Group – "the AM Group". MAGE was incorporated in 1992 as part of the AM Group. From 11 August 1997 FHL granted another company in the group, Fairoaks Airport Limited ("FAL"), an underlease of the land at the Airport ("the FAL underlease"). FAL was in practical terms the parent company of the AM Group.
16. The Airport was run by various operating subsidiaries of FAL, including MAGE. Generally, the Airport was used by AM Group companies for operating and hangaring light aircraft and for maintenance repairs and engineering works in relation to helicopters and light fixed-wing aircraft. It was a base for a company operating helicopters: Alan Mann Helicopters Limited ("AMH").
17. The principal evidence about this early period, and in particular about the situation from 2000 up to July 2007 (when companies in or related to the Longmint Group acquired the Airport and the companies in the AM Group) was given by Mr Roger Luscombe ("Mr Luscombe"). Mr Luscombe had been part of the senior management team in the AM Group, including acting as a director of MAGE, from September 2000 and continued to act as an employee of FAL. He also continued to act as a director of FAL: even though he resigned his directorships in the AM Group on 26 July 2007 as the Longmint Group and associated companies acquired the Airport and the AM Group companies, he was reappointed as a director of FAL on 1 December 2007.
18. Up until 31 March 2010, when he ceased to be involved in arrangements at the Airport, Mr Luscombe's role involved him carrying out services (on behalf of FAL) for MAGE. On 1 July 2010, his employment with FAL ended but Mr Luscombe continued (and continues) to act as a non-executive director of FAL. In my assessment, in the period he worked for FAL until 31 March 2010, Mr Luscombe was well-placed to have a detailed knowledge of the operations of companies in the AM Group and of the way in which they organised their relations with each other. He was an honest and reliable witness.
19. The other witness who provided the best evidence about the relations between AMH and other companies in the AM Group in the period from 2000 up to June 2010 was Mr Barry Hodgkinson ("Mr Hodgkinson"). Mr Sisley submitted that I should treat his evidence with scepticism, because he had left AMH in order to take up other opportunities in the helicopter business and had been sued by AMH culminating in the making by consent of an order against him. Mr Sisley submitted that Mr Hodgkinson's evidence was suspect, being the evidence of a disgruntled former employee of a company in the Longmint Group. In my assessment, however, Mr Hodgkinson also was an honest and reliable witness regarding matters relating to determination of the present dispute.
20. Under the FAL underlease, FAL was responsible for administering the payment of rent, rates and service charges by the various companies in the AM Group who used the Airport. According to Mr Luscombe, they were regarded as "sub-tenants" of particular areas in the airport. I take it from Mr Luscombe's witness statement that this was the term used within the AM Group from August 1997. There is also, for example, a schedule dating from 2007 listing "Tenants" of buildings at the Airport. The use of such terminology is of some significance as an indicator of the intended relationship between FAL and the other companies in the AM Group which occupied and made use of the land and buildings at the Airport.
21. Shortly after Mr Luscombe joined the AM Group, the engineering function within the group was restructured so as to consolidate it completely (including the group's aircraft maintenance, repair and adaptation functions) in MAGE. The functions transferred to MAGE included the engineering functions of AMH in relation to helicopters (AMH continued to provide services operating helicopters and offering hangarage facilities to customers who owned their own helicopters). Other engineering companies in the AM Group transferred their functions to MAGE and became dormant wholly-owned subsidiaries of MAGE. These included Mann Avionics Limited. This consolidation occurred on 1 November 2000.
22. On that date, as part of the restructuring of AM Group's engineering function, all the approvals from various regulators (the Civil Aviation Authority – "CAA" - the European Aviation Safety Agency, the US Federal Aviation Authority and, in relation to military contracts, the Ministry of Defence) which had previously existed in relation to a range of different AM Group companies, were brought to an end and were replaced by relevant approvals from those bodies issued for MAGE to carry out various repair, maintenance and adaptation engineering works in relation to defined categories of helicopters and light fixed-wing aircraft. Such approvals are only granted where the relevant regulator is satisfied that the approved person has the personnel (whether employees or regular subcontractors), appropriate premises and facilities and mode of operation for the engineering works in question to be undertaken safely and in a manner which provides assurance regarding the airworthiness of the aircraft subject to such works. It is necessary for a company which applies for and seeks to maintain such approvals to have in place what is called a maintenance organisation exposition ("MOE"), a document which defines and describes how the company proposes to operate and comply with regulatory requirements. The terms of the MOE are the foundation for the grant of the regulatory approvals referred to above. From November 2000 MAGE was the only company in the AM Group with a MOE and the only company with relevant regulatory approvals to carry out engineering works.
23. Probably because of the speed at which the case came on for trial, and the fact that the Joint Administrators now in control of MAGE's books and records have had to try to inform themselves about the historic position as well as the current position over a very short period of time, the MOE in place for MAGE from November 2000 was not located and put in evidence. I was provided with the current version of MAGE's MOE. Mr Luscombe was clear in his evidence that there was a MOE in place for MAGE from 1 November 2000, and it is intrinsically likely that the various regulators would have required a document with the character of a MOE to be in place from that time. I accept his evidence on this. It is probable that the MOE in place from November 2000 was equivalent in all its essentials to the MOE in place for MAGE at the time of trial.
24. The MOE in place for MAGE at all material times from 1 November 2000 has included a description of the locations at which the various engineering works on aircraft to be undertaken by MAGE and for which it holds its approvals from the various regulators would be carried out by MAGE. These comprise the premises in issue in these proceedings (i.e. Units A1, A2, A3, A17, A20, A26, A13A, A13B, A22, A21, A18, A23 and A14). The regulatory approvals which MAGE holds relate, by reference to the MOE, to these premises. This is significant for present purposes, again as an indicator of the intention of the relevant companies in the AM Group regarding the relationship between themselves after the restructuring on 1 November 2000.
25. Although the MOE and approvals did not require that MAGE should operate under arrangements such that the premises were to be open to access only to MAGE personnel, or that some special regime of restricted access should be in place, they did require that MAGE should be able to exercise effective control over the premises covered by the MOE. Thus, although MAGE was not required in ordinary circumstances to exclude, say, clients from occasionally wandering around the hangars, it would in my view be necessary for it to have the power to exclude any person if an issue ever arose to suggest that their presence on the premises might give rise to a risk that any engineering works being undertaken by MAGE at the premises might be compromised. If MAGE did not provide its regulators with assurance that it could exercise that level of control over the premises used for the engineering works covered by the MOE, it would be likely that its approvals would be withdrawn. In my view, this feature of the regulatory regime and the importance of the MOE and of the control over the premises which the MOE implied MAGE should have would all have been appreciated by the relevant decision-makers within the AM Group when they restructured the group and consolidated the group's engineering business in MAGE.
26. In the evidence, documents and submissions at trial people had a tendency to speak of the "transfer" of regulatory approvals between companies, as though the approvals had a nature akin to property of some kind. Where, as in November 2000, the whole engineering business of a company which held the relevant regulatory approval was transferred to another company, which then acquired the regulatory approval in place of that previously held by the first company, to talk of the "transfer" of the approval is understandable. However, on proper analysis, there is no transfer of the approval in such a case. The regulatory approval given by a body such as the CAA is personal to the person to whom it is given, who has to satisfy the CAA that it has the personnel, premises and mode of operation to undertake the approved activities safely. The approval is not an instrument or licence which can simply be "transferred" from an approved person to a second person who would like to carry out the same activities. Rather, if the second person wishes to gain an approval for its proposed activities from the CAA, it will have to satisfy the CAA that it personally is a fit and proper person to be approved, with appropriately skilled staff, appropriate premises and an appropriate mode of operation.
27. If the approved person is transferring a business, including its already approved staff, premises and mode of operation to a second person, it may be very straightforward and simple for the second person to persuade the CAA that it should, in turn, receive an approval to be able to carry out the same engineering works. In such a case, relevant regulators such as the CAA may be willing to adopt a more summary form of approval procedure than would be the case in relation to a fresh approval application made in the absence of such a background.
28. It is in my view clear that, when it consolidated its engineering activities in MAGE in November 2000 and thereafter, the AM Group wished to ensure that MAGE's business was in a state which would encourage companies to trade with it and encourage banks to lend money to it (or to companies associated with it, against a guarantee of repayment provided by MAGE). For example, MAGE's audited accounts for the years ended 31 October 2000 and 31 October 2001 both referred to it having a bank overdraft secured by a fixed and floating charge and noted that it had given an unlimited guarantee in respect of amounts due from companies in the AM Group to the group's bank. The objectives of encouraging trade creditors to deal with and banks to lend to MAGE required MAGE to have reasonable security that it could continue to carry on its engineering business, operating under its regulatory approvals and in accordance with its MOE (i.e. by operating at the premises). If MAGE had no security in relation to its occupation of the premises, its business and future revenues would have been precarious, which would have jeopardised its ability to obtain credit from persons trading with it and from banks.
29. With the consolidation of AM Group's engineering business in MAGE in November 2000, MAGE assumed occupation of all the premises, replacing other group companies which had previously occupied various of the buildings. The increased extent of its occupation of buildings at the airport in the form of the premises was reflected in an increase in the rent charged by FAL to MAGE. Prior to November 2000, the overall rent payable was divided between the various group companies occupying space at the airport, with the proportion of rent payable determined by reference to the extent of each company's occupation. From November 2000, the amount of rent paid by MAGE increased considerably, from about £13,700 p.a. to sums of the order of £240,000 p.a.. I accept the evidence of Mr Luscombe that the sums paid were intended to reflect the market value of the use of the premises as part of a pricing structure to allow the AM Group to make a sufficient profit.
30. The sums paid in respect of MAGE's occupation of the premises were described as "rent" in MAGE's audited accounts after November 2000. MAGE's accounts for year ended 31 October 2001 included, at note 5 on "Tangible Fixed Assets", an entry showing "Improvements to leasehold" at £22,276 in the year. Note 1(d) to those accounts stated, "Improvements to land and buildings are depreciated on a straight line basis to 30th October 2009". Note 5 indicated that MAGE had a leasehold interest in the land it occupied. Note 1(d) indicated that MAGE regarded itself as having an ownership interest in the land and buildings which it had improved.
31. In MAGE's subsequent audited accounts to the year end 31 October 2006 (the last accounts prepared before the acquisition of MAGE by the Longmint Group, described below), the payments for use of the premises were again described as "rent" and similar notes to the accounts were included. The rent was paid by means of entries in the inter-company account between MAGE and FAL.
32. The evidence of Mr Luscombe and Mr Hodgkinson was also clear that MAGE would charge other AM Group companies a fee for use of the premises. In particular, AMH would sometimes wish to work on or store helicopters in the hangars. If it did so on a long-term basis, it was required to enter into a contract arrangement with MAGE. If it asked to store a helicopter in the hangars on an ad hoc basis for a night at a time, it would only be permitted to do so if there was space available after allowing for MAGE's own activities and would be charged a fee of about £35 per night. These arrangements are strongly indicative of an intention that MAGE was intended to have a right of exclusive occupation of the premises.
33. This is a convenient point at which to take stock regarding the legal position in respect of occupation of the premises up to the change in control of MAGE and the Airport upon acquisition by the Longmint Group and companies associated with it in July 2007. In my view, the matters referred to in paras. [20]-[25] and [28]-[32] above all point in favour of the conclusion that the relationship between FAL and MAGE was intended to be and was one of landlord and tenant. In my judgment, it is to be inferred that the directors of MAGE and the directors of FAL intended the relationship to be one of landlord and tenant, with the attendant protection which MAGE would thereby derive as a business tenant from the Landlord and Tenant Act 1954 ("the 1954 Act"). In that regard it should be noted that protection for MAGE under the 1954 Act in respect of its right of occupation would have been valuable not just for MAGE itself, but also for FAL and the AM Group generally, since it provided further assurance for trade creditors and bank lenders that MAGE's business was secure and viable, and that MAGE would continue to be able to operate at the premises and thereby generate business revenues into the future to allow it to pay its debts (see para. [28] above). The other indicators of the intended nature of the relationship between FAL and MAGE regarding occupation of the premises all point strongly towards the inference that a landlord and tenant relationship was intended to be in place.
34. In circumstances where the owner of land and the person who occupies that land intend their relationship to be one of landlord and tenant (rather than a relationship of landowner and licensee, whether contractual or otherwise), and substantial periodic rental payments are made, the law is clear. A periodic tenancy will be found to arise by implication from those circumstances: Street v Mountford [1985] 1 AC 809, 818E-F. In my view, the position is the same whether one is looking at occupation of a residential property or at occupation of a commercial property: London & Associated Investment Trust Plc v Calow [1986] 2 EGLR 80; Woodfall's Law of Landlord and Tenant, para. 1.022, fn. 4, para. 1.023.
35. MAGE had physical control of the premises from 1 November 2000 and had the intention to exercise its control of the premises on its own behalf and for its own benefit: see J.A. Pye (Oxford) Ltd v Graham [2002] 3 All ER 865, [40]-[43], [70]-[71]. It paid periodic rent at full value. There was an intention to create legal relations between MAGE and FAL.
36. The intention to be inferred from the circumstances as to whether the tenancy was a tenancy at will or a periodic tenancy is that MAGE and FAL intended that it should be a periodic tenancy. They did not intend that MAGE should have only a precarious right of occupancy of the premises (see para. [28] above). The inference that their intention was that it should be a periodic tenancy is also supported by the way in which the rent was calculated and paid, namely (as seems probable, as I find below) as a yearly rent payable in quarterly instalments: cf Woodfall, para. 6.054.
37. The Joint Administrators submit that by virtue of the Land Registration Act 1925 and the Land Registration Act 2002 the periodic tenancy granted by FAL to MAGE is an overriding interest, which takes precedence over the terms of the Longmint Aviation lease which came into existence later in time. Mr Sisley accepted that MAGE's periodic tenancy is an overriding interest. Therefore, MAGE's rights in relation to the premises are governed by that tenancy, and are not qualified, limited or reduced by any term contained in the Longmint Aviation lease.
38. On 26 July 2007 a company associated with the Longmint Group (Erinaceous Group plc) acquired FHL and FAL for about £40 million and created an investment company to which the part of the freehold of the airport, which included the premises, was sold. Longmint Aviation was granted the Longmint Aviation lease. On the same date, the Longmint Group acquired the other companies in the AM Group, including MAGE.
39. The Longmint Aviation lease contained a provision at clause 20 as follows:

"[Longmint Aviation] may share occupation of the Property with any company that is a member of the same group (within the meaning of section 42 of [the 1954 Act] as [Longmint Aviation] for as long as that company remains within that group and provided that no relationship of landlord and tenant is established by that arrangement."

40. Longmint Aviation submits that MAGE surrendered its periodic tenancy of the premises at this time. I do not accept that submission. In my view, MAGE did nothing to indicate that it surrendered its existing, and very valuable, rights under the periodic tenancy it enjoyed up to 26 July 2007. The case is very far indeed from one in which the conduct of MAGE at this or any time unequivocally amounted to an acceptance that the tenancy was at an end: compare QFS Scaffolding Ltd v Sable [2010] EWCA Civ 682, [10]-[16]. I accept the evidence of Mr Luscombe and Mr Hodgkinson that the change in ownership of the AM Group and the Airport in July 2007 did not change the situation on the ground in relation to the premises. MAGE remained in occupation of the premises, it continued to carry on its business under the various regulatory approvals in accordance with the MOE which remained in place, and it continued to pay substantial (indeed, greatly increased) sums – which were described as "rent" - in respect of its occupation of the premises (now, the rent was paid to Longmint Aviation rather than FAL). Nothing happened to suggest any change in the nature of MAGE's rights in respect of its occupation of the premises. So, for example, MAGE continued to charge AMH for any storage of helicopters in the hangars, indicating that MAGE continued to have exclusive rights of occupation of the premises.
41. The first set of audited accounts produced for MAGE after its incorporation into the Longmint Group were those for the period to 30 April 2008 (MAGE's year end was changed to bring it into line with the accounting period for the Longmint Group). These were prepared by Miss Cummings and Mr Neil Bellis ("Mr Bellis") as the new directors of MAGE. The accounts continued to describe the sums paid for MAGE's occupation of the premises as "rent". The same is true of the latest set of audited accounts prepared for MAGE by Miss Cummings and Mr Bellis, for the year ended 30 April 2009, in which "rent" paid by MAGE was shown as £657,172.
42. I find that the position in relation to Unit A17 from November 2007 onwards was that it was occupied by MAGE, on the basis that it had exclusive right to use the building as explained, in particular, by Mr Hodgkinson in his evidence. At trial, Longmint Aviation attempted to suggest that a sign by the entrance into Unit A17 which referred to companies in addition to MAGE (Mann Avionics Limited and Mann Aviation Flight Systems Limited) showed that MAGE was not in exclusive occupation of the building. However, that sign was an old sign, which referred to companies which had used the Unit A17 for engineering purposes along with MAGE before the AM Group restructuring in November 2000. It did not support Longmint Aviation's suggestion. Indeed, if anything, the fact that the old sign was not replaced when MAGE became the sole operational engineering company in the AM Group and the other companies listed on the sign became dormant tends to reinforce the impression derived from the evidence generally that MAGE was from that time in sole occupation of Unit A17.
43. Mr Luscombe ceased to be involved with arrangements in relation to the premises at the Airport on 31 March 2010. Mr Hodgkinson ceased to be involved in June 2010.
44. In March 2010 the accounts department of MAGE, comprising three members of staff all employed by MAGE, moved from another building into Unit A17. At about the same time a lady who provided human resources services (who was employed by Longmint Group Limited) had a desk assigned to her in Unit A17 (though she worked at other locations in the Longmint Group as well as at the Airport). The remaining staff working in Unit A17 were employed or paid by MAGE. In my view these changes did not affect the legal relationship between MAGE and Longmint Aviation regarding the occupation of Unit A17. No MAGE board resolution was passed to suggest that it gave up any of its rights in respect of Unit A17. The decision to allow one person employed by Longmint Group Limited to work there occasionally is not inconsistent with MAGE retaining rights of exclusive occupation of the building. It is readily explicable on the basis that MAGE made a desk available for her in recognition of the fact that she carried out a human resources function for MAGE's benefit as well as for other companies in the Longmint Group. Nothing was done to support the conclusion that MAGE had lost the right to exclude her from the premises if circumstances changed and it was in MAGE's interest to do so.
45. Similar points can be made in relation to other changes which seem to have developed from about this time. It appears that the management of MAGE began to be more relaxed about AMH using the hangars to store its helicopters without having to pay a fee to MAGE. It is likely that this was only permitted when MAGE did not need to use the space for its own purposes. The new practice is explicable on the basis that MAGE did not find it necessary to extract a payment on every occasion of use of hangar space by a related company, and chose to be relaxed on the issue. There is no evidence that any considered decision was taken by the management of MAGE to waive its long established rights of exclusive occupation of the hangars.
46. On 1 November 2010 Miss Cummings instigated a programme of corporate reorganisation and rationalisation of Longmint Group aviation businesses. AMH, which had been MAGE's wholly-owned subsidiary, was stripped out of MAGE and Mann Avionics Limited, a dormant subsidiary of MAGE, was re-named Alan Mann Aviation Group Limited ("AMAG") and became the parent company of both MAGE and AMHH.
47. There was not a great deal of evidence at trial about the reasons for what appeared to be rather unusual changes in the corporate structure of the Longmint Group and to MAGE's position in that structure. The Joint Administrators maintained a case that these changes were carried through as part of a programme whereby the Longmint Group sought to divert business opportunities which properly belonged to MAGE into AMAG and AMH. This case was peripheral to the main issues at trial. On the limited evidence about these matters before me, I was not persuaded by the Joint Administrators that the management and personnel of MAGE or AMAG or AMH had acted improperly as part of a scheme to divert business opportunities away from MAGE. In that regard, I accept the evidence of Mr Mark Clawson and Mr Kerry Morgan for Longmint Aviation denying participation in such a scheme.
48. There was evidence of certain business enquiries made at about the time the Joint Administrators were appointed not being drawn immediately to their attention, but I think that is likely to have been because of a certain amount of confusion on the ground at the time about what was going on. There is evidence that new recruits for the engineering function in the Longmint Group were employed by AMAG rather than MAGE after November 2010, but I was not persuaded that this was done other than in pursuance of a genuine attempt to rationalise the Longmint Group's disparate engineering functions.
49. Most of all, Mr Sutcliffe focused on a meeting which Miss Cummings and her brother, Mr Nicholas Cummings ("Mr Cummings"), the general manager of the Longmint Group, had with the CAA on 13 April 2011 to discuss what was referred to in a letter dated 15 April 2011 from the CAA as a proposal to "transfer" MAGE's regulatory approvals to AMH. Mr Sutcliffe submitted that this was an attempt by Miss Cummings and Mr Cummings to misappropriate assets of MAGE (its CAA approval) and divert its business to AMH.
50. I do not accept this. As explained above (paras. [26]-[27]), the CAA approval was not on proper analysis the property of MAGE. At the time of the approach to the CAA, it already appeared that MAGE was in financial difficulties and Miss Cummings and Mr Cummings believed (in good faith, albeit, as I conclude, wrongly) that MAGE had no security of occupation of the premises and that Longmint Aviation could lawfully bring its occupation to an end at will on short notice. If that happened, MAGE would probably be left without a viable business and AMH would be free to go into occupation of the premises, to employ MAGE staff who were dismissed by MAGE and thus to seek to persuade the CAA to grant it an approval to carry out the same work at the same premises with the same personnel and according to the same methodology as set out in the MAGE MOE. In these terms one could describe this as a possible "transfer" of MAGE's CAA approval to AMH, but in truth it would be the grant of a new approval to AMH. If events had transpired in the way that Miss Cummings and Mr Cummings contemplated when they discussed this possibility with the CAA, I do not think that their proposal would have involved any unlawful diversion by them of MAGE's business to AMH or any other Longmint Group company.
51. Longmint Group companies appear to have been struggling financially by about late 2010. Longmint Aviation fell behind with the rent due under the Longmint Aviation lease, now due to West Register, but sought relief against forfeiture of the lease. Separately from this, FAL brought a claim against MAGE in respect of various charges due to FAL.
52. On 25 March 2011, Gloster J gave summary judgment for FAL against MAGE on that claim in the sum of £669,472 plus interest of £29,465.87. In the course of her judgment, she was very critical about the evidence adduced by Miss Cummings to challenge the whole amount of the claim.
53. FAL then proceeded on 12 April 2011 to present a petition to wind up MAGE. FAL issued an application for a provisional liquidator to be appointed, in response to which MAGE proposed to apply for the appointment of the Joint Administrators.
54. By order dated 20 April 2011, Briggs J stood over both applications for a later hearing and in the meantime appointed receivers of the company with powers to take over the management of MAGE's business.
55. On 10 May 2011 an order was made to put MAGE into administration and appoint the Joint Administrators. The Joint Administrators sought offers to purchase MAGE's business, judging that a sale of the business was the best way in which to realise value for MAGE's creditors.
56. Longmint Aviation made an offer for MAGE's business, which was accepted, subject to contract. Negotiations continued over the detail of the contract in the early part of the week commencing 23 May 2011.
57. However, the Joint Administrators received a substantially better offer on 26 May 2011 from the Second Defendant ("Gama"). Negotiations with Gama proceeded very quickly, with a contract being entered into on Friday, 27 May 2011 for sale of MAGE's business to Gama ("the Sale Contract"). As a result, Gama has supported the Claimant in these proceedings, in opposition to Longmint Aviation.
58. As part of the sale arrangements, MAGE granted a licence to Gama to occupy the premises. This was on the basis that the Joint Administrators believed (correctly, as I find) that MAGE had an implied periodic tenancy of the premises from Longmint Aviation.
59. Clause 2 of the Sale Contract is headed "Sale of Business and Assets". Clause 2.1 provides that Gama shall purchase various defined assets, "to the intent that [Gama] shall from the Completion Date be deemed to have carried on the Business as a going concern". Clause 5.1 provides that completion will occur "when [MAGE] shall make available to [Gama] on the premises the Transferred Assets".
60. On the afternoon of 27 May, the Joint Administrators instructed their staff to change the locks of the premises in preparation for handing them, their contents and MAGE's business over to Gama. In particular, the Joint Administrators were concerned to safeguard the books and records of MAGE located in the offices in Unit A17 over the bank holiday weekend, in readiness to hand them over to Gama. MAGE, as tenant of the premises with a right of exclusive occupation and acting by the Joint Administrators, had a right to change the locks.
61. At about 4 pm two security guards instructed by the Joint Administrators attended the premises. About an hour later a locksmith arrived. Mr Cummings told the Joint Administrators' staff at the site (Mr Irvin Cohen and Mr Luke Norman) that he did not want the locks to be changed, and there was an argument about it. Mr Cummings said that occasionally staff might need access to the premises on an ad hoc basis over a weekend. I accept Mr Norman's evidence that he agreed that the security guards would be instructed to allow any Longmint Aviation or MAGE staff access to the premises over the weekend, and asked for a list of names which could be given to the guards. The particular name which Mr Cummings provided was that of a Mr Cooper, and Mr Norman instructed the guards accordingly.
62. Mr Cummings asked Mr Norman and Mr Cohen to leave the premises, but they refused. They maintained that, as employees of the Joint Administrators of MAGE, they were entitled to have access to and remain on the premises. A confrontation developed. At about 7 pm, Mr Paul Curtis and Mr Mark Clawson, together with a security guard, arrived to support Mr Cummings. At first, discussions were reasonably amicable. Mr Cohen and Mr Norman proposed that both sets of security guards remain over the weekend, and everyone else leave and that the argument be taken up in court on the following Tuesday. Mr Cummings did not agree to this. At about 8 pm Longmint Aviation sent the solicitors for the Joint Administrators a letter by email giving formal written notice that any right MAGE had to occupy the premises was now terminated.
63. Mr Cohen left, leaving Mr Norman at the site in the reception at Unit A17 with a female security guard, Karen Crook. Later in the evening, probably about 11.30 pm, a party of Longmint Aviation people arrived to support Mr Cummings. This included Mr Bellis, his wife Mrs Bellis (who is the sister of Mr Cummings and Miss Cummings, and was the company secretary of MAGE) and Miss Cummings. Mr Bellis was angry and swore at Mr Norman. He told Mr Norman that he should get out or he would be forcibly removed. Mr Norman telephoned Mr Duffy for instructions, who advised him to leave. Mr Norman picked up his things and went out of the building, but Ms Crook decided to stay at her post. At this, Miss Cummings and Mrs Bellis seized her arms and dragged her out of the building.
64. There was an issue at trial whether Miss Cummings and Mrs Bellis used excessive force to remove Ms Crook. In my view, the real question is whether Mr Norman and Ms Crook were trespassing at the time. If they were, it was lawful for Longmint Aviation to require them to leave and to use reasonable force to remove them from the premises if they did not; and I find that Miss Cummings and Mrs Bellis did no more than use reasonable force to remove Ms Crook (they had to exert quite a lot of force, because Ms Crook resisted her removal as effectively as she could by hanging on to furniture and fittings). On the other hand, if Mr Norman and Ms Crook were not trespassing, then Miss Cummings and Mrs Bellis had no right to use any force against Ms Crook.
65. Although Miss Cummings and Mrs Bellis genuinely believed that Ms Crook was a trespasser who had no right to remain in Unit A17 when required to leave by Longmint Aviation, it follows from my findings above that in fact she was not a trespasser. MAGE was the tenant of Unit A17, entitled to its exclusive possession against Longmint Aviation. The Joint Administrators had conduct of MAGE's affairs, and authorised Ms Crook to be on the premises. Miss Cummings and Mrs Bellis had no right to require her to leave and no right to use force against her to effect her removal.
66. As a result of the events on the night of 27 May, and the assertion by Longmint Aviation of control over the premises, the Joint Administrators could not let Gama into possession of the premises to take over the business of MAGE which had been sold to it. This led to a hurried negotiation of a new agreement dated 31 May between the Joint Administrators and Gama ("the Side Agreement"), to take account of the unforeseen turn of events.
67. Longmint Aviation is deeply suspicious about the dealings between the Joint Administrators and Gama. It is Longmint Aviation's case that the original Sale Contract between the Joint Adminstrators and Gama was fully completed on the afternoon or evening of 27 May. The significance of this, on Longmint Aviation's case that there was no tenancy relationship between itself and MAGE but only a relationship based on a licence to occupy the premises, is that if the sale was fully completed, the licence for MAGE to occupy the premises (which would be personal to MAGE) would arguably have come to an end and in any event would not authorise Gama to go into occupation of the premises.
68. Since, contrary to Longmint Aviation's case, I have found that the relationship between Longmint Aviation and MAGE was a tenancy relationship, this issue is not critical. However, for completeness I should record that in my view there was not full completion of the Sale Contract on the evening of 27 May. Although Gama paid the sale price that evening and messages were sent saying there had been completion, I accept the submission of Mr Sutcliffe that, according to the terms of the Sale Contract, delivery of the business and assets of MAGE (and hence full completion) would only occur once Gama was put into occupation of the premises and given control of MAGE's equipment and other assets there. I also accept the evidence of Mr Duffy and of Mr Marwan Abdel-Khalek of Gama (who were both honest and reliable witnesses) to the effect that they understood that full completion under the Sale Contract had not occurred, and that they therefore negotiated the further Side Agreement on 31 May to take account of the change in circumstances.
69. Under the Side Agreement, MAGE appointed Gama as its agent to conduct its business on its behalf. In my judgment, contrary to the suggestion by Longmint Aviation that the Side Agreement was some sort of sham arrangement, that agreement was a genuine transaction entered into by Gama and the Joint Administrators in good faith.
70. As a further reaction to the events of the evening of 27 May, on 31 May the Joint Administrators made an urgent ex parte application to court (with short notice to Longmint Aviation) for an order requiring Longmint Aviation to re-admit MAGE (acting by the Joint Administrators) to the premises. Morgan J granted MAGE such relief over until a return date of 8 June.
71. There was an issue between the parties whether the Joint Administrators/MAGE had an obligation to give full and frank disclosure of material matters when making that application. Mr Sutcliffe submitted that, because they had given notice (albeit short notice) of the application to Longmint Aviation, they were not subject to that strict duty. I do not accept this submission. In my view, a party making what I will call (using the old terminology) an ex parte application to the court owes a strict duty to give full and frank disclosure to the court of all material matters affecting the application. That obligation is not diminished or removed merely by the fact that notice happens to be given to the other party that such an application is to be made. Nor is it removed if the other party manages to instruct lawyers in time to attend the hearing. It will have done so in a considerable rush, and cannot usually be expected to be in a position in which it will have marshalled and have ready all the evidence and arguments which it might ultimately wish to rely on. It is to mitigate the inevitable one-sidedness of the ex parte hearing that the duty of full and frank disclosure is held to arise; and that same reason continues to apply even when such a hearing occurs with notice to and in the presence of the opposing party. Of course, what the applying party has itself to tell the court may be qualified by what is said by the opposing party: there is no obligation to repeat matters which have been called to the attention of the court by the other side.
72. Mr Sisley then sought to suggest that there had been material non-disclosure by the Joint Administrators/MAGE in making the application to Morgan J. He also sought to suggest that the Joint Administrators deliberately and improperly held back from informing Longmint Aviation that the application was to be made until the very last minute. I reject both these suggestions. I do not think there was any material non-disclosure by the Joint Administrators/MAGE; and I consider that proper and prompt notice of the application was given to Longmint Aviation once the Joint Administrators and those advising them had got themselves in a position where they were ready to proceed and had formed the definite intention that an application would be made on 31 May. In fact, the Joint Administrators and Gama had a lot to do over the bank holiday weekend in reacting to Longmint Aviation's wrongful exclusion of MAGE from the premises, since they had to negotiate the Side Agreement as well as prepare for an application to court. It is not surprising that they were only ready to proceed fairly shortly before the application was made.
73. I should add that I do not think that the issues regarding the way in which the application to Morgan J was made which the parties debated at trial are of critical significance in arriving at the result in this case. Even if there had been some material non-disclosure or some improper delay in informing Longmint Aviation, that would not have affected the relief which I consider should be granted to protect MAGE's rights as a tenant of the premises.
74. On 8 June, Proudman J continued the interim relief granted to MAGE while the parties prepared further evidence.
75. On 16 June, Peter Smith J continued the interim relief until trial, and ordered that there be a speedy trial. He also required the Joint Administrators/MAGE to undertake to pay a daily rate to Longmint Aviation for occupation of the premises from 21 April 2011 (the date the court appointed receivers took control of MAGE's business) until the end of the trial.

Is Longmint Aviation entitled to terminate MAGE's tenancy?

76. As mentioned above, as one of several alternative contentions, Mr Sisley submitted that MAGE's tenancy was a tenancy at will. I reject that submission. In my view, by application of conventional and long-established principles, MAGE has an implied periodic tenancy year by year.
77. Mr Sisley also submitted that Longmint Aviation was entitled to forfeit MAGE's tenancy by reason of (i) default in the payment of rent; (ii) MAGE or its business passing out of group ownership; (iii) MAGE entering into competition with any other group company; and/or (iv) misbehaviour by MAGE to the detriment of any other group company. He submitted that Longmint Aviation was entitled to forfeit MAGE's tenancy on each of these grounds.
78. I do not accept that Longmint Aviation has any defence on these grounds.
79. As to (i) (default in payment of rent), I consider that it was an implied term of MAGE's tenancy that it should pay rent, and that if there was a serious and sustained failure to pay rent, Longmint Aviation would have a right to forfeit the tenancy. However, there was no such breach by MAGE in this case.
80. The evidence was that payment of rent by MAGE was regularly effected by means of entries on the inter-company account between MAGE and Longmint Aviation (i.e. by debiting MAGE and crediting Longmint Aviation with the amount of the rent). In the period to 21 April 2011 (when the court appointed receivers took over management of MAGE's affairs), it is unclear from the evidence of the witnesses for Longmint Aviation whether any rent fell due and was not paid by the making of the relevant book entries. But even if that were the case, since at that time the management of MAGE corresponded with the management of Longmint Aviation (particularly in the person of Miss Cummings) and there could be no difficulty about making the relevant book entries, it is clear that any absence of book entries would have been a mere administrative oversight which could and would readily have been put right once appreciated. It could not be regarded as a serious and sustained failure to pay Longmint Aviation amounting to a repudiatory breach of the implied tenancy agreement entitling Longmint Aviation to terminate the tenancy.
81. In the period after appointment of the receivers and then appointment of the Joint Administrators, Longmint Aviation has not established that any payment of rent accrued due and went unpaid. It is likely that Longmint Aviation and MAGE treated MAGE as being required to make regular quarter day payments to correspond with the timing of rent payments to be made by Longmint Aviation itself under the Longmint Aviation lease. By the first quarter day where sums accrued due on this timetable while the Joint Administrators were in control of MAGE's affairs (30 June 2011), the Joint Administrators had undertaken to the court to make payment of rent day by day going back to 21 April 2011. They had also examined the books and records of MAGE and made it clear that they were willing to credit sums due from MAGE as rent on the inter-company account with Longmint Aviation: the Joint Administrators have given credit to Longmint Aviation for certain sums in respect of rent shown on the nominal ledger between MAGE and Longmint Aviation and have never asserted that MAGE has a right to occupy the premises rent free. There are other disputed items on that inter-company account which the Joint Administrators claim are due from Longmint Aviation to MAGE (in particular, in respect of the inter-company transaction: see paras. [90]ff below); but there was never any doubt that the Joint Administrators, for MAGE, accepted that the appropriate credits should be made on the inter-company account in favour of Longmint Aviation to reflect rent due from MAGE, which is how MAGE has always paid rent in the past. Moreover, since I find in paras. [90]ff below that the Joint Administrators are entitled to reverse a debit entry against MAGE on its inter-company account with Longmint Aviation, with the result that MAGE is owed a significant amount by Longmint Aviation, there is no difficulty in concluding that MAGE is capable of providing substantial value to Longmint Aviation when it credits future rent payments due to Longmint Aviation against the sum due from Longmint Aviation to MAGE on that account.
82. As to (ii) (MAGE or its business passing out of group ownership), I do not consider that the implied tenancy agreement contained any such term. None of the familiar tests regarding implication of terms into leases or contracts would support the implication of such a term. Indeed, the circumstances by reference to which it is appropriate to imply a periodic tenancy agreement include circumstances which would tend directly to exclude any intention that the agreement should include such a term. The fact that the AM Group used MAGE's revenue stream and business to support bank lending to MAGE and the group (para. [28] above) indicates that it was intended that MAGE and FAL should be able to reassure their bank that it would be able to have recourse to its rights to appoint administrators or liquidators to take action to maximise recovery for the bank if there was a default in repayment of loans; and that would naturally include being able to reassure the bank that if that situation arose administrators or liquidators would be able to sell MAGE's valuable business (which had to be carried on at the premises) if – as might be likely – that was the best way to raise money to repay it. The notion that MAGE would forfeit its tenancy if it or its business were sold outside the relevant group would have directly undermined the ability of MAGE and the AM Group (and, later, the Longmint Group) to give any such reassurance to the bank. For reasons given above (para. [37]), clause 20 of the Longmint Aviation lease did not qualify MAGE's periodic tenancy.
83. As to (iii) (MAGE entering into competition with any group company), I again do not consider that the implied tenancy agreement contained any such term. Similar reasoning as in para. [82] above applies again in relation to this contention by Mr Sisley.
84. Finally, as to (iv) (misbehaviour by MAGE to the detriment of any other group company), I again do not consider that the implied tenancy agreement contained any such term. This is a vague proposed implied term, of uncertain ambit, and it cannot be supported by reference to any of the usual tests for implication of terms. In any event, I do not consider that MAGE has misbehaved in any significant way.

Conclusion in relation to MAGE's rights of occupation of the premises

85. In the case of an implied periodic tenancy, the length of notice required to be given to bring the tenancy to an end will depend upon the period by reference to which the rent is calculated. In addition, in the case of a business tenancy, the 1954 Act confers further protection for the business tenant, requiring a special notice to be served under section 25 of that Act: Woodfall, paras. 22.003, 22.041 and 22.057.
86. In this case it is not entirely clear by reference to what period the rent payable by MAGE for its occupation of the premises was calculated when FAL was MAGE's landlord. Mr Sutcliffe submitted that it was calculated by reference to an annual period. Therefore, he said, in line with the well-established rule applicable where a tenancy from year to year is implied by law from the payment and acceptance of rent, a half year's notice was required to be given, to expire at the end of the relevant yearly period (i.e. 31 October, since the periodic tenancy commenced on 1 November 2000): Woodfall, para. 17.206. On this approach, the earliest date on which Longmint Aviation could give notice to MAGE would be 30 April 2012, to expire on 31 October 2012.
87. One matter Mr Sutcliffe relies on in support of this submission was that MAGE's annual accounts all showed an amount paid for rent. I was not impressed by that point, since MAGE's annual accounts were simply required to state the amount of rent paid in the relevant annual accounting period to which they related, regardless of the period by reference to which the rent had been calculated.
88. However, there is evidence that Longmint Aviation calculated the rental sum due by reference to an annual period, and it is likely that FAL did the same when it was MAGE's landlord. In particular:

i) In a witness statement of Miss Cummings dated 25 January 2011 in the proceedings between FAL and MAGE referred to above, she said that Longmint Aviation paid annual rent of £650,000 in respect of the premises payable by four equal instalments in arrears on the usual quarter days, and it is a reasonable inference that MAGE's rent and payment periods (to support Longmint Aviation's own obligations under its lease) were arranged in the same manner, as MAGE's accounting records also appear to indicate; and

ii) When Longmint Aviation came to explain to the Joint Administrators the charges it would levy for MAGE's continuing occupation of the premises after the commencement of the administration, the figures it put forward were justified by reference to what was by then said to be an "Annual" amount which Longmint Aviation charged MAGE (described as a "licence fee") of £810,000 (and it was said by Miss Cummings in an accompanying email dated 15 May 2011 to Mr Atkinson that this showed "the licence fee which has been charged to MAGE by Longmint Group historically").

89. For the reasons set out above, I conclude that MAGE continues to have a right to occupy the premises under an implied annual tenancy which commenced on 1 November 2000. The tenancy is a business tenancy protected under Part II of the 1954 Act. Longmint Aviation has not yet given any effective notice to bring MAGE's tenancy to an end. In my view, injunctive relief is appropriate to protect MAGE's rights as I have determined them to be.

The inter-company transaction

90. This is a discrete matter. By a deed dated 1 June 2010 between Longmint Group Limited and MAGE, Longmint Group Limited agreed to assume MAGE's obligations in relation to funding its staff pension arrangements in return for MAGE paying it £2.5 million, "such sum to be reflected in the inter company balance between MAGE and [Longmint Group Limited]". In fact, no inter-company accounting entries were made within the Longmint Group at the time to reflect this arrangement.
91. On 3 May 2011 (i.e. after the appointment of the receivers but before the appointment of the administrators), Miss Cummings instructed the Longmint Group's financial controller, Melanie Burbidge, to post entries on the inter-company account between MAGE and Longmint Aviation to show the sum of £2.5 million as due from MAGE to Longmint Aviation (debit MAGE £2.5 million; credit Longmint Aviation £2.5 million). This transaction (together with another credit to Longmint Aviation which the Joint Administrators dispute but which was not in issue before me, since resolution of the dispute on that has been postponed to another occasion) had the effect of converting a substantial overall credit in favour of MAGE on its inter-company account with Longmint Aviation into a substantial debt.
92. I did not find the attempt by Miss Cummings to explain the inter-company transaction in her third witness statement credible. At the time when she instructed Ms Burbidge to post the entries on the inter-company account, she knew that MAGE was in severe financial difficulties; she also knew that, absent the entries on the Longmint Aviation/MAGE inter-company account, Longmint Aviation was a substantial debtor to MAGE. The effect of booking the £2.5 million as a credit to Longmint Aviation rather than as a credit to Longmint Group Limited, as it should have been booked, was to deplete the assets of MAGE, as Miss Cummings must have appreciated. Longmint Aviation was able to set off its inter-company debt to MAGE, whereas it appears that Longmint Group Limited would simply have been an unsecured creditor of MAGE in relation to the £2.5 million if the entries had been made on its inter-company balance with MAGE. Particularly with MAGE in such financial difficulty, it was incumbent on Miss Cummings to be punctilious to ensure that the £2.5 million debt owed by MAGE under the deed was booked to the credit of the appropriate company in the Longmint Group.
93. I am satisfied that the inter-company transaction in favour of Longmint Aviation was a transaction at an undervalue which now falls to be reversed pursuant to section 238 of the Insolvency Act 1986. It was a transaction with Longmint Aviation under which MAGE received no consideration, since Longmint Aviation could not and did not give MAGE a discharge in relation to the debt properly due to Longmint Group Limited under the deed: section 238(4)(a). (I would add that, even if any consideration had been provided, I would have held that it was a transaction with Longmint Aviation for a consideration the value of which, in money or money's worth, was significantly less than the value, in money or money's worth, of the consideration provided by MAGE: section 238(4)(b)). It was a transaction at a relevant time, as defined in section 240 of the 1986 Act.
94. There are no grounds of defence available for the benefit of Longmint Aviation under section 238(5). I consider that Miss Cummings did not act in good faith for the purpose of carrying on the business of MAGE (section 238(5)(a)). I also consider that at the time of the transaction there were no reasonable grounds for believing that the transaction would benefit the company (section 238(5)(b)).