England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/12/2011

Mr Justice Bean :

1. This is an application to strike out the claim launched on 7^th June 2010 by Paul Atkinson as liquidator of Fleetlite Limited, a general construction and civil engineering company which went into creditors' voluntary liquidation on 9^th March 2005. Mr Kieron B. Corcoran founded the company in March 1991. He resigned as a director on 4^th March 2004 and died, at the age of 56, on 25^th October 2005. The respondents to the claim who bring this application are his widow, son and daughter. I will call them "the Respondents" or "the Corcorans". Mrs Corcoran is sued as executrix of her late husband's will as sole beneficiary under that will and in her own right. It is common ground that the late Mr Corcoran senior was the controlling mind of the company before his resignation and continued to be so after his resignation until his death. He was paid a salary by the company until it ceased trading.
2. Mrs Corcoran was appointed company secretary on 11^th April 2003. Like her husband, she formally resigned on 4^th March 2004. She too continued to be paid a salary until the cessation of trade. On the resignation of their parents, Mr Corcoran junior and Mrs Parker were appointed Directors on 4^th March 2004. On that date the shares in the company which had been split equally between Mr Corcoran senior and his wife were transferred to the Second and Third Respondents and split between them in the same proportions.
3. Three companies connected to Fleetlite also figure in the story. The most significant of these was ACL Leasing and Finance Limited. Mr Corcoran senior was a director of this company from 1991 until his death (though it was apparently dormant until the year ending March 2003) and owned 50% of the share capital. Mrs Corcoran was appointed a director on 9^th November 2004 and held the other 50% of the share capital.
4. The second connected company was Mopark Limited. Mr Corcoran junior was appointed a director in 2001 and resigned on 1^st March 2005, when he was replaced by Mrs Corcoran, who then owned the entire share capital.
5. The third connected company was Sitex UK Limited. Mr Corcoran junior was appointed a director on 24^th February 2005, the date on which the company was incorporated. He also traded as a sole trader using the trading name of Sitex during the relevant period.
6. The Respondents all assert that they were almost totally ignorant of the finances and management of Fleetlite, and also of ACL and Mopark. They say that Mr Corcoran senior was the only person who had any such knowledge or took any decisions on behalf of these companies. The Third Respondent, Mrs Parker, says that she resigned her directorship of Fleetlite in the same month in which she was appointed, by oral notice to her father. Mr Corcoran junior has given evidence that he was unaware of his father's resignation as a director until February 2005, nearly a year after it occurred.
7. On 16^th March 2004 Fleetlite was awarded a contract to build a new factory for Daniels Chilled Foods. At that date the Company was overdrawn by some £88,000. The tender for the Daniels project was for the sum of £2,890,860 plus VAT. Work began on the Daniels project in late April 2004 and in the ensuing 10 months, interim payments were received by the company from Daniels in excess of £3,000,000 plus VAT.
8. In the course of the project a number of payments were made to subcontractors. A total of £679,687.41 was paid to the three connected companies mentioned above. The liquidator's case is that these transactions are colourable. He has also identified payments out of the company's account to Mr Corcoran senior, Mr Corcoran junior or Mrs Parker during the period between March 2004 and March 2005 totalling just over £69,000; and a payment to Mr Corcoran senior on 5^th October 2004 in the sum of £112,223.30, apparently to buy a Mercedes-Benz car.
9. The Daniels project constituted all, or virtually all, the business of Fleetlite in what turned out to be its last year of trading. On the Respondents' case, ACL provided plant hire, Mopark arranged payments to subcontractors and Sitex UK provided project management services.
10. The company was placed into creditors' voluntary liquidation on 9^th March 2005. It had ceased trading about a fortnight earlier. The Respondents' case is that the decision to do so was made by Mr Corcoran senior in mid-February 2005 as a reaction to the refusal of Daniels to make additional payments to the company for work done on the construction project. The liquidator disputes this. The Daniels project is said to have only been three weeks from completion when the company ceased trading.
11. At all events, the Statement of Affairs produced by the company following its liquidation showed a total deficiency as at 9^th March 2005 of £723,867 consisting almost entirely of debts owed to trade creditors. For the liquidator, Mr Simon Davenport QC has emphasised that there were no debts owed to ACL, Mopark or Sitex UK. The liquidator's case is that about £1,000,000 was extracted from the company by the Corcorans between the beginning of December 2004 and mid February 2005.

The liquidator's claims

a) Fraudulent trading: In this claim it is alleged that fictitious invoices (i.e. invoices for services that had never been rendered) were raised by ACL on 9^th June, 5^th July and 8^th December 2004 and by Mopark on 17^th September 2004 and met (at least in part) by Fleetlite. These four invoices total £436,700 plus VAT. The liquidator also alleges that all sums paid out to ACL and Mopark constituted fraudulent trading: if that were so the total claim would be £679,687.71 plus VAT.

b) Unlawful means conspiracy: The liquidator relies on the same facts to claim damages for conspiracy to injure the company by unlawful means. The quantum of the claim is the same as that of the fraudulent trading claim.

c) Dishonest assistance: By way of a further alternative claim, the liquidator alleges that the Respondents (including Mrs Corcoran in her representative and personal capacities) are liable for dishonest assistance by Mr Corcoran senior, Mr Corcoran junior and Mrs Parker in each other's breach of fiduciary duty towards the company; and that all the Respondents are liable for dishonest assistance in the scheme relied on as giving rise to the fraudulent trading claim. Again the quantum is the same.

d) Wrongful trading: This claim, valued at £723,867 net of interest, is brought against Mrs Corcoran in her representative capacity (but not in her own right) and against Mr Corcoran junior and Mrs Parker, pursuant to section 214 of the Insolvency Act 1986. The liquidator claims that from 16^th March 2004, alternatively from 1^st December 2004, they knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation.

e) Preferences: In this claim, also brought against the Respondents other than Mrs Corcoran in her own right, the allegation is that payments totalling £752,711 were made to connected companies or to members of the Corcoran family themselves.

f) Finally the liquidator alleges that the wrongful trading or preferential payments constituted acts of fraud, misfeasance and breach of fiduciary or other duties by the relevant Respondents.

Subsequent history: Fleetlite

13. Following the appointment of joint liquidators (Mr Atkinson and Mr Newman) the Respondents were asked to hand over the company documents in their possession and Mr Corcoran junior, without delay, produced two boxes of documents in March 2005. These did not, apparently, amount to much. No further documents were forthcoming. A meeting with Mr Corcoran junior was arranged for 18^th October 2005. Unfortunately by this time the health of Mr Corcoran senior had seriously deteriorated and he died from cancer of the pancreas only a week later.
14. Mr Corcoran junior disputed the validity of the liquidators' appointment. In January 2006 he attempted to remove them but the attempt failed. On 10^th February 2006 he wrote saying that he would not attend any further meetings until the matter of their appointment was "cleared up".
15. The liquidators responded by applying for an oral examination of Mr Corcoran junior in his capacity as a director of the company. An affidavit was produced. At a hearing on 15^th May 2006 an order was made for a further affidavit which was forthcoming on 5^th June 2006. Little seems to have occurred in the ensuing six months. On 1^st December 2006 the liquidators entered into a conditional fee agreement.
16. On 1^st May 2007 the Department for Trade and Industry instigated a prosecution of the Second and Third Respondents in the magistrates' court for failing to keep proper records and books of account and failure to cooperate with the liquidators. The proceedings were abandoned on 4^th April 2008. Towards the end of the period of the prosecution, namely on 15^th February 2008, the solicitors for the liquidators asked Mrs Corcoran and Mrs Parker to attend interviews. The response on behalf of Mrs Corcoran was that she was only the company secretary of Fleetlite and a non-executive director of Mopark; and on behalf of Mrs Parker that she had resigned in March 2004 and ceased to work for Fleetlite at about the same time.
17. On 2^nd June 2009 Mr Jenner, the investigator who has had day to day conduct of this matter on behalf of the liquidators for some years, held a meeting with Mr Corcoran junior who, in Mr Jenner's words "had new representation by this date and was fully cooperative". Mr Jenner conducted an examination of the Second Respondent which, as Mr Davenport put it, "led to some discoveries". In November 2009 the previous joint liquidator, Mr Newman, resigned. Mr Atkinson as sole remaining liquidator obtained the necessary sanction to proceed and issued the present claim against the Respondents on 8^th June 2010. Inexplicably, it was not served until 29^th July 2010, the last weekday before the start of the legal summer vacation.

Subsequent history relating to ACL

18. On 26^th March 2006 ACL was placed in creditor's voluntary liquidation, apparently on the initiative of Mrs Corcoran. Mr Ioannou of Gregory Michael & Co was appointed liquidator on the nomination of the board.
19. After some correspondence a representative of the liquidators of Fleetlite attended the offices of Gregory Michael & Co on 6^th February 2007 to inspect documents relating to transactions between Fleetlite and ACL. She was able to do so but when she enquired about taking copies she encountered some hostility from Mr Ioannou and left empty handed. It is not suggested that any of the documents she saw amounted to a "smoking gun" incriminating the Respondents. This may explain why no attempt was made to follow up the visit by applying for copies of such documents. Mr Stephen Cogley QC for the Respondents submits that the fact that no incriminating documents were found does not mean that there were no exculpatory documents either.
20. On 16^th August 2008 ACL was dissolved (Mopark had been dissolved on 21^st August 2007 and Sitex UK was to be dissolved on 2^nd October 2009). On 1^st November 2009 Mr Ioannou destroyed the documents in his possession relating to ACL. He was entitled to do so as a matter of law since over a year had elapsed from the dissolution.

The ground of the application to strike out

21. The first case management hearing took place on 10^th September 2010. Junior counsel then instructed for the Corcorans pointed out in his submissions that there had been no letter before action and no explanation for the delay of nearly two months in service. The receipt of the application, accompanied by a 46 page witness statement of Mr Jenner, and 839 pages of exhibits, was the first communication received by the Corcorans from the liquidator in over a year. Counsel sought an order that the liquidator be required to set out his case, including the allegations of dishonesty, in points of claim. Mr Davenport QC, who represented the liquidator at the hearing, persuaded the Registrar that she should not order points of claim to be served. Instead she directed that Mr Jenner's witness statement should stand as points of claim.
22. The strike out application was issued on 9^th June 2011. It seeks an order striking out or dismissing each of the claims against the Corcorans as an abuse of process and as being "contrary to the overriding objective". The three grounds relied on are (a) delay in issuing, serving and then proceeding with each of the claims; (b) the inability to have a fair trial of the claim as a result of the death of Mr Corcoran senior in October 2005 and the absence of relevant documentation, in particular the ACL documents destroyed by Mr Ioannou in November 2009; and (c) the failure to particularise the relevant claims adequately or properly, in particular by distinguishing between allegations of intentional and non-intentional wrongdoing. As an alternative, in the event of the claim surviving the application to strike out, Mr Cogley seeks an order for "points of claim in relation to each allegation of intentional wrongdoing/fraud/fraudulent trading/dishonesty in relation to each Applicant and each claim advanced against them".

Delay and fairness of the trial

23. In the period between the decision of the Court of Appeal in Allen v McAlpine [1968] 2 QB 229 and the introduction of the Civil Procedure Rules, a considerable volume of case law built up on the subject of dismissal for want of prosecution. The basic rule, as Neill LJ described it in Trill v Sacher [1993] 1 WLR 1385 at 1398, was that a claim might be struck out where (a) there had been inordinate and inexcusable delay on the part of the plaintiff or his lawyers, and (b) such delay either gave rise to a substantial risk that a fair trial was no longer possible, or was likely to cause or have caused serious prejudice to the defendant. But, as the House of Lords decided in Birkett v James [1978] AC 297, delay in issuing a writ could not be classified as inordinate if the writ had been issued within the limitation period.
24. Lord Woolf MR, the architect of the Civil Procedure Rules, made it clear in Biguzzi v Rank Leisure [1999] 1 WLR 1926 that earlier authorities are no longer generally of any relevance. So it may be that claimants no longer have immunity from striking out in respect of delay prior to the issue of a claim within the limitation period. The decision of the European Court of Human Rights in GJ v Luxembourg (2003) 36 EHRR 40 supports the view that they do not; and I note that Birkett v James is barely cited in the current "White Book". But I am in no doubt it is still the law that, for a claim to be struck out, it must be shown that there has been serious prejudice to the defendant, or that a fair trial is no longer possible. Striking out is not to be used simply as a form of disciplinary sanction for delay, however deplorable.
25. Mr Cogley relied on two matters in particular: the death of Mr Corcoran senior in 2005, and the destruction of the ACL documents by that company's liquidator in 2009. He accepted that the death of Mr Corcoran was not enough in itself. It is common in many forms of litigation for a key witness to die before the issue of proceedings: it rarely makes a fair trial impossible. At trial the judge will have to bear in mind the advice of Brett MR in Re Garnett (1886) 31 Ch D 1:

"The law is that when an attempt is made to charge a dead person in a matter, in which if he were alive he might have answered the charge, the evidence ought to be looked at with great care; the evidence ought to be thoroughly sifted, and the mind of any judge who hears it ought to be, first of all, in a state of suspicion; but if in the end the truthfulness of the witnesses is made perfectly clear and apparent, and the tribunal which has to act on their evidence believes them, the suggested doctrine becomes absurd."

26. Mr Cogley urged me to attach great weight to the combined effect of the death of Mr Corcoran and the destruction of the ACL documents, and to bear in mind (although it is not a point raised in the Corcorans' evidence) that memories may have dimmed in the seven years since the events in issue. But I do not consider that either together or in combination these factors will cause serious prejudice to the Corcorans or make a fair trial impossible.
27. I will take as examples the ACL invoice dated 9^th June 2004 in the sum of £170,000 plus VAT for "site design management costs relating to site at Headcorn", and the one dated 8^th December 2004 in the sum of £175,000 plus VAT for "site project costs at Daniels Chilled Foods, Headcorn". The liquidator's case is that no such costs were incurred by ACL and that the payments in satisfaction of those invoices constituted fraudulent trading as well as unlawful preferences. The Respondents' case is that the services described in the invoices were genuinely rendered by ACL. Mr Corcoran junior has made a witness statement dated 21^st February 2011 in which he sets out in some detail events at the Daniels site. He describes his role as that of a Project Director and says that he and a colleague, Steve Allen, were on site six days a week for a minimum of 15 hours per day; though he says that all financial matters were the responsibility of his father. He has some recollection of specific conversations and telephone calls. If ACL did provide site design and project management services in 2004 to a value of £345,000 it should not be unduly difficult for Mr Corcoran junior to say what they were and who was doing the work; and for those persons, if they have not died or disappeared (and it is not suggested that anyone has, apart from Mr Corcoran senior), to give evidence of their activities as employees or subcontractors of ACL. In any event, given the slender documentation relating to Fleetlite found at the time of its liquidation, it seems improbable that the ACL documents destroyed in 2009 would have yielded a storehouse of riches. I therefore reject the submission that the claim should be struck out on the grounds that a fair trial is no longer possible or that the Respondents have been seriously prejudiced in their defence of the claim.

Pleading issues

28. Mr Jenner's 46 page witness statement, which the Registrar ordered should stand as a pleading, contains a mixture of factual narrative, comment, and allegations of fraudulent and wrongful trading, not always carefully separated. To a common lawyer, at least, it seems an unusual vehicle for pleading fraud. I was not assisted by conflicting anecdotal evidence from leading counsel on each side about what in his long experience the appropriate practice has been. I attach weight to the fact that an experienced Registrar considered it proper to order the statement to stand as points of claim: and that when the case came before the Chief Registrar on a later interlocutory application he did not express any concern.
29. Turning from anecdote to authority, Mr Cogley relied on observations made in the House of Lords in the notorious BCCI case, Three Rivers DC v Bank of England (No.3) [2003] 2 AC 1. Lord Hope of Craighead said:

49In my judgment a balance must be struck between the need for fair notice to be given on the one hand and excessive demands for detail on the other….

51……..[It] is clear that as a general rule, the more serious the allegation of misconduct, the greater is the need for particulars to be given which explain the basis for the allegation. This is especially so where the allegation that is being made is of bad faith or dishonesty. The point is well established by authority in the case of fraud.

30. Lord Millett said:

183. The rules which govern both pleading and proving a case of fraud are very strict. In Jonesco v Beard [1930] AC 298 Lord Buckmaster, with whom the other members of the House concurred, said, at p 300:

"It has long been the settled practice of the court that the proper method of impeaching a completed judgment on the ground of fraud is by action in which, as in any other action based on fraud, the particulars of the fraud must be exactly given and the allegation established by the strict proof such a charge requires" [Lord Millett's emphasis].

184 It is well established that fraud or dishonesty must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, 7th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney General for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

185It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means "dishonestly" or "fraudulently", it may not be enough to say "wilfully" or "recklessly". Such language is equivocal. A similar requirement applies, in my opinion, in a case like the present, but the requirement is satisfied by the present pleadings. It is perfectly clear that the depositors are alleging an intentional tort.

186The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved."

31. The fraudulent trading claim (also put in the alternative as unlawful means conspiracy or dishonest assistance) is set out at paragraphs 121 to 136 and 137.4-6 of the witness statement and is calculated in two alternative ways. The first is in the sum of £679,687.41 plus VAT, the total amount of payments to connected companies from 8 July 2004 to 20 February 2005 as set out in a schedule at paragraph 72. The second is in the sum of £436,700 plus VAT, the total amount of four allegedly fictitious invoices, one from Mopark and three from ACL, two of which I have mentioned above.
32. I understand the second basis of claim but not the first. It is sufficient for the purposes of the claim based on preferential payments to connected companies to list the payments and throw the onus of explaining them onto the Respondents. But it is not sufficient for claims alleging fraud, where the onus is firmly on the liquidator to plead and prove dishonesty.
33. However, it would be grossly disproportionate to strike out the liquidator's claim for this reason: see Biguzzi v Rank Leisure, supra. Instead I shall order that the liquidator makes within 42 days a schedule of each transaction mentioned in Mr Jenner's first witness statement which is alleged to constitute fraudulent trading, conspiracy or dishonest assistance by any or all of the Respondents, indicating in each case the facts relied on in support of the allegation of fraud or dishonesty. Save to this limited extent, I dismiss the Respondents' application.
34. I record by way of footnote Mr Davenport's submission, by reference to paragraph 48 of the judgment of Clarke LJ in Asiansky Television plc v Bayer-Rosin [2001] EWCA Civ 1792, that the Respondents delayed too long in making the application to strike out and that it should be refused on that ground apart from any others. Made on behalf of a client who began a claim nearly six years after the events in question and then delayed serving it for nearly two months, this was not his most attractive argument. Since the liquidator has succeeded in resisting the striking out of the claim for other and better reasons it is unnecessary to say more about it.