England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LIVERPOOL DISTRICT REGISTRY

		Royal Courts of Justice Strand, London, WC2A 2LL
		13 November 2017

Mr Justice NORRIS Vice Chancellor :

1. Urbisity Ltd ("the Company") was a developer of apartments at the upper end of the market. Its two directors were Nicholas Mullen ("Nicholas Mullen") and Christopher White ("Mr White"). The Company did not have a substantial equity base and funded its developments with borrowed money. Nicholas Mullen and Mr White guaranteed the borrowings.
2. With the onset of the credit crunch in 2008 and the consequent collapse of the property market funding the Company's operations with borrowed money became both increasingly difficult and increasingly important, as sales dried up. So the Company resorted to selling flats to the directors, to family members and to business associates of the directors so that they could raise mortgage finance which could then be used as part of the Company's cash flow: and the Company also resorted to borrowing money from Mullen family members. The Company entered liquidation in September 2014, and the present disputes between (a) Nicholas Mullen and Mr White (b) within the Mullen family and (c) between Nicholas Mullen, Mr White and their business associates Robert McLaughlin and Seb Gardiner (and their companies RAM Properties Ltd ("RAM") and Quality Freight Ltd ("QFL")) and Simon Eadie arise out of those arrangements. The disputes are spread across three actions with interlocking issues, all the actions being tried together: it is simplest if I address the issues in a thematic way, and address the issues that were argued (even if they do not appear in the pleaded cases).
3. The member of the Mullen family who lent the most was Nicholas Mullen's father Francis Brian Mullen ("Mr Mullen senior"). Mr Mullen senior died on 15 July 2012. By his will dated 3 November 2010 ("the Will") Mr Mullen senior appointed his son Nicholas Mullen and his other son Timothy Mullen ("Timothy Mullen") to be his executors. They proved the Will on 3 December 2012. Under the terms of the Will Timothy Mullen was to receive a legacy of £100,000 free of inheritance tax ("the Legacy") with the residue of the estate passing to Nicholas Mullen and his wife and children in equal shares. It is 2017 and Timothy Mullen still has not received the Legacy. That is because the loans made by Mr Mullen senior to the Company have not in fact been repaid. But who is to pay how much into the estate of Mr Mullen senior has given rise to disputes between Nicholas Mullen and Mr White.
4. To resolve these disputes I must pose and answer a series of questions. In doing so I shall take as my primary reference material the documents read in the light of the probabilities inherent in the events which are known to have occurred. I have found myself unable to treat the evidence of Nicholas Mullen, Mr White or Mr McLaughlin as a primary source of reliable material.
5. The first issue: what was the extent of the lending by Mr Mullen senior to the Company?
6. It is common ground between Nicholas Mullen and Mr White that Mr Mullen senior began with a documented loan of £100,000 in August 2007: and that he made a further advance of another £100,000 in December 2007. Thereafter he advanced £60,000 in May 2008 and £40,000 in June 2008 as the plight of the Company worsened.
7. The second issue: upon what terms were the monies advanced?
8. There is in existence a Loan Agreement said to have been made on 7 August 2007 reciting an advance to the Company of £200,000. It is signed on behalf of the Company and by Nicholas Mullen, Mr White and Mr Mullen senior. Although its authenticity was challenged I find that notwithstanding that it is dated 7 August 2007 it was in fact signed in December 2007. The form of the agreement was prepared by Mr White and held on his computer. An original agreement was prepared in August 2007 recording the advance of £100,000 then made. When the December loan was made a fresh copy agreement was printed with the total loan (now £200,000) inserted in it but with the original date retained (because in Mr White's eyes this is when the lending arrangement began). I hold that its terms govern the whole of the £200,000 loan.
9. By those terms the Company was obliged to pay interest on the advances at the rate of 1% per calendar month payable in arrears at the expiration of every six-month period: this provision was not in fact observed. I read the provision (in the context of the arrangement as a whole) as meaning that interest was payable at 1% per month compound with six-monthly rests. The loan (for the document treats the two advances as a single sum agreed to be advanced in August 2007) was for a period of 12 months and thereafter repayable on receipt of 60 days' notice. But there was an obligation to make immediate repayment upon demand in the event of default (the listed events including a failure to pay any money due under the Loan Agreement on the due date). Clause 7 of the Loan Agreement contained a joint and several guarantee by Nicholas Mullen and Mr White of the Company's obligation to pay "all principal money and interest falling due under this agreement". It was not therefore limited to £200,000, for it included unpaid interest. The guarantee included the specific obligation that if the Company defaulted for more than 28 days in the payment of any such principal money or interest then the guarantors would pay that amount to Mr Mullen senior on demand.
10. The £200,000 which Mr Mullen senior had lent by December 2007 represented the majority of his life savings on the income of which he had intended to live. Nicholas Mullen says (and I accept) that Mr Mullen senior regarded this not as short-term funding for the Company but as an investment proposition - a commercial loan which yielded a better return than leaving the money in the building society. He received no interest in August or September 2007; then interest of £1000 per month for November and December 2007 and January 2008; then nothing in February 2008, £3000 in March 2008, and then £2000 per month from April 2008 until January 2010 inclusive. Thereafter neither he nor his estate received anything.
11. The further advances made in May and June 2008 were made in a series of tranches over a period of five weeks to meet the immediate cash flow needs of the Company and at a time when the Company was already in default in the payment of interest due under the original Loan Agreement. The advances represented the entirety of Mr Mullen senior's remaining monies. According to Nicholas Mullen they were Mr Mullen senior's response to a request to support the Company, which he was willing to do, saying "but I need it back". I accept this evidence.
12. There is in existence no document which records the terms on which these further two advances were made. In particular it does not appear that there was any "updating" of the original loan agreement as had occurred with the second £100,000 advance.
13. Nicholas Mullen says (a) that Mr Mullen senior was a canny man and would not have lent any money unless there was a document; (b) that according to his recollection there was such a document which was held in The Barn (which adjoined the house in which he and his father lived and was used as offices by the Company and by Mr White); (c) that there was a time when Mr White removed the file that would have contained the documents; and (d) that there is something amiss if that document cannot now be found.
14. Mr White acknowledges that on one occasion he took four files from The Barn to work on at home, but says that he did not abstract any documents and returned the files intact in April 2014 (including all original loan agreements). He asserts that there was no written agreement relating to the May and June 2008 advances, which were negotiated directly between Nicholas Mullen and Mr Mullen senior without his participation: indeed, he says that there was no agreement at all, only "a family arrangement".
15. Mr White's recollection that he did not abstract any documents and that he returned the files intact can be demonstrated to be incorrect because his solicitors Rees-Roberts produced a certified copy of the August 2007 Loan Agreement in January 2015 (at which time they must have had the original August 2007 Loan Agreement which therefore cannot have been returned to The Barn). But I think Mr White is probably correct in saying that the 2008 advances were negotiated directly between Nicholas Mullen and Mr Mullen senior, that there was no document which recorded the advances and that accordingly he has not destroyed any such agreement. The absence of a document would be consistent with the advance of the money in tranches to meet the Company's immediate cash flow needs and on a short term basis (effectively repayable on demand without any term certain). The production of formal documentation in that context is less likely than with the entry of a commercial loan regarded as an investment. But the absence of a signed document does not mean that there was no legally binding agreement and that the advances were simply a family arrangement between Nicholas Mullen and Mr Mullen senior.
16. I am satisfied that the assumption on which both Nicholas Mullen and Mr Mullen senior worked was that these new loans would bear interest at the same rate as the commercial loan and would be guaranteed by Nicholas Mullen and Mr White in the same way. Although Mr White asserts that no agreement was made with him concerning these further advances I consider it probable that he well understood that the further advances were only made available to rescue the Company on the footing that they were interest-bearing and were to be secured in the same way as the original advances. He was an experienced businessman who would have well appreciated that if Mr Mullen senior had made secured advances when the Company was in better financial health than it was in May and June 2008 then it was highly improbable that in those months he would have been prepared to make unsecured lending to a company whose finances had deteriorated to the extent that it needed immediate cash flow support.
17. I am satisfied that the two further advances were intended to be supported by personal guarantees (as were the original loans). However the absence of a document signed by Nicholas Mullen or Mr White recording the intended guarantee means that such an obligation is not enforceable against either of them by the estate of Mr Mullen senior. I hold that these further advances although interest-bearing are not guaranteed.
18. The third issue is: what were the effective terms under the Loan Agreement and under the further advance arrangements as at the date of Mr Mullen senior's death? As regards interest? As regards principal?
19. As I have recorded Mr Mullen senior was not paid any interest after January 2010. It is the evidence of Mr White that in January 2010 (although at other times he has said March 2010) he spoke with Mr Mullen senior who agreed "that interest payments would cease as [the Company] was suffering serious cash flow problems" and that Mr Mullen senior "was happy to waive interest whilst [the Company] was suffering financial difficulties providing that his capital loan was ultimately repaid". As to repayment, Mr White says that Mr Mullen senior agreed that his debt would only be paid after all the other creditors of the Company had been satisfied: though on other occasions Mr White has also said that the debt was not repayable until all of the Company's flats (then in the course of construction or on the market) had been sold. The first mention in correspondence of any agreement to subordinate the loan was made by Mr White's solicitors in March 2014, some three months after repayment had been demanded.
20. The evidence of Nicholas Mullen was that his father was always to be paid his interest, but that he was sympathetic to the plight of the Company and for a period was content for interest to be "rolled up" (not waived), but all the while enquiring whether the situation was being resolved. In the end Mr Mullen senior was so patient that he had only £10,000 left when he died. It was Nicholas Mullen's view that if Mr Mullen senior was not to receive interest on his loans then he would have asked for the principal money back, and that he would never have agreed to repayment of the loans at an entirely uncertain future date (particularly since Mr White's father was not being asked to support the Company in the same way).
21. I consider this latter account to be inherently more likely. I cannot see why a man who had invested his life savings in a single company because it yielded a better income than leaving the money in a building society should decide that he did not need the income after all and would deplete his reduced capital to fund his living expenses. Nor do I think it likely that a man who had so reduced his income and postponed receipt of his capital in early 2010 would then within months leave a legacy of a hundred thousand pounds to Timothy Mullen. Nor do I see upon what basis the arrangements to which Mr White spoke in his evidence could amount to a legal release of accrued interest or a binding variation of future obligations as to the payment of interest and repayment of capital.
22. I hold that the debt due to Mr Mullen senior continued to be due on demand and to bear interest at 1% per calendar month compound with six monthly rests. The estate demanded payment 60 days from 6 January 2014.
23. The fourth issue is: what repayments have been made? Were any repayments on account of interest or principal? Were any repayments of principal in respect of the secured or the unsecured lending?
24. Payments of interest were made in accordance with the findings set out in paragraph [10] above. Being payments of £1000 or £2000 (or a combination explicable by reason of an earlier default) they were plainly attributable to interest and were not partial repayments of capital (in respect of which no demand had been made) as Mr White contended in respect of some £4000 of these payments.
25. The Company made repayments of principal to Mr Mullen senior of £30,000 in June 2009 and of £10,000 in November 2009 when (on the occasion of sales of apartments) the Company's bankers permitted the Company to use part of the proceeds rather than requiring them to be applied in reduction of the bank's facility. There is no evidence of any appropriation by the Company of the payment to any particular liability it had to Mr Mullen senior: nor is there any direct evidence of any appropriation by Mr Mullen senior of the payment to any particular debt. But I regard it as probable that the payment was seen by the Company and by Mr Mullen senior as a partial repayment of the short-term facility which he had extended over the five weeks in May and June 2008 and which he had made plain he "needed back", rather than a partial repayment of the commercial loan in respect of which he had made no 60-day (or immediate) demand. I therefore hold that these payments went in discharge of that part of the debt which is unsecured by a personal guarantee from Nicholas Mullen or Mr White.
26. The fifth issue is: what is the effect upon these obligations of the death of Mr Mullen senior?
27. At the death of Mr Mullen senior the Company owed £260,000 principal and accumulated interest on that sum at 1% per calendar month compound with 6-monthly rests. Since it was in default Nicholas Mullen and Mr White were jointly and severally liable to make good that default in respect of the secured part of the debt i.e. £200,000 plus interest on that sum at 1% per calendar month compound with 6 monthly rests. (The fact that the Company had been paying interest monthly cannot alter the nature of the guarantee given in clause 7 of the Loan Agreement).
28. When Nicholas Mullen and Timothy Mullen proved the Will this meant that Nicholas Mullen was both a person entitled to take action against the guarantors and each of them under the joint and several guarantee and also one of the guarantors against whom the action would be taken. The effect of this was considered and established in Re Bourne [1906] 1 Ch 697 at 707 and 708 to be that it amounts to a release of the debt. The principle was explained in Jenkins v Jenkins [1928] KB 501 at 508 in this way:-

"Where a debtor is released by being made his creditor's executor, the effect in equity, and perhaps at law, is that the debt is deemed to have been paid by the debtor to himself as executor, and therefore he is deemed to have the assets of the testator in his hands… If the debt has been paid, it clearly cannot be sued for by the executor as such, though he may have a right personally to recover contributions from his co-debtors."

Williams, Mortimer & Sunnucks at para 53-18 makes clear that the debt (by which I mean the entire sum due under the joint and several guarantee) which is deemed to have been paid by Nicholas Mullen to himself as executor is part of the general assets of the estate and a source of payment not only for Mr Mullen senior's estate debts but also of his legacies and distribution of residue.

29. Although I have formulated this issue by reference to the death of Mr Mullen senior, in my judgement under the modern law the extinguishment of the entire joint and several liability under the guarantee was effected at the date of probate. Had Nicholas Mullen renounced probate of the Will there would have been no difficulty in constituting an action on the guarantee at law and no reason to apply the equitable principle.
30. One consequence of this rule is therefore that Timothy Mullen is entitled to judgment against Nicholas Mullen for the Legacy (less any part which has already been paid) together with interest from 15 July 2013. The rate payable on legacies is normally the basic rate paid on funds in court. This practice derives from that established under the former RSC Order 44 r.10, and if applied would yield a rate of 0.3% p.a. Counsel for Timothy Mullen seeks a rate of 5.5% (far in excess of that). Ultimately the granting of interest is part of the Court's general equitable jurisdiction, and it is frequently exercised by reference to what could reasonably be earned on the money withheld. With that consideration as a significant factor I award interest on the unpaid Legacy at a rate of 1.5% per annum compound with annual rests.
31. The sixth issue is: what contribution rights in any arise in relation to the loan obligations?
32. At common law the joint and several liability of Nicholas Mullen and Mr White to the estate of Mr Mullen senior under the clause 7 guarantee in the sum of £200,000 plus accumulated interest is treated as extinguished. But in equity it is treated as having been discharged by Nicholas Mullen and as giving rise to a right to contribution from Mr White as a co-debtor. Mr White resists payment of his contribution (a) because Nicholas Mullen has not in fact paid anything to the estate and (b) because he says that his liability to contribute to the estate is simply part of wider mutual dealings and it is not clear that (apart from the liability under the guarantee) the balance on the account between himself and Nicholas Mullen is equal.
33. As to the first of those points I hold that Nicholas Mullen is entitled to claim contribution from Mr White whether or not he himself has actually paid money in respect of the joint and several guarantee liability into the estate. Nicholas Mullen has procured the release of Mr White's liability as guarantor under the Loan Agreement because in the eyes of equity he has as joint guarantor paid, and has as executor received, the entire sum due under the guarantee, and has therefore made himself accountable for it to the legatee and residuary beneficiaries (now being subject to a judgment in respect of it). From the time of that release Nicholas Mullen is able to claim from Mr White a contribution to the liability which he has assumed as the price of that release.
34. The seventh issue takes up Mr White's alternative answer: are any such contribution rights affected by any "balancing agreement" between Nicholas Mullen and Mr White?
35. I gave a brief description of the Company at the start of this judgment. It is necessary to elaborate further. The original participators in the Company were the corporate vehicles of Nicholas Mullen (Evenflow Properties Ltd) and Mr White (Tonsley Properties Ltd). On 28 February 2003 those companies entered into a Shareholders Agreement. This specifically provided (in clause 19) that none of its provisions should be deemed to constitute a partnership between the shareholders. But it contained in Schedule 1 what appears to be a definition of the business (or a description of the purposes) of the Company: the copy Shareholders Agreement in the trial bundles is incomplete. The purposes of the Company and of the shareholders in promoting it include:-

"To introduce shareholders funds by way of loans in equal shares or in such other proportions or by such other methods as may be agreed by the Shareholders from time to time (and as may be required to find the shortfall between any external funding and the requirements of the Business including deposits and refurbishment and/or redevelopment costs)."

There was thus a mutual obligation to contribute equally to the funding requirements of the business of the Company: I will call it "the Equalisation Provision". Nicholas Mullen and Mr White replaced their respective companies with themselves personally: but it was not suggested that that effected any change in the substantial arrangements. Both Mr White and Nicholas Mullen now assert that a general account must be taken between them in respect of their contributions to the Company (though Nicholas Mullen would say that the account ought to extend to related joint ventures). It is common ground that for the purpose of implementing the Equalisation Provision no distinction is to be drawn between funds introduced to provide capital for profit-making activities and funds introduced to pay debts. In each case they are contributions to cover the shortfall in external funding. But where funds are introduced to pay Company debts which are also the subject of joint and several guarantees the ordinary rights of contribution in respect of individual debts will have to take account of the terms of the Equalisation Provision: and that is the stance taken by Mr White in response to Nicholas Mullen's claim for a contribution in respect of the debt due the estate of Mr Mullen senior.

36. In my judgment, now that the Company has entered liquidation (and in the absence of the liquidator having sorted out the mutual obligations of the Company and each of its directors) it is proper to conduct an accounting process between Mr White and Mr Mullen (as they both wish). But that process is confined to an examination of what shareholders' funds each of them has introduced into the Company by loan or other agreed means to cover the shortfall in external funding. I cannot in these proceedings examine what other joint ventures they may have entered and bring those into the accounting process.
37. The eighth issue is: what is the starting point for any such exercise?
38. Nicholas Mullen has prepared various spreadsheets. These are not to be taken as an attempt to record the true state of account between himself and Mr White relating to the Company's affairs, but rather as negotiating documents. However, as a result of the determinations I have made and as a result of agreements reached during the course of the trial it is possible to define a starting point and then to address discrete contentious entries.
39. Nicholas Mullen's liability to the estate is in the sum of £200,000 plus interest from January 2010 at 1% per month compound with six-monthly rests down to 3^rd December 2012. Under the Equalisation Provision Mr White is liable to pay to Nicholas Mullen 50% of that sum subject to any other adjustments required under the Equalisation Provision.
40. As to that, the parties are now agreed that the entries in Section B on Nicholas Mullen's Schedule at Bundle reference 5/1/1 for the credit balances of £378,100.71 (Mr White) and £413,334.25 (Nicholas Mullen) are the correct starting point: and that to those entries is to be added £13,336.64 (White) and £23,544 (Mullen) in respect of management funds and sums in respect of certain "deposits" on flats sold to family members (it is unnecessary to burden this judgment with explanation of the entries). This results in Mr White having a working balance of £439,666.41 and Nicholas Mullen having a working balance of £580,407.32 (these figures representing the injection of shareholder's funds). This must be adjusted to reflect the payment by Nicholas Mullen of the entirety of the joint and several guarantee liability to the estate of Mr Mullen senior: accounting within the estate itself is irrelevant to this exercise.
41. The ninth issue is: what adjustments (if any) need to be made arising out of the settlement of the RAM/QFL litigation?
42. RAM and QFL each made loans to the Company over the years. There came a time when Company's bankers cut off its supply of credit and pressed for repayment of existing loans. In December 2011 RAM and QFL provided substantial loan funding to the Company to alleviate this pressure and to enable a 16-unit development at Croxteth Road Liverpool to be completed, those loans being supported by personal guarantees from Nicholas Mullen (and his wife) and Mr White (and his wife). As it was explained to me by Nicholas Mullen, the Company could not repay this replacement lending and instead in about March 2012 transferred 6 apartments to Mr McLaughlin and Mr Gardiner at full market value to enable them to raise mortgages (and to take the mortgage proceeds in part repayment of RAM and QFL's loans to the Company). The difference between the full market value of the properties and the amount that could be raised by mortgage (referred to by the parties as "the deposit" or "the equity" and amounting to £299,000) was left outstanding by the Company. The Company had a "buy-back" option at a price equal to the mortgage balance plus some expenses. The properties were let so that the rental income would cover the mortgage repayments (the letting and the payment of the mortgage being managed by Nicholas Mullen and Mr White).
43. This arrangement was plainly a temporary expedient and RAM and QFL wanted their loans repaid. The companies issued proceedings and then entered into negotiations with Mr White in respect of his several liability under the guarantees. There was much dispute in the evidence as to whether RAM and QFL favoured Mr White and tried to keep Nicholas Mullen in the dark: but this dispute is irrelevant to the issues for decision. As a result of these arrangements Mr White agreed to pay £230,000 in respect of his liability as guarantor to RAM and QFL: Nicholas Mullen had later to agree to pay £250,000. But in part satisfaction he released the "equity" in the six apartments at a discounted price, and he himself contributed only his boat (valued at £60,000) and £20,000. He had to pay £32,533 in respect of RAM and QFL's legal costs. RAM and QFL's claims against the Company and against Nicholas Mullen and Mr White are at an end. Out of these facts there are a number of disputed items on the account.
44. I hold first that the fact that separate agreements were reached by Mr White and by Nicholas Mullen in respect of their joint and several liability under the loan guarantees does not deprive either of the right to claim contribution from the other. It is plain on the evidence that neither RAM and QFL on the one hand nor Nicholas Mullen and Mr White on the other regarded an agreement by the creditor with one guarantor as effecting a release of the other guarantor: and it is equally clear that an arrangement between the creditors and one guarantor could not alter the arrangement between the guarantors themselves. It therefore follows that Mr White can claim contribution in respect of his £230,000 payment: and Nicholas Mullen agrees that this should form part of the account being taken under the Equalisation Provision. Likewise Nicholas Mullen can claim contribution in respect of his £60,000 payment (and this is also agreed by Mr White).
45. I hold second that Nicholas Mullen can likewise claim contribution in respect of the £20,000 cash which he paid. Mr White says that this was only payable because Nicholas Mullen delayed in reaching agreement with RAM and QFL. But the simple fact is that the price which RAM and QFL extracted from the guarantors for the release of the guarantees (and so the sum that the shareholders were required to contribute to cover the shortfall in external funding ) was a total of £480,000 (subject one point to which I will come): and however much Mr McLaughlin might favour Mr White and be antipathetic towards Nicholas Mullen (as was frequently demonstrated in his evidence) he cannot alter the mutual rights as between Nicholas Mullen and Mr White.
46. I hold, third, that Mr White is not entitled to claim an adjustment or credit for 50% of the "equity" which was released in part satisfaction of the discharge of the joint and several guarantees. That is because the "equity" belonged to the Company (and was protected by an unpaid vendor's lien). The "equity" never belonged to the shareholders. It was an asset of the Company. Mr White as a shareholder had no existing interest in the "equity", and would not obtain any "interest" until such time as the Company entered into a solvent liquidation and was in a position to make a distribution to contributories. Of course the fact that the "equity" was utilised by the Company (as primary obligor) in partial repayment of the loans made to it means that Nicholas Mullen cannot claim credit for that "equity" in any claim for contribution or process of accounting under the Equalisation Provision. But he does not seek to do so.
47. I hold fourth that Nicholas Mullen is not entitled to claim £32,533 in respect of legal costs claimed by RAM and QFL. The proceedings taken by RAM and QFL were essentially claims under the guarantees (for it was known that the Company itself had no monies out of which to repay the loans). The management of the Company's affairs was in the hands of its board, and the board was in deadlock. Accordingly, nobody had authority to incur legal costs on behalf of the Company. If Nicholas Mullen incurred legal costs he did so in defence of the claim against him on the guarantee (having no authority to incur costs on behalf of the Company). The legal costs cannot therefore be properly regarded as a shareholder's contribution to the working capital of the Company to cover a shortfall in external funding so as to fall within the Equalisation Provision.
48. In the equalisation account Mr White is entitled to add £230,000 to his balance and Mr Mullen £80,000 to his.
49. The eleventh issue is: is Nicholas Mullen entitled to an adjustment in respect of the flat transactions at Ivanhoe Road and Livingstone Drive?
50. There is a scarcity of evidence relating to this issue. I have referred to the fact that in order to generate cash the Company sold apartments to its directors and to members of Nicholas Mullen's family so that they could raise "buy-to-let" mortgages (funded by rental income), the mortgage monies being paid to the Company to ease its cash flow. According to the evidence of the Company's accountant (which I was invited to treat as non-contentious) at the conclusion of each transaction he removed the relevant apartment from the assets listed in the Company's balance sheet, which was then signed off by Nicholas Mullen and Mr White. Where the purchaser was a director the "deposit" or "equity" was dealt with by adjustment of the directors' loan accounts. Mr Gordon had no knowledge of any discussions between the directors as to any further accounting treatment of these transactions. As to the suggestion that they were somehow to be swept up in the Equalisation Provision he said:-

"I have some difficulty in understanding the proposal to equalise by way of adding back/deducting the gain or loss as appropriate generated upon the sale of the apartments. At the time these were sold they were removed from the company's records without any suggestion to me that any future gains or losses belonged to the company. If such information had been provided to me, then my opinion would be that the property should have remained as assets of the company, albeit, the corresponding entry in respect of the mortgages. [Since] the properties were removed, I believe that normal accounting practice would be that any subsequent gain or loss belonged to the purchaser. Furthermore if it is to be suggested that any gain belongs to the company, then the unsatisfied creditors upon liquidation will have a claim. "

51. The evidence of Nicholas Mullen was that the purchases of apartments by the directors or by members of his family were the subject of a separate joint venture between himself and Mr White. Mr White vigorously denied that there was any such joint venture outside the Equalisation Provision.
52. The adjustments to the directors' loan accounts in respect of the "deposits" must be taken as a correct record of the true nature of the relevant transactions. They were debits from the directors' loan accounts and cannot be treated as if they were advances to the Company to cover a shortfall in external funding (and so capable of falling within the Equalisation Provision).
53. On this evidence I hold that whether there has been an actual or notional gain or loss made on the Ivanhoe Road and Livingstone Drive flats is irrelevant to the accounting to be undertaken by virtue of the Equalisation Provision or the adjustment of the contributions arising under the various joint and several guarantees in issue in these actions.
54. The twelfth issue is: is Nicholas Mullen entitled to an adjustment in respect of his settlement of the claim by Simon Eadie?
55. Simon Eadie was another business associate who lent money (£100,000 in May 2008) secured by the joint and several guarantees of Nicholas Mullen and Mr White. On 1 November 2014 the sum due under the joint and several guarantee would have been £148,750 but for payments made by Mr White between 5 June 2011 and October 2014 in the sum of £58,297 (though Nicholas Mullen put in issue £25,000 worth of these payments): the balance then due under the guarantee was £90,452. In proceedings commenced in November 2014 Simon Eadie claimed this sum from Nicholas Mullen: and Nicholas Mullen claimed a contribution from Mr White.
56. It was part of Mr White's defence to Nicholas Mullen's contribution claim in those proceedings that Simon Eadie had agreed to limit his claim against Mr White to £68,300. It is quite clear from surviving emails (a) that Simon Eadie and Mr White were indeed seeking to do a mutual deal that was so far as possible to be concealed from Nicholas Mullen; but equally (b) that Nicholas Mullen was using the claim of Mr Mullen senior's estate against Mr White as a reason for not paying Simon Eadie under the guarantee (though the state of account between Nicholas Mullen and Mr White was irrelevant to their joint and several liability to Simon Eadie).
57. The general confusion that these two strategies generated eventually led to a mediation and two contemporaneous Tomlin orders. Simon Eadie was to receive £94,500 in full and final settlement. Mr White was to contribute £29,500. Nicholas Mullen was to contribute £65,000. Nicholas Mullen was concerned to see that his liability was limited to that sum. On 18 January 2016 his solicitor wrote in connection with the proposed draft:-

"You will understand Nick's concern – as drafted, Simon and Chris (as friends) could collude together to require Nick to pay Chris his £29,500. Whilst accepting that ultimately it is right that Simon should receive his monies by 24 June 2017 at the latest Nick does not wish to be "outflanked" as it were by a separate arrangement between Simon and Chris. As set out above, the unfairness of the arrangements as we understand them to be present do give rise to this being a real possibility and viewed objectively there is no fair justification for this…."

58. The funding for Nicholas Mullen's contribution was to be the sale proceeds of Flats 13 and 14 at 13 Croxteth Road, flats registered in the name of Nicholas Mullen's daughter Gemma (and accordingly no longer forming part of the assets of the Company, and, according to Mr White, not subject to any other joint venture arrangement).
59. The Tomlin order settling the action by Simon Eadie against Nicholas Mullen provided:-

(a) that it should have effect solely between Simon Eadie and Nicholas Mullen and be without prejudice to any rights of contribution that Nicholas Mullen might have against Mr White;

(b) that Simon Eadie should receive £94,500 on 24 June 2017 "from either Mr Mullen or Mr White or both of them";

(c) that, by a separate but related and concurrent Tomlin order between Simon Eadie and Mr White, Mr White had committed to paying Simon Eadie £29,500 and "Mr Eadie will not enter into an agreement or other arrangement with Mr White to relieve Mr White of his obligations under that agreement";

(d) that in the event that Simon Eadie did not receive payment in full he would be entitled to enter a money judgment against Nicholas Mullen "in such sum as may then be outstanding to him" (after giving credit for such sums as may have been received).

60. The Tomlin order of 11 March 2016 between Simon Eadie and Mr White provided that Mr White should pay £29,500, of which £5000 had been paid by 1 March 2016. But it partially relieved Mr White from payment of the remaining balance by (in effect) providing that if Simon Eadie received any money from the proceeds of sale of Flat 13 or Flat 14 13 Croxteth Road Mr White's liability to pay the balance of the £24,500 should be reduced by 50% of the sale proceeds so received. The effect of this arrangement was to increase the amount that Nicholas Mullen had to contribute to the total £94,500 that was payable and to relieve Mr White pro tanto (in contravention of the terms negotiated between Simon Eadie and Nicholas Mullen). This devious manoeuvre led to further litigation which was in turn compromised.
61. The question for me is what is the impact of this dispute on the state of account between Nicholas Mullen and Mr White? The key issue here is how the "deposit" or "equity" was dealt with at the time of Gemma's purchase. If the difference between the sale value of Flat 13 and the mortgage raised upon Flat 13 was dealt with by way of adjustment to Nicholas Mullen's directors loan account then the entire proceeds of sale are for the account of Nicholas Mullen and his family (and between Nicholas Mullen and Mr White, Mr White cannot claim credit for 50%). But if the difference between the sale value of Flat 13 and the mortgage raised upon Flat 13 was simply left outstanding in the books of the Company (creating an unpaid vendor's lien), then the effect of a sale and the payment of the proceeds of sale to Simon Eadie was a payment by the primary obligor (the Company), the effect of which was to reduce the liability under the joint and several guarantee.
62. Unlike in relation to Ivanhoe Road and Livingstone Drive the evidence of the Company's accountant does not assist on this issue. So it must be determined by the burden of proof. Nicholas Mullen says that he paid £94,629. To claim a contribution from Mr White he must adduce evidence that it was his personal money. He establishes that part of it comes from the sale proceeds of the Croxteth Road flats. He establishes that these flats were held in the name of his daughter Gemma who raised mortgages upon them. But he does not establish that in the books of the company Gemma actually paid or (by means of an adjustment in Nicholas Mullen's director's loan account notionally paid) the "deposit" or "equity". Absent such proof the benefit of the deposit or the equity was an asset of the Company. This is consistent with the view I expressed in paragraph [46] above as to the treatment of the other Croxteth Road flats used in settlement of the RAM/QFL indebtedness.
63. The exercise to be undertaken is therefore:-

(a) determine the total amount paid to Simon Eadie by Nicholas Mullen and Mr White from all sources ("the Total");

(b) determine how much of that derives from the sale proceeds of the Croxteth Road flats ("the Proceeds") - the sale proceeds of Ivanhoe Road properties being treated as the property of the legal owner;

(c) deduct the Proceeds from the Total ("the Balance");

(d) divide the Balance equally between Nicholas Mullen and Mr White ("the Share");

(e) credit against the Share of Mr White payments made by Mr White (excluding the Proceeds) and against the Share of Nicholas Mullen payments made by Nicholas Mullen (excluding the Proceeds) to arrive at the net debit or credit figure.

64. Section G of Nicholas Mullen's negotiating schedule contained a large number of items in respect of legal fees. My understanding is that these claims were not pressed. If that is incorrect I would find and hold that none of them is justified as an entry under the Equalisation Provision.
65. I believe I have now determined all issues of principle remaining on the account (after the concessions made in closing speeches) and that it should be possible to prepare a final schedule and a final balance due. If there remain further issues (as is possible, given that this did not proceed as an ordinary accounting action with the usual schedules) I will determine any further matters (unless the parties prefer to follow the usual course and to conduct the remainder of the account before a District Judge in chambers). To that end I will (following formal hand-down of judgment) ask the parties to arrange a hearing to determine costs and consequential matters.