Hill & Anor v Secretary of State for the Environment, Food and Rural Affairs [2005] EWHC 696 (Ch)

Case No BS350395[2005] EWHC 696 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 22 April 2005
Before
THE HONOURABLE MR. JUSTICE HART
Between
(1) GRAEME MARK HILLClaimants(2) NEW CENTURY FARMS LIMITEDClaimantTHE SECRETARY OF STATE FOR THE ENVIRONMENT FOOD AND RURAL AFFAIRSDefendant
Mr. David Warner (instructed by Burges Salmon LLP) for Claimants.Mr. Adam Tolley (instructed by Eversheds) for Defendant.Hearing Hearing dates: 7 th, 8 th, 11 th March 2005
Judgment

Mr. Justice Hart :

[1]This is a claim which arises out of the foot and mouth epidemic of 2001 and in particular the slaughter on 24th April 2001 of approximately 2,000 sheep and 160 cattle at Lower Dunscombe Farm, Chudleigh, Devon pursuant to section 32 of the Animal Health Act 1981 on the grounds that they were suspected of being infected with the disease. It subsequently transpired that the suspicion was unfounded and on 30th May 2001 a Form B notice (withdrawing the original Form A notice given on 23rd April declaring the farm to be an “infected place”) was given. Before that happened, however, the Ministry of Agriculture and Fisheries (MAFF) (to which the defendant Defra has succeeded) had imposed cleaning and disinfecting (C&D) requirements in relation to the premises. The practice at the time was to give the option to the farmer of doing the work himself under Defra’s supervision and at Defra’s expense, or of having a contractor appointed by Defra sent in to carry out the work again at Defra’s expense. In this case the first option was taken, but the position is complicated by the fact that the agreements between the farmer and Defra whereby the farmer was to do the work identified the farmer as the second claimant (“NCF”) whereas the tenant of the premises subject to the C&D requirements was the first claimant (“Mr Hill”).[2]The principal claim in this case arises out of Defra’s refusal to pay for the work which was done pursuant to the contract either at the rate claimed or at all. The main ground on which such refusal is sought to be justified is the alleged illegality of the contract or contracts pursuant to which the work was done. The illegality is said to arise from the fact that at the date of the contract(s), Mr Hill was an undischarged bankrupt. NCF was a limited company which owned the slaughtered sheep and which used the Farm for its business. At the material time its sole director was Mr Hill’s wife (“Denise”) who was also registered as the owner of all its issued share capital. Defra contends that in reality NCF was a mere proxy for Mr Hill in relation to its business. Section 11(1) of the Company Directors Disqualification Act 1986 (“CDDA”) makes it an offence for an undischarged bankrupt:
“to act as director of, or directly or indirectly to take part in or be concerned in the promotion formation or management of, a company, except with the leave of the court.”
Defra’s contention is that Mr Hill, in causing NCF to enter into the contracts, was acting in breach of this sub-section. It submits that the consequence is that the contracts are illegal and cannot be sued upon.[3]Although that is not Defra’s only defence to the claim it is a central one. It is therefore convenient at this stage to set out some salient facts concerning Mr Hill’s bankruptcy: i) Mr Hill seems first to have got into serious financial difficulty in 1996 (having built up a bank overdraft of some £500,000) as a result of which he entered into an individual voluntary arrangement under the supervision of Mr Close of the firm of Milsted Langdon, insolvency practitioners. This provided for a prospective payment to creditors of 6p in the pound. He found himself unable to keep up the payments required by the IVA (which he blamed on MAFF for its failure to pay him sheep premium payments timeously). This resulted in Mr Close applying for a bankruptcy order. This was obtained in December 1998. Mr Close was appointed to be his trustee. By this time Mr Hill had debts of some £1m. ii) Immediately prior to his bankruptcy Mr Hill had been the tenant not only of the 177 acre holding known as Lower Dunscombe Farm (“the main holding”) but also of four outlying pieces of land amounting to some 287 acres (“the outlying tenancies”). The trustee decided that these tenancies were of no realisable value as part of the bankrupt’s estate and therefore assigned them back to Mr Hill, with a view to his carrying on his farming business. This was done by assignments dated 29th September 1999. iii) The trustee was also surprised to find that there was little livestock to which he could lay claim. Only 1100 sheep had been found at the farm when the sheriff had levied execution just before the bankruptcy, whereas in August 1998 Mr Hill had had 2,600. The explanation given to him (with which he found he had to be satisfied) was that some 1,000 sheep (valued at £5000) had been rustled in the autumn of 1998: Mr Hill claimed that he knew who the culprit was, but nothing was ever proved. iv) The trustee also found no other assets used in connection with the farming business which could be turned to account for the benefit of the bankrupt’s estate. What there was of any value appeared to be tenant’s fixtures which could not be turned to immediate, or possibly any, account. These included two large polytunnels (described by one witness as each being about 100 yards long) used for sheltering the sheep. v) So far as the trustee was concerned, therefore, Mr Hill was left to continue his farming business on the main holding and the outlying areas, employing within it such assets as had previously been available to him. vi) Mr Hill’s position as against his landlord was, however, fraught with possible peril. His landlord had apparently been generally supportive of the IVA. But its attitude hardened with the bankruptcy. A notice was served which had the effect of rendering Mr Hill’s continued enjoyment of the holding precarious. vii) It seems that there was a defect in that notice, or arguably so, in relation to the outlying tenancies. Mr Hill took advice from solicitors Burges Salmon and from expert landlord and tenant counsel as to his position qua tenant, and from a Mr Sanders (a chartered surveyor and partner in the firm of Carver Knowles) who had much experience of advising farmers in Mr Hill’s position. The upshot was that Mr Hill was advised that the outlying tenancies should be assigned to a limited company, and that he should thereafter transfer all his farming assets (apart from his tenancy of the main holding) to that company. viii) Friends of Mr Hill, a Mr and Mrs Clifton, agreed to form, hold shares in and be directors of the necessary company, and also to finance (at a cost of about £7,000) the lease of the necessary sheep quota to enable the company to have a viable business. Mr Hill’s role was to act as farm manager for that business and shepherd to the flock transferred to it. Mr Hill was well aware that it was a criminal offence for him to be involved in the formation or management of the company but seems to have been advised that so long as his role was so limited he would be on the right side of the law. ix) Mr and Mrs Clifton proceeded to acquire NCF, an off the shelf company which had been incorporated on 30th September 1999 by company formation agents. On 14th December 1999 Mrs Clifton acquired the issued share in NCF and on the same day two further shares were allotted to Mr Clifton and the Cliftons were appointed as its directors. On 15th December 1999 the outlying tenancies were assigned to NCF and on 24th December 1999 Mr Hill entered into a business sale agreement with NCF. x) The business sale agreement purported to transfer to NCF all the live and deadstock at the farm, itemised in a schedule as consisting of some 3,900 sheep (mostly commercial Welsh ewes) and a miscellaneous list of fodder, pens, fencing equipment, tools, etc. The consideration payable was expressed as a sum of £87,925 payable in instalments over a lengthy period at the rate of £2000 pa for the first 5 years and thereafter at the rate of £5195 per annum, the first instalment of £2000 falling due on 24th December 1999. The value of the assets transferred was £41,180, and the stated consideration, discounted back to 24th December 1999, was that sum. xi) It is a reasonable inference that the instalment payment provisions were inserted not merely to reflect the ability of NCF in terms of cash flow to pay for the acquired assets but also with an eye to making it difficult for the trustee to capture the consideration either as after-acquired property (under section 307 of the Insolvency Act 1986) or by way of an income payments order (under section 310). The trustee in fact sought to claim the consideration as after-acquired property, a claim which he with some reluctance settled for a one off payment of £2000. xii) In early 2001 the Cliftons, having been reimbursed their outlay of £7000 in respect of sheep quota leases, transferred their shares in NCF to Denise (to whom Mr Hill, after a long relationship, had recently become married), and resigned their directorships. Denise became the sole director. At some point following his discharge from bankruptcy in December 2001, Denise transferred two thirds of her shareholding to Mr Hill, who then joined her on the board. (By that time both NCF and Mr Hill had given up their respective tenancies. Mr Hill had also served a 4 month sentence of imprisonment imposed on him in October 2001 for an offence in connection with his bankruptcy (diversion of VAT repayments), the judge who sentenced him having described him as “a devious and dishonest man”). xiii) Mr Hill’s tax return for the year ended 5th April 2001 does not show him as having been in business, or as having been an employee, during that period. He told me in evidence, however, that he had farmed the main holding during that period, having grown a crop of linseed which, after it had flowered and been ploughed back into the ground, had entitled him to a subsidy. This had, he told me, been swallowed up in legal fees. He had also during the period managed NCF’s sheep business, using for that purpose both the outlying tenancies and the main holding, and being in that role responsible for all purchases and sales of sheep and the procuring of all supplies under the ostensible direction of successively the Cliftons and Denise. Care was taken, at least during the period of the Cliftons’ ostensible control, to ensure that dealings with MAFF – in particular the harvesting of relevant subsidies – was conducted by Mr Sanders on behalf of NCF.

The contracts

[4]Cleansing and disinfection (C&D) of the farm took place under the auspices of two agreements made between Defra and NCF (acting through Mr Hill) on 25th April 2001 and on 19th July 2001. This cleansing and disinfecting was to be carried out by NCF’s operatives under Defra’s supervision and was to be paid for by Defra.[5]Under the terms of the first agreement Defra was to pay NCF £15 for every hour worked by Mr Hill, £12 for every hour worked by Luke Hayman and £10 for every hour worked by Kevin Perry. In fact Denise Hill took the place of Kevin Perry. From 29th April 2001 until 10th June 2001 the company submitted time-sheets on a weekly basis showing the number of hours worked by each of them. For the first 4 weeks each timesheet was signed off by Eamonn Crowe MRICS, the Defra supervisor on site, as being an accurate record of the hours worked. The timesheets for the next 4 periods were not signed off by his replacement.[6]C&D work at the farm was stopped on 6th June 2001 on the orders of a Defra veterinary inspector, Janet Webb. On 22nd June 2001 Simon Montgomery, a Defra Inspector, visited the farm and carried out an inspection which he videoed. Later, on 19th July 2001, he made a further visit to the farm when he was accompanied by Mr Hill and when he drew up a schedule of work with agreed figures for the time and cost of completing the C&D and for the hiring plant to carry out those works. The agreement was then confirmed in a letter dated 23rd July 2001 from the Department (Sandra Wightwick) to the Company. Although at one point the claimants asserted that this letter contradicted the agreement reached with Mr Montgomery, it was accepted in the course of the trial that it accurately reflected it. There appears to be no dispute that the agreed work was then carried out, save that Defra does not admit one item – the replacement of stone floors. The last of the FMD restrictions on the farm were lifted by Devon County Council on 7th September 2001.[7]It appears from an internal Defra note that initially its unwillingness to pay arose not only from concerns as to the effect of Mr Hill being an undischarged bankrupt but in part from a suspicion that Mr Hill had himself somehow contrived that the flock displayed the FMD symptoms which had been the cause of the slaughter. This possibility was canvassed in some of the Defra witness statements in the case, but was not in any way relied on by the defence and so was not an issue at the trial. The defences which were raised are those considered below.

The Claims

[8]The claims, as modified in the course of the trial, fall into five categories: Labour - 25th April 2001 Agreement i) The claim for labour charges due under the 25th April 2001 agreement is £13,290 plus VAT representing the hours worked by Mr Hill, Denise and Luke Hayman in carrying out C&D work at the farm between 25th April 2001 and 6th June 2001. Plant hire - 25th April 2001 Agreement ii) Pursuant to the agreement of 25th April 2001 NCF claims £5915 plus VAT being the sums due in respect of plant hired by NCF to Defra between 25th April 2001 and 6th June 2001. 19th July 2001 Agreement iii) NCF claims in respect of that agreement: a) £4200 plus VAT representing the agreed labour charge for cleaning and washing down the farm buildings, clearing the pond, refencing and remedying the proposed pyre site; b) £420 in respect of the damaged feeders; c) £50 representing the cost of replacement fencing materials; d) £1060 representing the agreed hire charges due for plant used in C&D operations. (In addition NCF claims £900 (+12.5% VIPER uplift, £112.50) being 2 weeks’ hire of the mini-digger). Damage to property iv). The claims in respect of damage to property advanced on behalf of NCF, alternatively Mr Hill, fall into three categories: a) Damage to the polytunnels being £9956 + VAT; b) Damage to 38 gates during the slaughter, £2584 + VAT; c) Damage to fence posts and rails, £734 + VAT.10. These claims are made in negligence.11. Destroyed deadstock v). A claim of £2190 representing the value of animal feed seized and/or destroyed in the course of C&D operations at the farm is made. This comprises: a) £400 worth of barley buried on the farm; b) £700 worth of milk powder buried on the farm; c) £540 worth of protein pellets; d) 11 tonnes of straw which was burned. 13. The claim here is for compensation under section 36(1) of the Animal Health Act 1981 in respect of items seized under Article 2(1) of the Diseases of Animals (Seizure) Order 1993. 14. Quantum Meruit vi). In the alternative to the claims set out at (i), (ii) and (iii) a claim of quantum meruit in the sum of £30,467.60 is made.

The defence to the contractual claims

[9]Defra pleaded three defences to the contractual claims: first, that Mr Hill had had no authority to commit NCF to the contracts; secondly, that the contracts were unenforceable by NCF on the ground of illegality; and, thirdly, that the contracts with NCF were “a sham, and should be treated as having been entered into by Mr Hill and not NCF, such that the amounts (if any) due pursuant thereto should be paid to Mr Hill’s trustee in bankruptcy” [see para 37 of the Amended Defence]. The first of these defences was effectively (and rightly) abandoned in the course of the trial. Even if originally not authorised the contracts had plainly been ratified by NCF.

The illegality defence

[10]It was submitted on behalf of Defra that the essential test to be applied is whether, having regard to the purpose of section 11 of the CDDA, and the circumstances in which the contracts were made and performed, it would be contrary to public policy to enforce them. I was referred by Mr Tolley on behalf of Defra to Chitty on Contracts (29th ed, 2004), Volume 1, paragraphs 16-141 to 16-147 (pages 1020-1024) and to the leading cases Archbolds (Freightage) Ltd v. S Spanglett Ltd [1961] 1 QB 374, 389-390, Shaw v. Groom [1970] 2 QB 504, 516, 520 and St John Shipping Corp v. Joseph Rank Ltd [1957] 1 QB 267). Mr Warner, on behalf of the claimants, did not dispute the general proposition, but referred me in addition to the analysis contained in para 1.11 of Professor Buckley’s 2002 monograph “Illegality and Public Policy”, and relied on that contained in the judgment of Megarry J in Curragh Investments v. Cook [1974] 1 WLR 1559 at 1563 and the test applied by Buckley J in Victoria Daylesford Syndicate v Dott [1905] 2 Ch 624 at 629-30. I have also taken the opportunity of consulting the 1999 Law Commission Consultation Paper (154) on “Illegal Transactions: The Effect of Illegality on Contracts and Trusts”.[11]Mr Tolley submitted that the public policy underlying the section was the protection of the public from those individuals who are not regarded as trustworthy persons to be involved in the management of a limited liability company. I agree. I would add that the relevant section of the public consists of, or at least includes as a primary class, those who might extend credit to such a company. Mr Tolley further submitted that that policy would be subverted if it were nevertheless open to such a company to sue on a contract entered into in the course of its unlawful management. I disagree. If such a company cannot sue on its contracts the very persons whom the legislation is designed to protect (the company’s creditors) will be prejudiced, if not by the avoidance of their own contracts which may remain enforceable at their instance under the non in pari delicto principle, by the destruction of the company’s debtor book. That cannot have been the Parliamentary intention, and I decline to hold that it was. I would add that section 15 of the Act (which renders the bankrupt personally liable for the company’s debts) provides some reinforcement for that conclusion since it assumes that the company’s contracts will be enforceable against it even where the creditor is in pari delicto.[12]On that view of the law it is unnecessary to find whether Mr Hill was acting in breach of the section in entering into the contracts. However, in case I am wrong, it is necessary to set out my findings on that issue. I apply the civil standard of proof in making those findings. I find that from 24th December 1999 the whole of the company’s business was being run by Mr Hill. He was the only person who in practice wrote cheques on NCF’s bank account. He had no service agreement with NCF defining his role and he appears not to have been remunerated for the services which he provided. The Cliftons appear to have been interested in the company’s business only to the extent of ensuring that they were repaid the sums advanced to purchase the sheep lease quota. Such documentary evidence as exists strongly suggests that Mr Sanders reported primarily to Mr Hill rather than to the Cliftons, and his role in any case seems to have been much diminished once the Cliftons had bowed out. Denise had little practical experience in the business and was not a signatory on the bank mandate. I have little hesitation in drawing the inference that, subject to what was effectively the Cliftons’ charge over the business, the business of the company was perceived by all concerned as being carried on by Mr Hill for his benefit (and of course Denise as his wife), and that he was its effective manager.[13]What constitutes being “concerned in the ...management” of a company for the purposes of section 11 was considered by Carnwath J (as he then was) in Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282 at p298. He referred to the decision of the Criminal Division of the Court of Appeal in R v Campbell [1984] BCLC 83 and to the approval of a distinction drawn by Beldam LJ between:
“managing certain specific aspects of the company’s activities, such as production, sales, trading and the like, and the central management of the affairs of the company, that is to say the matters normally undertaken by the directors or officers of the company.”
Carnwath J referred [61] to a similar distinction having been drawn by Shaw LJ in Re a Company [1980] Ch 138 at 144 (a case dealing with similar wording in section 441 of the Companies Act 1948) where he held that management for these purposes involved the person exercising a supervisory control which reflects the general policy of the company or which is related to its general administration and that it was sufficient that he fulfils a function which touches the central administration of the company. Carnwath J held (at para [64]) that an important question to be answered when considering this issue was whether the person in question fulfilled functions “relevant to the solvency or the probity of the corporation’s administration” in the sense of putting them at risk (referring to the formulation of Ormiston J in Commr for Corporate Affairs v Bracht (1989) 7 ACLC 40 (Sup Ct of Victoria)).[14]Defra’s pleaded case focussed only upon the role actually played by Mr Hill in entering into the two contracts concerned. Mr Warner was thus able to submit that the court was not concerned with any wider question whether Mr Hill was involved in the management of the company generally, and that, applying the distinctions drawn in Re Market Wizard Systems (UK) Ltd, it could not be said that the making of the two contracts involved Mr Hill in a breach of section 11(1): all that they had involved was management of a specific, operational aspect of the business and not central management of the affairs of the company.[15]As to this, I preferred the submission of Mr Tolley that Mr Hill’s role in the making of these two contracts had to be seen in the context of his overall role in relation to the NCF’s affairs where (on the findings I have made) he was concerned in its management. The position at the date of the contracts was that NCF’s business had been destroyed (as a result of the destruction of its flock) and the only immediate source of income available to it was entry into the contracts concerned. The decision whether to commit NCF to the contracts (which involved procuring labour and machinery) to perform a C&D operation on the main holding may have been an easy one to take, but it was an important one at that juncture in the company’s history. It was taken by Mr Hill.

The defence of “sham”

[16]I have already set out the way in which this was pleaded. The proposition as pleaded was that the agreements themselves were shams in so far as they purported to be agreements with NCF as opposed to Mr Hill. The purpose of this argument was to take advantage of the fact that the trustee in bankruptcy had, by a letter dated 8th August 2003, given notice that: “I intend to claim all benefits arising from this matter as after acquired property, pursuant to section 307 of the Insolvency Act 1986.” “This matter” in that context meant the claims then being advanced by the claimants in correspondence and now being made in this action. Accordingly, Mr Tolley argued, the choses in action represented by the current claims thereupon vested in the trustee under section 307(3) with relation back to the time of acquisition.[17]There are, in my judgment, several difficulties with this argument. It should first be appreciated that the argument related solely to the agreements, and did not involve the more general proposition that NCF was itself a sham. That would have been a difficult line for the trustee to have taken given his acceptance of the validity of the transfer of assets to NCF (itself the subject of an earlier notice under section 307). The proposition is that, by artificially labelling the agreements as having been made with NCF, Mr Hill had been concealing the real nature of the transactions, namely as transactions under which he was entitled to receive the consideration. It is, however, difficult to see what motive Mr Hill would have had, as against the trustee, for such a device. He was in possession of the main holding, and carrying on business there on his own account, with the full knowledge of the trustee. Receipts, or entitlements, of an income nature in the course of that business would not be claimable by the trustee as after-acquired property since, by section 307(5), references to “property” in section 307:
“do not include any property which, as part of the bankrupt’s income, may be the subject of an income payments order under section 310.” “Income” for the purposes of section 310 comprises (by virtue of section 310(7)): “every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business... ”
Mr Hill’s expectation, if contracting personally, would have been that he would have received the payments due under the contracts prior to his discharge from bankruptcy, and the net profits resulting from that receipt would then have been “income” in respect of which an income payments order might have been applied for. His motive, therefore, in placing the contracts with NCF may have been either to conceal such income or to advance an argument that it was not income in respect of which an income payments order might be made. I cannot, however, see how that motive can have the effect of transmuting the potential income receipt into “property” for the purposes of section 307. Thus, if I were to accede to the argument that the agreements were a sham, I cannot see how it can properly be said that his entitlements to income under the agreements are capable of being after-acquired property caught by the trustee’s section 307 notice. “every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business... ”[18]In any event, even if Mr Hill’s motive in placing the contracts with NCF was an improper one as against the trustee in bankruptcy, that does not enable one to say the agreements with NCF were a sham. Once it is accepted that NCF was not itself a sham (as Mr Tolley’s argument did) there is no reason to come to a conclusion that the real substance of the transaction, as between the parties to it, was otherwise than a transaction between NCF and Defra.[19]Accordingly I conclude that, as between NCF and Defra, NCF has title to sue Defra on the contracts. I would emphasise that in so concluding I have not heard any argument from the trustee in bankruptcy who is not a party to these proceedings, and who is not therefore bound by this decision.

Other defences to the contractual claims

[20]Defra did not accept that any of the time sheets accurately reflected the hours spent or machinery used during the periods respectively covered by them. However in respect of the timesheets delivered between 29th April and 20th May (which had been signed off by Defra’s Mr Crowe, who was not called) Defra’s case was one of non-admission only. In my judgment Defra is liable in respect of these at the rates claimed.[21]In relation to the time sheets for the period between 27th May and 10th June Defra positively denied that they were an accurate record. Under the order dated 2nd August 2004 of District Judge Frenkel both disclosure and evidence were limited to issues of liability and excluded issues going to the quantification of damages or quantum of restitution. Strictly speaking, therefore, the only issue before me is whether there can be a contractual claim in relation to these later timesheets, they not having been counter-signed (as the contract provided) by “the supervising MAFF representative”. The reason they had not been counter-signed was, I was satisfied, a genuine doubt by the relevant representatives over the period as to whether the claim was bona fide. The doubt seems to have varied between a suspicion on the one hand as to whether the hours claimed had actually been worked (there was in particular scepticism as to whether Denise had worked at all despite Mr Crowe’s recognition that she had in the earlier period) and a concern as to whether more hours had been worked than were necessary to do the works which had been directed. Thus Ms Werrett gave the example of Mr Hill having been directed to move some uncontaminated dung to cover over that which was full of bits of carcasses, but as having “rather overdone that job, yet had not finished scraping up the bits of carcass”, creating in the process a largely uncontaminated muck heap, four feet high and measuring about 60-80 feet by 15-20. However, by the time Mr Hill had, in response to Miss Wightwick’s letter of 23rd July 2004 supplied supporting logs of the work done, Defra appears not to have been in a position to deny the accuracy of the time sheets. No attempt was made by Defra either then or subsequently either to assert that no work had been done, or to produce its own alternative estimate. The Defra employees/consultants most directly involved in the process (Mr Crowe, Mr Phelps Ms Strong and Ms Webb) were not available to give evidence, although Ms Strong did provide a witness statement which was admitted as hearsay. It seems to me that the position is that NCF is entitled to be remunerated on a quantum meruit basis for the work done during this period, and that, although strictly a matter for another occasion, the timesheets are now the best evidence of what was done and how it should be remunerated. They are of a piece with the time sheets signed off by Mr Crowe.[22]So far as plant hire is concerned, the same considerations apply. There is a minor dispute as to whether a mini-digger was ever hired in as claimed, and if so whether a 20% uplift on the hire cost is chargeable. As I understood Defra’s final position on this issue, it was that the 20% uplift was payable if hire of the digger could be proved by production of an invoice.[23]Defra also did not admit that one item of work covered by the 19th July agreement, namely the replacement of stone floors at a total cost of £4,500, had been carried out. On the evidence I heard I had no reason to doubt that it had been. Whether the cost to NCF of obtaining the necessary materials was the amount which Defra had agreed to pay seems to me immaterial to NCF’s entitlement to be paid on the agreed contractual basis.

The property damage claims

[24]The polytunnels. The slaughter of the sheep had taken place, under Defra’s direction, inside the polytunnels. This proved to be a bad idea, since it presented the problem of how to remove the carcasses. Moreover, unforeseeable delays in deciding on the appropriate method of disposal of the carcasses meant that they were left to rot in greenhouse conditions before disposal took place. This made the actual process of extraction of the liquefying remains (which took place on 30th April) an unpleasant and difficult process. The three teams employed by Defra to undertake the task (an army team, Carski and RDS) initially disagreed amongst themselves as to the best method, Carski and the army advocating destruction of the polytunnels and removal of the carcasses by machine. RDS proposed to take the carcasses out by hand so as to avoid damage to the polytunnels. This was the course which Ms Werrett (the ADAS consultant employed by Defra) directed be adopted. By that stage damage to the polytunnels had already been caused in two respects. First, the decision had been taken to cut off the plastic sheeting. This had been done, it seems, at an earlier stage in order to reduce the heat and rate of decomposition. The Defra witnesses who were called spoke of the sheeting having been rolled back. I am satisfied however from Mr Hill’s evidence, and from photographs which were taken on 30th April, that it was cut off. The other damage was damage caused by a telehandler operator on the Carski team who had, apparently under the supervision of Mr Crowe, begun the process of destroying the polytunnels before the arrival of Ms Werrett. This had resulted in some damage to the front of one of the polytunnels which can be seen in the photographs. There was some hearsay evidence that Mr Hill had been encouraging of this process.[25]Defra concedes in its defence that it owed the owner of property a duty to take reasonable care in the exercise of its statutory duty not to damage it. Since I was not persuaded that such damage as did occur was an inevitable consequence of the steps which had to be taken by the Defra supervised contractors, and since those contractors were working in very unpleasant physical conditions and against the background of a Defra policy of compensating the owner for any damage caused, it is not surprising if they worked with less care than they might otherwise have done. I think that I am entitled on that basis to find that Defra was in breach of its duty in respect of the damage caused to the polytunnels by the contractors.[26]That leaves two issues, first, how much damage was caused by the negligent actions of Defra? As to this, Mr Hill had produced to the relevant Defra consultant, Ms Strong, a quotation for repairs in a sum of £9,956. Ms Strong approved the quotation, signing a form recommending its payment on 25th June 2001. She was not called as a witness (being too occupied with her business of hunter hiring and livery on Exmoor) but her witness statement was admitted as hearsay on Defra’s application. Her written evidence was to the effect that the approval of the quotation was simply a record of the claim, which would fall to be checked by others. That is not, however, how the form reads. Nor does her evidence on this point stand easily with the extremely sceptical view she evidently took of many claims being made by Mr Hill and which she recounts in the same statement. She must in my judgment have been satisfied that the damage, in respect of which the claim was being made and the quotation proffered, had occurred. I therefore take the quotation as evidence of the nature of the repairs needed as a result of the contractors’ actions. Whether it represents the proper cost of those repairs is a matter going to quantum which I do not decide.[27]The second issue is as to who was the owner of the polytunnels. Plainly it was not NCF since the polytunnels, which had been on the main holding since before the bankruptcy, were not mentioned in the schedule to the assets sale agreement. They belonged therefore either to the landlord, to Mr Hill or to the trustee in bankruptcy. The trustee seems to have proceeded on the basis that the polytunnels were tenant’s fixtures for the purposes of section 10 of the Agricultural Holdings Act 1986, and therefore of no value to the estate because Mr Hill was in arrears of rent and thus unable to remove them: this seems to have been the argument presented to him by Mr Sanders in a letter dated 23rd March 1999. That view will only have been correct if the polytunnels were affixed to the holding as it appears (inter alia from photograph no 47) they were. But if they were so affixed they will only have been Mr Hill’s property (as opposed to the landlord’s) so long as he had the right to remove them: see section 10(1) of the Agricultural Holdings Act 1986. Mr Hill’s rights under section 10 in respect of the polytunnels vested in the trustee on his bankruptcy, but were worthless so long as the rent was in arrears (as it was) and re-vested in Mr Hill when the trustee assigned the tenancy back to him.[28]As at the date the cause of action in respect of the damage accrued, Mr Hill was therefore entitled to the tenancy of the main holding, and by virtue of that fact entitled (subject to complying with all the terms of the tenancy, which he had not done) to claim as against the landlord that the polytunnels were his. Although the point was not the subject of any argument before me, it is not obvious to me that that gave him a sufficient title to sue in his own name in respect of the damage. In the event Mr Hill seems to have vacated the main holding on 29th September 2001 pursuant to a consent order in Tomlin form dated 22nd February 2001 (“the February Order”) made in proceedings brought by his landlord in the Torquay and Newton Abbott County Court as varied by a subsequent order, to which revised terms of compromise were scheduled, of that court made in or about September 2001. The latter order (“the September Order”) is the only one I have seen, in the form of a draft agreed to by the parties’ solicitors. The revised terms conferred on Mr Hill the right to remove and retain the polytunnels. It also recorded an agreement that the benefit of any “existing compensation claims” against Defra arising from the slaughter and C&D operation should be Mr Hill’s and/or NCF’s. Insofar as the landlord had had a right to sue in respect of the damage to the polytunnels it was thereby assigned, in equity, to Mr Hill.[29]The question then is whether Mr Hill’s claim to compensation in respect of the damage to the polytunnels was caught by the trustee’s section 307 notice. Mr Warner submitted that so to hold would amount to an absurdity. His argument was that since the trustee had re-vested the polytunnels in Mr Hill the trustee could have no further claim, as after-acquired property, to the same property converted into money by sale or monetary damages by virtue of another’s wrongdoing. The fallacy in that argument appears to me to lie in the premise that the trustee ever owned the polytunnels or ever re-vested them in Mr Hill. As the above analysis demonstrates all that the trustee ever had, and all that he re-vested in Mr Hill, was the right granted to the tenant by section 10 of the Agricultural Holdings Act 1986. The polytunnels remained the property of the landlord until, under the terms scheduled to the September Order, it agreed that Mr Hill could take them. It seems to me that the trustee might argue that Mr Hill’s only title to sue in respect of the damage to the polytunnels derives from the landlord’s cession of property in the polytunnels and equitable assignment of its right to compensation under the terms scheduled to the September Order and that this claim can, therefore, properly be seen as after-acquired property. I am not, however, persuaded that such an argument (which was not made in these terms by Mr Tolley) would succeed. The compromise effected by the September Order (by which inter alia the landlord gave up all claims under the tenancy against Mr Hill) can be seen as a waiver by the landlord of the requirement that all terms of the tenancy be complied with before Mr Hill’s ownership of the polytunnels could be asserted. On that basis the landlord’s agreement can be seen as the fructification of the rights under section 10 which had been vested in Mr Hill by the trustee rather than as after-acquired property. On that basis I have come to the conclusion that, at least as between the parties to this litigation, Mr Hill has made out his title to sue in respect of the damage to the polytunnels.[30]The 38 Gates. In her written evidence Ms Strong said that the idea that Mr Hill had lost 38 gates was “absolute rubbish. From what I saw it was more like five damaged gates.” However she had recorded 38 gates as being the subject of a claim in a AH37 form which she had completed on 31st May (349 and 394A of the trial bundle). Moreover a pre C&D Building survey apparently done by Mr Crowe (at 458-459 of the trial bundle) records damage to 38 gates and gives their locations. I conclude (as I think was effectively conceded by Mr Tolley) that 38 gates were damaged either in the course of the slaughter process or in the course of the removal of the carcasses. As in the case of the polytunnels, the contractors involved in the processes of slaughter and removal were working in extremely unpleasant conditions and against the background of a Defra policy that property damaged in the process would be the subject of compensation to the farmer. In those circumstances it is unsurprising if they took less care than they otherwise might to avoid such damage. It is permissible on that basis to infer that there was negligence for which Defra is liable.[31]It is once again unclear to whom the gates belonged. No evidence was led that any of them corresponded to the 18 sheep penning gates transferred to NCF in December 1999. From their locations I infer that they were used in connection with the cattle (owned by a third party) which were at the farm. I infer that they had originally been acquired by Mr Hill and, from the lack of any evidence that they had been acquired by him after the date of his bankruptcy, that he had owned them at the date of his bankruptcy. If that is right then unless they fell within the description “such tools, books, vehicles and other items of equipment as are necessary to the bankrupt for use personally by him in his employment, business or vocation” in section 283(2)(a) of the Insolvency Act 1986, they will have vested in the trustee on the bankruptcy.[32]The scope of this provision (which replaced the much more limited exemption in s. 38(2) of the Bankruptcy Act 1914) seems not to have been the subject of relevant judicial comment or decision. Its application in the agricultural context gives rise to potentially difficult issues, especially where, as here, the trustee has allowed the bankrupt to remain in possession of the land on which he carries on his business. The policy of the Act, which is to encourage the realisation of the bankrupt’s productive capacity, might be thought to favour a relatively wide interpretation of the words. On the other hand the wording of the sub-section contains two restrictive elements, namely the requirement that the items in question are used “personally” by the bankrupt, and the requirement that they are “necessary” for such use.[33]In the present case the inference I draw from the evidence is that the trustee allowed Mr Hill to remain in possession of these items, and that he must have done so on the footing that they fell within the exemption. If that is right then I do not think that the right of action acquired in respect of damage to those items, at a time when the business was still being carried on, can have been after-acquired property in respect of which the trustee was entitled to serve a notice under s. 307, since (by s.307(2)(a)) such a notice may not be served “in respect of” of such items.[34]Fence posts and fence rails. I was not satisfied by any evidence in the case that damage was caused to these items by the negligence of Defra.

The deadstock claim

[35]I was satisfied by the evidence of Mr Hill (see paragraph 21 of his witness statement) that these items were buried on the farm on the directions of Mr Crowe in the period following the slaughter, having become contaminated in the course of the slaughter process. I see no reason why those directions should not have amounted to seizure and destruction pursuant to the powers granted by Article 2(1) of the 1993 Order such as to give rise to a claim for compensation under s. 36(1) of the Animal Health Act 1984.

Cited in 1 later judgment