Hunt v Hosking & Ors [2013] EWHC 311 (Ch)

Case No 11542 OF 2009[2013] EWHC 311 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF OVENDEN COLBERT PRINTERS LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 22/02/2013
Before
THE HONOURABLE MR. JUSTICE PETER SMITH
Between
STEPHEN JOHN HUNTApplicantANDREW HOSKINGRespondentsLORRAINE HOSKINGRespondentJOHANNAH McSWEENEYRespondentCAROL HOSKINGRespondentBETH REESRespondentJOANNE TEMPLERespondentPHILIP THOMPSONRespondentLEONARD COLBERTRespondentNATALIE WAUGHRespondent
Simon Davenport QC & Peter Shaw (instructed by Stevensdrake) for ApplicantStephen Robins (instructed by Cameron McKenna LLP) for First RespondentHearing Hearing dates: 8 February 2013
JudgmentMr. Justice Peter Smith:INTRODUCTION
[1]This judgment arises out of an application issued by the First Respondent, Andrew Hosking (“Mr Hosking”), a licensed insolvency practitioner, for summary judgment, or alternatively for an order striking out the claims brought by the Applicant Stephen Hunt, the liquidator of Ovenden Colbert Printers Limited (“OCP”). The application was issued on 10th September 2012 and the application under attack is the application (“the Application”) issued by the liquidator on 5th April 2012. Mr Hosking also seeks to strike out paragraphs 6 to 12 of the liquidator’s witness statement dated 5th April 2012.

BACKGROUND

[2]The liquidator seeks an order that Mr Hosking pay to him as liquidator of OCP the sum of £224,951.11 on the basis that payments set out in the schedule to the Application from a Client Premium Account held at Barclays Bank and a Client Call Account (“the Client Account”) by Scott Temple Wilsher & Co. (“STW”) “on behalf of the Company were transactions at an undervalue pursuant to section 238(4)(a) of the Insolvency Act 1986”.[3]There are other claims against other parties which do not concern me.[4]The liquidator’s Application was supported by the barest of witness statements which simply asserted that the transactions were caught by section 238 and the proceedings were issued because he was advised that the limitation period might commence on the date OCP went into Administration (6th April 2006). Assuming that is correct, the application was issued on the last day. It relates to payments made either directly to Mr Hosking (£116,000) or to discharge motor invoices which Mr Hosking incurred or payments to Mr Hosking’s associates including Mr Hosking’s elderly mother in respect of the sum of £12,478.99.[5]The liquidator’s Application was then served on the last day of the 3 month period for service of the same. The return date was put back until September 2012 and as I have said was supported with the barest of witness statement.

BACKGROUND

[6]There is no significant dispute in reality over the events.[7]There is (as yet unexplained) history between Mr Hunt and Mr Hosking. Mr Hunt has made numerous complaints to the Insolvency Practitioners Association (“IPA”) in respect of Mr Hosking which has led to a finding in respect of modest items; the vast majority of them not having been established. These are not relevant to the short point raised by Mr Hosking which leads him to contend that the claims in respect of him in the Application should be struck out.[8]Undeterred by the lack of success in the IPA, Mr Hunt has made complaints to the Department of Business Innovation and Skills (“BIS”) that led to an investigation of Mr Hosking’s conduct and the conclusion that there was no basis for taking any action. In these proceedings the liquidator submits in effect that there are background matters which require investigation in respect of these payments.

GENESIS OF THE PAYMENTS

[9]Mr Hosking and his colleague Mr Wood were the joint supervisors of Company Voluntary Arrangements (“CVAs”) in respect of CSM Group and CSM Sheet Fed and prior to that were the liquidators of those companies. They were appointed liquidators in respect of CSM Sheet Fed on 20th June 2002 and in respect of CSM Group on 5th November 2002.[10]Scott Temple Wilsher & Co. (“STW”) was a firm of accountants of which a Mr Temple was the sole proprietor. He was engaged by the Company to provide accountancy services for the Company in accordance with a retainer letter dated 26th September 2001. The first duties were audit duties, the second were accounting duties. The third were to advise on direct taxation. The fourth was indirect taxation, the fifth was for company secretarial, the sixth was investment business.[11]By clause 10.1 STW’s fees were to be paid on a basis of time spent on affairs. It was also provided that if it was necessary to carry out work outside the responsibilities outlined in the letter, that would involve additional fees.[12]Finally, clause 7 dealt with client monies:- “7.1 We may, from time to time, hold money (other than Investment Business Money) on your behalf. Such money will be held in trust in a client bank account, which is segregated from the firm’s funds. This account will be operated, and all funds dealt with, in accordance with Client’s Money Regulations of the Institute of Chartered Accountants in England and Wales. 7.1 If the total sum of money held on your behalf is such that a material amount of interest would arise, or would be likely to arise, then the money will be placed in an interest-bearing client bank account. All interest earned on such money will be paid to you. Subject to any tax legislation, Interest will be paid gross.”

COMMISSION AGREEMENT

[13]On 17th December 2003, the Company and Mr Temple agreed that Mr Temple would be entitled to a fee in respect of a distribution that was payable to STW’s Client Account (the “First Fee Agreement”).[14]Basically that was a sum which was going to be paid to the Company by the CSM companies in satisfaction of claims it had intimated against those companies.[15]At the time of this agreement, Mr Hosking was one of the joint liquidators of the CSM companies and would therefore be making the payments that the Company was to receive. The First Fee Agreement provides as follows:
“We authorise you to transfer from the proceeds of your office account, the agreed fees in the sum of 25% of any distribution in excess of £250,000. The balance of the funds are to be held to our account and released only as instructed in writing by ourselves, such instructions shall include copies of any board minutes pertaining thereto.”
[16]On the same day the Company provided a letter to Mr Hosking (who at that time was a partner in Grant Thornton). It recited that the Company had held a board meeting and agreed that any proceeds of the liquidation in respect of their claim should be handled directly by the accountant (i.e. Mr Temple). The letter provided Mr Hosking with authority to remit any funds due to the Company to STW’s account (its Client Account). As I have said that letter was sent to Mr Hosking in his capacity as joint liquidator of the CSM companies and directed him to cause the Company’s monies to be paid into the Client Account of STW.[17]STW received those monies upon the terms of the contemporaneous letter dated 17th December 2003. It is a short letter but three points arise: i) The monies are to be held to the Company’s order (paragraph 1); ii) STW is authorised to transfer from the proceeds into its Office Account the agreed fees in the sum of 25% of any distribution in excess of £25,000 (paragraph 2); and iii) The balance of the funds are to be held to the Company’s account and released only as instructed in writing by the Company; such instructions to include copies of any Board Minutes pertaining thereto (paragraph 3).[18]It is not in dispute therefore that STW held those monies when received upon trust for the Company. The terms of the trust were set out in that letter which provided that STW could transfer from that account its fees as agreed but that no other payments could be paid out unless expressly authorised by the Company.

VARIATION

[19]On 28th January 2005, there is recorded on the same letter a variation increasing the fees due to STW (the “Second Fee Agreement”) as follows:
“Due to the additional work performed by Scott Temple Wilsher & Co. since the original agreement above, this agreement is amended, such that if the distributions from C/S/M Group in favour of Ovenden Colbert Printers Limited exceed the sum of £916,667, then S Scott Temple Wilsher & Co. are entitled to retain fees of the difference between the sum received and the £750,000, which is the maximum amount Ovenden Colbert Printers Limited will be entitled to.”
[20]That document is signed apparently by Mrs N A Waugh, a director of the Company. In an email to Mr Hunt she has suggested that the signature is forged but I have no evidence from her to support that.

PAYMENTS

[21]I have summarised the payments out that were made from the Client Account. Mr Hosking has said that the payments made to him or for his benefit were repayment of private loans that he had made to Mr Temple between 1998/early 1999 to March 2002. The entire amount of principal was £154,000. It was not loaned in one instalment, but was fragmented into a number of smaller amounts paid by cash and cheque as and when Mr Temple requested financial help. Later on, Mr Hosking became concerned as to the informality of the arrangement and towards the end of 2001 an agreement was drawn up (“the Loan Agreement”) regulating the arrangements between him and Mr Temple. That document cannot now be found. Mr Temple became bankrupt and his papers have been lost, certainly there was no document there. Mr Hosking has found a draft of the Loan Agreement.[22]Under the draft Loan Agreement £154,000 is stated to be owing. Mr Hosking has said in his witness statement dated 10th September 2012 (paragraph 21) that the loan of £154,000 was repaid together with interest. There is no challenge to that statement; I assume that there has been no overpayment. Even if there was, Mr Hosking would submit, based on the submissions made by Mr Robins who appears for him that that makes no difference as that is an issue as between him and Mr Temple and not the Company, for reasons which will appear in this judgment.

PAYMENTS TO THE COMPANY

[23]The Company received total dividend payments from CSM Group of £1,267,009.39. Accordingly, Mr Temple on the two fee agreements was apparently entitled to anything over £750,000. According to my calculations, under the First Fee Agreement, Mr Temple would have been entitled to approximately £254,000. By the terms of the Second Fee Agreement, he was entitled to £517,009.[24]Those figures exceed the amount which were payable to Mr Hosking significantly.[25]As I have said, at the time the Company received the payments, Mr Hosking was the joint liquidator of the paying Companies.[26]Subsequently, as I have said, he became a joint administrator of the Company on 6th April 2006. Mr Hunt became liquidator on 16th March 2009 (i.e. 3 years before the issue of his Application).

OTHER ALLEGATIONS AGAINST MR HOSKING

[27]The present Application by Mr Hunt is under section 238 of the Insolvency Act 1986 on the basis that the payments made to Mr Hosking or at his direction were transactions at an undervalue. It is to be noted that it is the payments that are challenged,and it is the payments that are alleged to be for the purpose of section 238, the transaction. Mr Hunt contends that there is a fallback position (as Mr Davenport QC attempted to explain in his submissions) under section 241(2). That deals with third party recipients of monies that are derived from a transaction challenged under section 238.[28]I will deal with those actual claims further in this judgment.[29]However, it is to be noted that Mr Hunt makes a whole series of other allegations against Mr Temple. He is bankrupt. He may have been discharged from his bankruptcy but the claims against him (subject to tracing into the hands of third parties) will fall to be proven in his bankruptcy except fraud allegations. Those allegations are set out in Mr Hunt’s second witness statement dated 27th October 2012.[30]They are that Mr Temple had no legal entitlement against the Company to be paid the fees out of dividends, that Mr Temple had been fully reimbursed for work done and that this was a double claim. In addition he asserted that there was no consideration provided by Mr Temple for the two fee agreements and alternatively there was minimal work done in respect of the CSM claims. He asserts that Mr Temple well knew that there was a minimal amount of work required to be done and that that was a misrepresentation made to the Company to induce the two fee agreements. Mr Hunt asserts that the payments were not in accordance with the two fee agreements (i.e. this means that they were not formally transferred into Mr Temple’s Office Account). He suggests that there is evidence that the Second Fee Agreement was a forgery and no consideration was provided for that payment either.[31]Mr Hunt does not assert that Mr Hosking was aware of any of these matters. Mr Hosking has affirmed in a witness statement that he was not aware of the source of the monies used to pay his debts. That is not challenged by Mr Hunt.[32]In the course of argument Mr Davenport floated yet another complaint. At the time the two fee agreements were negotiated by Mr Temple with the Company, Mr Hosking was a joint liquidator of the CSM companies who were making the payments. At that time he was also a creditor of Mr Temple and it is said that that created a conflict which was not disclosed.[33]Mr Davenport was unable to explain how that connection caused any problems. Mr Temple was negotiating with his principal, not with Mr Hosking for his revised fees. Mr Hosking owed a duty to the creditors of CSM to agree a proper figure. If it is to be suggested that the amount due to the Company was inflated by Mr Hosking so as to build in a figure which could then be used to repay his debt, there is not one shred of evidence to support that. Further, the primary claimants in such a case would of course be the creditors of CSM who have on this analysis paid too much to the Company. There is nothing in it for the Company because if there has been an excess payment, it will be clawed back by the creditors of CSM.[34]What this does show is the desperate nature of Mr Hunt’s allegations. So far as I can see he is prepared to say anything to try and justify keeping these proceedings open on the basis that there are matters to investigate. It is, in my view, a classic “Micawberism”. Mr Hunt hopes that if he throws enough mud some will stick, or more likely, because he is funded by a CFA, that Mr Hosking will be forced, given the level of costs, to negotiate a settlement.[35]This of course contrasts with what Mr Hunt said earlier.[36]In his Liquidator’s Progress Report, dated June 2009, he stated that he had concluded that Mr Temple “was authorised to deduct from the dividends a fee for the investigation work he conducted that enormously assisted in the realisation of substantial claims by Grant Thornton against associated companies former directors”. This reflected what he had said before be was appointed in a letter on 16th November 2006 “I [Mr Hunt] have consulted with Mr Ovenden [the main director of the Company] and we understand that he is fully satisfied with your reply and will not be taking the matter further”. Further, at a meeting of creditors on 13th June 2007, he said “there is no real doubt, they [the Company Directors] were bound by that agreement [the second fee agreement]”.[37]Mr Davenport was unable to explain the current somersault in Mr Hunt’s attitude.[38]I am not determining this issue as it is not before me. Mr Robins, who appears for Mr Hosking, acknowledged that (subject to any issues as to limitation and the like) it is open (and provided such proceedings are not an abuse) to Mr Hunt to bring any claims in respect of the Company to challenge what Mr Temple did. In those proceedings, it is just about possible to seek a tracing claim in respect of the assets that were transferred to Mr Hosking, although that to me seems to present formidable difficulties. At one stage Mr Davenport asked for time to consider whether he was going to make an application for an adjournment to consider amending the proceedings in such a drastic way. He concluded that it was not appropriate to do so and made no such application. Therefore any claim in respect of those matters will have to be the subject matter of separate proceedings which may or may not survive challenges by Mr Hosking.

CHALLENGES TO THE TWO FEE AGREEMENTS

[39]Mr Davenport’s arguments in relation to the challenges were difficult to understand. He on occasions said the two fee agreements were not part of the present application. In that context it is important to note that he expressly accepted that the “transaction” for the purpose of section 238 was “not either of the fee arrangements”. Equally he was unwilling to say whether the Company was seeking to rescind those agreements for misrepresentation or not. It seems to me that if there has been a misrepresentation the Company must (subject to limitation and the like and all the other obstacles) elect whether or not to seek to rescind the two fee agreements. In the latter eventuality, the Company will be bound by the two fee agreements and the liability to pay Mr Temple’s fees but will be able to claim damages in respect of any loss it has incurred by reason of such alleged misrepresentation.[40]Of course if the two fee agreements are rescinded and that rescission is upheld by the courts, the fees will be repayable and there may be a claim for damages either under section 2(1) of the Misrepresentation Act 1967 or possibly section 2(2) ibid. There may possibly be claims for deceit and/or fraudulent representation made by Mr Temple. There is no material to justify any of those claims in the present proceedings. Nor is any of those matters relevant to an application under section 238. I can see serious limitation issues in respect of any such actions.

MECHANICS OF PAYMENT

[41]A fundamental argument of Mr Davenport was that the two fee agreements provided a limited authority to Mr Hunt to transfer the agreed fees. The fee agreement provided that fees should be paid into his Office Account. Mr Davenport submitted that because the monies did not route through that Office Account , Mr Temple was not entitled to the monies. This is ingenious but in my view is entirely erroneous. The monies, whilst they are in the special account, belong beneficially to the Company. Once they are removed from the Client Account by Mr Temple in discharged of his fees they become Mr Temple’s money unless the two fee agreements are challenged in the sense that they are set aside. Currently there are no proceedings to set aside the commission fee agreements. The fact that Mr Temple did not use the stated destination (i.e. his Office Account ) does not affect his entitlement to remove the fees. If the Company sought to challenge the payments on that footing, Mr Temple would have a set off for the same amount. His right to the fees cannot simply disappear. On Mr Davenport’s analysis, Mr Temple had to transfer the monies to his Office Account and then transfer them out to Mr Hosking, because that is what the two fee agreements said and there was no other way in which they could be removed. In argument I asked Mr Davenport what would be the position if Mr Temple went bankrupt whilst the fees remained uncollected and his practice closed down along with his Office Account . Did that mean that Mr Temple’s trustee in bankruptcy could never stand in Mr Temple’s shoes and recover the monies? Mr Davenport was unable to give any coherent response to that. The reason of course is that the analysis is fatal to his submission. I cannot believe that it can be argued that because Mr Temple ceases to have an Office Account, he ceases to be entitled to the monies. This was merely a way for Mr Temple, internally if he wished, to transfer the monies. The authority given to him is to remove funds which represented his fee entitlement. Equally I cannot accept they cease to be his fees merely because he removes them in a different way.[42]It follows from that that the transfers were not the Company’s money merely because they had not been routed through Mr Temple’s Office Account. At all times they were Mr Temple’s money in accordance with the two fee agreements, unless and until those agreements are challenged.

TRANSACTION FOR THE PURPOSES OF SECTION 238 IA 1986

[43]Mr Robins makes his point very succinctly. He says first, for there to be an invocation of section 238 there must be a transaction made by the Company which the office holder wishes to challenge. Second, he says there must be mutuality. He submits there is no transaction to which the Company is a party and there is no mutuality as between it and Mr Hosking.[44]The section provides:
“238 Transactions at an undervalue (England and Wales). (1) This section applies in the case of a company where- (a) the company enters administration, (b) the company goes into liquidation; and "the office-holder" means the administrator or the liquidator, as the case may be. (2) Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section. (3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction. (4) For the purposes of this section and section 241. a company enters into a transaction with a person at an undervalue if— (a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or (b) the company enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the company. (5) The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied- (a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and (b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.” (1) This section applies in the case of a company where- (a) the company enters administration, (b) the company goes into liquidation; and "the office-holder" means the administrator or the liquidator, as the case may be. (2) Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section. (3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction. (4) For the purposes of this section and section 241. a company enters into a transaction with a person at an undervalue if— (a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or (b) the company enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the company. (5) The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied- (a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and (b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.”
[45]Transaction is defined in the definition section as:- ““Transaction” includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.”[46]The relevant time is defined in section 240. In this case it is a transaction said to be between the Company and Mr Hosking. The 2 year period ends with the onset of insolvency and is for a maximum in this case of 2 years back. The Company went into administration on 6th April 2006, so the liquidator could not challenge a transaction in this case which took place earlier than 6th April 2004. The payments were made between 9th December 2004 and 29th July 2005. Thus the payments are within the review period as is the January 2005 variation but the original one is not.[47]I should also refer to section 241(2) which provides:- “An order under section 238 or 239 may affect the property of, or impose any obligation on, any person whether or not he is the person with whom the company in question entered into the transaction or (as the case may be) the person to whom the preference was given; but such an order—(a) shall not prejudice any interest in property which was acquired from a person other than the company and was acquired in good faith and for value, or prejudice any interest deriving from such an interest, and(b) shall not require a person who received a benefit from the transaction or preference in good faith and for value, to pay a sum to the office-holder, except where that person was a party to the transaction or the payment is to be in respect of a preference given to that person at a time when he was a creditor of the company.”[48]It follows that, for section 238 to be invoked on its wording, the Company has entered into a transaction with any person at an undervalue. Section 241(2) enables a liquidator to pursue recipients of the fruits of a challenged transaction (whether they were party to the transaction or not) unless in effect they are bona fide purchases for value in good faith. It follows that a claim under section 241(2) is not maintainable against a person who was a bona fide party to a transaction; or is a third party who receives the fruits of a transaction bona fide.[49]The liquidator contends that the transactions in question are the payments to Mr Hosking. The fundamental difficulty facing the liquidator is that it is impossible to see how the “Company” effected that transaction. When pressed, Mr Davenport said that the payments were effected by Mr Temple who on behalf of the Company had actual or ostensible authority to make the payments on its behalf. This is just plain wrong with respect to Mr Davenport. Mr Temple’s authority was clearly spelt out in the two fee agreements. Apart from making payments for his own fees into his Office Account, he could not make payments unless they were “released only as instructed in writing by ourselves, such instructions shall include copies of any Board Minutes pertaining thereto”.[50]None of the payments satisfies that criteria. Therefore the payments made by Mr Temple were either disbursements of his fees to which he was entitled or it was an unauthorised payment away. He had no actual authority to make payments using the Company’s money for the benefit of Mr Hosking. Mr Davenport submitted that he had ostensible authority to do that. However, ostensible authority required a holding out by the principal. It is well known that the agent holding himself as agent does not amount to ostensible authority; see Bowstead & Reynolds on Agency (19th Edn) paragraphs 8-014 and following. The unauthorised agent cannot clothe himself with the authority; it has to be done by the principal. There is no basis for suggesting the Company authorised or held him out as being authorised to make any disbursements from the trust fund, save in accordance with the terms of the two fee agreements letter. In argument I gave Mr Davenport another example. If Mr Temple held a bag of sovereigns for the Company and they were held to the Company’s order, and if he gave them away to Mr Hosking, I suggested that that would not be a transaction. It would simply be a case of misappropriation of assets. Of course, the Company through the liquidator would have any number of remedies to recover those sovereigns. Such a claim could be made not only against Mr Temple but also against Mr Hosking if he receives the sovereigns. That is not the present claim.[51]Where the removal of the Company’s money occurs, it is insufficient simply to assert that there have been dealings on the account where monies have been removed that belong to the Company. That is not sufficient. In my view there must be a transaction which the liquidator seeks to avoid. That is clear on the wording of section 238. It is one of the extra tools given to liquidators and trustees in bankruptcy to review transactions back for a limited period (preferences are the same) to ensure that nobody gets an unfair advantage in respect of the insolvency or bankruptcy. It is a power to set aside transactions which would otherwise be valid (unless there was some other contamination such as breach of fiduciary duty).[52]The further difficulty presented to the liquidator is that if they say Mr Temple was authorised to make the payments then there can be no basis for challenging them. The whole essence of the liquidator’s case in reality is that he says Mr Temple’s actions were not authorised. He cannot have it both ways.

THRESHOLD OF APPLICATIONS

[53]The principles for an application to strike out a claim either under CPR 3.4 and Part 20, are well known. The were recently summarised by Flaux J in Fortress Value Recovery Fund 1 LLC v. Blue Skye Special Opportunities Fund LLP [2013] EWHC 14 (Comm) as follows:- “The relevant test on strike out and summary judgment applications 38. The application to strike out must be being made under CPR 3.4 on the basis that the particular paragraphs of the claimants' pleaded case disclose no reasonable or valid cause of action. It is well established that the court will not grant an application to strike out a claim unless it is certain that the claim is bound to fail: see Hughes v Colin Richards & Co [2004] EWCA Civ 266.39. In the case of applications for summary judgment under CPR 24 it is equally well-established that the court should not engage in a mini-trial where there is any conflict of evidence. The dangers of too wide a use of the summary judgment procedure were emphasised by Mummery LJ in his judgment in Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical [2006] EWCA Civ 661and by Lewison J (as he then was) citing Doncaster Pharmaceuticals in Federal Republic of Nigeria v Santolina Investment Corporation [2007] EWHC 437 (Ch), both of which cases I cited and applied recently in Bord Na Mona v British Polythene Industries [2012] EWHC 3346 (Comm) at [32]-[33]. The points made in those cases are of particular relevance to the first and sixth issues before the court: applicable law of the tort and whether there is sufficient connection with England for the purposes of the Insolvency Act 1986.40. In Doncaster Pharmaceuticals Mummery LJ said at [4-5] and [17-18] as follows:
"4. Thus, without the assistance of pre-trial procedures, such as disclosure of documents, and without the benefit of trial procedures, such as cross examination, the court's function is to decide whether the [respondent's] prospect of successfully establishing the facts relied on by him is 'real', that is more than 'fanciful' or 'merely arguable..' 5. Although the test [whether the claim has a real prospect of success] can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the "no real prospect of success" test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials. … 17. It is well settled by the authorities that the court should exercise caution in granting summary judgment in certain kinds of case. The classic instance is where there are conflicts of fact on relevant issues, which have to be resolved before a judgment can be given (see Civil Procedure Vol 1 24.2.5). A mini-trial on the facts conducted under CPR Part 24 without having gone through normal pre-trial procedures must be avoided, as it runs a real risk of producing summary injustice. 18. In my judgment, the court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case." 41. The same point was made by Lewison J in the Santolina case at [4(vi)]: Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.” "4. Thus, without the assistance of pre-trial procedures, such as disclosure of documents, and without the benefit of trial procedures, such as cross examination, the court's function is to decide whether the [respondent's] prospect of successfully establishing the facts relied on by him is 'real', that is more than 'fanciful' or 'merely arguable..' 5. Although the test [whether the claim has a real prospect of success] can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the "no real prospect of success" test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials. … 17. It is well settled by the authorities that the court should exercise caution in granting summary judgment in certain kinds of case. The classic instance is where there are conflicts of fact on relevant issues, which have to be resolved before a judgment can be given (see Civil Procedure Vol 1 24.2.5). A mini-trial on the facts conducted under CPR Part 24 without having gone through normal pre-trial procedures must be avoided, as it runs a real risk of producing summary injustice. 18. In my judgment, the court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case."
Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.”[54]As Mummery LJ put it more graphically, one has to “beware of cocky counsel for claimants and rubbishy defences”. The application under CPR 3.4 requires Mr Hosking to establish that the matters raised by the liquidator are bound to fail. In respect of CPR 24, Mr Hosking has a right to succeed unless the liquidator establishes something which has a real prospect of success.[55]It is insufficient at this stage simply to say that there are matters which require investigation. Mr Hunt has spent years on this and I have set out above his original determination. There must be some basis for investigating things with a view to substantiating a claim under section 238. The fundamental difficulty facing Mr Hunt is that however much he investigates; however much mud he wishes to throw at Mr Hosking; none of it is relevant to his application under section 238. This is because on the undisputed facts set out above, the Company has not entered into a transaction which the liquidator can review. The only transactions it entered into in my opinion were the two fee agreements and those are not under challenge and indeed one of them cannot be under challenge due to the passage of time. If the payments were authorised they cannot be challenged unless the two fee agreements are challenged and they are not in these proceedings. If the payments were unauthorised, there is no transaction by the Company. Authority for this is to be found in a number of first instance decisions; see for example Manson v. Smith (Liquidator of Thomas Christy Limited) [1997] 2 BCLC 161 at page 164b as follows:- “First, r 4.90 and its predecessors require there to be mutual debts or mutual dealings. When Mr Manson improperly withdrew money from the company this did not constitute a dealing between him and the company. A misappropriation of assets is not a dealing. Mr Manson will object to the following analogy: the thief who steals my watch does not de4al with me. Similarly the man who steals money from a company does not obtain the money by dealing within r 4.90. Accordingly, his liability to repay money he has misappropriated cannot be set off against any debt owing to him by the company.” (A case under Rule 4.90 Insolvency Rules but the principle is the same). See also Re: Taylor Sinclair (Capital) Limited (In Liquidation)[2001] 2 BCLC 176 at page 184 as follows:- “[19] As between the company and Mr Stone I consider that there undoubtedly was a transaction; I shall consider later what were the terms of the transaction as to consideration for the company. But, as between the company and Ellis &Partners all that happened was that two cheques for £100,000 were transmitted from the former to the latter. There was certainly nothing in the nature of any agreement or arrangement between them and indeed no evidence (leaving aside an extremely vague reference in para 7 of Mr Kimmins' affidavit) of any communication at all between them. Moreover, the company and Ellis& Partners were in their respective perceptions engaged in very different 'transactions'. It is not easy to spell out just what was the 'transaction' to which they were parties. As far as the company was concerned, it was dealing with money which it held to the order of Powerhouse and in accordance with Powerhouse's instructions. As for Ellis & Partners, it thought that it was receiving for the credit of Mr Stone's account money which Mr Stone had personally borrowed. [20] It is right to say that the word 'transaction' as a matter of ordinary language embraces a potentially wide range of possibilities. Furthermore, the inclusive definition of s 436 of the 1986 Act is of broad ambit. It reads:
‘"transaction" includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.’
Doubtless, one should be wary of circumscribing the width of the statutory language of s 238 lest the evident policy of the section be undermined. Nevertheless, as I read the section it does envisage that, apart perhaps from the case of a mere gift which is expressly included within ss 238 and 436, a transaction will be something which involves at least some element of dealing between the parties to the transaction. Not only is this implicit in the word 'transaction' itself, but it is reinforced by the references in s 238 to (a) the 'entry into' a transaction (b) 'with a person' and (c) 'on terms that provide'. Whilst plainly an actual contract is not required in order for there to be a transaction the language of the section is redolent of contract and mutual dealing.” ‘"transaction" includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.’[56]Finally there is the decision of Jonathan Parker J in Re: Brabon [2001] 1 BCLC 11 at page 33 as follows:- “The section 339 issue As noted earlier, s 339(1) provides that: `... where an individual is adjudged bankrupt and he has at a relevant time ... entered into a transaction with any person at an undervalue, the trustee of the bankrupt's estate may apply to the court for an order under [the] section.' (My emphasis.) The short question is whether the transfers of Barbarossa and Hillcrest by Mrs Brabon as mortgagee (in the case of Hillcrest, as transferee of Nationwide's first charge) are, or fall to be treated as, transactions 'entered into' by Mr Brabon, for the purposes of the section. In my judgment, the answer to that question is no. Had the contract dated 11 July 1997 been completed prior to Mr Brabon's bankruptcy, with Mr Brabon executing transfers of Barbarossa and Hillcrest, then of course the position would have been otherwise. But, as I have related, that is not what happened. In my judgment the relevant 'transaction' in relation to Barbarossa and Hillcrest, for the purposes of s 339, is not the contract but the actual disposals of those properties in favour of Silver; and as matters turned out those disposals were made not by the trustee but by Mrs Brabon as mortgagee, in exercise of her power of sale. In the case of Hillcrest, there can be no question as to the existence of the necessary power of sale under the Nationwide mortgage: and in relation to Barbarossa, I have earlier found the charge in favour of Mrs Brabon to have been a valid and effective charge. Nor, in my judgment, is it possible to dismiss the fact that Barbarossa and Hillcrest were transferred to Silver by way of sale by Mrs Brabon as mortgagee as mere 'conveyancing mechanics'. The matter can be tested in this way. Let it be assumed that Nationwide Building Society had elected to sell to Silver as mortgagee, instead of transferring its charge to Mrs Brabon and thereby enabling her to do so. In such circumstances, it would (as it seems to me) have been impossible to equate that transaction with a transfer by Mr Brabon; and the same considerations must apply to Mrs Brabon as transferee of the Nationwide charge. Mr Atherton sought to rely on the fact that the contract would have been specifically enforceable against Mr Brabon, and hence against the trustee. I accept that there is no reason to suppose that the contract was not specifically enforceable against Mr Brabon, and subsequently against the trustee, subject always to the trustee's right to resist completion of the sales of Barbarossa and Hillcrest on the ground that such sales were at an undervalue. But in the event Silver was content to take transfers of those properties by way of sale from a mortgagee, and in my judgment those transfers effectively superseded the contract. In the end, however, one comes back to the plain words of the subsection. In my judgment the words 'entered into' by the bankrupt do not extend to a transfer by way of sale not by the bankrupt but by the bankrupt's mortgagee. On that short ground, the trustee's claims against Silver must in my judgment fail.” `... where an individual is adjudged bankrupt and he has at a relevant time ... entered into a transaction with any person at an undervalue, the trustee of the bankrupt's estate may apply to the court for an order under [the] section.' (My emphasis.) On that short ground, the trustee's claims against Silver must in my judgment fail.”[57]There needs to be a transaction in my view to which the Company is a party and that involves mutuality. It does not extend to unilateral actions taken by somebody who has not authority to do what he is doing.[58]Mr Davenport sought to rely upon Re: Barton Manufacturing Co. Ltd [1998] BCC 827. In that case a liquidator successfully sought repayments of monies for which no consideration was provided. However, the major difference of course is that the payments were made by directors of the Company who had actual and ostensible authority to make dealings with the Company’s money. However if those actions were misfeasance then the transactions are reviewable either as a misfeasance or as being transactions at an undervalue under section 238. In that case there is the requisite transaction by the Company (albeit by directors in breach of its duties) and there is the requisite mutuality. That decision in my view has no impact on the way in which Mr Robins puts his case.

THIRD PARTY RECIPIENT

[59]This is Mr Davenport’s fallback position. The first method he called route one. This was route two. That is on the basis that Mr Hosking has received company money. However, the question which I posed to Mr Davenport which he was unable to answer is that Mr Hosking must be the third party recipient of money pursuant to a transaction which the Company seeks to avoid under section 238. What is the transaction I posed? Mr Davenport’s answer was that the transaction was the payments of the monies to Mr Hosking. That cannot be a transaction because, if a transaction is between the Company and Mr Hosking, the same arguments apply. This is not a transaction between the Company and Mr Hosking unless the Company expressly or impliedly agreed for Mr Hosking to receive its money. It never did so there never was a transaction. If it is desired to put Mr Hosking in a position of a third party, as opposed to the person who entered into the transaction, it equally fails because he derives his money from the Company assets but he does not acquire them as a result of Mr Temple creating a transaction, because Mr Temple is not authorised to remove the Company’s money save in the circumstances summarised above.[60]All of this falls apart again because there is no transaction unless the transaction was the permitted removal of Mr Temple’s fees. Once he takes the money from the account in discharge of his fees that money becomes his. Mr Hosking clearly gave Mr Temple “consideration” because the monies were used to discharge his indebtedness. If he was called upon to repay those monies he could simply set his fees off to reduce the payment by the same amount.[61]Once again, if the removal by Mr Temple is challenged along the lines I have described above, it is open to the Company to do so in appropriate proceedings. The present proceedings are not appropriate because there is no transaction, as I have said, upon which section 238 and section 241 can bite.

NO OTHER COMPELLING REASON FOR A TRIAL

[62]CPR 24.2(b) enables the court hearing an application under CPR 24 to consider that there might be some other compelling reason, as opposed to a defence which has real prospects of success, to exercise its discretion and let the matter go to trial. I recently exercised this in the case of Broughton v. Kop Football (Cayman) Limited & others[2012] EWHC 2699. There is no compelling reason in this case. It seems to me that Mr Robins’ submissions are correct. If one takes into account all of the potential allegations raised by Mr Hunt, none of them has any impact on the fundamental proposition that there was no transaction between the Company and Mr Hosking by virtue of the payments made from the Client Account direct to him. There is nothing therefore which justifies the court in not deciding the case summarily. The purpose of CPR 24 was to enable the courts to weed out cases that were bound to fail or had no prospect of succeeding or providing a defence. That is in the interest of everybody and in the interests of the administration of justice in the courts.

CONCLUSION

[63]I conclude that the liquidator’s claim as presently put formulated is bound to fail and/or has no prospect of success and I will accordingly accede to Mr Hosking’s application.[64]I wish to make directions at the hand down for the further conduct of this action. The parties should attempt to agree proposed directions before that hearing.