The Connaught Income Fund, Series 1 v (Capita Financial Managers Ltd & Anor [2014] EWHC 3619 (Comm)

[2014] EWHC 3619 (Comm)Case No 2014 FOLIO 640
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 05/11/2014
Before
HIS HONOUR JUDGE MACKIE QC
Between
THE CONNAUGHT INCOME FUND, SERIES 1 (in liquidation)Claimant(1) CAPITA FINANCIAL MANAGERS LIMITEDDefendant(2) BLUE GATE CAPITAL LIMITEDDefendant
Robert Anderson QC and Andreas Gledhall (instructed by King & Wood Mallesons LLP) for ClaimantJohn L Powell QC and Shail Patel (instructed by Herbert Smith Freehills) for First DefendantAiden Christie QC and Paul O’Doherty (instructed by Nexus Solicitors) for Second DefendantHearing Hearing date: 20 October 2014
JudgmentJudge Mackie QC:
[1]This application for summary judgment by the claimant (“the Fund”) against both defendants (“Capita”, and “Blue Gate”) is about whether the Fund can bring the claims it makes in this action on the basis of assignments. These assignments are from over 1,000 retail investors who subscribed some £75 million to the Fund prior to its insolvent liquidation on 3 December 2012. Many investors were limited partners in the Fund but many are not.[2]The hearing last week was expedited to minimize the investors’ exposure to a limitation risk if the application fails. There are helpful witness statements from Mr Bouchier, the Fund’s joint liquidator, Mr. Byrne Hill of Capita’s solicitors and Mr Mullarkey, a director of Blue Gate, but there are no disputes about the facts on the application.[3]Mr Powell QC for Capita and Mr Christie QC for Blue Gate have submitted in different ways that since this is an application for summary judgment I am concerned only with whether their arguments have a real prospect of success. That approach would frustrate the purpose of the application and I will deal with the issues as though it were the trial of the points concerned. Facts and background to the action[4]The Fund was an unregulated collective investment scheme set up as a limited partnership. Capita was its operator from launch in April 2008, and Blue Gate was its operator from September 2009 until winding-up. The limited partnership was formed in April 2008 and registered pursuant to s. 8 of the 1907 Act on 10 April 2008. It was initially named “The Guaranteed Low Risk Income Fund, Series 1” and renamed “The Connaught Income Fund, Series 1” on 01 October 2009. On 3 March 2012 it was wound up by order of the High Court and joint liquidators were appointed.[5]The Particulars of Claim allege that the Defendants unlawfully promoted the Fund to the investors who became partners in it (in breach of s.238 and s.241of the Financial Services and Markets Act 2000 (“FSMA”), and that they were responsible for promotional literature which was misleading.[6]The Fund sues “in its capacity as the [legal] assignee of the claims against the defendants enjoyed by the Investors identified in the schedule to the [Particulars of Claim] as having assigned their claims’ The Investors include individuals as well as ‘internet investment platforms’ and the trustee of an exempt unit trust. They invested in the Fund at various stages between April 2008 and 3 December 2012 when the Claimant was wound-up.[7]The Fund seeks compensation quantified by reference to the losses sustained by assigning investors. Under clause 3.1 of the assignments in favour of the Fund any recoveries it makes in respect of assigned claims will be an asset in the winding-up, and available as such for distribution pari passu in accordance with the statutory insolvency scheme, rather than being held separately for the benefit of each assignor. This structure mirrors that used by the BCCI liquidators in Three Rivers District Council v. Bank of England [1996] Q.B. 292 (C.A.). Essentially the investors assign their rights to the Fund and any proceeds go into the overall assets available to all the Fund’s creditors.[8]In pre-action protocol correspondence Capita, through its solicitors has claimed that the assignments to the Fund are invalid. Capita offered to drop that claim and its opposition to this application if the Fund would stay the action while discussions between the parties involving the Financial Conduct Authority took place. That offer was not accepted. Blue Gate was not involved in these exchanges but supports Capita’s position and puts forward arguments of its own.[9]Capita asserted that these proceedings are a nullity for one or more of the following five reasons. Its position has shifted somewhat as matters have developed. Those reasons, at the outset, were as follows.(a) The causes of action on which the Fund relies accrued to Investors in their personal capacities, not in their capacities as partners in the Fund, and as a result, cannot be pursued by the Fund, because of the terms of Paragraph 5A of C.P.R. Practice Direction 7A (“5A”).(b) If those causes of action otherwise accrued to the Fund (within the meaning of 5A) by reason of the assignments, they still cannot be pursued by the Fund, because the Fund had been dissolved by the dates of those assignments. Capita argues that following dissolution, the Fund’s members were only able to bind the firm so far as was necessary to wind up the affairs of the partnership, following Section 38 of the Partnership Act 1890 (“the 1890 Act”) and that as a result the partnership had no authority to take assignments from investors after its dissolution.(c) The claim against Capita is brought in the wrong name, because the Fund only became known by the name it uses in these proceedings after Capita ceased being its operator. If the Fund could pursue the assigned claims against Capita at all, it had to do so in its old name, the Guaranteed Low Risk Income Fund, Series 1.(d) The assignments to the Fund are invalid because they were a device to circumvent the limitations on when claims under FSMA can be maintained for the benefit of persons other than “private” persons contained in the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (“the RAR”).(e) The assignments to the Fund were assignments of bare rights to litigate, and as such, impermissible on grounds of public policy.[10]Blue Gate advanced two additional points: (f) The Fund does not have separate legal personality and is not capable of acting as legal assignee. (g) The Fund’s liquidators have acted outside the statutory powers granted to them as joint liquidators under the Insolvency Act 1986 in purporting to take assignments on behalf of the Fund.[11]By the hearing (e) and (f) had gone and (d) was advanced by Blue Gate but not by Capita.[12]The application has been brought by the Fund to respond to challenges from the Defendants. I will deal with these in the order in which first Capita and then Blue Gate raise them.

The law of partnership - 9(b) above

(b) above

[13]It is common ground that the statutes dealing with an English limited partnership are the 1890 Act and the Limited Partnerships Act 1907 (“1907 Act”). Broadly Section 7 of the 1907 Act applies the law of partnerships to limited partnerships. The Insolvent Partnerships Order 1994 SI 1994/2421 deems an insolvent partnership to be an unregistered company, enabling it to be wound up under the Insolvency Act 1986. It is also common ground that an English limited partnership has no legal personality separate from that of its members. Further the Fund accepts that the claims by investors were not assets of the partnership until, at the earliest, the date of each assignment.[14]I should set out the relevant part of Section 38 which says this: “After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution but not otherwise...”.[15]Mr Powell QC for Capita submits that an insolvent partnership which has been ordered to be wound up on grounds of insolvency no longer satisfies the definition of a “partnership” in s. 1(1) of the 1890 Act. That provides:
“Partnership is the relation which subsists between persons carrying on business with a view of [not “to” as set out in two skeleton arguments] profit”
. The partners are no longer carrying on business with a view of profit. Rather control of the partnership’s assets has been placed in the hands of the liquidators. Consistent with that conclusion is Section 38 of the 1890 Act which makes special provision for the continuing authority of partners to wind up the affairs of the partnership after its dissolution.[16]Mr Powell says that this conclusion is supported by the two leading commentaries:-(1) “An order for the winding up of an insolvent partnership will, obviously, bring about an immediate dissolution, assuming the firm not already to have been dissolved…” (Lindley & Banks on Partnership, 19th ed. at 24-49).(2) “Under the Insolvency Act 1986, which brought into partnership law the language of company insolvency, the court order that terminates a partnership is confusingly called not a ‘Dissolution’ but a ‘Winding-up’ order…” (Blackett-Ord, Partnership Law: the modern law of firms, limited partnerships and LLPs, 4th ed. at 16.2).[17]Mr Powell says that the original claims are those of investors and were never partnership assets. On insolvency the liquidator has to gather in the assets of the partnership. These assets were assigned after the dissolution of the partnership. The partnership had no authority to take an assignment. Mr Powell submits that dissolution has the effect of terminating the authority of partners to bind the firm and the other rights and obligations of the partners except “as far as may be necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished”. This partnership had no authority to take assignments from investors after its dissolution because the partnership relation had been terminated and former partners’ authority as such had terminated. The limited authority of former partners provided for in s. 38 of the 1890 Act pertained only to the “affairs of the partnership”. The assignment of Investors’ claims did not pertain to such affairs and/or were not “necessary to wind up [its] affairs”. The partnership relation had been terminated and former partners’ authority as such had terminated. Nor did the liquidators have any authority to do so on behalf of the former partners. I understand Capita to say that the powers of the liquidator are in someway restricted by Section 38.[18]Decision. As Mr Anderson points out, the answer to this argument is straightforward as the issue is not the power of the partners under Section 38, as the Fund is in dissolution and a winding up order has been made, but the authority of the liquidators. This is a separate question which I will deal with shortly. Otherwise there is nothing in this point. The action is not brought by former partners under Section 38 but by the liquidators on behalf of the Fund.

The Practice Direction and 5A - 9(a) and (c) above

(a) and (c) above

[19]Before turning to the competing submissions I point out that 5A is part of our procedural rules, not an aspect of the substantive law of partnership. It must be interpreted for what it is and consistently with the overriding objective. 5A is in the Rule dealing with “How to start Proceedings”. Interpretation of the Rules is governed by CPR 1 which provides in relevant part: “These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost…... The court must seek to give effect to the overriding objective when it …interprets any rule…”.[20]5A says:
“Claims by and against partnerships within the jurisdiction 5A.1 Paragraphs 5A and 5B apply to claims that are brought by or against two or more persons who – (1) were partners; and (2) carried on that partnership business within the jurisdiction, at the time when the cause of action accrued. 5A.2 For the purposes of this paragraph, ‘partners’ includes persons claiming to be entitled as partners and persons alleged to be partners. 5A.3 Where that partnership has a name, unless it is inappropriate to do so, claims must be brought in or against the name under which that partnership carried on business at the time the cause of action accrued.”
[21]Mr Powell submits that “partnership criteria” have to be met before 5A can be used. As he puts it in his skeleton argument:
“Thus the relevant cause of action must have accrued to two or more persons: as (or in the capacity of) partners or former partners; and of a partnership: i which carried on that partnership business within the jurisdiction, and ii which did so at the time the cause of action accrued” as (or in the capacity of) partners or former partners; and of a partnership: i which carried on that partnership business within the jurisdiction, and ii which did so at the time the cause of action accrued”
[22]He says that this conclusion is reinforced by the extended meaning given to ‘partners’ in 5A.2 to include “persons claiming to be entitled as partners”.[23]He says that the criteria are not met in this case. While the cause of action would have accrued to an Investor who invested in the limited partnership at the point of doing so and thus became a limited partner, it did not accrue to the Investor as (or in the capacity of) partner. Each such cause of action was specific to a particular Investor. Moreover, even if that were wrong, then 5A would have been available to Investors/partners only if they sued in the name under which the partnership carried on business at the time their causes of action accrued. Thus the (changed) name of the partnership in which the proceedings are presently brought is not effective to include claims based on causes of action which accrued to relevant persons when the partnership carried on business under its original name. This point is relevant as regards claims against Capita, given that it ceased to be the operator of the limited partnership on 25 September 2009 and thus before the change in name of the partnership in October 2009. In the case of Investors not partners, while the cause of action would have accrued at the point of the assignment, it would not have accrued to an Investor as (or in the capacity of) a partner or to the partnership. The partnership had been dissolved prior to the assignment. Consequently there were then no partners and no partnership.[24]Mr Anderson responds as follows. Until 2006, the rules governing actions by or against partners using the firm name were contained in R.S.C. Order 81 which enabled partners to sue or be sued in the firm name, but it was drafted in permissive, rather than mandatory, terms. Order 81 like 5A was procedural not substantive. As it was put by the Court of Appeal in Meyer v. Faber (No. 2) [1923] 2 Ch. 421 (C.A.), at 441, in a passage Mr Anderson cited at the hearing, the provisions of the Order "...were not relied upon or even referred to by counsel for the plaintiffs, probably for the good reason that they would not support their case. Under this rule an action may be brought in the name of the firm against one of its members but this is a mere matter of procedure and does not affect the rights of parties or create causes of action which would not otherwise exist."[25]The only difference brought about by 7APD was to make it obligatory for the claimant to use the firm name in those cases to which 5A applied subject to a fall-back saving in 5A.3 (“unless it is inappropriate to do so”). The rationale for this change is that business practices have evolved since 1891. There is no good reason for reading the scope of 5A restrictively, as Capita proposes so as to exclude from its ambit claims assigned to firms. But even if that reading were right, all that would follow would be that the requirement contained in 5A.3 (“claims must be brought in or against the name under which the partnership carried on business at the time the cause of action accrued”) would be inapplicable to such claims. It follows that even if Capita were right in its narrow interpretation of 5A, the only consequence would be that the Fund had a choice when commencing these proceedings as to whether to sue in its own name, or instead, list out its members as the claimants.[26]Mr Powell argues that that is wrong. A claimant in proceedings must have legal personality and capacity. Proceedings purportedly commenced by an animal or chattel are a nullity. 7PD.5A derogates from that principle, permitting the trading name of an English general or limited partnership which has no legal personality separate from that of its members to be named as a party. Where it is not engaged, the derogation is unavailable. (As I see it the Fund is not lacking in personality and capacity. It is an insolvent partnership acting through its liquidator which can sue in the name of the Firm (when 5A requires this) or in the names of the partners).[27]Mr Powell also contends that if 5A is not available to the purported Claimant, the current proceedings have no claimant and the proceedings are therefore a nullity. Where proceedings are a nullity from the outset, they are not capable of ‘cure’; see Ingall v Moran[1994] KB 160 as recently applied in the context of the CPR in Millburn-Snell and others v Evans [2012] 1 WLR 41 (CA).[28]Decision. As I read those cases there was in both a failure to obtain grants of administration. As the headnote in the latter case records:
“The defence disputed the claimants' title to sue. The defendant applied to strike out the claim on the ground that the claimants had neither sought nor obtained a grant of letters of administration of his estate. The claimants admitted their lack of title, but asked the judge to exercise the discretion he was said to have under CPR 19.8(1) to authorise them to continue the claim nonetheless.”
This is not a case of admitted or any lack of title. It is about the availability of 5A to the Firm and its liquidator. It is not, for example, a case where someone claims to act for the Firm but has not yet been appointed as liquidator.[29]5A says nothing about “criteria” and I see no reason to import these into a clear provision. I also see no reason why 5A should be read restrictively and every reason why it should be read broadly and in accordance with the overriding objective to provide a machinery to enable claims like this to be tested. The very existence of this application is a reason to discourage a restrictive approach to 5A which is part of a Rule providing how to bring a claim. Mr Powell’s approach, for which no persuasive authority is cited or ground of policy advanced, would add to the expense, uncertainty and risk of litigation for no advantage. The fact that 5A.2 includes “persons claiming to be entitled as partners” does not assist Capita’s submission but emphasises the breadth of 5A.[30]It is therefore not necessary for me to deal with the question of whether the proceedings would be a nullity. If I am wrong on this point my provisional view is that they would not be a nullity. Mr Powell and Mr Anderson made interesting submissions about the law of misnomer which I do not address. The starting point would be that Capita knows perfectly well that the claim is being brought by the assignee of the Investors’ claims in the form of the Fund or the individual partners in it.[31]Capita returned to the case of Millbourn-Snell citing the following remarks at pargraph 41 by Lord Neuberger MR :
“41. Arguments such as that which the defendant successfully raised before the judge in this case are never very attractive, and one of the purposes of the CPR is to rid the law of unnecessary technical procedural rules which can operate as traps for litigants. However, whatever one's views of the value of the principle applied and approved in Ingall v. Moran [1944] KB 160, it is a well-established principle, and, once one concludes that it has not been abrogated by CPR Part 19.8, it was the judge's duty to follow it, as it is the duty of this court, at least in the absence of any powerful contrary reason. The need for consistency, clarity and adherence to the established principles is much greater than the avoidance of a technical rule, particularly one which has a discernible purpose, namely to ensure that an action is brought by an appropriate claimant.”
[32]The essential reason why that case is not of application here is my conclusion that there is no established principle of the kind argued for by Capita and that there is no absence of consistency or clarity in the course which the Fund is taking.[33]I did not understand Capita to press strongly its argument that any action by the Fund should be brought in the original name it had until 2009 and not its current one. From the standpoint of the overriding objective that position seems self evidently misconceived.

(d) above

[34]I start with the relevant part of Section 150 which provides:
“(1)A contravention by an authorised person of a rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty… (3)In prescribed cases, a contravention of a rule which would be actionable at the suit of a private person is actionable at the suit of a person who is not a private person, subject to the defences and other incidents applying to actions for breach of statutory duty.”
[35]The issues are the same whether claims are brought under Section 138D or Section 150 of FSMA.[36]This argument is set out first in the skeleton argument of Capita but now pursued by Blue Gate. Mr Christie QC adds to this with his own skeleton argument. His argument proceeds as follows.[37]Breaches of duty such as those the subject of the Fund’s claim against Capita are actionable under Section 138D of FSMA only by a “private person”, as defined by RAR reg. 3, read with RAR. 6(1). By way of exception, they are also actionable pursuant to RAR reg. 6(3)(c) by a person (X) who is not a “private person”, if three conditions are satisfied:(1) X is acting “in a fiduciary or representative capacity” on behalf of someone who is (Y);(2) any remedy would be “exclusively for the benefit” of Y; and(3) any remedy “could not be effected through an action brought otherwise than at the suit” of X. Blue Gate says that the assignments by investors to the Fund do not satisfy the RAR 6(3)(c) conditions, however, first because first recoveries will be pooled, and not held “exclusively for the benefit” of each assigning investor and secondly because investors could in any event bring the claims for themselves, without assigning to the Fund.[38]The Defendants argue that purported assignment of claims under section 138D to persons who are not “private persons” is a device to circumvent the criteria set out at Regulation 6 of the Rights of Action Regulations and is invalid. To permit otherwise would be contrary to public policy in circumstances where a statutory instrument has specifically considered the circumstances in which a claim can be brought by persons other than those in whom the cause of action has originally vested.[39]The Fund responds that there is no factual basis, or any evidence of one advanced by the Defendants, for the suggestion that the assignments to the Fund were a device. Mr Anderson says that Capita’s analysis elides two separate questions first who enjoys a cause of action under FSMA for relevant rule contraventions and secondly whether that cause of action is transmissible by assignment. Section 138D is concerned solely with the former question, i.e. by whom relevant contraventions are “actionable”.[40]Mr Christie submits that the argument focuses on the word ‘actionable’ but ignores the four following words ‘at the suit of’. These words are not mere surplusage. They indicate that the suit must be brought by the private person. The exception created by the RAR presupposes the rule. As he put it at the hearing:
“So the key point about section 150 for the purposes of this argument is that there are two conditions. There is a substantive condition that there is a cause of action for breach of statutory duty which is accrued to a private person. So it is the private person who has the cause of action. That is the actionability point and the second point is the procedural point, "at the suit of", because that defines who must actually bring the claim.”
[41]Mr Anderson responds that the section contains no express prohibition on assignment. He contrasts it with the explicit language used in Section 187(1) of the Social Security Administration Act 1992 when Parliament wanted to prevent assignment. He says that the fact that the section confers rights on a limited class does not impose either an implied statutory bar on assigning to persons outside that class, or imply that proceedings premised on such assignments are somehow an abuse of the court. He cites Norglen Ltd. v. Reeds Rains Prudential Ltd. [1999] 2 A.C. 1 (H.L.). Mr Christie contends thatNorglen has no bearing at all on the present issue. The issue there was whether an assignment from a company to a natural person was invalid because it was made to overcome the restriction that a legal person could not obtain legal aid. However, the relevant cause of action was one which could in principle be brought by natural and legal persons alike. A claim under section 150 is only actionable by a ‘private person’.[42]The Fund argues that RAR reg. 6(3)(c) has nothing to do with assignment. A legal assignee who brings proceedings does not (without more) sue in “a representative or fiduciary capacity”. The focus of RAR reg. 6(3)(c) is not transmissibility but the situation in which relevant investments are held through a professional trustee, and the beneficiary cannot get redress by suing in his own name. The fact that Parliament made provision for this situation tells the court nothing about whether it intended s.138D claims to be transmissible to persons outside the classes of persons on whom the RAR confers those claims. It just reflects the commercial reality that title to investments is often held via intermediaries.[43]The Fund says that if Capita’s reading of reg. 6(3)(c) were right, it is not clear that it would ever be possible to assign a s.138D claim. This would be a surprising consequence because it would undercut the established practice of the FSMA part XV compensation scheme. The FSMA s.212 scheme manager habitually takes general assignments of the claims enjoyed by the investors and depositors it compensates, in order to recoup its outlay-see Financial Services Compensation Scheme v. Abbey National Treasury Services plc [2009] Bus. L.R. 465. Many of those claims will be s.138D claims, which the assignors would be perfectly able to litigate in their own right. Nor does FSCS hold the proceeds “exclusively for the benefit” of each of its assignors.[44]Mr Christie responds that the fact that the FSCS can take assignments from investors is nothing to the point. The FSCS is a creation of FSMA. It is expressly authorised by statute to bring claims and its right to do so is, as the judge put it ‘integral’ to the structure created by the Act. Just because the FSCS is given the power which it is, it does not necessarily follow that any other non-private person can take an assignment of a claim and claim the right to damages under section 150.[45]Decision. Mr Christie correctly distinguishes Norglen from this case but the principle that these assigned claims are not brought in a fiduciary or representative capacity holds good. The RAR 6 does not apply. RAR6 addresses mainly claims by those whose holdings are through professional trustees, as one sees so often in practice. An assignee is not, unless there are additional circumstances, a fiduciary or someone acting in a representative capacity.[46]The question then is whether assignment is permitted. I do not read the words “at the suit of” as removing what would otherwise be a claimant’s right to assign his or her claim. There is nothing to suggest that they have been added intentionally to restrict what is generally the right to alienate. As Mr Anderson points out, where Parliament intends to exclude that right, it is able to say so clearly. If the Defendants’ approach were correct there would be surprising consequences as the Fund points out. The decision of David Richards,J. in Financial Services Compensation Schemesupports the Fund’s case, not that of Blue Gate. Essentially the Court was concerned with Abbey’s claim that the FSA did not have statutory power to make rules allowing assignments to be taken by the FSCS. The judge held that the FSA did have power to include such rules in its scheme. There is no suggestion in that case that the FSA was purporting to create rules providing a cause of action that did not exist before. Further there is nothing offensive about the notion that these rights can be assigned. It may be positively desirable to permit private persons to assign so as to make it easier and cheaper to assert their rights.

(g) above

[47]Mr Christie’s argument is as follows. The fundamental role of a liquidator is to secure that the assets of a company or partnership are got in, realised and distributed to the creditors and, if there is a surplus, to the persons entitled to it - see section 143(1) of the Insolvency Act 1986, as applied to partnerships by the 1994 Order. To perform their role liquidators are, by statute, given certain express powers. Those powers are set out in Schedule 3 of the 1994 Order (amending schedule 4 of the 1986 Act). There are thirteen specific powers. Those specific statutory powers must be interpreted against the background of a liquidator’s fundamental role to get in property and realise it for the creditors.[48]Blue Gate says that the Claimant’s liquidator had no power to accept the purported assignments of the Investors’ claims. In his skeleton Mr Christie answered the case put forward by the Fund in its first skeleton. In this the Fund says that it is surprising that the issue was not taken in Three Rivers District Council v Bank of England [1996] QB 292. Mr Christie correctly points out that the decision in Three Riversis not authority for the proposition that the liquidator of a partnership does have power to accept an assignment. The ratio of the case was only that, save in special circumstances, an equitable assignor could not proceed with a claim unless the assignee was joined.[49]The Fund also says that the liquidator did have such power by Paragraph 7 of Schedule 4 to the 1986 Act which gives a liquidator the power to ‘do all acts and execute, in the name and on behalf of the partnership or any member of the partnership in his capacity as such, all deeds, receipts and other documents’. Mr Christie responds that there is no express power given to a liquidator to accept assignments. If paragraph 7 of the Schedule is given the construction for which the Claimant contends, it would give the liquidator the widest possible powers imaginable. It would consume all the other paragraphs of the Schedule and render them redundant. That paragraph should be construed narrowly as giving a liquidator administrative powers to perform such acts as are ancillary or incidental to the other express powers which are exercisable by the liquidator. This outcome should be no surprise. It was no part of the liquidator’s role to take on claims which accrued to the assignors in their capacity as Investors. Such claims were not partnership property. They do not have to be ‘got in’ by the liquidator, much less litigated. Mr Christie suggests that Mr Anderson’s reliance at the hearing on Paragraph 13 is recognition of a weak case under Paragraph 7.[50]Mr Anderson argues that a liquidator has power under the Insolvency Act 1986 Schedule. 4, para. 4, “to bring or defend any action or other legal proceeding in the name and on behalf of the company”, with sanction (which was in fact obtained by the liquidators in this case, from the creditors committee pursuant to the Act). The power is framed in perfectly general terms. It does not distinguish between claims vested in the company before or after the date of winding-up. Nor does s.143(1) provide that a liquidator’s function is to get in, realise, and distribute the “assets of the company” not just those existing at the date of winding-up. S.143(1) does not impose a temporal restriction on the class of assets to which a liquidator may have recourse: it merely prescribes the nature of his duties in relation to those assets. A liquidator would plainly be entitled to accept a gratuitous transfer if it enabled a better outcome for creditors. Paragraph 13, gives liquidators the “power to do all such other things as may be necessary for winding up the company’s affairs and distributing its assets”, and to the extent that any transfer required documentation to give effect to it, Paragraph 7 confers the necessary power to execute.[51]Mr Anderson says that it is equally clear that a liquidator has power under Paragraphs 7 and 13 to contract to acquire property, after winding-up, for the benefit of the estate. The cases show, furthermore, that the question of whether such an acquisition is “necessary for winding up the company’s affairs” is a broad commercial one:
“we are not to take the word necessary as importing an absolutely compelling force, but what may be called a mercantile necessity, something which would be highly expedient under all the circumstances for the beneficial winding-up of the company (In re Wreck Recovery & Salvage Co. (1880) 15 Ch.D. 353 (C.A.), at 362).”
The court does not lightly interfere with the judgment of a liquidator on a commercial question, such as what “mercantile necessity” may require, in the circumstances of a particular winding-up: see Re Edennote Ltd. (No. 2) [1997] 2 B.C.L.C. 89, at 92G-H. Liquidators are both experienced professionals and officers of the court, and that day-to-day management of the estate is entrusted by statute to them, and not to the court.[52]Mr Christie points out that the passage taken from In re Wreck Recovery comes from a case where the Court of Appeal reversed the Vice-Chancellor’s decision to sanction a scheme by which the man behind the insolvent company would carry out experiments at his own expense on company property for, it was said, the financial benefit of the company and its creditors. There are interesting parallels but as I see it the case does not assist Blue Gate for three reasons. First the sanction was sought in that case because the legislation then in force required it. Secondly, the opposition came from the creditors, a class who, in this case, strongly support the action. Thirdly this type of exercise is fact sensitive and now primarily a matter for the liquidator making a judgment in modern times.[53]Mr Anderson says that Blue Gate has adduced no evidence to show that the taking of assignments in this case was not “highly expedient ... for the beneficial winding up” of the Fund and still less, that the liquidators could not reasonably have taken the view that it was. Had it done so, the liquidators would have had a complete answer. His skeleton argument includes the following:
“The relevant causes of action were enjoyed by the members of the Fund, and concerned the circumstances in which they had come to be such. They were in no sense claims of third parties unconnected to the insolvent estate. The assignments themselves were gratuitous (and hence, effected by deed). Although the Fund undertook to be liable for any costs (see clause 2.3 at [5/19]), it was under no obligation to prosecute the claims at all (see clause 4.2 at [5/20]), and if it chose not to, it had no exposure on that undertaking. If it did, however, there was the prospect of making a substantial recovery, for the benefit of all creditors, and not just the assigning Investors. The balancing of risk and reward on the decision as to whether or not to sue was pre-eminently a matter for the commercial judgment of the creditors’ committee.”
[54]The Fund says that it is no doubt for similar reasons that the Bank of England did not take this point in Three Rivers, despite the eminence of its legal representation (Gordon Langley Q.C., and Nicholas Stadlen Q.C.), and the fact that had it successfully done so, it would have headed-off famously long and expensive litigation.[55]Decision. The powers conferred on the liquidator of an insolvent partnership comprise five exercisable with sanction of the committee and eight, including the two relied upon by the Fund, exercisable without. The Fund already has sanction to bring the action under Paragraph 4. The Fund relies on Paragraph 7. I agree with Mr Christie that this paragraph, like others, seems to presuppose the existence of other powers which the liquidator may need to act upon or which give rise to the need to execute documents. I disagree with Mr Christie that Paragraph 13 is ancillary to the other powers. It is fair to see it as a ‘sweep up’ provision but it is self standing and empowers the liquidator to do all other things ‘necessary’ for winding up and distributing property. The issue then is whether the action in this case is “necessary”.McPherson’s Law of Company Liquidation (3rd ed., 2013), cited by Mr Anderson for a different paragraph, says of what the author calls the “incidental” power in Paragraph 13 “unquestionably this power is extremely wide”, a proposition made good by the cases referred to.[56]The assessment of what is or is not necessary for the winding-up of the Fund made by the Defendants, who will have to face the claims if this application succeeds and pay them if the Fund wins the action, is an unpromising starting point. If a liquidator receives a gratuitous asset after the liquidation starts which may potentially benefit the creditors, most would think it very odd for him or her to refuse it or to decline to take legal steps to protect or realise it on the grounds that it had not been an asset of the partnership when it traded. The creditors would no doubt be incensed. Provisions dealing with the affairs of business need to be seen in the light of commercial realities. The position set out in the extract from Mr Anderson’s skeleton which I have just quoted is, as I see it, an unassailable justification for what the Fund proposes to do. The judgment is in any event one for the liquidators. The Three Rivers point, as Mr Christie submits, is not a relevant legal precedent and the fact that an issue was not taken then does not mean it cannot be taken now. Nevertheless the fact that the case proceeded with the same essential structure as that adopted here is some validation of the Fund’s approach. Conclusion[57]The Claimant succeeds and it can bring the claims on the basis of the assignments. I shall be grateful if Counsel will let me have not less than 72 hours before hand down of this judgment a list of corrections of the usual kind and a draft order, both preferably agreed, and a note of any matters which they wish to raise at the hearing.