G & A Properties (UK) Ltd v Rolland & Anor [2015] EWHC 1290 (Comm)

Case No 2013-1313Neutral Citation Number: 2015 EWHC 1290 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane,Date 14/05/2015
London, EC4A 1NL
Before
MR JUSTICE HAMBLEN
Between
Michael Norcross & othersClaimantChantal Anne Emma Georgallides as the Personal Representative of the Estate of Christos Georgallides, deceasedDefendant
Philip Coppel QC (instructed by Thomas Cooper LLP) for ClaimantDavid Lord QC and Hugh Miall (instructed by Quastel Migden LLP) for DefendantHearing Hearing dates: 30 April 2015
JudgmentMr Justice HamblenApproved JudgmentJustice Hamblen:Introduction
[1]There are before the court two related applications: an application by the Defendant for summary judgment on and/or to strike out the Claimants’ claims and an application by the Claimants to amend their Particulars of Claim.[2]The trial of the action is set down for four days commencing on 3 June 2015.[3]The application for summary judgment/strike out is made at a very late stage of the proceedings. The Claimants contend that it should be refused on that ground alone. However, the issues have been fully argued and if the court was to conclude that some or all of the Claimants’ claims have no real prospect of success then it should dismiss those claims rather than require the parties to go through the time and expense of a full trial.[4]The fact that the application is made so late means that it comes at a time after factual witness and expert evidence has been served. In such circumstances the application has to proceed on the basis that the Claimants’ factual and expert evidence is made out at trial.[5]The Claimants’ application to amend is also made very late and that is relevant to the exercise of the court’s discretion whether or not to allow such amendments – see generally Brown v InnovatorOne Plc [2011] EWHC 3221 (Comm) at [5] – [14]. However, the main ground of objection to the proposed amendments is that they have no real prospect of success and do not cure the defects in the claims made.[6]The essential issue which needs to be determined is therefore whether the claims as currently made and as proposed to be made have a real prospect of success.

Background

[7]The dispute between the parties arises out of a substantial investment made by the First Claimant, Mr Norcross, through his company, Newfund Investments Limited (“NIL”), the Second Claimant, in night club businesses owned and operated by companies owned by Mr Christos Georgallides, through a holding company, Sugar Hut Group Limited (“SHG”), the Third Claimant. All the shares in SHG were owned by Mr Georgallides’ company, Quefront Holdings Ltd (“QL”).[8]There were three nightclubs; one in Brentwood, one in Basildon and one in Fulham.[9]The Brentwood night club was operated by Sugar Hut Brentwood Ltd (“SH Brentwood”), which company was owned by Willow Leasing Ltd (“Willow”) which was itself owned by SHG.[10]The Basildon night club was operated by Newplex Trading Ltd (“Newplex”), which company was owned by Newlea Properties Ltd (“Newlea”) which was itself owned by SHG.[11]The Fulham night club was operated by Sugar Hut Fulham Ltd (“SH Fulham”), which company was owned by Ramos Leisure Ltd (“Ramos”) which was itself owned by SHG.[12]As taken from the draft Amended Particulars of Claim (“APOC”) the essential facts may be summarised as set out below. For the purpose of the Defendant’s applications they shall be taken to be true.[13]By a shareholders agreement made in writing and dated 31 October 2007, and made between QL and NIL, QL agreed to issue to NIL 490 shares in SHG with a nominal value of £1 each, with completion to take place on 1 November 2007, subject to certain terms and conditions for a consideration of £800,000 (“the Shareholders Agreement”).[14]On 1 November 2007 Mr Norcross joined the boards of SHG, Ramos, Willow, Newlea, Newplex, SH Fulham and SH Brentwood (“the 7 Companies”).[15]Until 16 October 2008 Mr Georgallides exercised day-to-day management and control of the 7 Companies.[16]Each of the nightclubs was operated in the larger part on a cash basis.[17]Mr Georgallides, would, at the end of each trading week, take to his home all the cash takings of each of the nightclubs.[18]In or about November 2007, Mr Georgallides moved the accounting operation of the 7 Companies to his home.[19]Mr Georgallides did not allow Mr Norcross to verify the amount of takings recorded by Mr Georgallides nor that all the takings from the nightclubs were banked by Mr Gorgallides.[20]From late 2007 to October 2008 (inclusive) disputes arose between Mr Georgallides and Mr Norcross in relation to the manner in which Mr Georgallides and QL conducted the affairs of the 7 Companies.[21]By letter dated 16 May 2008 Mr Norcross addressed to Mr Georgallides, Mr Norcross resigned as a director of each of the 7 Companies.[22]On 6 August 2008 Mr Norcross presented petitions to wind up SH Brentwood, Newplex, SH Fulham, Newlea and Willow on the basis that none of those companies was able to pay its debts.[23]Shortly thereafter, SH Brentwood, Newplex, SH Fulham, Newlea and Willow each applied that the petitions be struck out and that Mr Norcross be restrained from advertising the petitions.[24]By a witness statement served in the winding up proceedings dated 25 August 2008 Mr Georgallides stated and represented:(1) That he had “been managing its [i.e. the 7 Companies] affairs in a proper and orderly way”;(2) That he had not been uncooperative in providing information to [Mr Norcross]”;(3) That the financial information provided by him had not been lacking; and(4) That the 7 companies were banking their takings and paying their creditors.[25]By a witness statement in the winding up dated 28 August 2008 Mr Georgallides stated and represented:(1) That of the 7 Companies, “Newplex is the only company in the business which is trading at an ongoing loss, where running at about £25,000 per month” and that these losses “have been reduced to between £18,000 and £20,000”;(2) That he had “always been closely involved with the daily running of the business and monitoring takings on a daily basis”;(3) That the financial information exhibited as “CG3” had “been prepared by AOG [the Group’s accountants] on my instructions and with the assistance of Karen Lee [the group’s bookkeeper]”;(4) That SH Fulham, SH Brentwood and Newplex were solvent;(5) That he had made director’s loans into SH Fulham and SH Brentwood “for the purposes of bridging finance to cover short-term cash shortages during troughs in trading activity”;(6) That for SH Fulham the “only payments which it is proposed should be made to the end of October [2008] are those required for the ordinary course of trading”;(7) That for SH Brentwood Ltd, “the only payments which it is proposed should be made to the end of October [2008] are those required for the ordinary course of trading”; and(8) That he (Mr Georgallides) “was not taking any drawings or remuneration from any of the companies in the Group and have not taken any repayments of my loans for at least 6 weeks”.[26]It is the Claimants’ case that these representations were knowingly false (“the misrepresentations”).[27]On 12 September 2008 Kitchin J dismissed Mr Norcross’ petition and ordered him to pay costs.[28]By agreement dated 16 October 2008 and made between 16 parties, including Mr Georgallides, QL, Mr Norcross, NIL, SHG and SH Brentwood, and subject to legal pre-conditions set out in cl 3.1:(1) The 7 Companies released Mr Georgallides and QL from any liability from claims defined in recital F (cl 1.3); and(2) Mr Norcross and NIL released and waived any rights which they had against Mr Georgallides and QL and covenanted not to make or maintain any action or claim of any kind whatsoever except for any rights arising out of the 16 October 2008 agreement (cl 2.2) (“the Settlement Agreement”).[29]It is the Claimants’ case that they were induced to enter the Settlement Agreement by the misrepresentations.[30]By written agreement dated 16 October 2008 and made between QL and Mr Georgallides (as sellers) and NIL (as buyer), in consideration of the sum of £1.00, NIL purchased 500 ordinary shares owned by QL in SHG and the 10 ordinary shares owned by Mr Georgallides in SHG (“the Share Purchase Agreement”).[31]As a result of the Share Purchase Agreement, NIL held 1,000 ordinary shares, that is to say 100% of the ordinary shares, in SHG.[32]On 16 October 2008 Mr Norcross was re-appointed as a director of the 7 Companies.[33]In October 2008 Mr Georgallides ceased to be a director of the 7 Companies.[34]As a result of this re-appointment as a director of the 7 Companies, Mr Norcross was able to get access to information relating to the running of those 7 Companies which had not been available to him earlier.[35]In light of the information which became available to him on his re-appointment as a director, Mr Norcross became concerned as to the financial position of the 7 Companies and, in particular, SH Brentwood, Newplex and SH Fulham.[36]As a result of those concerns, Mr Norcross approached Bridge Business Recovery LLP to advise him on the position of the 7 Companies.[37]On 3 February 2009 Newplex was placed in administration.[38]On 3 February 2009 SH Fulham was placed in administration.[39]On 18 January 2010 Newplex was wound up.[40]On 20 January 2010 SH Fulham was wound up.[41]In 2010 the Secretary of State for Business, Innovation & Skills commenced directors disqualification proceedings under the Company Directors Disqualification Act 1986against Mr Georgallides (“the Directors Disqualification Proceedings”).[42]The Directors Disqualification Proceeding resulted in Mr Georgallides being disqualified from acting as a director for 6 years.[43]Mr Georgallides died in December 2013 and the action is brought against the Defendant as the personal representative of his estate.

The claims

[44]Against the background outlined above various claims have been made by the Claimants. In summary:(1) Mr Norcross claims: (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides. (ii) Damages for losses suffered as a result of Mr Georgallides’ breaches of duty and wrongful and fraudulent conduct in respect of SH Brentwood and Newplex.(2) NIL claims: (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides. (ii) By proposed amendment, damages for having been induced to enter into the Shareholders Agreement by fraudulent misrepresentations made by Mr Georgallides.(3) SHG claims: (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides. (ii) Damages/an account for Mr Georgallides’ breaches of his duties as director of SH Fulham and Newplex.(4) SH Brentwood claims: (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides. (ii) Damages/an account for Mr Georgallides’ breaches of his duties as director of SH Brentwood. (iii) Damages for Mr Georgallides’ misfeasance/breach of fiduciary duty.[45]The proposed Fifth Claimants, Mr Dickinson and Mr Davis, are the joint liquidators of SH Brentwood (“JL”). The Claimants apply to join them to make the same claims as SH Brentwood. They also seek to amend to add a claim by JL for relief under s.238, s.239 and/or s.423 of the Insolvency Act 1986 (“the Insolvency Act claims”).

The evidence

[46]Aside from the allegations of fraudulent misrepresentation, the essence of the Claimants’ case against the Defendant is that Mr Georgallides diverted company funds and property to his own use.[47]The Claimants’ own summary of the key features of their evidence was as follows:(1) Mr Norcross: (i) Sets out the background to his investment in the Sugar Hut businesses and gives evidence that Mr Georgallides used the Sugar Hut businesses to fund his own lifestyle, including purchasing “a fleet of luxury cars”. (ii) States that he was not aware of any director’s loan having been made to Mr Georgallides. (iii) Explains how the accounting function of the business was moved by Mr Georgallides to his home in Essex. (iv) Identifies personal payments by Mr Georgallides from company funds. (v) Identifies the unusual and suspicious way in which the accounting operation of the business is being handled at the direction of (vi) Mr Georgallides’ accountants, AOG. (vii) Records his requests for information regarding the businesses in which he had invested and details the way in which Mr Georgallides and AOG avoided providing such information. (viii) Identifies the legal pre-condition that he says Mr Georgallides failed to comply with in respect of the Settlement Agreement. (ix) Explains that Directors’ Disqualification Proceedings were brought against both himself and Mr Georgallides and states that he was exonerated, but Mr Georgallides was disqualified for six years. (x) Records how he discovered that Mr Georgallides was diverting business income to bank accounts controlled by him.(2) Mr Dickinson: (i) Explains Mr Georgallides’ modus operandi by reference to previous companies that he had operated and run into insolvency. (ii) States that he has found no records of Mr Georgallides’ alleged directors loan account and that it is apparent he took significant sums out of SH Brentwood. (iii) Identifies diversions of funds that Mr Georgallides made away from SH Brentwood. (iv) States: “The frequency and scale of the diversion is inconsistent with this having been a mistake.” (v) Identifies two key ways in which Mr Georgallides perpetrated his “fraud”: (a) Diverting contents of tills from the nightclub to non-business bank accounts that he controlled. (b) Diverting SH Brentwood’s cash takings to a company named Trigame Leisure Limited (“Trigame”). (vi) Explains how Mr Georgallides operated the business of SH Brentwood so that he could carry out his “frauds”. (vii) Identifies some of the losses that Mr Georgallides’ “frauds” have caused SH Brentwood: £386,363 in the period October 2007 to January 2008 and £322,696 in the period between February 2008 and April 2008. (viii) Identifies the property that he has been able to identify as having been “stolen” by Mr Georgallides from SH Brentwood.(3) The Claimants’ expert witness statement of Mr Brown of Grant Thornton concludes: (i) That proper records were not kept at the businesses. (ii) That there is no legitimate explanation for the recording of takings on the Trigame Daily Takings Sheets. (iii) That the total income diverted by Mr Georgallides from SH Brentwood was at least £685,452 at and is likely to be higher, but that he cannot say how much higher because the records are incomplete. (iv) That the full sales of SH Fulham and Newplex were under-recorded and that funds were banked in non-group bank accounts (i.e. not in the bank accounts of the business) of at least £200,000. (v) That Mr Georgallides incurred personal expenditure causing a loss to the companies of £226,369.[48]The Defendant has adduced no expert evidence. Factual witness statements from Mrs Georgallides and Mr Nicolaides of AOG have been served.[49]Mrs Georgallides says that she knows very little about the issues in dispute, but does recall her late husband signing a Settlement Agreement “to end all past and future litigation with Michael”.[50]Mr Nicolaides states that his firm, AOG, “a firm of certified accountants and registered auditors”, had acted for Mr Georgallides since 2004. He states that Trigame “never traded”. He states that he has seen a document which “suggests … sums should have been recorded” in a directors loan account on behalf of Mr Georgallides. He states that he is not aware of Mr Georgallides removing any property from any of the businesses.

The Settlement Agreement

[51]It is the Defendant’s case that all the claims made were compromised by the Settlement Agreement.[52]The Defendant stresses that the Settlement Agreement is widely expressed. In particular:(1) Recital C contains a non-exhaustive list of disputes which are the subject of settlement. These expressly include claims by Mr Norcross and NIL that Mr Georgallides conducted the affairs of the “Sugar Hut Parties” (meaning, so far as material, the 7 Companies) in a manner which could give rise to redress against them; and claims by the Sugar Hut Parties against Mr Georgallides for misfeasance or any other claims against him.(2) Recital F expresses the parties’ intentions to settle “all claims whatsoever and howsoever arising” and “whether existing or prospective and whether apparent or not” and that such claims shall include but not limited to all the Specified Claims, and claims in contract, tort (which includes the tort of deceit), statute, common law, equity or otherwise.(3) The Claimants expressly agreed the following: (i) To formally release [Mr Georgallides] from any Liability (meaning that set out and therefore defined by in recital F) whatsoever (cl 1.1, 1.3); (ii) To “release and waive any rights which they or any of them may have… and undertake in favour and for the benefit of each of the Georgallides Parties not to make or maintain any action or claim of any kind whatsoever except for any rights arising out of this Agreement” (cl 2.2, 2.4). (iii) That the Sugar Hut Parties’ claims would be settled in consideration for the payment of £300,000 and release by Mr Georgallides of any rights to loans monies due to him (cl 5.1);(4) Clause 7.1 expressly records that the parties agree to construe the terms of the Agreement as widely as possible in order to give effect to the commercial objectives of achieving a full, final and comprehensive settlement between them.[53]The Defendant points out that it is perfectly possible to settle claims the specific existence of which are unknown to the parties at the time: BCCI v Ali [2002] 1 AC 251. It is submitted that it was the express intention of the parties that the Settlement Agreement should be a full and final settlement of all matters between them. It is clear that Mr Norcross was aware of the existence of allegations of misappropriation or diversion of cash or other company assets. Moreover, the Settlement Agreement expressly purports to settle allegations of ‘misfeasance’ which is precisely how the Claimants have classified much of the conduct of Mr Georgallides complained about.[54]In these circumstances the Defendant submits that all of the Claimants’ claims have been settled conclusively, and that they are estopped or otherwise prohibited from continuing their claims.[55]Whilst the Claimants accept that it is possible to settle claims unknown to the parties at the time, they point out that clear words are necessary to do so. As Lord Bingham stated in BCCI v Ali at [10]: “..the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware”.[56]They stress that this raises factual issues as to the Claimants’ knowledge and whether and the extent to which they were unaware or could not have been aware of the claims now made. I accept that this is so and that these are not matters which can be determined summarily.[57]They also rely on Lord Nicholls statement at [52] in BCCI v Ali:
“Thus far I have been considering the case where both parties were unaware of a claim which subsequently came to light. Materially different is the case where the party to whom the release was given knew that the other party had or might have a claim and knew also that the other party was ignorant of this. In some circumstances seeking and taking a general release in such a case, without disclosing the existence of the claim or possible claim, could be unacceptable sharp practice. When this is so, the law would be defective if it did not provide a remedy.”
[58]The Claimants contend that this is such a case. Again that raises factual issues which are not appropriate for summary determination.[59]The Claimants further submit that their claim covers fraudulent acts and that the Settlement Agreement does not refer to fraud. This too raises factual issues.[60]In my judgment, for the reasons outlined above, the construction and effect of the Settlement Agreement is tied up with matters of fact which cannot be summarily determined. I accordingly accept the Claimants’ case that the Settlement Agreement does not summarily preclude their claim.

Reflective loss

[61]The Defendant contends that a number of the Claimants’ claims fall foul of the rule against reflective loss.[62]The principle was expressed by the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, 222 – 223 as follows:
“…what [the shareholder] cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a "loss" is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only "loss" is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent shareholding. The plaintiff's shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing.”
[63]This statement was approved by the House of Lords in Johnson v Gore-Wood (A Firm) [2002] 2 AC 1 (HL) – see, for example, p.35E et seq. (Lord Bingham) and p.61G et seq. (Lord Millett).[64]In Giles v Rhind [2003] Ch 618 an exception to the general rule was held to exist “where the wrong to the company had made it impossible for it to pursue its own remedy against the wrongdoer” – see Chadwick LJ at [69].[65]In this connection the Claimants relied on the fact that the liquidation of Newplex and SH Fulham meant that they were unable to pursue any claim. However, as the Defendant points out:(1) The reflective loss rule will still apply where a company had an opportunity to take action to recover losses but declines or fails to do so: Johnson v Gore Wood & Co (a Firm) at [35].(2) The insolvency of a company is not enough for the exception to apply: Gardner v Parker [2005] 2 BCLC 554.(3) Equally the fact that a company has not brought a claim in time and is now statute barred is not enough for the exception to apply: Barings Plc (In liquidation) v Coopers & Lybrand (No 1) [2002] 2 BCLC 364 at [128], [130 – 135].(4) In this case the companies in question could have commenced a claim against Mr Georgallides because the very same liquidator of those companies has procured that SH Brentwood (in liquidation) bring a claim against the Defendant.(5) SH Fulham and Newplex were not disabled from bringing claims by Mr Georgallides’ actions. The disabling factor is their dissolution on 2 August 2003 which a direct consequence of a choice made by the companies’ liquidator(s) including Mr Dickinson.

Limitation Act issues

[66]In relation to a number of the Claimants’ proposed amendments Limitation Act issues arise.[67]On an application to amend to add a new claim which does not arise out of the same or substantially the same facts as are already in issue the authorities show that if a defendant can show a reasonably arguable case on limitation then permission to amend should not be granted. The reason for that is the doctrine of relation back introduced by section 35(1) of the Limitation Act 1980. That has the consequence that if permission to amend is granted to add a new claim it will be treated as having been commenced on the same date as the original action, thereby precluding reliance at trial on the arguable limitation defence – see Ballinger v Mercer Ltd [2014] 1 WLR 3597 at [24]-[25] per Tomlinson LJ.[68]How the court should proceed in such circumstances was summarised as follows by Jackson LJ in Chandra v Brooke North (2013) 151 Con LR 113 at [66]-[68]:
“66. If a claimant seeks to raise a new claim by amendment and the defendant objects that it is barred by limitation, the court must decide how to proceed. There are two options. First the court could deal with the matter as a conventional amendment application. Alternatively, the court could direct that the question of limitation be determined as a preliminary issue. 67. If, as is usually the case, the court adopts the first option, it will not descend into factual issues which are seriously in dispute. The court will limit itself to considering whether the defendant has a ‘reasonably arguable case on limitation’: see Welsh Development Agency v Redpath Dorman Long Ltd [1994]1 WLR 1409 at p 1425H. If so, the court will refuse the claimant's application. If not, the court will have a discretion to allow the amendment if it sees fit in all the circumstances. 68. If the court refuses permission to amend, the claimant's remedy will be to issue separate proceedings in respect of the new claim. The defendant can plead its limitation defence. The limitation issue will then be determined at trial and the defendant will not be prejudiced by the operation of relation back under section 35(1) of the 1980 Act.”
[69]It is the Defendant’s case that if there is a reasonably arguable case on limitation then the application to amend should be refused and the Claimants left to issue fresh proceedings, if they so decide.

Real prospect of success

[70]I propose to consider the claims by reference to each Claimant. (1) Mr Norcross (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides.[71]The Claimants’ case is that Mr Norcross was induced to enter into the Settlement Agreement by the (false) representations made by Mr Georgallides in his witness statements in the winding up proceedings – the misrepresentations. However, Mr Norcross makes no reference to these representations in his witness statement. He does not give evidence that he relied upon them or believed them to be true. There is no evidence to support the alleged inducement, a necessary part of the Claimants’ case.[72]This is not surprising since it is inherently unlikely that Mr Norcross would have relied on these statements. As the Defendant points out, the representations were made in witness statement evidence given by Mr Georgallides to defend proceedings brought by Mr Norcross in which he took both the contrary position and gave expressly contradictory evidence which itself was signed with a statement of truth. In such circumstances it is extremely implausible that Mr Norcross would then decide to accept and rely on Mr Georgallides evidence as being true.[73]Further, there is contemporaneous documentation which shows that Mr Norcross had independent sources of information which raise many of the issues he now complains of and that it is most unlikely that he believed the contents of Mr Georgallides’ evidence to be true. For example:(1) On 5 August 2008 Mr Georgallides sent to Mr Norcross a report of UHY Hacker Young which specifically raised financial concerns relating to SH Brentwood.(2) On 5 September 2008 Mr Dickinson provided Mr Norcross with a report following a brief visit and check of the financial position of the 7 Companies, including a note to Mr Norcross which also identified Mr Dickinson’s belief that both SH Fulham and SH Brentwood would become immediately insolvent unless significant structured funding was found to support them. In his witness statement Mr Norcross expressly stated that Mr Dickinson had informed him that cash takings had not been recorded and that such discrepancies were a matter of serious concern.(3) Between 10 and 23 September 2008 Mr Norcross entered into correspondence with Barclays Bank Plc. On 19 September 2008 he wrote to Mr Alan Bayliss at Barclays and stated:
“Further to this there are a number of terms that would leave me personally exposed to all of the wrong doings and improper and/or illegal acts that have been revealed in recent times as carried out by Chris and his advisors within the Sugar Hut Group. As you are aware, in court and beforehand, the bank have been made aware of the suspected theft and wrongdoings in the company, apparent accounting irregularities, and of course the issues that follow on from this in terms of VAT and Tax evasion and the general aspects of money laundering offences….I cannot be expected to take the liability for others direct actions and as such enter into an agreement where HMRC, Money Laundering Bodies and similar have over riding powers to investigate such matters where the offences have been committed by Chris and his advisors. Again the lawyers appear to have no understanding as to the full extent of what has happened.”
Mr Norcross continued later:
“It is well documented that Chris wanted to take my money, rape the cash from the takings without my knowledge or consent, crash the business as he has done many times before, and buy it back for a fraction of its value. Clearly Barclays will be aware of this from their own risk assessments of his activities in recent years given the close support the bank appear to give him in the full knowledge of this.”
Mr Norcross continued later: (4) In a letter of 23 September 2008 to Mr Bayliss Mr Norcross stated the following:
“Further to this we are (sic) understand that since Thursday members of [CG’s] family and [CG’s] staff at home have been to the Brentwood venue and removed over a period of three days a large amount of stock and assets in large trucks. I believe that whilst this may be his right to instruct family and staff to do this whilst he is in Thailand, I do believe that this will prejudice my position and potentially that of the bank in the event that the businesses are placed into administration. Along with the fact that further cash takings have possibly not been declared, it is evident that unless the Bank are aware of this then you are in no position to act.”
And “Whilst I do not expect you to “unfreeze” the bank account, you can be in no way unaware of the cash that is missing from the business whilst under Mr Georgallides’ sole control.”

And

[74]These matters post-date the alleged representations and occurred shortly before the Settlement Agreement was entered into on 16 October 2008.[75]In all the circumstances I accept the Defendant’s case that Mr Norcross’ misrepresentation claim is bound to fail on the issue of inducement. There is no evidence to support such a case and it is most unlikely that there ever could be.[76]One of the proposed amendments adds that Mr Norcross was induced to enter the Settlement Agreement by the “Concealment”. The “Concealment” is stated to be:
“Mr Georgallides did not at any time prior to making the Settlement Agreement disclose to any of the Claimants: (1) that he had improperly and/or dishonestly and/or without good cause regularly taken money and other property from SH Brentwood Ltd, Sugar Hut Fulham and Newplex; (2) that he had improperly and/or dishonestly and/or without good cause caused money from SH Brentwood Ltd and Sugar Hut Fulham to be diverted to the bank accounts of Sugar Hut Village and Sugar Hut Trading (UK) Ltd; (3) the extent to which he had improperly and/or dishonestly and/or without good cause regularly taken money and other property from SH Brentwood Ltd, Sugar Hut Fulham and Newplex and diverted to the bank accounts of Sugar Hut Village and Sugar Hut Trading (UK) Ltd, being matters the existence of which Mr Georgallides had to disclose to the Claimants if these were to be settled by the Settlement Agreement (“the Concealment).” being matters the existence of which Mr Georgallides had to disclose to the Claimants if these were to be settled by the Settlement Agreement (“the Concealment).”
[77]The legal basis of this plea is unclear. It is not alleged that Mr Georgallides was under a duty of disclosure and this is not a contract of utmost good faith. The plea appears to be directed more at the proper construction of the Settlement Agreement and the issue of relative imbalance of knowledge.[78]In oral argument it was suggested that this could provide the basis for an implied representation. However, that is not the pleaded case. Nor is there any evidence to support it. Mr Norcross does not state that he understood such representations to have been made or that he relied upon them having been made. On the Claimants’ own evidence there is therefore no support for such a case, even if it was pleaded (and even if limitation issues could be surmounted).[79]For all these reasons I am satisfied that Mr Norcross’ misrepresentation claim has no real prospect of success and should be summarily dismissed. (ii) Damages for losses suffered as a result of Mr Georgallides’ breaches of duty and wrongful and fraudulent conduct in respect of SH Brentwood and Newplex.[80]The short answer to this claim is that it does not aver or involve any breach of duty owed to Mr Norcross. The claim is for loss suffered by Mr Norcross as a result of Mr Georgallides’ alleged breaches of duty owed to SH Brentwood and Newplex. That does not found any right of action in Mr Norcross.[81]Further, there are fundamental difficulties facing each head of damages claimed by Mr Norcross. The heads of damages are(1) costs incurred in the unsuccessful winding up proceedings;(2) liabilities under guarantees provided to Barclays and(3) a director’s loan payment made to SH Brentwood.[82]None of these payments were made because Mr Norcross had been induced by misrepresentation into entering the Settlement Agreement. As to (1), the petitions were struck out by Kitchin J, as his judgment makes clear, because Mr Norcross was only a contingent creditor and could not prove that he had an interest in the companies concerned which entitled him to petition for winding up. As to (2), there is no suggestion that Mr Norcross was induced to enter into the guarantees by any misrepresentation and the representations relied upon post-date the guarantees. As to (3), if Mr Norcross has discharged debts owed by the companies to Barclays, his remedy is (or was) to prove as a creditor in the liquidation. To the extent that SH Brentwood has a claim that Mr Georgallides caused it financial loss that is a separate claim which enures only to the company. Further, for Mr Norcross to bring such a claim falls foul of the rule against reflective loss.[83]It follows that even if Mr Norcross’ claim did have real prospects of succeeding on liability it has no real prospect of succeeding in respect of any head of damages claimed. This is a further reason why summary dismissal is appropriate. (2) NIL (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides.[84]NIL acted through Mr Norcross and any inducement of NIL can only have occurred if Mr Norcross was so induced. For reasons already given there is no real prospect of this being established. NIL’s Settlement Agreement misrepresentation claim accordingly has no real prospect of success. Further, the damages claimed relate to entry into the Shareholders Agreement rather than into the Settlement Agreement and no arguable case on causation is made out. The claim should accordingly be summarily dismissed. (ii) By proposed amendment, damages for having been induced to enter into the Shareholders Agreement by fraudulent misrepresentations made by Mr Georgallides.[85]The Shareholders Agreement was entered into on 31 October 2007. It has never been in issue between the parties during the course of the proceedings.[86]The claim is prima facie barred by limitation. Further, I accept the Defendant’s submission that it does not arise out of the same or substantially the same facts as the claims already pleaded and in issue between the parties. The very fact that the Claimants have had to plead out this claim makes that clear, as do the extensive additional facts pleaded to make out the representations and allegations of falsity.[87]The Claimants contend that there has been concealment and that the claim is accordingly not time barred pursuant to section 32 of the Limitation Act 1980. This raises factual issues which cannot be resolved at this summary hearing.[88]In those circumstances the Defendant contends that I should refuse permission to amend and leave NIL to bring its claim in new proceedings, should it so choose. The Claimants submit that I should direct that the issue be determined in these proceedings.[89]As the Chandra case makes clear, in most such cases the Claimant will be left to pursue his claim in new proceedings and the court should be wary of the alternative option of a preliminary issue. However, this is an unusual case. It is shortly to come on for trial and all the witness evidence for trial has already been served, including the Claimants’ evidence relating to this claim, should the amendment be allowed. There is no need to order the trial of a preliminary issue. The limitation issue can simply be added to the issues to be dealt with at trial. In so far as further evidence will be required to deal with the s.32 issue there is still time for that to be done. Further, I am satisfied that the issue could be dealt with within the present trial time estimate, particularly given that some of the claims have been summarily disposed of. In my judgment, the appropriate course of action in the unusual circumstances of the present case is to adjourn the application to make this amendment and to direct that it be dealt with at the trial. The parties should prepare for trial on the basis that permission to amend may be granted. The Claimants have already done so and, given the nature of the evidence so far adduced, it may well be that the Defendant will not be adducing evidence, although there should be permission to do so. For the avoidance of doubt, all the Defendant’s arguments opposing the amendment remain open to them on the adjourned application. (3) SHG (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides.[90]This misrepresentation claim faces a different but equally formidable hurdle in relation to the issue of inducement to that faced by Mr Norcross and NIL. The reality is that Mr Georgallides would never have needed to induce SHG or SH Brentwood into entering the Settlement Agreement through a representation because he controlled those companies. It is entirely artificial to suggest there was an intention to induce or actual inducement in circumstances where the person who procures that the company enters into the Agreement is the same person who made the statement, which was made on behalf of those companies in the first place. (ii) Damages/an account for Mr Georgallides’ breaches of his duties as director of SH Fulham and Newplex.[91]The answer to this claim is that it does not aver or involve any breach of duty owed to SHG. The claim is for loss suffered by SHG as a result of Mr Georgallides’ alleged breaches of duty owed to SH Fulham and Newplex. That does not found any right of action in SHG.[92]SHG’s assertion that it is the 100% shareholder of SH Fulham and Newplex is no answer to this point, nor is it correct since SHG is not the shareholder of SH Fulham and Newplex and never has been.[93]Further, SHG’s damages claim falls foul of the rule against reflective loss.[94]I accordingly conclude that SHG’s claims have no real prospect of success and should be summarily dismissed. (4) SH Brentwood (i) Damages for having been induced to enter into the Settlement Agreement by fraudulent misrepresentations made by Mr Georgallides.[95]This claim suffers from the same defect in relation to inducement as that of SHG. It equally has no real prospect of success and should be summarily dismissed. (ii) Damages/an account for Mr Georgallides’ breaches of his duties as director of SH Brentwood. (iii) Damages for Mr Georgallides’ misfeasance/breach of fiduciary duty.[96]Unlike the other Claimants’ similar claims, these are brought by the person to whom the duties were owed and do not involve reflective loss. Although the Defendant contends that all these claims are barred by the Settlement Agreement, as already found, there is a real prospect of it being established otherwise.[97]These claims should be allowed to proceed to trial. The Defendant objects that some new claims have been introduced by the proposed amendments which are barred by limitation. If that remains in issue the application so to amend should be determined at trial. (5) JL[98]JL applies to be joined as a party in case it is to be regarded as being the proper party to make SH Brentwood’s breach of duty claims in light of the fact of its liquidation. However, the Defendant has now made it clear to the court that it will not be so contending and that it is accepted that SH Brentwood is the proper claimant for these claims. In those circumstances there is no need for joinder of JL for these purposes.[99]JL also applies to be joined so as to make the Insolvency Act claims, which are new claims. This raises reasonably arguable limitation issues. As with the new claim of NIL I consider that the application to amend should be addressed at the trial but that the parties should prepare for trial on the basis that permission to amend may be granted. The adjournment of the application is made on the same basis as for the NIL claim.

Summary of conclusions

[100]In summary I find that:(1) The claims of Mr Norcross should be dismissed.(2) NIL’s claim for misrepresentation in relation to the Settlement Agreement should be dismissed. Its application for permission to amend to make a claim for misrepresentation in relation to the Shareholders Agreement should be adjourned to be determined at the trial.(3) The claims of SHG should be dismissed.(4) SH Brentwood’s claim for misrepresentation in relation to the Settlement Agreement should be dismissed. Its breach of duty claims should go to trial.(5) JL’s application for permission to be joined to make the Insolvency Act claims should be adjourned to be determined at trial.[101]It follows that the trial will be concerned with the breach of duty claims made by SH Brentwood/JL and, if permission to amend is granted, NIL’s claim for misrepresentation in relation to the Shareholders Agreement and JL’s Insolvency Act claims. In addition, the Defendant retains the right to object on limitation grounds to the amendments made to plead dishonesty and to SH Brentwood’s constructive trust claim. In so far as further amendments were put forward at the hearing for handing down of the judgment, if they are to be pursued these too will have to be addressed at the trial.[102]In relation to costs I rule that Mr Norcross is liable to pay to the Defendant the costs of the action referable to his claim and that SHG is liable to pay to the Defendant the costs of the action referable to its claim. In addition NIL and SH Brentwood are liable to pay to the Defendant the costs of the action referable to its claims for misrepresentation relating to the Settlement Agreement. These would include the costs of the applications for summary judgment/amendment made in relation thereto. The costs of the adjourned amendment applications should be reserved.[103]In so far as there are application costs not covered by the above rulings then they should be costs in the case.[104]The Defendant submitted that there should be a significant payment on account of costs in the light of any favourable costs orders made. The difficulty lies in disentangling the costs covered by such orders from the costs involved in the continuing action. None of the costs schedules provided seek to address this difficult question. Whilst there is force in the Defendant’s point that there will be some such costs I am not satisfied on the material currently before the court that I am in a position to arrive at a satisfactory figure, even for the purpose of a payment on account. The lateness of the Defendant’s application and the short interval before the trial also tell against an immediate order for payment on account. The issue of payments on account of costs will undoubtedly arise following the forthcoming trial and is best addressed in the round at that stage. In the exercise of my discretion I therefore decline to make any such order at this stage. This does not, however, preclude the Defendant from making a further application for interim payment in the light of rulings made at the trial hearing and/or further information provided to the trial court relating to the costs consequences of the orders made.

Cited in 3 later judgments