Starred digests: 14 February 2019

When assessing whether a claimant was a dependant under the Fatal Accidents Act 1976, nothing that a dependant did after the death could either increase or decrease the dependency. The dependency was fixed at the moment of death; it was what the dependants would probably have received as benefit from the deceased, had the deceased not died. What decisions people made afterwards was irrelevant. The only post death events which were relevant were those which affected the continuance of the dependency.

The deceased was killed as a result of his car being struck by an ambulance driven by an employee (the second defendant) of the first defendant. The deceased had been a successful entrepreneur, with three profitable enterprises: a builders’ merchant, property development and restoration of steam engines. The claimant had three adult children, D, S and R. The claimant was a partner in the deceased’s business along with D and S. They had received a share of the profits of the business that was substantially higher than the value of the work that they actually did. After the deceased’s death, the claimant, D, S and R took over those activities. The business turnover and profits rose. The claimant commenced proceedings under the Fatal Accidents Act 1976 and liability was admitted. By her claim the claimant sought damages not only for her own loss of dependency but also on behalf of her three adult children.  At trial the defendants contended, inter alia, that the court could not ignore developments after the death and that, given that the business had continued to make profits or added value of at least as much as before the death of the deceased, there was no loss and hence no dependency. The claimant submitted, inter alia, that the dependency should be assessed by reference to the cost of replacing the deceased’s services to the three enterprises and, as it was unlikely to find one person with all of the necessary skills, that would be the cost of employing one person for each enterprise to perform those services. The judge rejected the defendants contentions.The judge considered relevant authorities, which he thought were of assistance in that they had some similarity to the instance case. He then stated that the identification and valuation of a dependency could not depend upon the success or otherwise of dependants’ efforts to run a business that they had inherited; he continued that, on policy grounds alone, that would be repugnant, as it would encourage failure and penalise success. He further stated that nothing that a dependant did after the death could either increase or decrease the dependency. In that connection, the judge held that it was irrelevant that D and S had made a success of the business. The judge went on to described the dependency stating that what the dependants had lost was not income derived from a capital asset, but the contribution of the deceased as manager of the business, his flair, skill, expertise and energy in the various wealth creating projects on which he had engaged in his life and which, had he lived, he would have continued to engage upon. The judge adopted the claimant’s proposed method of assessing the cost of replacing the services rendered by the deceased. He held that the deceased’s personal expenditure accounted for only 12.5% of the cost of his services as manager of the builders’ merchants business and that everything else had been for the benefit of the family and that it should all count as their dependency. In the event , the claimant was awarded damages of £1,711,195.85 plus interest of £109,308.95, making a total award of £1,820,504,80. The defendants appealed. 

The issue arose as to whether the judge had erred in law in holding that there was any dependency at all, whether for the claimant or the children.  

The defendant submitted that the judge had wrongly assumed that there had been a dependency and moved immediately to the assessment of its value. 

The appeal would be dismissed. 

Nothing that a dependant did after the death could either increase or decrease the dependency. The dependency was fixed at the moment of death; it was what the dependants would probably have received as benefit from the deceased, had the deceased not died. What decisions people made afterwards was irrelevant. The only post death events which were relevant were those which affected the continuance of the dependency.

In the instant case, the judge’s approach had been correct. The judge had dealt with the issue raised by the defendants. It could not be said that he had assumed that there was a dependency and gone on immediately to assess its value. He had considered the relevant case law and that had helped him to see what the dependency was and to describe it in the way that he had. Moreover, in the circumstances of the case, it was plain that the claimant and the children were dependants of the deceased at the time of his death. The judge had been right when he held that it was irrelevant that D and S had made a success of the business. That was not because the financial benefit which they had brought to the family was a ‘benefit accruing as a result of the death’ which had to be ignored under s 4 of the Act.  It was because that financial benefit was irrelevant to the assessment of the dependency under s 3 of the Act. Further, the judge’s choice of method for assessing the damages had been right.  

Wood v Bentall Simplex Ltd [1992] PIQR P332 considered; O’Loughlin v Cape Distribution Ltd [2001] All ER (D) 87 (Feb) considered.

of Judge Hickinbottom; [2007] All ER (D) 13 (Jun)  affirmed.

William Stevenson QC and Theodore Huckle (instructed by Morgan Cole, Cardiff) for the defendants.

Christopher Purchas QC and Bryan Thomas (instructed by Russell Jones & Walker, Cardiff) for the claimant.

Marie-Therese Groarke - Barrister. 

Given that the appellant, Bresco had been in liquidation for three years by the time of its reference to adjudication, and that the respondent Lonsdale had a cross-claim, it was neither just nor convenient for the adjudication brought by Bresco to continue. Accordingly, the Court of Appeal, Civil Division, dismissed Bresco’s appeal. The court also gave guidance on the interplay between the construction adjudication process and the insolvency regime. 

Background

The two conjoined appeals raised important issues as to the interplay between the construction adjudication process and the insolvency regime. 

In the first appeal, the appellant (Bresco) entered into a sub-sub-contract with the respondent (Lonsdale) to perform electrical installation works. Bresco became insolvent and entered into voluntary liquidation. As a result, the sub-sub-contract was terminated. Three years after the liquidation, Bresco served an adjudication notice on Lonsdale, claiming, among other things, that it had wrongfully repudiated the sub-sub-contract. Lonsdale asked the adjudicator to discontinue the adjudication on the basis that he had no jurisdiction because Bresco was insolvent. The adjudicator refused. In consequence, Londsdale issued CPR pt 8 proceedings seeking an injunction to prevent the continuation of the adjudication. The judge held that: (i) the adjudicator did not have the necessary jurisdiction to deal with a claim advanced by a company in insolvent liquidation (the jurisdiction argument); and (ii) it would be unjust to permit an adjudication to continue in circumstances where the decision of the adjudicator would be incapable of enforcement (the utility argument). Bresco appealed (the Bresco appeal).

In the second appeal, the appellant (Cannon) engaged the respondent (Primus) to design and build a new hotel. During the engagement period, Primus served on Cannon a payment notice in the sum of £261,222.17. Cannon served a pay less notice in response, putting the amount due at nil. Shortly thereafter, Cannon served a notice of termination on Primus. There followed four adjudications and litigation between the parties. Prior to the fourth adjudication, Primus entered into a Company Voluntary Arrangement (CVA). In the fourth adjudication, Cannon failed to raise the jurisdiction argument and the adjudicator found in favour of Primus. As a result, Primus commenced proceedings to enforce the adjudicator’s decision. The judge granted summary judgment in favour of Primus and refused to grant a stay of execution, notwithstanding the CVA. Cannon appealed (the Cannon appeal). Prior to the appeal hearing, the Cannon appeal settled. Notwithstanding, the Court of Appeal, Civil Division, exercised its discretion to hand down judgment.

Appeal dismissed.

Issues and decisions

(1) Whether an adjudicator could ever have the jurisdiction to deal with a claim by a company in insolvent liquidation.

Having regards to the concession by Lonsdale that the claim would not have given rise to a jurisdictional issue in court or in arbitration, there was no reason why, purely as a matter of jurisdiction (as opposed to utility), a reference to adjudication should be treated any differently to a reference to arbitration. As a matter of principle, the choice of forum could not dictate whether or not the claim existed or had been extinguished (see [23], [31], [120], [121] of the judgment). 

The judge in the Bresco appeal had been wrong to find that the adjudicator had had no jurisdiction to consider the claim. However, the theoretical existence of the adjudicator’s jurisdiction was only the start of the analysis. In the circumstances of the present case, an adjudicator’s decision in favour of Bresco, a company in insolvent liquidation facing a separate cross-claim, would not be capable of being enforced. That would make the adjudication an exercise in futility (see [62], [63], [120], [121] of the judgment). 

Philpott (as joint liquidators of WGL Realisations 2010 Ltd) v Lycee Francais Charles de Gaulle School [2015] All ER (D) 175 (Apr) applied; Stein v Blake [1995] 2 All ER 961 considered; Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] All ER (D) 1132 considered; Kaupthing Singer and Friedlander Ltd (in administration), Re [2010] All ER (D) 72 (May) considered; Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2010] All ER (D) 126 (Apr) considered.

(2) Whether an adjudication could ever have any utility in circumstances where the claim was by a company in insolvent liquidation.

The adjudication process on the one hand, and the insolvency regime on the other, were incompatible. It would only be in exceptional circumstances that a company in insolvent liquidation (and facing a cross-claim) could refer a claim to adjudication, succeed in that adjudication, obtain summary judgment and avoid a stay of execution. In the ordinary case, even though the adjudicator might technically have the necessary jurisdiction, it was not a jurisdiction which could lead to a meaningful result (see [54], [120], [121] of the judgment). 

The solution to the incompatibility issue was the one that had been adopted in the present case: the grant of an injunction to restrain the further continuation of the adjudication (see [55] of the judgment).

There was nothing in the facts of the present case that was relied on by Bresco which took the case out of the ordinary, or which demonstrated that it was just or convenient for the underlying adjudication to continue. On the contrary, all the evidence pointed the other way. Among other things, Bresco had been in insolvent liquidation for over three years before it had referred its claim to adjudication. Further, there was no evidence that Bresco would ever be able to trade again (see [60], [120], [121] of the judgment).

There had been no reason why the adjudication should have been permitted to continue; on the contrary, it was just and convenient to grant the injunction. Accordingly, Lonsdale was entitled to an injunction to prevent the continuation of the adjudication, not on the grounds of theoretical jurisdiction, but on the grounds of practical utility (see [61], [63], [120], [121] of the judgment). 

Twintec Ltd v Volkerfitzpatrick Ltd [2014] All ER (D) 177 (Jan) applied.

(3) Whether Cannon had waived its right to raise a jurisdictional challenge.

Cannon could not presently be permitted to rely on its original general reservation of position in order to be able to raise the objection. Any proper jurisdiction objection was limited to the two points which the adjudicator had decided against Cannon and which had (rightly) not been resurrected. The general reservation had been too vague to be effective; in any event, it had to be regarded as having been superseded by the two specific objections that had been raised and which had failed. Moreover, it could not be said that Cannon had not known or should not have known about the argument that an adjudicator might not have the necessary jurisdiction to decide a claim by an insolvent company (see [99], [120], [121] of the judgment). 

Had there been anything in the jurisdiction argument (which, in any event was rejected), then, while the point had always been open to Bresco because of the way in which it had arisen on the application for an injunction, the point was not open to Cannon, because it had not been the subject of any specific reservation (despite the fact that Cannon had known or should have known about the point) and the general reservation had not covered it and had been subsumed by the specific objections in any event (see [100], [120], [121] of the judgment). 

The jurisdiction argument was not open to Cannon because it had not taken it before the adjudicator (or indeed before the judge) and its general reservation of position had not permitted that argument to be run on enforcement (see [115], [120], [121] of the judgment).

Allied P & L Ltd v Paradigm Housing Group Ltd [2009] All ER (D) 240 (Nov) applied; Aedifice Partnership Ltd v Shah [2010] All ER (D) 65 (Aug) applied; GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd [2010] All ER (D) 232 (Oct) applied; Cia Maritima Zorroza SA v Sesostris SAE, The Marques de Bolarque [1984] 1 Lloyd’s Rep 652 considered; Allied Vision Ltd v VPS Film Entertainment GmbH [1991] 1 Lloyd’s Rep 392 considered; CN Associates (a firm) v Holbeton Ltd [2011] All ER (D) 217 (Jan) considered; Equitix ESI CHP (Wrexham) Ltd v Bester Generacion UK Ltd [2018] All ER (D) 57 (Feb) considered.

(4) Whether the judge had erred in: (i) granting summary judgment in favour of Primus; and (ii) refusing Cannon’s application for a stay of execution.

Had it remained live, the appeal against the judge’s decision to grant summary judgment in favour of Primus would have failed. The judge had been entitled to enter summary judgment in favour of Primus (see [109], [116], [120], [121] of the judgment).

The general position relating to a CVA might, depending on the facts, be very different to a situation where the claimant company was in insolvent liquidation. In the latter case, claims being made by the company were part of what might be called a damage limitation exercise, whereby the liquidators endeavoured as best they could to pay dividends to creditors. A CVA was, or could be, conceptually different. It was designed to try and allow the company to trade its way out of trouble. In those circumstances, the quick and cost-neutral mechanism of adjudication might be an extremely useful tool to permit the CVA to work. In those circumstances, courts had to be wary of reaching any conclusions which prevented the company from endeavouring to use adjudication to trade out of its difficulties (see [108], [120], [121] of the judgment). 

It had been plainly open to the judge to exercise his discretion against granting a stay of execution. On the facts of the case, having decided that he could enter summary judgment in favour of Primus, the refusal of the stay had almost been inevitable. Had it remained live, the appeal against the refusal to grant the stay would also have been refused (see [114], [117], [120], [121] of the judgment).

Having resolved the CVA issue at the summary judgment stage, it could not arise again in respect of the stay, or if it could, the same answer was appropriate. Further, a court would exercise its discretion against a stay if it concluded that the party seeking the stay was responsible, either wholly or in substantial party, for the claimant’s financial difficulties. In the present case, that had been the conclusion reached (see [112], [113], [120], [121] of the judgment). 

Wimbledon Construction Co 2000 Ltd v Vago [2005] All ER (D) 277 (Jun) applied; Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] All ER (D) 1132 considered; Mead General Building Ltd v Dartmoor Properties Ltd [2009] All ER (D) 224 (Mar) considered; Westshield Ltd v Whitehouse [2013] All ER (D) 292 (Nov) considered.

Decision of Fraser J [2018] EWHC 2043 (TCC) Affirmed.

Peter Arden QC and Chantelle Staynings (instructed by Blaser Mills LLP) for Bresco.

Thomas Crangle (instructed by Fladgate LLP) for Lonsdale.

Robert-Jan Temmink QC and Ms Charlotte Cooke (instructed by Fieldfisher LLP) for Cannon.

Adrian Williamson QC and Mr Peter Shaw QC (instructed by Child & Child Solicitors) for Primus.

Paul Mclachlan - Barrister.

The prosecution’s appeal against a judge’s ruling, upholding a no case submission in respect of the defendant former employees of Tesco Stores Ltd  who had been charged with fraud and false accounting, was dismissed. Among other things, the Court of Appeal, Criminal Division, held that, applying settled law to the facts, the judge at the retrial had rightly decided that there was no case to answer and that it was not seriously arguable that he  had committed any error or had acted unreasonably. Accordingly, the court directed that the defendants be acquitted.

Background

The defendant former employees of Tesco Stores Ltd were tried with another former employee (C), on counts of fraud and false accounting. The judge discharged the jury as a result of C’s ill health. At the retrial, following the close of the prosecution case, the judge upheld a submission of no case to answer. 

The prosecution applied for leave to appeal against that ruling, pursuant to s 58 of the Criminal Justice Act 2003 (CJA 2003). The trial judge refused to grant leave, but ordered that the appeal be expedited and adjourned the trial, pending the decision of the Court of Appeal, Criminal Division. 

Appeal dismissed.

Issues and decisions

(1) Whether the judge had erred in his reliance, throughout his ruling, on the prosecution’s alleged acceptance that it had to prove that the defendants had known that income was being improperly and unlawfully recognised.

The prosecution faced a high hurdle in challenging a ruling of no case. The powers of the Court of Appeal were limited by statute, and it could only interfere if the judge had erred in law or principle, or had reached an unreasonable conclusion (see [119] of the judgment).

In the present case, ground 1 was rejected (see [131] of the judgment).

It was important to note two things. First, the defendants had not been accused of misconduct associated with running a public limited company or negligently misleading the market. They had been charged with offences of dishonesty or, as it was put during argument, ‘cooking the books’. Second, the prosecution had not alleged that the defendants were a party to the underlying fraud and false accounting by the relevant buyers. The defendants had been charged with a different fraud and false accounting: fraud by an abuse of their position and false accounting by concealing the improperly recognised income or failing to correct the figures (see [122] of the judgment). 

The issue of pulling income forward was far from straightforward. It could be done lawfully and properly (for example where the activity linked to the income was brought forward), it could be done lawfully, but be unwise commercially; or it might be done unlawfully or via the use of false accounting. In many cases, how one characterised a particular transaction or accrual might depend very much on the judgment of the person booking the income. Booking income in complex deals required accountancy expertise. In the present case, although some of the ‘improperly recognised income’ was said to be based on the false documentation presented by the buyers, some of the ‘improperly recognised income’ was a ‘legacy issue’ resulting from booking legitimate income in the wrong period and some appears to have been based on accountancy judgements about which different practitioners might have different views (see [124] of the judgment). 

In the absence of independent accounting expertise, the prosecution had been unable to differentiate between the different kinds of improperly recognised income and did not set out to prove the extent of the alleged underlying fraud or the underlying breaches of accountancy practice (see [125] of the judgment). 

In the light of the difficulties for the prosecution in presenting any other case, their emphasis placed on the underlying fraud and false accounting and the explanation of the prosecution case in the passages in the transcripts to which the present court had been taken, the judge’s understanding had been, entirely reasonable and justifiable (see [129] of the judgment). 

The prosecution had not established how much income had been pulled forward unlawfully or in breach of accountancy standards, whether it would have been material to declare the unlawfully or wrongly recognised sums emerging from the investigations and, if so, when they became material, given the huge size of Tesco’s business. When an arguably material figure of over £200m had emerged, it had been far from clear how much of that had been improperly recognised income in the sense of being unlawfully recognised or recognised in the wrong period in breach of accountancy standards (see [130] of the judgment). 

On those facts, and with that evidence available to her, counsel for the prosecution had had no choice but to accept the burden the judge had placed on her and then to present the case on the basis of knowledge of unlawfulness or false accounting. It had undoubtedly been the basis on which the witnesses had been cross-examined and on which the judge had ruled. It was not seriously arguable that the judge had committed any error or had acted unreasonably (see [131] of the judgment). 

Prosecution Appeal; R v B [2008] All ER (D) 08 (May) considered; R v Storey 52 Cr App Rep 334 applied; R v M & T [2009] EWCA Crim 2848 applied; R v C [2011] EWCA Crim 3272 applied; R v Rudling [2016] All ER (D) 09 (Jul) applied.

(2) Whether the judge had placed too much emphasis on the evidence of concealment, as opposed to a failure to correct the figures.

The contention that the judge had placed too much emphasis on the sufficiency of the evidence of concealment was rejected. He had focussed on the evidence of concealment, as opposed to failure to correct, for good reason – that was the way in which the case had been presented. He had not ignored the alternative route to verdict. However, on the basis of his conclusions on knowledge, failure to correct logically could not arise (see [132] of the judgment). 

Further, the ‘collaborative effort’ the judge had described to resolve the legacy issues in his view pointed away from an attempt to conceal the true figures or a failure to correct them (see [132] of the judgment). 

(3) Whether the judge had erred in addressing the issue of the sufficiency of the evidence of intention on the basis that the prosecution had to prove the defendants’ intention to gain, for themselves, and whether he had ignored the fact that it was sufficient in law for the prosecution to prove, on the fraud count, that they had intended to expose another to risk of loss.

As a general rule, it was sufficient in law for the prosecution to establish that the defendants had intended to expose another to the risk of loss on the fraud count. However, to the extent that the prosecution had addressed the issue, they had presented the case predominantly, and in the context of the submission of no case, on the basis the defendants had intended to gain for themselves by keeping their jobs (possibly, and entirely sensibly, because of the difficulties which intent would offer in the context of the risk of loss case). The case had been opened on the basis that the defendants had had a motive to inflate the figures in order to keep the share price high which would assist their remuneration package. The submission of no case had been answered on the same basis. The judge had focussed on the evidence of that intention; he had not ignored the alternative possibility of exposure to risk of loss. In any event, his finding on the issue of intention had clearly not been determinative of the submission. He had found the evidence weak and, as he had later added, the weakness on that element and the element of abuse of position supported his ruling on knowledge (see [134] of the judgment). 

R v Galbraith [1981] 2 All ER 1060 applied; R (on the application of IRC) v Crown Court at Kingston [2001] 4 All ER 721 considered.

(4) Whether the judge’s analysis of the evidence adduced by the prosecution had usurped the function of the jury, in that he had substituted his own interpretation of each piece of circumstantial evidence for that of the jury. 

Applying settled law to the facts, ground 4 was rejected. The trial judge had analysed the evidence called with obvious care. Having decided that the prosecution had to prove that the defendants had known that income had been improperly and unlawfully recognised, he had considered whether there was any evidence to suggest that they had any greater knowledge than Mr S (the head of the Commercial Finance Department of Tesco) and other prosecution witnesses. There was not. All the prosecution witnesses claimed they did not know of the unlawful recognition of income until, late in the day, the underlying fraud came to light. The high water mark of the prosecution case on the issue of knowledge had, therefore, been the defendants’ interviews. The judge had plainly not ignored or given insufficient weight to those interviews. On the contrary, he had considered them carefully. The judge’s approach that the interviews had to be viewed in their totality was endorsed. On a fair reading, neither defendant had gone further than to admit a knowledge that income was being improperly recognised and that it was not a good commercial practice. It was ‘illegitimate’ or unacceptable in that sense, not in the sense of being unlawful (see [135]-[138] of the judgment). 

R (on the application of IRC) v Crown Court at Kingston [2001] 4 All ER 721 applied.

(5) Whether the judge had failed to take into account significant prosecution evidence.

Ground 5 had slightly more substance, but only on the basis that, in his ruling, the judge had not considered every piece of the evidence on which the prosecution had placed reliance before the present court. Having said that, first, he had not been obliged to do so provided overall, he had ensured he considered all the arguments and evidence advanced and second, he could only operate on the basis of the case as presented to him. The judge (at the retrial) had carefully considered the specific evidence on which the prosecution had relied in relation to knowledge. He had also expressed in clear terms that he had considered the totality of the material put before him and the jury by the prosecution. He was one of the most experienced criminal judges in the country and the court was entirely satisfied that, even if he had not mentioned a specific item of evidence on which the prosecution had relied, he had borne all relevant matters in mind. 

In any event, the additional evidence on which the prosecution relied did not advance the application for leave to appeal to any significant extent (see [139]-[142] of the judgment). 

Accordingly, the judge had rightly decided that there was no case to answer and the defendants would be acquitted (see [4], [143] of the judgment).

Sasha Wass QC, Esther Schutzer-Weissmann and Vincent Scully (instructed by the Serious Fraud Office) for the Crown.

Adrian Darbishire QC and Tom Doble (instructed by Hickman & Rose Solicitors) for the first defendant.

Ian Winter QC and Jocelyn Ledward (instructed by BCL Solicitors) for the second defendant.

Carla Dougan-Bacchus - Barrister.

The judge had been correct in holding that two dividends paid by AWA to its parent company, Sequana, at a time when AWA was subject to contingent indemnity liabilities to another company in respect of clean-up costs and damages claims arising out of river pollution in the US, had fallen within s 423 of the Insolvency Act 1986. Accordingly, the Court of Appeal, Civil Division, dismissed Sequana’s appeal. The court, among other things, also dismissed BTI’s appeal against the decision that the dividends had not been paid in breach of the duty of the directors of AWA to have regard to the interests of its creditors.

Background

The two appeals arose from two dividends paid by AWA Ltd (AWA) to its parent company, Sequana. The first, of €443m, was paid in December 2008 (the December dividend). The second, of €135m, was paid in May 2009 (the May dividend). The purpose of the dividends was to reduce an inter-company debt of some €585m owed by Sequana to AWA (the Sequana debt). However, AWA was subject to contingent indemnity liabilities to BAT in respect of clean-up costs and damages claims arising out of river pollution in the US. 

BTI, a corporate vehicle set up by BAT, challenged the payment of dividends on bases that included that: (i) the dividends were paid in breach of the duty of the directors of AWA to have regard to the interests of its creditors (the should not pay claims); and (ii) the payment of the dividends fell within s 423 of the Insolvency Act 1986 (the IA 1986), as being transactions entered into at an undervalue. The judge dismissed all the claims as they related to the December dividend. There was no appeal against that part of the decision. Regarding the May dividend, she dismissed the should not pay claim, but gave judgment against Sequana under the IA 1986 s 423. Sequana appealed against the judgment under s 423 and BTI appealed against the dismissal of the should not pay claim. 

Issues and decisions

(1) Whether a dividend was a transaction at an undervalue within the meaning of the IA 1986 s 423. More particularly, whether: (i) a dividend was a gift within the meaning of s 423(1); (ii) a dividend was a transaction for no consideration; and (iii) the payment of the May dividend constituted a transaction for the purposes of s 423(1).

Dividends were both commercially and legally a return on an investment. It would be startling to categorise dividends as gifts made by a company to its shareholders and there was no reason to think that Parliament had intended the word ‘gift’ to carry anything other than its usual meaning (see [41] of the judgment). 

It could not be said that the company had received consideration for the payment of a dividend. It was not enough to say that the dividend had been paid in accordance with the rights attached to the shares, where those rights were different from, for example, the right to receive interest payments on loan notes or the right to be considered for bonus declarations on a with-profits fund. If and when a company paid a dividend to shareholders, the terms of the dividend did not provide for the company to receive any consideration nor would it receive any consideration (see [50] of the judgment). 

The payment of a dividend was within the scope of s 423(1) (it constituted a transaction), even if it could not be said to involve an agreement or arrangement between the company and the shareholders. In any event, on the facts of the present case, the May dividend had formed part of an arrangement between Sequana and AWA. The dividend had not been paid in cash but, with the agreement of Sequana, had been set off against the Sequana debt (see [63], [64] of the judgment). 

Greenberg v IRC, Tunnicliffe v IRC [1971] 3 All ER 136 considered; Clarkson v Clarkson [1994] Lexis Citation 3545 considered; Taylor Sinclair (Capital) Ltd, Re [2001] All ER (D) 113 (Jun) considered; IRC v Laird Group plc [2003] All ER (D) 261 (Oct) considered; Simon Carves Ltd, Re; Carillon Construction Ltd v Hussain [2013] All ER (D) 304 (Mar) considered; Hampton Capital Ltd, Re [2015] All ER (D) 118 (Jul) considered.

(2) Whether the May dividend had been paid with the purpose of putting the dividend monies beyond the reach of BAT or otherwise prejudicing BAT’s interests within the meaning of the IA 1986 s 423(3).

The judge had made clear findings as to the purpose of AWA in resolving to pay the May dividend and in paying it by way of set-off against the Sequana debt, and that its purpose had fallen within s 423. The purpose had been to eliminate the risk that Sequana would be responsible for AWA’s liabilities if the historic insurance policies had proved to be inadequate. That risk could only be eliminated if two steps were taken: elimination of the Sequana debt, thereby ending any legal obligation on the part of Sequana, and a disposal of AWA, thereby ending any moral obligation stemming from Sequana’s policy of supporting its subsidiaries. The elimination of the Sequana debt had removed the legal risk by removing the debt as an asset of AWA and so putting it beyond the reach of those who might make claims against AWA. That was precisely what the judge had found (see [74] of the judgment). 

The appeal against the decision that the payment of the dividends fell within s 423 of the Insolvency Act 1986 would be dismissed (see [75] of the judgment). 

IRC v Hashmi [2002] All ER (D) 71 (May) considered.

(3) Whether payment of the May dividend had been authorised by the directors of AWA in breach of their duties as directors to have regard to the interests of creditors, pursuant to s 172(3) of the Companies Act 2006 (CA 2006).

The directors’ duty might be triggered when a company’s circumstances fell short of actual, established insolvency. The formulation that the duty arose when the directors knew or should have known that the company was, or was likely to become insolvent, accurately encapsulated the trigger. In that context, ‘likely’ meant ‘probable’ (see [216], [220] of the judgment).

In the present case, there could be no finding that at the time of, or as a result of, the May dividend, AWA had been insolvent or had been likely to become insolvent. Therefore, the judge had been right to dismiss BTI’s claim based on a breach of CA 2006 s 172(3) (see [228] of the judgment).

The test (argued by BTI) of a real, as opposed to a remote, risk of insolvency was not part of the present law as regards the creditors’ interests duty, and it would not be appropriate, in the light of the policy considerations and other provisions of the CA 2006 for the courts to introduce such a test as a development of the common law (see [215] of the judgment).

Accordingly, the judge had been correct to reject BTI’s case that the applicable trigger for the creditors’ interests duty had been a real, as opposed to a remote, risk of insolvency (see [221] of the judgment). 

BTI’s appeal, as regards all claims for breach of duty by the directors of AWA in paying the May dividend, would be dismissed (see [236] of the judgment). 

Bilta (UK) Ltd (in liq) v Nazir [2015] All ER (D) 149 (Apr) applied; Walker v Wimborne [1975-1976] ACAR 534 considered; Horsley & Weight Ltd, Re [1982] 3 All ER 1045 considered; West Mercia Safetywear Ltd v Dodd [1988] BCLC 250 considered; Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242 considered; Kinsela v Russell Kinsela Pty Ltd [1986] 10 ACLR 395 considered; Brady v Brady [1988] BCLC 20 considered; Harris Simons Construction Ltd, Re [1989] 1 WLR 368 considered; Facia Footwear Ltd (in administration) v Hinchcliffe [1998] 1 BCLC 218 considered; Official Receiver v Stern [2001] All ER (D) 278 (Nov) considered; Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd; Eaton Bray Ltd v Palmer [2002] All ER (D) 226 (Dec) considered; MDA Investment Management Ltd, Re; Whalley v Doney [2003] EWHC 2277 (Ch) considered; Loquitar Ltd, Re; IRC v Richmond [2003] All ER (D) 123 (May) considered; Ultraframe (UK) Ltd v Fielding; Northstar Systems Ltd v Fielding [2005] All ER (D) 397 (Jul) considered; Vivendi SA v Richards [2013] All ER (D) 112 (Oct) considered; Hellard v Carvalho; In the Matter of HLC Environmental Projects Ltd (in liq) [2013] All ER (D) 240 (Sep) considered; Burnden Holdings (UK) Ltd (in liquidation) v Fielding and another [2016] All ER (D) 111 (Jun) considered.

Decision of Rose J  [2016] EWHC 1686 (Ch) Affirmed In Part.

Lord Goldsmith QC, Andrew Thompson QC, Ciaran Keller and Ben Griffiths (instructed by Debevoise & Plimpton LLP) for BTI and BAT.

Laurence Rabinowitz QC, David Mumford QC, James Kinman and Niranjan Venkatesan (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) for Sequana and for Messrs Courteault, Martinet, Mountford and Newell.

Selarl C. Basse did not appear and was not represented.

Paul Mclachlan - Barrister.

In dismissing the landlord’s appeal in possession proceedings against the tenant, the Court of Appeal, Civil Division, held that a notice could not be validly served under s 146(1) of the Law of Property Act 1925 before the right to re-entry had arisen under the relevant provisions of the lease.  

Background

The appellant and the respondent were respectively the landlord and tenant, by assignment, of a public house. The landlord served on the tenant a default notice under cl 4.1.7 of Pt II of the lease and a notice under s 146 of the Law of Property Act 1925 (the s 146 notice). The default notice stated that in accordance with cl 4.1.7 (right of re-entry), the tenant had 14 days’ notice to remedy the notified breaches of cll 3.5, 3.6 and 3.7 of Pt I of the lease. The s 146 notice stated that if the tenant failed to comply with the s 146 notice within 7 weeks, the landlord intended to re-enter the premises and claim damages for the breaches of covenant. In possession proceedings brought by the landlord, the recorder found for the tenant and the landlord appealed. In dismissing the landlord’s appeal, the judge accepted the tenant’s case that the landlord was not entitled to serve a s 146 notice until a default notice under cl 4.1.7 had been given and the period of 14 days specified in that clause had passed without the breaches being remedied. Only then would the landlord’s right of re-entry be exercisable. Accordingly the landlord’s claim for possession was dismissed. The landlord appealed. 

Appeal dismissed. 

Whether a notice could be served under s 146(1) of the Law of Property Act 1925 before the right to re-entry arose under the provisions of the lease. 

Section 146 had to be given a common-sense interpretation. Its purposes was to give the tenant notice of the breaches, so that he knew what needed to be remedied. A s 146 notice was to enable the tenant to make an application for relief against forfeiture under s 146(2) (see [16] of the judgment).  

Section 146(1) was concerned with the exercise by a landlord of rights of re-entry or forfeiture conferred by the terms of the lease. The opening words of the sub-section made clear that it was directed to those covenants and conditions, breach of which entitled the landlord to exercise the right of re-entry or forfeiture conferred by the lease. In the present case, it was therefore the terms of cl 4.1 of Pt II that were relevant. It did not matter that there was or might not be a ‘breach’, in the ordinary sense of a voluntary act on the part of the tenant (see [26] of the judgment). 

A s 146 notice had to specify ‘the particular breach complained of’ and, if it was capable of remedy, require the tenant ‘to remedy the breach’. The particular breach in the case contemplated by s 146(1) was the breach of the covenant or condition contained in cl 4.1.7, because under the terms of cl 4.1, it was that breach which entitled the landlord to exercise the right of re-entry. If (as in the instant case) the breaches were capable of remedy, cl 4.1.7 required the service of a default notice and the expiry of 14 days from receipt of the notice before the right of re-entry arose. It was the failure to remedy the breaches of cll 3.6 and 3.7 within the period of 14 days from receipt of the default notice which was the relevant ‘breach of any covenant or condition in the lease’ referred to in the opening part of s 146(1). If the breaches had been incapable of remedy, there would have been no requirement under cl 4.1.7 to serve a default notice and the right of re-entry would have arisen immediately upon the occurrence of the breaches of cl 3.6 and 3.7 (see [27] of the judgment). 

Section 146(1) did not in terms spell out the time at which a s 146 notice should be given. However, it was clear from the sub-section as a whole that it could only be after the breach of the covenant or condition triggering the right of re-entry (cl 4.1.7, in the instant case) had occurred. The notice under s 146 had to state ‘the particular breach complained of’ and, if it was capable of remedy, require the tenant ‘to remedy the breach’. Similarly, the s 146 notice could be given only if the tenant had failed to remedy the breach within a reasonable time. These requirements made sense only if the relevant breach had already occurred  (see [28] of the judgment)  

Halliard Property Co Ltd v Jack Segal Ltd [1978] 1 All ER 1219 considered; Akici v LR Butlin Ltd [2005] All ER (D) 22 (Nov) applied; Fox v Jolly [1914-15] All ER Rep Ext 1316 applied; Glasgow Coal Ltd v Welsh [1916] 2 AC 1 applied.

Leslie Blohm QC and Charles Auld (instructed by Michelmores LLP) for the appellant/landlord.

Nicholas Grundy QC and Simon Lane (instructed by Nalders LLP) for the respondent/tenant. 

Tara Psaila - Barrister.