Oldham & Ors v Kyrris & Anor

Before the court are appeals and cross-appeals against orders made on 23 January 2003 by His Honour Judge Behrens, sitting as a judge of the Chancery Division in the Leeds District Registry, on applications made by the first three defendants in two actions which raise similar claims and which were heard together. The applicants (the appellants in this court) are Mr Michael Oldham, Mr Ian Schofield and Mr Derek Oakley. They are court-appointed administrators of a partnership known as J & H Kyrris. I will refer to them jointly hereafter as ‘the administrators’.

By their applications, the administrators seek the striking out of the actions, alternatively that summary judgment be entered against the respective claimants, Mrs Georgina Kyrris and Mr Mario Royle. The applications were successful in part; the judge struck out some, but not all, of the claims raised by the claimants. With the permission of the judge, the administrators appeal and the claimants cross-appeal.

In their respective actions, Mrs Kyrris and Mr Royle claim to be secured creditors of the partnership by virtue of equitable charges granted by the partnership. Mrs Kyrris claims to be equitable chargee of leasehold premises at 12 Angel Row, Nottingham; Mr Royle claims to be equitable chargee of leasehold premises at 8/10 Upper Parliament Street, Nottingham. Both properties were sold during the course of the administration, but neither Mrs Kyrris nor Mr Royle was treated by the administrators as a secured creditor. They allege that the administrators failed to account to them as secured creditors, and they claim recovery of the sums allegedly secured (£100,000 in the case of Mrs Kyrris; £192,977 in the case of Mr Royle).

In the alternative to his equitable charge claim, and on the footing that he is merely an unsecured creditor of the partnership, Mr Royle claims damages for breaches by the administrators of a common law duty of care owed to unsecured creditors. The alleged breaches of duty all relate to the conduct of the partnership’s affairs during the period of the administration.

In her Particulars of Claim as originally served Mrs Kyrris did not plead any similar alternative claim. However, she subsequently applied for permission to amend her Particulars of Claim to plead such a claim.

The administrators applied in each action to strike out the action, alternatively for summary judgment. By his orders, the judge dismissed the administrators’ applications in relation to the equitable charge claims, concluding that such claims were arguable and should go to trial. However, he entered summary judgment in favour of the administrators on Mr Royle’s alternative claim as an unsecured creditor, concluding that there was no general right at common law for individual creditors to sue the administrators for breach of duty. For the same reason, he refused Mrs Kyrris’ application for permission to amend her Particulars of Claim to plead such a claim.

Accordingly, the administrators appeal against the dismissal of their applications in relation to the equitable charge claims; Mr Royle cross-appeals against the striking out of his alternative claim as an unsecured creditor; and Mrs Kyrris cross-appeals against the judge’s refusal to grant permission to amend her Particulars of Claim to plead such an alternative claim.

From about 1976 three brothers, Jacovus (Jack) Kyrris, Hector Kyrris and Sotiris Kyrris, and their sister Eleni Kyrri-Royle, traded in partnership under the name J & H Kyrris. Mrs Kyrris is the wife of Jack Kyrris; Mr Royle is the husband of Eleni Kyrri-Royle.

The partnership operated thirteen restaurants in leasehold premises (including the premises at Angel Row and Upper Parliament Street) under franchise from Burger King. Burger King was also the immediately superior landlord under the leases. Each of the franchise agreements included a specific provision enabling Burger King to terminate the franchise in the event of administrators being appointed. The partners were also shareholders in a limited company called J & H Kyrris Ltd, through which part of the partnership’s business was conducted.

The partnership encountered financial difficulties, and by April 1997 had become insolvent. On 4 April 1997 the Royal Bank of Scotland (“RBS”), the partnership’s bankers, petitioned for an administration order in its capacity as a creditor of the partnership. The indebtedness of the partnership to RBS at that time exceeded £2.5 million. The petition was supported by Burger King, which claimed to be owed more than £1.5 million by the partnership in respect of arrears of rent and service charge and franchise liabilities.

On 28 April 1997 Neuberger J made an administration order pursuant to section 8 of the Insolvency Act 1986 (“the 1986 Act”) as applied to partnerships by the Insolvent Partnerships Order 1994 (“the 1994 Order”). The administration order appointed the administrators as administrators of the partnership for the purpose of a more advantageous realisation of the partnership’s assets than would be effected on a winding up.

RBS held fixed legal charges over seven of the partnership’s thirteen restaurants. The remaining six (which included the Angel Row and Upper Parliament Street premises) were unencumbered (save to the extent that Mrs Kyrris and/or Mr Royle are held to be equitable chargees).

Prior to the making of the administration order Burger King had issued proceedings against the partnership for the recovery of sums owed to it and had forfeited the leases on all the partnership’s restaurants for non-payment of rent and service charges. On 25 March 1997 Burger King obtained a freezing order over the partnership’s assets, and on 22 April 1997 it obtained judgments for possession and for payment of the sums due to it. On 25 April 1997 the partnership issued proceedings against Burger King claiming, among other things, that it had acted in contravention of Article 86 (now Article 82) of the EC Treaty.

On taking office, the administrators carried on the partnership business with a view to selling it as a going concern. They also entered into negotiations with Burger King. Those negotiations resulted in an agreement whereby the partnership’s claims against Burger King were compromised. The agreement further provided that relief from forfeiture be granted to the partnership in respect of the restaurant leases, and that Burger King’s debt be paid out of the net proceeds of sale of the restaurants in priority to other unsecured creditors.

Eventually, twelve of the thirteen restaurants were sold, including the Angel Row and Upper Parliament Street premises. The sales were completed in November 1988. The total net proceeds of sale amounted to some £3.5 million. Out of the sale proceeds some £2.1 million was distributed to Burger King, and £100,000 to RBS. The balance of the sale proceeds was applied in paying costs and expenses.

On 30 July 2001 the administrators, having completed the administration, applied for the discharge of the administration order and their release as administrators, coupled with an order winding up the partnership. On 10 October 2002, the day before the administrator’s application was due to be heard, Mrs Kyrris and Mr Royle served witness statements opposing the application and putting forward their equitable charge claims.

By his order dated 12 October 2002 Pumfrey J discharged the administration order and made a winding up order, but he granted the administrators only a qualified release. Paragraphs 3 and 4 of Pumfrey J’s order dated 12 October 2001 are in the following terms (so far as material):

“3.

Under section 20 of the [1986 Act], as applied by Article 6 of the [1994 Order], the [administrators] and each of them shall be absolutely and unconditionally released from all liabilities in respect of their acts or omissions in the administration and otherwise in relation to their conduct as administrators of the Partnership with effect from 28 days after the filing of their final receipts and payments account, save in respect of:

3.1

(subject to paragraph 4 below) any claim made by [Mrs Kyrris] and/or [Mr Royle] by 2 months after the filing of the [administrators’] final receipts and payments account; and

3.2

......

4.

The [administrators] shall have permission to apply to the Court for their release from any liability under any claim made by [Mrs Kyrris] and/or [Mr Royle] in accordance with paragraph 3.1 above in so far as such claim(s) is/are demurrable.”

On 29 November 2001 Mrs Kyrris issued the claim form in her action against the administrators, putting forward her equitable charge claim. She also joined as fourth defendant in the action a firm of solicitors, Messrs Gompertz Buckley, against whom she claims damages for negligence.

On 18 December 2001 Mr Royle issued the claim form in his action against the administrators, claiming £192,877 as equitable chargee, alternatively damages of £39,570 on his alternative claim as an unsecured creditor. He too joined Gompertz Buckley as fourth defendants, claiming damages in negligence against them.

The claims against Gompertz Buckley are not material for present purposes.

On 13 March 2002 Mrs Kyrris served Particulars of Claim pleading, as against the administrators, only her equitable charge claim.

On 18 March 2002 Mr Royle served Particulars of Claim pleading, as against the administrators, both his equitable charge claim and his alternative claim as an unsecured creditor.

In due course, Mrs Kyrris applied for permission to amend her Particulars of Claim by including an alternative claim as an unsecured creditor in substantially the same terms as that pleaded by Mr Royle.

On or about 6 September 2002 the administrators applied to strike out both actions, alternatively for summary judgment under CPR Part 24, on the ground that the actions had no reasonable prospect of success. The applications were heard by HHJ Behrens, and led to his orders dated 23 January 2003 which are the subject of the present appeals and cross-appeals.

Before the judge and in this court the administrators have rightly accepted that for the purposes of their application to strike out, alternatively for summary judgment, it must be assumed that all the allegations of fact made by Mrs Kyrris and Mr Royle are true. As the judge noted in paragraph 14 of his judgment:

“[t]his is ... not one of those cases where I am being invited to treat the allegations of fact contained in witness statements as manifestly untrue.”

The following factual summary is based on that assumption.

In or about November 1995 Mrs Kyrris agreed with her husband Jack Kyrris to borrow £100,000 on the security of her home and to lend it to the partnership on terms that the loan would be secured by a legal charge over the Angel Road premises and that interest would be payable on the loan from the date of its receipt at a rate to be agreed and/or at a reasonable rate.

Thereafter Mr Kyrris asked Mr Gareth Hansen-Chambers, an employee of the partnership, to deal with the matter on behalf of both Mrs Kyrris and the partnership. On behalf of Mrs Kyrris, Mr Hansen-Chambers negotiated a building society loan of £100,000. He also instructed a solicitor, a Mr Keith Gompertz, a partner in Gompertz Buckley, to act on behalf of Mrs Kyrris in the transaction. He informed Mr Gompertz of Mrs Kyrris’ loan, and that the loan was to be secured against the Angel Row premises.

On some date thereafter (Mrs Kyrris does not know precisely when) Mr Gompertz received £100,000 from the building society and paid it to the partnership or at its direction.

On 11 December 1995 Mr Allmand, the partnership’s accountant and secretary, wrote to Mrs Kyrris purporting to acknowledge receipt of the £100,000 by the company, J & H Kyrris Ltd. Neither the original letter dated 11 December 1995 nor any copy of it has as yet come to light, but in her witness statement Mrs Kyrris states that in the letter the loan was described as a short term loan repayable at the discretion of the directors. (In the witness statement the word “discretion” appears as “direction”, but Mr John Haines, appearing for Mrs Kyrris and Mr Royle (as he did before the judge), informs us on instructions that that is a typing error.) Mrs Kyrris further states that the letter dated 11 December 1995 made no mention either of interest or of security.

On 14 December 1995 Mr Allmand wrote again to Mrs Kyrris. Since Mrs Kyrris’ equitable charge claim is founded on this letter, I quote it in full:

“Reference: Personal loan of £100,000

Further to our letter of 11th December 1995 and confirming our telephone conversation of to-day’s date we are prepared to offer a first charge on the property known as Angel Row Nottingham, as below.

We hereby acknowledge receipt of a loan of £100,000 repayable at the discretion of the Partners and Directors. The loan is not payable on demand and will attract interest at the London Inter Bank Borrowing Rate (LIBOR) to be set at some time in the future at a mutually agreed date. The loan will not accrue any marginal interest rate above LIBOR, interest will only accrue from the mutually agreed date.

In recognition of the loan the Partnership will give you a fi[r]st charge over the above named property until and as such time [sic] the loan and all accrued interest has been satisfied in full. The charge will cover all the three in place on this property.

We will instruct solicitors to effect this charge on this property at a date to be mutually agreed by both parties, however not before 31st March 1996.

We would be grateful if you would signify your agreement to the above by signing and returning the copy enclosed.”

On reading this letter Mrs Kyrris was very concerned about what was said in it about security. Accordingly, before countersigning it she telephoned Mr Hansen-Chambers on 15 December 1995 and asked him for reassurance on the question of security.

On the same day (15 December 1995) Mr Hansen-Chambers wrote to Mrs Kyrris as follows (once again I quote the letter in full):

“Following our telephone conversation this evening I can confirm that the loan referred to in our letter of 11th December is to be to the Partnership & will be secured by a legal charge over the Angel Row restaurant. This is, as you know, unencumbered.

I have spoken to our solicitor about this and he confirms that he will prepare an agreement.

Gompertz has promised to arrange for the legal charge to be completed and registered on your behalf.

I hope that this puts you mind at rest that you are fully secured & not at risk.”

On 15 April 1997 Mr Martin Gunson, a partner in Messrs Reid Minty, the partnership’s then solicitors, sent a fax to a Mr Petros Nicolaides (on behalf of the partnership). The fax is headed “RE: Mrs Kyrris and Charge over premises at Angel Row, Nottingham”. Attached to the fax was a draft form of legal charge. In the body of the fax, Mr Gunson referred to a request from Messrs Nelsons (acting at that time for Mrs Kyrris) that the partnership execute a formal legal charge over the Angel Row premises. Mr Gunson continued:

“The obligation on the partnership arises out of a letter from [sic] 14 December 1995 in which it was agreed that the premises at Angel Row would be charged to secure the debt of £100,000. That was an agreement to execute a charge signed by both parties and could be protected by Mrs Kyrris as a land charge against the Partnership.

In my view the form of charge proposed by Mrs Kyrris’ lawyers goes well beyond what was probably intended in that for example it is an all monies charge. I would have expected the form of charge to be more as attached which is a simple Legal Charge over the property and gives certain legal remedies under the Law of Property Act to the chargee Mrs Kyrris.

Under the Insolvency legislation you will recall no steps may be taken to enforce any security etc. without the consent of the court. It is unlikely they would fall foul if there is an existing commitment. ….”

On 29 April 1997 Mr Gunson faxed Nelsons in response to a letter from Nelsons dated 22 April 1997 (which is not in evidence). He continued:

“Briefly the partnership cannot execute any Legal Charge now. What they could and did, however, was agree that the form of charge envisaged would have been in a certain form. In that connection there was an intention merely to charge the property with the sum advanced together with interest to the extent that was payable under the agreement. We accept that was omitted from the form of Charge we produced.”

Mr Gunson went on to refer to what he described as “an update of what the form of Charge would have been in our client’s understanding”, a copy of which was attached to the fax. The fax concluded:

“If your clients contend that there is an agreement subsisting to execute a formal charge, then in the absence of a formal charge, there may be an agreement that can be protected.”

In a postscript to the fax, Mr Gunson asked Nelsons to note that an administration order had been made on 28 April 1997 and that his firm did not act for the administrators.

In paragraph 28 of his judgment, the judge records that on 20 May 1997 Nelsons registered a class C(iv) land charge against Jack and Hector Kyrris in respect of the Angel Row premises.

By letter dated 16 June 1997 Mrs Kyrris wrote to Mr Schofield (one of the administrators) as follows:

“I understand that you are the Administrators of the [partnership] business and as a result would like to place my claim to you as a creditor of the business.

Back in December 1995, I lent the [partnership] business a secured loan to be charged on the store at Angel Row, Nottingham. The sum of £100,000. The details of this loan are set out in the copy of the agreement which I enclose.

As you are in the process of the sale of the business I am registering my claim with yourselves as to the amount that is outstanding to me.

I look forward to your acknowledgment of this notice.”

With that letter Mrs Kyrris enclosed a copy of Mr Allmand’s letter to her dated 14 December 1995 but not a copy of Mr Hansen-Chambers’ letter to her dated 15 December 1995.

Mr Schofield replied by letter dated 18 June 1997 saying that he was unaware of her claim until he had received her letter. He went on to ask for a copy of “the charge document to which the letter refers”, and he inquired as to the date it was registered at the land registry and the names of the solicitors who had dealt with the matter on her behalf. He also asked for a copy of the letter dated 11 December 1995 (referred to in the letter dated 14 December 1995) and for full details as to when the money was advanced to the partnership.

There was no response to that letter.

On 30 January 1998 contracts were exchanged for the sale of the Angel Row premises.

The administrators heard nothing further about Mrs Kyrris’ claim until they received a letter from new solicitors acting for her, Messrs Freeth Cartwright Hunt Dickins, dated 22 May 1998. In the course of that letter, the solicitors said this:

“We act on behalf of Mrs Kyrris, as you would be aware, our Client is an unsecured creditor of the partnership, having loaned to the partnership the sum of £100,000 on 14th December 1995. We are aware that our client did, through her previous solicitors, Messrs Nelsons, seek to secure the monies loaned by obtaining a first charge over the properties know[n] as Angel Row Nottingham. Unfortunately the partnership went into administration before the matter could be formally concluded. However, our Client’s then Solicitors proceeded to register a C(iv) land registration charge against [the Angel Row property]. We understand the registration of this charge was completed on 20th May 1997, against the estate owners, J & H Kyrris respectively.”

On the advice of their solicitors, Messrs Dibb Lupton Allsop, the administrators did not respond to that letter.

By letter dated 3 November 1998 Messrs Goodmans, who had been instructed by Mrs Kyrris in place of Freeth Cartwright Hunt Dickins, wrote to the administrators asking for a response to Freeth Cartwright Hunt Dickins’ letter dated 2 May 1998.

On 12 November 1998 Mr Schofield wrote to Goodmans requesting a copy of the charge documentation and a copy of the land search showing the registration of the charge at the Land Registry. By letter dated 23 November 1998 Goodmans replied that they were in the process of obtaining the necessary documentation and would revert as soon as possible.

Nothing further was heard by the administrators until they received a letter from Mrs Kyrris dated 2 November 1999 (almost a year later) in which she once again asserted her equitable charge claim. Mr Schofield replied by letter dated 9 November 1999, requesting once again copies of the charge documents. He stressed that without a sight of the charge documents he was unable to accept that Mrs Kyrris had a valid charge.

On 15 November 1999 Mrs Kyrris wrote to Mr Schofield enclosing copies of the letters of 14 and 15 December 1995, together with copies of subsequent correspondence enclosing a draft Legal Charge. According to her letter, she also enclosed a copy of the letter dated 11 December 1995, but, as already noted, no copy of that letter has as yet come to light.

Mr Schofield replied by letter dated 24 November 1999, asserting that the documents which Mrs Kyrris had enclosed with her letter:

“.... only go to prove that you do not hold an executed charge .... but just an agreement to execute a charge, which is not security”.

Mr Schofield said nothing in that letter about non-receipt of the copy letter dated 11 December 1995 which was apparently enclosed with Mrs Kyrris’ letter. On the face of the correspondence, therefore, it would appear that a copy of the letter dated 11 December 1995 was sent to him by Mrs Kyrris. In the circumstances it remains a mystery why neither Mrs Kyrris nor Mr Schofield has, as yet, been in a position to produce a copy of it.

Further correspondence ensued, to which I need not refer.

From about 1981 onwards, Mr Royle was employed by the partnership under a written contract of employment. As at 1 June 1991 the salary payable under that contract was £30,000 per annum.

On 1 June 1991 it was orally agreed between Mr Royle and the partnership that Mr Royle would continue his employment but would not draw his salary, which would be left outstanding as a debt owed to him by the partnership. In about March 1993 it was orally agreed that the amount currently owing to Mr Royle by way of undrawn salary was £70,000; that the arrangement agreed on 1 June 1991 would continue; and that a formal agreement to that effect would be drawn up.

By letter dated 24 March 1993 Mr Kyrris, on behalf of the partnership, wrote to Mr Royle as follows (since this letter forms the basis of Mr Royle’s equitable interest claim, I quote it in full):

“RE: Charge for amounts due through services to the J & H Kyrris Group.

Following our telephone conversation yesterday, and as a result of recent discussions on the matters regarding payments due to you for the work which you have carried out over the last two years and any future work.

Our offer will be on the following basis:

•

That all amounts will outstanding [sic], which we confirm commenced on 1st June 1991, and any future amounts will be settled when your current agreement expires in seven years from this date, and is renewable upon mutual consent.

•

We will offer you the vehicles that have been made available for the use of your work and your family as possession[s] of yours, we will maintain those, their repayments and their servicing and running costs. Those we will change from time to time as we will see fit.

•

We will provide the first charge of the property at 8/10 Upper Parliament Street & [another property]. This charge will remain in force so long as our debt remains outstanding, as [sic] is not settled in full. Our instructions to solicitors will not be made any earlier than the commencement of the next financial year, 6th April 1993.

•

The amounts owed will be liable for interest at 1% Bank of England base rate.

We thank you for your co-operation in these negotiations and look forward to continuing a fruitful relationship. It is a result of this co-operation that these conditions and terms have been agreed by the partners and yourself. It is therefore that we would request that you sign along with a witness that you acknowledge receipt and its contents.”

The letter bears Mr Royle’s countersignature, which is dated 27 March 1993. His signature was duly witnessed, as the letter required.

On 20 May 1997 Mr Jack Kyrris wrote to Mr Schofield. In the course of his letter, he said this:

“I would like to bring to your attention the following.

Mario Royle has been employed by the Partnership to the best of my knowledge for about 12-14 years. The last time I remember him being paid was when he was the Restaurant Manager at Angel Row.

Of course Mario was paid when we were making profits ...., but after the Burger King conversion we had a great need of someone to look after the restaurants, which were in a a terrible state when we acquired them from the Franchisor. As Mario was very skilful and hard working .... I had to persuade this extremely hard working, totally loyal and committed man into my team, as the only way to achieve the highest of standards.

Mario Royle was responsible for revamping most of the restaurants himself .... At this time he was not being paid, as the family believed the best way to build the company was to take nothing out of it ourselves. We promised Mario that his reward would be £30,000 per annum, but paid later as a secured creditor – this was my promised agreement with him. ....”

In his witness statement, Mr Royle states that he was informed by Mr Kyrris that he (Mr Kyrris) had told Mr Schofield on the telephone about the letter dated 24 March 1993 and that he had sent Mr Schofield a copy of it.

On 29 May 1997 Mr Schofield wrote to Mr Kyrris saying that he noted the representations which Mr Kyrris had made on behalf of Mr Royle and that if Mr Royle claimed to be a creditor of the partnership he should submit details of his claim in the usual way.

On 17 June 1997 Mr Royle wrote to Mr Schofield giving notice that he was pursuing his claim for outstanding salary, which he contended amounted to more than £270,000. He said nothing in that letter about any equitable charge, nor did he refer to the letter dated 24 March 1993.

Mr Schofield responded by letter dated 22 July 1997 saying that he did not consider Mr Royle to be an employee of the partnership.

A copy of the letter dated 24 March 1993 was exhibited to Mr Royle’s witness statement dated 10 October 2001.

In paragraph 8 of his judgment the judge records that time had not allowed any detailed investigation into the factual allegations pleaded (or, in Mrs Kyrris’s case, sought to be pleaded) in support of these alternative claims, and that it had been agreed that such matters should be left open for further argument should they become relevant. The judge accordingly confined himself to addressing the question of law as to whether the administrators owed a general duty of care to unsecured creditors. It is accordingly unnecessary for present purposes to refer to the evidence relating to the alternative claims.

By her Particulars of Claim Mrs Kyrris pleads that the letter dated 14 December 1995 did not reflect the true agreement between herself and the partnership, and she claims rectification of it. In the alternative, she pleads that the terms set out in that letter were varied by the letter dated 15 December 1995. Paragraph 12 of her Particulars of Claim pleads that the letter dated 14 December 1995 “(as varied and/or rectified”) amounted to an agreement by the partnership to create a charge over the Angel Row premises and accordingly created an equitable charge.

However, before the judge Mr Haines did not contend for a right of rectification; nor did he contend that the terms of the letter dated 14 December 1995 were varied by the later letter. Rather, he contended that the letter dated 14 December 1995 itself created an equitable charge; a contention which, in the result, the judge accepted.

In paragraph 16 of her Particulars of Claim Mrs Kyrris pleads that the administrators have failed to account to her in her capacity as a secured creditor for the sum of £100,000 together with contractual interest thereon. She claims interest at London Inter Bank Borrowing Rate (‘LIBOR’) from 11 December 1995.

By paragraph 17 of her Particulars of Claim Mrs Kyrris pleads, further or in the alternative, that the administrators owed her a duty of care to ensure that her interests as a secured creditor were protected and/or to give proper consideration to her claim. She pleads that the administrators breached that duty, thereby causing her loss in the sum of £100,000 with interest thereon.

By paragraph 8 of their Defence the administrators plead that the letter dated 14 December 1995 did not give Mrs Kyrris any present right to security and accordingly did not create an equitable charge. Paragraph 12 of the Particulars of Claim is accordingly denied. As to paragraph 16 of the Particulars of Claim, the administrators plead that if (which they deny) Mrs Kyrris was a secured creditor, they are under no liability to account to her in the absence of negligence. In support of this contention, the administrators rely (among other things) on the fact that no charge was registered; that they requested documentary proof which had not been provided; and that Freeth Cartwright Hunt Dickins had referred to Mrs Kyrris as an unsecured creditor. As to paragraph 17 of the Particulars of Claim, the administrators deny that they owed a duty of care to ensure that Mrs Kyrris’ interests as an alleged secured creditor were protected; admit that they owed her an obligation to give proper consideration to her claim; and deny that they breached any duty owed to Mrs Kyrris.

As noted earlier, Mrs Kyrris’ application for permission to amend her Particulars of Claim to include an alternative claim as an unsecured creditor was refused by the judge. Since the judge’s refusal of that application was, in effect, consequential on his decision to strike out an alternative claim in substantially the same terms pleaded by Mr Royle, it is convenient to examine the alternative claim by reference to Mr Royle’s Particulars of Claim rather than by reference to Mrs Kyrris’ proposed amendments.

In support of his equitable charge claim Mr Royle pleads the written agreement dated 24 March 1993. By paragraph 6 of his Amended Particulars of Claim he pleads as follows:

“In the premises from the date of the written agreement dated 24 March 1993 the Claimant was entitled to an equitable charge over the [Upper Parliament Street] property. By 28 April 1997 the partnership had not executed a legal charge over the property and the property remained subject to an equitable charge in the Claimant’s favour to secure the arrears of unpaid salary. At that time the Claimant was owed the sum of £192,876.71 together with interest at 1% above Bank base rate by the partnership by way of unpaid salary.”

By paragraph 7 of his Amended Particulars of Claim Mr Royle pleads as follows:

“On a date after the administration order one Jack Kyrris on behalf of the Claimant gave the administrators oral notice of the sums due to the Claimant and the charge to which the Claimant was entitled over the property to secure the sums due to him. Further by letter dated 20 May 1997 the said Mr Kyrris informed the Defendants that the Claimant was a secured creditor. The Defendants and each of them owed a duty to account to the Claimant for the sums due to him by way of unpaid salary, namely the sum of £192,876.71 plus interest, were paid to him as the holder of an equitable charge over the property, and they have failed to do so. Further or alternatively they owed a duty of care to the Claimant to ensure that the sums due to him under the charge were paid to him and they have failed to do so. As a result the Claimant has suffered loss, namely the loss of salary of £192,876.71 plus interest.”

The alternative claim as unsecured creditor is pleaded in paragraphs 9 and 10 of Mr Royle’s Amended Particulars of Claim. Paragraph 9 pleads that the administrators owed:

“.... a duty of care in negligence and/or a fiduciary duty to the Claimant as a creditor of the partnership to take reasonable care to ensure that his interests and those of other creditors were protected.”

Thus, the pleaded duty is a general one, owed to all unsecured creditors.

Paragraph 9 goes on to plead that the administrators breached that duty in a number of respects of which particulars are then given. These include wrongful compromise of the proceedings against Burger King, sale of the partnership’s assets at an undervalue, and mismanagement of the business affairs of the partnership during the period of the administration.

As to damage, the pleaded particulars of the allegation of wrongful compromise of the proceedings against Burger King include allegations that as a result the partnership suffered loss and damage. The same applies to the allegation of sale of the partnership’s assets at an undervalue. The pleaded particulars of mismanagement include allegations that excessive amounts were expended out of partnership funds and that the administrators failed to account to the partnership for equipment installed by the partnership at a cost of £100,000: once again, a plea of damage to the partnership.

Paragraph 10 of Mr Royle’s Amended Particulars of Claim pleads as follows:

“As a result of the breaches of duty by the Defendants, the Claimant has suffered loss and damage. But for the breaches of duty, there would have been a substantial surplus payable for unsecured creditors and the Claimant would have recovered all or part of his unpaid salary.”

Thus by his alternative claim as unsecured creditor Mr Royle does not claim to have suffered any damage which has not also been suffered by all other unsecured creditors. He does not assert that he is in any special position in this respect; he claims damages as a member of the class of unsecured creditors of the partnership. His claim, in effect, is that unsecured creditors have suffered loss by reason of the loss suffered by the partnership.

By paragraph 7 of their Defence, the administrators deny that the agreement dated 24 March 1993 was effective to create an equitable charge. They contend that the letter:

“.... constitutes an agreement to create a charge in the future and the timing of the execution of that charge was dependent only upon the partnership.”

They also deny that any sum is owing to Mr Royle by way of unpaid salary.

As to paragraph 7 of the Amended Particulars of Claim, the administrators deny that Mr Kyrris gave them oral notice of the sum due to Mr Royle and of the charge to which he claims to be entitled. Paragraph 7 of the Defence continues as follows:

“It is admitted that in a letter dated 20 May 1997 Mr Kyrris made a passing reference to Mr Royle being ‘paid later as a secured creditor’. However, this was the only mention of Mr Royle being a secured creditor prior to 10 October 2001. Mr Royle never asserted a right to payment as a secured creditor. Mr Royle was not included as a secured creditor in the statement of affairs submitted by the partners. It is denied that the Defendants owed Mr Royle a duty to account for the sums claimed or any sums. It is admitted that the Defendants have not paid any sums to Mr Royle in respect of his alleged salary. If, which is denied, the Defendants did have an obligation to account it is denied that they are liable in the absence of negligence. The Defendants were not negligent. The Defendants will rely, inter alia, on the fact that Mr Royle never asserted a right to a charge prior to 10 October 2001.”

By paragraph 9 of their Defence the administrators deny that they were in breach of any duty owed to the partnership or to creditors of the partnership as alleged in paragraph 9 of the Amended Particulars of Claim or at all.

For the relevant general principles applicable to such claims, the judge refers (in paragraphs 58 to 61 of his judgment) to the judgment of Atkin LJ in National Provincial and Union Bank of England v. Charnley [1924] 1 KB 431 at 449-450, to Williams v. Burlington Investments [1977] SJ 121 and to the judgment of Buckley LJ in Swiss Bank v. Lloyds Bank [1982] AC 582 CA at 595.

Turning to Mrs Kyrris’ charge, the judge (in paragraph 64 of his judgment) records Mr Haines’ submission that it is arguable that the terms of the letter dated 14 December 1995 gave rise to a specifically enforceable contract to have the Angel Row property made immediately available as security for the repayment of the £100,000 loan.

In paragraph 65 of the judgment the judge records Mr Haines’ submission, based on paragraph 69 of the judgment of Rix LJ in Mamidoil v. Okta [2001] EWCA Civ 406, that this is a case where a contract has come into existence, and that in such circumstances effect can be given to the provision that the charge is to be executed on “a date to be mutually agreed by both parties, however not before 31 March 1996” by implying a term that it be executed within a reasonable time after 31 March 1996.

In paragraphs 66 to 68 of his judgment the judge records the submission of Miss Lexa Hilliard (appearing for the administrators, as she does before us) that the letter dated 14 December 1995 was not an agreement to create a present charge but, if anything, an agreement to create a charge in the future.

The judge expressed his conclusion on these submissions in paragraphs 67 and 68 of his judgment, as follows:

“67.

On this point I prefer the submissions of Mr Haines. First it seems to me to be well arguable that the court would imply a term that the charge be executed within a reasonable time of 31st March 1996. Second it seems to me that the crucial question is not whether Mrs Kyrris could have called for a charge in December 1995 when the contract was made but whether the obligation to grant the charge was specifically enforceable.

68.

It may well be that Mrs Kyrris could not have called for a charge prior to 31st March 1996; however once a reasonable time had passed after that date it seems to me that it is well arguable that she could have applied for specific performance of the obligation to create the charge. Thus as from that date it is arguable that she had an equitable charge on the Angel Row property.”

That conclusion made it unnecessary for the judge to consider in any detail various further submissions made by Mr Haines and Miss Hilliard, although he records his views on them.

The judge then turns to Mr Royle’s equitable charge claim. In paragraph 72 of his judgment he records Miss Hilliard’s submission that the agreement dated 24 March 1993 amounts to no more than an agreement to agree. In paragraph 73 to 75 of his judgment the judge says this:

“73

It is a case where the Partnership had the advantage of Mr Royle’s labour for which payment was being deferred. For reasons that are very similar to those in Mrs Kyrris’ case it seems to me to be well arguable that :

Before us, Miss Hilliard maintained that, contrary to what the judge says in paragraph 74 of his judgment, she did not concede that for the purposes of the administrators’ application it is to be assumed that the administrators had notice of the terms of the agreement dated 24 March 1993 shortly after their appointment.

In paragraph 76 of his judgment, the judge records Miss Hilliard’s submission (repeated before us) that an unsecured creditor has no general right to sue administrators for negligence. The judge continues as follows (in paragraphs 77 and 78 of his judgment):

“77

She accepts, of course, that the Administrators may be liable for misfeasance under section 212 of the Act. So far as relevant that section provides that if in the course of the winding up of the Partnership it appears that the Administrators have been guilty of any misfeasance or breach of fiduciary or other duty in relation to the Company, the liquidator or any creditor may apply to the Court and compel him to contribute such sum by way of compensation for the misfeasance as the Court thinks just. If the Administrators have had their release the power is only exercisable with the leave of the court.

78 Miss Hilliard makes the point that the remedy is a class remedy. The Administrators would be required to contribute to the assets of the Partnership and not to individual creditors. She further makes the point that the application has to be made “within the winding up”. The claims made by Mr Royle and proposed by Mrs Kyrris are not made within the winding up and seek damages for themselves. Mr Haines recognised this but made no attempt to amend the claim. Both Mrs Kyrris and Mr Royle have the benefit of public funding. Public funding is not available for applications under section 212. Thus, as Mr Haines recognised, he was forced to argue that in addition to section 212 the Administrators owed duties of care to unsecured creditors.”

The judge then refers to the judgment of Romer J in Knowles v. Scott [1891] 1 Ch 717 at 722-723, on which Miss Hilliard had relied, and to the judgment of Jacob J (as he then was) in A & J Fabrications Ltd v. Grant Thornton [1998] BCLC 227, which she had cited.

After quoting a lengthy passage from Jacob J’s judgment in the latter case, the judge says this (in paragraphs 83 and 84 of his judgment):

“83 A number of points can be made about the above passage. First Jacob J recognised that in the ordinary case outside creditors cannot sue. Second in cases where the claim has been upheld there has either been a direct contract with the liquidator or as a result of the negligence the creditors have suffered some special damage which differentiates them from other creditors.

84 There is no suggestion in this case that either Mrs Kyrris or Mr Royle is in any different position from the other unsecured creditors.”

The judge continues as follows (in paragraphs 85 to 87 of his judgment):

“85 Miss Hilliard submits that there are good practical reasons for not allowing such a claim. First she points to the multiplicity of suits at the behest of disgruntled creditors who may have the benefit of public funding. She points to the expense of such claims and the inevitable difficulties it will pose for the Administrators. Second she points to section 212 as the convenient and practical remedy if the Administrators have acted in breach of duty. Finally she points to the fact that the Administrators owe a duty to the creditors as a whole rather than individual creditors. She says there will be inevitable conflicts if individual creditors can sue if a decision is made which favours some creditors at the expense of others.

86 Mr Haines accepted that the claim was unprecedented. He, however, contended that that was no reason to strike it out. He said that if the 3-fold test envisaged in the authorities was applied the claim should be permitted to proceed. There was sufficient proximity between the Administrators and the individual creditors. It was foreseeable that if the Administrators were negligent or in breach of duty the individual creditors would suffer loss and there were no sufficient policy reasons to reject such a claim.

87 I see the force of Mr Haines’ arguments but I cannot accept them. In my judgment Miss Hilliard’s arguments are to be preferred. The policy reasons set out above are sufficient to satisfy me that, save in the special circumstances identified in the authorities to which Jacob J referred, there is no general right for individual creditors to sue the Administrators for breach of duty. Once the Partnership is in liquidation they must proceed by way of a misfeasance application under section 212. Furthermore if the Administrators have obtained their release the permission of the Court is required.”

Accordingly, the judge struck out Mr Royle’s alternative claim as unsecured creditor but declined to strike out, or to enter summary judgment in respect of, the equitable charge claims.

Before us, Miss Hilliard repeats the argument which she addressed to the judge (and which he rejected) to the effect that the letter dated 14 December 1995 amounts to no more than an agreement to provide security in the future, as distinct from creating a present right to security. Thus, she submits, relying once again on the statements of principle made by Atkin LJ in National Provincial and Union Bank of England v. Charnley and by Buckley LJ in Swiss Bank v. Lloyds Bank, that the letter does not create an equitable charge.

She further submits (a submission which she did not develop before the judge) that in any event the terms of the letter are too uncertain to give rise to a specifically enforceable agreement to provide security.

In support of her ‘uncertainty’ argument she points out that in the letter the loan was expressed not to be repayable on demand, but rather to be repayable at the discretion of the partners and directors; that interest was to accrue only as from some future date to be mutually agreed; and that a formal charge was to be created on some future date to be mutually agreed, being a date not before 31 March 1996. She submits that these provisions in the letter are cumulatively too uncertain to be susceptible of legal enforcement.

Pursuing the same theme, Miss Hilliard submits that the letter contains no more than an agreement to agree, and as such is unenforceable. She submits that there is no basis in law for the judge’s conclusion (in paragraph 67 of his judgment) that it was “well arguable” that the court would imply a term to the effect that a formal charge would be created within a reasonable time after 31 March 1996. She submits that the judgment of Rix LJ in Mamidoil does not support the implication of such a term in the instant case. She relies on dicta of Lord Buckmaster and Viscount Dunedin in May and Butcher Ltd v. The King reported in a note to the report of Foley v. Classique Coaches Ltd [1934] 2 KB 1 CA to the effect that an agreement which leaves a material term outstanding to be agreed is not enforceable.

Miss Hilliard accepts that, if (as she submits) the letter does not contain any enforceable agreement, Mrs Kyrris would nevertheless have a restitutionary claim to recover the sum lent; but she submits that the existence of such a claim would not make her a secured creditor, or otherwise give her priority over unsecured creditors.

In response to Miss Hilliard’s argument that the letter amounts to no more than agreement to create a charge at some future date to be mutually agreed, and hence to no more than an agreement to agree, Mr Haines submits that the judge was right to conclude that the court can imply a term importing the concept of a reasonable time. He submits (relying on Rix LJ’s judgment in Mamidoil) that where a contract has come into existence, the expression ‘to be agreed’ in relation to future executory obligations is not necessarily fatal. He submits that the implication of a ‘reasonable time’ requirement would make commercial sense where one party or the other refuses to agree a date for the creation of the charge. He submits that it is plain on the face of the letter that it was not drafted by lawyers.

As to whether the agreement is specifically enforceable, Mr Haines submits that the judge was right to conclude that after a reasonable time after 31 March 1966 Mrs Kyrris could have sought specific performance of the obligation to create a formal charge. He submits (paraphrasing the words of Buckley LJ in Swiss Bank v. Lloyds Bank at p.595D) that by the agreement the partnership assumed a binding obligation to confer a proprietary interest on Mrs Kyrris by the realisation of which she could procure the repayment of the loan. He submits that the letter gives Mrs Kyrris a present legal right, notwithstanding that the right could only be enforced at some future date.

As to uncertainty, Mr Haines submits that we should not entertain Miss Hilliard’s submissions since the question of uncertainty was not raised before the judge.

Addressing the substance of Miss Hilliard’s submissions, however, Mr Haines submits that where money is lent without any stipulation as to repayment, the loan is repayable within a reasonable time. What is a reasonable time will depend on the intention of the parties and the factual matrix: matters which can only be investigated at trial.

Mr Haines further submits that it is arguable that the letter dated 14 December 1995 evinces an intention that that the loan should be secured against the Angel Row premises in the event that, for whatever reason, the loan agreement itself was unenforceable. Accordingly, he submits, even if the terms of the letter are not sufficiently certain to give rise to an enforceable agreement, the equitable charge survives.

In relation to Mr Royle’s equitable charge claim, Miss Hilliard’s primary submission is that the administrators were never put on notice of the claim, and therefore cannot be held liable for failing to account to him as a secured creditor. In the alternative she submits that in any event the agreement dated 24 March 1993 does not create an equitable charge.

In support of her first submission she reminds us of Mr Schofield’s evidence that the first time he saw the letter dated 24 March 1993 was when it was exhibited to Mr Royle’s witness statement dated 10 October 2001. She does not overlook the evidence of Mr Kyrris that in about May 1997 he informed Mr Schofield on the telephone of the existence of the agreement, or the evidence of Mr Royle that Mr Jack Kyrris told him at about that time that he had sent Mr Schofield a copy of it. She accepts that these statements cannot be disproved in the context of a strike out application. She also accepts, as she must, that in his letter to Mr Schofield dated 20 May 1997 (part of which I quoted earlier in this judgment) Mr Kyrris described Mr Royle as a “secured creditor”, but she submits that this reference is so oblique as to be unintelligible. She points out that there is no mention of Mr Royle being a secured creditor in the statement of affairs sworn by Mr Kyrris on 26 March 1998, or in a report prepared for the partnership in March 1997 by its financial advisers Stanbridge Associates Ltd (on which Mr Kyrris subsequently relied in his evidence in opposition to an administration order), or (apart from the single reference in Mr Kyrris’ letter dated 20 May 1997) anywhere in the protracted correspondence between Mr Kyrris (or his solicitors) and Mr Schofield.

As to whether, in any event, the letter dated 24 March 1993 is effective to create an equitable charge, Miss Hilliard submits (as her alternative submission) that, as in Mrs Kyrris’ case, the terms of the letter were insufficient to create an immediate right to an equitable charge. In support of this submission she relies in particular on the provision that solicitors would not be instructed until after 6 April 1993. She submits that that provision demonstrates an absence of any binding undertaking at that time to give a charge but rather a willingness to consider giving one at some time in the future.

She further submits that the judge misdirected himself in holding that a term could be implied into the agreement to the effect that the formal charge would be created within a reasonable time after 6 April 1993. She submits that on the true construction of the agreement it is clear that the parties were agreeing that the questions whether to create a charge, and if so when, were to be left outstanding for the time being. Were it otherwise, she submits, the agreement would have been framed in terms that the charge was to be created immediately. She submits that in any event the implication of a term that the charge would be created within a reasonable time after 6 April 1993 does not resolve the matter since there is no mechanism for determining what constitutes a reasonable time for these purposes.

In response to Miss Hilliard’s primary submission, Mr Haines submits that the issue as to whether the administrators had sufficient notice of Mr Royle’s claim to be a secured creditor is one which cannot be resolved in the context of a strike out application; it is, he submits, an issue for trial.

As to whether the agreement dated 24 March 1993 created an equitable charge, Mr Haines submits that the judge was right to conclude that a term could be implied that the charge would be created within a reasonable time after 6 April 1993; and that once that term is implied the agreement leaves nothing outstanding to be agreed. In this respect, he submits, Mr Royle’s equitable charge claim is stronger than that of Mrs Kyrris.

Mr Haines submits that the question whether an administrator appointed under the 1986 Act owes unsecured creditors a common law duty of care to take reasonable care in the conduct of the administration falls to be answered by reference to the three criteria identified by the House of Lords in Caparo Industries plc v. Dickman [1990] 2 AC 605, viz. the proximity of the relationship, the foreseeability of damage and the reasonableness of imposing a duty.

As to proximity, he submits that there is plainly a sufficient degree of proximity between an administrator and unsecured creditors, both individually and collectively. He reminds us that the express purpose of the administration order in the instant case was the more advantageous realisation of the partnership’s assets: a purpose the achievement of which would benefit unsecured creditors.

As to foreseeability, he submits that it was plainly foreseeable that any failure on the part of the administrators to exercise the standard of skill and care appropriate to their professional status would cause economic loss to the unsecured creditors both individually and collectively.

As to the reasonableness of imposing a duty of care, he submits that in the circumstances of the instant case it would be, alternatively it is arguable that it would be, reasonable to do so.

In support of this last submission, Mr Haines relies on In re B. Johnson & Co (Builders) Ltd [1955] 1 Ch 634 CA. In that case, it was held that section 333 of the Companies Act 1948 (“the 1948 Act”), the predecessor of section 212 of the 1986 Act, was a procedural section which created no new cause of action; and that a case of common law negligence was not within the section. Mr Haines submits that that decision applies equally to section 212 of the 1986 Act, notwithstanding that the wording of section 212 is wider than that of its predecessor, in that whereas section 333(1) was limited to ‘misfeasance or breach of trust’ by (among others) an officer of the company or a liquidator, section 212(1) covers ‘any misfeasance or breach of any fiduciary or other duty in relation to the company’. Accordingly, he submits, a creditor cannot bring a claim in negligence against an administrator under section 212.

Mr Haines further submits that for present purposes no relevant distinction can be drawn between an administrator appointed by the court on the petition of a creditor (in the instant case, RBS) and a receiver and manager appointed by a bank under a mortgage. He accordingly relies on Medforth v. Blake [2000] Ch 86 CA, where it was held that such a receiver owed a duty of care to the mortgagor and anyone else interested in the equity of redemption.

Mr Haines relies on A.& J. Fabrications as an example of a case in which the court recognised the existence of a direct duty owed by a liquidator to an individual creditor. He seeks to distinguish Knowles v. Scott, on the basis that in that case the judge attached significance to the fact that the action was brought during the continuation of a liquidation and that there was an available remedy under section 138 of the Companies Act 1982.

Mr Haines relies on a passage in Receivers, Managers and Administrators by Hubert Picarda QC, where Mr Picarda suggests that an administrator may owe a general duty of care to unsecured creditors.

Mr Haines submits that in any event the instant case is not an appropriate case for a strike out. He submits that the judge should have examined each allegation in order to determine whether the conduct complained of, and the damage allegedly suffered, fell or could arguably fall within the scope of a duty of care.

Miss Hilliard reminds us that the alternative claim in negligence is pleaded on the basis that by reason of the administrators’ negligence the partnership suffered loss and damage, and that the argument as to whether an administrator owes a duty of care to creditors falls to be addressed in that context.

She submits that the appropriate test for ascertaining whether a duty of care exists in the instant case is that explained by Lord Goff of Chieveley in Henderson v. Merrett [1995] 2 AC 145 HL, and that the correct approach in the instant case is to inquire whether there has been an assumption of responsibility on the part of the administrators towards unsecured creditors. She submits that on the facts of the instant case that inquiry has to be answered in the negative, since there are no special circumstances in the instant case to support the proposition that the administrators assumed a separate and individual responsibility either to Mr Royle or to Mrs Kyrris in relation to the conduct of the administration; nor are any such special circumstances pleaded.

In support of her submission that some such special circumstances are required, she relies on Peskin v. Anderson [2001] BCLC 372 CA. In that case, the issue was whether directors of a company owed fiduciary duties to the shareholders. In the course of his judgment, with which Simon Brown and Latham LJJ agreed, Mummery LJ distinguished between on the one hand fiduciary duties owed by directors to the company by virtue of their legal relationship with the company, and on the other hand fiduciary duties owed by directors to shareholders, which did not arise from that legal relationship but which were dependant on establishing a special factual relationship between director and shareholder.

Miss Hilliard submits, by analogy, that the administrators’ duty was owed to the partnership, and that had the partnership continued in being a claim in negligence could have been brought against the administrators by the partners, the cause of action being a partnership asset. Since the partnership is now in liquidation, such a claim can be brought only by the liquidator or a creditor or creditors. However, she submits, the crucial distinction between a claim brought by a liquidator or creditor and the claim sought to be made in the instant case is that any moneys recovered from the pursuit of the former claim would be the property of the partnership and distributable through the liquidation to creditors pari passu.

Further, she submits, where the partnership is in liquidation the proper procedure for bringing a claim against an administrator is to make an application under section 212 of the 1986 Act. She accepts that an individual creditor can apply under the section, but she points out that the remedy which the section provides is a contribution to the assets of the enterprise, as opposed to an award of damages to an individual creditor.

As to the authorities relied on by Mr Haines, Miss Hilliard submits that A & J Fabrications was concerned with a breach of contract claim by majority creditors against a firm of accountants, and that it says little about personal claims of individual creditors against a liquidator or other office-holder. As to Medforth v.Blake, she submits that the proposition that a receiver owes a duty of care to all those who have property interests in the asset in question throws no light on the issue in the instant case, since unsecured creditors have (by definition) no property interests in the partnership’s assets.

The administrators invite the court to strike out the claim on the footing that the letter dated 14 December 1995, properly construed, does not create an equitable charge. The initial difficulty I have with that invitation is that the court has before it only limited evidence as to the circumstances in which the letter came to be written by Mr Allmand and countersigned by Mrs Kyrris. To that extent the court is, as it seems to me, being invited to adopt a blinkered approach to the construction of the letter. It may well be that during the administration the administrators themselves did not have anything like a full knowledge of the relevant surrounding circumstances, but if that be the case it cannot be relevant to the true construction of the letter or its effect in law; as it seems to me, it can be relevant only to the subsequent and separate issue whether, even if on its true construction the letter created an equitable charge, nevertheless by reason of their limited knowledge the administrators cannot be held liable for failing to account to Mrs Kyrris as a secured creditor.

On the face of the letter, there are a number of matters on which the evidence is, as yet, more or less silent. First of all, as noted earlier, although the letter starts by referring to the partnership’s earlier letter dated 11 December 1995, no copy of that letter has so far come to light, and there is only limited evidence from Mrs Kyrris as to what the earlier letter said. Next, in the 14 December 1995 letter Mr Allmand expresses himself as “confirming our telephone conversation of today’s date”. As matters stand, there is no evidence as to what was said in the course of that conversation. Nor does the evidence throw any light on the significance to the parties, or either of them, of 31 March 1996 as the date prior to which the charge was not to be effected. Lastly, the statement in the letter that the offered charge would “cover all three in place on this property” remains unexplained.

If it were plain, looking only at the terms of the letter itself, that on no basis could it be said to have created an equitable charge, then of course these deficiencies in the evidence would be of no significance. But in my judgment that is far from being the position here. I agree with the judge that there is more than enough material in the letter itself, when set in the context of such of the (assumed) background facts as emerge from the evidence, to raise a real possibility that it created an equitable charge.

Miss Hilliard’s challenge to Mrs Kyrris’ equitable charge claim is based on the twin concepts of futurity and uncertainty. In the instant case, those concepts overlap: for example, the provision in the letter that the charge is to be effected “at a date to be mutually agreed by both parties” raises questions both of futurity and uncertainty.

I turn first to futurity. In National Provincial and Union Bank of England v. Charnley Atkin LJ said (at p.449):

“The first question that arises is whether or not this document does create a mortgage or charge, and to determine that it is necessary to form an idea of what is meant by ‘charge’. It is not necessary to give a formal definition of a charge, but I think there can be no doubt that where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of property, either absolute or special, or any legal right to possession, but only gets a right to have the security made available by an order of the Court. If those conditions exist I think there is a charge. If, on the other hand, the parties do not intend that there should be a present right to have the security made available, but only that there should be a right in the future by agreement, such as a licence, to seize the goods, there will be no charge.”

In the instant case there was as at 14 December 1995 an existing property, viz. the Angel Row premises, and (on the assumed facts) an existing indebtedness of the partnership to Mrs Kyrris of £100,000. This at the very least sets the scene for the creation of an immediate security, as opposed to one to be granted at some indefinite date in the future. Secondly, there is the letter dated 15 December 1995. It is admitted that the administrators were never supplied with a copy of this later letter, but given that Mrs Kyrris countersigned the letter dated 14 December 1995 on the basis of Mr Hansen-Chambers’ reassurance in the later letter that “you are fully secured and not at risk” it seems to me at least arguable that the later letter, and the reassurance it contained, is part of the background against which the earlier letter has to be construed. On that basis, it affords further support for the creation of a present, as opposed to a future, right. As I said earlier, in my judgment the fact that the administrators were never supplied with a copy of the later letter is not relevant to the question whether the earlier letter created an equitable charge: rather, it is relevant to the issue as to whether, if an equitable charge was created, the administrators are nevertheless exonerated from liability to account to Mrs Kyrris as a secured creditor by reason of their limited knowledge of the surrounding circumstances. So in my judgment Miss Hilliard’s challenge based on futurity fails.

I turn, then, to her challenge based on uncertainty. In the first place, it seems to me to be plainly arguable that the ‘loan’ (so described in the letter) is ultimately repayable on the happening of some event or other: that is to say, that there is an obligation on the partnership to repay the loan. The question is: what is the event on which the loan is repayable? There are a number of possibilities, one of which (as I suggested in the course of argument) may be the date on which the partnership ceases to trade. I accept that, on the evidence as it stands, the background facts do not assist in identifying the event on which the loan becomes repayable. But, as I pointed out earlier, the evidence as to the relevant surrounding circumstances is presently incomplete in a number of respects. In these circumstances it seems to me that there must be a real possibility (it is not necessary to put it any higher than that) that on a full investigation of the factual background this uncertainty may be capable of remedy.

As to the provision that the charge is to be effected “at a date to be mutually agreed by both parties, however not before 31^st March 1996”, I agree with the judge that it is arguable that the court will imply a term which will cure this element of uncertainty. In considering whether it is appropriate to do so, the court will, once again, need to set the letter in the context of the relevant surrounding circumstances.

The same considerations apply, in my judgment, to the provisions in the letter relating to interest.

As to whether, if the letter was effective to create an equitable charge, the administrators are nevertheless exonerated from liability for failure to account by reason of their limited knowledge and the paucity of the information supplied to them by or on behalf of Mrs Kyrris, that must in my judgment be an issue for trial. In my judgment, it is arguable that sufficient questions were raised on the face of the letter to put the administrators on inquiry.

I would accordingly dismiss the administrators’ appeal against the refusal of the judge to strike out Mrs Kyrris’ equitable charge claim.

I can deal with this much more shortly.

In the first place, I accept Mr Haines’ submission that the issue as to whether the administrators received sufficient notice of the claim is plainly not one which can be finally determined on a strike out application: it is an issue for trial.

As to whether the letter dated 24 March 1993 was effective to create an equitable charge, once again I agree with the judge that it is arguable that it was. As in Mrs Kyrris’ case, there is no evidence as to the significance to the parties, or either of them, of 6 April 1993 as being the date prior to which solicitors would not be instructed. It may be that the partnership was concerned, for its own business reasons, that no legal charge should be executed until the next financial year: but that is only speculation. At all events, I find myself wholly unable to conclude that the claim is bound to fail at trial, or (if it be different) that there is no real prospect of its succeeding at trial. As to futurity, the mere fact that solicitors were not to be instructed immediately does not necessarily lead to the conclusion that what was intended was the creation of a right in the future, as opposed to “a present right to have the security made available” (see Atkin LJ in National Provincial and Union Bank of England v. Charnley at p.450, quoted earlier). As to uncertainty, I agree with the judge that it is arguable that the court will imply a term that the charge would be executed within a reasonable time after 6 April 1993.

I would therefore dismiss the administrators’ appeal against the judge’s refusal to strike out Mr Royle’s equitable charge claim.

In my judgment it matters not whether one adopts the approach of the House of Lords in Caparo Industries plc v. Dickman, or the ‘assumption of responsibility’ approach which it adopted in Henderson v. Merrett: on either approach the result is the same, namely that, absent some special relationship, an administrator appointed under the 1986 Act owes no general common law duty of care to unsecured creditors in relation to his conduct of the administration.

In paragraphs 31 to 34 of his judgment in Peskin v. Adams, Mummery LJ said this:

“31.

…. [Counsel for the directors] accepted that the fiduciary duties owed by the directors to the company do not necessarily preclude, in special circumstances, the coexistence of additional duties owed by the directors to the shareholders. In such cases individual shareholders may bring a direct action, as distinct from a derivative action, against the directors for breach of duty.

32.

A duality of duties may exist. In Stein v. Blake & Ors (No 2) [1988] 1 BCLC 573 at 576 …. Millett LJ recognised that there may be special circumstances in which a fiduciary duty is owed by a director to a shareholder personally and in which breach of such a duty has caused loss to him directly (e.g. by being induced by a director to part with his shares in the company at an undervalue), as distinct from loss sustained by him by a diminution in the value ofhis shares (e.g. by reason of the misappropriation by a director of the company’s assets) for which he (as distinct from the company) would not have a cause of action against the director personally.

33.

The fiduciary duties owed to the company arise from the legal relationship between the directors and the company directed and controlled by them. The fiduciary duties owed to the shareholders do not arise from that legal relationship. They are dependent on establishing a special factual relationship between the directors and the shareholders in the particular case. Events may take place which bring the directors of the company into direct and close contact with the shareholders in a manner capable of generating fiduciary obligations, such as a duty of disclosure of material facts to shareholders, or an obligation to use confidential information and valuable commercial and financial opportunities, which have been acquired by directors in that office, for the benefit of the shareholders, and not to prefer their own interests at the expense of the shareholders.

34.

These duties may arise in special circumstances which replicate the salient features of well-established categories of fiduciary relationships. Fiduciary relationships, such as agency, involve duties of trust, confidence and loyalty. Those duties are, in general, attracted by and attached to a person who undertakes, or who, depending on all the circumstances, is treated as having assumed responsibility to act on behalf of, or for the benefit of, another person. That other person may have entrusted or, depending on the circumstances, may be treated as having entrusted, the care of his property, affairs, transactions or interests to him. There are, for example, instances of the directors of a company making direct approaches to, and dealing with, the shareholders in relation to a specific transaction and holding themselves out as agents for them in connection with the acquisition or disposal of shares; or making material representations to them; or failing to make material disclosure to them of insider information in the context of negotiations for a take-over of the company’s business; or supplying to them specific information and advice on which they have relied. These events are capable of constituting special circumstances and of generating fiduciary obligations, especially in those cases in which the directors, for their own benefit, seek to use their position and special inside knowledge acquired by them to take improper or unfair advantage of the shareholders.”

It has not been suggested (nor could it be, in my judgment) that there is any relevant distinction for present purposes between a fiduciary duty and a common law duty of care. Further, I accept Miss Hilliard’s submission that the position of an administrator appointed under the 1986 Act vis-à-vis creditors is directly analogous to that of a director vis-à-vis shareholders.

Section 8(2) of the 1986 Act defines an administration order as:

“…. an order directing that, during the period for which the order is in force, the affairs, business and property of the company shall be managed by a person (“the administrator”) appointed for the purpose by the court.”

Section 14(1) of the 1986 Act confers on an administrator a number of specific powers of management set out in Schedule 1, including (in paragraph 14) a power to carry on the business of the company, together with a general power:

“…. to do all such things as may be necessary for the management of the affairs, business and property of the company”.

Given the nature and scope of an administrator’s powers and duties, I can for my part see no basis for concluding that an administrator owes a duty of care to creditors in circumstances where a director would not owe such a duty to shareholders. In each case the relevant duties are, absent special circumstances, owed exclusively to the company.

It is also material, in my judgment, to consider the nature of the remedy provided by section 212 of the 1986 Act. Section 212(3) provides that on an application under the section the court may compel an administrator (among others):

“(a)

to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or

(b)

to contribute such sum to the company’s assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.”

To my mind, this is a further indication that, absent some special relationship of the kind described by Mummery LJ in Peskin v.Anderson, an administrator owes no general duty to creditors.

My conclusion is also consistent with Romer J’s decision in Knowles v. Scott [1891] 1 Ch 717, where he held that a liquidator is not a trustee for the creditors or contributories of a company in liquidation. At p. 723 Romer J said this:

“In my view a voluntary liquidator is more rightly described as the agent of the company – an agent who has no doubt cast upon him by statute or otherwise special duties….. If this be the true position of a liquidator, and I think at any rate agency more nearly defines his true position than trusteeship, it is clear that he could not as agent be sued by a third party for negligence apart from misfeasance or personal misconduct.”

I turn at this point to A & J Fabrications, relied on by Mr Haines. In that case the plaintiffs, as majority creditors of a company in liquidation, alleged that they had agreed with Grant Thornton, the defendants, to support the appointment of one of the firm’s partners or employees as liquidator of the company, with a view to investigating the conduct of the directors, and to pay Grant Thornton’s fees up to an initial limit of £5,000. An insolvency practitioner from Grant Thornton was duly appointed liquidator (he was subsequently replaced by another of Grant Thornton’s employees). The plaintiffs claimed damages against Grant Thornton for breach of contract, alleging that it had acted negligently in the conduct of the liquidation. The Statement of Claim pleaded breach of a duty of care owed both in contract and in tort. Grant Thornton applied to strike out the action on the basis that the Statement of Claim disclosed no reasonable cause of action.

As to the claim in contract, Grant Thornton’s counsel submitted that the plaintiffs should have sued the liquidators personally, on the footing that only they, and not the firm, possessed the powers which the plaintiffs alleged had been negligently exercised. Jacob J concluded that the submission was misconceived, saying this (at p.230g-i):

“It is true that it is employees of the firm who were the liquidators, but they only took their position as such by virtue of the contract between the plaintiff[s] and Grant Thornton. Grant Thornton, in accepting the consideration of £5,000, were contracting to put their man in as liquidator. Of course once in as liquidator he would owe his duties to the company. But there is nothing inconsistent between the pleaded contract and the employee having duties to the company. The pleaded contract is, in short, that the employee/liquidator undertakes to do a proper job as liquidator. That is what Grant Thornton contracted would happen.”

As I read that passage, the judge is concluding that the fact that the liquidator when appointed owed duties to the company (sc. and not to the plaintiffs) is not inconsistent with Grant Thornton being in breach of their contract with the plaintiffs by reason of the liquidator’s negligence. So read, the passage provides no support for Mr Haines’ submissions.

Jacob J then turned to the plaintiffs’ alternative claim in tort, and to the submission of counsel for Grant Thornton that, absent special circumstances, a liquidator owes no general duty of care to creditors. As to that submission, Jacob J said this (at p.231a-b):

“As a generality, that may well be true, but in two cases the courts have recognised that a liquidator is under a direct duty to creditors, or owes a direct duty to creditors.”

Jacob J then turned to the two cases in question, viz. Pulsford v. Devenish [1903] 2 Ch 625 and James Smith & Sons (Norwood) Ltd v. Goodman [1936] Ch 216. In Pulsford v. Devenish the liquidator in a voluntary liquidation negligently omitted to inform the company’s creditors of the liquidation, and distributed the company’s assets to its contributories without regard to the creditors’ claims. The company was later dissolved. Perhaps not surprisingly, Farwell J expressed himself (at p.632) as glad to have been able to persuade himself that the creditors had a claim against the liquidator. The ratio for his decision that such a claim could be brought is to be found at pp.632-633 of the report. He concluded that the availability of the statutory remedy of a creditor under section 10 of the Companies Act 1890 (“the 1890 Act”) – the predecessor of section 333 of the 1948 Act and hence of section 212 of the 1986 Act – and the statutory right of a creditor to apply in a voluntary liquidation conferred by section 138 of the 1890 Act ceased to exist when the company was dissolved. He continued (at p.633):

“But the duty to pay the debts .... is an absolute statutory duty, without limit in point of time and with no provision for the release of the voluntary liquidator .... It is not necessary to resort to trusteeship or equitable doctrines: the case is one of a duty imposed by a statute on an individual for the benefit of a class of persons, namely, creditors and the only peculiarity of the case is that the remedy created by the statute is not co-extensive in point of time with the duty, for the [1890] Act permits the destruction of the remedy before the duty has been performed. .... Now the principles applicable to such a duty as I have mentioned are well settled and rest on the well-founded assumption that the Legislature does not intend its enactment to be brutum fulmen: if, therefore, a statute creates such a duty but no remedy, an action at common law (in former days action on the case) will lie for breach of such duty....”

Thus, as I read his judgment, Farwell J regarded the fact that the company had been dissolved as crucial to his decision. He concluded that a liquidator’s statutory duty to pay the company’s debts was an absolute duty, which continued after the company had ceased to exist; and that thenceforth (sc. in contrast to the position pre-dissolution) that statutory duty was owed to the creditors. Had dissolution not occurred, then as I read his judgment he would have concluded that the creditors could not have brought their claim. At all events, it does not follow from his decision that they could have done.

In A & J Fabrications Jacob J quoted a sentence from Farwell J’s judgment where he said (at p.637):

“It was urged in argument that the liquidator is merely the agent of the company; but assuming this to be so, I can see nothing inconsistent in the imposition on such agent of a duty to the company’s creditors.”

However, this observation must be read in the context of the facts of the case; that it to say, in the context of a claim for breach of statutory duty against a voluntary liquidator of a company which has ceased to exist.

In James Smith & Sons (Norwood) Ltd v. Goodman the company went into liquidation and the liquidator distributed its assets without making provision for future rent due to the plaintiffs under certain leases owned by the company of which the plaintiffs were the lessors. No notice of the voluntary liquidation was given to creditors. The company was subsequently dissolved. The plaintiffs were unaware of the liquidation or of the subsequent dissolution. At first instance, Bennett J held that the liquidator was liable in damages to creditors for breach of statutory duty. His decision was affirmed on appeal.

In A & J Fabrications, Jacob J said this about James Smith (at 231e-i):

“Again a liquidator made errors in paying out. The details do not matter.”

Whilst I entirely agree that the details of the liquidator’s alleged errors do not matter, it is, as I read the judgments in the Court of Appeal, a highly relevant fact that the company had been dissolved and thus had ceased to exist. As I understand it, it was that fact which enabled Maugham LJ to say (at p. 236), in a passage quoted by Jacob J in A & J Fabrications at p.231e-g), that the case was “exactly within the decision of Farwell J .... in Pulsford v. Devenish”. To the same effect is Lord Hanworth MR’s agreement (at p.232) with Farwell J’s conclusion in Pulsford v. Devenish that the creditors could bring an action on the case against the liquidator for breach of statutory duty.

Returning to the judgment of Jacob J in A & J Fabrications, after referring to Pulsford v. Devenish and James Smith, and to section 143 of the 1986 Act, Jacob J continued (at p.232e-g):

“Given there is a duty on these liquidators to get the money in, there was a duty to investigate what money could be got in. The pleading says they failed in that duty; in particular, they failed to keep the plaintiffs informed of the state of their investigations, and did so for such a long time that any possibility of a claim became statute-barred.

[Counsel for Grant Thornton] says, again, that the plaintiffs have got the wrong party. If there was a duty in tort it was a duty on the individual liquidators, and they should be the defendants. No doubt they could be, but it seems to me that once those defendants were put in as Grant Thornton men, Grant Thornton owed a duty coterminous and dependent upon the duties of the individual liquidators to these plaintiffs.”

Jacob J then turned to section 212, concluding (at p.233b) that there was no reason why the statutory remedy under section 212 should in any way exclude common law remedies in contract or tort. He concluded his judgment by saying:

“Those who undertake the task of being liquidators should reasonably expect to have to do their job properly, and should reasonably expect that if they do not do so they are answerable to those ultimately for whom they are acting, namely the creditors.”

In my judgment, to the extent that in A & J Fabrications Jacob J left open the question whether a liquidator owes a general tortious duty of care to creditors, the decision of this court in Peskin v. Adams (decided after Jacob J’s decision) is decisive of that question.

I would dismiss the appeals and the cross-appeals.