Cumbria Roofing Ltd. v Athersmith

J U D G M E N T

1. LORD JUSTICE RIX: This is an application for permission to appeal made by Mr Colin Athersmith from a judgment of His Honour Judge Appleton given on 13th April 2005 in the Preston County Court. The judgment concluded that Mr Athersmith was personally liable in the sum of some £22,000 in respect of a contract for roofing works with the claimant, Cumbria Roofing Ltd ("Cumbria"), on two separate grounds. The first ground was that Mr Athersmith had personally made that contract with Cumbria, albeit he was acting as agent for an undisclosed principal, namely a company called Drawglobe Ltd (see paragraph 36 of the judge's judgment). The second ground was that he was in any event liable under section 15 of the Company Directors Disqualification Act 1986, which provides that:

"(1) A person is personally responsible for all the relevant debts of a company if at any time--

(a) in contravention of a disqualification order or of section 11 of this Act he is involved in the management of the company, ..."

2. Subsection (4) of section 15 provides:

"For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company."

3. The company in the management of which the judge found that on this alternative basis of liability Mr Athersmith was involved in was not Drawglobe but a separate company called Telemeter Engineering Ltd, of which Mr Athersmith had become a director on 2nd December 2002.

4. The essential chronology that lay behind this judgment of the judge was as follows. Mr Athersmith had been disqualified from being the director of a company up to 1st December 2002. The fact that he therefore became a director of Telemeter Engineering Ltd ("TEL") on 2nd December 2002 is not directly in point. However, the roofing contract with Cumbria, the judge found, had been negotiated between a Mr Fisher, a director of Cumbria, and Mr Athersmith personally in November 2002, i.e. at a time when Mr Athersmith was still disqualified as being a director. There was a dispute at trial as to which company Cumbria had made that contract with. Cumbria's claim was that it had been made with TEL. Indeed, Cumbria's first claim form was solely against TEL as defendant, and it was only at a later date that Mr Athersmith was joined as second defendant on the basis that he had a personal liability under section 15 of the 1986 Act.

5. However, Mr Athersmith's defence in part was that that roofing contract had been made, not with TEL, but with a separate company called Drawglobe, of which he was at that time in November 2002 a mere employee: a contract assessor. Mr Fisher disputed that his contract had been with Drawglobe, a company which had gone into winding up in August 2003 and was probably already a company in financial difficulties in November 2002.

6. Mr Fisher's evidence was that he had never heard of Drawglobe, and did not discuss it with Mr Athersmith at all when they met and spoke about the making of the contract in question. Mr Athersmith's case and evidence were that although he had originally approached Mr Fisher as an employee of Drawglobe for the purposes of the possibility of making a contract with him, his only subsequent role was to introduce Mr Fisher when he came for a meeting at Drawglobe's premises to other persons in the Drawglobe organisation, in particular a Mr Andrews, its managing director. He said that the contract had essentially been negotiated directly between Mr Andrews and Mr Fisher in his absence. He said that it was Mr Andrews who had ultimately accepted Mr Fisher's estimate: he did not.

7. So in effect Mr Athersmith's defence was, first of all, that any contract that had been made by Cumbria had been made with Drawglobe and not with TEL and, secondly, that he had had no real part in the making of that contract himself and, thirdly, that in as much as he had any role in Drawglobe himself, it was merely as an employee and he was in no way concerned with the management of that company.

8. The documents relating to this contract, which was certainly made and indeed performed by Cumbria, and indeed was a sub-contract in respect of a principal contract which, whether it was with Drawglobe or TEL, had been a contract obtained from the local district authority and for which the judge said that that local authority had paid, were as follows. There is an estimate from Cumbria dated 11th November 2002 with Mr Fisher's name on it, addressed for the attention of J Knight, Telemeter Engineering Ltd, at an address which (I think is not in dispute) was the address from which Drawglobe operated and subsequently TEL operated. It is an estimate in the sum of £15,860.

9. There is then a purchase order dated 12th November 2002 containing an order number 2905/8382, on the purchase order letterhead of "Drawglobe Limited [that is in very small letters] Trading as TE Telemeter Engineering [that is in very large letters]" and which refers to the quotation dated 11th November 2002. Mr Fisher's evidence was that he never received that purchase order until the following May in circumstances to which I will refer below, and that the name Drawglobe had never been mentioned to him when negotiating the contract in question.

10. There is then a document from Cumbria dated 25th November 2002 addressed to "Accounts Depart. Telemeter Engineering", which refers to "ORDER No. 2905/8382", and states "Materials on site, plus scaffolding" and names a sum of £9,250 which was part of the overall sum for the roofing contract in question, which had been (on the documents to which I have referred) agreed at £15,860. That document was called a "valuation". I am not sure what was its status. It is a document not referred to by the judge.

11. There was then an invoice dated 17th December 2002 from Cumbria, again to the accounts department of Telemeter Engineering, and again referring to the order number 2905/8382, and which again referred to "Materials on site, plus scaffolding" and the sum of £9,250.

12. There was then a further invoice from Cumbria of the same date, this time addressed to "FAO C Athersmith, Accounts Dept., Telemeter Engineering", in the full contract sum of £15,860 plus an item described as "Extras as instructed, supply only cleats" in the further sum of £322. That invoice does not refer to a contract number. It was for that total invoice sum that Cumbria continued to chase, but unsuccessfully, and which led ultimately to this litigation.

13. The judge heard both Mr Fisher and Mr Athersmith give evidence. It will be obvious from the brief details that I have given of the issues at trial that Mr Fisher and Mr Athersmith told very different stories. Mr Fisher said that he negotiated his contract directly with Mr Athersmith and that it was Mr Athersmith personally who accepted the estimate, I think on the telephone, on a date which he gave as 26th November 2002 in his pleadings, but which in his witness statement he said was soon after the estimate of 11th November. On the other hand, Mr Athersmith said that he had only played an introductory role, that he had done so as an employee of Drawglobe, that Mr Fisher knew that he was contracting with Drawglobe, that that was confirmed by Drawglobe's order number to be found on Cumbria's documents going back to November 2002, and that indeed Mr Athersmith had been in and out of hospital over the period from 13th November to 1st December with angina problems and had been away from work during that period.

14. Mr Fisher's evidence was that Drawglobe had only been mentioned to him as being the company for whom Mr Athersmith had been acting in March or April of the following year, and that it was not until the receipt of the purchase order form itself, faxed to him directly by TEL on 15th May 2003 (page 37 of the trial bundle), that he saw the purchase order 2905/8382 for himself. He said that the order number, 2905/8382, which had appeared on Cumbria's November valuation and December invoice had been obtained on the telephone from Mr Athersmith for inserting into Cumbria's documents. Mr Fisher also gave evidence of how, at the time when he was down at Mr Athersmith's premises, Mr Athersmith showed him around in every way as though he was the boss, as though it was his company and the managing director's room was his room. The judge made detailed findings in that respect.

15. So far as the factual issues in dispute at trial were concerned, the judge sets out the pleading history, refers to most, but perhaps not all, of the documents to which I have referred, and refers in detail to the evidence given respectively by Mr Fisher and his brother, Raymond, who also knew Mr Athersmith and had had dealings with him, and to Mr Athersmith's evidence. The judge had no doubt in his mind which evidence he preferred. He described Mr Fisher as a genuine gentleman, doing his best to answer the questions put to him honestly and efficiently, although a man whom he accepted had been confused -- and the judge obviously thought was entitled to be confused -- by the variety of corporate forms dangled before him by Mr Athersmith. He described Mr Athersmith's evidence, however, as being simply incredible; and he accepted Cumbria's counsel's submission that Mr Athersmith had given evidence in a shifting and contradictory way as a submission that had certainly been made not without good grounds. He went on to describe other criticisms of Cumbria's counsel as "modest criticisms, from what I have heard of what was going on." He described Mr Athersmith's evidence as "thoroughly unreliable".

16. Despite the submissions, both written and oral, which I have heard from Mr Athersmith supported by his wife this morning, if this case depended simply upon the judge's decisions as to the clash of evidence which he heard, I would conclude that there was no prospect of any success on appeal of Mr Athersmith persuading the Court of Appeal that the judge was wholly wrong in preferring the evidence of Mr Fisher to Mr Athersmith.

17. But it does seem to me that when one goes forward, even with the judge's findings, to apply those findings to a legal structure, that the case becomes more difficult. To revert to the judge's two grounds upon which he found personal liability on the part of Mr Athersmith: the first was that Mr Athersmith was the agent of an undisclosed principal, namely Drawglobe. The difficulty that I have with this at present is not so much Mr Athersmith's ground of appeal that there never had been a pleaded claim against Mr Athersmith as contracting personally as the agent of an undisclosed principal, whether that was Drawglobe or some other company, because, after all, it was Mr Athersmith's own case at trial that Cumbria's contract was made, whether with him or with Mr Andrews, for Drawglobe.

18. The difficulty I do find, however, is that it is plain from the judgment as a whole that the judge accepted Mr Fisher's evidence that Mr Athersmith (on the basis that it was Mr Athersmith, as the judge found) was plainly contracting for a company, rather than for himself. The meetings took place at company premises. Whether the company was Drawglobe or whether it was TEL in its former name, LPD Ltd, it was a company which traded under the name of Telemeter Engineering. Indeed that was the name on the building where Mr Athersmith worked, albeit for reasons, as Mr Athersmith has explained to me this morning, rightly or wrongly, which went back into the dim and distant history of when some entirely separate person had built that building for his own business then called Telemeter Engineering or some such name and the name Telemeter Engineering had been put upon that building, and that name had been there for a long time. That may be so or it may not be so.

19. But it seems to me that it is difficult in the light of the judge's findings as a whole to see how the judge could have concluded that Mr Athersmith was acting as agent for an undisclosed principal, in other words, appearing to all intents to be making a contract for himself, while in fact being authorised by some corporate identity to make the contract. He may have been acting as an agent of an unidentified company or principal, as distinct from an undisclosed principal. But the law relating to the liability of an agent of an unidentified principal is somewhat different from the law relating to an agent of an undisclosed principal, and there is no sign in the judgment of those differences having been explored at trial, certainly not in the judge's judgment.

20. The reason why there may well possibly have been a ground for thinking that the ultimate corporate principal of the contract negotiated with Mr Fisher was unidentified, is that Mr Fisher gave evidence (which the judge accepted) that Mr Fisher regarded the involvement of Mr Athersmith as being at a very high corporate, if not managing director level: that Mr Athersmith's company was in severe financial difficulties, but that he was in the process of creating a new company which he was going to capitalise properly and which would be the company which would make the contract with Mr Fisher. That, the judge appears to consider in other parts of his judgment, was the company ultimately called TEL, although it did not change its name from that of LPD Ltd to TEL until 19th December 2002, as the judge records in the opening paragraph of his judgment.

21. So the legal difficulty that I have with the judge's first ground, as appears to me at the moment, is that if the company for which Mr Athersmith was acting in making the contract was Drawglobe, then that was not so much an undisclosed principal as a possibly unnamed or unidentified principal.

22. Turning to the second ground on which the judge found personal liability in Mr Athersmith, that is under section 15 of the 1986 Act. For these purposes the judge put Drawglobe aside and turned to the company LPD renamed TEL, and held that Mr Athersmith had been involved in the management of that company in November 2002 at the time of making the contract (see paragraph 37 of the judgment).

23. In his grounds of appeal, Mr Athersmith has raised the question as to whether the negotiation of a single contract amounted to being involved in the management of a company for the purposes of section 15. The judge discusses that question very briefly, and it is not clear that he was referred to any authorities. The leading authority on that matter would appear to be that of Carnwath J in In Re market Wizard Systems (UK) Ltd and in Re Insolvency Act[1998] 2 BCLC 282 at 299/300.

24. On the general findings to be found throughout the judge's judgment I would be sceptical as to whether, at the end of the day, Mr Athersmith could avoid a conclusion on the facts found by the judge that he was involved in the management of a company in November 2002, and that may ultimately place him in some considerable difficulty. Nevertheless, the company in whose active management the judge found him to be involved in November 2002 was TEL, the previously named LPD, rather than Drawglobe. Therefore, somewhat inconsistently, the judge concludes on his first ground that Mr Athersmith had been acting as agent for Drawglobe Ltd in the making of the contract, but in his second ground he concludes that Mr Athersmith had been involved in letting that contract in the active management of TEL, a different company.

25. As to TEL, all that the judge says about it is that it was incorporated in August 2002 and that Mr Athersmith became a director on 2nd December 2002. I have already said that the mere fact that he became a director on 2nd December immediately after the expiry of his disqualification was not of direct relevance, unless of course he had been actively involved in the management of that company, albeit not as a director, before 2nd December 2002.

26. However, Mr Athersmith tells me that his only involvement in TEL (or LPD, as it was previously called) had been immediately before he became a director on 2nd December, and at a time after he came back from work after being in and out of hospital and recuperating at home at the beginning of December 2002. I do not know whether that is right or wrong, but there is nothing in the judgment itself which says that it is wrong. Mr Athersmith tells me that he had not been involved in LPD prior to buying it as an off-the-shelf company called LPD Ltd, with the help of his solicitors, immediately before becoming a director of that company and after his return from work after his illness and going in and out of hospital. If that is the case, then I do not see why the judge, apparently inconsistently with his first holding, concluded that Mr Athersmith had been actively involved in the management of LPD/TEL at the time of letting the contract to Cumbria.

27. Where does this take one? It may mean that at the end of the day Mr Athersmith should properly be held liable under section 15 as being actively involved in the management of Drawglobe Ltd rather than LPD/TEL. Alternatively, in as much as the evidence of Mr Fisher is accepted, that he thought of himself contracting not with the old insolvent Drawglobe, but with the new company that Mr Athersmith was talking about, viz LPD/TEL, an apple, as it were, in Mr Athersmith's eye for the time immediately after his disqualification ended. It may be upon that hypothesis that one should regard Mr Athersmith as being personally liable as contracting in November 2002 on behalf of a company which he had not yet obtained for himself, namely some unknown off-the-shelf company out there in the ether which he had not yet identified or purchased; that is if Mr Athersmith's submission this morning that he had nothing at all to do with LPD/TEL until 1st December or thereabouts at the earliest is correct.

28. It may be, therefore, that at the end of the day, albeit not on the grounds which represent the judge's conclusions in his judgment, nor perhaps it might be said on the grounds pleaded in Cumbria's pleadings, Mr Athersmith could properly be regarded as being personally liable.

29. What am I to do in these circumstances? As I say, if it was simply a matter of deciding whether an appeal should lie from the factual findings of the judge, I would be sceptical and say that there is no prospect of any appeal succeeding. But I have identified the legal difficulties involved with the judge's legal conclusions from those facts.

30. In these circumstances, I can see both a potential prospect of Mr Athersmith obtaining some relief from this judgment, but on the other hand I have continued scepticism as to whether on these findings Mr Athersmith can ultimately escape personal liability. In all these circumstances, I think that the best way forward is, having explained myself fairly fully in this judgment, I should adjourn this application to a hearing on notice to Cumbria Roofing Ltd, with an appeal to follow immediately were permission to appeal to be granted by the full court.

31. So that is my judgment, and I will explain in a moment to Mr Athersmith what that means.

ORDER: Application for permission to appeal adjourned to a hearing on notice to Cumbria Roofing Ltd, with the appeal to follow immediately were permission to appeal to be granted by the full court; constitution for the adjourned hearing to be a court of three, one of whom may be a High Court judge, with a time estimate of half a day; application for an extension of time for filing the appellant's notice granted; application to rely on fresh evidence relating to BM Trader refused; execution of the judgment stayed pending the adjourned hearing of this application; a transcript of this judgment to be provided to the applicant public expense.

(Order not part of approved judgment)

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