Mullarkey & Anor v Broad

The Appellants in this case are Mr John Mullarkey and Mr Ivor Goodman, who were two of the three Claimants below. The Respondent is Mr John Peter Broad. Mr Mullarkey and Mr Broad were in business together in the 1980s and early 1990s. In particular they were the directors and, indirectly, shareholders of a company called Southill Finance Limited (“Southill”). This had been incorporated in 1984, it ceased trading in 1993 and it was ordered to be wound up in January 1995. Meanwhile Mr Mullarkey had resigned as a director in 1994.

Mr Mullarkey and Mr Goodman brought these proceedings under section 212 of the Insolvency Act 1986 on 7 July 2005 on the basis that they were creditors of Southill. If they were, it was by way of assignment. The judge held that they were, by virtue of an assignment from Sedgemere Estates plc and that therefore they were entitled to bring the proceedings.

By the originating application by which the proceedings were commenced, claims were made against Mr Broad and also against his son Ian, but the claim against the latter was later compromised. The originating application alleged misfeasance and breach of trust in relation to Southill and sought payment of unspecified amounts. Mr Goodman made a witness statement in support of the application. At that stage, as for most of the course of the case until the appeal, the claimants acted in person and without legal representation. However the witness statement, although quite long, was reasonably clear and succinct in telling the story, in terms more similar to a pleading than to a discursive witness statement full of circumstantial detail. Mr Goodman, who had not been involved in the facts at the relevant time, could not have spoken of any such detail of his own knowledge. The witness statement therefore told the story in a reasonably pithy manner, including allegations as regards a freehold property known as 18/20 Mill Road Burgess Hill, and as regards loans to a company called Gentlesound Limited, as well as a fair number of other matters, some of which were relevant at trial but none are now pursued on appeal.

At paragraph 82 the witness statement alleged fiduciary duties owed by the Respondent to Southill as well as common law duties of care, the latter of which are not now relevant. The fiduciary duties included, first, the duty not to make a personal profit or benefit by reason of the position as a director, save as disclosed to and properly authorised by the company, secondly, the duty to account to the company for any secret profit received by a director in connection with the company’s affairs from his position as a director and thirdly, a duty not to place his personal interests in conflict with any duty owed to the company and not to misuse his fiduciary position for his own advantage.

Paragraph 83 of the witness statement was as follows:

“83.

In wrongful and fraudulent breach of trust and fiduciary duties owed to the company, the First Respondent:

(1)

Without authority and not for the proper benefit of the company transferred the property at 18/20 Mill Road Burgess Hill from the company to himself and the First Applicant without making payment therefor and thereafter transferred the property to his sole name by fraudulently obtaining the signature of the First Applicant to such transfer;

(2)

Invested the proceeds of the mortgage moneys raised on the security of the property in the sum of £100,000 to invest in further property purchases at 22 and 24 Mill Road Burgess Hill and in the purchase of Life Assurance policies on the lives of third parties;

(3)

Disposed of the property at 18/20 Mill Road for the sum of £300,000.”

By paragraph 84 it was alleged that the Respondent held the profits so made on constructive trust for the company.

In turn, in paragraph 85 it was alleged that Southill was simply a vehicle by means of which Mr Broad transferred funds in order to make advances to himself or to companies under his control, and that such advances were unauthorised and involved on each occasion an inexcusable breach of his duty to the company. Paragraph 86 (so far as relevant) alleged as follows:

“86.

In furtherance of a fraud perpetrated on the fellow subsidiary companies of the company, being, GFL, GFS, and GF, from which the First Respondent transferred monies to the company, without the authorisation of the company, paid away such monies to other companies of which he and / or his family owned such that the company derived no benefit therefrom, in particular:-

(1)

Alone or jointly with the Second Respondent made payments to Gentlesound Limited in the sum of £36,941;”

Paragraph 87 was as follows:

“87.

In making such advances without adequate security the First Respondent was seeking to further his own interests and not those of the company.”

Paragraph 88 set out the allegations against Mr Ian Broad. The relief sought included an order that Mr John Broad held the funds of £300,000 received by him from the sale of 18/20 Mill Road as constructive trustee for the company and a declaration that he had been guilty of misfeasance and breach of trust in relation to Southill by making or causing to be made the payment by way of loan to Gentlesound which proved to be irrecoverable. The Claimants further sought an order that Mr Broad repay that sum to Southill together with interest under section 35A of the Supreme Court Act 1981 or under the equitable jurisdiction of the court.

The witness statement was ordered to stand as Particulars of Claim, by order of His Honour Judge Weeks Q.C. dated 4 August 2005. Such an order was entirely normal in proceedings of this kind and, given the way in which the witness statement was drafted, entirely appropriate. A Defence was served on behalf of both Defendants by solicitors. All allegations were denied, with some detail as to what were said to be the true facts, and the Defence also pleaded both limitation and laches. No details were given in support of the allegation of laches. No Reply was served.

The case came to trial before Lewison J in Bristol starting on 19 June 2007. By then the claim against Mr Ian Broad had been settled, the Respondent continued to represent himself, and the Claimants were represented, on the basis of direct public access, by Mr Christopher Brockman of Counsel. He had put in written opening submissions dated 13 June. He opened the case orally on 19 June. It became clear that Mr Broad had not expected to have to cross-examine any witnesses that day and that he wanted to cross-examine three witnesses to be called on behalf of the claimants: Mr Mullarkey himself, Mr Ponsford and Mr Rawlinson who had been the auditor of Southill. Accordingly the judge adjourned the case, after the opening had been completed, to the following day. On 20 June those three witnesses were called by Mr Brockman and cross-examined by Mr Broad. Then Mr Ian Broad was called and cross-examined by Mr Brockman. By the morning of 21 June Mr Brockman’s instructions had been withdrawn and the cross-examination of Mr Ian Broad was continued by Mr Goodman. After that Mr John Broad verified his witness statement and was cross-examined by Mr Goodman, that cross-examination continuing on Monday 25 June. The appeal bundles include transcripts of all the proceedings on the first day, and of all the oral evidence. As regards closing submissions they include lengthy written closing submissions from Mr Goodman, and a briefer document from Mr Broad, which it seems were put to the court, and presumably expanded on orally, on Tuesday 26 June. The judge gave a reserved judgment, handed down on 3 July 2007.

In his judgment the judge summarised the allegations of misfeasance and the issue as to the status of the Claimants as creditors, he described the factual background to the allegations, he set out the relevant parts of section 212, he referred to the fact that the liquidator of Southill had made no claim arising from the matters now raised, and he addressed first the question whether any of the Claimants was a creditor so as to be entitled to bring the proceedings, with the result that I have already mentioned. He then dealt with the limitation issue. It had been accepted in opening that this was a complete bar to the claim unless Mr Broad could be shown to have acted in fraudulent breach of trust, so that section 21(1)(a) of the Limitation Act 1980 would apply. Section 21(1) is as follows:

“21(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a)

in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b)

to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.”

I have set out the whole section because, although only paragraph (a) was relied on before the judge, the appeal is now brought on the footing that paragraph (b) could and should have been.

The judge referred to what had to be shown in order to establish a case of fraudulent breach of trust, and summarised the position at paragraph 39:

“39.

In the context of this case this means that the claimants must prove that Mr Broad used his powers as a director of Southill in a way that he knew was contrary to Southill’s interests or was recklessly indifferent to whether the use of his powers was in Southill’s interests or not; and that he was conscious of (or deliberately turned a blind eye to) the elements of the use of his powers that made the use of them contrary to Southill’s interests.”

He turned to the question of pleading and proving intentional wrongdoing, and applied principles from the decided cases to the claim set out in the original witness statement, identifying as the only relevant allegations those in paragraphs 83 and 86 to which I have already referred, and commenting on some of the other allegations. Then, after referring to Mr Rawlinson, the auditor, and to the unsatisfactory state of the documentary evidence, he turned to the case concerning 18/20 Mill Road. He recorded the facts and the evidence on this. Southill had bought the property in 1985. On 31 May 1989 it transferred it to Mr Broad and Mr Mullarkey for a stated consideration of £135,000. There was an existing secured borrowing, which was discharged out of an advance of £100,000 made on mortgage by Manchester Building Society. About £48,000 of that advance was left after the mortgage and costs had been discharged. That amount should have been paid to Southill together with £38,000, the balance of the price. However it seems to have been agreed that the £38,000 would be left outstanding on an unsecured loan from the company; moreover the £48,000 balance of the advance was not in fact paid to Southill. Approximately £85,000 of the price, therefore, remained unpaid and due to Southill from Mr Broad and Mr Mullarkey. This debt was documented and recorded in a confused and unsatisfactory manner. The judge summarised the position at paragraph 62 of his judgment:

“62.

The true position, therefore, is that the original debt due from Mr Broad and Mr Mullarkey to Southill remained outstanding; and the story about an assumption of liabilities and the subsequent reinstatement of the debt was simply a smokescreen. For present purposes, however, the essential point is that Mr Broad and Mr Mullarkey owed Southill just under £85,000 in early 1994.”

The debt was also not disclosed in the course of the winding up of Southill, and the liquidation was completed without the debt coming to light. The judge stated his conclusions about 18/20 Mill Road at paragraphs 66 to 68, in which he explained why he rejected the claim.

“66.

The pleaded case in relation to the property at 18-20 Mill Road is that Mr Broad fraudulently “transferred the property” to himself and Mr Mullarkey without paying for it. It is not suggested that the purchase price of £135,000 was an undervalue. There is no material, therefore, upon which it would be right for me to conclude that, in principle, a sale of the property for £135,000 was not for the “proper benefit” of the company. It is the case, on the facts, that Southill received some part of the purchase price, in that its mortgage was discharged. But it did not receive the balance of some £85,000. However, it was not put to Mr Broad that, at the time of the purchase, he and Mr Mullarkey had no intention of ever paying the balance. The debt that they owed to Southill did not disappear; and was a debt recoverable by the company by action. The mere fact that a director owes money to the company is, on the face of it, a contravention of section 330 of the Companies Act 1985 which prohibits a company from making a loan to one of its directors. However, the breach of duty consisting of procuring the company to make the loan in the first place took place as long ago as 1989. It is a breach of duty which is committed whether or not the director ever intends to repay. However, in my judgment the mere fact that a director takes a prohibited loan from a company of which he is a director is not of itself fraudulent. If he never intends to repay it might be fraudulent; but that was not the case that was either pleaded or put.

67.

Dishonestly concealing from a liquidator the existence of a debt owed by a director to the company would be a fraudulent breach of fiduciary duty. But again that was not the case pleaded. Fraudulent concealment was pleaded against Mr Ian Broad (paragraph 88(7) of the Particulars of Claim); but not against Mr Broad himself. The pleaded case against Mr Broad in this respect is consistent with inadvertent failure to disclose.

68.

As an allegation of fraudulent breach of trust against Mr Broad, the pleaded case fails. I do, however, find that the debt owed by Mr Broad and Mr Mullarkey to Southill has not been extinguished. But I heard no argument on whether it was statute barred or whether (if potentially statute barred) the limitation period might have been extended by fraudulent concealment. None of these questions were raised on the pleadings.”

The first point taken on this appeal is that claim should not have been rejected, or at any rate that a claim along those lines should have been found to have been established.

Next the judge dealt with the claim which is the other issue on the appeal, arising from Southill being owed £36,941 by Gentlesound Limited when that company went into creditors’ voluntary liquidation on 22 June 1993. In 1992 it seems that Gentlesound Limited was owned equally by Mr Broad and his son Martin. It was said that it had been intended and agreed that Southill would acquire 50% of Gentlesound and that it was on that basis that Southill lent money to Gentlesound. The evidence as to whether Southill did acquire any interest in Gentlesound was unclear and unsatisfactory but the judge recorded that the oral evidence of Mr Broad and his son Ian, that there was an agreement or understanding that Southill would acquire 50% of Gentlesound, was not challenged in cross examination. The judge held by inference that some time between September 1990 and May 1992 Gentlesound did become a member of one or other of two relevant corporate groups, of which I do not need to describe the details. The judge then referred to evidence that between July 1991 and February 1992 Gentlesound made eight payments to Southill which he said supported the Respondent’s evidence that Gentlesound was repaying the loans that it had received from Southill. Mr Rawlinson said that he had checked the debtors of Southill and found no evidence of irregularity. The judge then continued in paragraph 73 as follows:

“The making of loans to a group company does not raise the same suspicions as an unsecured loan to an outsider. It was not put to Mr Broad or to Mr Ian Broad that at the time when the loans to Gentlesound were made they had no intention that they should ever be repaid; or that they had no reasonable grounds for believing that they would be repaid. The regular payments by Gentlesound to Southill would not have supported such a suggestion.”

He continued in paragraph 74:

“In that state of the evidence I am not prepared to find a fraudulent breach of duty on the part of Mr Broad. This part of the case fails.”

All other aspects of the claim also failed and the judge dismissed the application with costs, ordering £10,000 to be paid on account of costs.

The individual Claimants put in an Appellant’s Notice while still acting in person, but this was then followed by professionally drafted grounds of appeal, of inordinate length (28 pages) and a skeleton argument of about the same length, both settled by Counsel (not the same as appeared for the Appellants on the hearing of the appeal). These took a variety of points, but their length and complication was such as to make it more likely to confuse than to enlighten the reader as to what were the real issues in the case. Permission to appeal was given on the basis of these documents by Lord Justice Waller.

Originally the appeal was due to come on in February but it was adjourned due the ill health of the Respondent who was still acting in person. The adjourned date was in June but this in turn was also adjourned for similar reasons. At that stage it seems that the Appellants changed their Counsel, and a supplementary skeleton argument was filed. This is a much better, shorter and clearer document, although it kept all options open, not abandoning the points taken in the original document.

Finally the appeal came on in December. Mr Broad was still not in attendance and explained to the court that he was still unable to come for medical reasons, but he did not ask for a further adjournment and he put in some written material in opposition to the appeal. Meanwhile the Appellants were represented by a third Counsel, Mr Michael Gadd, who in a reading list stated that the original skeleton need not be read and later confirmed that the only points relied on are those taken in the supplemental skeleton argument.

Those points involve arguing that the judge looked at the Claimants’ case too narrowly, although correctly as it was presented to him. It was said that the Claimants did not need to establish fraud because the limitation defence could have been avoided by virtue of section 21(1)(b) of the 1980 Act, as a claim to recover from a trustee trust property or its proceeds in the possession of the trustee or previously received by the trustee and converted to his use. As regards 18/20 Mill Road it was said that the transfer was in breach of the rule against self dealing and the treatment of the outstanding part of the price infringed the Companies Act prohibition on loans to directors and that it was in breach of fiduciary duty. On that basis it was said in the skeleton argument that the property was held on constructive trust for the company. As for the Gentlesound loan, it was said that the judge’s finding that Southill acquired an interest in Gentlesound was unsupported by evidence, so that is an appeal on fact. However, even if that finding by the judge was correct, it was said that, because Mr Broad retained an interest in Gentlesound, the loans infringed the self dealing rules in any event.

As the matter was presented by Mr Gadd orally to the court, he drew back from attacking the transfer of the property to Mr Broad and Mr Mullarkey, and focused instead on the fact of £85,000 of the price remaining unpaid and, as he said, to be treated as a loan by Southill to the purchasers who, being the directors of the company, were not entitled to receive such a loan having regard to section 330 of the Companies Act 1985.

Mr Gadd is entitled to point out that the self dealing rule was mentioned in paragraph 82 of the witness statement treated as Particulars of Claim. But it is certainly correct that at trial the case was presented entirely on the basis that, in order to avoid the Limitation Act defence, the allegation was and had to be one of fraud. Mr Brockman’s opening skeleton plainly, and only, alleged fraudulent breach of trust and duty:

“78.

It is the Applicants’ case that the directors have acted in fraudulent breach of trust and duty.

79.

It is not believed that there will be a substantial dispute as to the law and that the real issues between the parties will turn on the facts.

80.

All monies belonging to SFL were subject to the fiduciary duties owed by the Respondents to CFL and they fall to be treated as a trustee thereof. SFL’s monies admittedly under the Respondent’s control must be applied for SFL’s purposes and in accordance with the Respondent’s fiduciary duties. Any misapplication of C’s monies is a breach of trust: see Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 1 WLR 1555, at 1574-7 per Ungoed Thomas J.

81.

Where that conduct is fraudulent the Respondents must account strictly for all monies belonging to SFL which they misapplied.

82.

In this case it is the Applicants’ case that the inevitable result of a detailed examination of the facts is that the Court can only draw an inference of fraud from the conduct of the Respondents.”

In paragraph 83 Counsel set out in sixteen subparagraphs the material he relied on to establish that the Respondent was fraudulent. In paragraph 84 he concluded as follows:

“84.

In all the circumstances and taking the conduct of the Respondents as a whole and individually the only possible conclusion is that the Respondents acted in fraudulent breach of trust when dealing with the Company’s money and property.”

The skeleton argument did not mention the rules against self-dealing or provisions such as section 330 of the Companies Act 1985 about loans to directors.

In the course of Mr Brockman’s opening of the case on 19 June he made a number of relevant statements:

“MR. BROCKMAN: So far as the application that is made, I nail my colours very firmly to the mast in that we say there has been fraudulent misconduct by the remaining respondents. There has been fraudulent misconduct, and that I will come back to in a moment if I may when dealing with the limitation point, which I will address in the opening.” (page 8 of the transcript)

………

“MR. JUSTICE LEWISON: You have to establish in relation to these loans that they were dishonestly made.

MR. BROCKMAN: What we say is they are simply ignoring the provisions of the Companies Act three times in a row.

MR. JUSTICE LEWISON: Well, you would have to show, would you not, that you knew about the provisions of the Companies Act and ignored them?

MR. BROCKMAN: I say you can infer that from Mr Broad senior’s vast experience of companies----

MR. JUSTICE LEWISON: Well, I mean, that is no doubt something we can explore in evidence with him. But that is what you have got to establish as a minimum.

MR. BROCKMAN: Yes, My Lord, that is the end of the factual run-through.” (pages 39-40 of the transcript)

……….

“MR. JUSTICE LEWISON: Just help me on limitation. Are you going to deal with that or do you simply say it is fraud or bust?

MR. BROCKMAN: I am saying it is fraudulent misconduct and there is no limitation period.

MR. JUSTICE LEWISON: As a matter of law that is right, if it was fraudulent then you are right on the law and, as I understand the way you put your case, it is fraud or bust?

MR. BROCKMAN: Yes. There is … which I would like to have a look at, an acknowledgement which I would like to have a look at which was raised during the course of the opening. If we are not fraud or bust I will let you know tomorrow, my Lord.

MR. JUSTICE LEWISON: Right. At the moment I am going to take it it is fraud or bust.

MR.BROCKMAN: Yes, and that is the way I put it.” (pages 40-41 of the transcript)

Consistently with that approach, Mr Brockman did not make any submissions in opening to the judge about the effect of a breach of section 330 of the Companies Act 1985, or about breach of duty as regards the self-dealing rule.

Mr Gadd confirmed in his oral submissions to us that he did not in any way challenge the judge’s decision on the basis on it was reached, apart from one factual point in relation to the question whether Southill ever had any interest in Gentlesound. Rather, he sought to argue that Mr Broad should have been held liable even absent fraud, on the basis of his having had the benefit of loans, directly or indirectly, which were prohibited by the Companies Acts and to procure which was in breach of his fiduciary duty as a Director. Given that Mr Brockman put the Claimants’ case expressly on the basis of fraud before the judge, Mr Gadd’s first task was to establish that he should be allowed to present the case on appeal on this different basis.

Points of this kind more often arise at the stage of an application for permission to appeal or, if permission has been granted, on seeking to amend the grounds of appeal. Here, by contrast, permission to appeal has been given on grounds which include the new points. However, the grant of permission, on which the Respondent was not heard, only shows that there were thought to be reasonable prospects of success. It does not amount to a grant of leave, binding on both parties, to rely on the new point. All it means is that the Appellant was given the right to argue in favour of this at a full hearing. In the supplemental skeleton, and in his oral submissions, Counsel accepted that, insofar as the presentation of the case at trial involved a concession, permission was required to withdraw it. It seems to me that, whether or not it involved a concession, it clearly involved limiting the case as put to one specific basis, and the same rule as applies to the withdrawal of a concession must apply to a change in tack such as now proposed, whether or not that is correctly viewed as withdrawing a concession.

The authority cited by Counsel in relation to the question whether a concession should be allowed to be withdrawn is Pittalis v. Grant [1989] 1 QB 605, in particular a passage in the judgment of Nourse LJ at page 611, as follows:

“The stance which an appellate court should take towards a point not raised at the trial is in general well settled: Macdougall v. Knight (1889) 14 App. Cas. 194 and The Tasmania (1890) 15 App. Cas. 223. It is perhaps best stated in Ex parte Firth, In re Cowburn (1882) 19 Ch.D. 419, 429, per Sir George Jessel M.R.:

“the rule is that, if a point was not taken before the tribunal which hears the evidence, and evidence could have been adduced which by any possibility would prevent the point from succeeding, it cannot be taken afterwards. You are bound to take the point in the first instance, so as to enable the other party to give evidence.”

Even if the point is a pure point of law, the appellate court retains a discretion to exclude it. But where we can be confident, first, that the other party has had opportunity enough to meet it, secondly, that he has not acted to his detriment on the faith of the earlier omission to raise it and, thirdly, that he can be adequately protected in costs, our usual practice is to allow a pure point of law not raised below to be taken in this court. Otherwise, in the name of doing justice to the other party, we might, through visiting the sins of the adviser on the client, do an injustice to the party who seeks to raise it.”

The issue in Pittalis v. Grant was whether a flat was “premises” within the meaning of the Rent Act 1977, where there had been a lease of a flat and shop together and the lessee had then sublet the flat separately from the shop. On a claim for possession of the flat, the issue was whether those who continued in occupation of the flat after the expiration of their actual tenancy had the benefit of the Rent Act. In the county court it was conceded that they did but on appeal that concession was sought to be withdrawn, and was allowed to be withdrawn, and it was held that the occupants did not have the protection of the Acts. The case is perhaps a somewhat unhappy precedent since, in Wellcome Trust Limited v Hamad [1990] QB 638, a later Court of Appeal held that the decision in Pittalis had been reached per incuriam and was wrong. What is clear is that the very issue was before the court, that all possible evidence (as to the nature of the premises and the history of the lettings) had been adduced and that all that was to be withdrawn was a concession or admission as to the right answer to the question of law.

A more recent case concerned with a similar point is Jones v. MBNA International, unreported, decided by the Court of Appeal on 30 June 2000. That was an employment case where in the county court the Claimant had put his case, ultimately, on an allegation that the employer was in breach of an implied term that it would not, without reasonable and proper cause, conduct itself in a manner calculated to destroy or seriously damage the relationship of confidence and trust between employer and employee but accepted that he could only succeed if he could show that the employer had acted in bad faith in the relevant conduct. He lost after a trial before a Recorder lasting for several days. On appeal he sought to change his ground so as to argue that the employer had been in breach of the same implied term but without alleging bad faith and rather alleging that the employer’s investigation of the facts had been conducted unreasonably. The new ground of appeal required findings of fact which it was said would be consistent with or would flow from findings made by the trial judge. Not surprisingly, the Court of Appeal refused to allow this point to be taken. What matters is not so much the decision of the court, as the terms in which the judges spoke as a matter of principle. Lord Justice Peter Gibson gave the first judgment and said this at paragraph 38:

“38.

It is not in dispute that to withdraw a concession or take a point not argued in the lower court requires the leave of this court. In general the court expects each party to advance his whole case at the trial. In the interests of fairness to the other party this court should be slow to allow new points, which were available to be taken at the trial but were not taken, to be advanced for the first time in this court. That consideration is the weightier if further evidence might have been adduced at the trial, had the point been taken then, or if the decision on the point requires an evaluation of all the evidence and could be affected by the impression which the trial judge receives from seeing and hearing the witnesses. Indeed it is hard to see how, if those circumstances obtained, this court, having regard to the overriding objective of dealing with cases justly, could allow that new point to be taken.”

Lord Justice May put the matter more broadly:

“51.

If, as in the present case, a claim is presented at trial on the basis that it should succeed if bad faith is established, but will not succeed if it is not, it might be said that that was a forensic concession that the only basis on which the claim might succeed was if bad faith was established. We may then debate whether Mr Jones should be permitted to withdraw the concession. But I am inclined to think that this is really a case to which wider principles apply.

52.

Civil trials are conducted on the basis that the court decides the factual and legal issues which the parties bring before the court. Normally, each party should bring before the court the whole relevant case that he wishes in advance. He may choose to confine his claim or defence to some only of the theoretical ways in which the case might be put. If he does so, the court will decide the issues which are raised and normally will not decide issues which are not raised. Normally a party cannot raise in subsequent proceedings claims or issues which could and should have been raised in the first proceedings. Equally, a party cannot, in my judgment, normally seek to appeal a trial judge’s decision on the basis that a claim, which could have been brought before the trial judge, but was not, would have succeeded if it had been so brought. The justice of this as a general principle is, in my view, obvious. It is not merely a matter of efficiency, expediency and cost, but of substantial justice. Parties to litigation are entitled to know where they stand. The parties are entitled, and the court requires, to know what the issues are. Upon this depends a variety of decisions, including, by the parties, what evidence to call, how much effort and money it is appropriate to invest in the case, and generally how to conduct the case; and, by the court, what case management and administrative decisions and directions to make and give, and the substantive decisions in the case itself. Litigation should be resolved once and for all, and it is not, generally speaking, just if a party who successfully contested a case advanced on one basis should be expected to face on appeal, not a challenge to the original decision, but a new case advanced on a different basis. There may be exceptional cases in which the court would not apply the general principle which I have expressed. But in my view this is not such a case.”

It is true, as Mr Gadd pointed out, that the change of tack in that case was much more substantial than the change that he seeks to make in the present case, because the facts on which his new claim is founded are already alleged in the original witness statement. He submitted that, if Counsel had not made the concession that the case was only presented on the basis of fraud but had kept open a claim based on self dealing, there would not have needed to be any further evidence, the Defendant would not have considered leading any evidence he had not already prepared to advance, the facts were clear and the Respondent has had ample opportunity to meet the point, if he can, since the time when it was first raised on appeal in the original grounds of appeal and skeleton argument.

In the present case, since the Respondent was acting in person and on the footing that the new point is already on the pleading, it may be rather a matter of speculation as to whether Mr Broad would have asked any different questions in cross-examination, or added anything to his own evidence in chief or that of his son, if he had understood the case being put as being not limited to fraud. But in a case such as this, especially when the Respondent was in person throughout and after the second day all parties were in person, the judge has a particularly important role in seeking to ensure (a) that he and the parties understand exactly how the case is put and (b) that both sides put their case to the other fully and properly and are aware of the implications of the case as regards the evidence they could or should consider adducing. The judge was of course fully aware of this, and from time to time he intervened in the examination of witnesses by parties with this in mind. An example is at page 3 of the transcript of the afternoon session on 21 June, when Mr Goodman was cross-examining Mr John Broad; the judge pointed out to Mr Goodman the need to put a particular allegation to Mr Broad and referred to the fact that the Claimants’ case was based on fraud and fraud alone.

As regards 18/20 Mill Road, the case could have been put in various ways, some of which certainly would have called for findings of fact not made by the judge and on points not touched on by him. Mr Gadd sensibly restricted his new claim to a minimum. He said that, when completion of the sale took place with some £85,000 left outstanding, the correct analysis is that Southill lent the purchasers, who were also its directors, the relevant sum, but this loan to the directors was a breach of section 330 of the Companies Act, that accordingly the transaction is voidable and the directors were in breach of fiduciary duty in procuring that the company should enter into it. Accordingly, they held the benefit of the loan on trust for the company and, having received it for their own use and benefit, section 21(1)(b) of the 1980 Act applies so as to exclude any statutory period of limitation. He submitted that the case of JJ Harrison (Properties) Limited v. Harrison [2002] 1 BCLC 162 shows that the section does apply to a director held accountable as constructive trustee for benefits received by him through his own breach of fiduciary duty, and that Attorney General for Hong Kong v. Reid [1994] 1 AC 324 shows that the existence of a concurrent common law liability in debt does not mean that an equitable liability to account as trustee may not exist as well.

Mr Gadd submitted that it was contended at the trial that the conditions for compliance with the Companies Acts as regards self dealing and substantial property transactions had not been met or complied with, and submitted that this was not challenged. The judge made no findings on this, other than his observation (in his paragraph 66 – see paragraph [14] above) that the loan in relation to the property was, on the face of it, in breach of section 330. Such findings would have been irrelevant to the case as it had been put to him. There is no express allegation as to any of these matters in any of the witness statements, and no indication in any of them that a case based merely on the loans was advanced, but the facts relating to the loans and their non payment were alleged. The judge found that the debts had not been paid, and that there was therefore a loan still outstanding, which appeared to have been made in breach of section 330.

Mr Gadd accepted that, if his submission is correct, no limitation defence could be raised in relation to any claim by a company against its director for repayment of a loan made at a time when the person in question was a director, unless it fell within one of the limited exceptions to the prohibitions in section 330. There could be a defence of laches: see Re Loftus deceased [2007] 1 WLR 591, and indeed such a defence was pleaded. However, Mr Gadd pointed out that such a defence could also be run in relation to a case where the statutory limitation period is excluded by Section 21(1)(a), that is to say the basis on which the case was put to the judge, and that no such case was run on the facts or the evidence, so that there is no reason to suppose that it would have been run if Counsel’s concession had not been made.

In relation to the loan to Gentlesound, Mr Gadd seeks to challenge the judge’s finding that Southill ever had an interest in Gentlesound, but that is not critical to the appeal because, even if Southill had some interest in Gentlesound, it is not in dispute that Mr Broad retained a substantial interest in the company. It was said to follow that section 330 of the Companies Act applied to a loan to Gentlesound because the latter company was a person connected with Mr Broad as Director: see section 330(3)(b), and section 346(2)(b) and (4)(c). However, section 330(3) only applies to a loan to a person connected with a director where the lending company is a “relevant company”, which means a plc, a subsidiary of a plc, a company which has a plc as a fellow subsidiary, or one which has a plc as its own subsidiary: section 331(6). Southill was never a plc. Sedgemere became a plc in January 1990. If and to the extent that any relevant loan to Gentlesound was made after that date then section 330(3)(b) would have applied to it by virtue of there being a plc in the group then headed by Broad & Mullarkey Ltd, of which Southill was a subsidiary. It seems likely that the loans were made after this date, but the judge did not need to pay attention to the exact dates, since the point did not arise on the way the case was presented. The judge’s comment about an apparent breach of section 330 related only to the position as regards the unpaid purchase price of 18/20 Mill Road.

Consistently with the approach adopted by Mr Brockman in his opening, as recorded above, the cross-examination of Mr Ian Broad did not focus on the fact of the loans having been breaches of section 330, but rather (as regards Gentlesound) on the question whether it was appropriate to allow that company credit without taking any security for the debt. However, Mr Goodman did ask Mr John Broad some questions about section 330 (see pages 3 to 5 of the transcript of 25 June). At that point Mr Broad said that he was to some extent aware of the provisions of the Companies Act about loans to directors (page 3 line 20) but he also said that he was not aware that he had infringed those provisions (page 4 line 26). Mr Goodman said that he would be returning to that subject later in his cross-examination, but in the event he did not do so. In his written closing submissions he focussed entirely on the case of fraud, save that he did mention breaches of the Companies Act 1985, including of section 330, (and also of provisions of the Insolvency Act 1986) by way of a supporting allegation that Mr Broad had committed offences under those Acts, and well into this substantial document (page 33 of 57) he asserted that the loans to Gentlesound Ltd were in breach of section 330, and referred to civil remedies under section 341 as well as criminal penalties under section 342.

Section 330 is as follows, so far as relevant:

“330(1) The prohibitions listed below in this section are subject to the exceptions in sections 332 to 338.

(2)

A company shall not

(a)

make a loan to a director of the company or of its holding company;

(b)

enter into any guarantee or provide any security in connection with a loan made by any person to such a director.

None of the exceptions in sections 332 to 338 appears to be relevant on the facts of this case.

Section 341 deals with civil remedies as follows:

“341(1) If a company enters into a transaction or arrangement in contravention of section 330, the transaction or arrangement is voidable at the instance of the company unless

(a)

restitution of any money or any other asset which is the subject matter of the arrangement or transaction is no longer possible, or the company has been indemnified in pursuance of subsection (2)(b) below for the loss or damage suffered by it, or

(b)

any rights acquired bona fide for value and without actual notice of the contravention by a person other than the person for whom the transaction or arrangement was made would be affected by its avoidance.

(2)

Where an arrangement or transaction is made by a company for a director of the company or its holding company or a person connected with such a director in contravention of section 330, that director and the person so connected and any other director of the company who authorised the transaction or arrangement (whether or not it has been avoided in pursuance of subsection (1)) is liable

(a)

to account to the company for any gain which he has made directly or indirectly by the arrangement or transaction; and

(b)

(jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction.

(3)

Subsection (2) is without prejudice to any liability imposed otherwise than by that subsection, but is subject to the next two subsections.

(4)

Where an arrangement or transaction is entered into by a company and a person connected with a director of the company or its holding company in contravention of section 330, that director is not liable under subsection (2) of this section if he shows that he took all reasonable steps to secure the company’s compliance with that section.

(5)

In any case, a person so connected and any such other director as is mentioned in subsection (2) is not so liable if he shows that, at the time the arrangement or transaction was entered into, he did not know the relevant circumstances constituting the contravention.”

Section 341(3) preserves not only the liability to repay the loan, but also any liability for breach of fiduciary duty. It does not seem likely that subsections (4) or (5) could be relevant on the facts of this case.

Section 342, creating criminal offences, is as follows:

“(1)

A director of a relevant company who authorises or permits the company to enter into a transaction or arrangement knowing or having reasonable cause to believe that the company was thereby contravening section 330 is guilty of an offence.

(2)

A relevant company which enters into a transaction or arrangement for one of its directors or for a director of its holding company in contravention of section 330 is guilty of an offence.

(3)

A person who procures a relevant company to enter into a transaction or arrangement knowing or having reasonable cause to believe that the company was thereby contravening section 330 is guilty of an offence.

(4)

A person guilty of an offence under this section is liable to imprisonment or a fine, or both.

(5)

A relevant company is not guilty of an offence under subsection (2) if it shows that, at the time the transaction or arrangement was entered into, it did not know the relevant circumstances.”

Mr Gadd submitted that it was plain that Mr Broad had been in breach of section 330, as regards both the unpaid purchase price of 18/20 Mill Road and Gentlesound, that the facts relevant to this had all been alleged and proved, and that the consequences were a matter of law which did not need to be pleaded, and which followed from the proof of the relevant facts. Accordingly, he submitted, there was no other evidential material which could have been relevant, and which either the Claimants would have needed to prove or Mr Broad may have wished to adduce in his defence. On that basis he argued that the test referred to in Pittalis v Grant, and that discussed in Jones v MBNA, were both satisfied.

In the light of what I have said above about the course of the trial and what appears from the transcripts and the written material used at the trial, I cannot accept Mr Gadd’s submission that it was put in issue at trial as to whether the provisions of the Companies Acts as regards loans to directors had been infringed, and that Mr Broad had not challenged the submission that there had been such breaches. That does not appear from the transcripts and other material that we have in the appeal bundles.

As regards the Gentlesound claim, it seems to me that Mr Gadd’s proposition cannot be accepted, in the light of the considerations to which I have referred at paragraph [39] above, which show that, in order to prove a breach of section 330 in that case, it was necessary to demonstrate that Southill was, at the relevant time or times, a “relevant company” within the meaning set out in section 331(6). It may have been, or possibly it may have been for part of the relevant period but not for all of it. Since neither the parties nor the judge considered the point, the necessary factual ingredients for the claim were not addressed and the necessary findings of fact were not made.

Mr Gadd is entitled to submit that the position is clearer as regards the unpaid balance of the price of 18/20 Mill Road, which would be a breach of section 330(2)(a) regardless of the provisions about a “relevant company”. The judge said, at his paragraph 66, that this was “on the face of it, a contravention of section 330”. Nevertheless, it seems to me wrong for this court to be invited to enter into a speculation as to what other questions might have been asked of those who did give evidence, or what other evidence might have been adduced from other witnesses, or by way of other documents, if it had been made clear, even if only in the course of Counsel’s opening, that the Claimants sought to avoid the effect of the lapse of time by way of section 21(1)(b) as well as of section 21(1)(a). One thing that is plain is that Mr Goodman would have had to have followed up with Mr Broad his stated (but unfulfilled) intention to ask him more questions on the subject of section 330 and loans to directors. It may be that this would not have led to different answers, or to answers that would have caused the judge to come to a different conclusion, but the court cannot be sure of that.

A party who seeks to advance a different case, in circumstances such as this, bears a heavy burden as regards showing that the case could not have been conducted differently, in any material respect, as regards the evidence. In a case such as Pittalis v Grant, that task could readily be discharged, since there was no doubt about the relevant facts and the dispute was as to a matter of law. In the present case the change of position would not be so great as it was in Jones v MBNA. But in my judgment the court cannot properly be satisfied, in this instance, that the case would not have gone in a materially different way as regards the evidence if Mr Brockman, instead of nailing his colours exclusively to the mast of fraud, had told the judge that he had two alternative cases: one of fraud and the other of breach of fiduciary duty by Mr Broad in procuring a prohibited loan to himself. It is clear that some questions would have been asked in cross-examination of Mr Broad in addition to those which Mr Goodman did ask. Whether the answers would have influenced the judge, and if so how, is a matter of speculation. It is particularly difficult to be sure of that given, on the one hand, the fact that the parties were, for most of the trial, in person and, on the other, the resulting burden on the judge of ensuring that he and the parties understood exactly how the case was being put and that they appreciated what matters of evidence might need to be covered as a result.

I would not myself attach significance to the possible defence of laches, because that was open to Mr Broad whichever part of section 21(1) was relevant. But as regards the substantive issue of liability, and any possible defences there might be to the claim, it does not seem to me that the court can be as sure as it would need to be that all relevant evidential material was brought before the court that either side might wish or need to rely on in relation to the case as now sought to be put.

For that reason, I would not allow the Appellants to change their case so as to assert that the limitation defence is avoided by reason of section 21(1)(b). It follows that I would dismiss the appeal.

I agree.

I also agree.