Carman v The Cronos Group SA & Ors

By an order made on 14^th February 2005 Mr Registrar Simmonds on the application of Russell John Carman (“the Liquidator”), the claimant in these proceedings, acting as Liquidator of Transocean Equipment Manufacturing and Trading Limited (a Company registered in England) (“T1”) together with a company of the same name but registered in the Isle of Man (“T2”), granted permission to the Liquidator to serve the application in these proceedings abroad on the Respondents, the Cronos Group SA (a company registered in Luxembourg) (“Cronos”), Cronos Containers NV (a company registered in the Netherlands Antilles) (“Cronos NV”), and Cronos Containers (Cayman) Ltd (a company registered in the Cayman Islands) (“Cronos Cayman”). The proceedings seek declarations and orders pursuant to section 213 of the Insolvency Act 1986, against the Respondents, in order to obtain compensation for their alleged participation in the carrying on of the business of T1 and T2 with intent to defraud the creditors of those companies.

I have to deal with an application by the Respondents dated the 3^rd May 2005 to set aside that order, alternatively, for an order that the proceedings be struck out, alternatively, that there may be summary judgment for the Respondents pursuant to CPR Parts 3 and 24 and Rule 7.51 of the Insolvency Rules 1986. The grounds upon which the Respondents seek such orders are that the Liquidators application and the evidence in support disclose no reasonable grounds for bringing the claim and/or the Liquidator has no real prospect of succeeding on the claim and there is no other compelling reason why it should be disposed of at a trial and/or that the proceedings amount to an abuse of the process of the court.

The matter first came before me on the 18^th July of this year when, having heard argument on a specific point of law, namely, whether it was possible for the business of a company to be conducted fraudulently within section 213 of the Insolvency Act 1986 where it had been dissolved under section 652 of the Companies Act 1985 but subsequently restored under section 653(2), on which I reserved judgment, I stood the application over in order to enable the Liquidator to fully plead out his case. Because the Respondents are challenging the jurisdiction of the court I did not require the service of a defence. The Liquidator’s full particulars of claim have now been served and it is to that document that the submissions of the applicant Respondents have been directed.

The business of T1 was, at all material times, the owning and hiring out of maritime containers. Cronos NV and Cronos Cayman are the wholly owned subsidiaries of Cronos. So far as material they carry on business as managers, on behalf of the owners of containers, being responsible to manage their hiring to ultimate users, and for collecting and passing to owners the hire charges having deducted commission. At all material times T1 and the Cronos companies were owned and controlled by a Dr Palatin and, save for Cronos Cayman, their businesses were managed from the same offices in this country initially in Windsor and later in Marlow. Whereas T1 is now in liquidation, the Cronos companies, in which Dr Palatin has now no control or interest, are part of one of the largest group of companies in their line of business, worldwide.

Between April 1985 and March 1990 T1 entered into a series of management agreements with Cronos NV (“the Container Management Agreements”) for the hiring of its stock of containers. The agreements provided for Cronos NV to account to T1 for accumulated rental payments at prescribed intervals. The last set of audited accounts filed by T1 are those to 31^st December 1990 and they reveal a prosperous and successful company. Profit for the year to that date is shown as £1,507,000 (admittedly only half that of the previous year). Its balance sheet shows total assets less current liabilities as £70,120,000 including a container stock valued at £19,484,000 and debtors of £59,137,000. The accounts show total net assets of £9,301,000. T1 also held a significant shareholding in a Californian company, TOL Acquisition Corporation Inc. (“TOL”) which was a competitor of the Cronos companies.

The events with which this case is concerned start in early 1991. It appears that at that date Dr Palatin had failed in an attempt to take-over TOL but wished to prepare the Cronos group of companies for flotation in order to facilitate a renewed bid for that company in which T1 held 23% of its issued shares. It is the Liquidator’s contention that, at the beginning of 1991 Dr Palatin formed the intention of stripping T1 of its assets and either transferring those assets to Cronos or its subsidiaries or to applying them for his own personal benefit. T1 was to be made to appear to sell its principal assets to the Cronos group for a consideration which would not be fully paid or performed while Dr Palatin would make payments from monies held for it by Cronos directly for the benefit of Dr Palatin or his wife, debiting T1’s account with Cronos, alternatively, causing Cronos to make payments to T1 which sums would be immediately withdrawn by Dr Palatin and similarly applied. It is the Liquidator’s contention that it was Dr Palatin’s plan to prevent any attempt by or on behalf of T1 to recover its assets by allowing T1 to be struck off for failure to file accounts and be subsequently dissolved and by incorporating a company in the Isle of Man with exactly the same name as T1 (“T2”) which would be made to appear as if it was the transferee from T1 of its assets and obligations whereas, in reality it remained a dormant and inactive company. T1’s shares were all held by Swiss professional nominees on behalf of Dr Palatin and similar professionals constituted its board of directors.

In due course on the 21^st November 1991 T2 was incorporated in the Isle of Man with similar shareholders and directors to those of T1. It is common ground that at all times up to its liquidation it has remained entirely dormant in the sense that it has never opened a bank account or acquired any income or assets.

At a meeting on the 21^st and 22^nd November 1991 of the Cronos board, with Dr Palatin in the chair and five other members present, approval was given for two transactions, the first, for the purchase from T1 of its shareholding in TOL for $16m to be provided by the issue to T1 of 5.5m bearer ordinary shares in Cronos valued at $11m and the payment of the balance of $5m. and, secondly, for the purchase of 780 marine containers from T1 for a purchase price of $16.53m to be paid by the assumption by Cronos of T1’s indebtedness for loans from Creditanstalt Bankverein amounting to $7m and the issue to it of bearer preferred stock in Cronos with a value of $9m. It is of note that the issue of ordinary bearer shares pursuant to the first of these transactions, for which the board of Cronos gave its authorisation, would have conferred on T1 a controlling interest in Cronos.

On the 25^th November 1981, at an extraordinary general meeting held in Luxembourg the shareholders of Cronos appointed Dr Palatin managing director of Cronos and authorised the acquisition by Cronos of the TOL shares in exchange for the issue to T1 of 5,500,000 ordinary bearer shares of Cronos.

On the 6^th December 1991 the first of a series of cash withdrawals (“the Withdrawals”), in this case of $120,000, was made from the bank account of T1 and, it is the contention of the Liquidator, was misapplied, at the instance of Dr Palatin, for his own purposes as opposed to the proper purposes of T1. This withdrawal was followed over the succeeding years by a number of other withdrawals of significant sums of money from the bank accounts of T1 apparently at the instance either of Dr Palatin or his wife and of which the Liquidator contends the evidence demonstrates were misapplied for their purposes and not the purposes of T1, the final such withdrawal being made on the 10^th June 1999 after the date that a winding up order was made against T1. Many of these withdrawals appear to have been made shortly after T1’s bank accounts were credited with payments by Cronos NV of amounts collected by it for T1 under the Container Management Agreements.

On the 31^st December 1991 Cronos Equipment, another subsidiary of Cronos entered into an agreement, the benefit of which was later assigned by Cronos Equipment to Cronos Containers Limited, for the purchase of 780 Reefer Containers substantially in accordance with the terms authorised by the Cronos board at the meetings on the 21^st and 22^nd November. I will refer hereafter to this agreement as the “Reefer Container transaction” and the agreement for the acquisition by Cronos of the shares in TOL as the “TOL Share Purchase transaction”. On the same date at an extraordinary general meeting of Cronos in Luxembourg alterations to the capital structure of Cronos were authorised to accommodate these two transactions. The Reefer Container transaction required the issue of 90,000 bearer preference shares in Cronos.

On the 8^th January 1992 Barton Holding Ltd (“Barton”) was incorporated in Panama. It is not in issue that Barton has been at all material times owned and controlled by Dr Palatin. It is further not in issue that at some stage the 90,000 bearer preference shares, that should have been issued to T1 pursuant to the Reefer Container transaction, came into the possession of Barton and have subsequently been sold by it.

There is an issue of fact between the parties as to the extent to which, if at all, the consideration to be provided by the Cronos companies pursuant to the TOL Share Purchase transaction and the Reefer Container transaction has ever in fact been provided. The Liquidator contends that it has at least not been fully provided and I am not satisfied the evidence before the court conclusively shows that that has happened.

In April 1993 the first of a series of payments (“the Third Party payments”) was made from bank accounts of Cronos NV, as the Liquidator contends, directly for the benefit of Dr Palatin or his wife and not for the benefit either of Cronos NV or T1. Nonetheless in each case in the accounting records of T1 and Cronos NV the amount of these payments was deducted from the balance owing by Cronos NV to T1 as a result of sums becoming due under the Container Management Agreements. The last of such payments was made in February 1996.

On the 1^st June 1993 T1 was struck off the register of companies pursuant to section 652 of the Companies Act 1985 for failure to file accounts consequent on a notice by the Registrar served on T1 dated 16^th February 1993. On the 8^th June 1993 T1 was dissolved. It seems that by this date the assets of T1 had been substantially disposed of. However, the bank accounts of T1 remained open and continued to receive payments from Cronos NV as if nothing had happened.

On the 14^th June 1993 the shareholders of Cronos resolved to amend its articles of association so that the provisions of its articles providing only for the issue of bearer shares should be removed and converting all its issued bearer shares so as to become registered shares. This was one of the steps taken in anticipation of the flotation of the Cronos group. As a result Barton became the registered holder of 90,000 preference shares of Cronos. It is unclear whether the 5.5m ordinary bearer shares allegedly issued by Cronos to T1 pursuant to the TOL Share Purchase transaction are comprised in the bearer shares that have now become registered shares consequent on this change in the capital constitution of Cronos.

T1’s principal creditor is a Hungarian bank known as MKB which has a claim for $38m in respect of advances made in about 1985 to finance the purchase by T1 of its stock of containers. It seems to be common ground that in about June 1993 MKB became aware that T1 had been dissolved and raised the matter with a Dr Friedberg a lawyer and associate of Dr Palatin, a past director of T1 and future director of Cronos. It further appears from Mr Tietz’s evidence on behalf of Cronos that MKB had discovered the existence of T2 and was persuaded to treat T2 as the successor to the business which had been conducted by T1. On the 30^th June 1993 MKB entered into a document withT2 whereby T2 appears to have purported to assign its claims against Cronos NV arising out of the Container Management Agreements. In fact, of course, T2 had no power to do this since it was not party to those agreements, which had been made between Cronos NV and T1, the benefit of which agreements would, by June 1993 have been vested in the Crown on the dissolution of T1. Cronos NV and the other Cronos companies, through Dr Palatin, at least, knew of the dissolution of T1. From his letter of the 11th April 1994 to a Dr Ming, another lawyer and nominee shareholder of T1 and T2 it is apparent that Dr Friedberg was aware of the dissolution at this time. It seems from an attendance note of a telephone conversation between a Mr Foex an associate of Dr Ming and a director of both T1 and T2 that a Dr Wiessenberger, another associate of Dr Palatin, later appointed a director of Cronos in February 1997 and chief executive officer in May 1998, was aware of the existence of T2 and of its role in appearing to have taken over the assets and commitments of T1. Dr Wiessenberger was concerned to ensure that T2 was not itself struck off by the Isle of Man authorities for failure to file accounts for tax purposes. From a letter of 15^th October 2003 from the solicitor then acting for Cronos to the solicitor for the Liquidator it appears that the former was under the impression that T2 was a company in operation which had been making payments between June 1993 and September 1998 to MKB totalling approximately £3,900,000. These payments were made directly by Cronos NV from amounts which would have become due under the Container Management Agreements to T1.

On the 31^st October 1997 on the application of another creditor an order was made under section 653(2) restoring T1’s name to the register and it was so restored on the 27^th November. On the 26^th March 1998 that creditor presented a winding up petition against T1. It seems that a defence to the winding up petition was mounted and that this was assisted by officers of Cronos and Cronos may also have financed the costs involved.

In May 1998 Dr Palatin was arrested in Austria where he was subsequently convicted on charges of misfeasance and sentenced to imprisonment. On the 8^th June he was removed as chief executive officer of Cronos and subsequently resigned as a director. However his influence over Cronos did not cease at that point. As already noted his associate Dr Wiessenberger was appointed chief executive officer of Cronos in his place. He remained in office until 30^th March 1999. With Dr Friedberg he was a director of Cronos between January 1997 and their resignation on the 30^th and the 31^st March 1999 respectively.

On the 16^th December 1998 a winding up order was made against T1 and on the 13^th April 1999 Mr Melvin Langley was appointed Liquidator in place of the Official Receiver. He was replaced by Mr Papanicola on the 8^th March 2001 who was in turn replaced by the present Liquidator on the 10^th December 2002. On the 4^th June 2003 a winding up order was made against T2. As a result of the order of Mr Justice Etherton dated 25^th October 2004, T1 and T2 are being wound up together the Liquidator having been appointed as Liquidator of T2 also. These proceedings were commenced on the 13^th December 2004.

Dr Palatin did not confine his depredations to T1. In his first witness statement Mr Tietz, a current director of Cronos, describes his various frauds on the Cronos group including the unlawful abstraction of money used for his own and his wife’s purposes reminiscent of the Withdrawals from T1 and the Third Party payments of which the Liquidator complains in these proceedings. Mr Tietz describes how the United States Securities and Exchange Commission, in a report on the affairs of the Cronos Group estimates the total value of Dr Palatin’s misappropriations from the Cronos companies as $17m.

The proceedings were begun by an ordinary application in the winding up seeking declarations in the following terms:-

“1.

A Declaration pursuant to Section 213 of the Insolvency Act 1986 that the Respondents and each of them were knowingly a party to the carrying on of the business of Transocean Equipment Manufacturing and Trading Limited (a company registered in England) (“TOEMT 1”) and/or Transocean Equipment Manufacturing and Trading Limited (a company registered in the Isle of Man) (“TOEMT 2”) with intent to defraud the creditors of TOEMT 1 and/or TOEMT 2 and/or the creditors of any other person and/or for other fraudulent purposes, by assisting Dr Stefan Maximilian Mirkovich Palatin (“Palatin”) in diverting the assets of TOEMT 1 and/or TOEMT 2 to himself, entities in which he was interested (including the Respondents) and/or his associates otherwise than for the proper purposes of their business (including paying creditors) and otherwise than for full consideration, among other things by means of:

1.1

The transfer on or around 25 November 1991 by TOEMT 1 of a holding of shares and preference shares in a company named TOL Acquisition Corporation Inc (worth around US$16 million) to the First Respondent or one of its subsidiaries in return for a holding of 5.5 million ordinary shares in the First Respondent, which was then redeemed and/or transferred to Palatin and/or his nominee for no or no proper consideration.

1.2.

The transfer on or around 31 December 1991 by TOEMT 1 of part of its stock of maritime containers (valued at around US$15.63 million) to Cronos Equipment SA (a wholly-owned subsidiary of the First Respondent that was dissolved on or about 18 December 2000), in return for (a) a holding of 90,000 preference shares in the First Respondent (worth around US$9 million), which was then transferred to Barton Holding Limited (a company owned and/or controlled by Palatin) for no or no proper consideration, and (b) a loan charged on Cronos Equipment SA’s shares, which appears never to have been repaid.

1.3

The making of various payments (amounting in total to in excess of US$894,299.36) between around June 1993 and around February 1996 by the Second Respondent (allegedly on behalf of TOEMT 1 and/or TOEMT 2 out of monies owed to TOEMT 1 and/or TOEMT 2 by the Second Respondent) to third parties (namely Palatin, entities in which he was interested and/or his associates), which payments were made otherwise than for any legitimate commercial or other purpose of TOEMT 1 and/or TOEMT 2’s business or interests.

1.4.

The making of a number of improper cash withdrawals (amounting in total to in excess of US$1,470,000 plus £255,000 plus ATS 2,900,000) between around December 1991 and around June 1999 from TOEMT 1's bank accounts (either directly by Palatin or with the assistance of his wife, and in each case with the assistance of the Second Respondent), such withdrawals being for the benefit of Palatin and/or his wife rather than for any legitimate commercial or other purpose of TOEMT 1 and/or TOEMT 2’s business or interests.

1.5.

The diversion between 1991 and 1993 (with the assistance of the Second Respondent) of TOEMT 1's container business to TOEMT 2, for no or no proper consideration, such diversion being concealed from creditors of TOEMT 1 (with the assistance of the Second and subsequently Third Respondents).”

It being common ground that there was no diversion of assets from T1 to T2 by part of my order, made at the first hearing of the Respondents’ application commencing on the 18^th July, I struck out paragraph 1.5. When the matter returned before me it was to be seen from the particulars of claim filed by the Liquidator that in addition to pleading fully the grounds upon which he was seeking the declarations set out in paragraphs 1.1 to 1.4 of his ordinary application, he had added at part III.E further allegations under the heading “The TOEMT 2 Smoke screen”. The pleading at part III.E raises what I would describe as a “conventional” case of fraudulent trading, namely, that those in control of T1, Dr Palatin and his associates, fraudulently prolonged the life of T1, with the result that its overall deficiency of assets increased, at a time when they well knew that there was no prospect, indeed in this case no intention, that T1 would ever be in a position or be placed in a position to pay its creditors in full, and that the Cronos companies had assisted those in control of T1 to achieve that result.

Since I am going to refuse the Respondents the relief which they seek and so the case must go on I will give my reasons for arriving at that conclusion relatively briefly since to embark upon a detailed analysis of the evidence and the law would be inappropriate at this stage.

Having considered the evidence from the witness statements and documents to which my attention has been drawn I have come to the conclusion that the Liquidator has presented a good arguable case that:-

It follows from these conclusions that I decline to strike out the Liquidator’s claims arising from the TOL Share Purchase transaction or the Reefer Container transaction or to order summary judgment for the Respondents in respect of those claims or to discharge Mr Registrar Simmonds’ order of the 14^th February 2005 authorising service of the proceedings abroad, to the extent that they comprise the Liquidator’s claims in respect of those transactions.

I turn to consider the Liquidator’s case in relation to the Third Party payments under paragraph 1.3 of his ordinary application. This part of my judgment deals with all payments which the Liquidator says were paid directly from bank accounts of Cronos NV to Third Parties, including Dr Palatin and his wife, but which are shown in Cronos NV’s records as debits to T1’s credit arising from sums becoming due under the Container Management agreements but which the Liquidator contends were not made for the proper purposes of T1.

I will assume that the Liquidator is correct in respect of each of the Third Party payments that they were not made for the proper purposes of T1 and I repeat that I will also assume that at all times material to the Third Party payments both T1 and Cronos NV were under the control of Dr Palatin for the purpose of making those payments and that he was activated to procure them to be made by a fraudulent intent, namely, wrongfully to apply the assets of companies which he controlled for his own purposes whether as part of T1’s fraudulent trading or otherwise.

It seems to me that on these assumptions, which are crucial to the Liquidator’s case in relation to the Third Party payments, that that case cannot succeed for two reasons: the first, because payments made from Cronos NV in those circumstances could not comprise fraudulent trading by T1 and, secondly because the fraud in question here is a fraud on Cronos NV and not a fraud on T1. In my judgment it is necessary to look at each transaction comprising the Third Party payments at the time it is entered into. At that time money is being taken from bank accounts in the name of Cronos NV and knowingly wrongfully passed to third parties. It follows that, whatever Cronos NV’s accounting records were procured by Dr Palatin to show, those payments could not take effect to discharge any part of the balance due from Cronos NV to T1. In my judgment the fact that T1’s claim to recover the balance due to it, without deducting the amount of the Third Party payments, may now be barred by limitation does not affect this conclusion even though T1 may have been procured to be inactive in recovering the monies due to it as a result of steps taken by Dr Palatin, in particular, allowing T1 to become dissolved. In any event it is far from clear that section 32 of the Limitation Act 1980 would not be a sufficient answer to such a plea of limitation in all the circumstances of the case.

In Bank of India v Morris [2005] BCC 739 the Court of Appeal were considering a case of “conventional” fraudulent trading were those in control of BCCI were, by fraudulent means, attempting to prevent the true financial situation of BCCI becoming known outside the company and the Bank of India in proceedings under section 213, was charged with assisting in that purpose by accepting deposits from BCCI and making their proceeds available to one of BCCI’s customers to make it appear as if that customer was servicing its loan when, in reality, it was unable to do so. It was accepted that the board of directors of the Bank of India were unaware of the true nature of these transactions which were brought about by the fraud of a senior employee. The issue in the case was whether the Bank of India were fixed with that employee’s knowledge. It was contended for the Bank that it was not so fixed because that employee, as part of his fraud, was exposing the Bank to liability under section 213 which rendered the Bank a victim of the fraud. It was contended that in those circumstances, and applying the normal rules of attribution of intention to companies established by the line of cases commencing with Re Hampshire Land Co [1896] 2 CH 743 the fraudulent knowledge of the Bank’s senior employee could not be attributed to it because the Bank was thus a victim of the fraud. The Court of Appeal upholding Mr Justice Patten rejected that contention on the ground that the statutory purpose of section 213 as defined by the judge, “was to enable the Liquidator of a company to recover compensation for the benefit of those who suffered as a result of the fraud from those who had knowingly assisted the fraudulent conduct of the company in liquidation”. The Court of Appeal, citing the case of McNicholas v Customs & Excise [2000] STC 553, held that this statutory purpose overrode the normal rules of attribution because otherwise that purpose would be largely defeated.

The facts of the Third Party payments in the present case are very different from those being examined by the Court of Appeal in the Bank of India case. It is accepted that, but for the common law rules of attribution of knowledge to companies, the management of T1 would be fixed with Dr Palatin’s fraudulent intent. However no discernable purpose of section 213 is being frustrated by this result. If the situation of the parties to the payments is viewed, as in my judgment it must be, at the time each payment is made, the assets of T1 have not been diminished.

In my judgment the Liquidator is in similar difficulties over his attempt to recover from Cronos NV the amounts of the Withdrawals as assistance by Cronos NV in the fraudulent trading of T1 under section 213. The acts of fraudulent trading which it is said that Cronos NV assisted were the various withdrawals, at the instance of Dr Palatin, of substantial sums from the bank accounts of T1 and the application of those sums for the benefit of Dr Palatin and his family and not for the benefit of T1 and its business. Again I will assume that Dr Palatin controlled each of T1 and Cronos NV for the purpose of the making and financing of these payments and that their proceeds were applied other than for the benefit of T1.

T1 was able to make these payments because Cronos NV had, shortly before the payments were made, accounted to T1 for the container rents which it had collected pursuant to the Container Management Agreements. Cronos NV was bound by contract so to account. It does not seem to me to be possible to suggest, without more, that this accounting could constitute assistance in fraudulent trading. I do not understand the Liquidator to be suggesting that it could.

The Liquidator’s case is that because of this position, Cronos NV was fixed with knowledge of the intention of Dr Palatin to misapply the money so received from Cronos NV. The Liquidator points to examples of early accounting by Cronos NV contending that these payments were made early in order that the monies would be available for Dr Palatin to remove. I will assume that it can be established that there was coordination between the accounting by Cronos NV and the Withdrawals by Dr Palatin as a result of Dr Palatin’s control over the affairs of Cronos NV.

If money is paid to a company in ostensible discharge of a contractual obligation but the payer knows at the time he makes payment that all or a substantial part of it will immediately be stolen by a dishonest employee or officer of the payee, such payment cannot be a discharge pro tanto of the payer’s obligations. The company will remain entitled to claim the full amount due under the contract. The net result of the transaction is theft from the payer of the money paid.

For these reasons it seems to me that the Liquidator’s claim to recover the amounts of the Third Party payments and the Withdrawals under paragraphs 1.3 and 1.4 of the ordinary application as assistance in fraudulent trading under section 213 are bound to fail. It follows that I would give judgment dismissing those claims to the Respondents.

Before leaving this aspect of the case it is to be noted that one of the Withdrawals took place after the making of the winding up order against T1 and a further two of the Withdrawals took place after the presentation of the petition under which that order was made. A company cannot be treated as continuing its business after the making of a winding up order against it unless that business is continued on the instructions of the Liquidator or with his consent. It follows that the Withdrawal made after the winding up order cannot be treated as assistance in fraudulent trading under section 213 whatever conclusion the court may arrive at on the issue of whether the operations of T1 from January 1991 onwards until the winding up order are to be classified over the whole or any part of that period as fraudulent trading within section 213.

There was an issue between the parties whether a company was capable of fraudulent trading during the period between the presentation of the petition to wind up and any consequent winding up order. Section 129(2) of the 1986 Act provides that, with an immaterial exception, the winding up of a company is deemed to commence upon the presentation of the petition for winding up. Section 127 of that Act provides that any disposition of a company’s property made after the commencement of its winding up is void unless the court otherwise orders. There have been no orders under section 127 in this case.

A company cannot be treated as carrying on business when any transaction in the course of that business which amounts to a disposition of the company’s property is deemed to be void. It follows, it seems to me, that, on any view, T1 cannot be treated as carrying on business for the purpose of section 213 after the 26^th March 1998 when a winding up petition was presented against it on which a winding-up order was subsequently made. It follows from that that even if I am wrong in my conclusion as to whether the part played by Cronos NV in any of the Third Party payments or the Withdrawals is capable of constituting assistance in fraudulent trading, the three Withdrawals which were made after that date are incapable of constituting such assistance.

I turn to consider the claims made by the Liquidator under part E of the new particulars of claim. It seems to me that this part of the particulars of claim pleads what I have described as “conventional” fraudulent trading of a type similar to that involved in the Bank of India case. It is alleged that Dr Palatin’s “plan” involved steps being taken to conceal the mulcting of T1’s assets and to prevent or obstruct any interested parties, such as creditors, from taking any steps to procure T1 to recover those assets. The obvious example is connivance at the dissolution of T1. I am satisfied that the Liquidator has raised a good arguable case that part of Dr Palatin’s campaign of fraudulent abstraction of assets from T1 was procuring T1 and the Cronos companies to take such steps. In the process of trying that case there will be issues surrounding the extent to which it can be said that the Respondent companies were themselves involved in concealment as opposed to individuals who may have been officers or employees of the Respondents but who cannot be taken to be acting on their behalf in doing so.

It was submitted on behalf of the Respondents that the allegations and relief claimed in part III.E of the particulars of claim added nothing to the claims contained in paragraphs 1.1 to 1.4 of the ordinary application. Contrary to that submission it does seem to me that the evidence establishes a good arguable case that T1 has lost assets other than those comprised in claims 1.1 to 1.4 which may well have been lost as a result, amongst other things, of the delay in putting T1 into liquidation. In particular the loss actually occasioned to T1 as a result of the events surrounding the Third Party payments and the Withdrawals may be recoverable under this head as resulting from the inactivity of T1 caused by the delay in putting it into liquidation.

The question then arises whether the claims in part III.E constitute a new cause of action for which the Liquidator needs permission to amend to include in the present proceedings. It is plainly not included in the claims made in paragraphs 1.1 to1.4 of the ordinary application. I have struck out paragraph 1.5. Even if it were open to me to disregard that, the concealment alleged in paragraph 1.5 is concealment of the transfer of T1’s container business to T2 not concealment of the wholesale removal of assets from T1.

It is the Liquidators contention that in proceedings in the course of a winding up, commenced by ordinary application and where pleadings have not been ordered, the court should treat the evidence filed immediately in support of the application as if that evidence constitute a pleading. Although I do not recollect that this contention was challenged by the Respondents in the course of the argument, I know understand that this is not accepted by them. In the light of the conclusion that I have arrived at in the succeeding paragraphs of this judgment in relation to the application of CPR 17.4(2) it is not necessary to decided the point.

In the decision of the Court of Appeal of the Convergence Group Plc & anr v Chantry Vellacott the Court of Appeal were dealing with a similar problem. The case involved an allegation of professional negligence by a client against that client’s accountant. The Court of Appeal accepted the judge’s conclusion on an application to amend the claim that the proposed amendments did introduce a new cause of action but went on to allow the appeal on the ground that the new claim arose out of substantially the same facts as the claim already pleaded within CPR 17.4(2). That sub-rule provides:-

“(2)

The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

Lord Justice Jonathan Parker giving the judgment of the court allowing the appeal from the judge said this at paragraph 104:-

“104

We accept Mr Crane’s submission that in order to the answer this question it is necessary to make what is essentially a qualitative judgment (“a matter of impression” to use Millett LJ’s expression in the Welsh Development Agency Case: see paragraph 98 above). Be that as it may, we have come to a clear conclusion on this question which is contrary to the conclusion reached by the Master and by the Judge.

105

Of course it is right that, as Mr Crane pointed out, the proposed re-amendments make allegations of fact which are not already pleaded: that is more or less inevitable in a case of this factual complexity. But it does not follow that the new claim does not arise out of substantially the same facts as the claim already pleaded.

106

In the instant case, we think it does. Standing back from the mass of factual detail which is pleaded, one sees on the pleading a continuous course of conduct by CV in providing advice and services over a period of three or more years pursuant to a single retainer in November 1996 which is limited to one specific matter, namely the proposed restructuring of the Group. The case pleaded is, as Mr Temple described it, one of “cumulative delay” causing losses as at the end of the period.

107

Viewing the new claim in that general context, it seems to us that although the proposed re-amendments inevitably allege facts not already pleaded, nevertheless the allegations arise out of substantially the same facts as the existing claim. They stem from the same retainer and they relate to the same matter, viz. the proposed restructuring of the Group.”

Whereas it seems to me to be doubtful that the ordinary application and the tenth witness statement of Mr Carman read together plead the cause of action contained in part III.E of the particulars of claim, it seems to me clear that he cause of action there pleaded arises from substantially the same facts as those already pleaded in those two documents. In particular I draw attention to paragraphs 129 to 154 of Mr Carman’s tenth witness statement.

“Standing back from the mass of factual detail which is pleaded”, as Lord Justice Jonathan Parker invites the court to do, it seems to me that Mr Carman’s tenth witness statement sets out a detailed description of the trading history of T1 from January 1991 when he says T1’s fraudulent trading started. That description includes the description of attempts to conceal what was going on in the company by Dr Palatin or at his instigation. Concealment in respect of individual transactions is described as contributing to the conclusion that those transactions were part of a course of fraudulent trading albeit in the context of an allegation of an attempt to conceal a transfer of the business and obligations of T1 to T2 which it is now accepted did not take place. The fact that the new cause of action may give rise to relief in a different form from that sought by the claim as it stands does not mean that sub-rule (2) cannot be complied with see SIB v Finken CA, The Times, 15 November 2001 ([2001]) EWCA Civ 1639 at paragraphs 35 and 36.

In the result I have come to the conclusion that I should give permission to amend the Liquidator’s claim to include the case pleaded at part E of the particulars of claim.