Phillips & Ors v Symes & Ors

On 4 July this year there was to be a start of a determination of the assets of the partnership which was formerly carried on between the late Christo Michalidis and Mr Symes (the first defendant in this action). No trial took place. The reason why no trial took place was because the parties to that application (the first and second claimants and the first defendant and the sixth defendant, the trustees of Mr Symes) sought a stay of the accounts and inquiries.

The evidence and pleadings which were filed at that time put in issue the ownership of a substantial number of assets. Those assets extended beyond what appeared to be prima facie partnership assets, and extended in addition to assets which prima facie belonged to the second defendant (Robin Symes Limited in liquidation) ("RSL"). It went into voluntary liquidation in December 2003. The claim I am told by Mr Miles QC, and nobody dissents from this, was formulated in a new way for the first time by the claimants to the accounts and inquiries. Up until this claim was formulated in February of this year, I am told that it was understood between the parties that the shares of the company RSL were a partnership asset. That company may or may not be insolvent. It has assets which number many thousands. I am told that the range of values of those assets are between five and twenty million pounds. Those assets are antiquities and I am told that the antiquities market is depressed at the moment and might be depressed for some time. The amount of the creditors is substantial. The largest potential creditor is the Inland Revenue. They raised assessments some three years ago, I think, of £30 million and those assessments now stand at some £40 million. They are based on a substantial non-disclosure of the trading history of the company and the partnership for decades. Those assessments may be capable of challenge, I am told, but nobody is in a position, as I understand it, to put forward any feasible basis for challenging those assessments.

The liquidation committee has representatives on it of the Revenue, Lovells (the petitioning creditor of Mr Symes’s bankruptcy), and the third claimant. Once the proceedings, the accounts and inquiries proceedings, raised the new issue that in fact the company did not own the assets beneficially but held them on trust for the partnership, it was inevitable that if the accounts and inquiries proceeded the company would have to be a party to those proceedings. The liquidator’s costs in the liquidation to date are £900,000. In addition, the trustee in bankruptcy, based on the evidence of Mr Symes, indicated that there were further claims which could be brought against C3, who is not a party to these proceedings, arising out of claims as to the ownership in particular of, for example, the Eileen Gray furniture, which is already the subject matter of proceedings in Athens.

The parties (i.e. C1, C2 and D6) sensibly, in my view, decided that it was appropriate that the huge expense which would be incurred in a further round of litigation at this stage over the ownership of the assets with the consequent drawing in of RSL into that dispute and C3 was likely to be disproportionate and unnecessary. If there was a possibile resolution of the dispute the parties who were before me at the time believed that their best interests would be served by a stay of the proceedings to enable a breathing space to occur whereby it would be hoped the parties would then resolve the disputes. That seems to me to be commendable.

In my judgment I referred to the large number of proceedings and the time these proceedings have taken before the court. RSL, but not the liquidators, has been a party to part of that process. It was a party to the first proceedings I heard in April 2003. At that time it was in administrative receivership. The administrative receivers took no part in those proceedings. I doubt that the liquidators in the present proceedings would take a neutral stance if the ownership of the assets which are in the company is put in dispute. It follows, therefore, and all the parties appreciate this, that no resolution of the disputes can be made without the participation of the liquidators. If all the other parties agree that the process of negotiation is enhanced by removing a distraction of spending money in costs, the same in principle, in my view, ought to apply to the liquidators. It would not assist the negotiating process, in my view, if the intentions of the parties to have a stay of the warfare which has broken out between them would simply be outflanked by the liquidators commencing their own proceedings under their powers under the Insolvency Act, because that would simply transfer the dispute from this action into another action. Accordingly, when the stay was proposed I, of my own motion, made an order which applied not only to the parties before me but also by any claims which might be brought by the liquidators. Paragraph 2(a) of my order states:

“All proceedings should be stayed, including any or other proceedings within the jurisdiction of this court between the claimants and the first, second and sixth defendants and concerning the matters raised in this action, and in particular as set out in the points of claim and points of defence.”

It is important to appreciate that whilst RSL had not been served with the particulars of claim at that time, they were nevertheless involved in those disputes and what would have happened on 4 July had the proceedings not been stayed is that the proceedings would have been adjourned RSL would have been joined, ordered to serve a points of defence, and the ownership of the statues would have been determined in this action. That has been stayed. Mr Steinfeld QC is right, in my view, when he submits that if the liquidators commenced a separate action in relation to the matters concerned in this action, that would be potentially a Henderson v. Henderson abuse because it would be an attempt to re-litigate in a fresh action the same matter as the subject matter of this dispute, I have no doubt that if the liquidators had sought to bring such proceedings they would either have been struck out as an abuse or stayed, given the claims which were intimated within this action by 4 July. There would have been no prospect, in my view, of RSL, having been served with the particulars of claim and been joined as a defendant, insisting that they would be able to commence their own proceedings.

The other complaint – and this is the major complaint – is paragraph 4 of the order, where I said that the joint liquidators may not commence any proceedings before the court or make any applications in respect of the matters arising in this action and in respect of the matters set out in the particulars of claim and defence without my leave, with a provision that they can make any application for leave ex parte, and I gave them liberty to apply within fourteen days of the service of the order to vary or discharge it. Finally, paragraph 7 provided a bar if no proceedings were commenced within two years of the making of my order. There were, however two vital add-ons to that order. First provision was made for an application to extend time, supported by evidence explaining why the time had proved insufficient. That enables the liquidators, if their investigations are continuing, to make a very simple application to the court ex parte setting out why they are not yet in a position to commence proceedings. Second, provision was made for an application for an order extending time even after the two year period had run out, provided it was supported by fresh evidence. Those two provisos enabled the liquidators to commence any proceedings if those proceedings were justified and supported by evidence. It is self-evident, in my view, that if the liquidators could not justify the proceedings on that basis, any such proceedings they would wish to bring would therefore be an abuse of the process of the court. Those orders were made against the trustees in bankruptcy. They sought permission to appeal, but in the event have considered that the order makes sense. They, of course, are professionals, just as the liquidators are professionals. They have the duty, in parallel to that of the liquidators, to investigate the affairs of Mr Symes’s bankruptcy. That, of course, is inevitably linked to the liquidation RSL because either half the shares vested in them upon the bankruptcy of Mr Symes, or half of the assets held by it upon trust for the partnership vest in them as the trustees in bankruptcy. It is surprising that those professionals see the sense in the order but the liquidators take a different stance.

Mr Miles QC appears for the liquidators and he makes as his primary submission that the order I have made is a civil restraint order. He points out that after the case of Bhamjee the rules were changed and express provision was made dealing with civil restraint orders. A civil restraint order is defined as an order restraining a party from making any further applications in current proceedings, from issuing certain claims, or from issuing any claim or making any application in specified courts. If one looks at the Practice Direction pursuant to that definition, it sets out when a civil restraint order can be made. None of the criteria applies to this case, I fully accept, because the fundamental premise to a civil restraint order is that it seeks to restrain somebody who is abusing the process of the court by making repeated unmeritorious applications. Mr Miles QC is quite correct in this sense: it is self-evident that the liquidators do not fall within that category because never mind not making one application without merit, they have not made any applications at all yet, apart from the present one, so they can hardly fall within the provisions of the practice direction of civil restraint. That is because I was not invoking the civil restraint jurisdiction. Under CPR 1.1, I have a duty, which duty is of course applied to insolvency proceedings by r.7.5(1) of the Insolvency Rules, to ensure that the overriding objective is achieved. That requires me to deal with cases justly and as far as practicable and I have to regard the saving of expense, dealing with the case in ways which are proportionate, ensuring that it is dealt with expeditiously and fairly and, most importantly of all in the context of this case, allotting to it an appropriate share of the court’s resources while taking into account the need to allot resources to other cases.

I am given extensive case management powers under CPR 3.1. Under 3.1(2)(f) I am given the power to stay the whole or any part of the proceedings until a specified date or event and under CPR 3.2(m) I am given the power to take any step or make any order for the purpose of managing the case and furthering the overriding objective. I have, in my view, exercised those powers to control these proceedings. These proceedings are in relation to the ownership of a large number of assets. The liquidators might complain that they are not a party to the proceedings as regards that issue, but that is a point without merit for two reasons. First, they are parties through the liquidation of RSL for the overall action, and second, claims have been intimated against it in the particulars of claim which would necessitate it being a party to that issue if it proceeded. It is essential, in my view, for the reasons I set out in my earlier judgment, that these proceedings should have restrictions upon them for the reasons I gave. The proceedings have attracted a huge amount of judicial resource. It is true, as Mr Miles QC says, that the liquidator’s role has not been of significance in that, but if these proceedings were not stayed that would change because if the stay were to be lifted then the court would be required (and the word, in my view, is “required”) to proceed expeditiously to resolve the dispute over the assets. I remind myself that the liquidation is already three years old. The liquidators hope, but cannot say, that they will finish their examination within the next two years. These proceedings have gone on for many years. It is inevitable that if the stay is lifted the court would proceed to set an immediate timetable for a resolution of the ownership of the assets. That, to my mind, bearing in mind the wish of the parties to have a breathing space, is wasteful of their time because it requires them to spend money on legal fees, which they would rather not do at the moment, it wastes court time because it sets a timetable and takes court time up dealing with that process and it requires the court to make time available for the hearing of that dispute. Given that the parties’ (other than the liquidators) desire to achieve a result, the stay will not work if I allow the liquidators to commence their own proceedings and outflank the spirit of the order. I therefore conclude that this is not a civil restraint issue, it is a matter of the stay. It would not be appropriate in my view simply to stay the proceedings and allow the parties to decide when it was they aught to be revived.

The next question I go on to consider is whether or not the terms of the order should be modified. I asked Mr Miles QC a number of times what disadvantage his clients suffered by the order. He replied consistently that they should not be restrained as a matter of principle because no other litigants are restrained as a matter of principle this way. That is right generally. The courts are provided to enable parties to litigate when disputes arise, but it is not an absolute right. They share the right with other litigants, they share the right with the limited court resources and it is, in my view, inevitable that that curtails the unfettered right to bring proceedings.

In the present case, the liquidators share that right with this complicated litigation which has already taken place. Wittingly or not, they are inevitably a party to that process. I cannot begin to contemplate how long the action will be if I lift the stay now and direct an inquiry as to the ownership of each and every item owned presumptively by the company. For a start one would, for example, set out a Scott schedule listing 5,000 items requiring comment on each. There would then be expert evidence and this is something which I imagine would take weeks to resolve in court.

It is, in my view, given the state of these proceedings, the enormous costs of these proceedings, something which the court should curtail if at all possible. It should not, of course, curtail it in a way which operates unjustly. There is no injustice, in my view, of a stay in the present form when it is applied equally. It is designed to stop parties carrying on the litigation frustrating the stay and the desire of the parties to negotiate. If any potential party to those negotiations is not bound by the stay, it gives that party a weapon which it should not be allowed to use to better its position in the negotiations. Mr Miles QC was, of course, unable to say why the stay operated unfairly against his clients. The reason for that, of course, is because the provisions of the order do not stop the liquidators bringing proceedings within the two year period if they can show that the case is arguable. I ask myself what is the disadvantage to the liquidators in making an ex parte application that way, supported by evidence, unless it is truly that they want to bring proceedings which have no merit. Equally, they can apply outside the two year period if they can show it is based on fresh evidence. What is the disadvantage in that, I ask? By that time, they will have been in office for five years. I cannot believe that at the end of five years the office-holders would not be in a position at least to formulate a claim which had a prospect of success, and if they are in that position then it must be because the matters are not being investigated expeditiously. If they have merits, they have no obstacle. If they have no merits, they have no prospects of permission, but equally if the stay was lifted, if the applications were issued without any merits they would be stayed or dismissed as being an abuse.

In the context of the overall position of these disputes, it seems to me that the order which I made had sense, introduced a sense of discipline within these proceedings and put a time limit for negotiations. In my experience in cases like this, when time limits are set minds are concentrated and parties move towards a resolution of the disputes. If I remove the time limit for the liquidator it removes the pressure which is also put on the liquidator to take a reasonable stance within two years to achieve a result. Equally, if I lift the stay as against the liquidator, it seems to me that both the submissions of Mr Steinfeld QC and Mr Barker (who appears for the trustees) are correct. It would be quite wrong for them to be stayed if the liquidator was not stayed, and if the stay is lifted then, as I say, what I would have to do then would be to set a new timetable for the determination of the issues which I ordered last February in light of the new points of claim. That would join RSL and would set a timetable, presumably, for a hearing of this dispute probably around April and May of next year, I would have thought, which is the earliest time I can be available to hear it.

I see no sense in forcing unwilling parties to incur the expense of such an inquiry but that, in my view, is the inevitable consequence of acceding to Mr Miles QC, application.

The only other way I suppose I could deal with it is simply to remove the fetters and say the proceedings are stayed generally and that the stay cannot be lifted without an application, but that is change of form rather than substance, but it does at least demonstrate that in reality I have not made a civil restraint order. I therefore decline to vary my order.