Peters (The Liquidator of Automold Ltd) v Menzies & Ors

JUDGE PURLE: This is an application by the respondents to strike out parts of the points of claim in this matter, 16 months into the claim, which was issued in January of last year, and was preceded by the unusual step of service of detailed draft points of claim in the letter before action. The trial is due to commence in January of next year, with a time estimate of 6 weeks. I have had the advantage in this case of detailed skeleton arguments on both sides, and a reading list, which I have endeavoured to read, although I have not looked at all the underlying documents.

Mr Mortimore, who appears for the respondents, now wishes to take me through what he says are the core documents, which he says would take the best part of a morning, or to be more accurate, the best part of the rest of the morning, it now being five to 11, which he says will make it clear that the impugned paragraphs cannot stand.

The complaint in very broad terms relates to the conduct of the administration of Automold Limited, which it is alleged was conducted for the benefit of Ford, Automold being one of its suppliers, and not for the benefit of creditors generally. The strike out application seeks to strike out a number of paragraphs. In particular it seeks to strike out paragraphs relating to what is described by Mr Mortimore as the pre-appointment claim, and various negligence allegations. There will remain, even if the strike out application succeeds, claims for breach of fiduciary duty arising from the actual conduct of the administration.

The pre-appointment claim in very broad outline is to the effect that the administrators, before their appointment, should have disclosed to Automold Limited their intention to build up stocks so as to enable Ford to exit from Automold in an advantageous manner. It is said that proper disclosure of the proposed administrators’ intentions was not made because this would have revealed to the directors of Automold, who were persuaded to make an out of court appointment, the fact that the administration would be conducted less for the benefit of creditors generally and more for the benefit of Ford. It is of course disputed that there was any material withholding of information from the directors. That is not for me to decide on this application.

Mr Miles and Mr De Mestre refer at the beginning of their skeleton argument to the speech of Lord Templeman in Williams & Humbert Limited v W & H Trademarks (Jersey) Limited [1986] Appeal Cases 368. In that case Lord Templeman said at pages 435H to 436A that: “If an application to strike out involves a prolonged and serious argument the judge should as a general rule decline to proceed with the argument unless he not only harbours doubts about the soundness of the pleading but in addition is satisfied that striking out will obviate the necessity for a trial or substantially reduce the burden of preparing for the trial, or the burden of the trial itself”.

To similar effect was Lord McKay of Clashfern at pages 441E to F. That case predated the CPR’s incorporation of the overriding objective, which requires the court to allocate court resources proportionately. The CPR seems to me to reinforce the Williams & Humbert approach. Mr Mortimore did not suggest that the approach was no longer appropriate. He simply said it did not apply in this case because he says that the trial would be substantially shortened by excising the paragraphs to which I have referred, and keeping out the consequential expert evidence.

There is in addition to the pre-appointment claim a negligence claim, which it is said cannot succeed, partly because it is improperly particularised, but mainly because the claim impinges upon the commercial judgments of the administrators, which as a rule are paramount, the court not substituting its own views for those of the administrators. There will, however, remain the breach of fiduciary duty claim and the misfeasance claim (which amounts to the same thing) based upon the alleged undisclosed partiality that the administrators had towards Ford.

It is not, I think, disputed that the administrators made known (insofar as that was not already known) that they had acted for Ford in the past, and that they told Ford, Automold’s bank and the directors, that they would carry out their duties in the interests of the creditors as a whole. The issue in this case is whether they did so, and whether in saying that to the directors they made proper disclosure of the position.

The substantive application that is before me is based upon paragraph 75 of schedule B1 of the Insolvency Act 1986, which appears on its face to relate, and relate only, to conduct of the administrators acting as such. Mr Miles and Mr De Mestre have prepared detailed skeleton arguments saying why that does not preclude the pre- appointment claim. I have not heard that argument developed. I do, however, at the moment entertain, looking at the first limb of Lord Templeman’s suggested approach, doubts about the soundness of the pleading in that respect.

I am not, however, remotely satisfied that striking out will obviate the necessity for a trial or substantially reduce the burden in preparing for trial or the burden of the trial itself. I say that because it seems to me that when considering the actual conduct of the administration, what will inevitably be explored in evidence is the alleged brief that the administrators had from Ford prior to taking office and their then plans and intentions as to how the administration would be conducted. All that is going to be gone into at the trial, even if the impugned paragraphs are now struck out.

I do not entertain the same reservations (on the soundness of the pleading) about the negligence claim, although again I have not heard detailed argument from either side. I can see the force of the point made by Mr Mortimore and Mr Richmond, in their skeleton argument, that what the applicant is seeking to do is to undermine the commercial judgments of the administrators, which are ordinarily paramount, and is seeking to substitute a particular administration undertaken on particular terms as to funding with another hypothetical administration. I do not, however, think that this amounts (as is suggested) to some collateral attack upon a valid appointment because Mr Miles does not challenge the validity of the appointment. He says the appointment should never have been accepted, but that having accepted the appointment the administrators should have acted as truly independent administrators would have done, which it is alleged they did not. Even if there was no breach of fiduciary duty, the administrators’ alleged failure to act as truly independent administrators would have done is relied upon in support of the negligence claim.

It seems to me that it is impossible at this stage to conclude that that case has no foundation, and in any event even if I harboured the doubts that Lord Templeman refers to, exactly the same evidence, so it appears to me, that relates to the breach of fiduciary duty claim would go to the negligence claim. It is very unlikely, therefore, that the length and burden of the trial would be increased by the continued inclusion of the negligence claim.

The order for expert evidence was made, following argument, by me some time ago and was not appealed. It provides for evidence from an expert insolvency practitioner concerning the steps and options that would have been available to an insolvency practitioner appointed in respect of Automold Limited in or about December 2003, taking account of the functions, powers and duties of an administrator and the purposes of administration.

Mr Mortimore now says that that is an inappropriate direction because it substitutes for the actual administration a hypothetical administration with which the court is not concerned. He also says that the expert evidence is relevant only to the negligence claim, which, as I have said, he invites me to strike out. However, on the footing that the administrators, as is alleged, should not have accepted an appointment, that will inevitably give rise to an inquiry as to what would have happened if they had not been appointed. Even on the footing that they properly accepted the appointment, the breach of fiduciary duty claim concerning the actual conduct of the administration raises the question of what alternatives did the administrators have, if any?

I agree with Mr Mortimore that the negligence claim raises issues to which the expert evidence relates. However, the expert evidence is not limited in relevance to the negligence claim, but seems to me to straddle all three main strands of the claim. It follows from this that, even were I to strike out the impugned paragraphs, the direction for expert evidence would still be appropriate. It also follows that there is no basis for revisiting that direction.

Given that I am not persuaded that the striking out of the paragraphs to which I have referred would obviate the necessity for or shorten a trial and given also that to hear the application would undoubtedly involve prolonged and serious argument (the estimate for the application is 2 days) I propose to apply the general rule adumbrated by Lord Templeman and to decline to proceed with the argument. There is, however, a separate argument relating to administrators’ remuneration, which is not part of this ruling, upon which I have yet to hear any argument. I will hear Mr Mortimore on that now.