Haysport Properties Ltd & Anor v Ackerman

This judgment arises out of a trial of a claim brought by two companies Haysport Properties Ltd (“Haysport”) and Twinsectra Ltd (“Twinsectra”) for a breach of fiduciary duty against their former director Joseph Ackerman (“Mr Ackerman”). The two Claimants are wholly owned subsidiaries of Delapage Ltd (“Delapage”) a charitable company.

The Claimants’ case against Mr Ackerman is that he caused the Claimants in 2005 to grant security over various properties held by them to support a facility obtained by another company New Liberty Property Holdings Company (“NLPH”). It is not related to the Claimants but was owned by a Gibraltar Discretionary Trust of which Mr Ackerman is a beneficiary. The other beneficiary of significance is his sister-in-law Naomi Ackerman (“Naomi”).

In addition Twinsectra has brought a separate claim for breach of fiduciary duty on the basis that Mr Ackerman caused it to enter in to an unsecured loan note for £4m in favour of NLPH on terms that NLPH was to pay it 8% per annum. There is no evidence that any payments were ever made nor is there any evidence to suggest that Mr Ackerman sought a payment of interest let alone capital from NLPH.

Mr Ackerman was a director of Haysport from 1978 to April 2011 and of Twinsectra from 1976 to April 2011 when he was removed as a director of both companies. This arose as a result of an intervention in Delapage by the Charity Commission which on 19th October 2010 appointed an interim manager as a result of concerns over the corporate governance of Delapage in particular in relation to unsecured lending by Delapage to companies controlled by Mr Ackerman (“the Ackerman Group”) in the sum of nearly £75m. The interim manager sought to replace the board of the Claimants and on 27th April 2011 a new independent board of directors was appointed to run the Claimants. They investigated the position and determined it was appropriate to bring the present proceedings which were issued on 30th June 2014.

In 1939 Mr Ackerman and his brother Jack came over to this country as fugitives from Czechoslovakia. From the early 1960s they began to build up a successful property empire known as the Ackerman Group. Eventually it comprised over 100 companies. They then jointly established Delapage as their joint charitable company. Mr Ackermans was one of the trustees of Delapage who initially numbered 7. Twinsectra was incorporated in 1975 and Haysport in 1978 Delapage was and is the sole shareholder of both.

Jack Ackerman died in September 1989. His widow Naomi inherited his share in the business. Thereafter Naomi joined the boards of all companies but acquiesced in Mr Ackerman running the Ackerman Group as a single entity. This continued until 2006 when relations between Naomi and Mr Ackerman broke down.

In 2003 a Gibraltarian Discretionary Trust was set up the NOF Trust. The settlor of the NOF Trust was a Mr Halpern who was Naomi’s uncle. However Mr Halpern wrote a letter of wishes dated 11th June 2003 in which he stated the trustees “were to seek and consider the wishes and advice of Mr Joseph Ackerman of London England with regard to the general administration of the trust and investment of the trust fund”.

As is the way with offshore discretionary trusts of this nature the initial object was the Imperial Cancer Research Fund but the Trustees had power to change the beneficiaries. Ultimately within six months after the NOF Trust was entered in to Mr Ackerman and his children and Naomi and her children were added as beneficiaries of the NOF Trust.

The trust in turn held shares in NLPH. It was set up in order to be the corporate vehicle which would undertake a specific property investment project known as Liberty One Project. Mr Ackerman was not a director of NLPH.

He was nevertheless however the driving force behind NLPH becoming involved in Liberty One and was also the person who caused the Claimants to grant security over their properties as appears below. He also caused Twinsectra to supply the remaining £4m which was the balance of the monies required to fund the purchase price of the Liberty One portfolio (see below).

Mr Ackerman was approached directly by RBS with a proposal that he purchase approximately 350 commercial bank units with residential units above. He took the view that it was a beneficial project which would produce a large amount of profit. He approached BDO the accountants who apparently advised him that the investment should be run through an offshore vehicle. That led to the incorporation of NLPH for that purpose. The project had apparently been advertised in the Estates Gazette and Property Week and the purchase price was £115m. RBS were prepared to lend back £90m. A deposit was required to complete the deal but NLPH did not have any funds of its own to invest or to pay for arrangement fees, survey fees and fees of other professionals which were substantial. The Ackerman Group ultmately invested £11m into Liberty One but a shortfall still remained.

Mr Ackerman then says in his witness statement (paragraph 45) “However a shortfall still remained. It was at this stage that I took the deal to the Claimants to invest the remaining funds.” The apparent innocuousness of that statement by Mr Ackerman belies the true potential difficulties. First the monies were required to enable NLPH to acquire the properties in the Liberty One project. Second when he says he “took” the deal to the Claimants he means that he was taking it to himself. He was at that stage running the Claimants with the tacit agreement of Naomi. Although Mr Ackerman qualified as a solicitor in the mid 1960s he had never practised. Nevertheless in giving his evidence he appeared to be unaware of the potential difficulties he faced when he was negotiating on both sides of the transaction (“the self dealing rule”). He did not apparently even understand what the problem was.

NLPH had therefore exhausted its cash reserves and it needed the money from the Claimants and the security to enable it to complete the transaction. Once again Mr Ackerman clearly misunderstands his duties when as he said in paragraph 47 of his witness statement:-

“As a director of the Claimants I made the fully informed decision that the Liberty One project was a worthwhile and safe investment which would create income and financial profit for the Claimants with the result the Claimants could provide some level of security to enable the project to proceed.”

On 8th June 2005 NLPH entered in to a Letter of Credit Facility (“the Security”) with Lloyds TSB Bank Plc (“Lloyds”) in the sum of £10m. The Claimants provided the security in respect of that facility and of all amounts due from NLPH in favour of Lloyds. On the same day the Second Claimant lent £4m to NLPH (“the Loan Note”) which carried an interest rate of 8% per annum. This was an unsecured Loan Note. Lloyds had given a £10m standby letter of credit to NLPH under this arrangement. The purpose of the facility was a means to enable RBS to obtain due proper performance by NLPH of its obligations under the Master Agreement whereby NLPH acquired the properties and in particular in relation to the lease liabilities that it had taken over from various Group companies in the RBS Group. One of the conditions precedent under clause 6 was the provision of the security described in the Security Appendix (6 (G)).

The Security Appendix set out a number of properties owned by the Claimants and a sub mortgage over a charge in favour of Twinsectra over various properties.

The structure of this financial aspect therefore was that Lloyds were providing comfort to RBS to ensure that NLPH complied with its obligations on the leasehold properties which it took over. Lloyds were willing to provide that cover but it too wanted security. NLPH was of course a Gibraltar company with no assets save those that were being acquired under this agreement. It had nominal share capital. The security that Lloyds wanted to back up its exposure was provided by the Claimants.

The first question that arises is what was the benefit accruing to the Claimants for offering that security. The short and long answer is none compared with the exposure and potential losses.

I suspect Mr Ackerman who was controlling this transaction from both sides envisaged no payments would be paid to the Claimants for the benefit of obtaining their security. However DLA the solicitors acting for Lloyds asked that they be informed as to what commercial benefit was to be derived from the Claimants for giving the security. It was proposed that a Mr Stephen Koehne then a partner in Stephenson Harwood Solicitors would look in to that on behalf of NLPH (letter 20th May 2005 to Mr Koehne from Brian Beckman of DFM Beckman Solicitors). It is to be noted that the requirement of the consideration was being raised by Lloyds’ lawyers not from the point of view of protecting or conferring benefit on the Claimants but from the point of view of ensuring the transaction was not voluntary. The Bank was clearly concerned to ensure that if it had sought to have recourse to the security it could not be challenged on the basis that the Claimants obtained no benefit for the transaction. It was resolved that the question of consideration would be satisfied by NLPH providing a fee to the Claimants in exchange for their giving of the guarantee (DLA letter dated 31st May 2005) addressed to Mr Koehne. Mr Koehne apparently passed the buck on to BDO. There is with the papers an unsigned letter from BDO addressed to the Directors of NLPH dated 2nd June 2005. That letter provides as follows:-

“You have asked us to comment as to the proposed fee paid to a company that is to provide security in respect of the proposed letter of credit.

Given the relative low risk that both the letters of credit would be needed by [NLPH] and of [Lloyds] needing to utilise the security we feel that the proposed fee of 0.25% per annum to be adequate.”

Mr Ackerman sought to place reliance on this letter as supportive of the Claimants’ decision but that reliance was misplaced. It was not a letter of advice addressed to the Claimants. It was addressed to NLPH and was designed to provide an estimate (on what basis remains obscure) as to the appropriateness of a fee level of 0.25% to be paid by NLPH to the Claimants.

There then came in to existence a number of resolutions of the Board of the Claimants some undated, some dated 1st June 2005 and some dated 6th June 2005. All of these show resolutions passed by Mr Ackerman and Naomi purportedly and signed by them both whereby they agreed to and were authorised to cause the relative companies to enter in to the securities and execute the security on their behalf. All of the minutes are in the same form and contained the following:-

“3 Disclosure of Interests

3.1

The chairman (i.e. Mr Ackerman) further reported that all directors were personally interested in the giving of the proposed security and the nature of their respective interests was declared.”

On 8th June 2005 there was a meeting of the Board of Twinsectra timed at 3.46 pm attended by Mr Ackerman and Naomi whereby after an explanation by Mr Ackerman in respect of the proposal to give the various third party securities it was explained that a letter should be sent to NLPH (a draft being produced at the meeting) whereby the company would require NLPH to pay an appropriate fee. The minute then records this:-

“The risk of the credit facility being called upon (as provided for in the LOC) and the subsequent risk that Lloyds would need to utilise the security provided by the Mortgages having been discussed IT WAS RESOLVED THAT A FEE OF 0.17% of the total “Guaranteed Amount” as defined under the LOC would be suitable consideration for the Company entering in to the mortgages.”

There was an identical resolution with the same time and date in respect of Haysport. On the same day 2 letters signed by Mr Ackerman and addressed to NLPH reciting that the respective fees should be paid (0.17% for Twinsectra and 0.09% in respect of Haysport) were sent to NLPH.

There are serious doubts about the authenticity of these various documents. For example the two resolutions purportedly dated 8th June 2005 timed at 3.45 pm appear to pre-date emails that passed between Mr Wulwick (the son-in-law of Mr Ackerman) and others which refer to the meeting being held after the conference call yet the email is timed 16:12. Second both Mr Ackerman and Naomi appears to sign them. She has denied that she signed them. The documents look as if they have been signed by Naomi (i.e. they are not pp’d). Ultimately Mr Ackerman has accepted that he signed both on behalf of himself and Naomi (witness statement paragraph 57). He says that she was aware of the security provided by the Claimants and the Loan Note provided by Twinsectra and she was provided with all the information prior to the decisions being made and was given the opportunity to express her view or act contrary to him if she wished. At this time she was being advised by her son Barry Ackerman (“BA”).

The result of the documentation was that the Claimants charged their properties as security for a £10m liability in respect to which the only benefit they were to receive was the fee of 0.25% i.e. £25,000 per annum. That in fact was never paid which is not in dispute.

Also on 8th June 2005 Twinsectra advanced £4m to NLPH in exchange for Loan Notes to the same amount which carried an interest rate of 8%.

The purpose of this transaction was to make up the shortfall of monies to enable the acquisition to take place. Twinsectra advanced £4m without security. Further as appears clear from the above it was at the end of a long line of secured lenders.

In August 2006 the liability of NLPH to the Bank was reduced from £10m to £5m and an appropriate number of properties were released.

The relationship between Mr Ackerman and Naomi appeared to deteriorate from about 2005/2006 when BA became involved in the running of the Group. This led to an agreement that in effect the parties’ interests in the Ackerman Group would be demerged. The demerger was set about by the appointment of a well known tax Silk Andrew Thornhill QC to decide how the assets of the Ackerman Group should be split. On 25th June 2009 Mr Ackerman and Naomi entered in to detailed agreement known as the “Revised further agreed way forward” (“Way Forward Agreement”). Mr Thornhill QC was appointed to partition the family’s assets.

Subsequently in the same year RBS made demands from NLPH, presented a winding up petition resulting in provisional liquidators being appointed on 28th October 2009 and NLPH going in to compulsory liquidation on 16th December 2009. The Bank looked to the Claimants for settlement of the £5m facility which NLPH could not pay. In order to stop the Bank enforcing its security Twinsectra had been paying interest since March 2011. As at October 2015 the amount of interest paid out is claimed to be £594,113.45. Interest continues to accrue.

On 7th December 2010 Naomi commenced proceedings against Mr Ackerman for a declaration that she did not sign the various documents bearing her signature. Those proceedings have never been proceeded with.

On 5th January 2011 Mr Thornhill QC submitted the “Ackerman Report” which set out preliminary adjustments to be made between Mr Ackerman and Naomi in relation to the division of the Ackerman Group.

Naomi on the figureshad a net claim against Mr Ackerman for £2.33m and the Claimants had a joint claim against Mr Ackerman for £9m. Mr Thornhill QC concluded that Mr Ackerman or one of his companies should pay Haysport £5m and that either one of Mr Ackerman’s companies should repay Twinsectra £4m with regard to the loan or if not Mr Ackerman should pay personally.

Mr Ackerman refused to accept the conclusions in Mr Thornhill QC’s report. On 20th April 2011 he issued proceedings against Naomi, BA, Mr Thornhill QC and Bana One Ltd (a company controlled by Naomi and BA) seeking to set aside Mr Thornhill’s conclusions in the Ackerman Report. The basis of the claim was that Mr Thornhill QC was guilty of actual bias, collusion and impartiality in favour of Naomi and her side of the family and he had acted unfairly and deceitfully and that he had materially parted from his instructions in the Way Forward Agreement.

Mr Ackerman’s proceedings were heard as an expedited trial before Vos J (as he then was) in November and December 2011. He dismissed the proceedings and upheld Mr Thornhill QC’s conclusions including in relation to his findings in respect of the Claimants.

Mr Ackerman sought permission to appeal which was granted by the Court of Appeal on one limited ground. The proceedings were then compromised and his appeal was dismissed by consent on 20th July 2012. The terms agreed involved matters being resubmitted to Mr Thornhill QC for a Revised Provisional Adjustment Report and then a final Adjustment Report. In these reports Mr Thornhill QC reached the same conclusions as regards the Claimants.

Mr Ackerman has recently issued fresh proceedings raising the same matters. Naomi and the other parties are applying to strike out those proceedings as being an abuse of process of the Court. That application is currently scheduled to be heard in April 2016. Mr Ackerman maintains that new evidence has come to light showing financial dealings between Mr Thornhill QC, Naomi and BA which had not been disclosed to the Court. Further the Bar Standards Board has opened an investigation and disciplinary proceedings against Mr Thornhill QC. Relying on those matters at a case management conference held on 19th January 2015 Mr Ackerman sought a stay of the present proceedings. Master Teverson refused to stay the proceedings which has led to the trial. That decision was not appealed.

Mr Ackerman by an application dated 23rd November 2015 sought to adjourn the present proceedings until after the Bar Standards Board hearing against Mr Thornhill QC and the new claim that he had issued had been determined. Miss Amanda Tipples QC sitting as Deputy Judge of the High Court on 4th December 2015 dismissed that application. That decision too was not appealed.

Mr Ackerman is sued as director of each of the Claimants for breach of fiduciary duties that he owned in that capacity by risking what was essentially charity money for his and NLPH’s private benefit by (1) granting the security over the properties and (2) by causing Twinsectra to enter in the £4m loan which was essentially charity money risked for his and NLPH’s private benefit.

The claim also sets out that in neither case did the Claimants receive separate advice before entering in to the transactions and that Mr Ackerman did not give any adequate notice of his interest in the transactions.

The Claim Form was issued on 30th June 2014. The claims are prima facie outside the 6 year limitation period.

The Claimants response to that is twofold. First (paragraph 24 A) it is contended that in committing the breaches Mr Ackerman acted dishonestly in the sense that he had an intention to cause the Claimants to enter in to the transactions complained of either knowing that they were contrary to the interests of the Claimants or being recklessly indifferent whether they were contrary to the interests or not.

In the alternative if Mr Ackerman did not act dishonestly it is contended (paragraph 24 B) that he acted in deliberate breach of fiduciary duty in circumstances where the breach of fiduciary duties were unlikely to be discovered for some time.

The Claimants consequentially seek repayment of the £4m loan together with the interest that has been paid out and a declaration that Mr Ackerman is liable to indemnify the Claimants from all losses that they might have suffered by reason of the granting of the first legal charges and the sub charge together with an order for payment of all sums found due to them as a result of such indemnity and an order that he compensates them for breach of fiduciary duty for any other losses as may have been suffered by the Claimants.

The claim adds a claim for interest under section 35A Senior Courts Act 1981 and/or equitable jurisdiction for such period together with interest to be compounded as the court shall determine.

The Defendant pleaded that the claims were statute barred as they were founded in tort and the proceedings were issued more than 6 years after the transactions were entered in to. At trial the Defendant amended that plea by pleading that the claims were breaches of fiduciary duty and thus statute barred.

The Claimants contend that there are four separate ways to come to the conclusion that the claims are not statute barred.

The first is reliance on section 21 (1) Limitation Act 1980 it provides:-

“(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.”

In that context for the purpose of dishonesty they rely upon the definition of dishonesty in Gwembe Valley Development Co Ltd v Koshy (In Receivership) [2004] 1 BCLC 131 at [131]. That decision also concerned the failure of a Director properly to disclose to the other Directors or shareholder his personal interest. It must be appreciated that Mr Ackerman does not say that the activities were disclosed to the shareholders of the Claimants. He contends it was disclosed to Naomi. That in my view will not save him. He and Naomi were the directors of the Claimants but they were no the shareholders. If Naomi became aware of the matters and if they were breaches of duty she too would be liable for participating in that breach of duty. This part of Mr Ackerman’s defence therefore simply means that the Claimants could potentially sue Naomi in addition to him and he could possibly seek contribution from her.

In Gwembe the Court of Appeal identified the duty of disclosure under the general law as:-

“[64] The requirement of the general law is that, although disclosure does not have to be made formally to the board, a company director must make full disclosure to all the shareholders of all the material facts. The shareholders in the company, to which he owes the fiduciary duty not to make an unauthorised profit from his position, must approve of, or acquiesce in, his profit. Disclosure requirements are not confined to the nature of the director’s interest: they extend to disclosure of its extent, including the source and scale of the profit made from his position, so as to ensure that the shareholders are “fully informed of the real state of things” as Lord Radcliffe said in Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 14.”

As I have said the disclosure would have been required to be made to the Claimants’ shareholders; disclosure to Naomi does not assist Mr Ackerman.

After referring to the well known observations of Lord Nicholls of Birkenhead in Re: H & Ors [1996] 1 ALL ER 1 at 16-17 the Court of Appeal reviewed the Judge’s findings of dishonesty below and the challenge and then came to the following conclusion on dishonesty:-

“Conclusions on dishonesty

In Armitage v Nurse [1998] Ch 241 at 251D, 260G Millett LJ held that, in this context, a breach of trust is fraudulent, if it is dishonest. He accepted counsel's formulation that dishonesty -

"… connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the company or being recklessly indifferent whether it is contrary to their interests or not."

and added:

"It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in the interests of the beneficiaries then he is acting dishonestly." (p 251D-F)

The correctness of this guidance was not in issue before us. We were also referred to the recent decision of the House of Lords in Twinsectra v Yardley [2002] AC 164, [2002] UKHL 12. Lord Hutton, giving the leading speech, emphasised the objective and subjective aspects of the "combined test":

"which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest." (paras 27, 38)

Lord Hutton's speech was also relied on by Mr Thompson as confirming that:

"It is only in exceptional circumstances that an appellate court should reverse a finding by a trial judge on a question of fact (and particularly on the state of mind of a party) when the judge has had the advantage of seeing the party giving evidence in the witness box." (para 43)

Mr Page noted that this was a case where the trial judge had rejected the allegation of dishonesty. By contrast a finding of dishonesty should be more readily susceptible to review, because of the strong evidence required to establish such a case. He also reminded us of the authorities which emphasise the danger, in cases alleging fraud after a substantial lapse of time, of over-reliance on the unaided recollections of witnesses (see e.g. The Ocean Frost [1985] 1 Ll R 1, 57).”

The second way in which the Claimants contend the claim is not statute barred is based on section 21 (1) (b) namely that time does not run when the claim is to recover trust property or the proceeds of trust property in the possession of the trustee or previously received by him and converted to his use. In this context the Claimants rely upon the decision of Re:Pantone 485 Ltd, Miller v Bain & Ors [2002] 1 BCLC 266. In that decision which once again concerns a director taking personal benefits Mr Richard Field QC (as he then was) said this concerning section 21 (1) (b):-

“39.

In his written closing submissions Mr Shaw cited Paragon Finance Plc v D B Thackerar & Co (a firm), Paragon Finance Plc v Thimbleby & Co (a firm) [1999] 1 All ER 400 and J J Harrison (Properties) Ltd v Harrison [2001] EWCA Civ 1467 , [2002] 1 BCLC 162. In Paragon’s case Millett LJ (with whom May LJ agreed) held that it is only where a party, though not expressly appointed a trustee, has assumed the duties of a trustee by a lawful transaction that he will be a contructive trustee for the purposes of s 21 (1) of the Limitation Act 1980. Where a claim is made on the basis that the circumstances in which a party obtained control of property make it unconscionable for him thereafter to assert a beneficial interest in the property, such a claim is outside s21 (1).

40.

Mr Bain was lawfully appointed a director of Smarturgent and therefore came into possession of the company's property by a lawful transaction. The claim against him is therefore within s 21(l) (b) if, in causing Smarturgent to pay for the acquisition of the MOZP, he converted the company's property to his own use.

41.

In JJ Harrison (Properties) Ltd v Harrison the defendant acquired property from the company of which he was a director without disclosing to the company information that affected its value. He thereby failed to ensure that the property was sold at its full value. After he had disposed of the property he was sued for breach of fiduciary duty more than six years after he had committed the breach. The Court of Appeal held that the claim was within s 2l (l)(b): the director was a trustee within the provision and had converted the property to his own use; the claim was therefore not statute−barred.

42.

The claim against Mr Bain is not that he transferred Smarturgent's money to himself but that he caused the company's money to be spent not for Smarturgent's benefit but for Pantone's. Mr Shaw submitted that the fact that the machine was acquired and the rentals paid for the benefit of Pantone, a company in which Mr Bain had an indirect controlling interest through his shareholding in AS2 meant that he was to be regarded as having received the trust property. He cited Re Clark; Clark v Moore, Moores (Chemists) Limited (1920) 150 LT Journal 94. There the defendant was a trustee under a will. The testator's estate consisted of leasehold premises which had been leased by the testator before his death to the trustee at a yearly rent of £87. The trustee used the premises as a chemist's shop. After the testator's death the trustee surrendered his lease and accepted a new lease at a provisional yearly rent of £60. He then set up the defendant company in which he held 90 per cent of the shares and to which he let the premises for a yearly rent of £60. Later, the trustee offered the whole of the trust premises for sale by auction and the defendant purchased the shop and premises for £1,050. Some years

later a beneficiary under the will claimed that the rents paid by the trustee and the company were insufficient and that the trustee should make good the loss to the estate. Eve J is reported as having held that the trustee's interest in the company went to the root of the whole matter, so that the defendant company was disentitled to retain the benefit of the lease which had been obtained at an undervalue and the subsequent sale was void. The report goes on: "Held also, that, the defendant having retained part of the trust estate, the Statute of Limitations and Judicial Trustee Act 1896 ... were not applicable." This is such a brief statement of the judge's reasoning that it is of questionable value, but it does look as if the judge regarded the receipt by the company of the low rents to be a receipt by the trustee amounting to a conversion to his own use.

43.

In my judgment, as a matter of basic principle, where a fiduciary uses his beneficiary's money to confer a benefit on a company he controls he is denying the beneficiary's title to the money for his own purposes and this amounts to a conversion for his own use. The same is true where a fiduciary causes his beneficiary to incur a liability for the benefit of a company which the fiduciary controls. Since this is what the applicant is in substance alleging under the MOZP claim, I hold that this claim is within s 21(l)(b) of the Limitation Act is therefore not statute barred.

44.

I turn then to consider the MOZP claim on its merits. There is no doubt that Smarturgent's money was used for the benefit of Pantone. The applicant relies on this and contends that it is no defence to a claim for breach of trust that undifferentiated sums of money exceeding the total claimed were transferred by Pantone to Smarturgent, as they undoubtedly were. Mr Bain testified that although no express loan agreement was entered into, all along it was the intention that the acquisition monies (including the sum allowed on the trade−in) and the first few months' rentals should be paid as a loan to Pantone and that Pantone would and did repay the loan. Pantone's and Smarturgent's liabilities were paid out of "a common pot". The reason why the hire−purchase agreement for the MOZP was in Smarturgent's name was because the hire−purchase company had required this.

45.

In my judgment, it is not a breach of fiduciary duty for a director of company A to advance monies for the benefit of a related company, company B, if the director honestly and reasonably believed that company B would repay the monies so advanced. If this was the director's state of mind he does not have to prove that the sums were in fact repaid. If complaint is made that he breached his duty by not ensuring repayment, then it is for the complainant to prove non−payment, not for the director to prove the contrary.”

Paragraph 45 is important because it shows in effect a requirement for dishonesty in this section as well. Clearly the decision applies in the present situation; the question is whether or not Mr Ackerman had an honest and reasonable belief that NLPH would be able to repay the funds.

The third basis for overcoming the prima facie limitation issue the Claimants contend is sections 32 (1) (b) and (2) which provide as follows:-

“Postponement of limitation period in case of fraud, concealment or mistake.

(1)

Subject to [F1subsection (3)][F1subsections (3) and (4A)] below, where in the case of any action for which a period of limitation is prescribed by this Act, either—

(a)the action is based upon the fraud of the defendant; or

(b)any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c)the action is for relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

References in this subsection to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.

(2)For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”

For there to be deliberate concealment the Defendant must have considered whether to inform the Claimants of the relevant facts and decided not to disclose. The fact which the Defendant decided not to disclose must be one which it was his duty to disclose.

It is well established that a director has a duty to disclose his own wrongdoing: see Item Software (UK) Ltd v Fassihi [2005] 1 BCL 91 and Tesco Stores Ltd v Pook [2004] IRLR 618.

The Claimants contend there was deliberate concealment of the facts relevant to the Claimants’ rights of action in the sense that there was no disclosure by Mr Ackerman of the facts of the transactions in 2005 and likely no disclosure until at least 2010 when Naomi’s lawyers began asking questions.

In addition the Claimants contend there is no limitation defence even in the absence of dishonesty because time would not begin to run against them until they had discovered the concealment or could with reasonable diligence have discovered it. On that basis they contend that the cause of action would only become known to the Claimant when they had an independent board which was not until 27th April 2011 when Naomi and Mr Ackerman were both removed and replaced with Mr Johnson see: Attorney General of Zambia v Meer Care & Desai [2007] EWHC 952 (Ch) at 388-393 and 410. The context there is that the limitation defence failed against the Attorney General because the fraudulent activities were perpetrated by the President and his cronies who had control of the government with the result that the State because it was in control of the wrongdoers could not have attributed to it the wrongdoer’s knowledge.

The fourth route the Claimants put forward is that the breaches were continuing in so far as Mr Ackerman took no steps to obtain a binding agreement with NLPH in relation to payment of fees and/or that the payments were made and failed to accelerate NLPH’s obligation under the Loan Note thus being the continuing breaches. It can also be said that there was an obligation of Mr Ackerman to review his conduct as a director in relation to the transactions and reconsider them year by year.

On 2nd March 2006 the Charity Commission issued a report on its investigation in to Delapage. This is some 9 months after the transactions under attack in this litigation but it is important because the inquiry was opened on 17th March 2003 so it bracketed the transactions.

It is stated that the inquiry was opened with the aim of obtaining up to date accounts and establishing whether there were any underlying problems that had prevented the Trustees from fulfilling their duty.

In its section marked “Findings” there are a number of matters that are clearly relevant to the issues before me. First the examination of the accounts for 1999-2002 shows that they were not compliant with the Charity’s Statement of Recommended Practice. Second it averted to extensive correspondence with the Trustees in an attempt to obtain information relating to the loans the Charity had made. They were made to nine private companies “all of which are owned by a company of which two of the Charity’s Trustees are directors”. The details of those accounts are somewhat opaque; they were identified in the Charity’s accounts as “unlisted investments”. The report (paragraph 8) commented inevitably that more information should have been provided about these loans in the Notes to the Accounts under a disclosure about related transactions.

Significantly paragraph 7 raised the issue of conflict in the decision making process when the Charity made loans and raised concerns about the lack of independent Trustees on the Trustees Board capable of making a decision on whether it was in the Charity’s best interest to engage with a connected party. There were also comments about a lack of quorum at meetings but they subsequently withdrew that complaint. The Report (paragraph 9) recounts that the Trustees stated the Charity benefited from loans made to the connected companies because it obtained a higher rate of interest on those loans than it would have otherwise made. It also stated that the two Trustees who were the company’s directors did not benefit personally because the private companies could have borrowed funds more cheaply than commercial lenders. There was a complaint of lack of proper minutes.

Under the section marked “Outcome” the Commission explained that the loans to the connected companies raised conflict of interest and self dealing issues and put the Charity’s reputation at risk. I pause to observe that when Mr Ackerman gave evidence he effected not to know what the self dealing rule was. The inquiry was closed on 3rd August 2005 (i.e. just over a month after the transactions in these proceedings).

Under the section marked “Wider Lessons” it established the difficulty of the conflict of interest that had not been handled appropriately and might result in voidable transactions and finally said decision about agreements between a Charity and connected party must be made by a Trustee who is independent to the parties in question.

From time to time Newman Wright Financial Advisors provided advice to Mr Ackerman. On 10th February 2004 it gave advice in respect of Delapage.

That letter is important. It refers to giving advice in relation to the loan made to companies in Mr Ackerman’s Group. His main criteria were for the Charity’s money to be safe at all times and no way should Delapage suffer any losses of either income or capital. Second it was essential that the returns obtained from the investments would be higher than those which could be obtained in the open market and third that the interest rates obtainable should be higher.

On 30th May 2006 Mr Newman wrote a further letter headed “to Whom it may concern” he reviewed his advice that the proposals of the Trustees at an annual rate of 5% to Barclays subject to a minimum of 10% represented a commercial rate of return for Delapage but observed that loans were unsecured as the mortgage provider had already obtained first fixed charges he concluded that the diversity of the property portfolio held together with the relatively low gearing ratio and level of interest cover led him to concur with the Trustees the proposed investment did not represent too great a commercial risk. The loans were also said to be attractive to the borrowing companies because the directors of those companies were not able to obtain finance from alternative sources with the same interest. That is hardly relevant to the Claimants.

That latter document does not of course address the exposure of the properties by way of a third party charge. Further the loan carried an interest rate of 8% whereas Mr Wright’s advice was that the rate should be subject to a minimum of 10%.

Vos J’s judgment was drawn to my attention by the Claimants in this case. Parts of it are highly critical of Mr Ackerman. However it seems to me that I should not consider the judgment for a number of reasons. First it was concerned with other issues and was between other parties. Second Mr Ackerman did not actually give evidence. Third Mr Ackerman challenged the decision and he sought to appeal it and obtained permission to appeal. The whole action was then compromised with the result that any findings of Vos J seems to me are of no weight for me. In addition Mr Ackerman has issued proceedings as I have said to set aside the judgment.

It seems to me that the only safe course is for me to consider this action on the evidence that was deployed in it and no further.

In my view given the presently disputed status of Mr Thornhill QC I should give no weight to his reports in these proceedings for same reasons.

The Claimants called Mr Johnson who is an experienced corporate turn around specialist. He was appointed as a director of the Claimants on 27th April 2011 together with a Mr Colin Searby. He replaced Mr Ackerman, Naomi and Andrew Thornhill QC. Mr Searby was replaced by Ms Kim Dovell on 28th June 2012.

They had the day to day conduct of the Claimants and of course made the decision in respect of the litigation.

I found Mr Johnson’s evidence of little assistance in relation to the disputes. He was not there and in reality all he could do in his witness statement was to produce the documentation for use at the trial. Further he had a tendency to argue the case which was not necessary. He was not of course giving expert evidence.

The Claimants did not call Naomi. No satisfactory reason was given for her absence. However once again it does not have any significance in relation to the issues in this case. They are allegations against Mr Ackerman. Naomi at all times was his fellow director. The only issue in the evidence relates to the execution of the documents. Initially the impression given by the documents is that they were signed by Naomi. I have dealt with the documents above and Mr Ackerman’s acknowledgment that he signed the documents on her behalf.

He said in his evidence that Naomi knew about the transactions. She did not give evidence to contradict that and I find that she did know about the transactions. However that will not make any difference; the claim is not brought by Naomi it is brought by the Claimants. All that will do is add Naomi as a potential Defendant in respect of the breaches that are alleged against Mr Ackerman. It takes this case no further.

It must be appreciated that Mr Ackerman and Naomi benefitted from the historical transactions (see below). She had the potential to benefit from the transactions the subject matter of the present dispute because of her potential interest as a beneficiary of the NOF Trust.

In reality this case turns entirely on Mr Ackerman’s evidence. Mr Johnson had no oral evidence to give in respect of the dispute although as I have said he produced relevant documentation.

In his witness statement Mr Ackerman set out the history of the relationship between Delapage through the Claimants and his late brother’s large group of companies. They were property companies. The practice was to use a fresh company for each transaction. This is not an unusual practice. Following successful years he and his brother decided to create a charitable company to allow them to gift excess profits to worthwhile Jewish charitable causes. This led to the incorporation of Delapage on 29th March 1978 as a charitable company.

Right from the beginning Delapage received excess profits from their companies to be used for good causes. However there was an underlying practice which was adverted to by the Charity Commission in their report namely that Delapage would lend monies to the companies under the control of Mr Ackerman and his brother. Those borrowings would be used by the companies to acquire properties and generate profits and some of those profits were them remitted back to Delapage as charitable donations. The monies so remitted were then used by Delapage to fund further acquisitions. It was thus circular. Mr Ackerman said millions of pounds were generated for Delapage over the years.

The position changed after Joseph died and Naomi acquired his share. The changes were twofold. First it is clear that Naomi was content to allow Mr Ackerman to run the companies and the operations (both as regards the Claimants and the property companies in the Ackerman Group). Second she took some of the dividends out herself. It is clear that from 1989 until 2006 when BA became involved she was content to take that backseat. However when BA her son became involved things changed. Questions began to be raised and she took her share of the profits out rather than gift aided it. Mr Ackerman gives an example in paragraph 19 of his witness statement where Mr Ackerman is shown as at 30th July 2007 as having provided £1.742m in gift aid whereas Naomi took dividends of £1.219m in the same period. The two sides have fallen out and there was and remains an acrimonious dispute. To a certain extent this litigation is a sideshow compared with the major claims which appeared before Vos J and Mr Thornhill QC and may reappear in a fresh action.

It must be appreciated that the long interconnected transactions during this period were relatively simple. The Claimants advanced money to the Ackerman Group which was secured. The Ackerman Group repaid those monies, generated profits which were wholly or in part returned back to Delapage by gift aid.

It will be seen by the Charity Commission Report above that whilst they were concerned about the lack of independence and the conflict in effect that Mr Ackerman had (as he was the only one actively doing anything) they nevertheless did not stop the practice. This might have been a bit naïve in my view; merely because a higher rate of interest was paid is not of itself in my view sufficient to allay the concerns. Nevertheless that was the attitude of the Charity Commissioners.

Mr Ackerman in his witness statement says that all of the transactions which took place over the years were known fully to the professionals and the advisors to the Ackerman Group (paragraph 22) however no evidence of that has been adduced beyond the very generalised letters from Newman Wright referred to above.

The transactions the subject matter of this claim are very different to the ones which have been operated for many years.

First the acquisition was by an offshore company with no assets beyond the property which was being acquired. Second the transaction was clearly highly geared. NLPH did not have enough funds to complete the purchase. That is why it borrowed £4m from Twinsectra. That is a very different financial arrangement. Twinsectra is at the end of a large queue of secured Bank lending. Further Lloyds were so concerned about the guarantee that they gave that they required security from the Claimants.

That is something which had never occurred before so far as I can see. There is no real incentive of any significant nature for the Claimants to give the guarantees. There is every incentive for NLPH (and thus Mr Ackerman and Naomi) to have the Claimants give those guarantees. Without them it is unlikely that the acquisition would have taken place. The same presumably applies to the loan made by Twinsectra. It is true that it obtained an interest rate of 8% (although the evidence is that neither that interest nor the fees payable for the giving of the charges was ever paid) nevertheless Twinsectra is seriously exposed because it has an unsecured loan behind all of the other secured creditors.

It is quite clear Mr Ackerman drove this transaction through and Naomi followed willingly. I accept Mr Ackerman’s evidence that she was aware of it although I am not convinced she was aware of any of the details. For the reasons I have set out above her knowledge and participation is irrelevant to the claim brought against Mr Ackerman.

The evident rush is well demonstrated by the large number of resolutions which Mr Ackerman filled in without there being any meeting with Naomi and without any consideration of the transactions. The declaration of interest is cursory to say the least and there is nowhere any evidence showing that the transaction was considered by anybody other than Mr Ackerman from the Claimants’ point of view.

Given his interest in NLPH and its necessity to obtain the securities and the loan he was in my view hopelessly conflicted. I do not see how he could have given any kind of independent advice to the Claimants as to whether to enter in to these transactions. It is no good Mr Ackerman relying on the long successful period of connected trading that went on between the Claimants and the Ackerman Group. This was an entirely different transaction. He cannot in my view for example as he seeks to do in paragraph 23 of his witness statement draw comfort from the Charity Commission’s Report. That report was clearly very critical and I have already commented on it. The nature of the present transactions are so different that they have no similarity to the transactions referred to in the Charity Commission’s Report or any of the previous dealings between the Claimants and the Ackerman Group. Mr Ackerman thought he could carry on in the same way in which the relationship had operated successfully in the previous years. That lured him in my view in to relaxing his approach to his fiduciary duties as a director of the Claimants who was then causing it to enter in to transactions where he was potentially going to make profits himself or at least benefit from those transactions.

In his witness statement (paragraphs 40-56) he extols and seeks to justify the transactions.

There are a number of problems about his evidence. First the advantages and profits are all those to be had for NLPH a company which has no assets and no money. As he says in paragraph 45 the transactions required an investment of £11m by the Ackerman Group against a purchase price of £115m. The LTV is therefore extremely high. There was then a shortfall which had to be made up with the £4m loan and in addition the Claimants had to guarantee the obligations under the Loan Note.

The Claimants took no security for their exposure although they might have been prevented by the terms of the Lloyds’ security. If that is the case that makes the decision to lend even more risky for the Claimants. For example they had an unsecured claim against a Gibraltar company with no assets. The Ackerman Group did not offer any guarantee and NLPH was outside the Ackerman Group. Equally they took no security for their third party loan exposure; they would be left only with the possibility of being subrogated to Lloyds’ charges once they had made the payment out.

Looking at it from the Claimants’ point of view this to my mind looks to be a risky and unattractive venture. Mr Ackerman clearly saw a big opportunity but a big opportunity in his favour is not a justification for exposing the Claimants.

In his witness statement he seeks to rely on various aspects of independent advice. The first (paragraph 53) is the BDO letter. However the gestation of that is set out above; it was not for the benefit of the Claimants and his attempts to suggest it was are inaccurate. BDO have confirmed in correspondence with the Claimants’ solicitors that they did not act for the Claimants (letter 12th May 2015) and that they were not involved in the financing structure of the transaction. There were two firms of solicitors involved Stephenson Harwood and DWFM Beckman. It is unclear for whom they were acting. Beckman appear to be acting on behalf of NLPH in relation to the security. Part of that of course related to DLA Lloyds’ solicitors being satisfied from Lloyds’ point of view that there was a commercial consideration. Stephenson Harwood appear to have been drafting some documents governing the relationship between the Claimants and NLPH, reporting and overseeing the execution of the standard form documents. However they have said (letter dated 5th December 2014) “We were not asked to advise either Haysport or Twinsectra either in relation to the commercial benefit or otherwise”.

They received their instructions from Mr Ackerman.

I conclude therefore that the documentation was entered in to and that whilst NLPH had various professionals the commercial consideration was left to Mr Ackerman. He further did not seek any separate advice nor give any advice to the Claimants about the transaction and that in reality the Claimants only entered in to the transaction because Mr Ackerman decided on their behalf as the sole active director that they were good ideas.

Mr Ackerman in my view could not properly advise the Claimants because of his involvement with the transaction through NLPH. This was the more so because he plainly needed the Claimants money to complete this investment.

Mr Ackerman summarised his position in paragraph 55 of his witness statement “no specific separate advice was sought for the Claimants. I was a director at the time of the project and sought advice in general from GN and MG who were professionals. It was my view as a director of the Claimants at the time that the advice was independent, impartial, reliable, correct and accurate and therefore I made a commercial decision in good faith to proceed, alongside my professional opinion as a property investor with Liberty One was proper and safe investment…….” That paragraph graphically demonstrates Mr Ackerman’s complete failure to understand his duties as a director of the Claimants in my view. He had advice the year before about the nature of the transactions that ought to be entered in to from Newman Wright. These transactions did not satisfy Newman Wright’s requirements. They were completely different to the long inter-company trading history and the transactions that took place there. They exposed the Claimants to losses with no real justification from their point of view. The returns that they were offered were insufficient when measured against the rest.

None of the advisors listed by Mr Ackerman were there to advise the Claimants on the financial suitability of the transaction from the Claimants’ point of view bearing in mind their status i.e. a subsidiary of a charity and whether it was appropriate for them to enter in to the transaction. Mr Ackerman is quite wrong to suggest otherwise. I have not seen any independent, impartial, reliable, correct and accurate advice which was given to the Claimants. Indeed I have not seen any such advice given to Mr Ackerman in relation to the transaction for NLPH. It is unusual for professionals to advise about the “business nature of the transaction” as so far as I can see none did.

In all the circumstances I conclude Mr Ackerman failed properly to consider the interests of the Claimants and was therefore in breach of his fiduciary duty as a director of the Claimants.

Further there was no discussion of these transactions there were in my view no board meetings; all the documentation was simply hand filled by Mr Ackerman as part of a paper exercise. The purpose of that paper exercise is to provide Lloyds with apparent documentation to show that the Claimants have properly resolved to enter in to the relevant transactions. Mr Ackerman did not treat any board meetings as being opportunities to discuss the merits of the transactions because no board meetings took place as I am quite satisfied that Naomi did not have any meetings with Mr Ackerman at this time he has accepted he signed the documents despite the fact that they give the appearance of having been signed by her.

A finding that Mr Ackerman is in breach of his fiduciary duty is not necessarily the end of the matter. The Claimants make claims of breach of duty against Mr Ackerman in paragraphs 23 and 24 of the Amended Particulars of Claim. The former relate to the giving of the security the latter in relation to the Loan Note given by Twinsectra. In my judgment and I so find all of those breaches of fiduciary duty are made out.

That is not necessarily the end of the matter because of the plea of limitation. Accordingly the Claimants rely upon three matters:-

Accordingly in respect of claim (3) above I am of the opinion following the Pantone case that the transactions involved handing over property of the Claimants to a company in which Mr Ackerman was interested. Those operations were in breach of his fiduciary duties as summarised above so that there is no limitation period in respect of those claims. Accordingly Mr Ackerman is liable under that head for the full extent of the losses (subject to any relief). I do not believe he was dishonest in the Gwembe sense. However he had no reasonable grounds for thinking the monies could be repaid and this in my view is enough to make him liable on this authority.

Nevertheless in case this case is considered elsewhere it seems to me I should deal with the other two bases for the Claimants’ claim.

I have referred to the standard of proof as summarised by Lord Nichols in Re: H (minors) [1996] AC563 at 586 above and subsequent authorities including Attorney General of Zambia v Meer Care & Desai (A Firm) [2007] EWHC 952 (Ch).

Equally I take on board the observations of Lord Goff in Grace Shipping v Sharp & Co Ltd [1987] 1LR 2007 at 215-216 and Blue Tropic Ltd and Copella Ventures Ltd v Ivane Chkhartishvili [2015] EWHC 364 (Ch) at paragraph 31. One needs to temper evidence against contemporary documentation when one is dealing with events of some age. The events in this case are nearly 11 years ago.

The Claimants have provided no evidence of an oral nature in this case of any assistance. I have already commented on Mr Johnson and I have already commented on the absence of Naomi. That latter absence does not make any difference for the reasons I have already set out. In reality the Claimants need to establish this case on cross examination of Mr Ackerman. As regards contemporary documentation the simple fact is there is virtually none. That actually counts against Mr Ackerman. The documentation from the professionals is extremely sparse and none of them has been called to give evidence.

The question is to be determined in my view on Mr Ackerman’s performance in the witness box. I bear in mind that Mr Ackerman is of 84 years and is asked to remember transactions 11 years ago. I also of course have due regard to his long and distinguished involvement of charitable affairs which have involved him giving literally millions of pounds to charity. He is a man of good character. He strongly believed in the strength of his case. That led him to give speeches on occasions. I never curtail witnesses when they give evidence if possible because I think it is important that they feel they are given the fullest opportunity to present their cases. It is clearly an emotional matter as all family disputes are.

I attach no significance to the letter sent by FPG Solicitors on behalf of Mr Ackerman when he purported to be the director of Haysport Properties Ltd at a time when he was not. I found his explanation was misguided and in fact the letter was simply an attempt to obtain information which otherwise he would not be entitled to. I do not see that this has any relevance to the issues before me.

I have followed Gwembe above which sets out the definition of dishonesty. It requires Mr Ackerman either to have carried a particular course of action knowing that it is contrary to the interests of the company or being recklessly indifferent whether it is contrary to the interests or not.

I have come to the conclusion that Mr Ackerman was not dishonest. He clearly did not know that the matters were against the interests of the Claimants. Equally he in my view honestly believed that the transactions were in the interests of the Claimants and he was not recklessly indifferent. However as I have found above he failed in his fiduciary duty because he failed to ensure the Claimants were properly advised and he failed properly to deal with the obvious conflict of interest that arose from his involvement on the other side of the transaction.

Accordingly the Claimants’ contention that the limitation period does not run because of section 21 (1)(a) LA 1980 is in my view not made out.

It seems to me that the Claimants reliance on section 32 (1) (b) and (2) is made out. As set out earlier in this judgment Mr Ackerman has a positive duty to disclose his own breaches of fiduciary duty. He has failed to disclose those breaches with the result that he has concealed the existence of the breaches from the Claimants. That position continued in my view until 27th April 2011 when Mr Ackerman, Naomi and Mr Thornhill QC were removed and Mr Johnson was appointed see AG Zambia at paragraphs 388-393 and 410.

Further in addition Mr Ackerman whilst he was a director of the Claimants he owed a continuing duty to disclose his breaches of duty until he ceased to be a director. Accordingly that duty continued until his removal in April 2011. There is therefore in my judgment no limitation issue in relation to his breaches as established above.

I will hear submissions on hand down as to the form of order and deal with any question of relief on the part of Mr Ackerman at the same time.