Arron Kendall & Anor v Timothy Dorian Ball & Anor

This is the final, expedited hearing of an application made by Mr Arron Kendall and Mr Milan Vuceljic (“the Administrators”) in their capacity as the Joint Administrators of Sherwood Oak Homes Limited (“Homes”) and Sherwood Oak Holdings Ltd (“Holdings”). The application was made by notice issued on 12 January 2024, supported by Mr Kendall’s first witness statement dated 11 January 2024, and sought, under paragraph 63 of Schedule B1 to the Insolvency Act 1986 (“the IA”) and/or s. 234 of the IA, a “declaration that the property known as land on the south side of Clipstone Road East, Mansfield Woodhouse and registered at the Land Registry with title number NT 10531 (“ the Land ”) is held by the Respondents on resulting and/or constructive trust for the benefit of Homes or Holdings” and an order that the Land be transferred accordingly. The Administrators, who were appointed by a qualified floating charge holder on 3 October 2023, were represented by Mr Matthew Weaver KC of counsel.

The Respondents to the application are Mr Timothy Ball and his wife, Mrs Carol Ball, represented by Ms Chloe Shuffrey of counsel. Mr Ball is a director of both companies (and was a director at all times material to this application) and is the sole shareholder in Holdings, of which Homes is a wholly owned subsidiary. Mrs Ball was at no time a director of Holdings, but was a director of Homes between 1 April 2021 and 20 May 2021, and again, between 25 May 2023 and 9 August 2023. According to the Respondents’ evidence, Mrs Ball was a director only during periods when her husband was unwell; they said that she had little to do with the company’s day-to-day management or operation. In addition, albeit not a respondent, Mr Stephen Woolfe, a solicitor at Shakespeare Martineau LLP, was at all material times a director of Holdings. In his Statement of Concurrence with the Statement of Affairs produced in respect of Holdings, Mr Woolfe stated that “I have played no part whatever in the management of [Holdings] and remained as a director solely to protect my position as Judicial Trustee of the estate of John Ball Deceased”.

In addition to his first statement, Mr Kendall made two further witness statements, dated 14 February and 15 March 2024; Mr and Mrs Ball each made a single statement, both of which were dated 7 February 2024. Although Mr Weaver had anticipated cross-examination, I was told that the Respondents had not. At the beginning of the hearing I ruled that there would be no oral evidence both because the agreed directions made by order of 19 January 2024 made no provision for it, and because it would (in those circumstances) have been unfair; my decision also reflected my views about the ordinary purpose and scope of applications made under s.234 and paragraph 63; in any event, Mrs Ball was not present in court (and I understood her not even to be in England, since she and her husband live in Spain) and Mr Ball was to be present only on the first day, which began in court at 2pm. The Administrators were nonetheless content to proceed. However, not having heard cross-examination, it follows that the court, although not bound in every respect to accept unreservedly the content of a written witness statement, is constrained in the extent to which it can reject it.

Holdings was incorporated on 18 February 1997 and Homes on 22 February 2018. Their principal trading activity was the development of land south of Clipstone Rd, Mansfield (“the Development Site”) which was acquired by the companies in 2018 with funding provided by West One Loan Ltd. The Development Site comprises land with two title numbers, NT145663 (“Phase 1”) and NT542961 (“Phase 2”). Phase 1 is owned by Homes and is the site of 30 completed homes. Phase 2 is owned by Holdings and is currently undeveloped land in respect of which planning permission has been obtained for 313 additional residences.

The Land was bought from Mansfield District Council (“MDC”) for £156,500 on 31 May 2023 and transferred by MDC to the Respondents jointly. The TR1 (the relevant Land Registry transfer form) executed as a deed by MDC and the Respondents, stated that “the transferee is more than one person and … they are to hold the property on trust for themselves as tenants in common in unequal shares”. The ultimate intention was that together with the Development Site, the Land would be made subject to a “Section 278 Agreement” with Nottinghamshire County Council for certain off-site highway works to be carried out, including the construction of road water drainage systems and sewers. A draft version of that Agreement (to which the Respondents were not named parties) was exhibited to Mr Kendall’s first statement.

Both relative to the size of the Development Site, and indeed on any sensible view, the Land occupies a very small area. It is, essentially, a bus stop. However, it is a bus stop which happens to occupy a point between the Development Site and the highway, and in the context of the current project, although there was some disagreement between the parties regarding the possibility of alternative means of access to the Site (and whether or not therefore, it truly comprised a “ransom strip”, as was said by the Administrators) its value lies in its use as part of the presently contemplated means of access, which would not be possible without it; certainly, whether or not it was or is an irreplaceable part of the project, the Land was in fact intended to be used for its purposes, and is therefore of particular value to it, and of course, to anyone hoping to complete and make profit from it, including the two companies, now in administration.

Thus, on 3 December 2021, Shakespeare Martineau wrote on behalf of the companies to MDC concerning the “proposed dedication to highway of” the Land (which was described as “the MDC Bus Stop Land”) and referred to an access arrangement which had been granted technical approval by the County Council. They asked MDC to note that “the land designated for access includes the MDC Bus Stop Land”, and that the Council had indicated that it should “have been dedicated when other adjoining land was developed”. They said:

Later, about two months before the Land was bought, on 16 March 2023, Ms Victoria Bovington, a solicitor at Shakespeare Martineau, emailed Mr Ball, and attached a draft TR1 in respect of the Land which named Holdings as the (intended) transferee, and stated the price to be £156,000. However, at some point in time between that email and the actual transfer of the Land on 31 May 2023, the intended arrangement changed.

Thus, on 18 April 2023, Ms Bovington wrote again to Mr Ball and said, “I’ve considered further the merits or otherwise of purchasing the bus stop land in yours and Carole’s name and asked a colleague in my banking team to check the OakNorth security documents. Are you available for a call tomorrow morning?”.

Subsequently, on about 25 April 2023, she emailed Mr Ball (first in advance of a telephone call, the email’s subject being “items for discussion on call”, and then afterwards, having added that part which is in bold below) and said, amongst other things:

Exhibited to Mr Ball’s statement (but not, I was told by Mr Weaver, previously in the possession of the Administrators) were the Minutes of a Holdings’ Board Meeting, said by him to have been held on 16 May 2023, at which he was present, as a director, and at which Mrs Ball was also present, marked as “in attendance”, and which in respect of the “Land at Clipstone Road East”, stated, amongst other things:

Although Mr Woolfe was a director of Holdings, he was not present at the meeting, which was therefore - it was agreed - inquorate. Insofar as relevant, it was however also agreed that the Minutes (which were not disputed as a genuine or contemporaneous record) were capable of evidencing the Respondents’ intentions, beliefs and thoughts at the time.

On 24 May 2023, the sum of £156,500 was paid by Homes from its bank account to Shakespeare Martineau, and on 25 May 2023, Ms Bovington emailed Mr Ball, acknowledged receipt of the “purchase monies for the MDC land transfer”, and said, amongst other things (“to confirm” a discussion of the previous day):

It was not said that the sum paid by Homes comprised or represented a sum previously paid to it (or to Holdings) by the Respondents specifically to enable the purchase price to be paid; it was, in other words, a sum which Homes at that time happened to hold.

On 26 May 2023, Mr Ball emailed Ms Bovington to confirm that Mrs Ball had been appointed as a director of both companies, and as said above, on 31 May 2023, the Land was transferred to them. On 1 June 2023, Shakespeare Martineau wrote to HMRC asking to amend the SDLT return to reflect “a last minute change in the transaction”, which was that the Land had been transferred to Mr and Mrs Ball, not Holdings. As I have said, the TR1 executed as a deed by MDC and the Respondents, stated that “the transferee is more than one person and … they are to hold the property on trust for themselves as tenants in common in unequal shares”.

In Mr Ball’s statement, he said, amongst other things:

Essentially, Mr Ball’s evidence came to this: because development funding had been exhausted (this was the only reason given) the Land was bought using his own money (by which he meant money previously lent by him to Holdings over the course of several years, and so owed to him by Holdings) albeit subject to an intention of sorts to sell it to Holdings for the purposes of the project, at a price to be agreed in due course at a future time when new or additional financing had been agreed for the benefit of the companies; on his view, the money to pay the price was therefore his, provided by him, and he was the purchaser, albeit subject to an agreement with Mrs Ball that the property be transferred beneficially to both of them, as reflected in the TR1, supported by advice from Shakespeare Martineau. The documents (at any rate, those in evidence) show that Shakespeare Martineau were told and proceeded on the basis that the purchase price money was being provided by Mr Ball; there is nothing in the documentary evidence to suggest that they advised against or positively in favour of the arrangements, or indeed, that they advised at all.

Mr Ball’s belief that money previously lent by him to Holdings continued to be “his” money, was plainly wrong: the money had been lent by him, had become Holdings’ property (and I assume very likely mixed with other monies) and had been replaced by a debt owed to him by Holdings, reflected in its accounts. Nonetheless, obvious misconception though it was, I am not able to find that it was not a genuinely believed misconception. Further, the Minutes of 16 May 2023, albeit produced in respect of an inquorate meeting, and Mr Ball’s evidence overall, suggest to me that he intended that the debt owed to him by Holdings would be reduced accordingly – that being the obvious consequence of “his” money having been used by him to buy the Land, rather than having been repaid to him or remaining in the hands of Holdings; “his” money having been paid to MDC at his direction, it can no longer be owed to him. Were that right, then ultimately, in economic terms, the debt to Mr Ball would have been reduced by the transfer to him of the Land. Having said that, his statement made no reference to the possibility of any change to his loan account, and Ms Shuffrey’s submission was that the precise method of accounting for the payment was, at the time of the Land’s acquisition, yet to be decided upon, being something which would be worked out with the accountants at the end of the financial year when producing final accounts – a point which was and will never be reached because of the intervening administration.

Mrs Ball’s evidence was that she had “little to do” with the running of either company, and had only been a director during periods when Mr Ball was unwell (for example, in May 2023, in order to sign documents in England, at a time when Mr Ball was unable to travel from Spain). She said that the purchase was from their own funds, and that they had been personally advised by Shakespeare Martineau that it could be in their own names. There was no difference between the positions adopted by Mr and Mrs Ball.

There was nothing to contradict his own statement referred to above, that Mr Woolfe, despite being a de jure director of Holdings, “played no part” in its management.

Both Respondents said that despite requests made by Mr Ball and by their solicitors, Shakespeare Martineau had not provided copies of their files, containing the advice given to them personally in respect of the acquisition of the Land. In evidence were emails sent by HCR Legal LLP to Ms Bovington on 22 December 2023 and 4 January 2024, requesting “our client’s conveyancing file”, but to which, it was said, there had been no reply. Similarly, on 22 January 2024, Mr Woolfe emailed Mr Ball and said, “I have just chased Victoria to make sure the file has been copied across”. I was not told that it had been received in the meantime, since the Respondents made their statements on 7 February 2024. Mr Ball’s evidence was therefore that in the absence of those documents, he had “managed to locate some documents from [his] own records”. As to that, in his second statement, Mr Kendall said that Addleshaw Goddard, the Administrators’ solicitors, had asked for and received from Shakespeare Martineau a copy of their file held in respect of the Land, but had not either asked for or seen any “personal” files. It is therefore not clear whether further documents exist in the hands of Shakespeare Martineau or otherwise which relate to the Respondents’ personal position in respect of the Land and the circumstances of its acquisition.

The companies’ initial funding was repaid in December 2020 as a result of a refinancing with OakNorth Bank plc (“OakNorth”) and mezzanine funding provided by Rubicon Capital Ef Ltd (“Rubicon”) both of which have fixed and floating charges over the companies’ assets.

In Mr Kendall’s second statement, he said that the companies were facing “obvious financial difficulties” at the time of the Land’s acquisition, and were in “financial distress”, as, he said, the Respondents must have known. In that regard, he exhibited a letter from Rubicon to Homes dated 6 November 2023, which claimed payment of £6,629,100 and which referred to the obligation to repay outstanding borrowing having arisen on 31 May 2023. In addition, he exhibited a letter from Henry Boot Construction Ltd dated 18 May 2023 to Homes, seeking payment of £303,178.91, “significantly overdue”, having become payable on 21 April 2023. The statement of affairs signed by Mr Ball in the administrations on 1 November 2023 shows that Henry Boot was at that time owed just over £645,000 (“plus prolongation costs”) by Holdings. Mr Ball’s own evidence was that in May 2023 funding had been “exhausted”, and that he was attempting to agree replacement or additional financing, which he had failed to do by the date of the Administrators’ appointment.

On 3 October 2023, OakNorth served notice on the companies to repay their loans; on the same day, it appointed the Administrators.

Against that background, the Administrators’ case (as it was advanced at the hearing) was that the Land is either held on resulting trust for Homes, which provided and paid the purchase price, or if not, on constructive trust for both companies (or one of them, more likely Holdings) because it was acquired by the Respondents in breach of their duties as directors, principally under s.175 of the Companies Act 2006 (“the CA 2006”) to avoid conflicts of interest. The hearing was expedited because of the Administrators’ wish to complete as soon as possible a proposed sale of the Site to an (undisclosed) “national housebuilder”, on terms agreed after an extensive marketing process (including expressions of interest from 20 parties, and offers received from 9) at a price in excess of £15m, but wholly contingent upon the use and inclusion of the Land. As matters stand, as was explained by Mr Kendall in his 3rd statement, the estimated holding costs of the Site pending sale are £373,394 per month, a cost to the obvious detriment of the insolvent estates.

In brief summary, in opposition, the Respondents argued, first, that these claims cannot be brought under or within the scope of s. 234 or paragraph 63; second, that there was in any event no resulting trust, both because the beneficial ownership of the Land was conclusively settled by the trust expressly declared in TR1, and also on the evidence; and third, that the claim to a constructive trust was not fairly stated and particularised to enable the Respondents to understand and answer the case advanced against them at the hearing, and that had it been, certain issues would have been raised which the court cannot now decide, and that again, in any event, the constructive trust claim was defeated by the express declaration of trust.

I shall deal first with the law, including the scope of section 234 of the IA and of paragraph 63 of Schedule B1, and whether they provide an appropriate and proper (or at any rate, permissible) means of advancing the Administrators’ case.

Section 234 states, in relevant part:

Relatedly, albeit not relevant to administrators, rule 7.78 of the Insolvency Rules 2016 provides that the powers conferred on the court by s.234, “are exercisable by the liquidator or, where a provisional liquidator has been appointed, by the provisional liquidator”, and that any person on whom a requirement under s.234(2) “is imposed by the liquidator or provisional liquidator must, without avoidable delay, comply with it”. So not only the court, but also a liquidator or provisional liquidator without court order, is able to require a person to transfer property to which (merely) the company “appears to be entitled”, rather than is or is certainly entitled. S.234(3) and (4) protect an office holder (in certain circumstances and to some extent) who seizes or disposes of property which transpires not to belong to the company, if he had “reasonable grounds for believing” that he was entitled to act. Without reference to authority, the language of those provisions, and the entitlement of a liquidator to exercise s.234 powers without court order, suggest that it is not the primary purpose of s.234 to empower an office holder to raise, and the court to decide, issues of disputed ownership.

That reading is essentially consistent with the authorities. Thus, in Re Coslett (Contractors) Ltd [2001] UKHL 58, at [25]-[31], Lord Hoffmann observed (the emphasis is added):

To similar effect, in Ezair v Conn [2020] BCC 865 at [26] Patten LJ said:

In Ezair, the judge at first instance had decided that the administrators’ claim to beneficial ownership of certain property could be determined within the s. 234 application, and “there [had] been no appeal from this order”, but in that respect, Patten LJ continued (again, the emphasis is added):

Accordingly, the central purpose of s.234 is to provide a summary, discretionary remedy, enabling an office holder to carry out his functions, but without necessarily involving a determination of title; if title is in dispute, the usual appropriate course would be to commence proceedings in the name of the company itself. However, having said that, the court is not precluded from finally resolving issues raised in respect of title in opposition to an application under s.234, and in certain cases (for example, as in Ezair, where the issue was a “pure point of law”) will do so. Ultimately, the decision whether or not to determine the issue is likely to depend on whether or not a summary process, without statements of case, disclosure and witness statements, is fair.

Paragraph 63 of Schedule B1 states, “The administrator of a company may apply to the court for directions in connection with his functions.”

That provision is in broad terms, and has been used in a wide variety of situations. I accept that in principle it confers powers sufficiently broad to allow a court to resolve disputes with third parties, such as, for example, in Re Rodus Developments Ltd (In Administration) [2022] EWHC 3232, in which ICCJ Barber decided, on an application for directions, that an equitable charge claimed by a creditor was avoided for non-registration by virtue of section 859H of the CA 2006, and granted declaratory relief to that end. I note that at [38], the judge observed that whilst in many cases it could be argued that a respondent should be given a final opportunity to put in evidence and attend a hearing before final relief is granted, it was not appropriate in that case because the creditor had been given ample pre-application notice of the intended process; the charge was plainly void and the creditor, despite having been given a number of opportunities to do so, had failed to articulate any alternative conclusion; furthermore, it was essential to grant urgent relief to ensure that the administration was not further prejudiced.

Again therefore, the decision whether or not to determine, on an application under paragraph 63, an issue such as that raised in the present case, will depend, certainly in part, on whether or not it is fair to use a summary process, without statements of case, disclosure and witness statements. Throughout, I have in mind that in many such cases, the usual and appropriate course would be to commence proceedings in the name of the company itself.

For present purposes, it suffices to state the general rule by reference to Lewin on Trusts, 20^th edition, at 10-021:

As to the “character” in which the payor acted, in Princess Tessy of Luxembourg v Prince Louis of Luxembourg [2018] EWFC 23; [2019] 1 F.L.R. 1203 at [74], MacDonald J said:

However, a presumption of resulting trust is of limited importance in comparison with evidence of actual intention. Thus, in Kyriakides v Pippas [2004] EWHC 646, at [76], Gabriel Moss QC, sitting as a Deputy High Court Judge, said:

Although there was no dispute between the parties as to the principles in respect of resulting trusts generally, there was an issue concerning the power of the court to find a resulting or constructive trust in cases (such as the present) in which there has been an express declaration of trust.

As to that, Ms Shuffrey’s submission was that where a relevant conveyance contains an express declaration of trust which comprehensively declares the beneficial interests in the property, there is no room for the application of the doctrine of resulting or constructive trusts unless and until the conveyance is set aside or rectified. In support of that proposition she referred to Goodman v Gallantia [1986] 2 WLR 236, in which an express declaration of trust by the two purchasers that they held the property for themselves as joint tenants was held to preclude the case advanced by one of them, that she was entitled to a greater than half share. At 239F-240A, Slade LJ said:

More recently, the principle was confirmed in Pankhania v Chandegra [2012] EWCA Civ 1438, in which it was held that a claimant was entitled to rely on the terms of a transfer into his name and that of the defendant as joint tenants in common in equal shares and on an express trust to that effect contained in the transfer. At [16], Patten LJ said:

To the same effect, Mummery LJ made observations at [26]-[27], including:

Essentially therefore, Ms Shuffrey’s submission was that the court cannot, in the present case, go behind the express declaration of trust in the TR1 in favour of Mr and Mrs Ball, and that unless and until that declaration is set aside (relief for which there was no application) there is simply no room for finding a resulting or constructive trust in favour of one or other or both of the companies: until set aside, the express trust precludes the remedy sought.

I do not accept that submission. Unlike the present case, those referred to by Ms Shuffrey concerned claims made by one joint owner against another to establish a beneficial interest different from that created by a binding express declaration of trust to which both were parties. However, in the Princess Tessy of Luxembourg case, in the context of an application for financial remedies, a claim was made by “the wife” that “the husband” had a beneficial interest in a certain property which had been transferred to the husband and his father, on the basis that the Form TR1 contained an express declaration by the transferees that the property was to be held on trust for themselves as joint tenants. The husband denied that he was a beneficial owner. His case, which succeeded, was that he and his father held the property on trust for the L’Administration Des Biens De S.A.R. Le Grand Duc De Luxembourg (“the ADB”), which had, amongst other things, paid the purchase price. In his judgment, Macdonald J set out the principle stated in Pettit, Goodman and elsewhere, but observed at [66], that “the operation of this clear and long settled principle pre-supposes that the parties who make an express declaration of trust are entitled to do so.” The husband and the ADB contended that the husband and his father simply never reached a position in which they were able to declare a trust.

Ultimately, the judge held that the husband was not the owner of a beneficial share, despite, as he put it, being “of course, acutely aware of the principle in Goodman v Gallant” (see [110]]). At [111]-[115], he said (the emphasis is added):

Essentially, the husband and his father ineffectively purported to vest in themselves the beneficial interest already vested in ADB. It follows from that decision that in a case such as the present, the court can find a resulting trust which precedes and therefore defeats an express declaration made at a time when the whole beneficial interest had vested in a third party, the true purchaser.

Ms Shuffrey sought to distinguish the Princess Tessy of Luxembourg case on two grounds.

First, she submitted that the decision cannot be reconciled with the principle that a conveyance containing a declaration as to the persons in whom the beneficial title vests is conclusive as to their intention. That submission is not correct: the intentions of the husband and his father, as expressed in the TR1, were completely irrelevant, for the reasons explained by the judge: unlike cases such as Pettit, Goodman and Pankhania the claim was made by a third party, not by a person seeking to avoid the consequences of his own express declaration. The declaration made by the husband and his father was no more relevant or effective than one made by a complete stranger.

Second, she submitted that the decision was per incuriam because the judge mistakenly thought that s. 53(1)(b) of the LPA 1925 requires the transferees named in a TR1 to make the declaration, whereas in fact, the transferor - in the present case, MDC - is able to declare a trust.

In support, she cited the decision of HHJ Matthews in Taylor v Taylor [2017] 4 WLR 83. In that case, the transferor, but not the transferees, had signed the relevant form (a TP1) which contained the words, “they [in other words, the transferees] are to hold the property on trust for themselves as joint tenants”. Again, this was a case in which one of the two transferees was seeking to establish an interest different from that stated in the form. The judge held that he could not do so, but was bound by the declaration. In that context, one of the claimant’s arguments was that because the transferees had not signed the TP1, the declaration of trust which it contained was not valid, because it was not signed by the transferees (as those declaring the trust) in accordance with s. 53(1)(b) of the LPA 1925. The judge rejected that argument for various reasons, including that in the circumstances of the case, the form contained an express declaration of trust by the transferors, validly signed by them. As he said at [44]: “in my judgment, although [the transferees] would have been able to declare such trusts once the legal title had been conveyed to them, at the time when the transferors signed the form they were the legal and beneficial owners of the land and well able to declare such trusts.” In so acting, the transferors had acted in accordance with the transferees’ directions.

Taylor was a variation on the typical case in which one of two persons who have together expressly declared a trust in writing seeks to avoid its effect. It was not however a case in which the claim was made by a third party; it therefore concerned a different issue. Moreover, in the present case, the TR1 was signed by the transferees; if anyone declared a trust, it was them, not MDC, and similarly in the Princess Tessy of Luxembourg case, it was or would have been, the husband and his father, not the vendor. The problem in the Princess Tessy of Luxembourg was not the absence of writing or a signature – it was that those purporting to declare the trust did not by then own the beneficial interest in the property at all. On the transfer of legal title in such cases, equity will, if appropriate in the circumstances, impose a resulting trust in favour of a third party, the true purchaser, the person who paid the price, which binds the transferees in accordance with the parties’ intentions, actual and/or presumed, and which results in the beneficial interest vesting in the purchaser on the transfer of legal title to the transferees; their (effectively subsequent) written declaration of trust is rendered irrelevant.

The CA 2006 provides as follows:

As to s. 175 - breach of which was the primary and principal basis of the Administrators’ case in respect of breach of duty - Mr Weaver referred to various explanatory passages in the judgment of Adam Johnson QC (as he then was) siting as a Deputy High Court Judge in Davies v Ford [2020] EWHC 686 (Ch). First, at [257] to [259], he said as follows:

Second, as the Deputy Judge observed at [268], whilst breaches of duty by directors often take the form of a director misapplying assets of the company:

Finally, Mr Weaver referred to the following additional observations relevant to remedy at [270]:

Ms Shuffrey did not dispute the principles as such. Instead, she submitted that the law in this regard (including the circumstances in which a breach may occur, the various possible defences and the appropriate relief) is “notoriously complex”, and that in the present case (although impossible on this variety of application, by means of the process and procedure inappropriately chosen by the Administrators) the court would be required to determine at least the following:

I shall return to these matters below in connection with the Administrators’ case on constructive trust, but for the moment, observe first, that there was nothing to prevent the Respondents from raising these points in their evidence, and second, that to some extent, the points raised are points of law.

In principle, as I have explained, the Administrators’ case that the Land is held on resulting and/or constructive trust is in principle capable of being brought under either or both s. 234 of the IA 1986 or paragraph 63 of Schedule B1.

The application itself sought “a declaration that [the Land] is held by the Respondents on resulting and/or constructive trust for the benefit of Homes or Holdings” and an order that the Land be transferred to Homes or Holdings. The grounds upon which relief was sought were said to be set out in the first witness statement of Mr Kendall.

In that statement, having set out the evidence, Mr Kendall stated at paragraphs 49-51, the Administrators’ “reasons” justifying the relief sought. In short, they were:

It was therefore plainly stated, albeit perhaps somewhat summarily, that the constructive trust claim was brought by reference to a breach of the Respondents’ duties as directors, on the basis that the Land was intended to be an integral part of the development, was very valuable to the companies, was paid for by Homes, and yet had been transferred to the Respondents for no discernible reason, and certainly not for a reason of any discernible benefit to the companies, which could not, as a result, complete the development as intended. In substance, all of that was clear.

Furthermore, the pre-action correspondence, including in particular Addleshaw Goddard’s letter of 31 October 2023, included the allegation (at that point in support of a claim to compensation) set out by reference to the duties of directors as provided for in sections 171-176 of the CA 2006, that the Respondents had acted wrongly by “allowing [Homes] to make the Purchase Payment and gift the Land to you and Mrs Ball for no immediate apparent benefit to [Homes]”.

Subsequently and in response to the application issued on 12 January 2024, the Respondents first agreed to the order of 19 January 2024 (which provided for an exchange of written evidence followed by a final hearing) and then served the evidence that I have summarised above. At no point until shortly before the hearing (in Ms Shuffrey’s skeleton argument) did the Respondents complain, whether in correspondence or evidence, that either the resulting or the constructive trust claim was not understood by them, or open to the Administrators, or that a different procedure was required (albeit I acknowledge that they were entitled to hold the Administrators to any consequences of their own chosen approach).

In my view, in those circumstances, the Respondents, who are legally represented, were on notice of, and either understood or should have understood, that the Administrators had advanced a constructive claim based on breach of fiduciary duty. It was open to them to respond and state their case as they wished.

In Mr Kendall’s second statement, which was made on 14 February 2024, at paragraphs 16-18, under the heading “Conflict of Interest”, he said that there was a “clear conflict of interest” because “the opportunity for the Companies to take ownership of the Land was taken away to the direct detriment of the Companies and the progress of the Development Site”, without there having been any explanation of possible benefit to the companies or justification of the “significant advantage to the Respondents”. At paragraphs 19-24, under the heading “Acting the Best Interests of the Companies”, he set out the detriment caused to the companies by the Respondents having taken the benefit of the transfer, and referred to the “obvious financial difficulties” and “financial distress” that I have described above.

Although again I acknowledge that it is not for the Respondents to inform the Administrators’ choice of process, no complaint was raised about the presence of these allegations until the hearing before me.

In the circumstances, the Respondents knew the particulars and nature of the case which they faced sufficiently well to provide their response; they gave no sign otherwise. I shall therefore treat the whole of the Administrators’ case, as it was advanced, as a case open to them in principle, but subject to the constraints inherent in the process which they have chosen – including that there was no cross-examination and no disclosure. I reject the argument that as a matter of fairness, pleadings were a necessity.

I reject the claim that the Land is held on resulting trust for Homes (and/or, to the extent argued, for Holdings).

Essentially, on the evidence, although the purchase price was certainly paid by Homes from its own bank account, it was not paid by Homes “in the character of a purchaser”; moreover, if and to the extent the issue is sensibly distinguishable, the parties plainly intended that the Respondents would acquire and own the Land, rather than Homes (or indeed Holdings).

That conclusion is based on the following.

I accept the Administrators’ case that the Land is held on constructive trust for the companies: it was acquired by the Respondents in manifest breach of their duties under s. 175 of the CA 2006 (and also under s. 172).

I reach that conclusion for the following reasons.

Whether or not it comprises a ransom strip, the Land certainly was, and is, a valuable, integral part of the development project, required by the companies and intended to be used by them to construct the presently (and long) contemplated means of access to the Site. As Shakespeare Martineau wrote to MDC on 3 December 2021: “During the extensive 7 year planning process, the removal of the existing bus stop on the MDC Bus Stop Land as part of the main site access has been in the contemplation of all parties for the duration of the planning processes.” Similarly, the draft Section 278 agreement exhibited by Mr Kendall named Holdings and Homes as parties, but not the Respondents. Accordingly, the commercial opportunity to buy the Land arose in the context of the development, and for its purposes, as the Respondents knew; it was an opportunity which the companies had long thought to exploit. It was not until about April 2023 - only the month before the eventual acquisition - that the proposed arrangement was changed, and the Respondents interposed themselves as owners.

The Respondents were bound to protect the companies’ interests, and to act with undivided loyalty, in good faith and in their best interests. Manifestly, the acquisition in their own names of the Land, needed by the companies for the purposes of their business, placed the Respondents - as is now abundantly plain from the fact of this litigation - in a position where their interests and those of the companies were in sharp conflict. They exploited and diverted to themselves an opportunity to acquire property which the companies themselves needed. On their own evidence, they placed themselves in a position in which it would at some point be necessary (albeit there was no alleged obligation) to negotiate for a re-sale of the property to Holdings, at a “purchase price [to be] agreed”. In no sense did any of that promote the companies’ interests.

Furthermore, despite ample opportunity to do so, the Respondents have failed positively to advance any good reason for having acquired the Land themselves, consistent with the best interests of the companies. In their evidence, they referred to the companies’ funding having been “exhausted”, and in her skeleton argument, Ms Shuffrey said that the Respondents were “not in fact seeking to exploit an opportunity for profit but rather to protect their position (in light of the Companies’ indebtedness to Mr Ball) pending an intended re-sale to Holdings”. Those points however are not in their favour: in effect, they accepted that they were acting to protect their own private interests, not those of the companies for which they were fiduciaries.

Moreover, the evidence that the companies’ funding had been “exhausted” is not consistent with the admitted fact that Homes paid the purchase price. Similarly, Mr Ball’s evidence that he funded the acquisition personally, himself, “without any assistance from banks or funders”, using monies that he had loaned, was not true, as explained above – the money came from Homes, even if in some sense, possibly, the product of Mr Ball’s previous lending. At best, the advantage to the companies was that Holdings might at some point have come to owe less to Mr Ball on his Loan Account. In any event (in consequence of s.175(2)) it would not excuse the Respondents’ breach of duty to establish that the companies could not have taken advantage of the opportunity.

Ms Shuffrey in effect raised the possibility that the arrangement might have been agreed, authorised or ratified by the companies. As to that:

In the circumstances, in my judgment, the appropriate remedy is the imposition of a constructive trust. Other than a submission that the issue of the appropriate remedy is or can be “notoriously complex”, I was given no real reason not to reach that conclusion, which is consistent with the passage and principles set out above at paragraph 56.

For two reasons, returning to the point discussed above, I do not accept that a constructive trust is not appropriate or permissible in a case such as this where the directors have declared a trust of the property in favour of themselves in the TR1.

Finally, it was suggested that the Respondents might seek relief under s. 1157 of the CA 2006 on the basis that the Respondents relied on the professional advice of Shakespeare Martineau, and that they intended to re-sell the Land to Holdings as soon as the re-financing was completed without any intention of profiting from the arrangement. It was suggested that the court’s powers in that regard could not be properly considered on this application, without pleadings and further evidence. I do not agree:

In the circumstances, for the reasons explained, I will declare that the Land is held on constructive trust for the companies, and make such consequential orders for its transfer as are appropriate.