Analysis
Mr Davenport the applicant (A) applied to the Companies Court pursuant to ss1 and 17 of company Directors Disqualification Act 1986 for permission to give instructions to solicitors acting on behalf of Portland Place (Historic House) Ltd, (the company), a company incorporated in Nevis in the West Indies in relation to litigation brought against that company. A applied from prison where he is serving sentence for fraud. In September 2011 he had been disqualified for ten years from being a director of a company or in any way being concerned in its management without the leave of the court. He had immediately applied for leave to act as director in respect of three companies including the company which was refused. Two new directors were appointed in respect of the company.
Prior to November 2005 A had been the holder of a long lease of 33 Portland Place and 4 and 4A Weymouth Mews, London W1 (the property) and had acquired the freehold title under the Leasehold Reform Act 1967, which for unidentified tax reasons was vested in the company and not A. The company executed a deed of trust which provided amongst other things that the company held the property as nominee for and on behalf of A. The deed was signed by A, describing himself as ‘a director’, for and on behalf of the company. The company had one issued share and the registered shareholder also executed a deed of trust in favour of A. The freehold of the property cost around £3m in 2005 and the company borrowed most of this amount from HSBC Private Bank (Monaco) SA (the bank) mortgaging the freehold to the bank to secure repayment of the loan. In 2009 A’s assets and those of the company were frozen pursuant to the Proceeds of Crime Act 2002. On 16 January 2012 the bank, as mortgagee of the property, appointed LPA Receivers in relation to the property, which was by then valued at £20m. On 6 March 2012 it claimed possession of the property, and sought payment from the company of the sums due under the mortgage. Initially the company was the only defendant but A successfully applied to be joined as a second defendant and maintained that he has a defence to the action. He sought permission to instruct solicitors on behalf of himself and the company since, inter alia:
- 1. he was the beneficial owner of the property which was his home;
- 2. the company was bound by the trust to give effect to his directions, and would be bound to consult under s11 of the Trusts of Land and Appointment of Trustees Act 1996 and could delegate the conduct of the litigation to him under s9 of that Act;
- 3. the defence depended largely on the facts and circumstances surrounding the taking of the mortgage of which he had first-hand knowledge; and
- 4. it would save costs for him and the company to have common representation rather than, as at present, being represented separately.
The Secretary of State opposed the application as an abuse of process. He also argued that the directors of the company would have a conflict of interest if they were asked by A to act on his instructions pursuant to the trust of the property and could in any event defend the bank’s claim on behalf of the company if they saw fit.
Held
Permission was granted to A to give instructions to the company in accordance with the deed of trust of the Property, if and insofar as that deed of trust was effective as between A and the company [25].
During the often lengthy period of a disqualification it must be open to a disqualified person to apply more than once for leave under s1 of the 1986 Act if he could show a change of circumstances from the time of an earlier application. What was sought by this application, viz. the right to give instructions, was sufficiently different from the substance of the previous application refused by the registrar, the right to be a director of the company, to allow the application. With regard to abuse of process a broad merits-based approach should be adopted and while the present application could have been made to the registrar at the same time as the earlier application A was not abusing the process of the court by bringing forward a second application for much narrower relief, even though the relevant matters overlapped with the matters considered by the registrar and could have been contemplated at the time of the earlier hearing [18].
The only evidence in respect of the validity of the trust deed came from A so it was necessary to guard against the possibility that this apparent deed of trust might not be effective and any order had to be prefaced by the words ‘If and insofar as the deed of trust is effective as between [A] and the Company [19]’.
The deed of trust committed the company to exercising its rights over the property in the manner and for the purposes directed by A. That allowed A to give directions to the company as to how it should defend the proceedings brought against it by the bank. There was no legal barrier to a company being a trustee, even a bare trustee or a nominee nor to a company undertaking to act on the direction of the beneficial owner of an asset. The duty of the directors to the company was to ensure that the company acted consistently with its duties under the deed of trust. But, if A gave directions to the trustees in the way contemplated by the deed of trust, would he act in breach of the disqualification order? A had not asked the court to declare that such conduct was not a breach of the order which could have given rise to difficulties. Instead he asked the court to give him permission to exercise his rights under the deed of trust so as to avoid any argument as to whether he would otherwise be in breach of the order. The court’s permission to do this also removed risk or uncertainty as to the position of the directors [20]. However, taking account of the interests of the company, of the public, and even of A, himself, it was not right to allow A to conduct the litigation and negotiations on behalf of the company. A was in prison. There were considerable restrictions on him. There was a real advantage in leaving the litigation and negotiation to be conducted by the company through its directors, who would consider whether the deed of trust was effective and, if so, would be obliged to act in accordance with the directions of A, which he was permitted to give [24] if the company successfully defended the claim, A’s interests were protected. If the SFO only allowed one set of costs, those should be made available to the company and not to A [22].
JUDGMENT MR JUSTICE MORGAN: Introduction [1] On 1 September 2011 Mr Davenport was disqualified by an order made in the Southwark Crown Court under s2 of the Company Directors Disqualification Act 1986 (the 1986 Act) following his conviction for fraud. He now applies to the Companies Court pursuant to s1 and 17 of the 1986 …Continue reading "Re Portland Place (Historic House) Ltd [2012] EWHC 4199 (Ch)"