Of Ball Grabs, stoats and weasels

 by whiskers

First Subsea v Balltec
[2017] EWHC 866 (Ch)


This is a story about ball-grabs. It also contains a serious warning for company directors: dishonest breaches of their fiduciary duty do not attract Limitation Act forbearance.

Ball-grabs are not cognates of POTUS-grabs. They are a clever idea for making underwater oil pipes less leaky. If you want an illustration of the brilliance of this device, you will find a diagram at the end of the first instance case report.

Ball-grabs were invented by Mr Emmett. Mr Emmett had birthed the ball-grab early on his career. His company, BSW Engineering had employed a small and cohesive workforce of six. If you wanted a Silicon Valley analogy, it would be set in a garage, with a basket ball hoop on the wall, and Mr Emmett would be played by Matt Damon wearing glasses and trying to look intelligent. Norris J, at first instance, clearly warmed to Bob Emmett and his ball-grabbing obsessions. He describes him thus:

Mr Emmett was a passionate engineer with unbounded enthusiasm for the technology he created and a deep loyalty towards those who had helped him develop it and market its products.

Sir Alastair took less kindly to the Claimants. He described one of them as an “abrasive” witness. For Emmett, had like poor Mr Toad, given the keys of his beloved firm to Toad Hall to the Stoats & Weasels. Needing extra investment to develop his ball-grabbers, he had sold a 71% stake to a rather unpleasant and corporate outfit in Aberdeen. This was not going to end well. The entrepreneurial spirit of the Garage was never going to gel with the sort of outfit that had HR departments, health and safety policies and zero talent in management of the free-spirited.

Mr Toad remained a director of the company, but was more and more excluded from everything. At the end, even the premises of the company. He had responded badly to the Stoats & Weasels sacking his best friend, Mole, and funded his best friend’s claim through the Employment Tribunal. Mole won, and that can’t have pleased the Stoats & Weasels one bit.

Mr Toad took against the libertine ways of the Stoats & Weasels- imposed Managing Director. He was the sort of man downloads porn onto receptionists’ computers for grins. The sort of man who lacks passion for ball-grabbing, but considerable enthusiasm for other types of grab.

And so, lacking a Badger to come to his aid and cleanse the Augean Stables, poor Toad started a new company in Ratty’s hole on the riverbank, with his old friends. Unfortunately, he did this when still officially a director. The gang tendered for three contracts to build ball-grabbers for Angolans. They won one of the tenders, and whilst losing the other two, forced the Stoats & Weasels to lower their tender price, thereby causing loss to Toad Hall.

Oh dear, poor Mr Toad. After a twenty four day trial, in which Stoats & Weasels threw everything at him and his nascent company; after a judgment of 487 paragraphs, Mr Toad defeated all the claims of the Stoats & Weasels. Except the claim for breach of fiduciary duty.

But his brief, 1 Essex Court’s, David Cavender, gave it one last shot: the Limitation Act. Mr Toad is out of clink, because the breach of fiduciary claim is time barred. Now some of you might be as unfamiliar with section 21 of the LA 1980 as you are of ball-grabbing activities. (Yes: there is life in the old joke yet).

In a nutshell, section 21(3) offers absolution for trustees and trustee shaped people from breaches of trust/fiduciary duty after six years. So say you – qua trustee – bunged the trust fund into the wrong investments because you are a bit thick – after six years from breach you’re in the clear.

The problem, though, is section 21(1). This is a two-headed avenging angel, and there is no redemption for the fiduciary – let’s say a company director like Mr Toad – who acts to the detriment of the company fraudulently. Equity doesn’t like fraudsters. (Neither does it like fiduciaries who feather their nest with trust assets – which Toad hadn’t done.)

Fraud is a nasty word, but that is what Toad had actually done.   He should have resigned from the company, shaken the dust off his feet and started afresh. He had tried to buy back Toad Hall, but the Stoats & Weasels had declined to negotiate. But all this notwithstanding, he had gone tendered against a company of which he was director. However badly that company has been treating you, it never excuses a lowering of the standard of fiduciary duty.

On a brighter side, I can report that Toad’s new company, with Ratty and Mole is flourishing and employs over 250 people. I’m sure that Mr Toad will be able to afford the relatively small amount of equitable consideration, for which he has been found liable. Also, given that the Stoats & Weasels lost on so many points of their pleaded case, the costs judgment will be lenient to Toad.

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A bicycle made for two?

by Whiskers

Davis v Jackson

[2017] EWHC 698 (Ch)

This case is an abomination, and illustrates yet again that depriving people of legal aid does the development of the common law a great disservice.   Snowden J, who is a clever chap, should have known better.  The contest is between an estranged wife and her husband’s trustee in bankruptcy.

Before I narrate this sorry tale, let me ask you a question.

 Biffy buys a bicycle.  She says that if Wills pays half, then, even though the bicycle lives in Biffy’s garage, the bicycle is “as much his as hers”. The offer isn’t time limited.  

Wills doesn’t pay half. What interest does he have in Biffy’s bicycle?

I know what you are going to say.  It’s “diddly squat”, isn’t it?  

Or is it? If you yourself have a bicycle, can anyone come along and claim halfsies, if they give you half the purchase price?  No, clearly not.  Biffy has parted with something.  I’d say this “something” was a contingent interest in 50% of the bicycle.   

Anyway, back to the case. Mrs Jackson (“Mum”) – let’s pretend we’re touchy feely family bods here – is married to Mr Jackson (“Dad”).  They have been “estranged” since 2001.  However, they are still married. Mum has four children, but it’s not clear that they are Dad’s too, or some other dad.  Anyway, Mum brings one of the kids to court to help her.  She’s called “Monique”.  Snowden J says nice things about Monique:

“But I must also pay particular tribute to Ms. Lewis, who does not have any legal training, but who assisted and represented her mother in difficult circumstances with remarkable ability, poise and confidence, both in written submissions and by way of oral submissions at the hearings before me.”

Sir Richard also says nice things about the Trustee’s counsel too – Ms Daisy Brown (“Daisy”) of Guildhall Chambers:

Ms. Brown, counsel for the Trustee and faced with a litigant in person, conducted the case in an exemplary manner, which reflects the stance taken by the Trustee and his solicitors.

Not that exemplary, Daisy! You could have done your job and reminded the court of some elementary principles of property.

But that’s enough ad hominem (feminam) abuse from me.  Back to the narrative.  

Mum buys Blackacre (194 Harrington Road, Beckenham) with some of her own money from a property she previously owned, and a mortgage. (Dad knows all about mortgages, having run a one-man band mortgage broking firm. Subsequently he was struck off by the FCA.)  Dad never, ever, lives there.  He occasionally telephones the kids.

Then Mum does a very silly thing. She goes to Dad’s solicitors and executes a Deed of Trust.  The Deed says that she holds Blackacre in equal shares for Dad and herself.  Why?  In evidence, she said she was told by the lawyers that this was to protect the kids if she should shuffle off the mortal.  Yeah right. 

The Trust Deed does contain a magic clause. I say “magic” because even though they read it, indeed the learned judge quotes it, the words are hidden by the cloak of not-knowingness.  It states – and think back to the bicycle that started this story – that Dad’s getting fifty percent of Blackacre is in consideration of him paying half of the mortgage payments and outgoings.

 Are we agreed here?  In the real world, Dad has a contingent interest, which becomes actual, if and only if, he coughs up the wonga.  In Snowden-world, though, the grand wizard pulls out magic pixie dust from his robes, sprinkles it on Dad’s contingent interest, and like some New Testament miracle, the halt can walk and the blind can see, and Dad has got his share upgraded.  

Mum then gets into trouble with her mortgage payments. The extent of Dad’s help is to get her a new, shiny mortgage.  A condition of the mortgage is that the legal title is transferred into both their names.  So Dad has finally given some consideration – the value of his joint covenant. 

Imagine that this is pre 1998, what do we have? Again, in the real world, we have joint legal tenants, with Dad having a contingent interest thingy in the equitable title.

However, this all happened in 2007. What’s changed?  That little box-ette on the TR1, which joint legal tenants tick to record the beneficial interest.  Unhelpfully, Mum and Dad’s solicitors tick that little box on the TR1 saying that they held Blackacre on trust for themselves as joint tenants.

And off Snowden goes on his Stack v Dowden frolic.  His subversion of the case is breath taking.  Have you read Stack v Dowden recently?  It’s about cohabitants.  Ms Dowden, was you might remember, TfL’s most senior engineer.  She had lived with Mr Stack for thirty odd years and also had four kids by him. Stack v Dowden is a Baroness Hale special.  As a matter of policy, it is beyond criticism.  As a matter of law – and I say this as a Baroness Hale groupie – it is a bit pragmatic.  Far be it from me to ally myself with pillars of the establishment, but I’m rather with Lord Neuberger in this judgment. 

Stack is therefore instantly distinguishable. It is about cohabitants and a family home.  It is not about a home purchased by an estranged wife with her own money, and with the mortgage liability solely discharged by her, to provide a home for herself and her children.

But let’s put Stack aside, and let’s put Mum’s mere equity for undue influence/mistake aside (as the learned judge did) and think about what interest Dad has after Mum ticked the fatal TR1 box.  Two possibilities, I suggest. 

Firstly that Mum ended the trust that the trust deed had created and resettled Blackacre so that she gratuitously conferred a beneficial interest on her estranged husband.

Secondly, Mum ticked the box because as far as she was concerned she already held Blackacre not absolutely, but contingently for her husband, and for herself. As Baroness Hale says in Stack, the starting point is the TR1, and you need proof of the parties’ intentions to go beyond that.  I’d say a trust deed was pretty good proof.

Much later, Dad went pop. His trustee in bankruptcy went after half of Blackacre.  I don’t doubt that Snowden J thought he was doing the right thing by using equitable accounting to reflect Mum’s contributions, and get her a bigger share.  However his starting point is fundamentally misconceived. 

This is a very unfortunate case. I was reminded of Lord Denning’s words in another lamentable case about errant equitable interests: Re Vandervell (no 2)

[Counsel] realised that the claim….had no merit whatsoever. He started off by reminding us that “hard cases make bad law”. He repeated it time after time. He treated it as if it was an ultimate truth. But it is a maxim which is quite misleading. It should be deleted from our vocabulary. It comes to this: “Unjust decisions make good law”: whereas they do nothing of the kind. Every unjust decision is a reproach to the law or to the Judge who administers it.

 

 

 

When I use a word, said Humpty Dumpty…

Wood v Capita Insurance 

[2017] UKSC 24

I imagine the Supremes sitting in their kitchenette idly flipping through the appeal petitions and bickering about which ones are going to be allowed.  All the judges will have their own hobby horses and bêtes noires.  Baroness Hale is unlikely to get fired up over a dodgy tax scheme, whilst Lord Sumption is not even going to read petitions that originated in the Family Division.   Horse trading and tactical voting will take place, with Lord Neuberger being grand and statesmanlike, and Lady Hale being smiley and steely and softly, softly, catchy monkey

So whose itch was this case scratching?  The most likely is the Supreme who gave the only judgment: with Lord Hodge.  Lord Hodge is the Scottish Judge, who tends to the commercial end of the spectrum.  Either that, or he’d won a game of rock-paper-scissors, with Lord Carnwath, who was still sulking over losing in Arnold v Britton.

What had riled Lord Hodge, was the apparent suggestion that there was some kind of “rowing back” from Rainy Skies orthodoxy in the majority decision in that aforementioned ghastly case Arnold v Britton.

Capita’s ground of appeal had been on this very point.  The Appeal Court had dismissed the idea that there was any dissonance between the two cases.  Capita had therefore claimed that excessive reliance on the textual purity approach in Arnold had meant that the contextulism advocated by Rainy Skies  was occluded. If the Appeal Court had taken a more contextual approach, then they would have put greater reliance on the matrix of fact, and Capital would have won.

The facts of the case are dull and predictable.  Some company of which Mr Wood was the 93% shareholder, and one of three directors was sold to Capita Insurance.  The business of the company was selling insurance to owner of classic cars.  The business  model was slightly more dodgy:  a classic car owner would input their details into an aggregator on the internet, and would be given a quote.  Funnily enough, when the punter was subsequently rung by the salesman to take credit card details, the premia had increased from the website quote, even though the risk profile hadn’t changed.

Capita reported themselves to the FSA, and had to compensate punters who had been diddled under l’ancien regime.  They therefore tried to claim on the warranties that Mr Wood et al had given them under the SPA.  The argument developed around the wording of the indemnity.  At first instance, the insurance company had won in front of  Popplewell.   A strong appeal court had held for Mr Wood, and if you read the clause, you’ll see for yourself, that it’s ambiguous.  In a nutshell, the draftsperson hadn’t considered a situation where loss might arise from the Capita whistleblowing on itself to the FSA as it was bound to do, under FSMA 2000.

The panel agreed with Popplewell,  and the appeal allowed Lord Hodge a platform to reformulate the orthodoxy.  First of all, he said, he was not going to reformulate the Rainy Sky and Arnold guidance.  However,  he thought he’d like to explain why Arnold was not a recalibration of Rainy Sky.

A court’s job was not to use a slavish, literalist approach, parsing each word like a GCSE English paper.  Rather, the contract was to be seen as a whole, depending on its nature, formality and quality of the drafting.  Greater or lesser consideration to these elements should be given, depending on the wider context.

Lord Hoffmann’s bid for judicial immortality in ICS v West Bromwich, where contextualisation was hailed as a novelty, should be put in its historical context.  The factual background known to the parties at or before the date of the contract had been considered far earlier in Prenn v Simmonds and Reardon-Smith v Yngar Hansen-Tangen by one of the pantheon, Lord Wilberforce.  Further, the sainted Lord Bingham had written a sound piece in the Edinburgh Law Review, which had said Hoffmann, was, as per usual, bigging himself up and pretending to be original.

Reprising Lord Clarke in Rainy SkyLord Hodge said that construction is a unitary exercise.  Where rival meanings exist, then it is appropriate to view them through the prism of commercial common sense.  The unitary process is also an iterative process:

“it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each”.

And feeling the need for a good sound bite for undergraduates and GDL-ers he says:

 “Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation.”

Finishing off, with a rousing and patriotic chorus (all together, now):

  1. On the approach to contractual interpretation, Rainy Skyand Arnold were saying the same thing.
  2. The recent history of the common law of contractual interpretation is one of continuity rather than change. One of the attractions of English law as a legal system of choice in commercial matters is its stability and continuity, particularly in contractual interpretation.

So now we all know where we are, and Lord Hodge would be ever so grateful if this could be the last word on the subject for a while.