Sue Austin considers the decision in Palmer Birch (a Partnership) v Michael Lloyd and Christopher Lloyd [2018] EWHC 2316 (TCC), where a creditor successfully brought claims against the de jure and de facto directors of a liquidated company.
A claim was brought by Palmer Birch (“PB”), a partnership business, against the de facto and de jure directors of Hillersdon House Limited (“HHL”), in liquidation under three economic torts:
The trial was limited to liability only.
In January 2012, PB had entered into a JCT Standard Building Contract (“the Contract”) with HHL to carry out renovation work to a 14 bedroom manor house, Hillersdon House (“the Property”). The Property was owned by a Cypriot company whose beneficial owner was the first defendant, Michael Lloyd (“D1”), and was leased to HHL, under a 21 year lease and, later, occupied by D1 as his residence.
HHL’s sole director and shareholder was the second defendant, Christopher Lloyd (“D2), whose voice as a director was described by HH Judge Russen QC as “almost ventriloquial” while D1, who financed the renovation work from both personal funds and via personally guaranteed loans to the Cypriot company, is stated to have “called the shots”. D1 was a de facto director of HHL.
By December 2014 immediate funding had become an issue for D1 and the court found that, by late January 2015, D1 and D2 had decided to bring about the liquidation of HHL although, in the event, this did not occur until 25 June 2015. In the meantime invoices for £444,299 due to by paid to PB in December 2014 and January 2015 went unpaid and, in January 2015, D1 suggested that PB should formally suspend performance and temporarily withdraw from site, citing a short term cash flow issue which “as you know will soon be rectified with a sale of a property that I own in Kenya”. PB did suspend works and leave the site. In April 2015 PB was given notice terminating the Contract with immediate effect on the basis that “HHL had no means of repaying its very substantial debt obligations and that the inevitable consequence, sooner or later, was that the company would be placed into liquidation”. This notice was a repudiatory breach of the contract by HHL, as it had no contractual right to terminate. Subsequently, and prior to HHL’s liquidation, the anticipated funds from Kenya did become available and were extended to a successor company to complete the works. D1 was sole director and shareholder of the successor company which was incorporated on 12 May 2015.
The allegation of inducing a breach of contract succeeded against D1 on the basis that he had procured HHL’s repudiatory breach of contract by deciding to bring about HHL’s liquidation and choosing to make funds, which could have been advanced to HHL, available to a successor company. By doing so he was considered to have crossed the line from prevention to inducement. The defences of justification and “no loss” failed.
The allegation of unlawful interference failed as there was nothing unlawful in D1 ceasing to fund HHL.
The allegation of unlawful means conspiracy succeeded against D1 and D2 because of their collusion to bring about the repudiatory breach of contract, the evidence supporting the inference that, “by no later than late January 2015, D1 and D2 had reached an agreement to bring about the liquidation of HHL so that it might escape from the Contract and thereby avoid meeting PB’s existing and anticipated claims”. The justification defence was not available to this allegation and the “no-loss” defence failed.
This is an unusual case of a creditor pursuing the directors of an insolvent company via claims in tort rather than the more usual breaches of duty and misfeasance remedies.
Please contact sue.austin@howespercival.com for more information on this subject, or to ask a question.
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