Apex Global v FI Call (2016)
The High Court set aside a default judgment awarded against a businessman where a company claimed that he had failed to pay money due under a share purchase agreement, notwithstanding the Supreme Court had dismissed his appeal. Fresh evidence had arisen during the counterclaim concerning the company director's failure to keep proper accounts, which clearly showed that the businessman had fulfilled his obligations under the agreement.
The High Court had to determine issues arising from certain claims concerning a share purchase agreement.
The second petitioner (P2) owned the first petitioner (P1) and was also the sole executive director of the first respondent (R1). The second respondent (R2) was a company owned by the third respondent (R3). P1 and R2 were shareholders in R1. In 2010, R3 had organised for a third party to purchase shares in R1 from P1 and R2. The third party paid R3, who asserted that he had deposited the purchase sum via three payments into R1's accounts as instructed by P2. However, P1 brought proceedings against R3, claiming that it had not received its share of the money. R3 did not comply with a court order and a default judgment was entered against him. The Supreme Court dismissed his appeal, deciding that there was insufficient evidence to show that he had made payments intended to discharge his obligations under the share purchase agreement. It noted that he had previously agreed in principle to make loans to R1 and that P2 suggested that the payments made could have related to that. It concluded that that suggestion was not fanciful. Before the instant court, R2 maintained that R3 had deposited the purchase sum and counterclaimed that P2 had failed to keep proper accounting records for R1. The judge ordered the winding up of R1 based on the accounting deficiencies and directed the liquidator to investigate whether the share purchase sum was paid in, deciding that determination of the issue was necessary to give appropriate relief concerning those deficiencies under the Companies Act 2006 s.996. The liquidator's evidence showed that R3 had made three payments into R1's accounts that clearly represented the share purchase sum. R3 applied for the default judgment to be set aside and complained that P1's claim had been fraudulent.
The issues were whether (1) the liquidator's evidence was sufficient to make good the deficiencies which the Supreme Court had found as to payment identification; (2) the default judgment should be set aside if that was the case; (3) R3 was entitled to have the default judgment set aside based on fraud.
(1) The position concerning the three payments made into R1's accounts was considerably clearer than it had been before the Supreme Court. The liquidator's evidence did not fit with the suggestion that P2 considered the payments to represent a loan from R3 and nothing to do with the share purchase agreement. Instead, it showed that P2 had recognised and accepted that the payments related to the purchase sum at the time they were made. It also showed quite clearly that R3 intended the payments to represent payment of the purchase sum he had received from the third party, and the share purchase agreement had provided for that sum to be paid into R1's accounts. In light of that evidence, the payments made by R3 were accepted as being on behalf and at the direction of P2, in discharge of the amounts owed by R3 concerning the share purchase (see paras 60-62, 70 of judgment).
(2) Given the determination of the true basis on which the payments were made and should have been accounted for by R1, the default judgment was set aside in the course of considering appropriate relief under s.996. It was therefore unnecessary to determine R3's separate application, but it would have been granted. The circumstances of the case were wholly exceptional and justified R3's repeat application notwithstanding the Supreme Court's earlier decision on the matter. The liquidator's evidence suggested that an injustice would otherwise occur that was not too late to avoid (paras 73, 88, 93).
(3) If those conclusions were wrong, it remained to be determined whether the default judgment could be summarily set aside on the basis of fraud. The authorities had shown a reluctance to permit a default judgment to be set aside on the grounds of fraud without a fresh action unless the fraud was admitted or incontrovertible, Gentry v Miller  EWCA Civ 141,  1 W.L.R. 2696 applied. Therefore, R3 would only have been able to set aside on those grounds if he had brought a separate action that proceeded to trial and demonstrated that P1's claim was fraudulent. It would not have been right or even open to the instant judge to determine the issue in the instant proceedings, still less on a summary basis (paras 94-95, 99-102).
Judgment for respondents