Courtwood Holdings SA v Woodley Properties LTD & 11 ORS (2016)
It was not unarguable, nor was there no reasonable prospect of success in establishing, that there had been a breach of fiduciary duty and knowing receipt of profits arising out of that breach by a group of defendants with inter-related corporate vehicles in relation to a farm property development. The court refused their summary judgment and strike-out applications.
The court considered various applications arising out of a breach of fiduciary duty claim.
The claimant had invested in a farm property development (S). The sixth defendant company (D6), of which the second, third and fourth defendants (D2-D4) were principals, provided services regarding the development. Planning permission was refused and S's receivers sold the farm to the first defendant company (D1) on the recommendation of D2 and D6. D1 was co-owned by D2-D4 and another. Planning permission was then granted. D1 sold the farm; the proceeds were divided between D2-D4 and their corporate vehicles (D7-D12). In separate proceedings, D2, D3 and D6 were found to have acted dishonestly in the original sale of the farm to S. The claimant was assigned S's causes of action in 2010, with a second assignment in 2016. The claimant alleged that D6 had breached its fiduciary duty and the other defendants knew of the breach and received profits out of it. It applied for a proprietary injunction against D1, and to amend the particulars of claim to rely on the second assignment. The defendants applied for summary judgment or to strike out the claim.
The defendants submitted that the fiduciary duty claim was unarguable because (1) D6 had no such duty; (2) alternatively, S's property was not received by D1; (3) a knowing receipt claim was not made out. They also submitted that (4) there was an abuse of process as the matters could have been raised in the other proceedings; (5) the assignment had only assigned existing causes of action, and reliance on the second assignment should be refused; (6) the injunction should be refused.
(1) It was not possible at the instant stage to determine whether true fiduciary obligations existed between D6 and S. That was particularly fact sensitive. It could not be said with certainty that there were no reasonable grounds for making that claim. Although not all duties of a fiduciary were also fiduciary duties, it was neither fanciful nor unarguable that such duties might be held to have arisen from D6's roles and from the duty of good faith expressed in absolute terms in the contract (see paras 33-34 of judgment).
(2) It was neither unarguable nor fanciful to contend that the full legal title to the farm was transferred to D1. That that was the effect of the Law of Property Act 1925 s.88, s.101 and s.104. It was neither unarguable nor was there no prospect of establishing manoeuvring in breach of fiduciary duty. Nor could it be said that the effect of the farm's transfer as a result of a statutory power of sale rendered S's claim unarguable. Section 104 protected a purchaser from a mortgagee exercising the statutory power of sale, but it was arguable that, if the purchaser was aware of impropriety, it held the transferred property or its traceable proceeds as constructive trustee. To conclude otherwise would be to allow the statute to be used as an instrument of fraud. It was not unarguable or fanciful that the farm and/or its proceeds were received by D1 and could be followed or traced into its hands (paras 46-49).
(3) It was not possible to decide at the instant stage that the case of knowledge for the purpose of knowing receipt, by D4 and his associated companies, was either unarguable or fanciful. It was important not to conduct a mini-trial. Knowledge was extremely fact sensitive. The sale of the farm at a profit, or the giving of personal guarantees to allow D1 to buy the farm, were not in themselves indicative of knowledge of breach of fiduciary duty, but could be part of a concerted effort. The pleadings raised an arguable case as to the inference of knowledge, and it was impossible to conclude that it was unarguable or had no real prospect of success (para.55).
(4) D1, D4, D8, D11 and D12 had not been parties to the other proceedings, and abuse of process did not apply. The instant case was not one of being vexed twice, although it might have been possible to combine the proceedings (para.57).
(5) The first assignment would not be understood by the reasonable reader with the requisite knowledge to include future claims. The phrase "hereby assigns" was consistent with an assignment, not an agreement to assign future rights. As for the second assignment, it was clear that a claim could be cured by amendment where there was only one claimant which at the time of the claim form lacked a cause of action, and there was no absolute rule to preclude such an amendment, Hendry v Chartsearch Ltd  C.L.C. 1382, Maridive & Oil Services SAE v CNA Insurance Co (Europe) Ltd  EWCA Civ 369,  1 All E.R. (Comm) 653 and Smith v Henniker-Major & Co  EWCA Civ 762,  Ch. 182 followed, Munday v Hilburn  EWHC 4496 (Ch),  B.P.I.R. 684 applied. There was nothing to prevent reliance on the second assignment, and taking account of the overriding objective, permission to amend was granted (paras 68, 73-74).
(6) There was a serious issue to be tried, and damages were not an adequate remedy. Given the way in which the proceeds of sale had been dealt with, there was a real risk of dissipation. The balance of convenience was in S's favour, and its interest should be protected by injunction until further order (para.77).