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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ryan & Anor v HSBC UK Bank Plc & Anor [2023] EWHC 1066 (Ch) (05 May 2023) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2023/1066.html Cite as: [2023] BCC 768, [2023] EWHC 1066 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LISTS (Ch D)
Fetter Lane EC4A 1NL |
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B e f o r e :
(sitting as a Judge of the High Court)
____________________
(1) MARGARET ANNE RYAN (2) PATRICK ANTHONY RYAN |
Claimant |
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- and - |
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(1) HSBC UK BANK PLC (2) 05181121 PLC |
Defendant |
____________________
Bridget Lucas KC (instructed by Eversheds Sutherland (International) LLP) for the First Defendant
Hearing dates: 28 & 29 March 2023
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Crown Copyright ©
HHJ Parfitt :
Introduction
The Law
"85. As many judges have pointed out (e.g. Warren J. in Airey v Cordell [2007] BCC 785 at 800 and Mr William Trower QC in Franbar Holdings Ltd v Patel [2009] 1 BCLC 1 at 11) there are many cases in which some directors, acting in accordance with s. 172, would think it worthwhile to continue a claim at least for the time being, while others, also acting in accordance with s. 172, would reach the opposite conclusion. There are, of course, a number of factors that a director, acting in accordance with s. 172, would consider in reaching his decision. They include the size of the claim; the strength of the claim; the cost of the proceedings; the company's ability to fund the proceedings; the ability of the potential defendants to satisfy a judgment; the impact on the company if it lost the claim and had to pay not only its own costs but the defendant's as well; and disruption to the company's activities while the claim is pursued; whether the prosecution of the claim would damage the company in other ways (e.g. by losing the services of a valuable employee or alienating a key supplier or customer) and so on. The weighing of all these considerations is essentially a commercial decision, which the court is ill-equipped to take, except in a clear case.
86. In my judgment therefore (in agreement with Warren J and Mr Trower Q.C.) s.263(2)(a) will apply only where the court is satisfied that no director acting in accordance with s 172 would seek to continue the claim. If some directors would, and others would not, seek to continue the claim the case is one for the application of s. 263(3)(b). Many of the same considerations would apply to that paragraph too."
18. On an application for permission the Court has to be satisfied that there is a prima facie case of wrongdoing. This test is not precisely the same as the test for a "good arguable case" on an application for an interim injunction and Ms Potts suggested that the threshold might be a lower one. I accept that this might be so in some cases. But in my judgment, there is no practical difference between the two tests in the present case where there are heavily contested issues of fact. I explain briefly why I take this view.
19. A good arguable case for the purposes of a freezing injunction is one which is more than barely capable of serious argument but not necessarily one which the judge considers would have a better than 50% chance of success: see Madoff Securities International Ltd v Raven [2011] EWHC 3102 (Comm) at [145]. Moreover, it is trite that the Court must not try to resolve conflicts of evidence on the affidavits or decide difficult questions of law which call for detailed argument and mature consideration. In Bhullar v Bhullar [2016] 1 BCLC 106 Morgan J set out the test to be applied in deciding whether to grant permission to continue a derivative claim at [25] (in very similar terms):
"It is one thing to ask whether the claimant has shown a prima facie case in the absence of an answer from the defendant and another thing to ask whether the claimant has still shown a prima facie case when one takes into account the suggested answer. If the facts relied upon by either the claimant or the defendant are not disputed, there may be little difficulty. But what if the claim and the suggested answer depend, as they often will, on disputed facts? Further, what if the resolution of that dispute will in due course require the trial judge to reach conclusions as to the credibility of witnesses? I consider that the court has to recognise that it cannot resolve disputes of fact at a hearing which does not involve any cross-examination of witnesses and which takes place in advance of any formal disclosure of documents. It will not be unusual to find that the claimant can establish a prima facie case, if one ignores the evidence relied upon by the defendant, but yet the claimant would fail at trial if the defendant's evidence were to be accepted. In such a case, I consider that it is still open to the court to hold that the claimant has made out a prima facie case because it would be wrong to assume that the defendant's evidence will be accepted at the trial and it may simply not be possible to predict with any degree of confidence whether the defendant's evidence will be so accepted."
The PRAPOC Narrative
The Detailed Submissions
i) As MCPLC has no purpose save for the potential litigation and nothing to lose in bringing the proceedings, a notional director would be bound to pursue the claim as there is no risk, in particular where the Claimants have said they will bear the costs risk and the claim is going to trial anyway on the personal claims. ("The Unusual Circumstances");
ii) From the time LMU became involved, HSBC gradually took over the running of MCPLC for its own purposes and acted as a shadow director by obtaining control over the Claimants' shares, appointing ME without good reason, controlling all cash and asset movements, getting professionals appointed who HSBC was happy with on a take it or leave it basis, wanting the Colindale proceeds to be paid into MCPLC, directing the business to stop acquiring new sites, so stopping it functioning as a going concern and using tightening corporate governance controls to increase HSBC's own influence all comparable to the Australian case of SCBA v ANTICO [1995] NSWSC 31 ("the LMU Purpose" and "the Shadow Director").
iii) In support of the shadow director issue, the Claimants will say that subjectively they believed they had no choice but to do what HSBC wanted and this evidence cannot be discounted on an application of this kind.
iv) The quantum of the loss would be a matter of expert evidence and evidence of fact from third parties who would have funded the business and could easily be very substantial as the business had a market value of well in excess of £100 million before the events, led by HSBC, that led to its downfall and it was a great company, with great prospects which would have been successful ("the Quantum Issue");
v) It was wrong for HSBC to run the business for its own benefit rather than put the business into administration so that appropriate insolvency procedures have to be followed, as per MacPherson v European Strategic Bureau [2000] 2 BCLC 683, Chadwick LJ [46] – [49] ("the MacPherson Point").
vi) The court should not criticise the Claimants for not providing in their evidence details of their assets to support the promise to fund the litigation and meet adverse costs orders because it would be wrong to put the Claimants in a position of having to make such disclosure to the defendant in the personal claim ("the Hughes Point")
vii) The purpose of this hearing is to consider what is in the interests of MCPLC and not HSBC, consequently the court should bear in mind that HSBC will be able to make applications for summary judgment or strike out if it considers it appropriate, the court should not and need not pre-empt such protections by raising the bar too high on the permission application.
i) The claim makes no sense in the context of HSBC being a creditor for £20 million so the alleged plan was wholly unsuccessful (even more so bearing in mind the personal loan potential loss), it is speculative and unrealistic not being based on the documents but on unsupported inferences which are themselves often directly inconsistent with the documents.
ii) There is nothing wrong with what HSBC transparently did on the documents which was to support the business while being mindful and protective of its own interests, this includes considering options such as administration or winding up in its own discussions but there is no obligation on any bank to fund a business in the hope eventually things will get better.
iii) There is nothing wrong with HSBC imposing conditions as to its continued support and it can do those things without becoming a shadow director.
iv) The hypothetical director would have regard to the merits and to the potential risks in the litigation which would include making the situation worse for a major creditor.
v) If the Claimants' offers to fund and meet adverse costs orders are relevant then they needed to be substantiated by evidence of assets to show that those promises have weight (see Hughes v Burley [2021] EWHC 104, [141]).
vi) The shadow director allegations fail to identify any particular instruction to the board which was followed and then caused loss but rather are all encompassing and assume, without justification even at this stage, whatever was done was done at the bidding of HSBC as part of the LMU Purpose.
Discussion
The intention was to effect an informal winding up of the business…they wished to take out what, as they saw it was due to them in respect of the value which they had contributed by their efforts. But it is not an objective which can be said to have anything to do with the promotion of the prosperity of the company...it is inconceivable that that provision would have taken the form that it does but for the fact that the parties wished to achieve the objective which I have identified – namely, a distribution of assets as if on a winding up [46]
…in each case it would have been necessary to make provision for all the creditors of the company before there could be a distribution to the corporators [47]
…to enter into an arrangement which seeks to achieve a distribution of assets, as if on a winding up, without making proper provision for creditors is, itself, a breach of the duties which directors owe to the company…[48]
Conclusion