Debt – appeal against decision of the Master of 18 February 2014.
[2015]JRC110
Royal Court
(Samedi)
21 May 2015
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Before :
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MJ. A. Clyde-Smith, Esq., Commissioner and
Jurats Fisher and Nicolle.
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Between
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Home Farm Developments Limited
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First Appellant
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And
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Strata Developments Ltd
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Second Appellant
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And
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Shane Holmes
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Third Appellant
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And
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Jamie Le Sueur
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Respondent
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Mr Holmes appeared personally and as a
Director of the First and Second Appellants.
Advocate M. H. D. Taylor for the Respondent.
judgment
the commissioner:
1.
This is an
appeal against the decision of the Master on 18th February, 2014, to
strike out the appellants’ claim against the respondent on the basis that
the claim was both scandalous and vexatious and an abuse of process. The reasons for the decision are set out
in the Master’s judgment of 26th March 2014 (Home Farm
Developments-v-Le Sueur [2014] JRC 079).
Background
2.
The
background to the case is set out in some detail in the Master’s
judgment, which we will not replicate, but in summary, it is concerned with a
building project at Home Farm in Grouville undertaken by the third appellant
through the first appellant which acquired the property and the second
appellant which undertook the development.
We will refer to the appellants individually as “Mr Holmes”,
“Home Farm Developments” and “Strata Developments” and
jointly as “the appellants”.
3.
The
respondent (“Mr Le Sueur”) is a chartered accountant who operated a
property development business through two companies, Manor Homes Limited
(“Manor Homes”) and Tower Capital Management Limited
(“Tower”).
4.
On 9th
September, 2010, Home Farm Developments entered into a consultancy agreement
with Manor Homes (“the Consultancy Agreement”), by which Manor
Homes was to provide bookkeeping and accountancy services and to assist in the
procurement of supplies and materials at discount rates. The Consultancy Agreement nominated Mr
Le Sueur as “the executive” to act as a primary contact in relation
to the services to be provided by Manor Homes.
5.
The way
the relationship operated was that Home Farm Developments had access to funds
borrowed by way of loan facility secured on its property. The funds from that facility would be
made available by Home Farm Developments under the direction of Mr Holmes to
Strata Developments. Payments were
then made out of the bank account of Strata Developments by Tower, who provided
signatories for this account.
6.
For
reasons set out in more detail in the Master’s judgment, the relationship
between the parties broke down irrevocably in the autumn of 2011 and on 13th
March, 2012, Sinels, acting for the appellants, sent a pre-action letter to Mr
Le Sueur at Manor Homes seeking the repayment of £103,562.70p
representing fees paid under the Consultancy Agreement, which it was claimed
Manor Homes had no authority to make in its favour and was acting in breach of
duty in doing so.
7.
In the
letter, Sinels said it had been instructed by all three of the appellants, and
it referred to the Consultancy Agreement as the document under which the claims
of breach of authority and duty arose.
Those breaches were expressed in these terms:-
“3. Breach of
authority and duty
3.1 Despite the clear and unambiguous
wording of the [Consultancy Agreement] and the fiduciary position that you
occupied in relation to Strata’s accounts, you have arranged, quite
improperly and without authority, for the sum of £103,562.70 to be paid
to you and another company also controlled by Mr Jamie Le Sueur named Tower
Capital Management Limited (“Tower”).
3.2 It is difficult to conceive of
circumstances where there could be a more obvious breach of duty on your part
given that (1) you were looking after Strata’s monies, (2) you knew those
monies were earmarked for Strata’s third party creditors; (3) you knew
that the only entitlement that you might have arose from the [Consultancy
Agreement]; and (5) the only person from whom you could claim under the
[Consultancy Agreement] was [Home Farm Developments].
3.3 The obvious inference is that you
seized the opportunity to abuse your position in breach of authority by paying
monies to yourself from an entity that did not and could not owe any money to
you.”
8.
The letter
then went on to say this in relation to foreseeable and consequential losses:-
“4 Foreseeable and
consequential losses
4.1 Given your knowledge of the funding
arrangement for the development of the Site and of the other related interests
of Strata and Mr Holmes, it is quite clear that your actions would prevent
Strata from paying its creditors and lead to them issuing proceedings against
the company. In turn, it is
similarly foreseeable that these matters could constitute defaults in respect
of the various security arrangements that had been entered into by our clients
and might result in the bankruptcy of one or more or all of them. Our clients hereby expressly reserve all
and any of their rights to claim any such consequential losses from you.”
9.
Finally,
after making an immediate demand for the repayment of the sum of
£103,562.70p, Sinels said at 5.3:-
“5.3 Our clients reserve all
their rights to bring such personal claims against Tower and/or Mr Jamie Le
Sueur as and when they deem it necessary and appropriate to do so.”
10. This resulted in a series of negotiations and
attempts at a compromise agreement, culminating in an agreement dated 31st
May, 2012, signed by Home Farm Developments, Strata Developments, Mr Holmes, Mr
Le Sueur, Manor Homes and Tower – in other words, by all of the parties
involved in the matter. It cited
the letter from Sinels of 13th March, 2012, and provided as
follows:-
“1. Mr Shane
Holmes, Home Farm Development Limited and Strata Developments Limited and their
successors and assigns hereby agree that they will, both individually and
jointly, immediately, permanently and irrevocably withdraw all legal
proceedings of any nature in connection with the consultancy agreement executed
between the Company and Manor Homes Limited on or around 8 September, 2010 or
any other matter relating to the development of Home Farm, Grouville and all
matters referred to in the letter from Sinels dated 13 March 2012 against Mr
Jamie Le Sueur, Manor Homes Limited and Tower Capital Management Limited who
individually and jointly admit no liability.
2. Mr Jamie Le Sueur will pay
£45,000 to creditors of Strata Developments Limited. These payments will be made either
directly to Cashback Limited or to the individual creditors of Strata
Developments Limited, as directed by Mr Shane Holmes and will be made in 3
equal payments, the first payment being made on or around 31 May, 2012 and the
second on or before 29 June, 2012 and the third on or before 27 July, 2012.
3. Mr Jamie Le Sueur has
already made three payments totalling £4,897.00 to creditors of Strata
Developments Limited as follows:- £897.00 to Hilbury Collection Services
in respect of amounts owed to Electrical Supplies and Machinery (Wholesale)
Limited, £1,000 to Mr Lee Le Lai and £3,000 to Cashback Limited in
respect of amounts owed to Normans Limited. These three payments are hereby
acknowledged.
4. £20,000 of the total
funds paid by Mr Jamie Le Sueur as referred to in 2 and 3 above are to be
considered as a loan to Mr Shane Holmes who has provided Mr Jamie Le Sueur with
a promissory note for £20,000 dated 25 April, 2012 as evidence of this
debt.
5. In the event that Investec
Bank (Channel Islands) Limited demand repayment under the guarantee provided to
Investec Bank (Channel Islands) Limited by Mr Jamie Le Sueur for their loan to
Home Farm Developments Limited as described in their facility letter dated July
14, 2010 no further payments referred to in 2 or 5 above shall be made by or
accrue to Mr Jamie Le Sueur as from the date of their demand and the value of
the promissory note referred to in 4 above will be adjusted to equate to the
total of all payments made in 2 and 3 above less £30,000.
The terms of this Agreement as
listed above are hereby accepted and agreed between the parties hereto on 31
May, 2012 by:”
11. The Master found that the terms of this
settlement agreement (“the Settlement Agreement”) had been adhered
to by Mr Le Sueur.
12. On 4th February, 2013, the
appellants commenced proceedings against Mr Le Sueur by way of Order of Justice
seeking, inter alia, consequential damages of £660,000 arising out of the
same alleged breaches of duty and authority. It cites the Consultancy Agreement as
the document under which the claims arose and it is striking in that it mirrors
virtually word for word the letter from Sinels of 13th March,
2012. It makes no reference
whatsoever to the Settlement Agreement.
13. Mr Holmes had argued before the Master that it
was an obligation of Mr Le Sueur under the Settlement Agreement, evidenced by
earlier exchanges of emails, to agree full and final settlement terms with
Cashback (acting for various creditors of Strata Developments whose actions had
to be cancelled). Because he had
failed to do so, Mr Holmes argued that the terms of the Settlement Agreement of
31st May, 2012, should be set aside so that the appellants were free
to seek recovery from Mr Le Sueur all sums paid pursuant to the Consultancy
Agreement and in the Order of Justice. The Master found that the evidence did
not support this contention.
14. After a detailed analysis of the evidence
before him and the email exchanges leading up to the agreement of 31st
May, 2012, the Master concluded at paragraph 45:-
“45 The view I have reached in relation to the
31st May agreement and the emails of 29th and 30th
May is sufficient to dispose of the strike out application. The plaintiffs reached a clear agreement
with the defendant to settle the claims made by Sinels, which the defendant has
adhered to. There is no basis to
conclude that the agreement contended for by the plaintiffs was breached by the
defendant and it would therefore be both vexatious and an abuse of process to
go behind the parties’ agreement.
Accordingly I strike out the whole of the order of justice.”
Grounds of appeal
15. In their notice of appeal, the appellants
essentially challenge the Master’s assessment of the evidence before him,
but in his skeleton argument and in submissions before us, Mr Holmes accepted
that the Settlement Agreement had settled all of the claims made by the Sinels
letter, but the settlement was, he said, limited to the claims between Home
Farm Developments and Manor Farm under the Consultancy Agreement, which he
described as a “side
agreement”. Under the
Order of Justice, he said, the appellants were actioning Mr Le Sueur, not his
companies, out of obligations he had incurred personally as a consequence of
what Mr Holmes described as “the
Bargain”; an argument he developed in this way.
16. Mr Holmes says that in August, 2009, he invited
Mr Le Sueur to enter into a bargain to develop Home Farm. The bargain required Mr Le Sueur to
enter into the following two relationships with him in return for a consideration
equal to 7.5% of the final bill costs of the development then projected at
£112,000:-
(i)
Mr Holmes
and Mr Le Sueur would jointly guarantee a loan of around £2.2M for the
cost of the site and the build costs.
Mr Holmes would provide the required balance of £1.3M towards the
upfront site purchase. Mr Le Sueur
would manage the residual build capital on behalf of the Bargain. This he described as “the Borrowing Relationship”.
(ii) Mr Le Sueur would manage and supervise the
proposed in-house building of the development. This he described as “the Build Relationship”.
17. Pursuant to the Bargain, he said that he and Mr
Le Sueur incorporated Home Farm Developments, which was beneficially owned by
them in equal shares and secured the borrowing initially from Lloyds Bank and
then from Investec by guaranteeing the loan and securing their shares in Home
Farm Developments. Mr Le Sueur then
incorporated Strata Developments as the in-house builder and opened a bank
account in the name of Strata Developments with HSBC, obtaining sole business
banking authority “to occupy his chosen role to manage all payments from
the residual build loan secured under the Borrowing Relationship”.
18. Mr Holmes then argued as follows in his
skeleton argument:-
“It was an implied term
of the Bargain under the Borrowing Relationship that [Mr Holmes and Mr Le
Sueur] owed a duty to, inter alia: (a) ensure the Bargain was not operated in a
manner which undermined their Performance Obligations to their own detriment
and that of [Home Farm Developments and Strata Developments]; (b) not do anything
in relation to the handling of the loans which favoured itself to the
disadvantage of the Bargain and the other parties.
The Appellants’ present
claim pleads that [Mr Le Sueur] has breached the above obligations and duties
owed under the Bargain. The crux of
the Appellants’ complaint against [Mr Le Sueur] is that he put his own
financial interests before the interests and success of the Bargain and
undermined the Performance Obligations to the detriment of the Bargain and the
Appellants as a result. This
detriment has resulted in general inequity to the Appellants and significant
direct and proximate loss and damage to [Strata Developments] in the sum of ca.
£630,000. This £630,000
sum is the unrecoverable balance of the [Strata Development’s] shareholders
loan provided under the Borrowing Relationship, excluding consequential
losses.”
19. Mr Holmes went on to argue that he had drafted
the Order of Justice without any previous experience whatsoever and sought to
make improvements by way of amendment to reflect the above.
20. It is the case that the company records show Mr
Le Sueur as owning 50% of Home Farm Developments, which he says were issued to
him by way of security for his agreeing to guarantee the banking loan, in
consideration of which he received an indemnity from Mr Holmes and a charge
over Mr Holmes’ property. Mr
Le Sueur also accepts that he was involved in the incorporation of Strata
Developments. Furthermore, he did
guarantee the banking loan and secured the shares in Home Farm Developments Limited
in favour of Investec. The question
of his interest in Home Farm Developments was considered by the Master at
paragraph 6 of his judgment, in which he concluded that Mr Le Sueur no longer
had any interest in it and that any interest he had was only ever by way of
security.
21. Mr Le Sueur accepts that there were discussions
about turning “heads of
terms” (no record of which appears to exist) into a
shareholders’ agreement, but that never happened and no such agreement
has been produced. An email from Bedell
Cristin to Mr Holmes of 15th October, 2009, states that in the time
available it would not be possible to draft and engross a shareholders’
agreement and confirms, incidentally, that Mr Le Sueur would take 50% of the
shares in Home Farm Developments as additional security, in the event that the
bank chose to pursue him direct for repayment of the joint and several
liability under the guarantee.
22. The issue of a possible shareholders’
agreement was raised in argument before the Master and he dealt with it at
paragraphs 50 and 51 in this way:-
“50 In relation to the plaintiffs’
argument that there was a shareholders’ agreement between the third
plaintiff and the defendant, which the defendant breached, this argument
appeared to be raised on the basis that the defendant was a shareholder in the
first plaintiff. Assuming in the
plaintiffs’ favour that this was the position, (notwithstanding the clear
statements made by Advocate Taylor which I have referred to at paragraph 6
above) the fact that the defendant, assuming this to be true, was a shareholder
in the first plaintiff does not create a shareholders’ agreement. No evidence was produced by the third
plaintiff as to the basis of any such agreement and what was the bargain
between the parties. The allegation
was therefore not supported by any evidence, was wholly unparticularized, was
not raised in pleadings or correspondence and was only referred to for the
first time orally at the hearing. I
am not therefore prepared to allow the third plaintiff an opportunity to amend
his case to make such an allegation.
51 Even
if such an agreement existed and could be pleaded contrary to the view I have
reached, it was accepted by the third plaintiff that at all times he was the
sole owner and director of the second plaintiff and there was no
shareholders’ agreement in relation to the second plaintiff. Moreover the essence of the
plaintiffs’ complaint against the defendant is that he failed to procure
a withdrawal of claims by creditors of the second plaintiff. In light of this complaint, there is no
basis for concluding that even if there are grounds to argue the existence of a
shareholders’ agreement in relation to the first plaintiff somehow places
the defendant in breach of duty to the first plaintiff because he failed to
procure that creditors of the second plaintiff, in which he had no interest,
withdrew their claims. I am not
therefore satisfied that the possible existence (if I am wrong that such an
allegation cannot be made) of a shareholders’ agreement in relation to
the first plaintiff, is a basis to allow the plaintiffs an opportunity to amend
their case to pursue the defendant on the basis of alleged failings in relation
to the second plaintiff.”
23. Mr Holmes is no longer asserting a
shareholders’ agreement as such, but what he now describes as the Bargain
which was entered into orally. The
difficulty for Mr Holmes is that the Settlement Agreement manifestly was not
limited to claims by Home Farm Developments against Manor Farm. Sinels’ letter of 13th March,
2012, makes express reference to the consequential losses and it reserves all
rights on behalf of all three appellants to bring claims against Mr Le Sueur
and Tower. Such claims would
encompass the claims that the appellants are now making against Mr Le
Sueur. The Settlement Agreement,
which was signed by Mr Holmes and Mr Le Sueur (as well as all of the other
parties involved in the development), covers “any other matter relating to the development of Home Farm”
and “all matters referred to in
the letter from Sinels.” (my emphasis).
24. The allegations upon which the claims made then
by Sinels and those made now by Order of Justice remain the same, namely the
use of the bank mandate to pay fees to Manor Farm and Tower, leading to Strata
Developments having difficulties in paying its creditors. The problem for Mr Holmes is that any
claims arising out of that allegation have been settled by the Settlement
Agreement.
25. The allegations of breach of authority and duty
were dealt with by the Master at paragraph 53 of his judgment in this way:-
“53 In paragraph 10 of the plaintiffs’
skeleton argument, the plaintiffs made wide ranging allegations that the
defendant held various positions of trust, authority and duty with the
plaintiffs. However, no evidence of
any trust was produced to me. The
only agreement between the parties produced in evidence was the consultancy
agreement between the first plaintiff and Manor Homes to which I have already
referred. Any duties owed were
therefore owed by Manor Homes to the first plaintiff only. If I am wrong in this view and duties
were owed by the defendant to the second and third plaintiffs all such claims
were compromised by the 31st May agreement. What the plaintiffs appear now to want
to do is to look behind the terms of a consultancy agreement and the 31st May
agreement in order to pursue the defendant personally. This is an attempt to pierce the
corporate veil of Manor Homes and to set aside the settlement agreement. Nothing has been produced to me by the
plaintiffs to justify or show that there is an arguable case to make such an
assertion.”
26. The Master’s conclusion was set out at
paragraph 55 as follows:-
“55 In summary any claims brought by the
plaintiffs were compromised by the agreement dated 31st May, 2012,
and the agreement contained in the email dated 30th May sent from
the defendant to Mr Boots at Cashback.
I am satisfied there is no basis for the plaintiffs to assert that the
defendant was under an obligation to ensure that payments made by him to creditors
represented by Cashback were in full and final settlement or that any
proceedings such creditors had commenced were to be withdrawn. I am also satisfied that there is no
alternative claim available to the plaintiffs which could be dealt with by
allowing an opportunity to amend rather than strike out the order of
justice.”
27. In our judgment, the conclusions of the Master
were, and, taking into account the further evidence filed by the parties in
this appeal, remain correct.
28. Mr Holmes raised a number of further points
which we take in turn:-
(i)
He
submitted that the appellants had been deprived of an opportunity to submit
affidavit evidence before the Master in reply to Mr Le Sueur’s voluminous
affidavit evidence. The Master said
this at paragraph 2 of his judgment:- “The original hearing for the summons
was adjourned for a week. This was
partly due to Mr Holmes not being well on the date originally fixed and partly
to allow him to respond to the affidavits of the defendant and Mr Boots of
Cashback filed shortly before the hearing in support of the defendant’s
application.” It is
clear from this that the appellants were given time to respond to the affidavit
filed on behalf of Mr Le Sueur.
(ii) The Master had been misled by Mr Le
Sueur’s evidence into believing (a) that Mr Le Sueur was not party to any
agreement nor held personal obligations or duties, (b) Mr Le Sueur had no
interest in Home Farm Developments and Strata Developments (c) the Bargain was
limited to the consultancy agreement between Home Farm Developments and Manor
Homes, (d) the relationship commenced in September 2010, (e) Tower operated
Strata Developments’ bank account and managed the residual loan capital,
(f) the relationship had come to an end at the time of the 31st May,
2012, settlement and (g) the present claims were compromised by the 31st
May, 2012, settlement. We can see
nothing to support the allegation that the Master was misled and agree with the
conclusions reached by him, taking into the account the evidence filed in this
appeal.
(iii) In the Master’s judgment of 4th
December, 2014, (Home Farm Dev-v-Le Sueur [2014] JRC 241), in relation
to security for costs, he said this at paragraph 21:-
“21 Against that, the plaintiffs’ appeal
is developing compared with how matters were put to me. Whether the plaintiffs will succeed on
an appeal is a matter for the Royal Court and I make no further observations in
relation to the plaintiffs’ evidence beyond the fact that the nature of
the relationship between the third plaintiff and the defendant may be more
complicated than was reflected in the material I was asked to consider.”
By this, Mr Holmes submitted that the
Master was signalling that in the light of the further evidence filed, the
Royal Court may take a different view to the strike out application. More detailed evidence may have been
filed in the appeal in relation to the dealings between Mr Holmes and Mr Le
Sueur, but none of it detracts from the central point that any personal claims
against Mr Le Sueur arising out of the underlying allegation of the payment of
fees to his companies were settled by the Settlement Agreement.
(iv) Mr Holmes alleged that Mr Le Sueur colluded
with his own advocate to take an assignment of the banking loan of security
agreements “causing a breach of the
implied and express terms and general inequity to the appellants”. This was canvassed before the Master,
who dealt with it at paragraph 54:-
“54 Finally, during the course of argument it
emerged a relative of the defendant had taken an assignment of loans drawn down
by the first plaintiff. That relative
had then taken steps to recover those loans out of the proceeds of sale of
properties of the first plaintiff.
There was a benefit to the defendant in relation to this transaction
because he was then released from the guarantee he had given personally to
repay such loans. I refer to this
because it was clear to me that the third plaintiff was aggrieved at what had
occurred. It would also have been
helpful if I had been provided with this information by the defendant in his
evidence. However, the fact that a
relative of the defendant chose to assist the defendant by taking over the
loans, securing the recovery of those loans and not pursuing the defendant as
guarantor ultimately is not relevant to the issue of whether the order of
justice should or should not be struck out.”
We have nothing to add to what the Master
said.
29. In conclusion, we agree with the Master that
these proceedings are both scandalous and vexatious and an abuse of process and
that no amendment to the Order of justice can be made to cure this. The appellants have one ground of
complaint, namely the use of the bank mandate of Strata Developments to pay the
fees of Manor Homes and Tower. They
took advice from Sinels, who wrote to Mr Le Sueur at Manor Homes, demanding the
repayment of the sums involved, referring to the consequential losses that
might flow and expressly reserving their rights of action against Mr Le Sueur
personally. All of the matters
raised in that letter and in relation to the development of Home Farm were then
compromised in the Settlement Agreement to which all of the parties involved in
the development, but specifically including the appellants and Mr Le Sueur,
were parties. Mr Holmes now accepts
that this agreement was effective, but argues that it was limited to the claims
brought by Home Farm Developments against Manor Homes; that is manifestly not
the case. The proceedings that were
issued in 2013 replicated almost word for word the Sinels’ letter, but
made no reference to the Settlement Agreement. Mr Holmes now alleges some kind of
bargain between him and Mr Le Sueur (to which there was no reference in either
Sinel’s letter or the Order of Justice), giving rise to a direct cause of
action but even if there was some kind of agreement to give rise to such duties,
it would have been covered by the Settlement Agreement which extended to any
personal claims against Mr Le Sueur.
30. The appeal is therefore dismissed.
Authorities
Home
Farm Developments-v-Le Sueur [2014] JRC 079.
Home
Farm Dev and Ors-v-Le Sueur [2014] JRC 241.