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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Butlergrove Ltd v Cicely Commercials Ltd [2002] EWCA Civ 491 (22 March 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/491.html Cite as: [2002] EWCA Civ 491

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
(Her Honour Judge Kirkham)

		Royal Courts of Justice Strand London WC2 Friday, 22nd March 2002

1. LORD JUSTICE ROBERT WALKER: This an unusual application and it is best to begin at the beginning of the sequence of events. In 1994 a contract was made between a company then called Brandrick Trucks Limited (the claimant in the court below) and Cicely Commercials Limited (the defendant below). The claimant, company No. 1891282, has changed its name four times during its relatively short life. Until last month its current name was Otis Vehicle Rentals Limited. It is now called Butlergrove Limited ("Butlergrove"). I shall call the defendant Cicely. Both companies are based in the West Midlands. The contract was for Cicely to sell and Butlergrove to purchase 14 Mercedes Benz tractor units, with a right for Butlergrove to require Cicely to re-purchase them after three years. Cicely failed to re-purchase the units. This caused Butlergrove severe financial difficulties in its relations with Mercedes Benz Finance Limited, with which it had a finance agreement requiring a so-called balloon payment at the end of the three year term. I need not go further into the details of that matter, which is fully discussed in the judgment appealed from.
2. Butlergrove started proceedings in the Queen's Bench Division, Birmingham District Registry in 1997. At the end of 1997 Butlergrove obtained summary judgment but that was overturned on appeal. The case took a long time to come to trial. Only a month before trial Cicely conceded liability whilst still disputing quantum, and on 16th October 2000 Her Honour Judge Kirkham gave judgment for Butlergrove for £268,000-odd, together with interest and costs on the indemnity basis. So Butlergrove obtained judgment after four years. It was, as Mr. de Waal said on an earlier occasion, hard fought commercial litigation in which Butlergrove may have felt that it owed Cicely no favours. I approach later events on that basis but I must also keep in mind the duties which every litigant owes to the court.
3. The judge refused permission to appeal and refused a stay of execution. The judgment debt became due. Butlergrove took steps to levy execution. Meanwhile, Cicely applied to this court for permission to appeal and a stay. On 16th November the sheriff's officer attended at Cicely's premises. Under the threat of immediate seizure of its goods, Cicely paid the balance due; that is, the excess over the sum which it had paid into court and which had been paid out of court to Butlergrove. The sheriff retained the payment in his hand for 14 days and released it to Butlergrove on 3rd December. On 7th December my Lord, Clarke LJ, dealt with Cicely's application on paper, granting a limited permission to appeal and a limited stay of execution. He specified the sum of £178,579 as the sum affected by the stay, but it is now common ground that that sum should be correctly stated as £184,696.98. I will call that the specified sum.
4. Clarke LJ directed, when he gave permission to appeal, that if the sheriff still held what he had received he should retain the specified sum. However, it had already been paid out to Butlergrove and, according to evidence which I shall mention in a moment, it had been paid into an overdrawn bank account. On 14th December Cicely made an application to this court for payment of the specified sum. On 19th December Butlergrove made an application to this court for two purposes; first, to set aside the appeal notice on the ground that this court had been misled into granting permission to appeal and, second, to set aside the order for a stay on the grounds that execution had already been levied and was complete, and also because it was said that there was no evidence put forward on behalf of Cicely to support the application for a stay.
5. The application by Butlergrove was supported by a witness statement made by Miss Charlotte Bettell, a partner in Gordon Green, solicitors. This witness statement made no reference to Butlergrove's financial position or to any recent or imminent changes affecting it. Mr. de Waal's skeleton argument, dated 31st October 2001, in support of the application had referred to the specified sum being paid into court "to abide the event" as one of the options open to the court.
6. These two applications were heard by Clarke LJ on 30th January last. He dismissed the first application and I need not go into the reasons for that. He ordered Butlergrove to pay the specified sum, not to Cicely but into court. After referring to the court's discretion in the matter, Clarke LJ said:

"In my judgment, it would not be right, carrying out the balance I have indicated, to order the moneys to be repaid to the appellant. The question is whether I should make some order securing the position pending the hearing of the appeal. Mr de Waal says that I should not because of the absence of evidence. There is undoubted force in that submission, but Mr de Waal, in the course of his submissions, mentioned this was a case in which there is a risk or at least a hint of insolvency on both sides. Mr Johnson, in his skeleton argument, observes that the respondent puts forward no evidence as to its financial position or as to how easy or difficult it might be in practice for the respondent to repay the money. It would have been very easy for the respondent to produce evidence to show that there were no risks at all if it were permitted to retain the money, the subject matter of the appeal, pending the hearing of the appeal.

Doing the best I can, looking at the matter in what I hope is a realistic way, it seems to me that the matter can most fairly be met by an order that does secure the position between now and the appeal. There are various ways in which that could be achieved."

7. Clarke LJ then considered various possibilities which might be agreed between the parties, but in the event none of those was agreed. He continued:

"In those circumstances it appears that the most sensible course is for me to order the moneys to be paid into court within 7 days, provided that if the parties agree to one or other of the methods then one or other of those methods can take its place."

8. It will be observed that that passage contains a passing reference to the insolvency of both companies, so it appears that there was some hint, although it does not seem to have been much of a hint, in relation to what, as we now know, happened to Butlergrove at the end of 2001. Butlergrove did not comply and still has not complied with Clarke LJ's order of 30th January.
9. So we come to the present application made by Cicely on 21st February. The application is made under RSC O.45 as incorporated into the Civil Procedure Rules. Under those provisions Cicely originally sought either the appointment of a receiver or sequestration or committal for contempt of an unnamed director of Butlergrove. The application is supported by a witness statement made on 11th March by Mr. Thomas Hoyle, a partner in Roebucks, Cicely's solicitors. That witness statement exhibits a letter dated 4th March from George Green solicitors, reference CAB. That letter states:

"As far as the payment into court is concerned, we are instructed by our client that Butlergrove Limited, formerly Otis Vehicle Rentals Limited, is not able to make such payment. This is due to the fact that prior to the date of the appeal and due to trading difficulties and heavy losses during and throughout 2001 the company decided upon a rationalisation involving the transfer of its remaining business and assets to a fellow subsidiary, Brown Vehicle Rentals Limited. The rationalisation would be advantageous commercially and result in a saving of costs and expenses, such as auditors fees. This was effective at the company's year end, 31st December 2001. There was then a change of name whereby Brown Vehicle Rentals Limited changed its name to Otis Vehicle Rentals Limited and Otis Vehicle Rentals Limited changed its name to Butlergrove Limited. Our understanding is that Butlergrove Limited, formerly Otis Vehicle Rentals Limited, is a shell company without assets and is simply unable to make the payment ordered."

10. Mr. Hoyle's witness statement also exhibits various company searches. Those searches, which appear to show the position as at 5th March last, indicate that the files are not fully up to date. In particular, Butlergrove's last annual return was due on 15th February and was overdue at the date of the search. The searches show, among other things, the following salient points: first, that Butlergrove's most recent change of name took place on 18th February 2002; second, that Otis Vehicle Rentals Limited is now the name of another group of companies, company No 1599892, formerly Brown Vehicle Rentals Limited; third, that in the year 2000 Butlergrove made a post tax profit of about £368,000 and at 31st September 2000 had net shareholders' funds of about £882,000; fourth, that there were, and presumably still are, composite cross guarantees in respect of the indebtedness of the holding company, Brandrick Holdings Limited (that is company No 826369 and I will refer to it as Holdings) and its subsidiaries; fifth, that Michael Kevin Joseph Brandrick is a director of Butlergrove and Holdings, and I believe all the other subsidiaries, and is the majority shareholder in Holdings; and, sixth, that the accounts of Butlergrove for the accounting period 2000 were signed off on 31st October 2001 without mention of any significant event which had occurred since the accounting date.
11. The evidence belatedly put forward on behalf of Butlergrove is a witness statement of Mr Michael Brandrick. It was made on 19th March; that is, last Tuesday. He states that the sum received from the sheriff was paid into Butlergrove's overdrawn bank account. He says in paragraphs 5 and 6 of the witness statement:

"During the latter part of 2001 the Brandrick Group was involved in a process of rationalisation for the purpose of saving costs. The respondent company suffered heavy losses during 2001 which effectively wiped out the value of the respondent company. On advice, we decided upon a hive-off agreement between the respondent company and Brown Vehicle Rental Limited (now renamed Otis Vehicle Rental Limited)... That agreement was completed at the end of December 2001. I am satisfied, and have subsequently taken independent advice from an insolvency practitioner upon this, that the hive-off agreement was an entirely proper and sensible way to proceed.

The respondent company is now in effect a shell company without assets. It is for that reason that it was unable to comply with the order of Lord Justice Clarke made on 30th January."

12. Whether or not Butlergrove or its officers may be guilty of contumelious contempt of court in the legal sense, I have to say that to my mind that witness statement shows scant respect for the court. It contains no explanation of or apology for the failure of Butlergrove and its officers and legal representatives to disclose this highly relevant information at an earlier date. They must have known, at least since service of Cicely's application dated 14th December last, that is now for some three months, of the dispute over what I have called the specified sum. However, Mr. de Waal tells me, and I accept, that he personally had no knowledge of these matters on the occasion of the hearing of 30th January. It has fallen to Mr. de Waal, who knew nothing of this matter, to do his best to explain it to the court.
13. Moreover, the passage in Mr Brandrick's witness statement, which I have read, seems to me to be quite economical in what it does disclose. It does not explain the nature or commercial basis of the hive down. It does not explain its precise timing. It does not name the insolvency practitioner who is said to have given Mr Brandrick advice; nor does it exhibit his advice if it was given in writing. It says nothing about the cross guarantees referred to in the financial statement or of how they were dealt with by the hive down operation.
14. In short, the position is most unsatisfactory. It seems to me to cry out for further investigation, if indeed Butlergrove and those controlling it are to persist in what has some appearance of an attempt to frustrate the order which the court has made. I must, however, make it clear that we are deciding nothing today about whether or not there has been a contempt of court except to conclude that the matter calls for further investigation.
15. What then should this court do? Mr. de Waal for Butlergrove accepts that it could not realistically oppose an order debarring Butlergrove from defending the appeal, at any rate if it were now to fail to comply with an unless order repeating the requirement for a payment into court.
16. Mr. Johnson for Cicely has discussed before us various possible courses of action but now (and after a certain amount of suggestions from this side of the bench) puts forward as his preferred course, an unless order backed by appropriate sanction. Initially, he was asking for the sanction of the appeal being allowed with costs. That course would have the attraction of apparent simplicity and finality. But it would be open to at least two serious objections. First, it would be a strong course, and one which this court is always disinclined to take, to allow an appeal (and therefore necessarily to indicate that the trial judge was in error) without having made any inquiry into the merits of the appeal. At most, this court would debar Butlergrove from appearing as a respondent at the appeal and there would still be the possibility of Cicely failing to persuade the Court of Appeal, despite the absence of opposition, that the judge was wrong.
17. Secondly, even if the appeal were allowed, whether as a sanction or after a hearing on the merits, Butlergrove would, as matters now stand on the evidence of Miss Brettell and Mr Michael Brandrick be quite unable to satisfy the judgment and Cicely, if nominally successful, would have to embark, either in the near future or six months down the line, in insolvency proceedings to obtain a winding up order against Butlergrove. Then it would have to persuade the liquidator to take proceedings under section 239 or some other provision of the Insolvency Act 1986 in an attempt to recover assets from other group companies. The appointment of a receiver to get in the specified sum, another possibility canvassed by Mr. Johnson, would be within the court's powers but would be subject to the same practical objections as those I have mentioned. A receiver would have to be an independent person, probably a licensed insolvency practitioner, and he would have to be remunerated. If appointed he would, on the face of it, have nothing to get in because Butlergrove's position is that it has no assets at all. He would have to embark on the sort of course of action under the Insolvency Act 1986 which I have already described.
18. In my view, the court can do better than that in reacting to the events which have occurred. Any immediate order for sequestration or committal to prison is out of the question, as Mr. Johnson candidly recognizes. Cicely's application fails in a number of respects to comply with the requirements of Order 45 and the Practice Direction to Order 52 of the Rules of the Supreme Court as incorporated into the Civil Procedure Rules. It is well known that this court insists on all due formalities being observed before considering committing anyone to prison for contempt of court.
19. I would propose as the best way forward an unless order endorsed with a penal notice under RSC O.45,r.7(4) in order to avoid any possible doubt arising under r.7(6), requiring Butlergrove to pay the specified sum into court. I would normally propose a seven day order. As next Friday is a bank holiday, I would fix the time limit at 12 noon, Wednesday 3rd April 2002, which is giving Butlergrove some extra time. If that order is not complied with I would debar Butlergrove from appearing as a respondent on the appeal or taking any further part in the appeal.
20. However, as I have indicated, that by itself is hardly adequate to cover the situation. In those circumstances, I would direct that, if the unless order is not complied with, then, in addition to the debarring order, Cicely should be at liberty to apply to a judge of the High Court for relief by way of sequestration of assets or committal of Mr. Michael Brandrick and/or some other specified director of Butlergrove for contempt of court; second, that Cicely should, in the same eventuality, be at liberty if so advised to take steps under RSC O.48 as incorporated into the Civil Procedure Rules, by way of requiring attendance of one or more officers of Butlergrove for examination before the court; or, third, that Cicely should be at liberty to take any other steps which appear to them appropriate in the circumstances. However, the two courses which I have mentioned are the only practical possibilities which have so far been debated.
21. There is then the question of what, if anything, should be done in the meantime in order to preserve the position and ensure that there is no further dissipation of assets. It may be that the so-called hive down operation was carried out by or under the direction of Mr Michael Brandrick without his having any idea (or any sufficient idea) of the way in which it was liable to be viewed by the court. I hope, now that he realises the seriousness of the position, that there will be no question of any further activity of a similar sort and Mr. de Waal offered an undertaking on those lines.
22. However, Mr. de Waal accepted that an injunction (which is capable of being varied by the High Court) may be more satisfactory than an undertaking framed at short notice and without much time for reflection, since an undertaking is more set in stone than an injunction. I would propose, although the precise wording can be a matter for further consideration, that this court should grant a temporary injunction against Mr Michael Brandrick and every company in the group, not to do or cause to be done either of the following acts; that is, first, making any distribution of company profits, whether by way of dividend or otherwise or, second, making any disposal of assets except in the course of normal trading activities. That injunction is to run until the hearing of the appeal or further order.
23. I add, and this is important, the injunction should be capable of being varied or discharged on application by either side to the High Court. The High Court should not feel in any way inhibited in varying or discharging an injunction granted by the Court of Appeal if it thinks it right to do so. Furthermore, if the parties reach the conclusion that the injunction no longer serves any useful purpose, they should be at liberty to agree between themselves that it should be discharged or varied in order to avoid further expense.
24. I have made plain that I am not expressing any view about whether contumelious contempt of court will be established. I do consider that there are matters which call for close examination if the unless order is not complied with. I hope that the unless order will be complied with. That will avoid a great deal of further contention and expense. This appeal could then pursue a calmer course in future.
25. LORD JUSTICE CLARKE: I agree.