Neutral Citation Number: [2018] EWHC 1499 (Ch)
Case No: 1223 of 2010
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BRISTOL
INSOLVENCY AND COMPANIES LIST (ChD)

Bristol Civil Justice Centre
2 Redcliff Street, Bristol, BS1 6GR

Date: 14/06/2018

Before :

HHJ PAUL MATTHEWS 
(sitting as a Judge of the High Court)
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Between :

	Francis Wessely and Peter Hughes-Holland  (Joint Liquidators of Laishley Limited, in Liquidation)	Applicants	
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	Richard White	Respondent	
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Daniel Lewis (instructed by Lester Aldridge) for the Applicants
Christopher Brockman (instructed by Moore Blatch) for the Respondent

Hearing dates: 12-13 June 2018
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Judgment Approved
HHJ Paul Matthews : 
Introduction
1.	This is my judgment on the trial of the claim made by application notice issued on 23 May 2016 by the liquidators of Laishley Limited (“the company”) against the respondent, the managing director of the company, for equitable compensation in respect of alleged breaches of fiduciary duty in executing two deeds of release on behalf of the company in relation to building contracts in May 2010. The company had ceased trading during the week of 10 May 2010 because of its financial situation, and went into administration on 9 June 2010. The company was placed into creditors’ voluntary liquidation on 13 May 2011. The applicants were first of all the joint administrators, and then the joint liquidators. The second applicant has now retired from practice and a block transfer order has been made appointing Nicholas Simmons in his place. I was invited to and did make an order at the commencement of the trial for the substitution of Mr Simmons in place of the second applicant.
2.	The company was engaged in the construction industry as a building contractor, and at the time of ceasing to trade was performing a number of building contracts. This claim relates to two of them. One was the construction of a new health centre at Birsted Green, Bognor Regis, for the contract employer, Health Investments No 2 Ltd. The other was the conversion of an office building into a letting hotel at Farnborough for the contract employer Imperial Property Company (Farnborough) Ltd. A director of Health Investments No 2 Ltd was Alistair Keith, who coincidentally was a consultant to Imperial Property Company (Farnborough) Ltd. The respondent had dealt with Mr Keith for some 15 years on a number of projects, and trusted him implicitly. Unfortunately, Mr Keith died in 2015 and so was unable to give evidence in this matter.
3.	In relation to each of the two contracts I have referred to the respondent on behalf of the company executed a deed of release, by which both the employer and the company were released from future performance under the respective contract. But the employer was also released from liability in respect of any payment obligations which had by then accrued but which remained unpaid. 
4.	The relevant clauses (identical in each deed) stated:
“1. The parties agree that on and from the date of execution of this Deed
1.1. The Employer releases and discharges the Contractor from further performance of the Contractor’s obligations under the Building Contract
1.2. The Contractor releases and discharges the Employer from further performance of the Employer’s obligations under the Building Contract and from all claims and demands whatsoever arising out of or in respect of the Building Contract whether arising prior to on or subsequent to the date of this Deed
2. Nothing in this Deed shall operate to discharge the Contractor from any liability in respect of duties performed prior to the execution of this Deed”
5.	The applicants allege that the entry into these deeds of release by the company at the instance of the respondent constituted a breach of his duties owed to the company, causing it losses of two distinct kinds. The first is the loss of the contract itself. The second was the loss of the right to any stage payments or retentions to which the company had by then become entitled.
6.	As I have said, this claim was issued on 23 May 2016. The deed of release in relation to Bersted Green is dated 14 May 2010, and that relating to Farnborough is dated 20 May 2010. No point is taken on limitation, but on any view these are stale claims. The dangers of leaving claims until the last minute are vividly illustrated here by the fact that I must resolve this dispute without the evidence of Mr Keith, who was intimately concerned in it. In addition, of course, memories dim over time and the accuracy of recollection can be compromised. On a number of important occasions during the evidence the answer given to a particular question was “I do not remember”. This is inevitable when witnesses are being asked to recall events now some 8 years and more ago.
Witnesses
7.	I had the benefit of witness statements from the first applicant, Michael Edginton, the respondent and Graham Marsden, all of whom were tendered for cross-examination before me. I have already explained the positions of the first applicant and the respondent. Michael Edginton is a chartered surveyor and a director of Acasta Consulting Ltd, which is a company providing surveyor services. He became aware of the affairs of the company in December 2009 when Acasta began to assist the Bank of Scotland in relation to the development project being carried out by the company’s sister company Laishley Developments Ltd (“LDL”). The two companies had common directors and shareholders. LDL was in financial difficulty and needed additional funding. The building contractor on that project was the company, to whom Laishley Developments Ltd owed a considerable sum of money. Mr Marsden is a director of Health Investments No 2 Ltd. He met the respondent for the first time in April 2010 in connection with the Bersted Green contract, through his colleague Alistair Keith, who knew the respondent and the company over several years.
8.	I give here my impressions of the witnesses. The first applicant was a matter-of-fact and straightforward witness, if slightly distant. He had no memory for details. It was clear that most of the documents he signed were in fact prepared by others, and he simply approved and signed them. He was careful and exact in his evidence, and I have no doubt that he was telling me the truth in relation to what he said.
9.	Mr Edginton spoke volubly and in complex and technical ways. But he did not always understand the question and sometimes got the wrong end of the stick. Frequently he did not answer the question asked at all but a different one. At other times he would answer a question very literally. For example, at one point he was asked why he had sent certain parties certain documents. He replied that he had sent them those documents “because they had signed a confidentiality agreement”. I am sure that he was trying to assist the court. But I found his evidence confusing and difficult to follow in places. Sometimes he changed his evidence in short order, occasionally in successive sentences. Whilst I am sure he was telling the truth as he saw it, I am afraid I cannot place a great deal of reliance on his evidence unless it is corroborated elsewhere.
10.	Mr Marsden was straightforward, businesslike, precise and convincing as a witness. He was transparently honest and I accept everything he says.
11.	The respondent was a quiet witness, initially a little nervous, but clear and firm in his evidence. He came across as straightforward. He was aware of the limitations of his memory and what he could properly tell me, and he admitted immediately if he was found to be wrong. I consider that he was an obviously truthful witness and I accept what he told me as true.
12.	No permission was given for any party to adduce expert opinion evidence. As a result, no expert witness was called as such. But before me there was a debate as to the admissibility of some parts of Mr Edginton’s evidence, and indeed of one point which the respondent himself made. I shall have to return to this issue later.
Facts found
Background
13.	In these circumstances, I find the following facts. The respondent is an experienced carpenter and joiner, without any academic qualifications, but with some 34 years of building experience as a contractor. He spent 11 years with a company called Wiltshire Southern, and then in 1987 with a colleague from that firm he bought the company (which was incorporated on 2 October 1985). The colleague retired in 2006. The company offered contractor services in general construction and civil engineering under JCT contracts. Its annual turnover was approximately £8-£10 million by 2005. But, like the rest of the construction industry, the company was hit hard by the aftermath of the financial crisis of 2008-9. The respondent was managing director of the company and responsible for the management team and contract procurement. Before the company got into financial difficulty, and entered administration in 2010, and liquidation in 2011, he had never previously been involved in an insolvency process.
14.	During his time at the company the respondent developed a long lasting professional relationship with Alistair Keith, an experienced quantity surveyor. He was the employer’s agent on the Farnborough contract, which was entered into on 9 October 2009. Mr Keith had introduced Mr Marsden to the respondent. The company entered into a building contract with Mr Marsden’s company, Health Investments No 2 Ltd, on 15 April 2010. Mr Keith was also the employer’s agent for this contract. Copies of neither of these 2 contracts were available to me at the trial. At the time of the financial crisis affecting the company, the company was working also on four other contracts.
Financial problems
15.	The catalyst for, if not the cause of, the company’s problems was the development project being carried out by the company’s sister company LDL, to which I have already referred. The development was in Weymouth, and was known as Hutton Apartments. The company was the main contractor. In December 2009 LDL needed additional funding. The Bank of Scotland undertook a review of the development before providing that funding. Acasta was retained by the bank to undertake the review. As a result of the review, the bank refused to provide the additional funding and LDL ceased to trade. An administration order was made in relation to LDL on the same day as in relation to the company, namely 9 June 2010. The respondent was a director of LDL, but not involved in the day-to-day management. This was carried on by the respondent’s fellow director Stephen Johnson.
16.	The consequence of LDL’s ceasing to trade meant that it was unable to pay the substantial sums which it owed to the company under the building contract for the Weymouth development and indeed on three other contracts. These amounted to at least £2.6 million. In January 2010 HMRC had levied distress on the company’s assets. On 22 March 2010 a subcontractor presented a winding up petition against the company in respect of approximately £35,000 which it was owed for work done. Although the respondent made attempts to pay that debt, a supporting creditor appeared and payment of that debt was no longer an option. Instead, the winding up petition was adjourned to enable an application for an administration order to be made. That application was ultimately made on 25 May 2010, and the order subsequently made on 9 June 2010.
17.	In April 2010, acting on professional advice from accountants, the respondent and his fellow directors made arrangements to set up a new business to take on future business and retain the employment of the existing staff of the company. A new company, Morscott 2010 Ltd, was incorporated on 20 April 2010. The respondent and his fellow directors were appointed directors of this company. It applied for VAT registration, and opened a bank account.
18.	On 10 May 2010 the directors accepted that they were unable to complete the works under the building contracts and that an insolvency process would begin. The respondent spoke on that day to Stephen Wakefield, the quantity surveyor on the Bersted Green contract. On 13 May 2010 the company ceased work on the building contracts on which it was then engaged. Although I have not seen copies of the contract in question, they are in standard JCT form, and I accept the (unchallenged) evidence of the respondent that ceasing to work under the contract constituted a breach of the contract, entitling the employer to terminate it for the future. 
Novation
19.	Also on 13 May 2010 the directors approached a firm of insolvency practitioners, RSM Tenon (“RSM”) to advise them and assist them with a view to their being appointed as administrators. David Green of RSM advised the respondent about the possibility of a “prepack” sale of the company’s business and also of the process of novation. The respondent had never heard of either of these before. Mr Green explained that novation was a way to avoid the termination of the existing contracts by bringing in a new company to take over the performance of those contracts. The respondent considered that the use of Morscott 2010 in a novation would prevent the employers suffering any loss the employees would still be employed and the creditors would not lose as much as they would otherwise, so that this would be the best outcome in difficult circumstances. At the time, however, the respondent did not properly understand the process of novation. In particular, he did not understand that the novation had to take place before the contracts were terminated.
20.	The same day, the respondent met Mr Marsden, Mr Keith and Mr Wakefield to discuss the Bersted Green contract, and in particular a novation of this contract to Morscott. A novation was agreed in principle, and comments were made on some draft documents which needed amendment. Mr Keith undertook to make the necessary amendments and recirculate the documents for signature. On the following day, 14 May 2010, the respondent signed the deed of release in respect of the Bersted Green contract, on the advice of Mr Wakefield and Mr Keith, and believing that it was the first step in the novation process which had been agreed the day before. The deed was drafted by solicitors acting for the employer, instructed by Mr Keith.
21.	During the same week, the respondent met or spoke to all of the clients of the company to explain its financial difficulties. He mentioned the possibility of novating the company’s contract to Morscott. All the clients could see the sense in a novation. The respondent had already agreed with Mr Green that Morscott would probably offer the company in the region of £20,000-£40,000 for the novation of the contracts. This took account of the view of the directors that there was very little profit remaining in contracts and that Morscott would be obliged to rectify historic defects and provide warranties. The respondent and the other directors of the company sought advice for themselves personally from Anthony Fanshawe of Begbies Traynor, another firm of insolvency practitioners. The respondent met Mr Fanshawe first on the afternoon of Sunday, 16 May 2010.
22.	On 17 May 2010 respondent met Mr Edginton for the first time, at a meeting with Mr Green of RSM and his fellow director Mr Johnson. The respondent knew that he had been brought in by Bank of Scotland in relation to LDL and and continued to be involved through RSM and Mr Green. But it was not clear to the respondent exactly what his position was. Until an email from Mr Fanshawe to Mr Johnson on 26 May 2010 put him right, the respondent thought he was taking instructions from Mr Edginton, instead of (if at all) the other way around. The employer on the Farnborough contract was unable to enter into a novation because its bank would not agree. But it was willing to consider a completion contract with Morscott. Mr Edginton by email wrote to the respondent (but copied to, amongst others, Mr Fanshawe) that
“If there is a danger of them going elsewhere we need to keep the pressure up and make sure they make the right choice. I will send out a letter on behalf of the Company stating that a novation would still be the best option for the Employer but accepting that it was at their discretion etc and that we understand they are in discussion with New Co on a completion contract…”
23.	Mr Fanshawe replied directly to Mr Johnson (who forwarded it to the respondent):
“Is Edginton instructed by the company (Laishley Ltd)? If not, he cannot write on behalf of the company. He should put the letter in front of you and it is for you to decide whether the letter should go out.
The price offered by Newco for completion for the works is confidential.
The only info Edginton is entitled to from Newco is its offer for a novation, if any, and at a time of Newco’s choosing.”
24.	The answer to Mr Fanshawe’s question is that Mr Edginton was not instructed or retained by the company. His witness statement says that he introduced himself to RSM on 14 May 2010 to offer his services “to assist in the recovery of the company’s book debts and retentions and the novation of any incomplete construction contracts”. In cross-examination he accordingly accepted that he had been retained by RSM to liaise with the employers under the contracts, to advise and to recover sums due under the contracts. His company was to be paid a percentage of recoveries, in this case probably 15%, although no documents were available to the court concerning this retainer. It is correct that Mr Edginton held himself out, in letters written by him to the employer’s in the Bersted Green and Farnborough contracts, on 18 and 19 May 2010, as “acting for the company”. But I find that this was not correct in fact or in law. RSM were never appointed officeholders having the power to act on behalf of the company. And the company itself never instructed or retained him in any capacity. Instead, Mr Edginton was treated as part of the prospective administrators’ team. The respondent misunderstood his status.
25.	On 20 May 2010 the respondent signed a deed of novation in relation to the Bersted Green contract, and also a deed of release in relation to the Farnborough contract, in each case on behalf of the company. These two documents were drafted by the same solicitors as drafted the deed of release in relation to the Bersted Green contract, in each case acting for the employer at the instance of Mr Keith. The respondent did not have the benefit of legal advice in relation to any of them. His evidence (which I accept) was that he trusted Mr Keith and Mr Wakefield (who explained the deed of release to him) and he did not think that he had any need to take legal advice. He did not realise that, if he terminated the contract by the deed of release, there would be nothing left to novate. That was why he continued to negotiate the novation of contracts even after having signed the deeds of release. Because he did not appreciate their significance, he did not consider that there was any necessity to inform Mr Edginton of the existence of the deed of 14 May 2010. In his witness statement, Mr Edginton says that he cannot accept that the deeds of 14 and 20 May 2010 were executed on those days. However, in cross examination an email from Mr Keith to Mr Marsden dated 15 May 2010 concerning the deed of 14 May 2010 was put to Mr Edginton, and he therefore accepted that what he says in his witness statement “looks to be wrong”. To be clear, I find on the evidence that the deeds were indeed executed on 14 and 20 May 2010 respectively.
26.	During that week and the following week negotiations took place with the employers under the contracts. By 25 May 2010, however, the respondent was aware that the employer in the Farnborough contract would not enter a novation because its bank would not agree. It was also on that day that the application for the appointment of joint administrators was made. On 27 May 2010 the respondent and his fellow directors informed the proposed joint administrators of the company (the applicants) that Morscott would be unable to proceed with any novations because of funding issues. (In fact, Morscott never traded at all, and was dissolved on 15 March 2015, the respondent having derived no financial benefit from it.) The company was therefore seeking expressions of interest from other third parties as potential novatees of the contracts.
27.	During this time, the respondent was also having discussions with employers, constant telephone conversations with the more than 100 subcontractors who had been on hold since the company ceased work on the sites, daily discussions with the company’s contract managers, meetings with the company’s surveyors and also with the company’s key suppliers. He was, as one would expect in such a situation, under a great deal of stress.
Third-party interest
28.	Given that Morscott would not now be taking over the company’s contracts, it was necessary to identify others who might do so. The prospective joint administrators, with the assistance of Mr Edginton, identified 11 main contractors who might be interested in taking over the contracts of the company. Draft confidentiality agreements were sent to them. On 5 June 2010 representatives of 6 of the 11 contractors attended the company’s offices. On 9 June 2010 Mansell Construction Services Plc made a bid on one contract, but as this provided a net benefit to the company of nil, it was declined. On the same day PMC Construction and Development Services Ltd made a bid on another contract, which was later revised, and provided a successful novation consideration of £33,478 on execution. A company called Core Interspace bid on four contracts on 10 June 2010, offering between £75,000 and £200,000 for the novation of each contract. Those four bids included bids for the Bersted Green contract (£75,000) and the Farnborough contract (£200,000). There were no other bids for those two contracts. These bid figures are the foundation of the claim made by the applicants against the respondent for the loss to the company of the value that these two contracts represented.
29.	As I have already said, Morscott would probably have offered the company a very much smaller sum, in the region of £20,000-£40,000, for the novation of the contracts. That is a “fallback” position for the applicants in valuing the contracts. This was based on the view of the directors that there was very little profit remaining in the contracts and that Morscott would be obliged to rectify historic defects and provide warranties. It is not clear whether the bids by Core Interspace took account of these matters. It is also to be noted that none of the other main contractors identified bid for these two contracts at all, let alone at the levels of Core Interspace. Further, no novation can occur without the consent of the employer. In both of the other 2 cases where Core Interspace bid, no novation took place. In relation to the Farnborough contract, a letter from the employer dated 7 July 2010 to Acasta said that its quantity surveyor and project manager would meet Core Interspace, and referred to receiving a proposal from that company “with respect to all aspects of the completion of the job which clearly are all aspects of the selection process of a contractor and not purely limited to financial”. In fact, the completion of the work on the contract was not given to Core Interspace at all, but to a new company called Reside Ltd, formed and managed by a former employee of the company.
30.	The warranties to be given on the Bersted Green and Farnborough contracts would require professional indemnity insurance cover in the sum of £5 million for 12 years. The evidence before me also shows that in the case of the Bersted Green contract a performance bond would also have been necessary. All this means that only a contractor of considerable substance would have been able to take over these contracts. In this connection, I was shown the balance sheet for Core Interspace as at 31 January 2010. At that date that company had total net assets of £44,514. There was no evidence before me as to how Core Interspace would have been able to finance even the payment of the initial bids, let alone financed the ongoing works and expenses associated with them.
The applicants’ claims
31.	The claims made by the applicants in these proceedings include not only a claim for the loss of the value which these two contracts represented to the company if they were novated to a third party, but also a claim for the loss of the rights to payments due under the contract at the time that the deeds of release were entered into. The only evidence of the value of these rights is contained in the first witness statement of Mr Edginton.
32.	At paragraphs 13 and 14 he says this in relation to the Bersted Green contract:
“13. With a Contract Sum of £1.73 million, the Company had completed approximately £270,000 of work, representing 16% of the value of the contract. Accordingly, there was approximately £1.46 million remaining in value for an interested party to potentially take over under a novation of the contract, plus £105,268 of assessed equity in the contract, comprising £100,000 of applications and the £5268 of contract retention held by Health Investments in respect of work already valued and certified by their consultants.
14. The £105,268 of assessed equity in the New Health Centre Contract was detailed in our Initial Report Schedule as appears at pages 3 to 4. This had been reduced by some of £18,000 from the Company’s earlier assessment of £123,268 based on advice I received from the Company’s surveyor Jimmy Marsh that the Company’s application was potentially over estimated by this value. Accordingly, although the Company’s perceived equity in the contract could arguably be the higher figure of £123,268, the reduced account at £105,268 was a reasonable valuation assessment of the company’s equity on the contract at that time.”
33.	There is a similar analysis in the first witness statement of Mr Edginton in relation to the Farnborough contract. At paragraphs 24 and 25 he says this:
“24. With a contract sum of £3.74 million, the Company had completed approximately £2.25 million of work, representing 60% of the value in the Aparthotel Contract. Accordingly, there was approximately £1.49 million remaining in turnover value for an interested party to potentially take over the contract by novation, plus £453,661 of assessed equity owed, comprising £359,064 on applications for payment and also £94,547 of contract retention held by IPC [the employer] against were previously valued and certified by their consultants.
25. The £453,610 of equity is detailed in our Initial Report Schedule [3 to 4], however, this was after we had reduced the account by hundred and £36,195 in our assessment, because we had been advised by the Company that the Company’s application could potentially be over estimated by a sum of £50,000 and, further, because we assessed it could be prejudiced by unpaid kitchen materials over which the supplier may have a valid retention of title of up to £64,000 and also other items. Accordingly, whilst the Company’s perceived equity in the contract could arguably have been considerably higher than our reported assessment at a sum of £589,805, the reduced account at £453,610 was a reasonable valuation assessment of the company’s equity on the contract at that time”.
34.	The problem is that this evidence is plainly of an assessment by Mr Edginton of what is or may be due under the terms of contracts of which there are no copies before the court, by virtue of two procedures under those contracts. The first is the procedure for interim payments becoming due by way of applications made in respect of work done. The second is in respect of retentions made from payments otherwise previously made. As to the first, as I understand the matter, when an application is made under the contract that sum does not automatically become due. It has to be checked and certified, normally by the employer’s quantity surveyor. Sometimes inflated applications are made, or indeed applications may be made for work that has not been done. The applications appeared not yet to have been certified by the employers’ quantity surveyors. The evidence of Mr Edginton is plainly his “assessment” of the value of the rights to interim payments upon applications made. He refers in each case to “assessed equity”, where “equity” refers to an amount payable under the contract to the contractor, but not yet paid. In making his assessment, he is applying his own opinion as an experienced surveyor, although he did not attend the sites and inspect the work done. 
35.	But the real problem is that, even assuming that he has the appropriate expertise, Mr Edginton, being a witness of fact in a heavily contested application, is not the appropriate person to act as an expert witness as well: see Re Continental Assurance Company of London plc [2001] BPIR 733, [327]; Re Colt Telecom Group plc (No 2) [2003] BPIR 324, [80]. In addition, as I have already said, no permission had been given for expert opinion evidence to be adduced, and neither was any application made at trial for this purpose. Accordingly, I hold that there is no admissible evidence in this case of the value of the rights to payments under the contracts (the “equity”) at the time that those contracts were discharged by the deeds of release. In these circumstances, I am unable to find that the “equity” due to the company in respect of each of these two contracts had any value at all.
36.	Mr Brockman, for the respondent, sought to take a similar point about admissibility in relation to the evidence of the respondent himself as to the value that he and his fellow directors placed on the two contracts themselves. I asked him whether he objected to the applicants relying on the respondent’s evidence on this point and he said that he did. But, as it seems to me, the point here is rather different. The first thing is that it was the respondent himself who put this evidence forward, not the applicants. So I doubt it lies in Mr Brockman’s mouth now to object the admissibility of that which his own client puts forward. But the second, and to my mind more important, point is that what the respondent was putting forward was evidence of what someone (ie himself and his fellow directors) would pay in order to novate these contracts. That is not giving an expert opinion about anything. In essence it is exactly the same as the reliance placed by the applicants on the bid by Core Interspace. Evidence of what someone will pay for a good is evidence of its value. So I reject Mr Brockman’s point on the admissibility of the respondent’s statements about what they would pay to novate the contracts.
Breach of duty
37.	I turn now to consider whether the respondent in entering into the two deeds of release committed a breach of his duties to the company. The two duties relied upon by the applicants existed at common law and are now codified in sections 171 and 172 of the Companies Act 2006. So far as material, these sections provide as follows:
“171. A director of a company must 
(a) act in accordance with the company’s constitution, and 
(b) only exercise powers for the purposes for which they are conferred.
172. (1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to – 
(a) the likely consequences of any decision in the long term, 
(b) the interests of the company’s employees, 
(c) the need to foster the company’s business relationships with suppliers, customers and others, 
(d) the impact of the company’s operations on the community and the environment, 
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and 
(f) the need to act fairly as between members of the company.
(2) [ … ]
(3) The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company”.
38.	The reference in section 172(3) to a rule of law requiring directors to act in the interests of creditors is a reference to the well-known rule that where a company is insolvent, or of dubious solvency, the duty to act in the best interests of the company is regarded as a duty to act in the interests of its creditors as a whole, and the creditors’ interests become paramount: West Mercia Safetywear Ltd (Liquidator) v Dodd (1988) 4 BCC 30, 33; Re HLC Environmental Projects Ltd [2014] BCC 337, [88]-[90]. As the deputy judge put it in Re HLC Environmental Projects Ltd, 
“89. … The underlying principle is that directors are not free to take action which puts at real (as opposed to remote) risk the creditors' prospects of being paid, without first having considered their interests rather than those of the company and its shareholders. If, on the other hand, a company is going to be able to pay its creditors in any event, ex hypothesi there need be no such constraint on the directors…”
39.	The test of the duty to act in the best interests of the company (or in case of insolvency the creditors of the company) is an objective test where there is no evidence of actual consideration of the best interests of the company (or creditors), or where there is a very material interest which is overlooked and not taken into account without objective justification: Re HLC Environmental Projects Ltd [2014] BCC 337, [92]. As the deputy judge put it, the objective test is 
“whether an intelligent and honest man in the position of a director of the company concerned could, in the circumstances, have reasonably believed that the transaction was for the benefit of the company”: Re HLC Environmental Projects Ltd [2014] BCC 337, [96].
40.	However, in circumstances where there is evidence of actual consideration of the best interests of the company and no material interest has been overlooked without objective justification, the test to be applied is subjective rather than objective:
“120. The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interests of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the interests of the company. The issue is as to the director’s state of mind”: see per Jonathan Parker J in Regentcrest plc (in liquidation) v Cohen [2001] BCC 494; applied in Re HLC Environmental Projects Ltd [2014] BCC 337, [91].
41.	In the present case there is evidence (which I accept) that the respondent did consider the best interests of the company, taking account of all the relevant matters referred to in section 172(1), as well as the interests of the creditors of the company. As I have found, the interests of the creditors of the company were expressly considered. Accordingly, in my judgment, this is a case in which the appropriate test to apply is a subjective rather than objective test. 
42.	The respondent gave evidence that he considered that all these interests pointed in the same direction, namely that it would be best for everyone if the contracts could be novated. However naïve the respondent may have been (and I think he was), and despite the absence of any written document setting out his consideration of these various interests, I accept that that is what he thought. Of course, where, as here, the company is either insolvent or in a state of dubious solvency, it is the interests of the creditors that are paramount. If the different interests to be taken into account had in the respondent’s opinion pointed in different directions, it would have been his duty to give effect to the paramount interest, namely that of the creditors. In my judgment, however, where the respondent considered that all these considerations pointed in the same direction, it does not matter that he took into account considerations other than those of the creditors. Judged in this light, and, on the facts I have found, that I hold that in entering into the deeds of release the respondent was not in breach of his duties under sections 171 and 172 of the 2006 Act. 
43.	I bear in mind here the warning given by judges against the use of hindsight. After all, the company has gone into liquidation, and the creditors are likely to lose money. In Ball v Hughes [2017] EWHC 3228 (Ch), Registrar (now ICC Judge) Barber said:
“85. Mr Brockman also rightly reminded me that the Court's assessment of the directors' conduct must be made without the benefit of hindsight. In this regard he referred me to In Re Living Images Limited [1996] BCC 112 at 116H per Laddie J:
'I should add that the Court must also be alert to the dangers of hindsight. By the time an application comes before the Court, the conduct of directors has to be judged on the basis of statements given to the official receiver, no doubt frequently under stress, and a comparatively small collection of documents selected to support the official receivers and respondents' respective positions. On the basis of this the Court has to pass judgment on the way in which the directors conducted the affairs of the company over a period of days, weeks or, in this case, months. Those statements and documents are analysed in the clinical atmosphere of the courtroom. They are analysed, for example, with the benefit of knowing that the company went into liquidation. It is very easy therefore to look at the signals available to the directors at the time and to assume that they, or any other competent director, would have realised that the end was coming. The court must be careful not to fall into the trap of being too wise after the event'.”
44.	But in my judgment the conduct of the respondent must be judged as at the time that the acts complained of were committed, and in the context of how the situation appeared to the respondent then. At that time, having no prior experience of running an insolvent company, in circumstances where events were moving at a rapid pace and changing from day to day, and under the pressure of dealing with employers, employees, subcontractors and so on, he genuinely considered that a novation of the contracts of the company would be in the interests of everyone, including the creditors, and he genuinely considered, on the advice of professionals that he trusted, that signing the deeds of release would be the first step in obtaining those novations. The insolvency advisers concerned (and Mr Edginton) knew of the plan to novate contracts, even though they did not know at the time of the deeds of release. That was the respondent’s mistake. But judged subjectively I do not think it was a breach of his duties.
Causation of loss
45.	Even if entering into these deeds had been a breach of his duties, it would still have been necessary to show that any losses suffered by the company were caused by those breaches, As Lord Browne-Wilkinson said in Target Holdings Ltd v Redferns [1996] AC 421, 439A-B,
“Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach.” (See also AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503, [136]). 
46.	But I am not persuaded that the entry into the deeds of release caused any of the losses of which the company complains. In relation to the loss of the value of the contracts themselves, all of the company’s contracts went out to the market to see what interest there was amongst other contractors, and the only interest shown was that of Core Interspace. But that company made bids which were much higher than anyone else, which it is not shown that it could afford to pay, or that it had the finances to do the work necessary under the contracts, or indeed that that company would have been acceptable to an employer. A final point is that, because the company had already ceased work under the contracts from 10 May 2010, on the evidence before me the company was in breach, and the employer companies could have terminated the contracts anyway. Accordingly, even if the deeds of release had not been executed, the company cannot be shown to have lost anything of value. In relation to the loss of the “equity” due to the company, as I have already said, there is no admissible evidence of any loss.
The burden of proof
47.	I should add that it was argued by Mr Lewis, for the applicants, that this was a case in which either the burden of proof lay on the respondent to prove that his actions or omissions did not cause loss to the company or at all events the burden of proof on the applicants should be reduced. He put forward two submissions. The first was that where a defendant in breach of duty has made it difficult or impossible for the claimant to adduce relevant evidence, the burden of proof on the claimant should be reduced. The second was that where a director has misapplied company money, he had the onus of proving that his breach of duty did not cause loss.
48.	As to the first proposition, Mr Lewis said that the respondent had failed to explain to the administrators and then liquidators what had happened. As a result, it was now too late to test the value of the contract by taking the contract to the market. He referred me to Clegg v Pache [2017] EWCA Civ 256, [26], [55]-[59]. As to the second proposition, Mr Lewis referred me to Murad v Al-Saraj [2005] EWCA Civ 959, [3]-[4], [7]-[8], [56]-[59], [72]-[76], and Ingram v Singh [2018] EWHC 1325 (Ch), [12]-[18], [170]-[173].
49.	As to the first proposition, of course I accept that in the case of an account (which Clegg was) an accounting fiduciary has the obligation to explain what he or she has done with the funds entrusted to him. In that sense, the burden is always on him or her in the first instance. Moreover, on the facts of that case, where the fiduciary took 
“active steps… to conceal entirely his personal interest and involvement in FPL’s steel trading business… [i]t seems to me that justice requires that the account be taken in this way” ie, that “all FPL’s profits during the relevant period should be accountable, subject to the exclusion of such transactions or profits as the defendants could show were independently undertaken or earned” (at [59], per Briggs LJ, with whom McCombe and Thirlwall LJJ agreed).
50.	But that is a long way from the facts of this case. This is not a case of an account, but of a claim for equitable compensation for breach of fiduciary duty. The burden is squarely on the applicants to prove the breach and the losses said to flow from the breach: Swindle v Harrison [1997] 4 All ER 705, 716-17. And I do not accept that the respondent has attempted to conceal anything from the applicants. It is true that he did not reply to the original letter from the applicants asking for information, but he explains that by saying that he was on holiday, and he did respond (albeit very shortly) to the chasing letter which was sent. I do not accept that he attempted to conceal the deeds of release from the applicants either. The fact is that in any event the window of opportunity testing the market for these contracts was very short and when it was tested at the time interest was minimal (apart from Core Interspace, with whom I have already dealt).
51.	As to the second proposition, again I accept that, if the claimant proves a breach of duty, but the actions of the defendant prevent the claimant from adducing evidence to prove the value of his loss, the burden can properly be put on the defendant to show that the value was zero; otherwise it can be presumed to be the highest possible: compare Amory v Delamirie (1722) 1 Strange 505. But here the applicants have not proved a breach of duty. In any event, even if there were a breach of duty, the real problem for the applicants is that the actions of the respondent complained of do not prevent the applicants from adducing proper evidence of the value of their loss. They simply failed to put that evidence forward. So altering the burden of proof is not justified by reference to what the respondent did.
Conclusion
52.	In all the circumstances, and for the reasons given, this application fails and is dismissed.