Brook v Green, Court of Appeal - Chancery Division, February 08, 2006, [2006] EWHC 349 (Ch)

Resolution Date:February 08, 2006
Issuing Organization:Chancery Division
Actores:Brook v Green

Case No: 115 of 2005Neutral Citation Number: [2006] EWHC 349 (Ch)IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONLEEDS DISTRICT REGISTRYDate: 8th February 2006Before:HIS HONOUR JUDGE BEHRENS- - - - - - - - - - - - - - - - - - - - -IN THE MATTER OF THE INSOLVENCY ACT 1986AND IN THE MATTER OF STUART ANDREW GREENB E T W E E N:- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -JUDGMENT1. Introduction and facts1. This is a contested bankruptcy petition presented by Eric Arthur Brook (``Mr Brook'') against Stuart Andrew Green (``Mr Green''). It is based on a statutory demand in the sum of £1,208,178.20. The underlying debt is based on a personal guarantee (the ``Guarantee'') executed by Mr Green on 19th February 2002 as the director of STE Homes Limited guaranteeing the repayment of monies loaned by Mr Brook to STE Homes Limited (``STE Homes''). 2. Mr Green was the managing director and beneficial owner of STE Homes. There was one another director - Mr Ian Green. 3. On or about 11th February 2002 Mr Brook instructed Baxter Caulfield to act for him in relation to the execution of the securities. Mr Green was unrepresented.4. On 19th February 2002 Mr Green executed the Guarantee. There is now no dispute as to its validity but there are a number of questions of construction and law that arise. It will be necessary to set out some of its terms later in this judgment. On the same day Mr Green executed a charge of land at Abbey Road Shepley and STE Homes executed a charge of other land at land at Abbey Road. Both charges were expressed to secure the liabilities of STE Homes to Mr Brook. 5. It is common ground that the charge executed by STE Homes was not registered under section 395 of the Companies Act 1985. It is common ground that in consequence the charge was void as against the liquidator of STE Homes.6. The first loan by Mr Brook to STE Homes (of £110,000) after the execution of the guarantee There was some limited lending before its execution but nothing turns on this. was made on 20th February 2002. It is common ground that it was expressly agreed that the loan would carry compound interest at 3% per month. It is not now suggested that that rate of interest was either exorbitant or unenforceable. It is also common ground that there was no express agreement as to the rate of interest in any of the later loans. Mr Brook asserts that he assumed that the same rate of interest would apply to the later loans as the earlier loan. He has based his calculations of interest on that assumption.7. It is common ground that substantial further moneys were lent by Mr Brook to STE Homes. There is an issue as to the extent of the loans and as to whether the loans were from Mr Brook or a third party. In particular it is now common ground that £12,000 together with a further £71,527.11 was actually paid from the bank account of a company called Nortonthorpe Industrial Park Ltd (``Nortonthorpe''). Nortonthorpe is a company in respect of which Mr Brook is the sole director and 99% shareholder.8. STE Homes is insolvent. It entered into creditors' voluntary liquidation on 16th April 2003 following a judgment obtained by one of its creditors. The liquidator duly avoided the charge executed by STE Homes. Mr Brook was accordingly left to prove in the liquidation as an unsecured creditor.9. On 8th May 2003 Baxter Caulfield on behalf of Mr Brook gave Mr Green written notice of default under the guarantee. On 16th May 2003 Mr Green's solicitors, McCormicks, gave a number of reasons why Mr Green was not liable under the guarantee. It is not necessary for me to consider those reasons.10. On 16th March 2004 Mr Brook issued proceedings for professional negligence against Baxter Caulfield. In the Particulars of Claim he alleged that Baxter Caulfield were instructed on 11th February 2002 to register the charge at Companies House. In their defence Baxter Caulfield admit an implied duty to register the charge and that it was negligent in its failure so to do. In paragraph 20(5) however they contend that Mr Brook has failed to mitigate his loss by failing to enforce his rights against Mr Green. The professional negligence action is currently stayed pending the outcome of the bankruptcy petition.11. In October 2004 the liquidator paid to Mr Brook the sum of £93,353.75. That sum represented the £71,527.11 referred to above together with interest. It is not necessary to set out precisely why that sum was paid. In the Statutory Demand it is said that it was accepted as a subrogated claim.12. On 12th January 2005 Mr Brook issued the Statutory Demand in the sum of £1,208,178.20. It is not necessary to set out in detail the Particulars of the Debt but the calculation of the debt was:13. The Statutory Demand makes no mention of any security held by Mr Brook. It was served by substituted service on 15th January 2005. No application was made to set aside the Statutory Demand although on 16th February 2005 Mr Green wrote a letter of dispute to Mr Brook's solicitors.14. Mr Brook could not immediately present a petition because of an outstanding petition by the Inland Revenue. The other petition was finally disposed of on 19th May 2005.15. On 25th May 2005 Mr Brook presented the bankruptcy petition. It is almost in standard form alleging non payment with the Statutory Demand. It makes no mention of security or of the relevant EC regulation. The petition came before DJ Rhodes on 22nd July 2005 and DJ Harrison on 10th August 2005. Amongst other orders DJ Harrison transferred the matter to the High Court and directed Mr Green to file a Notice of Opposition. The matter came briefly before Judge Langan QC on 22nd December 2005 when he made further directions in relation to evidence. It came on substantively before me on 31st January 2006.16. McCormicks, on behalf of Mr Green duly filed a Notice of Opposition in compliance with DJ Harrison's order. It makes it clear that Mr Green opposes the Petition on 4 grounds:1. As a matter of law Mr Brook cannot claim those monies which would have been secured by charges granted by STE Homes. 2. Part of the money claimed is in relation to moneys loaned by third parties and not by Mr Brook. 3. The rate of interest claimed was not agreed or was otherwise extortionate.4 Mr Brook is otherwise fully secured in relation to the claim.17. Mr Brook contends that each of the grounds is demonstrably bad. He also contends that on any view there is at least £750 due to him and that a bankruptcy order ought to be made.2. Representation18. Mr Brook was represented by David Herbert instructed by Jacksons C & P L; Mr Green was represented by Mark Cooper instructed by McCormicks. Both Counsel produced full and extremely helpful skeleton arguments that set out clearly the issues and made succinct submissions on them. As the evidence in the case was voluminous they greatly reduced the time necessary for argument. I am most grateful to them.3. Evidence19. I have already noted that a large amount of evidence has been filed pursuant to various orders. The bundle extends to 410 pages. On any view there are 4 witness statements from Mr Green and 2 from Mr Brook. In addition the bundle includes a further unsigned witness statement from Mr Green which was adopted by him as true and a witness statement signed by Mr Brook in proceedings in the Companies Court commenced by the Liquidator of STE Homes.20. I do not...

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