Palmer Birch (A Partnership) v Lloyd & Anor, Court of Appeal - Technology and Construction Court, September 24, 2018, [2018] EWHC 2316 (TCC)

Resolution Date:September 24, 2018
Issuing Organization:Technology and Construction Court
Actores:Palmer Birch (A Partnership) v Lloyd & Anor

Neutral Citation Number: [2018] EWHC 2316 (TCC)

Case No: C41BS210





Bristol Civil & Family Justice Centre

2 Redcliff Street

Bristol BS1 6GR

Date: 24 September 2018

Before :


(Sitting as a Judge of the High Court)

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Between :

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Matthew Bradley (instructed by Gresham Legal) for the Claimant

Krista Lee (instructed by Michelmores) for the Defendants

Hearing dates: 9th, 10th, 11th, 12th, 13th, 16th, 17th and 30th July 2018

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Judgment ApprovedHH Judge Russen QC :


  1. The claimant, Palmer Birch (``PB''), is a partnership between Mr John Palmer and Mr Nelson Birch which carries on a construction business specialising in the refurbishment of large houses. PB's claims in these proceedings arise out of their entry in January 2012 into a JCT Standard Building Contract with Quantities (2011) (``the Contract'') with the employer Hillersdon House Limited (``HHL''), and, more specifically, what PB claim to be the unpaid value of work carried out by them and the value of lost contractual rights against HHL (together with a distinct claim for the value of tools and materials alleged to have been wrongly taken from them) when the Contract was terminated in April 2015.

  2. This claim reveals the perils of contracting with an undercapitalised limited liability company, with no guarantees from the individuals associated with it, as HHL was plainly one such company.

  3. The claim also reveals less directly the potential pitfalls for those individuals who choose to operate through the medium of such a limited company which proves not to be good for its contractual obligations, including those who may have directed its affairs from the shadows (or quite openly but perhaps not quite constitutionally). Whether or not in this case they extend to the individuals concerned having incurred direct tortious liability to PB is the fundamental point running through the issues I have to decide.

  4. That said, despite the thrust of that part of the defendants' cross-examination which related to their respective input in the affairs of HHL, and what I say below about the precarious financial position of that company from the outset of its short, non-trading life until it went into liquidation, this is not a claim made by the liquidator of HHL, for the benefit of PB and any other creditor proving in the company's liquidation, in respect of the conduct of any director or shadow or de facto director prior to that event. No such claim was brought by the liquidator after HHL went into liquidation on 25 June 2015 with unsecured debts in excess of £11 million (including not only a claim by PB but also outstanding borrowing of about £6m and funded both directly and indirectly by one of the defendants) and what proved to be realisable assets of only about £115,000. Nor is it a claim by HHL that PB might have sought the Companies Court's permission to pursue (again for the benefit of the class of unsecured creditors) in respect of an alleged misfeasance on their part arising out of such conduct.

  5. It is instead a direct claim made by PB, made for its sole benefit, which relies upon common law principles of tort law rather than any provision of the Insolvency Act 1986. Aside from a claim in conversion in respect of the missing tools and materials, it is a claim under three economic torts I analyse below: inducing a breach of contract, unlawful interference and an unlawful means conspiracy.

  6. The defendants to those tortious claims are two brothers, Michael Lloyd and Christopher Lloyd. In this judgment I will refer to them individually as ``Michael'' and ``Christopher''. Christopher was the sole shareholder and appointed director of HHL. That said, and as appears below, Michael in his testimony accepted that, from his position of funder (both direct and indirect) of HHL's building works, he came to scrutinise and have a significant say in the way HHL spent its money. Although this is a matter requiring further analysis below, in my judgment it is a fair summary to say that Michael ``called the shots'' in this regard because HHL's expenditure was recognised by him and by Christopher to be, in large part, for Michael's personal benefit. Indeed, my assessment of the evidence has led me to conclude that Christopher's voice as a director was almost ventriloquial. The property which was the subject of the Contract, Hillersdon House (``the Property''), was to be and has since late 2014 been Michael's English home.

  7. Expressing myself in necessarily vague terms at this stage, Christopher and Michael therefore each stood behind HHL (Christopher as it shareholder and director and Michael, even on his own case which falls short of the degree of control alleged by PB, as both its direct and indirect funder). And Michael stood behind Seizar Holdings Limited (``SHL'') as the beneficial owner of that Cypriot company which had purchased the Property and from which company HHL derived its own leasehold interest in the Property and, by way of a loan, a considerable part of the funding to meet the cost of the Contract for its refurbishment.

  8. Leaving to one side the claim in conversion in respect of the tools and materials, which PB say were wrongfully taken from them after HHL had terminated the Contract and for which Michael and Christopher are said to be independently responsible, each of the economic torts alleged against one or both brothers hinges upon HHL having breached the Contract. That leads them to contend, in circumstances where the breach is said to have been referable to a lack of cash or available funding within HHL, that two of the tortious claims which I address below (those relying upon the inducement tort and the tort of unlawful interference) rest upon an impermissible attempt by PB to pierce the corporate veil which assumes that HHL had an entitlement to some part of Michael's personal financial resources. And, in relation to all three pleaded economic torts including the third resting on an unlawful means conspiracy, the defendants say that HHL's insolvency by the time the Contract was terminated is a reason why PB cannot succeed in establishing the necessary causal link to actual loss arising out of the breach. Therefore, and again by way of contrast with any claim that might have been brought against them under the Insolvency Act for a later contribution to the insolvent estate, the limited liability of the insolvent HHL, in the period leading up to the breach, is said to be a reason why they cannot be liable to PB.

  9. It is by reference to these lines of defence that the defendants persuaded the court to direct a preliminary trial of issues of liability in the terms set out below. This is my judgment following a trial of those issues.

  10. On the trial of those preliminary issues PB has been represented by Mr Matthew Bradley and Michael and Christopher by Ms Krista Lee. I am grateful to both of them for the clear and constructive way in which they have addressed the evidence and legal principles relevant to my determination of them.


  11. In this section of my judgment I must at least attempt to exercise some restraint in providing what would otherwise be an even lengthier summary of the events leading up to the events in late 2014 and early 2015 upon which PB base their claims. In providing their own narrative the defendants' witness statements for the trial run to 668 paragraphs and 399 paragraphs respectively, a total of 116 pages excluding exhibits.

  12. The Contract related to the repair, alteration and extension of Hillersdon House as well as landscaping and external works at the Property. The Property is a 14 bedroom manor house of about 18,000 square feet and set in about 200 acres of land at Collumpton, Devon.

  13. SHL had acquired the freehold interest in the Property on 18 June 2010 for the price of £3.2m (in October 2012 SHL purchased some additional adjacent land for £250,000). SHL had been incorporated in Cyprus in December 2009 for that purpose. The purchase price was funded by a loan from Bluecoat Trust Limited, another Cypriot company in which Michael was the sole shareholder.

  14. HHL was incorporated on 6 April 2010.

  15. On 20 April 2011 SHL granted HHL a 21 year lease of the Property. The permitted use by HHL was corporate hospitality, conferences, educational purposes, shooting, grazing and ``any other use which is specified in an Approved Business Plan''.

  16. On 23 May 2012 SHL granted HHL a licence to carry out refurbishment works at the Property.

  17. An invitation to tender for refurbishment works which included those that later became the subject matter of the Contract was sent out by Savills on behalf of HHL in July 2011.

  18. PB's tender was submitted on 7 September 2011 in the sum of £6,925,112.90 and based on an 18 month (72 week) project. Before the Contract was concluded the sum was negotiated down to £5,115,000 through deletion of some items, though the 72 week period for completing those works still remained the same.

  19. The Contract was dated 9 January 2012 (though signed on behalf of HHL some time later). HHL was named in the Contract as the Employer, care of Christopher at a London address.

  20. Mr Birch told me that he regarded Michael as the client under the Contract (wrongly in the sense of Michael having any contractual obligations to PB) and Michael said in his witness statement:

    ``I could fully understand Nelson regarding me as a key decision maker insofar as this project was concerned as I am sure he will have known or come to believe that I owned Hillersdon House beneficially. Very probably I will have told him this was the case.''

  21. Under the original terms of the Contract Johnston Cave...

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