Porter Capital Corporation v Masters, Court of Appeal - Chancery Division, September 06, 2017, [2017] EWHC 2215 (Ch)

Issuing Organization:Chancery Division
Actores:Porter Capital Corporation v Masters
Resolution Date:September 06, 2017

Case No: HC-2012-000211

Neutral Citation Number: [2017] EWHC 2215 (Ch)



Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 6 September 2017



(sitting as a Deputy Judge of the Chancery Division)

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Mark Cawson QC (instructed by Bermans LLP) for the Claimant

Iain Pester (instructed by Charles Fussell & Co LLP) for the Defendant

Hearing dates: 3, 4 and 5 May 2017

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  1. This is the trial of a number of preliminary issues in accordance with the Order of Master Price dated 15 September 2016. That Order was made in consequence of an Order of the Court of Appeal dated 15 January 2016 (``the CA Order''). That in turn was the product of an appeal by the Claimant (``Porter'') and a cross-appeal by the Defendant (``Mr Masters'') against the Order of Nicholas Strauss QC sitting as a Deputy Judge of the High Court dated 5 February 2014 (``the Strauss Order'') whereby Mr Strauss QC made 13 declarations which reflected his determination of an earlier set of 15 preliminary issues. By the CA Order, the Court of Appeal varied the Strauss Order by allowing in part both Porter's appeal and Mr Masters' cross-appeal. The preliminary issues that are now before me relate to the taking of an account pursuant to the Strauss Order as varied by the CA Order. Once those issues have been determined (and subject always to any further appeals) the case can progress to the taking of that account.

  2. Mark Cawson QC appeared for Porter and Iain Pester for Mr Masters. I am grateful to both of them for their clear and helpful written and oral submissions.

    The dispute in outline

  3. The proceedings were begun by a Claim Form issued on 9 February 2012. They involve a claim by Porter, a company incorporated in Alabama, USA, against Mr Masters, to enforce the terms of a Performance Covenant and Waiver dated 18 November 2004 (``the PCW''). By the PCW, Mr Masters guaranteed the liabilities to Porter of Cura Pharmaceutical Company Inc. (``Cura'') under a Commercial Financing Agreement also dated 18 November 2004 (``the CFA'') whereby Porter advanced money to Cura against receivables. Both the PCW and the CFA are governed by the laws of the state of Connecticut in the USA. Cura was a customer of Porter between 2004 and 2010, before entering bankruptcy on its own petition dated 18 March 2010. Mr Masters was, at various times, a founding member, a shareholder, a director and vice president of Cura.

  4. By an Amended Particulars of Claim dated 20 November 2012, Porter sought to recover from Mr Masters as guarantor ``not less than $1,996,634.70'' (converted to £1,272,390.20 at the rate of exchange then said to be applicable) or such other sum as might be ascertained to be due from Cura under the running account between Porter and Cura. By a Re-Amended Defence dated 6 June 2013, Mr Masters raised various issues concerning the enforceability of the PCW and the true state of account between Porter and Cura. These issues were tried by Mr Strauss QC over 6 days in June and July 2013, and resulted in a reserved judgment (handed down on 10 December 2013) and the Strauss Order. Both parties appealed a number of aspects of the Strauss Order to the Court of Appeal. That resulted in a hearing on 9 and 10 December 2015, a reserved judgment of Vos LJ with whom Davis LJ and the Chancellor agreed of 15 January 2016 (see Porter Capital Corporation v Masters [2016] EWCA Civ 5), and the CA Order.

  5. In sum, the upshot of those decisions was that the PCW was held to be enforceable and to have not been discharged by reason of the release of security, Porter was held entitled in principle to recover enforcement legal fees and costs, and an account was directed in order to determine what adjustments were required to the state of account as between Porter and Cura and Mr Masters in light of the various findings. These included findings that Porter had misapplied the provisions of the CFA by wrongly charging higher interest on ``over advances'' and that Porter had no right to charge compound interest. The details of the relationship between the parties, the history of the proceedings, the terms of the CFA and the PCW, and the reasoning of Mr Strauss QC and the Court of Appeal can be found in the earlier judgments. It is unnecessary to rehearse those matters in this judgment, save to the limited extent that appears herein.

  6. Vos LJ summarised ``some of the basics'' as to how the CFA operated in Porter Capital Corporation v Masters [2016] EWCA Civ 5 at [6] as follows:

    ``Under the CFA, Porter agreed to advance money to Cura against those of its customers' receivables that it chose to purchase. Porter agreed to collect the receivables from the customer for a fee of between 2% and 6% depending on how quickly the customers paid (the "collection fee"). Porter charged Cura a range of other fees and interest. The purchase price for each receivable was its full value less the maximum collection fee (i.e. 94%), but there was a rebate of between 1% and 4% paid to Cura if the receivable was paid by the customer in less than 75 days. In respect of each invoice, Porter advanced a maximum of 75% of its value to Cura, deducting a basic "reserve" of 19% in addition to the maximum possible collection fee of 6%. Porter was to maintain a Reserve Account for Cura into which it would place the 19% reserve amount (or a greater percentage if Porter decided to do so) to be applied against charge backs or any "Obligations" of Cura to Porter defined in clause 15 as including any sums due by Cura to Porter under the CFA and any other indebtedness or liability of Cura to Porter. In practice, Porter exercised its discretion under the CFA to advance far less than the 75% of the value of the receivables to Cura. The actual average figure was approximately 20%. Exhibit B to the CFA specified that Cura should pay Porter interest on the average monthly outstanding balances on all advances at the rate of the greater of 8.5% and the Prime Rate plus 4% on an annualised basis, charged daily, collected at the end of each month until all advances are paid in full and all Obligations satisfied. Clause 8 allowed Porter to make "over-advances" to Cura to ease its short-term cash-flow problems, by way of a negative balance on the Reserve Account in return for a "one-time processing and administrative fee" of up to 3% of the over-advance, and interest on the outstanding over-advance balance at the rate of 1½% per month.''

  7. By paragraph 9 of the CA Order, it was ordered that the claim should be remitted to a Master in the Chancery Division in order to give further directions in respect of:

    (1) The account directed by the Strauss Order, that was required to be taken in consequence of the declarations contained in that Order as varied by the CA Order.

    (2) The issues as to legal fees and other collection expenses claimed by Porter as referred to in paragraph 3 of the CA Order, which states: ``Porter is entitled to recover from Mr Masters under Clause 1 of the PCW the legal fees and other collection expenses that it claims subject to their being shown by Mr Masters not to have been reasonably incurred and ...the issue as to how much is due and any claims by Mr Masters that the sums claimed are unreasonable be dealt with along with the account in respect of which directions are given below''.

    (3) The issue as to what sum, if any, should be paid by Mr Masters by way of interim payment.

  8. Following the CA Order, Porter served the 7th Witness Statement of John Land, the Senior Vice-President of Porter, (``Mr Land'') dated 28 April 2016 (``Land 7''), which exhibited an account as ``JL4''. Porter claimed that it was entitled to appropriate payments in the way that is set out in the account in ``JL4''. Mr Masters disputed this on the grounds that were set out in a witness statement of Simon Patrick Winter (``Mr Winter''), a partner in Charles Fussell & Co LLP, dated 1 September 2016 (``Winter 1''). Although he explains (at paragraph 38) that ``I do not seek to take every conceivable point which Mr Masters might wish to take at the final hearing of the account'', Mr Winter states: ``As matters stand it appears that there is, in short, one issue of principle from which a number of points flow: that issue is whether Porter is entitled to rewrite the history of its relationship with Cura. That determines the following issues: (1) the appropriation of payments received by Porter to debts owed by Cura; (2) whether Porter can ``charge back'' invoices; and (3) whether Porter is entitled to revisit fees charged during the course of that relationship''. Cura's reply to Winter 1 was contained in Mr Land's eighth witness statement dated 7 September 2016 (``Land 8'').

  9. The directions envisaged by the CA Order were given by Master Price on 15 September 2016. By paragraph 3 of his Order of that date, the Master directed that the following issues be tried as preliminary issues for the purposes of taking the account:

    (1) How under the CFA and Connecticut law payments received by Porter are to be appropriated in respect of the running account with Cura, and whether Porter is now entitled to appropriate payments in the way that it has done in the account exhibited as ``JL4'' to Land 7.

    (2) Whether under the CFA and Connecticut law invoices factored to Porter can be charged back.

    (3) Whether Porter can revisit fees charged and recorded in its accounts.

    (4) The basis upon which as a matter of Connecticut law the Court should approach the issue referred to in paragraph 3 of the CA Order, namely how much is due in respect of legal fees and other collection expenses of the kind therein referred to and any claims by Mr Masters that the sums claimed are unreasonable, and the interrelationship between clauses 10 and 22 of the CFA and orders for costs made in the present proceedings....

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