Whalley v Doney & Anor

An appellate court should not interfere with careful and evidence-based findings of fact unless the proposed appeal identifies a substantial basis for suspecting error. This applies where the trial judge found that a company was insolvent and that a director had diverted a substantial part of its business-sale proceeds, supporting findings of misfeasance and breach of fiduciary duty. In an application concerning relief under section 727, an unresolved dispute about whether the statutory threshold is objective or subjective may be immaterial where the first-instance judge assumed that threshold was satisfied. The remaining issue is whether the discretionary refusal of relief discloses any basis for appellate intervention.

George Malcolm Doney and Malcolm Doney Associates applied for permission to appeal from judgments of Park J in the Companies Court. The proceedings were brought by Alan Peter Whalley, liquidator of MDA Investment Management Ltd, concerning alleged misfeasance, breach of fiduciary duty and unlawful preferences arising from the sale of the company’s business.

Park J found the misfeasance and breach of fiduciary duty allegations established and later determined the compensation payable. He refused permission to appeal against the second judgment. The Court of Appeal had to consider whether the factual findings were open to challenge and whether the judge’s refusal of relief under section 727 disclosed an arguable basis for appeal.

1. Permission refused. Mr Justice Laddie gave the first judgment, and Lord Justice Peter Gibson agreed. The proposed appellants identified no substantial basis for impugning Park J’s decision.
2. Findings of insolvency and misfeasance. Park J had found that the company was in dire financial straits and insolvent on a cash-flow basis. He found that Mr Doney had diverted well over half of the value realised from the sale of the company’s business into his own pocket. The Court of Appeal considered that the judge had given ample reasons for his factual conclusions and that the material supported insolvency both before and after the transaction. The absence of a finding of balance-sheet insolvency did not provide a basis for challenge. The findings supported the conclusion that Mr Doney had breached his duties by diverting substantial sale proceeds.
3. Relief under section 727. The appellants challenged the judge’s allegedly objective approach to the statutory threshold, arguing that a subjective approach might apply. That issue did not affect the application for permission because Park J had assumed, for the purpose of his second judgment, that Mr Doney satisfied the legal requirement for relief. The remaining question was whether relief should be granted as a matter of discretion.
4. Park J had exercised that discretion against Mr Doney after considering the material in the case. The Court of Appeal could see no basis for departing from that exercise of discretion. Permission was refused with costs assessed at £5,000.

• Court of Appeal (Civil Division): In [2004] EWCA Civ 1198, permission to appeal was refused with costs assessed at £5,000.
• High Court of Justice, Chancery Division, Companies Court: Park J found misfeasance and breach of fiduciary duty after trial, later determined the compensation payable, and refused permission to appeal against the second judgment.