Staplehurst Trading Ltd v Hill Station & Ors

On an application for permission to appeal from summary judgment, permission should be granted where it is arguable that the first-instance judge misdirected himself. The permission court assesses the reality of the case but does not determine the merits or conduct a full trial.

A Quistclose trust requires the transferor to restrict the recipient’s freedom to dispose of money except for a stipulated purpose. The resulting fiduciary obligation is owed to the transferor, not automatically to the intended payee. Genuine contractual disputes, substantial evidence and a counterclaim that is not plainly shadowy may make summary judgment inappropriate.

Staplehurst sold its ice cream manufacturing business to Hill Station under a detailed agreement dated 9 July 2007. Staplehurst claimed £200,000 said to be payable under a supplemental agreement and £283,000 relating to assumed liabilities or contractual promises.

The Mercantile Court, before His Honour Judge Simon Brown QC, granted summary judgment on both matters. Staplehurst sought permission to appeal. The Court of Appeal considered whether the judge had arguably erred by treating the £200,000 as payable under a Quistclose trust and by disregarding contractual objections, evidential disputes and Hill Station’s counterclaim.

Permission to appeal granted. Lord Justice Buxton emphasised that the court was deciding only whether the proposed grounds were arguable, not the merits of the dispute.

1. On an application for permission to appeal, the court must examine the reality of the case. It may take account of factors not placed before the first-instance judge where they cause it to take a different view. The exercise is not a rehearing or an attempt to litigate the whole case.
2. The judge’s reliance on a Quistclose trust was arguably wrong. The essence of such a trust is that the transferor restricts the recipient’s freedom to dispose of the money except for the stipulated purpose. Here, the trust-creating party was Hill Station, so the fiduciary obligation was owed to Hill Station rather than Staplehurst. The existence of payment concerns did not itself show that Hill Station had constituted itself a fiduciary for Staplehurst. The relevant contractual objections therefore required consideration.
3. The contractual obligation to deliver physical possession of assets with the intention that title should pass was more than an obligation to give possession. The ownership of the spiral freezer and related equipment was arguably disputed. The requirement to transfer business contracts, books and accounts also raised a substantial issue. Prior inspection during due diligence was not equivalent to access to records needed to operate the business.
4. Hill Station’s counterclaim was not shown to be so plainly shadowy that it could be disregarded. The evidence was extensive and disputed. The claim for assumed liabilities was also arguable because those liabilities were defined by reference to completion accounts which had not been produced. Further objections concerning payment of the liabilities, debts left outstanding for more than four weeks and the adequacy of the disclosure letter were likewise arguable.

Directions for the appeal were left to be dealt with subsequently.

• Court of Appeal (Civil Division): On 3 July 2008, permission to appeal was granted on the identified points.
• Mercantile Court: His Honour Judge Simon Brown QC granted summary judgment on Staplehurst’s claims for £200,000 and £283,000.