Jefferson & Ors v Bailey & Ors

A shareholder, director or bookkeeper of a company is not personally liable to third parties merely because of that office, knowledge of the company’s affairs, or awareness of an alleged misapplication of funds. Personal liability requires evidence of personal wrongdoing. Claims alleging misappropriation also require proof that the defendant received or misapplied the relevant money. Where contemporaneous documents satisfactorily account for payments and the claimant’s evidence is unreliable, the claims fail.

The claimants invested in a Spanish property-development company, Vista Properties SL. They alleged that Richard Bailey, Heather Bailey and White Wind Limited had misappropriated investment funds, including sums said to be due to Vista or individual investors. Several substantial allegations were abandoned or failed on the documentary evidence. The remaining issues concerned alleged shortfalls of £5,000, a £10,000 cash payment, and the personal liability of Mrs Bailey as shareholder, director or alleged bookkeeper.

The central questions were whether the defendants had misapplied any of the claimed sums and whether Mrs Bailey had any personal liability in the absence of evidence of personal wrongdoing.

1. Disposition. All the claimants’ claims were dismissed. The seventh claimant had ceased to be a party by order dated 27 November 2009.
2. The alleged misapplication of the aggregate £710,000 paid into the White Wind account was disproved by contemporaneous banking and foreign-exchange documents. The funds were traced into the purchase of Sector 129 and credits to the Vista account. The undeclared-money claim therefore had no substance.
3. The alleged £10,000 shortfall paid into the White Wind account was properly accounted for. Park Offices SL had advanced the sterling equivalent to Vista through the opening cheque paid into the Vista account, and the later receipt reimbursed that advance.
4. The claims concerning Mr Jefferson’s alleged €60,000 share and Mr Longo’s £5,000 were unsupported. The documents did not establish any misappropriation. In relation to Mr Longo, the evidence indicated that the money had been applied in accordance with instructions conveyed by Mr Jefferson, leaving any possible claim against Mr Jefferson rather than the defendants.
5. The claims concerning Mr Brown’s £5,000 and Mr Cantle’s alleged £10,000 cash payment failed for want of proof. The judge rejected or was not persuaded by the evidence relied upon to establish receipt or misapplication.
6. Mrs Bailey was not personally liable. Her status as shareholder or director of White Wind, and any supposed status as director or bookkeeper of Park Offices SL, did not create liability to the claimants in the absence of personal wrongdoing. Mere knowledge of an intended misapplication by the company would likewise be insufficient.