E-Clear (UK) Plc v Elias Elia & Ors

Summary judgment may be granted where the defence has no realistic prospect of success. The court must avoid a mini-trial, but may scrutinise evidence and reject assertions contradicted by contemporaneous documents. It must also consider reasonably available trial evidence and whether fuller investigation could affect the outcome.

Where a company is insolvent, of doubtful solvency or nearing insolvency, directors must act for creditors as a whole. A personal debt cannot be set off against a proprietary claim arising from breach of fiduciary duty. An unregistered disposition requiring registration cannot defeat a pre-existing beneficial interest.

E-Clear (UK) plc, in administration, claimed proprietary relief concerning a flat acquired in the name of its former director, Elias Elia. It alleged that company funds had been used in breach of fiduciary duty. Mr Elia’s mother, Mrs Elia, claimed an interest under an assignment for £25,000 and resisted summary judgment.

The proposed defence relied on alleged loans made by Mr Elia to the company, possible set-off, disagreement about solvency, and the effect of the assignment. The central issue was whether Mrs Elia had a real prospect of defending the proprietary claim or whether the matter required a trial.

1. Summary judgment. The court applied the guidance in EasyAir Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch), derived from The Federal Republic of Nigeria v Santolina Investment Corporation [2007] EWHC 437 (Ch). A realistic defence must carry some degree of conviction. The court must not conduct a mini-trial, but need not accept unsupported evidence at face value. It must consider reasonably available trial evidence and whether fuller investigation could affect the result.
2. Fiduciary duty and insolvency. Company funds financed 35.5 per cent of the purchase price. Mr Elia owed fiduciary duties under sections 170 to 177 of the Companies Act 2006, including duties not to use company funds improperly and to avoid conflicts. Where a company is insolvent or in serious financial difficulty, directors must consider creditors as a whole, applying West Mercia Safetywear Ltd v Dodd [1988] BCLC 250 (CA) and Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch); [2003] 2 BCLC 153.
3. Loans and set-off. The alleged loans lacked reliable contemporaneous support and had no real prospect of being established. Even an established personal debt could not be set off against the claimant’s proprietary claim. The court relied on the principles cited from Guinness plc v Saunders [1990] 2 AC 663, Manson v Smith (liquidator of Thomas Christy Ltd) [1997] 2 BCLC 161 and Smith (Administrator of Cosslett (Contractor) Ltd) v Bridgend County Borough Council.
4. Registration and priority. Under section 27 of the Land Registration Act 2002, a disposition requiring registration does not operate at law until registration. The alleged assignment and charge therefore could not defeat the claimant’s pre-existing beneficial interest.
5. Disposition. Mrs Elia’s defence had no real prospect of success. The application for summary judgment succeeded.