Fern Advisers Ltd v Burford & Ors

Summary judgment may be granted where the defence has no realistic prospect of success. The court must avoid a mini-trial, but it need not accept unsupported assertions which are contradicted by contemporaneous documents or commercial probabilities. Allegations of fraud do not create an absolute bar to summary judgment, although the seriousness of a dishonesty finding is relevant. A director who misappropriates company money is liable to restore it and may be subject to proprietary tracing remedies. Unauthorised arrangements made by directors cannot bind the company where they breach fiduciary duties, exceed the company’s powers or contravene statutory approval requirements. A trial is unnecessary where the admitted facts and documentary evidence establish that the proposed defence is fanciful or bound to fail.

Fern Advisers Limited sought summary judgment against its former director, Adrian Burford. It alleged that he had misappropriated more than £12 million, using company funds for Broadwell Manor, associated businesses and personal expenditure. Mr Burford admitted taking and spending much of the money but alleged loans, authorised company purposes, missing documents, a claim for remuneration and other credits.

The application also raised the effect of Mr Burford’s bankruptcy and whether the action should be stayed under the Insolvency Act 1986. The central question was whether Mr Burford had any real prospect of successfully defending the claims at trial.

1. Summary judgment. The court applied the established summary-judgment principles: the defence must be realistic and carry some degree of conviction; the court must avoid a mini-trial; unsupported assertions need not be accepted without analysis; reasonably available trial evidence must be considered; and the court should hesitate where fuller factual investigation might affect the result. Fraud allegations do not themselves require a trial.
2. Bankruptcy. The action was not automatically stayed by Mr Burford’s bankruptcy under section 285(1) of the Insolvency Act 1986. There was no presumption in favour of a stay. The court refused the application for a stay, having regard to the need to determine Fern’s claims and the trustee in bankruptcy’s position. The fraud claims also engaged section 281(3).
3. Misappropriation and tracing. A director who takes company property without authority or in breach of fiduciary duty is liable to restore it and may be treated as a constructive trustee. The company may trace identifiable proceeds and elect an equitable charge rather than beneficial ownership. Fern’s money had been supplied for specific purposes and was used for Mr Burford’s benefit. The proposed loans were undocumented, unsecured and commercially improbable, and could not provide a realistic defence.
4. Alleged authority. Any private agreement between Mr Burford and another director to divert the money would have been dishonest, would have placed Fern in breach of its obligations to the lenders or beneficiaries, and would not have been an agreement by Fern. Member approval had not been obtained as required by section 197 of the Companies Act 2006. Any such loan would therefore have been voidable and could not defeat Fern’s claims.
5. Counterclaim and credits. The alleged remuneration agreement was not made with Fern and could not support a counterclaim against it. The alleged director’s loan and other credits depended on unsupported assertions and had no real prospect of success. The claims therefore succeeded by summary judgment, subject only to minor items to be determined at hand-down.

First-instance decision. No appellate history is stated in the judgment.