Northampton Borough Council v Cardoza & Ors

Summary judgment is inappropriate where a director’s alleged breach of duty in making payments to himself raises a real prospect of a defence on remedy or statutory relief. Recovery of a payment may restore the company’s indebtedness to the recipient, creating issues of circuity and restitution which ordinarily require trial. The contractual effect of a subsequent release must be assessed in its commercial and factual context. It cannot be assumed at the summary stage that a release covers an indebtedness which had apparently been discharged and might be revived only if repayment were ordered. Relief under Companies Act 2006, section 1157, may also remain realistically available where the director acted honestly and reasonably and the surrounding circumstances, including contributions to the company and the absence of liquidation, require evaluation.

The Council, as assignee of Northampton Town Football Club Limited’s claims, sought summary judgment against its former directors concerning £180,000 paid to David Cardoza during 2015. The Council alleged that the payments breached the directors’ duties because the Club was insolvent, or of doubtful solvency, and that the payments preferred David over the general body of creditors.

The defendants relied principally on issues concerning the remedy available after repayment, the effect of a share purchase agreement by which the Cardozas released claims against the Club, and possible relief under section 1157 of the Companies Act 2006. The question was whether the defendants had no real prospect of successfully defending the claim.

1. Application dismissed. The defendants had real prospects of successfully defending the claim relating to the £180,000 payments, so the issue was not suitable for summary determination.
2. The authorities on remedies for a director’s breach of duty in preferring a creditor show that the appropriate relief may depend on whether the company is in liquidation, whether the payment discharged a debt, whether the recipient was the director, and whether recovery is sought from the recipient. The cases did not cast doubt on the common-sense proposition that recovery of money paid in discharge of a debt may leave the company indebted to the payee again. The resulting issues of circuity and pointlessness were potentially relevant because the Club continued to trade.
3. The share purchase agreement’s release did not make the Council’s case inevitable. Applying the contractual approach in Arnold v Britton [2015] UKSC 36, the meaning of the release had to be assessed by reference to its natural and ordinary meaning, the agreement’s provisions and purpose, the parties’ known circumstances, commercial common sense, and without subjective evidence. There was a real prospect that a trial court would find that the release did not cover indebtedness which the Club appeared to have discharged and which David might seek to revive only if repayment were ordered.
4. There was also a realistic possibility of relief under section 1157. The court could not discount arguments that the directors acted honestly, that David was owed the money, that substantial funds had been provided to the Club, that the payments reduced liabilities, that the Club continued trading, and that the Cardozas later waived millions of pounds of debt. Whether relief was fair required determination at trial.

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