Hellard & Anor (As Joint Liquidators of Guardian Care Homes (West) Ltd) v Graiseley Investments Ltd & Anor

A journal entry records accounting treatment; it does not, without more, effect a transfer of assets, create a debt or release an obligation. Where a transaction is pleaded by reference to journal entries, the relevant entries must be identified and explained in their wider accounting context. An appellate court will interfere with a trial judge’s findings of fact only where the conclusion is irrational or cannot reasonably be explained or justified. The same restraint applies particularly strongly to costs decisions, where the judge has assessed how the case was framed and conducted.

The joint liquidators of Guardian Care Homes (West) Ltd appealed against the dismissal of claims concerning an alleged transaction at an undervalue under Insolvency Act 1986, and claims against directors under section 212. They alleged that fixtures and fittings had been transferred to Graiseley Investments Ltd in return for a debt, and later returned in exchange for release of that debt.

The Insolvency and Companies Court Judge found that no transfer to Graiseley or release of a debt had occurred, dismissed the claims, and ordered indemnity costs. Permission to appeal was granted on the claims against Mr Hartland and Graiseley, and on the costs issue. The central questions were whether the pleaded transaction existed, whether the respondents had abandoned their defence, whether the factual findings could be disturbed, and whether the indemnity costs order was justified.

1. Appeal dismissed. The appellants failed to establish that the transaction pleaded as a transaction at an undervalue had occurred.
2. A journal entry is incapable, by itself, of effecting a transfer of assets or creating a debt. At minimum, the appellants had to prove an authorised decision that the fixtures and fittings should be transferred in return for an assumption by Graiseley of liability to pay the stated sum. Where the case is pleaded by reference to journal entries, all relevant entries concerning the assets and alleged debt must be identified so that the court can determine which entries are relied upon and why.
3. The respondents’ evidence that Mr Hartland intended a possible transfer to a holding company by way of dividend did not abandon the pleaded defence that no transaction involving Graiseley had occurred. Nor did it amount to an admission of the alleged undervalue transaction, even with a different recipient.
4. The judge’s central factual findings were rationally supported by the evidence. The journal entries were treated as having been made in error, without authority and without effecting an actual transfer. The appellate court was not entitled merely to identify evidence pointing the other way and substitute its own assessment. Under Henderson v Foxworth Investments Ltd [2014] UKSC 41, intervention required a conclusion that no reasonable judge could have reached or could reasonably explain.
5. The challenge to the indemnity costs order also failed. Costs decisions attract a particularly generous ambit of discretion, especially where the judge has assessed the manner in which the litigation was formulated and conducted. The matters relied upon did not make the order perverse or otherwise justify appellate intervention. The same conclusion applied to Mrs Hartland because the claim against her was parasitic on the unsuccessful transaction claim.

• High Court (Chancery Division): On 7 November 2019, the appeal from the order of ICC Judge Barber dated 12 October 2018 was dismissed. The order dismissing the claims and awarding indemnity costs was upheld.
• Insolvency and Companies Court: The claims under sections 238 and 212 of the Insolvency Act 1986 were dismissed by the judgment dated 12 October 2018, [2018] EWHC 2664 (Ch).