Mercia Enterprises Ltd v Mistry

A director may incur personal liability to account for money belonging to another where she has sole control of a company and its account, the money is not accounted for, and the evidence supports a finding that she appropriated it for her own use. The fact that payments entered a company bank account does not by itself prevent personal liability. The court must assess the substance of the transaction, including the company’s admission that it held the money, the failure to pay or account for it, and the director’s control. The identity of the bank-account holder may be relevant, but is not necessarily decisive.

Mercia Enterprises Ltd brought proceedings against Pratibha Mistry and Universal Property Agents Ltd in respect of rental payments received while the defendants acted as managing agents. The County Court found that the contractual claim concerning property repairs lay against the company, but held Miss Mistry personally liable for £12,735.44 representing rent which had not been accounted for.

On appeal, Miss Mistry argued that the relevant Santander account belonged to the company and that the trial judge had failed to consider evidence supporting that conclusion. The High Court admitted limited Santander evidence and considered whether the account’s ownership displaced the finding of personal liability.

1. Appeal dismissed. The trial judge was entitled to find Miss Mistry personally liable to account for the rental payments.
2. The decisive issue was not simply whether the Santander account was personal or belonged to Universal Property Agents Ltd. The relevant question was what had happened to money which belonged to the claimant and was said to be held to its account.
3. Three factors justified the finding of personal liability: the company had admitted holding the money for the claimant but had not accounted for it; the money had not been paid to the claimant in the ordinary course of business; and Miss Mistry, as sole director, had absolute control of the company and the bank account.
4. Where money belonging to the claimant was held in a company account, it could still be treated as money held on trust for the claimant. In the absence of payment, proper disclosure or a satisfactory explanation, the judge was entitled to infer that Miss Mistry had caused the money to be paid out to herself or used for her own purposes.
5. The account’s ownership was relevant but not conclusive. A finding that it was Miss Mistry’s personal account would have supported personal liability, but a finding that it was the company’s business account would not have altered the result in light of the other evidence.

• High Court (Queen’s Bench Division): Appeal from the judgment of HHJ Gregory in the Coventry County Court dated 9 May 2018. Appeal dismissed.
• Permission to appeal: Permission was initially refused by Mr Justice Jeremy Baker and subsequently granted by Andrews J on a narrow ground concerning Miss Mistry’s personal liability for the rental payments.