Davies v Ford

This is a first-instance Chancery claim about alleged diversion of a waste-management business from a company restored to the register, Greenbox Recycling Ltd (GBR), to a new company Greenbox Recycling (Kent) Ltd (GBRK) controlled by two former directors. The court focused on directors’ fiduciary duties under Companies Act 2006 (notably s.175 and s.172), the availability of equitable/proprietary remedies (constructive trust and account of profits), and limitation under the Limitation Act 1980 s.21. The judge found that the second defendant, Mr Monks, placed himself in a position of conflict and was dishonest in the steps he took to cause GBRK to take over operations; that company funds were used to clear the Ashford site in a way that benefited GBRK; and that those acts amounted to breaches of fiduciary duty under s.175 CA 2006.

Because the misuse of GBR funds and the diversion were dishonest, the fraud exception to the six‑year limitation under LA 1980 s.21 applied to relevant claims against Mr Monks and they were not time‑barred. Relief under Companies Act 2006 s.1157 was refused because Mr Monks had not acted honestly and reasonably. The court also held that claims against GBRK in knowing receipt are subject to the ordinary six‑year limitation and that restoration to the register (CA 2006 ss.1029–1032) did not automatically render former directors continuously subject to fiduciary duties in the broad way contended for by the claimant.

Nature of the proceedings and relief sought

• The liquidators of Greenbox Recycling Ltd restored the company and assigned to Mr Davies causes of action against former directors and a related trading vehicle (GBRK). The claimant sought declarations and equitable relief (including constructive trust and an account of profits), and default judgment against Mr Ford.

Key factual background

• GBR was intended to take over and trade the waste business operating from the Ashford site. Two men, Mr Ford and Mr Monks, became directors and minority shareholders of GBR. In January 2011 Mr Ford and Mr Monks incorporated GBRK and began to operate the business from the same site.
• There was considerable informality in the ownership and finance arrangements before the events in issue: site ownership, vehicle and plant finance, waste-permit arrangements and customer records were split across entities. The formal documents envisaged in heads of terms were not completed.
• The Ashford site was in poor regulatory and physical condition and required substantial clearance. Some payments from GBR’s bank account were applied in early 2011 in relation to site clearance and GBRK thereafter obtained the environmental permit and an operator’s licence.

Procedural posture

• These findings were reached at the first-instance liability trial. Issues were bifurcated so that quantum of any equitable or proprietary interest is reserved to a later hearing.

Legal issues framed by the court

1. Whether Mr Monks breached contractual and/or fiduciary duties to GBR (CA 2006 ss.171–175, in particular s.175).
2. Whether GBRK is fixed with relevant knowledge so as to be liable in knowing receipt.
3. Whether the business conducted by GBRK is derived from GBR and therefore held on constructive trust.
4. Whether claims are time-barred under the Limitation Act 1980 (including the s.21 exceptions for trust property and fraud).
5. Whether equitable defences (laches, clean hands) or relief under CA 2006 s.1157 apply.
6. Whether an equitable allowance is payable to Mr Monks if an account of profits is ordered.

Court’s reasoning and conclusions

• The court analysed the duties in CA 2006 (emphasising s.175, the no‑conflict/no‑profit rule) and noted the well‑established equitable principle that a fiduciary must not exploit an opportunity in which his principal has an interest, even if the principal could not itself have exploited it.
• The judge concluded that Mr Monks had put himself in an obvious position of conflict by causing GBRK to be formed and by taking steps that enabled GBRK to obtain the permit, vehicles and occupation necessary to trade. The court found significant and probative dishonesty and evasiveness in Mr Monks’ evidence on central points.
• The court applied the Limitation Act 1980 s.21 analysis distinguishing (i) misapplication of pre‑existing company property (to which s.21(1)(b) applies and removes the six‑year bar) and (ii) breaches that give rise to constructive trusts or disgorgement of unauthorised profits (for which the ordinary six‑year period applies unless there was fraud). The judge found that the use of GBR funds to clear the site and related steps converting company funds to GBRK’s benefit involved misapplication and, because of dishonesty, fell within the fraud exception so were not time‑barred.
• Relief under CA 2006 s.1157 was refused because the statutory requirement that the officer have acted honestly and reasonably was not met. The court declined the claimant’s broad argument that restoration of GBR meant the former directors were deemed to have owed continuous duties throughout dissolution in a manner that makes every subsequent act by GBRK automatically a continuing breach; the judge held that the deeming provision does not extend the directors’ duties in that blunt way.
• The judge rejected pleas of laches and of claimant unclean hands, and found that, on the evidence, an equitable allowance might be payable in principle but its quantum and interaction with any account of profits require further (quantum) inquiry.
• The court refused late permission for the first defendant (Mr Ford) to defend and ordered that, in consequence of his default and the findings against Mr Monks, judgment in default should be entered against him.

Claim succeeded. The court held at first instance that Mr Monks had breached his fiduciary duties (notably s.175 Companies Act 2006) by placing himself in a position of conflict, and had acted dishonestly in steps that transferred benefits to GBRK and used GBR funds to clear the Ashford site for GBRK’s benefit. Because those acts involved dishonest misuse of company property the fraud/exception to limitation applied and the claims against Mr Monks were not time‑barred. Relief under CA 2006 s.1157 was refused because he had not acted honestly and reasonably. The court also refused to construe restoration as imposing the extensive continuing duties to which the claimant had urged it, and reserved quantification and any proprietary remedies for a later hearing. Default judgment was allowed against Mr Ford.