John McCarthy v Ivor Desmond Marshall & Anor

Where an assignee brings a company’s claims against a director, the assignee takes the claims subject to the same substantive and evidential rules as the company. The claimant must prove the transaction, the breach and, where limitation is avoided under section 21 of the Limitation Act 1980, fraudulent breach in the sense of dishonesty. Once receipt of company assets is shown, the director must explain why the receipt was proper or repayment occurred, but failure to explain does not itself prove fraud. Ratification requires positive agreement by all members; acquiescence is insufficient. An assignment limited by identified claims does not permit a general account or investigation into the company’s affairs. Errors, missing records and poor bookkeeping do not, without more, establish fraud.

The claimant, an assignee of claims belonging to Emerald Meats (London) Ltd and Emerald Properties (London) Ltd, sued their former director, Ivor Desmond Marshall, and his company, Mulberry International Ltd. The claims concerned alleged misappropriation of company money and assets, including an Aston Martin, rental income, personal expenditure, trading funds and stock. A separate Airtricity claim was brought personally.

The court considered the scope of the assignment, limitation, fraudulent breach of fiduciary duty, ratification, evidential burdens, adverse inferences from missing documents and the individual claims. The central questions were which claims had been assigned and whether the alleged breaches were fraudulent and proved on the balance of probabilities.

1. Applicable legal framework. The claimant could pursue only the claims assigned by the deed. Its recitals, the court orders giving rise to it and the detailed schedules to the draft particulars defined that scope. References to accounts and inquiries were remedies attached to identified claims, not a licence to conduct a general review of the companies’ affairs.
2. Fraud and limitation. Applying Armitage v Nurse [1998] Ch 241, fraudulent breach required dishonesty, including acting knowing that the conduct was contrary to the company’s interests or being recklessly indifferent to that question. The approach in Ivey v Genting Casinos [2017] UKSC 67 was not inconsistent. The claimant had to prove fraud; absence of a satisfactory explanation did not automatically establish it.
3. Burden of proof and ratification. Once receipt of company assets was proved, the director had to show that the receipt was proper or the assets were repaid. The claimant nevertheless retained the burden of proving fraudulent breach. A defence based on shareholder agreement or ratification had to be proved by the defendant. Ratification required positive agreement by all members; mere acquiescence was insufficient.
4. Evidence. An adverse inference from missing evidence required proof that the evidence existed, that the opposing party was responsible for its non-production where relevant, and identification of the precise inference sought. Routine destruction or absence of records did not justify an inference of fraud. The court could nevertheless decide an issue against a party who relied on an unproved assertion.
5. Claims. The court found fraudulent breaches in relation to specified US-dollar and sterling expenditure, Upper Shirley Road rent, the unauthorised and substantially undervalued Aston Martin disposal, IG Markets payments and one euro payment relating to the Nice property investment. The Aston Martin claim was remedied by equitable compensation rather than rescission. The Airtricity, stock and cash claims failed, as did claims outside the assignment or unsupported by proof.
6. Disposition. The successful claims were capable of compensation by damages or equitable compensation without a general inquiry and account. The broader allegations of systemic false accounting and destruction of documents failed on their merits and, in any event, were not assigned claims.