IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 11th April 2001
B e f o r e :
THE HONOURABLE MR JUSTICE PATTEN
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(Claimants)
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(Defendant)
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Mr. J. Clifford (instructed by Harding Evans,
Newport, S.Wales for the Claimants)
Mr. Howard Day in person
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1. Fayers Legal Services Limited ("FLS") which is the first named claimant in this action, was incorporated on 19th April 1993. It was set up by Mr. Clive Fayers who had previous carried on business as an insurance broker through the medium of a group of private companies owned and controlled by him. The principal trading company in the group appears to have been Fayers Financial Services Limited ("FFS"). By 1993 FFS was the subject of a CVA and this was followed on the 1st September 1993 by an IVA in respect of Mr. Fayers himself. Notwithstanding this between October 1993 and the end of 1996 Mr. Fayer's solicited and obtained some £1.6 million of investment in FLS. The investors were largely individuals who had previously purchased pensions and other investment products from FFS. The ostensible business of the company was the financing of litigation on behalf of claimants who were ineligible for legal aid but were unable to fund the litigation out of their own resources. The investors were told that only cases with a high likelihood of success would be taken on and the cases would first be vetted by a panel of barristers to assess the chances of success. The claimants, in return for the finance provided by FLS, would agree to pay to the company a significant proportion (perhaps as much as 30% or 50%) of the damages obtained. Investors were promised a return on their money of about 20% per annum.
2. The reality was quite different. During the period of its operation FLS appears to have been involved in no more than a handful of cases. One of these (the Roberts case) was struck out as an abuse of process; another (the Taylor case) realised less than £100,000 and is the subject of a dispute as to whether any agreement for the payment of a proportion of the sum recovered was made with FLS. A third case (the Legal & General claim) was estimated by Mr. Fayers to be worth as much as £12 million. To date no writ or claim form has even been issued.
3. Of the £1.6 million received from investors at least £500,000 can be shown to have been paid direct to Mr. Fayers and his family for their personal use. A further £384,887 was paid by FLS (at the direction of Mr. Fayers) into two accounts in the names of Anderson Stuart & Co. and St. Leonard's Farm Limited. These accounts are said by the claimants to have been controlled and operated by the defendant, Mr. Howard Day. Mr. Day also received £88,325 personally. A very large proportion of the monies paid into the two accounts I have referred to was then utilised by Mr. Day to meet various expenses incurred by Mr. Fayers and his family.
4. The claim against Mr. Fayers was that the entire FLS operation was a fraud and that most of the money invested was diverted by Mr. Fayers out of the company to finance his own extravagant lifestyle. In proceedings for summary judgment Collins J said that he was wholly satisfied that Mr. Fayers had been operating a fraudulent enterprise and gave judgment against him for £962,562 which was the minimum sum which the learned judge was able on the evidence to find had been misappropriated without the need for the taking of a more detailed account. Collins J also held that Mr. Day was liable for the sum of £473,237 on the basis of knowing receipt. Both Mr. Fayers and Mr. Day were given permission to appeal on terms that they each provided security for the costs of the appeal. Mr. Fayers failed to provide the necessary security and his appeal was dismissed. Mr. Day did provide security and on 9th December 1999 the Court of Appeal allowed his appeal in respect of the £384,887 paid in to the Anderson Stuart & Co. and the St. Leonard's Farm Limited accounts. It did so on the basis that there was a triable issue as to whether payment of the monies into these accounts constituted the receipt of those sums by Mr. Day beneficially: i.e. was he to be treated as the alter ego of Anderson Stuart & Co. and St. Leonard 's Farm Limited. In relation to an alternative plea that Mr. Day was liable for knowingly assisting a breach of trust by Mr. Fayers the Court of Appeal felt that the issue of dishonesty raised by that plea required to be tried.
5. Following that judgment the claim has been amended and reconstituted. Whereas it was previously a derivative action brought by 38 named plaintiffs (who accounted for £1.031 million of the monies invested in FLS) it is now a claim by the company. The claims now formulated against Mr. Day are that he knowingly received the monies paid into the Anderson Stuart and St. Leonard's Farm Limited accounts and knowingly assisted Mr. Fayers to commit a breach of trust both in relation to the sums (presently quantified at £489,325) paid by the company directly to Mr. Fayers and his family and also in respect of the whole or part of the £384,887 paid into the two accounts to which I have just referred most of which it is alleged was used to assist Mr. Fayers personally. As an alternative to the knowing assistance claim it is said that Mr. Day (with Mr. Fayers) was a de facto director of FLS and allowed the payments out of the company in breach of fiduciary duty so as to be accountable to the company on that basis as well.
6. In addition to this there is a claim by one of the investors, Mrs. Patricia Taylor, for the return of the sum of £10,000 which she says was paid to Mr. Day as a result of deception by him and which has been withheld from her despite demand for its payment.
7. The one issue common to all three claims against Mr. Day by FLS is the legality of the payments made by the company from 1993 until the end of 1996. FLS was incorporated as a private company on 19th April 1993 with an authorised share capital of £100. 99 of the shares were issued to Mr. Fayers and the remaining share was held by his wife, Angela Fayers, who also acted as the company secretary. Mr. Fayers is the only director recorded in the return for 1994/95 but he would have been ineligible to hold office as a director following his IVA in September 1993 and there is no evidence to show that the company there after ever had any properly appointed directors or ever held anything even approximating to a board meeting. In the return for 1994/95 the issued share capital is shown as £430,000 and a list of shareholders is attached. Beyond this, however, no books or records of the company were produced in evidence and I was told by Mr. Clifford for the company that no resolutions have been found authorising any salary for Mr. Fayers in the sum of £175,000 as alleged before Collins J or in any other sum. Nor has any obvious authority been discovered for the various payments made both to him and to or for the benefit of him and the other members of his family.
8. Given the existence of outside shareholders one would expect the salary and expenses of any directors to have been disclosed to and authorised by a properly convened meeting of the shareholders. As it is no such meetings were ever called and no such authority was either asked for or obtained. Moreover all the payments to Mr. Fayers and others were made out of shareholders' capital. During the period in question there is no evidence that FLS had any income at all. Added to this FLS was struck off and dissolved in January 1995 for failing to file accounts. It was restored to the register on 15th September 1995. This fact does not appear to have been disclosed by Mr. Fayers to the members of the company and FLS continued to solicit investment in the meantime regardless of the circumstances.
9. Most of the investors in the company were long standing clients of Mr. Fayers from his days as an insurance salesman. Some had dealt with him (without complaint) since the 1980's. It is clear that at least in its early years FFS had been a successful business and there was evidence before Collins J that FFS and another Fayers' company, Fayers Mortgage Services Limited ("FMS"), employed some 40 full time agents at the peak of their activities in the early 1990's. Mr. Fayers' evidence was that in 1988 he had been able to sell some 10% of his companies to the Legal & General Assurance Society Limited ("Legal & General") for the sum of £400,000. The sale agreement was also said to have included a put option under which Mr. Fayers was entitled to require Legal & General to purchase the remainder of his shares in the companies for a price of some £3.6m. As I understand his allegations Mr. Fayers claims that he exercised the put option in about 1990 and in order to avoid being required to purchase the companies Legal & General terminated its agency agreements with FFS and FMS and cancelled policies arranged with it through them. This had the effect of triggering an obligation to repay the commission which Legal & General had already paid under each such policy to the agent and which then became a debt payable by FFS or FMS to Legal & General. On the basis of these debts totalling some £1 million, which FFS and FMS were unable to repay and which have not been recovered from the agents who received them, Legal & General presented a petition for a compulsory winding up order and obtained the appointment as provisional liquidator of Mr. Steven Frieze, a partner in Messrs. Brooke North, a firm of solicitors in Leeds. Mr. Frieze ascertained that Mr. Fayers had personally guaranteed the liabilities of FFS to Legal & General and had also guaranteed a loan of some £600,000 from Barclays Bank Limited who held a charge over FFS's office premises. Mr. Frieze advised Legal & General that they would be more likely to recover the monies owed to them by FFS and FMS if they allowed Mr. Fayers to continue to trade via FFS. The profits of that business could then be utilised to pay the company's debts. The creditors therefore consented to a CVA for FFS to be supervised by Mr. Frieze. Legal & General no longer wished to deal with Mr. Fayers or his companies but Mr. Fayers told Mr. Frieze that he now had an alternative agency for himself with Royal Life. This apparently produced some £72,000 for the CVA over time but the income from this source then ceased. To avoid personal bankruptcy Mr. Fayers (on the advice of Mr. Frieze) then proposed an IVA under which the sum of £250,000 would be paid to his creditors in discharge of his debts. Mr. Frieze's evidence is that he was told by Mr. Fayers that this sum would be borrowed from his brother, Richard Fayers, and would be paid by instalments over a period of less than a year. The IVA came into effect on 1st September 1993 with a deadline for payment of 1st January 1994. In all only some £20,000 was received from Richard Fayers in this way. Later cheques were proffered but were returned by the bank uncleared. Ultimately the IVA failed and Mr. Fayers became bankrupt on 4 th March 1997. It was in the intermediate period between the commencement of Mr. Fayers' IVA and his eventual bankruptcy that the events with which this action is concerned took place.
10. I shall return to these events in more detail later in this judgment when I come to analyse the role played by Mr. Day in the history of FLS. For present purposes it is enough to recall that FLS came into being at a time when the business of FFS had collapsed and when Mr. Fayers was heavily indebted to Legal & General and to Barclays Bank. It is clear from Mr. Frieze's evidence (which I accept on the points already mentioned) that Mr. Fayers had no realistic prospect of being able to avoid personal bankruptcy and the loss of his home and lifestyle unless he could obtain finance from a new and alternative source. It is unrealistic to regard the setting up of FLS as unconnected with these circumstances. Mr. Fayers was called by Mr. Day to give evidence. In his witness statement he says that FLS was conceived on a business trip to New York at the expense of Royal Life. This trip included travel by the QE2 and Concorde plus first class hotel accommodation. The scale of the expenses involved is relied upon by Mr. Fayers as evidence, he says, of his credibility in the eyes of Royal Life and as an indication of the regard in which he was held in the financial services industry.
11. I have no doubt that Mr. Fayers had by 1993 become accustomed to a certain standard of living which he regarded as in keeping with his reputation as a successful insurance broker. It was also clear from his evidence to me that he nurses a deep resentment against Legal & General for the collapse of FLS and his previously profitable business. But I am also satisfied that FLS was set up as a means of pursuing his complaints against Legal & General whilst at the same time maintaining Mr. Fayers in a lifestyle which he could no longer otherwise afford. The facts really speak for themselves. Mr. Fayers approached a number of long standing clients and invited them to invest monies in FLS. They were told that it was a new venture and that suitable cases were being investigated. As I have already mentioned the expected returns were said to be high. A number of the clients approached invested in FLS. In some cases they were encouraged to introduce the company and its investment prospects to their friends. At least two witnesses, Mr. Hayden Kelly and Mr. Brian Lovell, were invited to sign contracts under which they would receive a commission for any future business they were able to introduce. In other cases the arrangements were less formal. Mr. Frank Houghton invested some £40,000 in FLS at the end of 1993 and was encouraged to mention FLS to his friends and colleagues who worked with him at the Foreign Office. There is evidence that Mr. Fayers also used the fact that people like Mr. Houghton had already invested in the company as a way of encouraging and inducing other clients to part with their money and invest in FLS.
12. Mr. Houghton told me (and I accept) that the Legal & General claim was not immediately mentioned to him as one of the cases being underwritten by FLS. Nor did Mr. Fayers disclose that it was his own case. But at a meeting of shareholders held at the Conrad Hotel in London on 24th January 1996 Mr. Fayers said that there was a selection of fully funded cases in litigation two of which were for substantial sums and were near to completion. The current profit projected from these cases was of the order of £13 million. Similar statements were made at a subsequent meeting of shareholders held on 22nd February 1996. Although the Legal & General claim was not mentioned in terms the figure of £13 million is the estimate which Mr. Fayers gave of the likely compensation in that case and in cross-examination he accepted that the £13 million was largely made up of this claim. He also said that the whole essence of FLS was to fund the Legal & General claim and that all the investors were aware of this. Other cases came along later but they were subsidiary.
13. During the course of the meeting at the Conrad Hotel Mr. Fayers also referred to the Roberts and the Taylor cases. The Roberts case was said to have reached a critical stage with an offer of £700,000 having been rejected on legal advice on the basis that a claim for a much higher amount would be successful. According to Mr. Fayers success was guaranteed if further funding in excess of £100,000 could be obtained. The claim was for £3.9 million. By then (unbeknown to the shareholders) leading Counsel (Nicholas Davidson Q.C.) had already advised that the claim was unlikely to succeed and an application was pending to strike out the statement of claim which was subsequently successful. Mrs. Taylor's claim was also mentioned by Mr. Fayers as being expected to yield a return in the order of £1.4 million. In fact Mrs. Taylor later received in cash less than £100,000.
14. Before me Mr. Fayers sought to explain his statements about the Roberts and the Taylor case by relying on what others had told him. The information about the Roberts case was, he said, based on statements made to him by Mr. Eamon Forsdike, the solicitor who was dealing with the matter on behalf of FLS. I shall come to Mr. Forsdike's role in some detail later in this judgment when I turn to consider the part played by Mr. Day in the affairs of FLS. Suffice it to say that Mr. Forsdike was not asked to give evidence and there is nothing to explain why he should have lied to Mr. Fayers about the current position in relation to the Roberts case. Other evidence including a detailed analysis by Mr. Day of the work carried out for Mr. Fayers indicates that there was in fact a discussion between him and Mr. Fayers in 1995 long before the Conrad Hotel meeting about the strike out application in the Roberts case. The estimate of the likely recovery in the Taylor case appears to have been based on Mr. Fayers own assessment of the value of the Taylors' former matrimonial home and their other assets and investments. But again no evidence was given to substantiate these values or to suggest that they had been confirmed by Mr. Day or anyone else dealing with the case.
15. Although Mr. Fayers stressed to me on a number of occasions during his evidence that he intended to pursue the Legal & General claim and had never intended to defraud any of the investors in FLS I am more than satisfied, as was Collins J, that Mr. Fayers has been completely dishonest in this enterprise. It is clear beyond doubt that FLS was set up as a convenient means of pursuing his grievances against Legal & General at no cost to himself whilst at the same time continuing to provide him with an extravagant lifestyle funded entirely by investors in the company. I do not believe that FLS pursued or was ever intended to pursue more than a handful of other cases and most, if not all of these were introduced by clients of Mr. Fayers or were conducted (such as the Taylor case) for people who were already clients. They were selected on an entirely random basis or possibly no basis at all and they simply provided a convenient amount of window dressing designed to persuade both existing and would be investors that FLS was a genuine business. To this end Mr. Fayers was content to make the most extravagant claims about the prospects of success in such cases as is evidenced by the agreed note of what he said at the Conrad Hotel. It is clear to me that he made these representations either knowing them to be false or at the very least not caring whether they were true or false. In the case of the claim against Legal & General no action has so far been taken to issue any form of civil proceedings for the recovery of the sums allegedly due notwithstanding that the events complained of took place almost ten years ago. The best that Mr. Fayers was able to come up with was an assertion, unsupported by any documentary evidence, that he had obtained some favourable rulings from the FSA. When pressed for this documentation he said that the FSA had declined to provide the material because of the inhibitions imposed upon them by s.47 of the Financial Services Act. Later in the trial Mr. Day produced correspondence which indicates that there had been no such refusal nor does s.47 affect the matter. The FSA have declined on grounds of confidentiality to provide details of information obtained during the course of their investigations into the complaints made against Legal & General by Mr. Fayers. But that correspondence strongly suggests that no determination of any such complaints has yet been made nor does it indicate that the outcome is likely to favour Mr. Fayers.
16. No evidence has been put before me to suggest that there is anything in the claim against Legal & General and Mr. Fayers' failure to institute proceedings against the company is strong evidence that the claim is without any real foundation. Mr. Day's evidence to me was that to date his own investigations (which only began in 1997) have not revealed anything to substantiate the claims of conspiracy and breach of contract relied upon by Mr. Fayers. But of more importance is the fact that nothing was done between 1993 and 1996 seriously to progress those claims. Mr. Fayers told the meeting at the Conrad Hotel that the Legal & General claim for £13 million was near to completion. This was untrue and Mr. Fayers must have and in my judgment did know that this was false. But by representing to investors that FLS was in the process of realising substantial claims he was able to induce investors to part with yet more money and to feed his limitless capacity for rich living. The history of his expenditure in this period is remarkable. Although a complete analysis of what became of investors money has not been possible on the material available the evidence does show that between April 1993 and February 1997 at least £400,406 went direct from FLS to Mr. Fayers and a further £88,919 was paid to his family. No attempt was made by Mr. Fayers to explain or justify these payments and he expressly declined an invitation by Mr. Clifford to rely upon his affidavit sworn in the Order 14 proceedings before Collins J. All he did say in evidence on this subject was that he was entitled to draw a salary of £175,000 per annum. As I have already indicated there is no resolution of or agreement with FLS for the payment of any such salary and after September 1993 Mr. Fayers could no longer be a director of the company due to his IVA. But his attitude to drawings was both candid and noteworthy. He said that he had agreed to return 50% of the Legal & General claim to FLS and its shareholders and he therefore believed that he was entitled to the money he took from the company. Accordingly he took it. What he did not choose to explain was how he was able to justify to the company and its shareholders the use of most if not all of the money invested in order to meet his personal expenditure when it had been invested to allow the company to carry on the business of funding litigation.
17. There is no real evidence before me that any significant sums out of the monies invested in FLS were in fact used for proper purposes in connection with the business of the company. All of the litigation undertaken by FLS was channelled through Anderson Stuart & Co. which in turn used the services of Mr. Forsdike and a firm of solicitors in Abergavenny, Messrs. Vincent Roe & Company. As part of his evidence in the Order 14 proceedings Mr. Day produced a schedule of some 66 pages which he said had been composed from time records maintained by Anderson Stuart & Co. This is said to be a complete record of all the work which Mr. Day and all the members of Anderson Stuart & Co. carried out for Mr. Fayers and FLS during the period from March 1994 until the end of 1996. Almost all of the work described in the schedule appears to have been carried out on matters personal to Mr. Fayers or members of his family. Early entries in 1994 include such matters as dealing with Mr. Fayers' IVA and negotiating with Mr. Frieze. There are entries in June 1994 about arranging a £20,000 loan to Mr. Fayers and in August of that year a reference to sorting out problems Mr. Fayers was having in the payment of electricity and gas bills. In the same month Mr. Day was asked to deal with a claim by a hire purchase company, North West Securities, to repossess a BMW car belonging to Mr. Fayers. In September and October 1994 Mr. Day became involved in mortgage possession proceedings brought against Mr. Fayers in the Watford County Court. In 1995 similar problems arose in relation to car rentals and mortgage payments. The picture emerges of Mr. Fayers running from one crisis to another and being assisted by Mr. Day in fending off the claims of his many creditors. It is perhaps indicative of Mr. Fayers almost reckless disregard for any measure of financial restraint that whilst Mr. Day was trying to resolve Mr. Fayers' mortgage problems in the summer of 1995 he was then asked by Mr. Fayers to sort out a new problem which had arisen regarding payment for a racehorse. The entry for September 22nd 1995 recalls that: "Clive phoned at 9am with the horrendous list of payments to be made on his behalf and urgent to deal with his lease at London." This was the lease of an expensive flat in the development at Chelsea Harbour. Three days later Mr. Fayers told Mr. Day that he needed £5,000 in connection with the purchase of a new Jaguar car. He then asked Mr. Day to obtain £13,500 in connection with the lease of the Chelsea Harbour flat. In January 1996 there is a note of Mr. Fayers telephoning to say that his lack of cash was making things impossible but that he was expecting cash very soon. This was shortly before the meeting at the Conrad Hotel where he made a number of false representations to induce further investments in FLS. Later in that y ear there are numerous other references to demands for payment of various bills including counsel's fees in relation to the Roberts case. But apart from a few scattered references to working on Mrs. Taylor's case there is nothing in this entire schedule to suggest that any of the work carried out by Mr. Day and others at Anderson Stuart & Co. was in connection with what could be regarded as the legitimate business of FLS. On the contrary the schedule (even if accurate) shows very clearly that Mr. Day spent most of his time sorting out Mr. Fayers' numerous and recurring financial crises at the expense of FLS. I am satisfied that this was a clear breach of duty by Mr. Fayers as a de facto director of FLS and that none of the payments made to him or to Mr. Day whether personally or through the accounts of Anderson Stuart & Co. and St. Leonard's Farm Limited were authorised or lawful. It is clear that Mr. Fayers treated FLS as his private bank account and felt free to disperse its money for his own benefit regardless of the interests of the company or its shareholders. In his closing submissions to me Mr. Day accepted that all of the payments made to him and to the two bank accounts I have referred to were acts of misfeasance and a breach of trust by Mr. Fayers. The only issue therefore which I have to decide is whether Mr. Day should be made to account for those and any other authorised payments made out of the investments in FLS.
The early history of Anderson Stuart & Co.
18. Mr. Day's evidence is that by 1974 he had built up a successful business as a farmer and agricultural contractor based at Nazeing in Essex. This business expanded in the late 1970's to include consultancy work for a local company which even extended to the running of nightclubs. In 1978 the agricultural contracting business was sold and Mr. Day was left to concentrate on his own farming interests and on consultancy work which was largely but not exclusively agricultural in nature.
19. Between 1984 and 1990 his farming activities predominated. In September 1983 Mr. Day and others acting as trustees acquired St. Leonard's Farm in Nazeing for the trusts of a family settlement which he had set up at that time for the benefit of his wife and six named children. These included his sons Jonathan, Richard and Timothy who were then aged 14, 13 and 11 years respectively. One of Mr. Day's co-trustees was Mr. John Thorpe, an accountant, who also gave evidence before me. Mr. Thorpe is a long-standing friend of Mr. Day's family. His own evidence was that he had known Mr. Day since about 1967 and is considered to be and has been treated as a member of his family. He has assisted Mr. Day in court during this trial. Between 1984 and 1992 Mr. Thorpe was in practice as a chartered accountant based in Harlow and Broxbourne in partnership with a Mr. Arthur Howard. In 1992 he became bankrupt due, he said, to being called on various guarantees which he had given in relation to his partner's business interests. It was at this time that Mr. Day stepped in. According to Mr. Day he was asked by Mr. Thorpe in 1991 to assist him in dealing with the difficulties caused by Mr. Howard and it was in these circumstances that the firm of Anderson Stuart & Co. came into being. Mr. Day says that Anderson Stuart & Co. ("ASC") took over the care and conduct of Mr. Thorpe's accountancy practice with the assistance of Mr. Thorpe and four other members of staff. Therefore despite being unable to continue in practice as a chartered accountant due to his bankruptcy Mr. Thorpe was able to continue to deal with his clients' affairs under the auspices of the ASC name.
20. This is confirmed by a certificate of registration for VAT produced by Mr. Day during the trial. On 1st May 1992 the certificate was issued with effect from 6th March 1992 to Mr. Day as sole proprietor of ASC with an address in Broxbourne, Hertfordshire. It is therefore clear (as Mr. Day accepts) that ASC was then a trading name for Mr. Day and nothing more. In April 1993 Mr. Day sold what he described as the "client bank" to a firm called C. Dennis & Co. Thereafter very little work was conducted by ASC until 1994. In part this was due to the fact that Mr. Day was involved in a shooting accident at the end of 1992 and was unable to work for about a year. Once the continuation of Mr. Thorpe's accountancy business had been disposed of there was little to do.
21. However in February 1994 whilst ASC remained dormant Mr. Day states in his affidavit that he was approached by his sons, Richard and Timothy, who wished to take over and develop the ASC business. This is the commencement of the period during which Mr. Day says that he first had dealings with Mr. Fayers. According to his affidavit Richard and Timothy had become acquainted with Mr. Eamon Forsdike, a solicitor previously practising in Epping, who would be brought into ASC to join Mr. Thorpe. At this time, in part due to his ill health, Mr. Day says that the only work he was personally involved in was the investigation on behalf of a Mr. Brealey into some money which he had paid to Mr. Richard Fayers. I shall come to this in a moment.
The incorporation of Anderson Stuart Limited
22. From April 1994 ASC was according to Mr. Day being run by his two sons with Mr. Thorpe and Mr. Forsdike. Later that year they proposed incorporating ASC into a limited company and Anderson Stuart Limited ("ASL") was set up in October 1994. From then on Mr. Day operated as a consultant to that company and he produced as an exhibit to his affidavit what purports to be his contract with ASL. This early history is principally relevant to the claim in knowing receipt. Mr. Day denies in his affidavit that he received any of the monies paid into the ASL account beneficially and he was given leave to defend by the Court of Appeal on this issue. The same goes for the monies paid by FLS or Mr. Fayers into the St. Leonard's Farm Limited account. It is therefore necessary for me to make a number of findings in relation to ASC, ASL and the relationship of Mr. Day to these businesses after April 1994. The first thing that requires examination is the alleged involvement of his two sons, Richard and Timothy. In April 1994 they were 23 and 21 respectively. Neither gave evidence before me and I know nothing of their character or qualifications. What I was told (by Mr. Day) was that in 1993 the trustees of St. Leonard' s Farm were asked to sell about 62 acres of land to the Lea Valley Regional Park Authority. The sale was completed in April 1994 for a total consideration of £235,000 out of which sum £87,086.82p was transferred by the trustees' solicitors, Messrs. Singletons, into Mr. Day's personal account with the Nationwide Building Society. The trustees carried on the business of St. Leonard's Farm through an account in the name of St. Leonard's Farm Limited with the Midland Bank in Hitchin. This is the account in to which some of the payments from FLS were made. At the time of the sale of the land in April 1994 this account was overdrawn by some £675,000. In return for releasing its charge over the 62 acres sold the Midland Bank received the sum of £106,531 out of the proceeds of sale in reduction of the overdraft. Mr. Day said that the bank had agreed to release the £87,086.82p paid to Mr. Day but I have received no independent evidence of this from the bank and the statement of account produced by Singletons refers to the £87,086.82p as paid "To Trustees – CGT/Commission/Crops and other costs". Mr. Day was unable to give any satisfactory explanation about this and I am far from satisfied that the monies were released by the bank in the knowledge that they would be utilised by Mr. Day for his own purposes. However of more immediate relevance is the way in which the sale was handled.
23. Mr. Day told me that when the sale to the Park Authority was mooted his son Richard became involved. He also dealt with an application for permission to create a golf course at St. Leonard's Farm which took place some time in 1994. I know little or nothing about Timothy Day's role in ASC or ASL or in the matters I have referred to. But what is clear from the correspondence in relation to the sale of the land to the Park Authority is that Mr. Howard Day was the person with whom the authority corresponded and to whom Singletons looked for instructions. Although Richard may have had some involvement in the 1994 sale he plainly was not the person in charge. As will become apparent when I consider the subsequent history of ASL and ASC neither Richard nor Timothy ever played more than a minor or subsidiary role in the conduct of those businesses and the work which was done for Mr. Fayers. It is also not correct that Mr. Day continued after 1994 only as a consultant to ASL. During his evidence he accepted that the consultancy agreement I have referred to never represented the true relationship between him and ASL and was never given effect to by the parties. On the contrary he asserted that there was a close working relationship between everyone involved in ASC/ASL and that there were no secrets between them. The account of these matters set out in Mr. Day' s affidavit therefore represents a substantial mis-statement of the true position.
The Anderson Stuart Bank account
24. Of particular relevance to the claim in knowing receipt is the Anderson Stuart Bank account. Mr. Day's evidence (which I accept on this point) was that during the period when ASC was running Mr. Thorpe's accountancy practice it operated a bank account with Barclays Bank at their branch in Cheshunt. This account was closed in 1993 when the accountancy business was sold and thereafter the only accounts operated by Mr. Day were his Nationwide Building Society account and the St. Leonard's Farm Limited account with the Midland Bank. Any banking operations for ASC were conducted through the St. Leonard's Farm Limited account.
25. In December 1994 Mr. Day and his son Richard opened a new account in the name of ASC with the Midland Bank in Hitchin. Mr. Day's evidence was that the forms had already been filled in by the bank and that he did not give much thought to the details. However he confirmed that the purpose of these new banking arrangements was to provide an account for ASL and that his son Richard had taken to the bank the memorandum and articles of association of the company for this purpose. Thereafter this account was operated as a company account for ASL. I am unable to accept this evidence. It seems to me most unlikely that the Midland Bank would have opened an account in the name of ASC if it was to be the bank account for ASL. It is noteworthy that the person who filled in the application form also wrote on it that cheques were to be accepted for Anderson Stuart & Associates which is another name under which those at ASC carried on business yet failed to make any mention of ASL itself. What is more the section in the form specifying the additional information to be provided in the case of limited companies has been crossed through.
26. The evidence therefore points very clearly to this being an account for the general use of what might be termed the Anderson Stuart business rather than a facility for the exclusive use of ASL as a company and in my judgment there was no material change in the way in which that business was conducted following the incorporation of ASL in October 1994. This is confirmed by a number of other matters which were canvassed with Mr. Day during the course of his evidence. There is correspondence throughout 1994 which shows that no clear distinction was ever made between ASL and the other Anderson Stuart trading names. In July 1994 Mr. Day wrote to a Mr. Ellis, one of his clients, welcoming him "as a client of Anderson Stuart." There is a letter to C. Dennis & Co. dated 24th August 1994 (retrieved from the hard disc of Mr. Day's computer) in which Mr. Day writes:
I think it is important to clarify the position regarding Anderson Stuart & Co. This trading entity and its partners, does not carry out an accountancy practice as stated in your letter. It is involved in other business activities outside accountancy and uses its letter heading for matters concerning its accountancy affairs, namely yourselves.
This was a letter apparently written to the firm which took over Mr. Thorpe's accountancy practice.
27. Also retrieved from the computer disc is a letter to the Office of Fair Trading dated 17th October 1994 in connection with a consumer credit licence. This was a week after ASL had been incorporated. Mr. Day wrote:
I write to confirm that Anderson Stuart & Co. was formed in April 1992 and until now, I have not required a Consumer Credit Licence.
I can confirm that I am a sole trader, but I do require the licence to be in the name of the above company.
Mr. Day's evidence was that this letter was never sent and that it was his sons who wanted the licence. According to him they hoped to be able to cancel his licence subsequently and obtain one for ASL. When Mr. Day was then shown a later letter from the OFT confirming that a licence had been granted to him as a sole trader for five years on 30th October 1994 with the business name of ASC he said that he had not dealt with the matter and that it had been left to his sons. I do not accept any of that evidence. The application for the licence is entirely consistent with the details given to the Midland Bank in December 1994. It also confirms that Mr. Day remained very much in charge of the operation notwithstanding the incorporation of ASL. There is a letter in evidence written by Mr. Day to Mrs. Taylor on 14th November 1994 in connection with her divorce. This was one of the cases dealt with on behalf of FLS which I referred to earlier in this judgment. The letter is written on notepaper bearing the name of "Anderson Stuart & Associates" with the address of Willow Lodge, Nazeing which was Mr. Day 's business address throughout the period with which this action is concerned. The form of notepaper used for that letter has a right-hand margin in which is printed various details about Anderson Stuart & Associates. It is described there as "the trading name of Anderson Stuart Limited, part of the Anderson Stuart Group." It is also said to be "in association with Anderson Stuart & Co.". Mr. Day said that he disliked this notepaper and had not devised its format but that did not stop him using it. Similar notepaper was used in 1996 when a dispute arose with Martin Hayes & Company, a firm of valuers, in connection with a valuation which they had carried out on Mr. Day's instructions in respect of a property known as Cherry Hill Cottage, Rickmansworth, which was Mr. Clive Fayers' home. This led to County Court proceedings and a judgment in default was obtained against Mr. Day as a partner in the firm of ASC. Mr. Day was then a bankrupt and this obviously led to enquiries by Martin Hayes & Co. as to whether the judgment could be enforced against other partners in ASC. On 14th February 1996 Richard Day wrote to Martin Hayes & Co. in the following terms:
With respect to your letter, the same relates to the firm of Anderson Stuart & Co. and not this Company. We would also comment we believe the Judgment you have obtained is irregular in so far as at the relevant time there were no other partners in the firm of Anderson Stuart & Co. other than Mr. H. Day and perhaps more importantly, the firm of Anderson Stuart & Company would only have been acting as accountants/management consultants to Mr & Mrs C Fayers who were the proprietors of Cherry Hill Cottage for whom you undertook the valuation requested. ………
You will appreciate any further correspondence you should direct to the Trustee of Mr. H Day who will for the reasons we have detailed no doubt reject the claim you are seeking to pursue.
The letter confirms that ASC remained under the sole control of Mr. Day. It is interesting to note that the letter is written on the same "Anderson Stuart & Associates" notepaper but the side margin has been altered to delete the reference to "in association with Anderson Stuart & Co.". This was obviously thought to be inconvenient in the context of the points being made in the letter.
28. The correspondence I have referred to provides useful examples of how the names of ASC, ASL and Anderson Stuart & Associaties were used interchangeably without any regard for the legal formalities of corporate identity. Mr. Day during his evidence drew my attention to the fact that in June 1995 a certificate of registration for VAT was issued to ASL but in the names of ASL, ASC and Anderson Stuart & Associates all at Willow Lodge. This merely serves to confirm that the business conducted by Mr. Day and his family was a single operation trading under the three names given. I do not accept that this was in any real sense a corporate operation. It is clear to me ASL was incorporated because it was thought useful to have a limited company. Its incorporation was said by Mr. Day to be the idea of his sons and this may be true. But it is obvious from the documentation and the matters I have so far referred to that its incorporation did not impinge on Mr. Day's business activities or the banking arrangements set up in the name of ASC. One is left with the strong impression that Mr. Day continued to run the Anderson Stuart business and was the dominant personality involved. This is confirmed by his dealings with Mr. Fayers and FLS to which I now turn.
The first contact with Mr. Fayers
29. There is an issue as to when Mr. Day's involvement with Mr. Fayers and FLS began. The claimants allege that this occurred in 1993 but Mr. Day insists that it was not until about March 1994 at a time when he was assisting Mr. Terence Brealey in connection with his claim against Mr. Richard Fayers. Mr. Brealey had been in business as a financial advisor and insurance broker since the 1980's. Mr. Day had been a client and at some point he had arranged an endowment mortgage for him. Mr. Brealey was approached by Clive Fayers in 1992 and asked to assist his brother, Richard Fayers to become an Independent Financial Advisor. At Clive Fayers' request Mr. Brealey entered into an agreement with Richard Fayers on 1st May 1993 under which Richard Fayers would introduce business to Mr. Brealey in return for a commission. The agreement contained a provision for these commissions to be repaid to Mr. Brealey within 14 days in the event that the policies to which they related were subsequently cancelled. Pursuant to this agreement various pension policies were taken out including in particular some in favour of Richard Fayers, Clive Fayers and his wife Angela. The commissions were passed to Richard Fayers. The policies issued to the Fayers family were subsequently cancelled but Richard Fayers failed to repay the commissions due. This led to serious financial difficulties for Mr. Brealey who was forced to repay the commissions to the insurance companies out of his own resources.
30. To assist him in recovering what was due from Richard Fayers Mr. Brealey enlisted the help of Mr. Day. He said that he first approached him in either 1992 or 1993 and was introduced by Mr. Day to a Mr. John Allanson who he was told worked at Willow Lodge as a private detective. This was followed by 3 or 4 further meetings culminating in a meeting in 1994 at which Mr. Day is said to have commented adversely on the honesty of the Fayers brothers. Precise details of the dispute between Mr. Brealey and Richard Fayers do not matter. Its importance lies in the investigations which Mr. Allanson carried out into Richard and Clive Fayers. There is no doubt that Mr. Allanson was introduced to Mr. Brealey by Mr. Day as someone who would investigate the Fayers brothers. There is a letter in evidence from Mr. Brealey to Mr. Day written on 4 th March 1994 in which Mr. Brealey refers to work to be carried out by Mr. Day's "investigative collectors". Moreover Mr. Brealey has produced a series of typed reports which were faxed to him in March and April 1994 by Mr. Allanson. Mr. Day does not dispute that Mr. Allanson assisted him in this investigation. One of the reports produced by Mr. Allanson was sent under cover of a letter on the headed notepaper of ASC from Willow Lodge. The reports contain a good deal of speculation and are generally critical of both Clive and Richard Fayers. The report of 5th April 1994 speaks of Clive Fayers having purchased a new Range Rover for some £40,000 and a new racehorse for the same sum. An earlier report of a meeting with a Mr. Lawrence Reynolds records that the Fayers brothers and a Mr. Peter Brown were:
conducting a £5m scam. This is to be done with the aid of a barrister in the north of England and was to do with a legal assistance company called Fayers Legal Services Limited registered at Clive Fayers' home address.
31. Mr. Brealey says that he gained the impression at his meetings with Mr. Day that Mr. Day was familiar with the contents of these reports. He accepted, however, that he did not specifically discuss them with him. Mr. Day denied having seen the reports until the commencement of these proceedings. He said that Mr. Allanson was prone to exaggeration, was a poet rather than a trained private investigator, and that he had now disappeared. Mr. Peter Brown, who was mentioned in the report, said in his evidence that Mr. Allanson's reports relating to Mr. Fayers' racing activities were highly exaggerated and that he (Mr. Brown) had not been involved in any fraudulent activity with Mr. Fayers. But Mr. Brown had invested £100,000 in FLS in 1993 even before it was incorporated and I think now accepts that he has been defrauded.
32. It is unnecessary for me to dissect the Allanson reports with a view to examining their accuracy. I am prepared to accept that much of their content was at the time speculative and that some of the factual information obtained about Mr. Fayers and his lifestyle may be inaccurate. But the overall impression one gets from reading the reports is obviously unfavourable to Mr. Fayers and his brother and suggests dishonesty on his part. I do not believe that Mr. Day was unaware of the contents of these reports at the time. It seems to me most unlikely that reports which were in effect commissioned as part of Mr. Day's investigations on behalf of Mr. Brealey would not have been shown to him at the time they were sent from Willow Lodge. I am satisfied (and I find) that he did see the reports or at least was made aware by Mr. Allanson of their contents. I also accept Mr. Brealey's evidence that Mr. Day appeared to be aware of what they contained. However I am not satisfied from the evidence which Mr. Brealey could give that Mr. Day had dealings with Mr. Fayers before 1994. There is nothing to support this apart from Mr. Brealey's statement that he believed Mr. Day did meet the Fayers brothers in 1993. His recollection of dates was by no means certain and there is no documentary evidence or diary entries which point clearly to such a meeting. Moreover even if there had been some contact in relation to Mr. Brealey there is nothing which indicates that Mr. Day had any involvement in 1993 with FLS. I am therefore prepared to accept on the evidence before me that the earliest proven contact between Mr. Day and Clive Fayers occurred at a meeting at the Briggens Hotel on 17th March 1994.
The Briggens Hotel meeting
33. Mr. Day's evidence was that he had a meeting with Richard Fayers approximately a week before the Briggens Hotel meeting and that he was told by Richard Fayers that he had no means of repaying the commissions due to Mr. Brealey. Richard Fayers therefore suggested a meeting with his brother Clive which was arranged for 17th March 1994. This meeting was attended by Clive and Richard Fayers and also by Mr. Allanson. Clive Fayers is said to have indicated that he was prepared to help his brother repay the commissions due to Mr. Brealey and we know that in November 1995 Mr. Fayers signed an agreement under which FLS would pay the sum of £38,000 to Mr. Brealey by instalments between November 1995 and 31 st November 1998. It is interesting and I think important to note that this agreement provides that
the method of payment will be via Anderson Stuart & Company who act for the Company (FLS) and Mr. Clive Fayers in various matters including legal disputes
This is yet another instance of FLS being used to meet the liabilities of members of the Fayers family.
34. The meeting held on 17th March is important because on Mr. Day's own evidence it led to his becoming involved with both Clive Fayers and FLS. Mr. Day told me that following the meeting at the Briggens Hotel he had a further meeting with Clive Fayers when Mr. Fayers indicated that he was impressed with Mr. Day's investigative and negotiating skills and said that he thought that Mr. Day would be helpful in dealing with some of his own personal affairs. Mr. Day said that the name of FLS might have been mentioned at the meeting but he attached no importance to it. Mr. Fayers asked for a meeting to be arranged at Willow Lodge which would also be attended by his wife, Angela, and by Mr. Frieze who, as I have mentioned, was the supervisor of Mr. Fayers' IVA.
Mr. Frieze
35. This meeting took place on 7th June 1994. According to Mr. Day he was not made aware that Mr. Frieze was the supervisor of the IVA although he was told that Mr. Frieze was supervising the CVA of FFS. The main topic of conversation at the meeting was Mr. Fayers' ; claim that he had been cheated out of his business by the actions of Legal & General. Mr. Frieze in his evidence has no specific recollection of a discussion of the Legal & General claim. His recollection was that he was contacted by Mr. Day and asked to attend the 7th June meeting because Mr. Day had told him that he was assisting Clive Fayers in connection with some personal debts. Whether or not there was a detailed discussion of the Legal & General claim what does seem to be accepted is that at the meeting Mr. Day agreed to acquire from Mr. Frieze certain book debts due to FFS from its former agents. These were the commissions referred to in paragraph 9 of this judgement which FFS was required to pay to Legal & ; General when the policies arranged through them were cancelled and which had not been repaid by or recovered from the agents who received them. The terms agreed with Mr. Frieze were an immediate payment of £1000 to be followed by a further payment of £19,000 if and when the commissions were recovered. Mr. Day says that the scale of the commissions due was estimated by Mr. Frieze to be £400,000. Mr. Frieze denies ever putting any such estimate of value on the claims and contends that he would not have disposed of them for a maximum of £20,000 had he believed them to be worth anything like £400,000. I prefer the evidence of Mr. Frieze on this but it is clear that Mr. Day was keen to acquire the book debts and during the course of the meeting he despatched someone to collect a building society cheque for £1000 drawn on his account with the Nationwide Building Society and handed it to Mr. Frieze. This money was part of the sum paid into the account on the sale of the St. Leonard's Farm land to the Park Authority.
36. At the meeting two other matters were also discussed. The first concerned certain pension policies taken out by FFS for the benefit of Mr. Fayers and his wife. Mr. Frieze brought the policies to the meeting and agreed to allow Mr. Day to see if he could negotiate a surrender of them for the benefit of the creditors of FFS. Mr. Day says that ASC was promised 40% of whatever he could recover. The other matter allegedly discussed was a Mrs. Napper. She had provided security for the liabilities of FFS in the form of a charge over her home in Oxfordshire. According to Mr. Day he was asked by Mr. Frieze to assist him in obtaining vacant possession of her property. Mr. Day says he agreed to do so and subsequently visited Mrs. Napper. Ultimately an agreement was reached under which Mrs. Napper moved to alternative accommodation and paid a proportion of the sale proceeds from her house to Mr. Frieze. Mr. Day says that he negotiated this settlement for Mrs. Napper but Mr. Frieze asserted that it was reached through Messrs. Singletons, the firm of solicitors who had also acted for Mr. Day. The details of Mr. Day's dealings with Mrs. Napper are of no real importance in this case and I mention them largely for completeness. They are relevant to the meeting held on 7th June because Mr. Frieze initially denied that he had ever asked Mr. Day to assist him in dealing with Mrs. Napper. I doubt whether this is correct and were the point of importance I would be inclined to accept Mr. Day's evidence on this. Mr. Day however relies on this aspect of the evidence as indicating that Mr. Frieze's recollection is unreliable. Inevitably in relation to meetings held some time ago memories will fade and sometimes become contaminated by what subsequently passes between the parties. But in relation to the matters on which I have accepted Mr. Frieze's evidence of this meeting I am satisfied that his account of events is accurate.
37. One aspect of the discussions which needs to be emphasised at this stage concerns Legal & General. Mr. Day says in his affidavit that Mr. Frieze offered ASC access to the records of FFS which were held in Leeds in order to verify the book debts and to investigate Mr. Fayers' allegations of wrongful conduct against Legal & General. Mr. Frieze accepts the former but not the latter. He had been appointed provisional liquidator of FFS on the petition of Legal & General and continued to act for them. He maintained that he could not and would not have permitted Mr. Day to investigate a complaint against his own client by allowing him to inspect the papers of FFS. What he says he did authorise was an inspection by one of his partners of some papers provided by Clive Fayers to see if there was any possible claim against H.W. Fisher & Son, the firm of accountants who had acted for FFS. At one stage a possible claim was intimated against this firm on the basis that delays in their production of accounts had led to the Legal & General acquisition of FFS being called off. But in the end the claim was not pursued.
38. I have no hesitation in accepting Mr. Frieze's evidence on this point. I have little doubt that either at the 7th June meeting or during his earlier meeting with Mr. Fayers, Mr. Day had been told (in the same way that Mr. Brown and other investors were told) that Mr. Fayers had a substantial claim against Legal & General worth many millions of pounds. This is confirmed by the entries in Mr. Day's own schedule for 31st May and 7th June which records that Mr. Day had long discussions with Mr. Fayers about FLS and the work which Mr. Day would undertake on its behalf. Although the book debts claim was a separate issue Mr. Day's haste to secure an agreement with Mr. Frieze even to the point of sending someone out to collect the building society cheque can only be explained in terms of a belief on his part that there was substantial money to be obtained from assisting Mr. Fayers in his battle with Legal & General. He was by 7th June clearly determined to do what he could to assist Mr. Fayers in any way possible. Although (on his own evidence) he had met him only briefly before he was prepared to advance him some £4,600 to pay school fees. Both this and the £1000 paid to Mr. Frieze in respect of the book debts were paid out of Mr. Day's Nationwide account from the trust monies received from the sale of the land at St. Leonard's Farm. Mr. Day also produced as part of his compliance with the mareva injunction granted in 1997 a series of invoices and statements of payments made on behalf of Mr. Fayers after May 1994. This list contains both the £4,600 paid for school fees and the £1000 paid to Mr. Frieze. It also contains a number of other payments for car hire between May and October 1994 which can be shown to have come from the St. Leonard's Farm account with the Midland Bank. These payments, totalling some £24,425.64 were then apparently billed to Mr. Fayers in November 1994 in addition to charges for other work carried out on his personal tax affairs, his "own affairs generally", and the restoration to the register of FFS. The other bills which run right through to the beginning of 1997 also comprise exclusively work which on the face of the bills was personal to Mr. Fayers.
39. Mr. Clifford was careful to point out that his clients do not accept either that these documents are necessarily accurate or that they were sent. But even taking these caveats into account they provide the only attempted explanation or justification by Mr. Day for what the payments made by Mr. Fayers were used for. Even if one takes those documents at face value it is clear that Mr. Day was aware from 1994 onwards (consistently with the admissions to which I have already referred) that FLS was being used to fund Mr. Fayers' personal requirements. This is consistent with the evidence provided by Mr. Day's 66 page schedule to which I have already referred. It also shows in my judgment that Mr. Day was both able to and felt free to resort to the property of the St. Leonard's Farm trust and to its bank account in order to assist Mr. Fayers. There is no evidence that this was ever authorised by his co-trustees or that he felt the need to obtain such approval. On the contrary although he told me that he was heavily criticised after the meeting by Mr. Thorpe and others for using trust money to pay Mr. Fayers' school fees bill he continued to draw on the trust 's bank account to assist Mr. Fayers. This only goes to confirm that Mr. Day utilised the St. Leonard's Farm Limited account in connection with his dealings with Mr. Fayers regardless of whether those dealings had anything to do with the business of the trust. I therefore attach no importance (any more than Mr. Day did) to the fact that it was nominally an account operated by St. Leonard's Farm Limited.
40. The degree of involvement by Mr. Day in the business of Mr. Fayers can be gauged by his conduct in the months following the June 1994 meeting. Assuming that the payment schedules I have referred to are correct Mr. Day expended from his own and the trust's resources some £24,000 between May and October 1994. According to his own affidavit he knew that Mr. Fayers was under considerable financial pressure and that the business of FFS had collapsed. By August 1994 (if not before) he was also aware that Mr. Fayers was subject to an IVA. In a letter to solicitors acting for creditors of Mr. Fayers, Messrs. Blaser Mills, on 1st August 1994 Mr. Day stated that:
We were instructed in May to deal with all matters appertaining to R and C Fayers which includes weekly contact with Mr. Steven Frieze, the Supervisor of Clive Fayers' Individual Voluntary Arrangements, and I feel our brief encompasses all past and present outstanding matters.
Yet notwithstanding Mr. Fayers' obvious financial difficulties Mr. Day continued between August and October to provide several thousand pounds in financial help and it was not until October 1994 that he received the first payment from Mr. Fayers which itself was only £5000.
The Florida properties
41. Similarly in September 1994 Mr. Day and ASC assisted Mr. Fayers in the disposal of his interests in a property in Florida. Letters were prepared at Willow Lodge for Mr. Fayers to sign and sent to some agents in Florida which authorised the sale of the property for $45,000 and asked for the money to be transferred to "my bankers". The bank details which followed were those of the St. Leonard's Farm Limited account at the Midland Bank in Hitchin. Mr. Day's telephone number was given as a contact number. In a letter sent to the Florida agents by Mr. Day on 6th September 1994 he wrote:
I write to confirm that Mr. Clive Fayers has no legal restriction prohibiting him from conducting his own business affairs. He is within his rights to personally surrender his business interests with Mr.R. Mermelstein.
In his own letter Mr. Fayers wrote:
Further to my telephone conversation with Mr. Mermelstein, I am writing to request that you fax Anderson Stuart & Co. with the authority upon which you are dealing with Mr. Frieze of Brooke North & Goodwin.
It is my lawyers opinion, that all dealings should be directly with myself and not Mr. Frieze.
In consequence the proceeds of sale (amounting to some £28,559.80) were paid into the St. Leonard's Farm Limited account and then dispersed. On 9 th May 1995 Mr. Frieze wrote to Richard Day asking for the balance of the Florida monies to be handed over to him as supervisor of Mr. Fayers' IVA. He said he had been told by Howard Day in February 1995 that some £9000 had been passed on to Clive Fayers (as recorded in the bank statements) but that some £16,000 remained. In the same letter he refers to a meeting with Mr. Day and Mr. Fayers on 20th December 1994 when Howard Day was told that Mr. Frieze had a claim to the monies and was only prepared to take no further action against Mr. Fayers for two months if the £28,000 was paid over at once. There is an attendance note of this meeting which Mr. Frieze produced in evidence confirming this. What is more in a letter from Anderson Stuart & Associates with an HJD reference sent to Mr. Frieze on 5th January 1995 the writer says that he does not have at present any instructions from Mr. Fayers to deal with the Florida monies as requested by Mr. Frieze. In a letter to Mr. Frieze dated 24th May 1995 signed by Richard Day but which in my judgment was almost certainly written by his father Mr. Day said this:
With regard to the monies received from the sale of Clive Fayers interests in Florida we were instructed they were personal to him, and at that time of course we had no knowledge of the content of any documentation forming part of his Voluntary arrangement. I have never received any instructions from Mr. Fayers to account to anybody other than himself in respect of these monies, and indeed almost immediately the same were received these were dispersed to Mr. Fayers.
42. It is clear from the correspondence sent to the Florida agents that Mr. Fayers and Mr. Day deliberately prevented the agents from contacting Mr. Frieze and they can only have thought it necessary to do that because they were both aware that Mr. Frieze would almost certainly assert a claim to the proceeds of sale. If there was any doubt about the matter it was put straight at the meeting on 20th December 1994. I regard the reply sent to Mr. Frieze on 24 th May 1995 as a false account of the events there described but the fact that it was written and sent in those terms is the clearest possible evidence that by September 1994 if not before Mr. Day had become so closely involved with Mr. Fayers that he was prepared to assist him in actions which he knew were improper and unlawful. Part of Mr. Day's case in cross-examination was that he had no cause to doubt Mr. Fayers' honesty before a meeting of shareholders in FLS which was held at the Three Stags Public House in Lambeth on 12th November 1996. It will be apparent from the findings that I have just made that I do not accept that evidence. When Mr. Day was cross-examined about the Florida transaction he said that the agent in Florida (a Mr. Jones) was not concerned about any legal restrictions on Mr. Fayers and did not like Mr. Frieze's attitude. He then said that Mr. Frieze had said that the Florida monies were not part of the IVA. This is completely inconsistent with the correspondence which followed and with the note of the meeting held on 20 th December. I have to record that I was left with the clear impression from Mr. Day's demeanour when he gave these answers that they were manufactured in a vain attempt to justify his conduct. I am afraid to say that I regard these answers as deliberate lies.
Le Manoir aux Quat Saisons
43. On 19th October 1994 Mr. Day attended a meeting organised by Mr. Fayers at Le Manoir aux Quat Saisons: an expensive and apparently fashionable hotel and restaurant in Oxfordshire. The meeting was undoubtedly promotional and was designed to encourage further investment in FLS. Mr. Day's evidence is that Mr. Fayers' invitation was to Anderson Stuart rather than to him personally and that he was accompanied by three other members of ASC. In his affidavit Mr. Day says that he had little or no knowledge of what FLS did apart from funding cases and was asked to give a talk about the work of Anderson Stuart which he did. As I have already indicated I believe that Mr. Day had by the date of this meeting been given an extensive account by Mr. Fayers of what FLS was all about in particular in connection with Legal & General but the real significance of the meeting lies in the way in which Mr. Fayers is said to have described Mr. Day.
44. One of those attending the meeting was Mr. Brian Forsey, a civil servant in the Foreign Office, who had lent Mr. Fayers £23,000 in July 1994 for one month to assist him with FLS. He was anxious to speak to Mr. Fayers about the return of his money and did so. His evidence (which I accept) was that he was told by Mr. Fayers to talk to Mr. Day who was the man who looked after the accounts and the money invested in the company. Later Mr. Fayers introduced Mr. Day to the meeting as part of the management team of FLS. According to Mr. Forsey, Mr. Day gave a good talk about his experience in settling court cases and gave Mr. Forsey the impression that he was part of the management of FLS. Similar evidence was given by Mr. George Williams who also attended the meeting. He said that Mr. Day arrived late and said that he had been in court all morning dealing with a difficult case.
45. Mr. Day challenged this evidence. He told me that he had not arrived late but had in fact stayed at the hotel the previous night. He also suggested to Mr. Williams (with some justification) that he could not have been in court that morning and still have been able to attend the meeting. Principally, however, he was concerned to refute the suggestion that Mr. Fayers had described or associated him with the management of FLS.
46. I was unconvinced by Mr. Williams' evidence and I place no reliance upon it in relation to this meeting. However I found Mr. Forsey to be an honest and impressive witness and I accept his evidence. It seems to me that Mr. Day was not invited to speak by accident. He was there because Mr. Fayers felt he could rely upon him to give a talk which would be supportive of FLS and its business and would encourage further investment in the company. This is further evidence to support the closeness of their relationship by then but I do not rely upon Mr. Fayers' description of Mr. Day's management role as proof in itself that he had such a role. What it does however clearly show is that whenever Mr. Fayers got into difficulties he turned to Mr. Day to sort them out and felt he could rely upon Mr. Day to do so as the Florida episode so graphically illustrates.
The November visit to Mr. Frieze
47. On 4th November 1994 Mr. Day went to Leeds and met Mr. Frieze at his offices. The purpose of this visit is a matter of dispute. Mr. Day says he went to investigate Mr. Fayers' claim against Legal & General. Mr. Frieze says that it was simply for the purpose of providing information about the book debts claim which had been assigned at the 7th June meeting. I have already given my reasons for preferring Mr. Frieze' s evidence on this point and I need not repeat them. I should however record that later in his evidence Mr. Day seemed to accept that the first occasion on which he carried out any investigation into Mr. Fayers claim was in February 1997. However the real importance of this meeting does not lie in what was done or said in relation to Legal & General. It concerns a conversation which Mr. Frieze says that he had with Mr. Day about FLS.
48. Mr. Frieze confirmed the contents of an attendance note of this meeting. This records Mr. Day telling him that Clive Fayers had been receiving money for the last 18 months by selling shares in a company (FLS) which exists but does not carry on any business. Mr. Day had been told that up to £350,000 had been invested in FLS and another £100,000 was due to be invested soon. Mr. Day then referred to the seminar at the Manoir. He went on to describe how Mr. Fayers had not completed the necessary company records but gave to investors a "fancy share certificate". The litigation conducted by FLS (including a case being handled by ASC) was in connection with Clive Fayers' own affairs. The note then continues as follows:
It is not true to say therefore that the company exists to earn fees from assisting people with disputes. What Mr. Fayers has said is that if he is successful in his claims (some of which have been assigned to Mr. Day's firm anyway) then he would have the money to repay the investors. What he is in effect doing is borrowing money from members of the public to finance his litigation. If they have not been told the truth, then this is tantamount to fraud. It is also highly probable that the rules regarding the provision of prospectus etc. have not been complied with by Mr. Fayers and he has therefore committed a criminal offence in that regard also.
The further monies expected in the near future will go into an account in the name of the company at the Nationwide Building Society. What Mr. Fayers has told Mr. Day he is going to do is to transfer £100,000 of that money to Mr. Day so that Mr. Day can meet creditors of Mr. Fayers. The post-IVA creditors of Clive Fayers (and possibly Richard Fayers as well) total in excess of £200,000 but £60,000 is needed urgently to keep these creditors at bay.
I said to Mr. Day that if he declined to accept this money then it was highly probable that Mr. Fayers would use the money anyway and in a manner that was not consistent with the duties which he owed to the investors in the company. What Mr. Day should do is to take the money, put it in his own clients' account (or possibly pass it on to his solicitor to hold in a clients' account) and then decline to pay any money out to anyone until such time as the matters are regularised. No-one could criticise Mr. Day for this since he would be taking steps to minimise the loss of those investors who had been duped rather than compounding the situation. I also said that Mr. Day should report the matter to the authorities and initially should speak to a contact of his at Scotland Yard and thereafter to the appropriate fraud squad. To do anything else might ultimately result in a winding up petition against the company but things would move so slowly that it could possibly be the case that the money would be lost in the meantime and that would be in no-one's interests.
49. It may well be that the references to fraud and the non-compliance with the rules relating to prospectuses are Mr. Frieze's comments on what Mr. Day is recorded as having told him. But even on that basis it is clear from this note, if correct, that Mr. Day had come to the same conclusion as Mr. Allanson about the operation of FLS. For the reasons given earlier in this judgment it was an entirely accurate assessment of what FLS represented. It also shows quite clearly that Mr. Day was well aware that he was being asked by Mr. Fayers to assist in the improper and dishonest distribution of investors' money to meet the debts and liabilities of Mr. Fayers. When I asked Mr. Frieze why he did not take steps himself to report the matter to the authorities at the time he could give no very satisfactory reply. He said that he thought it ought to be dealt with by Mr. Day as he suggested. Much later on he did bring these matters to the attention of the police. But I am not concerned to decide whether Mr. Frieze acted as he should although it is clearly regrettable that a complaint was not made at that time. The issue for me to decide is whether I should accept this note as an accurate account of the meeting held on 4 th November 1994. The alternatives are stark ones. Mr. Day says that he had no such conversation with Mr. Frieze and that the note is an invention produced much later by Mr. Frieze an in attempt to protect himself and Legal & General from action by Mr. Fayers and Mr. Day. Mr. Day submits that if correct the note must indicate that Mr. Day was a knowing party to Mr. Fayers' dishonesty when he subsequently accepted funds from FLS. He denies this.
50. I prefer the evidence of Mr. Frieze on this. I am not prepared to accept that he has concocted this note for his own purposes. I am persuaded that this account is correct first because it represents what I consider to be an accurate assessment of the way in which FLS was operated and secondly because it is consistent with the earlier evidence I have referred to about Mr. Day's involvement with Mr. Fayers. As I have already explained Mr. Day had clearly become a trusted confidant of Mr. Fayers in relation to his personal affairs. He knew all about his financial position and the difficulties he was having. He must have asked Mr. Fayers where the money to meet the debts and liabilities was coming from and I am satisfied that he was told. Mr. Fayers' own evidence to which I referred earlier in this judgment was that he believed he could simply use the company's money for himself because he had committed to it a share in any future recoveries from the Legal & General claim. It would have been quite consistent with this and in character for Mr. Fayers to have told Mr. Day that FLS would provide the source of payment. Mr. Day is an intelligent and experienced business man and in my judgment must have been well aware that a company with outside shareholders could not possibly justify the expenditure of its money virtually exclusively on its purported chairman. The Florida property incident also serves to confirm that Mr. Day was in effect prepared to turn a blind eye to these improprieties perhaps justifying it to himself on the basis that Mr. Fayers might be able to put it all right in the end if the Legal & General claim produced a result. In the meantime everything points to Mr. Day remaining an active participant in what he must have known (and in my judgment did know) was a dishonest scheme. The attendance note also gives the lie to Mr. Day 's assertion that it was not until very much later in 1996 that he realised Mr. Fayers had no authority to make the disbursements of company money which he did. In my judgment, as the note confirms, Mr. Day was well aware of this from the summer of 1994 before the initial £5000 was paid.
51. The note and the incident it records also reveal a characteristic of Mr. Day which repeats itself later in the history of events at the various shareholders' meetings. Mr. Day clearly likes to be able to sympathise and agree with his audience at the time. When confronted by angry shareholders in 1996 he was quite prepared (as I shall come to) to agree with them that Mr. Fayers had not run FLS in a proper manner and even to suggest that he had been fraudulent. This facet of his character was to some extent evident in his own evidence before me and was I think exhibited during his conversation with Mr. Frieze. It also explains his undoubted willingness in 1997 to allow various investors to visit Willow Lodge and inspect his papers. In this way Mr. Day was able to fend off criticism of his own involvement by in effect allying himself with the investors and even persuading some of them at a meeting in December 1996 to provide additional funds to enable him and ASC to investigate whether there really was a viable claim against Legal & General. But Mr. Day's openness at these much later meetings cannot be allowed to disguise the fact that he was aware of the true state of affairs of FLS at least 2 years before.
The Compleat Angler Hotel
52. In August 1995 a further promotional meeting for investors was held at the Compleat Angler Hotel in Marlow. A number of investors gave evidence about this meeting. Mr. Peter Grimditch was present with his wife and says that he met Mr. Day who introduced himself as the accountant for FLS and said that they should consider him to be the "engine room" of the company. Mr. John Gray, another investor, said that Mr. Day was pointed out to him by Richard Fayers who was also present as the company accountant. This seemed to Mr. Gray consistent with various dividend payments he had received from FLS which had come to him in a letter from Willow Lodge. Mr. Day says that he only arrived at the hotel in the afternoon and denies describing himself as the company's accountant or the "engine room". But I am satisfied that Mr.Grimditch's account of this meeting is a truthful one and I accept his evidence.
53. Another witness present at the meeting was Mr. Brian Lovell who was called by Mr. Day under a witness summons. He also worked in the Foreign Office and had been posted to Hong Kong in the 1980's. He had had a number of dealings with Mr. Fayers and FFS and appears to have given Mr. Fayers a considerable measure of freedom in the selection of suitable investments for him. In 1988 Mr. Fayers persuaded Mr. Lovell to re-mortgage his house with the Sun Banking Corporation and to use the additional £100,000 realised for investment. Mr. Lovell was not told what the money had been invested in and when interest from this investment fell away he became unable to meet his mortgage payments. In 1995 he was evicted from his home in West London by the mortgagee and was put in touch with Mr. Day through Mr. Fayers who assisted him in regaining possession. At the same time Mr. and Mrs. Lovell were unable to pay school fees and there are numerous references in correspondence and in Mr. Day's schedule to his being rung up by Mrs. Lovell asking for financial assistance in paying these fees. The difficulties faced by the Lovells are another depressing example of how people's lives have been ruined by the activities of Mr. Fayers. But it also provides yet further evidence of how problems caused by Mr. Fayers were invariably passed to Mr. Day to sort out. In the case of the Lovells the school fees and other financial assistance were almost certainly provided from funds belonging to FLS and were paid to them by Mr. Day with full knowledge of this. Once again he was party to the use of company money to avoid difficulties for Mr. Fayers.
54. There is also some evidence that Mr. Day continued to promote FLS through into 1996. There is a diary entry for 7th January 1996 which refers to a meeting with Mr. Fayers and some shareholders at the Swallow Hotel at Waltham Abbey. The entry mentions by name Mr. George Williams and Mr. David Brodey. Mr. Day said he had no recollection of this meeting but both Mr. Brodey and Mr. Williams gave evidence about it. Mr. Brodey also said that Mr. Day was introduced to him as the accountant of FLS and that he and Mr. Fayers encouraged those present to invest in the company. As part of this exercise investors were told that there were ongoing cases which would produce large sums of money. Mr. Brodey was cautious and later rang Mr. Fayers to ask if he could speak to the solicitors handling the cases. Mr. Fayers said he would get Mr. Day to contact him. Later Mr. Day telephoned and gave him the name of a firm in Abergavenny, Messrs. Vincent Roe. The person dealing with the cases was a Mr. Eamon Forsdike.
55. Mr. Brodey is a retired bank manager from Loughton in Essex. He knew of Mr. Forsdike as a solicitor who practised in Epping in 1993 and 1994 and was struck off for misappropriating or misusing funds in his clients' account. When he mentioned this to Mr. Day the conversation quickly changed. Mr. Brodey however persevered and made enquiries direct from Vincent Roe. On telephoning them he was told that Mr. Forsdike was in court. He later received a call from someone claiming to be the senior partner in Vincent Roe who said that he did not know that Mr. Forsdike had been struck off but confirmed that his firm was acting for FLS. Mr. Brodey, ever suspicious, dialled 1471 to find that the number of the caller had been withheld. Later enquiries of the Law Society confirmed that Mr. Forsdike had been struck off in 1994. When Mr. Brodey later telephoned Mr. Fayers to ask him about Mr. Forsdike he was told that Forsdike was considered the best man for the job despite being struck off and that Mr. Day had not wanted to alarm Mr. Brodey. I found Mr. Brodey to be an impressive and reliable witness and I accept his evidence.
56. Mr. Forsdike's role in the ASC/FLS operation has not been fully explained. He gave no evidence before me and I have no direct evidence as to what precisely he did. Mr. Day told me (and I am prepared to accept) that he was introduced into ASC by his sons and was then employed by Vincent Roe as their agent for the purposes of any work carried out by that firm on behalf of FLS. But this arrangement was put in place simply in an attempt to satisfy the requirements of the Solicitors Act which precluded either Mr. Forsdike as a struck off solicitor or ASC from carrying out the work of a solicitor for members of the public. The arrangements with Vincent Roe were designed in effect to enable that work to be carried out by ASC at Willow Lodge. There was a modem link to Abergavenny and it was the practice for Mr. Forsdike to work at Willow Lodge and generate and transmit correspondence direct to Wales where it could be sent out by the firm on its own notepaper.
57. One of those served with a witness statement by Mr. Day was Mrs. Maureen Lloyd-Bainbridge. She is a licensed conveyancer who practices as such in the firm of Vincent Roe. Her initials appear on a number of letters in evidence which were written in 1996 in connection with the Roberts case. The reference commonly used is MLB/E and she confirmed that the E is a reference to Mr. Forsdike. His name also appears in manuscript on at least one of the Roberts' case letters and Mr. Day's evidence was that the letter E was a reference to him when used on ASC correspondence.
58. Mrs. Lloyd-Bainbridge was reluctant to travel to London to give evidence. She said that it was difficult to get to London in time for court and that she had problems looking after her livestock where she lived in Wales. In the end Mr. Day was content not to call her provided she was able to answer a number of questions in writing and she submitted her answers together with a statement of truth. Mr. Clifford raised no objection to her evidence being received in this way.
59. The document she submitted confirms that she met Mr. Day in 1995 at a seminar in London on agricultural tenancies. At another meeting at the Enfield Chase Hunt Ball Mr. Day broached the question of Vincent Roe engaging the services of Mr. Forsdike as an agent. Mr. Forsdike commenced agency work for Vincent Roe in late April 1995 and this arrangement only terminated when he was imprisoned for theft in July 1996. He worked at Willow Lodge via the modem link I have described. Mrs. Lloyd-Bainbridge recalls meeting Mr. Forsdike on one occasion at Willow Lodge but cannot remember how many matters were dealt with under the agency arrangement. In any event not all of the matters dealt with were for FLS or Mr. Fayers.
60. I am bound to express both surprise and concern that a struck off solicitor should be engaged as an agent for Vincent Roe in these circumstances but the evidence of Mrs. Lloyd-Bainbridge merely serves to confirm that the legal side of any work carried out for FLS or Mr. Fayers was handled at Willow Lodge by Mr. Day and ASC. Mrs. Lloyd-Bainbridge is not a solicitor; she is a licensed conveyancer. None of the FLS cases that I am aware of involve conveyancing problems and it is obvious that she acted as nothing more than a signatory to whatever letter was put in front of her. The content of any letters was the work of Mr. Forsdike in conjunction with Mr. Day.
61. On one occasion at least even these formalities were ignored. Early in 1995 letters were written to a Mr. Riciardi and to counsel's clerk in connection with a Magistrates Court hearing by someone at ASC using notepaper bearing the heading "Lloyd-Bainbridge & Co., solicitors" with the address of Willow Lodge. There is no such firm either at Willow Lodge or elsewhere and it was obviously decided by those at ASC to use Mrs. Lloyd-Bainbridge's name in order to invent a firm of solicitors for the purpose of instructing counsel. The letter in question contains the reference HJD/E/RIC. Mr. Day denied any knowledge of this letter but did admit to sending a letter on Lloyd-Bainbridge notepaper to the Holloway branch of Barclays Bank in connection with some accounts maintained by a client called Larkstyle Limited. This came to the notice of Mrs. Lloyd-Bainbridge and she instructed a firm of solicitors in Wales (The Robert Davies Partnership) to write to Mr. Day personally threatening an injunction if he made any further attempts to hold out Mrs. Lloyd-Bainbridge as a solicitor. This caused consternation at Willow Lodge and Mr. Day's evidence was that he was telephoned by Mr. Forsdike whilst away in Nottinghamshire asking him to deal with it. In his reply Mr. Day apologised for the letter which he said arose out of a misunderstanding. His letter makes no attempt to explain how or why he came to manufacture a letter heading for this purpose. He also said this:
In addition to my family farming interests the firm of Anderson Stuart & Co. conduct accountancy and management services on behalf of clients and in this respect we often are called upon to negotiate disputed matters or arbitrate generally until settlement can be achieved. Neither Anderson Stuart & Co. nor myself hold ourselves out as Solicitors, and you will no doubt be aware we have recently been negotiating with Vincent Roe & Co. to undertake further legal work on our behalf, or that of our clients.
The reference to management services is important in the context of this dispute.
The 1996 meetings
62. I have already referred to the meeting held at the Conrad Hotel on 24th January 1996. Mr. Day was not present at the meeting but in addition to the comments by Mr. Fayers to which I have already referred it is important to note that Mr. Fayers is recorded in the note of the meeting which he signed as stating that the "general administration and finance is handled by a firm of accountants – Anderson Stuart & Co. – run by Howard Day who is known to though perhaps not necessarily appreciated by most shareholders" . This confirms the descriptions of Mr. Day which witnesses have said were given at both the Manoir and the Compleat Angler meetings.
63. By the end of 1996 events were closing in on Mr. Fayers. The Roberts case had been struck out and whereas previously he had been able to fund dividends to shareholders in FLS out of new investments this source of finance had largely dried up. I should mention in this connection that at the meeting held at the Conrad Hotel Mr. Fayers disclosed that dividends had been paid out of capital in this way pending income from the cases which he said were about to yield profits for the company. None of the investors present seem to have reacted to this. The dividends were paid through Willow Lodge often accompanied by a letter from FLS signed by Mr. Fayers. It is now accepted by the investors who received payments in this way that they were unlawful. The monies in question have been refunded to the company and form no part of the claim in these proceedings.
64. On 12th November 1996 a meeting of shareholders took place at The Three Stags Public House in Lambeth. Mr. Day says he was requested by Mr. Williams and Mr. Grimditch to attend the meeting. Prior to doing so he had received two boxes of documents sent to him by Mr. Fayers for storage. Mr. Thorpe looked at their contents and only then discovered from what he saw that FLS was in poor financial shape. Mr. Day says that until then he had no reason to question the financial position of FLS. He believed that Mr. Fayers had invested £3-£4 million in the company. There were occasional cash flow problems but ultimately the money had always been forthcoming. I do not accept any of this evidence. For the reasons already given I am quite satisfied that Mr. Day was well aware from 1994 onwards that Mr. Fayers had not put capital as such into the company and that his and the company's only source of finance was further investment by outside shareholders. Similarly Mr. Day knew from his own experiences of dealing with Mr. Fayers' problems that there were repeated financial crises which were only solved as and when more money was invested in FLS and then paid out to Mr. Fayers. This is evident from his conversation with Mr. Frieze in November 1994 and nothing ever changed. Mr. Day's schedule is a catalogue of repeated attempts to put off creditors and avoid the seizure of cars and other property. By May 1996 Mr. Fayers was unable to pay the rent on his Chelsea Harbour flat and Mr. Day had to deal with the landlord. Later in the year in October, after being forced to leave the flat, Mr. Fayers moved to Lower Slaughter Manor, a hotel in Gloucestershire. The bill for his stay there in the sum of £3,353.95 was sent to Willow Lodge and Mr. Day paid it with a cheque drawn on the account with the Midland Bank in Hitchin. Mr. Fayers failed to reimburse Mr. Day despite having faxed to him a copy of a CHAPS report purporting to show that payment had been sent. Mr. Day told me that this was the first time Mr. Fayers had totally let him down but it was to Mr. Day's knowledge merely the culmination of a long history of expenditure from the company's resources by someone who had no other means of support.
65. Clive Fayers did not attend the meeting on 12th November but his brother Richard did turn up. Mr. Day says that he told the meeting that there was a problem but that it could only properly be dealt with if accounts for FLS were drawn up and an EGM then called. He says that he also stressed that it was important to get on with the Legal & General claim. One of those present at the meeting was Mr. David Lockley. His evidence was that Mr. Day said that Mr. Fayers had only been interested in maintaining his lifestyle and that money had gone to "brand X" which was taken to be a reference to the whole scheme being a fraud. Mr. Day challenged this evidence but I am satisfied that Mr. Lockely's recollection is accurate and his evidence was confirmed by Mr. Grimditch. Mr. Day later conceded during his own cross-examination that he may well have used those words. Mr. Lockley also confirmed that Mr. Day had said that the shareholders had been negligent and must now take control of the company and pursue the Legal & General case. To this end he suggested that finance should be raised to send Mr. and Mrs. Fayers and Mr. Kelly to the United States to solicit further investment. To add insult to injury Mr. Day then said that the trip would cost £15,000 because Mr. and Mrs. Fayers were unwilling to travel anything but first class. Not surprisingly no such contributions were forthcoming. Mr. Day was asked whether it was ethical to encourage American investment in what was basically an insolvent company. Mr. Day's response was that the Americans would simply write it off as a tax loss. Mr. Lockley produced a note of this meeting which confirms the matters I have referred to and I accept his evidence.
66. Not surprisingly there was shock and dismay at what had been learnt at the meeting. A meeting of shareholders with Mr. Fayers was therefore arranged and took place at the Swallow Hotel at Waltham Cross on 18th December 1996. Mr. Day said that the atmosphere at the meeting was strained and hostile but he agreed to chair the meeting. Once again he stressed the need for accounts and offered the services of Mr. Thorpe at a cost of some £5000. Mr. Fayers remained silent for most of the meeting and was content to leave the talking to Mr. Day. His only positive reaction was to reject out of hand a suggestion that there should be a second signatory on the account used by FLS. He said that he was free to dispose of the company's funds as he thought fit. Mr. Day repeated his call to pursue the Legal & General claim.
67. The accounts of this meeting given both by Mr. Day and various investors who were present indicate that Mr. Fayers (as one might expect) was highly defensive and looked to Mr. Day to deflect criticism and to allow him to avoid dealing directly with investors' questions. At the same time Mr. Day sought to deflect complaints about the obvious losses which had occurred by inviting investors to concentrate on the Legal & General claim. In consequence a further meeting took place at the Swallow Hotel on 31st January 1997 attended by Mr. Day and five of the investors. The meeting was taped and Mr. Day accepted after listening to the tape that the transcript I was provided with is accurate.
68. At that meeting Mr. Day was asked about the Legal & General claim and the arrangements made with Clive Fayers to split the proceeds with FLS. Mr. Day said that there was no legal contract to that effect with either Mr. Fayers or FLS but that Anderson Stuart had purchased the claim from Mr. Frieze (described as a court official) for £20,000 and was able now to pursue it free from any claims to the recoveries by Mr. Fayers and FLS. Although not properly explained at this meeting it is now clear that this statement was not based on what Mr. Frieze or for that matter Mr. Day agreed at the meeting on 7th June 1994 but rather on an interpretation of their written agreement contained in an opinion of Counsel. This advice was to the effect that because the book debts assigned by FFS were not sufficiently defined in the written agreement which followed (on 4th August 1994) it operated to transfer to Mr. Day any claim which FFS then possessed including its claim against Legal & General arising from the cancellation of the policies. I have little doubt that this advice is wrong and pays scant regard to the principles of construction which require the court to have regard to the surrounding circumstances in order to provide a context for the language used but Mr. Day was put in funds by Mr. Kelly and others to the tune of several thousand pounds in order to investigate the wider Legal & General claim. His enquiries to date which commenced only in 1997 have not revealed anything to support Mr. Fayers' claims.
69. Not long after this meeting on 24th February 1997 the writ was issued in this action and a mareva injunction obtained against both Mr. Fayers and Mr. Day.
70. Mr. Day is sought to be made liable for the wrongful use of company money either on the basis that together with Mr. Fayers he acted during the relevant period as a de facto director of FLS or alternatively that he knowingly assisted Mr. Fayers to carry out the breaches of fiduciary duty I have identified.
71. In order to make Mr. Day liable for misfeasance as a de facto director the claimants must in my judgment prove that he assumed a role in FLS sufficient to impose on him a fiduciary duty to the company and to make him responsible for the misuse of its assets. Some guidance can be obtained from the reported cases dealing with the disqualification or statutory liabilities of individuals who have acted as de facto directors. In Re Hydrodan (Corby) Ltd [1994] BCC 161 (a case on wrongful trading) Millett J (at page 162G) said this:
Liability for wrongful trading is imposed by the Act on those persons who are responsible for it, that is to say, who were in a position to prevent damage to creditors by taking proper steps to protect their interest. Liability cannot sensibly depend upon the validity of the defendant's appointment. Those who assume to act as directors and who thereby exercise the powers and discharge the functions of a director, whether validly or not, must accept the responsibilities which are attached to the office.
At p.163C he went on:
A de facto director is a person who assumes to act as a director. He is held out as a director of the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company's affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.
In subsequent decisions this has been held not to be an exhaustive test and in Secretary of State for Trade and Industry v Tjolle [1998] BCC 282 Jacob J thought that it was difficult to postulate any one decisive test for determining whether someone had acted as a de facto director. At p. 290C he said this:
I think what is involved is very much a question of degree. The court takes into account all the relevant factors. Those factors include at least whether or not there was a holding out by the company of the individual as a director, whether the individual used the title, whether the individual had proper information (e.g. management accounts) on which to base decisions, and whether the individual has to make major decisions and so on. Taking all these factors into account, one asks 'was this individual part of the corporate governing structure?', answering it as a kind of jury question. In deciding this, one bears very much in mind why one is asking the question. That is why I think the passage I quoted from Millett J is important. There would be no justification for the law making a person liable for misfeasance or disqualification proceedings unless they were truly in a position to exercise the powers and discharge the functions of a director. Otherwise they would be made liable for events over which they had no real control, either in fact or in law.
This statement of the law was approved by the Court of Appeal in Re Kaytech International plc [1989] BCC 390 subject to one qualification. At p.402C Robert Walker LJ said this:
I do not understand Jacob J, in the first part of that passage, to be enumerating tests which must all be satisfied if de facto directorship is to be established. He is simply drawing attention to some (but not all) of the relevant factors, recognising that the crucial issue is whether the individual in question has assumed the status and functions of a company director so as to make himself responsible under the 1986 Act as if he were a de jure director.
72. Mr. Day's case is that he did not act in a capacity equivalent to a director of FLS. He received instructions from Mr. Fayers and acted upon them. He was not an equal partner in the decisions which Mr. Fayers took nor did he participate in any discussions with Mr. Fayers as to what business the company should take on or as to how it should use its assets. He accepts that he gave talks at the Manoir and the Compleat Angler and subsequently chaired the meeting of shareholders held on 18th December 1996. But none of these acts could be described as executive. In particular he denies having any knowledge of or ability to operate the account maintained by FLS with the Nationwide Building Society. Against this Mr. Clifford places reliance on Mr. Day's managerial role, the fact that he was held out by Mr. Fayers at the meetings as the company's accountant and part of the management team, his attendance and support for Mr. Fayers and FLS at the promotional events and his direct involvement in the distribution of FLS monies.
73. Whilst accepting that there is no one test for determining the existence of a de facto directorship all the authorities to which I have referred point to the need to establish that the individual concerned has been part of what Jacob J described as the corporate governing structure. As Millett J emphasised this is different in kind from the mere management of the company's business. Although it is necessary to bear in mind that FLS had no office or staff of its own and relied upon Mr. Day and those at Willow Lodge to carry out most of the day to day business of the company I am not satisfied on the evidence that Mr. Day can properly be regarded as a director of the company. He obviously did play a major part in handling the few cases which FLS did undertake. He was also involved in the promotional activities I have referred to. But his role was essentially managerial. He was someone on whom Mr. Fayers could rely and did rely to carry out whatever activities or to sort out whatever problems Mr. Fayers and FLS became involved in. I have no doubt at all that Mr. Day had numerous and frequent discussions with Mr. Fayers about FLS but the evidence which I have heard has not persuaded me that Mr. Day ever operated on an equal footing with Mr. Fayers. It was Mr. Fayers who controlled the company's bank account and was primarily responsible for raising further investment. The meeting at the Conrad Hotel which was not attended by Mr. Day is a good example of this. Similarly the events at the Manoir and the Compleat Angler although attended by Mr. Day were organised by Mr. Fayers. I therefore reject the claim based on misfeasance.
74. But Mr. Day's conduct, although not that of a de facto director, does in my judgment amount to knowing assistance. He did play a central role in the running and maintenance of FLS. He allowed money to be channelled through the accounts of ASC and St. Leonard's Farm Limited to meet the personal liabilities of Mr. Fayers and his family or simply to make payments to them or for their benefit. And he did this knowing that the source of the funding was the share capital of the company which had been contributed by outside investors to finance its legitimate business. As I have already found he had this knowledge as early as the summer of 1994 and he was aware from then on that Mr. Fayers was operating a fraudulent and dishonest enterprise. To participate in a scheme of this kind in the way that Mr. Day did was dishonest and the requirements for liability set out by the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378 are fully satisfied.
75. The Court of Appeal considered that (subject to proof of dishonesty which I have found) knowing assistance was a possible basis of liability in relation to the funds which were paid into the accounts of St. Leonard's Farm Limited or ASC. But in my judgment Mr. Day's liability under this head is wider than that. He is clearly liable for the payments which the Court of Appeal have identified because they were paid to accounts controlled by him and then utilised for Mr. Fayers' benefit in breach of trust. But he is also liable for any other monies which were paid out of FLS direct to Mr. Fayers from October 1994. From then on Mr. Day was on the evidence fully aware that FLS was a fraud on the investors yet he took no action to alert investors to this fact. On the contrary he actively participated in the running of the company and with Mr. Forsdike's help maintained the appearance of a business. He also attended the promotional events I have referred to in order to assist Mr. Fayers to obtain yet further investment in the company. Given that Mr. Day knew that most if not all of the company 's money would be used in time to fund Mr. Fayers' lifestyle in breach of his duties to the company and its shareholders I am satisfied that this amounts to knowing assistance on his part in all the breaches of fiduciary duty committed by Mr. Fayers from October 1994. Without Mr. Day it is unlikely that FLS could have operated as it did from 1994 until 1997. Had reputable accountants and solicitors been engaged in 1994 the whole enterprise would have been stopped in its tracks. As it was it continued for the next two years solely through the assistance of Mr. Day and the others at ASC who was content to turn a blind eye to Mr. Fayers' dishonesty solely for whatever financial benefit he might obtain.
76. In the light of my judgment on knowing assistance it is unnecessary for the claimants to rely upon knowing receipt. But liability on this basis has also been established for the payments made to the ASC and the St. Leonard's Farm Limited accounts. Those monies were paid away by Mr. Fayers in breach of his fiduciary duty to FLS and Mr. Day was aware of this at the time. He was given leave to defend on the basis that payment into the two bank accounts might not constitute beneficial receipt of the funds in question by Mr. Day. But as I have found the evidence at trial has established that the ASC account was not an account for the sole use of ASL and was in fact used for ASC which was in reality Mr. Day. Similarly the St. Leonard's Farm Limited account was used by him as a personal bank account. No need therefore arises to pierce any corporate veils. These accounts were operated by Mr. Day for his personal use and benefit and the requirement of beneficial receipt has therefore been established.
77. One of the pieces of litigation referred to at the various shareholders meetings was Mrs. Taylor's case. This was a claim for ancillary relief in connection with a divorce. It was complicated by the fact that Mrs. Taylor's husband had been a patient under the Mental Health Act and his affairs were subject to the Court of Protection. By 1996 he was in poor health and in a nursing home.
78. Mrs. Taylor had known Mr. Fayers since the 1980's and was one of a number of investors in FLS who had previously dealt with him in the days of FFS. She was visited by Mr. Fayers in October 1994 in connection with a possible investment in FLS. At the time her divorce settlement was being handled by a firm of solicitors, Messrs. Ottoways, with the benefit of legal aid. Mrs. Taylor had no complaint about the advice which she received from them but had become impatient with the time taken to achieve finality in the matter. Mr. Fayers indicated to her that FLS would be able to obtain a swift result. Her evidence, which I accept, was that she agreed to invest £2000 in FLS and was told by Mr. Fayers that as a shareholder all her legal expenses would be borne by the company. She says that no discussion took place about the likely settlement she would achieve or whether FLS would retain part of those monies.
79. Some weeks later in 1994 she received a call from Mr. Day who told her that he would be handling her case and that he would not do so on legal aid. He did not however discuss what his fees would be and Mrs. Taylor says that she assumed that his costs would be met by FLS. On 7th November 1994 Mr. Day wrote to Mrs. Taylor confirming that he was not a solicitor and would not handle her case on legal aid. The letter requested her to dis-instruct Ottoways so that their file, after taxation, could be passed to Mr. Day. It went on to ask for £3000 on account of costs but indicated that Mrs. Taylor could ask FLS to meet these expenses out of her investment in the company. Mrs. Taylor replied on 9th November indicating that she had written to Ottoways as requested and that she did wish Mr. Day's costs to be met by FLS as he had suggested.
80. Thereafter Mr. Day took over the conduct of negotiations with Messrs. Sherrards, the solicitors instructed by the Official Solicitor on behalf of Mr. Taylor. Messrs. Ottoways informed Mrs. Taylor that they had been told that Vincent Roe were to be instructed in their place and offered to forward their papers to that firm. On 16th June 1995 Mr. Forsdike (using the MLB/E reference) wrote to Ottoways stating that Vincent Roe would arrange for the transfer to themselves of Mrs. Taylor's legal aid certificate and that they would tax Ottoways' costs as part of the taxation when the matter was concluded. Mrs. Taylor' s evidence was that Mr. Day told her that he had instructed Vincent Roe to act for her and she had assumed that her legal aid certificate would be transferred to them.
81. At the meeting of shareholders held at the Conrad Hotel and at the later 1996 meetings Mrs. Taylor's case was discussed. She was not invited to these meetings and therefore had no opportunity of correcting the estimate of £1.4 million put upon her claim. Nor was she able to inform the shareholders that no agreement had been made for FLS to receive 50% or any other share of her settlement. By November 1996 agreement had been reached on her claim and a consent order was drafted and signed by Mrs. Taylor under which the property known as Willow Cottage, Muchelney in Somerset was transferred to her. She was also to receive within 28 days of the order a lump sum of £65,000. What then followed has led to Mrs. Taylor's claim in these proceedings.
82. On 16th December 1996 Mrs. Taylor wrote to Sherrards and requested them to transfer the £65,000 to the ASC account with the Midland Bank in Hitchin. In her letter she said that it would be of great help if the money could be paid before Christmas. On Mr. Day's computer disc is a letter dated 18th December 1996 which asks for Mrs. Taylor's authority to deduct the fees of Ottoways and Vincent Roe from the £65,000 but it makes no reference to his own fees. There is no letter in reply and Mrs. Taylor says that she never received this letter or gave the authority it requested.
83. By 24th December the £65,000 had not been paid and Mr. Day spoke by telephone to Mrs. Ralfe of Sherrards. He says that he wanted to obtain something for Mrs. Taylor before Christmas and that he asked Mrs. Ralfe if she would telephone the Official Solicitor and obtain the release of some of the money. According to him Mrs. Ralfe suggested £10,000 and was able to obtain instructions to pay this sum. It was transferred to the ASC bank account later that day. Mrs. Ralfe's account of her conversation with Mr. Day is rather different. Her evidence was that Mr. Day told her that Mrs. Taylor desperately needed the money before Christmas because she had purchased a car on the strength of the consent order which would be repossessed that very day unless she had the money to pay for it. It was on that basis that Mrs. Ralfe took steps to expedite payment of the £10,000.
84. Mrs. Ralfe's letter to the Official Solicitor faxed on 24th December refers in terms to the conversation she described with Mr. Day and I accept her evidence of that in preference to that of Mr. Day. I have no doubt at all that Mr. Day told a deliberate lie in order to obtain payment of the £10,000. I also accept Mrs. Taylor's evidence that she did not receive the letter of the 18th December. But the circumstances in which Mr. Day obtained the money are in my judgment irrelevant to the question whether he is entitled to retain it. Mrs. Taylor had given her authority to Sherrards on the 16th December to pay the £65,000 to ASC. No deception was practised on Mrs. Taylor to obtain this authority and the deception practised on Mrs. Ralfe was only effective to accelerate the otherwise authorised payment. But on 28 th December 1996 Mrs. Taylor was telephoned by Mr. Houghton who told her that FLS had cash flow problems but that her case had been said to be worth £1.4 million at the recent shareholders meetings. She was obviously disturbed to hear this and immediately faxed a letter to Mrs. Ralfe asking her to send the £65,000 direct to her. This was followed by a telephone conversation between them on 31st December in which Mrs. Ralfe confirmed that she had already sent £10,000 to Mr. Day. The balance of the £65,000 was transferred directly into Mrs. Taylor's bank account.
85. Unless Mrs. Taylor authorised Mr. Day to receive the £10,000 and to utilise it for his own purposes he is obliged to hold it to her account and to pay it to her as requested. Mr. Day says that he had a conversation with Mrs. Taylor on 3rd January 1997 in which she told him that he could keep the £10,000 on account of his costs. Mrs. Taylor's account of this conversation is that it was an angry exchange in which she referred to Mr. Day's conversation with Mrs. Ralfe and asked for her money back. I accept this evidence. Mr. Day never had any authority to keep the £10,000 and must repay it to Mrs. Taylor.
86. I will make a declaration against Mr. Day that he is liable for all the monies misappropriated from FLS by Mr. Fayers after 1st October 1994 including any monies paid direct to Mr. Fayers. I will also direct whatever accounts and inquiries are necessary to identify and obtain payment of these sums. In respect of Mrs. Taylor's claim I will order Mr. Day to pay to her the sum of £10,000 with interest. I will hear the parties on the form of order and on costs.