Money Markets International Stockbrokers (in Liquidation)

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian J. McGovern
• Judgment Date: 23 May 2012
• Neutral Citation: [2012] IEHC 214
• Court: High Court
• Docket Number: [No. 32 COS/1999]
• Date: 23 May 2012

[2012] IEHC 214

THE HIGH COURT

[No. 32 COS/1999]

Money Markets International Stockbrokers (in liquidation), In re

IN THE MATTER OF MONEY MARKETS INTERNATIONAL STOCKBROKERS (IN LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009

COMPANIES ACT 1963 S280

EUROPEAN COMMUNITIES (MARKETS IN FINANCIAL INSTRUMENTS) REGS 2007 SI 60/2007 REG 158

EUROPEAN COMMUNITIES (MARKETS IN FINANCIAL INSTRUMENTS) REGS 2007 SI 60/2007 REG 159

STOCK EXCHANGE ACT 1995 S52

STATUTE OF LIMITATIONS 1957 S11(1)(A)

GENERAL ROLLING STOCK CO, IN RE 1871-72 7 LR CH APP 646

FINANCIAL SERVICES COMPENSATION SCHEME LTD v LARNELL (INSURANCES) LTD (IN LIQUIDATION) 2006 QB 808 2006 2 WLR 751 2006 BCC 690 2006 PNLR 13

BENZON, IN RE 1914 2 CH 68

COTTERELL v PRICE & ORS 1960 1 WLR 1097 1960 3 AER 315

ANGLO MANX GROUP LTD v AITKEN 2002 BPIR 215 2001 AER (D) 31 (OCT)

COMPANY LAW

Liquidation

Application by liquidator for directions - Proceeds of sale of shares - Company wound up - Contract for sale - Recourse of liquidator to client money for purposes of meeting costs of winding up - Ownership of shares - Statute barred - Limitation period - Vendor of shares - Broker - Estoppel - Leave of court obtained to sell tranche of purchaser's shares - Rolling stock principle - Whether proceeds of sale of shares represented client money held on behalf of purchaser - Whether statute barred - In re General Rolling Stock Co Ltd [1872] LR 7 Ch App 646; Financial Services Compensation Scheme v Larnell (Insurances) Ltd [2005] EWCA Civ 1408, [2006] QB 808; In re Benzon [1914] 2 Ch 68; Cotterell v Price [1960] 1 WLR 1097 and Anglo Manx Group Ltd v Aitken [2002] BPIR 215 considered - European Communities (Markets and Financial Instruments) Regulations 2007 (SI 60/2007), regs 158 and 159 - Companies Act 1963 (No 33), s 280 - Stock Exchange Act 1995 (No 9), s 52 - Statute of Limitations 1957 (No 6), s 11(1)(a) - Directions made (1999/32COS - McGovern J - 23/5/2012) [2012] IEHC 214

In re Money Markets International Stockbrokers (in liquidation)

Facts: The High Court had ordered the insolvent company to be wound up in 1999. Prior to this, a disputed contract for sale of shares in another company to a Mr. Fanning had been drawn up in 1998. If the proceeds of the sale were ‘client money’ held on behalf of Mr. Fanning, the proceeds could not be used for the costs of winding up, or for distribution to creditors. The liquidators therefore sought directions from the Court as to the status of the proceeds. In March 2012 the Court directed a trial of the preliminary matter of whether Mr. Fanning”s claim in regard to the shares or the proceeds was statute-barred, as more than six years had passed from the contract of sale.

Held by McGovern J that Mr. Fanning”s claim was solely derived from the contract of sale between the liquidators and himself. The evidence suggested no payment had been made in relation by Mr. Fanning in relation to the shares. Following the relevant authorities, Mr. Fanning”s claim was a contractual claim against the liquidators outside the liquidation itself and his cause in action, if there was one, began in September 1998. As such, his claim was time-barred under the Statute of Limitations Act 1957. Financial Services Compensation Scheme v Larnell (Insurances) Ltd [2006] QB 808 and Cotterell v Price [1960] 1 WLR 1097 followed.

Mr. Justice Brian J. McGovern

1 These proceedings arise by way of an application for directions brought by the liquidator of Money Markets International Stockbrokers Ltd. (in liquidation) (hereinafter referred to as the "Company"). The application relates to the proceeds of sale of shares in Dana Petroleum plc. (hereinafter referred to as "Dana") which were the subject of a series of disputed sales brokered by the Company.

2 The parties to this application are the liquidator, Consulting and Investment Services Inc. (hereinafter referred to as "CIS") who sold the shares, and Mr. Hilary Fanning, purported purchaser of the shares. Books and records of the Company show that the disputed contract for sale was made on 7^th September, 1998, recorded in contract note S80907070 and contract note B80907068.

3 On 15^th March, 1999, the High Court directed that the Company be wound up. These proceedings concern an application for directions brought by the liquidator pursuant to s. 280 of the Companies Act 1963, or the inherent jurisdiction of the court as to whether the proceeds of sale of the shares "represent client money or client financial instruments or documents of title relating to such financial instruments" held on behalf of, inter alia, Mr. Hilary Fanning.

4 The determination of whether the proceeds represent client money is relevant for the purposes of the European Communities (Markets and Financial Instruments) Regulations 2007 ( S.I. 60/2007) as Regulations 158 and 159 thereof (as amended) provide that a liquidator is not entitled, except as provided therein, to have recourse to client money or client financial instruments for the purposes of meeting the costs and expenses or distributing among the creditors of the company being wound up. The said Regulations replace a prohibition in similar terms contained in s. 52 of the Stock Exchange Act1995, as amended.

5 The liquidator accepts that if it can be established by Mr. Fanning that he owned the relevant Dana shares, they would have been client financial instruments and, accordingly, the proceeds of sale thereof would be client money. However, the liquidator submits that the said shares were not owned by Mr. Fanning and, due to the passage of time since the contract for sale was allegedly made, they cannot now be claimed by Mr. Fanning.

6 On 5^th March, 2012, Finlay Geoghegan J. directed the trial of a preliminary issue as to whether Mr. Fanning's claim is statute-barred, having regard to the provisions of the Statute of Limitations 1957.

7 The evidence establishes that the Company acted as broker in the purported sale of shares by CIS to Mr. Fanning. A curious feature of this case is that while Mr. Fanning now asserts ownership of the shares, he previously denied he had purchased them. When the liquidator wrote to Mr. Fanning seeking payment of sums due to the Company on account of the purchase of the shares from CIS, Mr. Fanning's solicitors replied saying that the document on which the liquidator relied was a forgery, and in a letter of 20^th August, 1999, his solicitors denied that he had traded with the Company. On 9^th May, 2000, the solicitors for the liquidator wrote to Mr. Fanning's solicitors stating, inter alia:

"As indicated in our client's letter to your client dated 24^th January, 2000, it appears from the books and records of MMI that your client has an unsettled contract to purchase 742,000 shares in Dana Petroleum plc. from CIS. The shares in question are in fact held by MMI in the name of CIS and, as you are aware, we have received a request from CIS for the return of those shares."

8 While I am not deciding the issues raised on the motion for directions, the correspondence to which I have referred is of some relevance to the preliminary issue on the Statute of Limitations and gives some context to that issue.

9 The liquidator and CIS both argue that the Company acted as agent in the purported sale of the shares by CIS to Mr. Fanning. As the contract for the purported sale was made on 7^th September, 1998, the six-year time limit for Mr. Fanning to assert his claim against CIS in respect of the shares became time-barred on 7^th September, 2004. The liquidator and CIS rely on the provisions of s. 11(1)(a) of the Statute of Limitations 1957, as amended.

10 Mr. Fanning relies on the principles enunciated by the Court of Appeal inRe General Rolling Stock Co. Ltd. [1872] L.R. 7 Ch. App. 646. In that case, the court held that a claim which was still in time when the winding up commenced, but which was not asserted by way of proof until after the normal period of limitation had expired, was to be admitted to proof, because it was in respect of something which had been a liability at the commencement of the winding up. The Court of Appeal held that so far as the operation of the winding up is concerned, limitation periods cease to run at that date, so long as they have not already expired. At p. 648, Sir W. M. James L.J. said:

"A duty and a trust are thus imposed upon the Court, to take care that the assets of the company shall be applied in discharge of its liabilities. What liabilities? All the liabilities of the company existing at the time when the winding-up order was made which gives the right. It appears to me that it would be most unjust if any other construction were put upon the section. After a winding-up order has been made, no action is to be brought by a creditor except by the special leave of the Court, and it cannot have been the intention of the Legislature that special leave to bring an action should be given merely in order to get rid of the Statute of Limitations."

In agreeing, Sir G. Mellish L.J. said at p. 649:

"It appears to me to be the clear meaning of that section, that the assets should be applied in satisfaction of all the liabilities which existed at the time of the winding-up order. That being so, I think we must consider that the Legislature intended us to follow the analogy of other cases where the assets of a debtor are to be divided amongst his creditors, whether in bankruptcy or insolvency, or under a trust for creditors, or under a decree of the Court of Chancery in an administration suit. In these cases, the rule is that everybody who had a subsisting claim at the time of the adjudication, the insolvency, the...