Russell Kelsall on a
Court of Appeal decision on pursuing third parties for return of
assets.

 

Photograph of Russel Kelsall, Squire Sanders & DempseyA sister
suing her brother because he refused to tell her where he had
hidden her taxi is not the subject matter of a dispute that you
would expect to be before the Court of Appeal, especially when the
taxi in question had been off the road for five years.

However, that was exactly
what happened in Mainline Private Hire Limited vs Anthony Nolan
[2011] EWCA Civ 189
, where the court had to decide what
constituted possession of the taxi for a claim for
conversion.

 

Facts

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Mr Nolan’s wife and his
sister, Mrs Glover, were directors of Mainline Private Hire Limited
(Mainline). Mainline owned a Peugeot taxi which was used by Mr
Nolan and, when not in use, was parked outside his house. The taxi
was stolen in December 2005 and recovered in January
2006.

The taxi was not recovered in
a driveable state and was therefore delivered by Mr and Mrs Nolan
to a Mr Coulter for storage pending repairs. For Mainline, Mrs
Nolan signed an agreement with Mr Coulter agreeing to store the
taxi for a fee of £10 (€11.3) a day.

Mr and Mrs Nolan did not,
however, tell Mainline that the taxi was in storage with Mr
Coulter.

In January 2006, Mrs Nolan
sold her shares in Mainline to Mrs Glover and Mr Nolan signed an
agreement stating that he would return, on request, any Mainline
assets that were in his possession.

This left Mrs Glover as the
sole remaining director of Mainline. Mrs Glover asked Mr and Mrs
Nolan where the taxi was but they did not tell her. In July 2006,
despite each party being related and the taxi worth very little,
Mrs Glover issued proceedings for delivery up and damages for
conversion against her brother, Mr Nolan.

The main issue for the Court
was whether Mr Nolan had possession of the taxi or whether its
storage by Mr Coulter meant that he no longer had possession of it.
If Mr Nolan was not in possession of the taxi, the claim would
fail.

 

The County
Court

At trial, His Honour Judge
Armitage QC decided:

  • Despite Mainline’s
    arguments, the storage contract with Mr Coulter was
    genuine.
  • Mr Nolan had been in
    possession of the taxi until it was stolen and then regained
    possession of it when it was recovered.
  • Despite the fact the taxi
    was then placed under Mr Coulter’s control (and he would have been
    entitled to exercise a lien over the taxi for his storage
    charges), Mr Nolan remained in possession of the taxi as he had
    personally chosen the storage site, knew Mr Coulter, and his
    general intention to possess the taxi had not changed.
  • Mr Nolan remained in
    possession of the taxi until he directly, or through his wife, told
    Mainline about its location.
  • Mr Nolan converted the taxi
    from the date of Mainline’s demand following the compromise
    agreement in January 2006.

The main issue for the Court
was whether Mr Nolan had possession of the taxi or whether its
storage by Mr Coulter meant he no longer had possession of
it.

 

Court of
Appeal

The Court of Appeal broadly
agreed with the judge’s findings. In particular, it agreed Mr
Coulter did not have exclusive possession of the taxi because
anyone authorised by Mainline could, at any time, pay the storage
charges and collect the taxi.

The Court of Appeal also
agreed that by keeping Mainline in the dark about the storage
contract, Mr Nolan had obtained factual possession of the taxi
since Mr Coulter could not enforce the storage contract against Mr
Nolan (only against Mainline). This, coupled with Mr Nolan’s hope
he would get to keep the taxi at the end of the day, meant he
maintained possession of it.

The Court of Appeal
concluded: “As a matter of law, it cannot universally be the case
that a person who receives a vehicle for storage for reward obtains
possession. Since both elements of possession turn on the facts,
the court must look at all the circumstances of a case, and not
simply, where there is a contract, at the terms of that
contract.”

The Court of Appeal
unsurprisingly criticised the proportionality of the litigation
over a taxi that had been in an un-driveable state for around five
years. It urged the parties to reach an agreement over damages
rather than wasting further costs.

 

Comment

The decision clarifies that a
key element for possession in conversion claims is intent. Just
because one does not have physical possession of something does not
mean there is no factual possession.

While the case did not
involve finance companies, it is a useful decision for lenders
seeking to recover assets from insolvent companies where one of the
former directors has apparently sought to put the asset beyond the
lender’s reach. It is a fairly common scenario where a director
moves assets formerly subject to finance agreements to a location
that will be difficult for the lender to find.

This decision confirms that,
as long as the requisite intention on the director’s part can be
proved, he or she can be liable for conversion and a delivery-up
order may be made even if he is not in physical possession of the
asset.

If a director has also
procured the sale of an asset subject to a finance agreement,
lenders should also consider pursuing directors. Following the
Court of Appeal’s decision in Joiner and another vs George and
others [2002] All ER (D) 64
, a director may be liable for the
torts of a company:

  • if he personally committed
    the tort;
  • if, though carrying out his
    duties for the company, he nevertheless assumed a personal
    liability; and
  • if, although he did not
    commit the tortious act himself, he procured the company to do
    it.

While it will be difficult to
impose liability on a director merely carrying out his duties as
company director (such as voting in board meetings); a director who
goes further and personally procures the commission of a tortious
act will be as liable for the tort as the company.

Russell Kelsall is a
senior associate at Squire, Sanders & Dempsey
(UK)