Summary

In Stephen Dawson v Laura Bell  [2016] EWCA Civ 96 the Court of Appeal dismissed an appeal by the Claimant in respect of the Claimant’s contribution claim regarding funds misappropriated from a company in which the Claimant and Defendant had both been directors and shareholders. The court held that as the Claimant had misappropriated money from the company for his own exclusive benefit, it was not just and equitable under the Civil Liability (Contribution) Act 1978 s.2(1) that the Defendant should pay a share of what the Claimant owed to the company.

Background

In 2004, the Claimant and the Defendant incorporated Adwelsh Media Limited (“AML”), holding 49% and 51% of the shares respectively. The Claimant and the Defendant were the only directors.

In or around August 2008, the Defendant learned there had been an imbalance in dividend payments and insisted that a series of balancing payments be made to her. The Claimant agreed that the balancing payments should be made.

Pursuant to a Share Purchase Agreement in October 2009 (the “SPA”), the Claimant sold his shares in AML to the Defendant for £47,500. The Claimant also effectively resigned from AML as a director and as company secretary.

The Defendant refused to make the necessary payments to the Claimant under the SPA, on the basis of the dividends the Claimant had previously overpaid himself. The matter became contentious with the Claimant suing the Defendant and the Defendant counterclaiming that the Claimant had misappropriated company funds, which the Defendant sought to recover as assignee of AML. The Claimant contended that, to the extent that the counterclaim succeeded, he was entitled to a contribution from the Defendant pursuant to section 1(1) of the Civil Liability (Contribution) Act 1978 (the “Act”).

Section 1(1) of the Act provides that “…any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage…” The Claimant’s claim was therefore made on the basis that the Defendant should be liable to the company in respect of the misappropriations as well as the Claimant because the Defendant had been aware of them and owed a duty to the company to prevent their taking place.

At first instance, the Defendant was found liable for the unpaid amounts under the SPA. However, her counterclaim succeeded in a greater amount and the Claimant’s claim for contribution failed. The Claimant appealed.

Conclusion

In its decision on the Claimant’s contribution claim, the Court of Appeal focused on the discretion provided to it by section 2(1) of the Act:

“…the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person’s responsibility for the damage in question.”

Lord Justice Tomlinson concluded that the contribution claim failed as it was not just and equitable considering the extent of the Defendant’s responsibility for the damage in question. Lord Justice Tomlinson commented that, if the misappropriated amounts had been used for the joint benefit of the Claimant and the Defendant, the contribution claim may have had merit, but in the circumstances the payments were for the exclusive benefit of the Claimant. Lord Justice Tomlinson therefore concluded that it was not seriously arguable that justice and equity required the Defendant to contribute to the Claimant’s liability to reimburse the company. The appeal was dismissed accordingly.