Clarence Road Development Limited v 4 Browns Close Limited

Introduction 1.By an application dated 18 December 2923 the Applicant (‘CRDL’) applied to enter a restriction against the title of the property referred to as land adjoining 4 Browns Close (‘the Property’) registered in the name of the Respondent (‘4BCL’).

2. The claim was made on the basis that CRDL has a beneficial interest in the Property by means of a resulting trust. Specifically, it was alleged that the Property was developed by Adam Barker, a former director and continuing shareholder in CRDL, wrongfully using funds belonging to CRDL.

3. The restriction sought in standard form A is the following: ‘ No disposition by a sole proprietor of a registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by order of the court’.

3. There is no dispute but that CRDL funds (in the sum of £ 35,745.04) were used for that purpose of developing the Property. 4BCL claims that those sums were part of sums due to Mr Barker, by way of an unpaid shareholder’s loan.

4. In addition, it is Mr Barker’s case, on behalf of 4BCL, that the provision set out in clause 61(q) of the shareholder agreement dated 12 November 2018 prevents CRDL from pursuing these proceedings. This clause provides that the shareholders must ensure (as far as lawfully possible) that the Company does not, without the consent of all the shareholders (either obtained at a shareholder meeting or in writing): ‘ start any legal proceedings (other than debt recovery in the ordinary course of business)’ . Background and evidence 5 . Mr Barker is the sole director and shareholder of 4BCL. He remains a 50% shareholder in CRDL, but was removed as director in September 2023. It is his case that he was wrongfully removed.

6. CRDL was incorporated in December 2016. The business of the company is development and building projects. Mr Arthur is a director of CRDL and gave evidence on its behalf.

7. It is common ground that there is an ongoing dispute between the other shareholders of CRDL and Mr Barker relating to a development carried out by CRDL and completed in March 2022.

8. Mr Arthur agrees that Mr Barker had made a shareholder loan in the sum of £100,000 in February 2018. £50,000 was repaid on 21 March 2023. The remainder, he stated, remains in dispute as part of a wider dispute connected with the development completed in March 2022.

9. The sum of £35,745.04 was used by Mr Barker (using a CRDL Barclaycard) between 1 April 2023 and 2 August 2023 for the purpose of buying building materials for the development of the Property. This was done without the consent of the directors and other shareholders of CRDL.

10. I have seen emails and letters between the parties and their solicitors in the period 26 July to 3 February 2025. These fall into two groups: the first are emails between Mr Arthur and Mr Barker July-August 2022; the second are letters between solicitors in the period 17 March 2023 to 3 February 2025.

11. In response to a query set out in an email dated 29 July 2022 from Mr Arthur, Mr Barker confirmed that he would terminate the agreement with Barclaycard Commercial and that he would not use the credit card attached to that account.

12. The correspondence I have seen begins again on 17 March 2023. The solicitors acting for Mr Barker noted that Mr Arthur had refused to agree to the pro rata distribution of shareholder funds on the basis that he believed he had some claim over Mr Barker’s funds. This claim was refuted. The letter suggested that there should be a pro rata distribution in full ( £287,500 to Mr Arthur and his father and £87,500 to Mr Barker ) without prejudice to any claim either party might have against the other. In the event, after further correspondence, it was agreed that Mr Barker would receive £50,000, without prejudice to any claims either party might have.

13. The run of correspondence is clearly not complete. It appears that Mr Barker then issued a statutory demand for the balance of what was owed to him. By letter dated 24 April 2024 his solicitors stated that he would be happy to withdraw the statutory demand and agree to mediation on condition that the balance of his shareholder loan was repaid in full.

14. Again, there is a gap in the narrative. But by October 2023 it is clear that matters had not been resolved. Mr Barker’s solicitors asked Mr Arthur, amongst other things, to remove his application for a restriction against the title of the Property. I am told that a total of 5 application for a restriction have been made, and all (but the one I am concerned with) were withdrawn.

15. In response, CRDL stated that, notwithstanding Mr Barker’s agreement not to use the company Barclaycard, it has become obvious that this had been used to fund expenditure in the sum of approximately £36,000 to the detriment of CRDL, thus giving rise to a claim in restitution.

16. I have also seen undated draft particulars of claim between CRDL and Mr Barker, which relate both to the dispute concerning the development completed by CRDL in or around March 2022, and the £35,745.07 used by Mr Barker in connection with the development of the Property. The relief sought in those particulars was payment of monies by way of equitable compensation or restitution of unjust enrichment and a declaration that any sums received by Browns Close are held on a constructive trust. Those proceedings were never issued.

17. Mr Barker’s evidence is that he decided to take matters into his own hands, and did so without communicating his intention to Mr Arthur. It is his case that he is still owed some £15,000. He accepted that he had agreed to destroy the Barclaycard, but he had changed his mind in view of the fact that no resolution had been reached. The money was used only to reduce the balance of the outstanding shareholder loan. Submissions and analysis

18. Two issues arise. The first is whether it is correct, as Mr Barker argues on behalf of 4BCL, that CRDL is precluded from applying for a restriction by reason of the provision in paragraph 61(q) of the shareholder agreement. His case, simply stated, is that the proceedings before me are legal proceedings, and are not proceedings for the ‘ recovery of debt in the ordinary course of business.’ . The second is whether the Applicant is entitled to enter a restriction on the title of the Property. Jurisdictional issue

19. Mr Withers, for CRDL, submits that 4BCL’s submission must fail because first, the application for a restriction is not, in and of itself, a legal proceeding but is rather the application for an administrative protective measure. In any event, the proceedings were not begun by CRDL but by the objection to the application for a restriction lodged by 4BCL. Secondly, the articles permit the use of legal proceedings to recover a debt in the ordinary course of business. Thirdly, and in any event, Mr Barker cannot rely on his own wrongdoing to restrain CRDL from seeking to follow the monies paid out in breach of trust.

20. I am not aware of any decision in which the issue of whether or not proceedings before the Tribunal can properly be described as legal proceedings. The Tribunal judges (and formerly, before 2013, the Adjudicator to HM Land Registry and his deputies) have expressed different views as to whether a reference to the Tribunal will stop time running for the purposes of limitation in adverse possession cases, and for the purposes of prescription. The view expressed in Megarry and Wade, 9 th ed, para 7-019 is that a reference is not an ‘action’ to recover the disputed land. This is a different question, however, to whether or not a reference to the Tribunal constitutes legal proceedings.

21. I agree with the submission that the application for a restriction cannot be described as legal proceedings. However, it seems to me that once an objection is raised, and a reference made to the Tribunal, the proceedings thereafter are properly to be described as ‘legal proceedings’, and cannot sensibly be described in any other way.

22. I do not consider that there is any merit in the submission that CRDL did not begin the proceedings because they were caused by 4BCL’s objection to the application. But for the application, there would not be any legal proceedings. Nor can I accept the submission that the claim to register a restriction, based on a breach of fiduciary duty, can be described as an action to recover a debt in the ordinary course of business. Even if successful, for the reasons explained below, the issue of what sums are due from Mr Barker to CDRL, if any, remains to be determined in court proceedings, if not agreed.

23. However, I accept the submission that directors cannot take advantage of their own breach of duty to block proceedings against them for that breach of duty. The point arose in Fusion Interactive Communication Solutions Ltd v Venture Investments Placement Ltd [2005 ] EWHC 736 in turn considered in Rushbrooke UL Ltd v Designs Concept Ltd [2022] EWHC 1110. As the judge noted in Rushbrooke, it cannot be right that a director can take advantage of his or her own breach of duty by blocking a challenge against a company in which the director has an interest.

24. It follows, therefore, that if CRDL is entitled to a restriction, on the grounds of Mr Barker’s breach of fiduciary duty, 4BRC cannot prevent those proceedings. The substantive issue

25. Mr Withers, for CRDL, submits that this is a case where Mr Barker acted in breach of his fiduciary duties by making a profit for his own company, and therefore a constructive trust arises over the funds which can be traced to the Property, citing Agip (Africa) Ltd v Jackson [1991] Ch 547 and the well known case of Foskett v McKeown [2001] 1.A.C 102. As stated in that case, the basic rule is that, where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it. It does not matter that the trust money was mixed with the wrongdoer’s own money. 26.There is no dispute in this case that Mr Barker, as director of CRDL, and as holder of the company card, owed a fiduciary duty in respect of the debts incurred on that card. The misuse of that card for payments not related to CRDL entitles the company, without more, to trace those sums. The fact that there was and remains a dispute between Mr Barker and Mr Arthur as to funds allegedly owed to Mr Barker is irrelevant: there was no agreement that he could use the credit card in the way he did. Moreover in July 2022 Mr Barker agreed to stop using the card. The correspondence between the parties and their solicitors appears to have reached an agreement that, whilst £50,000 would be repaid to Mr Barker, the remainder of the sum claimed by Mr Barker, would be held by the company until the dispute was resolved.

27. Thus, Mr Withers submitted, even if at the end of the day the dispute is resolved in Mr Barker’s favour, CRDL is entitled to a restriction.

28. Mr Barker submits that no proprietary interest arises in the Property. It is his case that the monies borrowed on the Barclay account are monies properly due to him from the company. The dispute is essentially an internal shareholder and loan accounting issue. CRDL cannot establish a breach of trust in circumstances where it cannot establish, on a balance of probabilities, that any company money was used to develop the Property. A restriction should not be used as a substitute for an injunction, pending the outcome of court proceedings. His agreement not to use the Barclay card was dependent on a resolution of the dispute: he changed his mind and, as he put it, took matters into his own hands.

29. The scope of the Tribunal’s jurisdiction in cases where a restriction is applied for has been considered in a number of cases. In Jayasinghe v Liyanage [2010] EWHC 267, Briggs J (as he was then) dismissed the appeal against the decision of the Deputy Adjudicator and held that the adjudicator was entitled to determine the question whether the applicant had a beneficial interest in the property and was not limited to deciding whether she had an arguable claim which should be referred to a competent court. Briggs J assumed, without deciding the point, that separate proceedings would be needed to determine the quantification of the applicant’s beneficial interest.

30. This point was laid to rest in Hallman v Harkins 2019 UKUT 0245. The Upper Tribunal held that the Tribunal has no jurisdiction to determine the amount of the applicant’s beneficial interest. This is a matter for the courts. 31.In the present case, in any event, I am not in a position to determine whether or not Mr Barker owes money to CRDL, or whether, as he alleges, further monies are owed to him.

32. In my judgment, CRDL is entitled to the restriction sought. Mr Barker acted in breach of his fiduciary duties by using money belonging to CRDL to provide part of the costs incurred in developing the Property. The wrongful use of this money is itself sufficient to entitle CRDL to a restriction against the title of the Property. I do not need to be satisfied that, as between the shareholders, money was or was not owed to Mr Barker. This is a matter to be determined by the courts, if not capable of being otherwise resolved.

33. I will therefore order the Chief Land Registrar to give effect to the application dated 18 December 2023 as if no objection had been made.

34. This leaves the question of costs. CRDL are in principle entitled to their costs from the date of the reference. A schedule in Form N260 is to filed and served by 24 November 2025. 4BCL may respond, either setting out reasons why the costs should not be paid, and/or challenging the amount sought, by no later than 14 days after receipt of the schedule. BY ORDER OF THE TRIBUNAL Judge Ann McAllister Dated this 10 th day of November 2025