Carey Street Investments Ltd ((in Liquidation)) v Grant Timothy Brown
| Jurisdiction | England & Wales |
| Judge | Robin Vos |
| Judgment Date | 28 April 2023 |
| Neutral Citation | [2023] EWHC 968 (Ch) |
| Docket Number | Claim No: BL-2020-002295 |
| Court | Chancery Division |
| Year | 2023 |
[2023] EWHC 968 (Ch)
Robin Vos
(SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)
Claim No: BL-2020-002295
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
BUSINESS LIST (ChD)
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Christopher Parker KC and Edward Meuli (instructed by Gateley PLC) appeared for the Claimants
Hugh Norbury KC and Dan McCourt Fritz (instructed by Gowling WLG (UK) LLP) appeared for the Defendants
Hearing dates: 28 February, 1, 2, 6, 7 and 10 March 2023
Approved Judgment
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Friday 28 April 2023 at 10:30am
Introduction
The claims in this case involve allegations of tax evasion relating to the affairs of the two claimant companies (which are both UK companies), Carey Street Investments Limited (“CSI”) and 245 Blackfriars Road Property Investments Limited (“BRP”). Both of these companies are now in liquidation, having substantial debts (totalling close to £10m) to HM Revenue & Customs (“HMRC”).
During the period relevant to these proceedings (between 2004–2006), the second defendant, Equity Trust (Jersey) Limited (“Equity Trust”), a trust and company service provider in Jersey, was the trustee of two trusts known as the Ironzar Trust and Ironzar II Trust (which I will refer to for simplicity as Ironzar or the Ironzar Trusts) connected with the family of Simon Halabi, a well-known figure in the UK property industry. In its capacity as trustee of those trusts, Equity Trust was the ultimate owner of the claimant companies.
The first defendant, Grant Brown joined Equity Trust in July 2004 as an executive director. Mr Brown is a chartered accountant. He took over responsibility for the Ironzar structures and the relationship with Mr Halabi when the previous director, Melvin Kalman retired in October 2004. He became a director of the claimant companies and also their Jersey parent companies.
CSI was the owner of a property in Carey Street, London known as New Court. BRP owned another London property known as Ludgate House.
The claimant companies say that, in breach of his duties as a director, Mr Brown, with a view to the evasion of corporation tax on capital gains by the claimant companies, agreed to the transfer of the properties owned by them to their parent companies at a substantial undervalue. CSI also says that Mr Brown, in a further attempt to evade tax on the part of CSI, agreed improperly to the payment by CSI to its parent company of interest and management charges which were not justified.
There are two further matters which the claimant companies complain about in relation to the transfer of the properties by those companies to their parent companies. As far as CSI is concerned, this is the payment of a dividend representing part of the proceeds of sale of New Court in respect of which CSI alleges that the relevant statutory requirements were not met. As far as BRP is concerned, the issue relates to the fact that a part of the purchase price for Ludgate House was left outstanding as a loan due from the parent company to BRP.
Given that the alleged breaches of duty all took place between 2004–2006 and the claims were only issued in 2020, they would normally be outside the relevant limitation period. However, the claimants say that the breaches of duty were fraudulent so that, in accordance with s 21 Limitation Act 1980, no limitation period applies.
I should mention that, in the pleadings, there is some reference to the possibility that some of the transactions identified by the claimants may have been ratified by the relevant parent company. The response to this from the claimants is that the transactions in question are unlawful distributions and therefore incapable of ratification and that a fraudulent breach of duty cannot in any event be ratified.
The defendants concede that, if the breaches of duty are found to be fraudulent, ratification is not available as a defence. On this basis, the question as to whether the transactions give rise to unlawful distributions does not arise except in relation to the CSI dividend where, as I have said, the allegation is that Mr Brown knew that the statutory requirements were not satisfied (which would render the dividend unlawful).
The claimants' case against Equity Trust is that it is liable for the breaches in question either on the basis that it is vicariously liable for the actions of Mr Brown (as his employer) or that the breaches of duty were committed by Equity Trust itself either as a shadow director or de facto director of the claimant companies. In relation to the question as to whether any such breaches were fraudulent, they say that Mr Brown's knowledge can be attributed to Equity Trust.
As can be seen, some of the claims are made by CSI and others by BRP. For convenience, I will however just refer to the claimants collectively rather than distinguishing between them in respect of each separate element of the claims. The total value of the claims made by the claimants is close to £26m.
Background facts
Before looking at the claims made by the claimants in more detail, it is helpful to set the scene by summarising the background facts in respect of which there is no real dispute.
The Ironzar Trusts held a number of significant property investments for the benefit of Mr Halabi's family. The properties were held by various companies owned by Ironzar (where relevant, a reference to Ironzar or the Ironzar Trusts is intended to include Equity Trust in its capacity as trustee of those trusts).
Generally speaking, each property was held by a separate company owned either directly by the Ironzar Trusts or through one or more intermediate holding companies. During the period in question, the entire property portfolio was said to be worth close to £2bn although there were significant borrowings secured on the properties.
The property empire was overseen by Buckingham Securities Holding plc (“Buckingham”), a company owned by another trust connected to Mr Halabi's family. Mr Halabi provided input through his role with Buckingham although most of the day to day interactions with the Ironzar structure were handled by Buckingham's head of finance, Harry Sihra.
It appears that Buckingham's relationship with Ironzar was only formalised in December 2003 when it signed an agreement with Equity Trust (as the Ironzar trustee) to provide management services in relation to the various properties held by the companies owned by Ironzar including, at that stage, CSI.
During the period in question, the Ironzar structure received legal and tax advice from Olswang and SJ Berwin and also received accountancy and tax advice from BDO in Jersey.
CSI was originally part of the Blackmoor Group of Companies, a third party unconnected to Ironzar and Mr Halabi. In April 2002, Ironzar agreed to purchase CSI (and therefore New Court) for a total consideration equal to £60m (although, prior to completion, the purchase price was increased by about £220,000). The purchase was made by a newly formed Jersey subsidiary of Ironzar, New Court Properties Limited (“NCP”) which therefore became the parent company of CSI.
A large part of the purchase price was funded by borrowings from Société Générale (“Soc Gen”) comprising a senior facility of £52m and a junior facility of £4m. For this purpose, in May 2002, Soc Gen obtained a valuation of New Court of £65m from a third party valuer, DTZ. The senior facility was 80% of that valuation.
As part of the purchase arrangements, NCP made a loan of £2.25m to CSI. The loan was to be interest free until a demand for repayment was made, at which point interest at 4% above the base rate of Barclays Bank plc was payable until the loan was repaid in full.
Mr Kalman who, at this time, was responsible for the Ironzar Structure became a director of CSI in December 2003.
In June 2004, Equity Trust was endeavouring to finalise the CSI financial statements for the period to 31 December 2002 as they should by then have already been filed with Companies House. In this context, Mr Sihra proposed that the loan due from CSI to NCP should bear interest at 12%, suggesting that the original documentation of the loan as being interest free was an error. He also proposed that CSI should pay a management fee of £150,000 a year to NCP.
These proposals were approved by CSI in November 2004, not long after Mr Brown had taken over from Mr Kalman as a director of CSI. Shortly after this, CSI's 2002 accounts were approved. In those accounts, New Court had been revalued to £65m based on the May 2002 DTZ valuation.
In March 2005, Ironzar agreed to purchase two properties from the Minerva Group (again, unconnected to Ironzar or Mr Halabi). One of those properties was Ludgate House. The other was an adjoining property known as Sampson House. These two properties were together known as the Bankside Estate.
As with New Court, the purchase took the form of the acquisition by newly formed Jersey subsidiaries of Ironzar of the shares in the companies within the Minerva Group which owned the two properties.
In the case of Ludgate House, the purchaser was Ludgate Property Holdings (Jersey) Limited (“LPH”) which purchased the shares in BRP. For Sampson House, the purchaser was Sampson Property Holdings (Jersey) Limited (“SPH”) and the company which was purchased was called Angelmist Properties Limited (“APL”). The combined...
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