Credit & Mercantile Plc v Kaymuu Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Tim Kerr |
| Judgment Date | 05 June 2014 |
| Neutral Citation | [2014] EWHC 1746 (Ch) |
| Date | 05 June 2014 |
| Docket Number | Case No: HC13B00758 |
| Court | Chancery Division |
[2014] EWHC 1746 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building, Royal Courts of Justice
7 Rolls Buildings, Fetter Lane
London, EC4A 1NL
Mr Tim Kerr QC (sitting as a Deputy Judge of the High Court)
Case No: HC13B00758
Mr Timothy Polli, instructed by Glovers Solicitors LLP, for the Claimant.
Mr Neil Mendoza, instructed by Haynes Orme, Solicitors, for the Second Defendant.
Mr Hugo Groves, instructed by Boyes Turner LLP, for the Third Defendant.
Hearing dates: 18–21, 24–25 March 2014
Approved Judgment
Mr Tim Kerr QC:
Introduction
This case began life in the Tunbridge Wells County Court as a mortgagee's action for possession of an attractive residential property in Kent ("Dalhanna") formerly occupied by the second defendant ("Mr Wishart"). It was transferred to the Chancery Division of the High Court when it became apparent that a determination was required as to whether Mr Wishart was the beneficial owner of Dalhanna and if so whether his beneficial interest overrode that of the claimant ("C&M"), which held a charge over the property. I heard oral evidence from 15 witnesses. I am grateful to counsel for their helpful written and oral submissions.
C&M's charge was entered into in June 2010 to secure monies borrowed from C&M by the first defendant ("Kaymuu", not to be confused with Kaymuu Trust), the legal owner of Dalhanna. Kaymuu was controlled by Mr Sami Muduroglu, a now bankrupt businessman and gambler believed to be living abroad. I shall call him "Sami" to distinguish him from his brother, Mr Eren Muduroglu ("Eren"). The third defendant is his trustee in bankruptcy ("the trustee"). Mr Wishart and the trustee were joined to the action at their request.
Dalhanna was sold in October 2012 for £1.1 million. C&M seeks to retain £694,072.75 from the net proceeds of sale, to realise its security. Mr Wishart lays claim to the amount held by C&M on the basis that his beneficial ownership of Dalhanna overrode C&M's charge. The balance of £328,158 ("the surplus") has been paid into court, to abide the outcome of this case. The trustee and Mr Wishart both claim the surplus. C&M claims its legal costs of these High Court proceedings from the surplus. The trustee claims reasonable remuneration, costs and expenses from the surplus.
The Facts
Mr Wishart and Sami go back a long way. They first met in about 1998 and became friends and business associates. They were very close; Mr Wishart was the godfather of one of Sami's children. They undertook various property development projects together. Sami had entrepreneurial flair and could be very persuasive. Mr Wishart was and is good at getting things done and bringing ideas to fruition. Over the years, he developed good contacts in the building and allied trades. He was good at sourcing contractors for projects.
It is unnecessary to set out details of the early projects they undertook together, between 1999 and early 2004. Several were ultimately unsuccessful, ending with repossessions of properties by lending institutions. There were never any formal written contractual arrangements between Sami and Mr Wishart. Sami was the wealthier of the two, having profited from the trading of futures. He took the lead and Mr Wishart took a subordinate role.
I do not have clear evidence of what the informal financial arrangements between them were in those early days. Mr Wishart's evidence was that their understanding was that it was "50–50". I accept that such was their loose understanding, but I doubt whether Mr Wishart received anywhere near 50 per cent of any profits. Their financial arrangements were largely improvised and based on friendship and trust. Evidence of later payments by and to Sami, Mr Wishart and Eren (when he later became involved) is of payments of irregular ad hoc amounts, not always supported by any obvious logic, let alone formal contractual foundation or documentation.
From about 29 March 2004, Mr Wishart was remanded in custody on serious criminal charges. On 14 April 2004, while in custody, he executed a general power of attorney in favour of Sami, later revoked on his release from prison. He was unable to take a major active part in their business ventures while in custody. Then in about February 2005, Sami was disqualified from acting as a company director. He looked to his brother, Eren, for assistance. Eren had a background as a City financial trader and, unlike Sami and Mr Wishart, was relatively skilled at handling paperwork and the technical aspects of financing.
Mr Wishart stood trial for four months at Woolwich Crown Court on a robbery charge, from about April to July 2005. At the end of July 2005, he pleaded guilty to theft and was convicted of theft and of two counts of having a firearm with intent to commit an indictable offence. He was sentenced to six and a half years in prison, from which he was not released until June 2007.
Sami's disqualification and Mr Wishart's incarceration meant that of the trio, Eren was the only candidate to act as director of any company set up as a vehicle for their business ventures. He took over as director of various companies in which Sami had an interest. To raise finance for their business ventures, he was required to sign personal guarantees and give security for loans. He accepted these risks and in return, expected to participate in any profits.
I accept Eren's evidence that there was a loose informal understanding between him and Sami that he, Eren, would receive 10 per cent of the profits, if any, from the various business ventures, on the basis that he would "walk away" afterwards, free of further risk and personal guarantees. However, this was subject to discussion of any more specific (but still informal) agreement about how to apportion profits, shares and risk at times when (after paying off creditors) profits were made or imminent.
I accept Eren's evidence that as a general proposition, when there were no profits to discuss, only the raising of finance, the three men did not take up time discussing how to apportion potential future profits; there was only the loose arrangement already mentioned, in the background. The trio's method of doing business was to wait until profits were imminent and then discuss informally how to apportion shares and profits after paying off creditors. Even at that stage, it was not their habit to draw up formal documents.
In about late 2006, Eren went to live in northern Italy, where he stayed until late 2009, though he frequently returned to England to deal with business matters, in particular a property development project on which he and Sami were working in late 2006. Then in 2007, with Mr Wishart still in prison but soon to be released, the three men became interested in the acquisition of a cemetery site at Kemnal Manor, Chislehurst in Bromley. At first, the focus was on the raising of finance to acquire the site. There were no profits to discuss.
Mr Wishart was not involved in the raising of finance for this project, but I accept his and Eren's evidence that the three shared a common intention that Mr Wishart would play a part in the project and receive a share in the eventual proceeds. He had played a part in previous property development projects with Sami and would be an obvious choice of trusted associate when it came to organising the development of the site and the introduction of design and construction contractors to facilitate and execute the construction work needed before the cemetery could start trading.
The existence of that common intention is consistent with Mr Wishart's later involvement with finding contractors for the project and with later evidence of discussions about apportionment of profits and the mechanics of the subsequent purchase of Dalhanna, to which I shall come. It is also consistent with the unchallenged evidence of Mr Wishart that the purchase of a property called "Brookside" for £850,000, undertaken at same time as the acquisition of the cemetery site, was intended to be a "side project for the three of us", as he put it, involving the construction of three houses on the site of Brookside.
The acquisition of the cemetery proceeded as follows. An investment vehicle called Ravenblack Developments Limited ("Ravenblack"), controlled by a businessman from Northern Ireland, Mr David Hassard, provided £7 million, paid in three tranches on 4 May 2007 (£2.5 million), 21 June 2007 (£1.25 million) and 29 June 2007 (£3.25 million). Mr Hassard was a business contact of Eren's who had a good working relationship with Ulster Bank Limited ("Ulster Bank"). Eren had also had dealings with Ulster Bank.
On 4 May 2007, Sami executed a deed appointing Ms Corin Jessup and Mr James Arif to act as his trustees in respect of the purchase of the cemetery site. On 10 May 2007, those trustees exchanged contracts to purchase the site from the co-owners, Messrs Myers and Norman, for £4.5 million. Also on 10 May 2007, Mr Norman contracted with Sami to sell Brookside to him for £850,000. A Northern Ireland limited liability partnership was created, Kemnal Manor Memorial Gardens UK LLP ("KMMG LLP"). Eren and Ravenblack were appointed as members of KMMG LLP on 5 June 2007.
Various payments to other projects (and a payment of £250,000 to Sami personally) were made on 22 June 2007. These payments were made through Stephenson Harwood, who acted as solicitors for Sami and Eren. On 27 June 2007, Mr Wishart was released from Spring Hill prison. Two days later, as already mentioned, Ravenblack paid the last tranche of £3.25 million. Its payments were made to Stephenson Harwood and recorded on the ledger...
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