David Ingram (as liquidator of MSD Cash & Carry Ltd) v Mohinder Singh
| Jurisdiction | England & Wales |
| Judge | Jonathan Richards |
| Judgment Date | 23 March 2021 |
| Neutral Citation | [2021] EWHC 639 (Ch) |
| Date | 23 March 2021 |
| Docket Number | Case No: CR-2012-005358 |
| Court | Chancery Division |
[2021] EWHC 639 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building
Fetter Lane
London, EC4A 1NL
JUDGE Jonathan Richards
Sitting as a Deputy Judge of the High Court
Case No: CR-2012-005358
Clara Johnson (instructed by Moon Beever LLP) for the Applicant
Geraint Jones QC (instructed by Rainer Hughes Solicitors) for the Respondents
Hearing date: 9 March 2021
Draft judgment circulated: 17 March 2021
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The two Respondents (individually “R1” and “R2” respectively) were directors or de facto directors of MSD Cash & Carry Plc (“MSD”), now in liquidation. The Applicant is the liquidator of MSD.
On 5 November 2011, the Respondents caused MSD to give a credit note (the “Credit Note”) in the sum of £996,494.61 1 to a company called Dale Wholesale Limited (“Dale”). By order sealed on 24 July 2018 (the “July 2018 Order”), His Honour Judge Hodge QC, sitting as a judge of the High Court, declared among other matters that the Credit Note was false and a void disposition under s127 of the Insolvency Act 1986. In consequence, it was declared that Dale was indebted to MSD for goods supplied in the sum of £996,494 together with interest.
Paragraph 6 of the July 2018 Order declared that, in causing MSD to give the Credit Note to Dale, the Respondents were guilty of misfeasance and in breach of their fiduciary duties owed to MSD and accordingly were jointly and severally liable to compensate MSD for its loss if Dale failed to make good its liability.
Before making the July 2018 Order, the court had in, the trial judgment reported at [2018] EWHC 1325 (Ch) (the “Trial Judgment”) considered, and rejected, the Applicant's argument that the Respondents' liability to MSD, should Dale not meet its debt, was necessarily equal to the principal amount of that debt together with accrued interest. Very broadly, the court reached this conclusion because it recognised the possibility, raised in submissions recorded at [165] and [166] of the Trial Judgment, that even if the Credit Note had never been issued, Dale's financial position was such that it would not have been able to pay a significant part of the £996,494.61 plus interest that it owed. If that was correct, then making the Respondents liable for the full amount if Dale failed to pay risked over-compensating MSD.
At [173] of the Trial Judgment, the court concluded that the Applicant had demonstrated that the Respondents' misfeasance would cause some loss if Dale failed to pay. However, it declined to take a “robust approach” and determine the measure of that loss at £996,494 plus interest. Accordingly, by paragraph 7 of the July 2018 Order, it was directed that there should be an inquiry (the “Inquiry”) as to the amount of that loss. This is my judgment on the Inquiry.
Preliminary matters of procedure
The procedure at the hearing was complicated by the fact that the Respondents failed to comply with the provisions of an order made by consent on 10
December 2020 (the “Debarring Order”) which provided, so far as material, as follows:“1. The deadline contained in paragraph 2 of the order dated 27 August 2020 as extended by order 30 th October 2020 be further extended to 20 th December 2020 on terms that unless the Respondents do by 4pm on 20 th December 2020 file and serve their evidence in reply they be debarred from filing any evidence or defending the application dated 9 th July 2020 being the Inquiry into loss directed by the Order of 16 July 2018.”
It was common ground that the Respondents did not serve evidence by the applicable deadline so that the Debarring Order took effect. The Respondents applied for relief from sanctions, but ICC Judge Prentis dismissed that application at a hearing on 11 January 2021.
Despite the apparent effect of the Debarring Order, the Respondents made the following applications:
i) On 1 February 2021, they applied for permission to rely on expert evidence. ICC Judge Burton dismissed that application at a hearing on 26 February 2021, but the Respondents sought to renew it at the hearing before me.
ii) They sought permission to make submissions at the hearing before me, although they did not seek permission to cross-examine the Applicant on a witness statement that he had served in connection with the Inquiry.
At the start of the hearing, I heard argument from both the Respondents and the Applicant as to the scope of the Debarring Order and the application for permission to rely on expert evidence. During the hearing, I gave an oral judgment, with reasons, on these matters whose effect was as follows:
i) I refused the Respondents' application for permission to rely on expert evidence.
ii) I refused to hear submissions from the Respondents on the Applicant's case, including those submissions that were contained in the skeleton argument that Mr Jones QC served prior to the hearing, subject to the following limited exceptions:
a) I allowed Mr Jones to make submissions as to the scope of the Debarring Order.
b) Some of the points that Mr Jones had raised in his skeleton argument touched on matters that had occurred to me while I was preparing for the hearing. I concluded that I was entitled to raise those issues with Ms Johnson as part of the ordinary dialogue between judge and counsel, even though they found some echo in Mr Jones's skeleton argument.
c) I allowed Mr Jones to make some submissions on the general question of what the Applicant must prove and where the burden of proof or evidential burden lie.
iii) I indicated that I was likely to wish to hear from the Respondents on the final form of the order and costs.
Findings of fact
Findings in the Trial Judgment
It was common ground that all findings of fact made in the Trial Judgment apply for the purposes of the Inquiry as well. I therefore adopt all findings of fact in the Trial Judgment. I will not summarise all those findings but simply highlight the following as being particularly pertinent to the discussion that follows with references to numbers in square brackets being to paragraphs of the Trial Judgment unless I say otherwise.
At [5] and [9] the court explained that Dale and MSD were connected companies, with both companies' shares being owned by the same family unit. More specifically, R1 held the majority of the shares in MSD, the remainder being held by his wife Mrs Kaur. R1 also held 50% of the shares in Dale, with Mrs Kaur owning the other 50%. Although not mentioned in the Trial Judgment, as it was not material, Mrs Kaur transferred her shares in Dale to Mrs Deol, R2's wife, in around 2013.
The Credit Note was issued by MSD to Dale on 5 November 2011 ([160]) and had the apparent effect of releasing Dale from an obligation to pay £996,494 to MSD. At that time, a petition to wind up MSD had been presented, though that petition had not yet been served ([3]). Ultimately the court made a winding-up order on 16 January 2012 ([3]) which had the effect that the winding-up was treated as commenced when the petition was presented, and so before the date the Credit Note was issued.
The Respondents' case at trial was that the Credit Note was justified in part by the fact that MSD had acquired some £924,000 of stock from a third-party supplier, agreed to supply it onward to Dale, but never delivered it. That account was rejected as untruthful in the Trial Judgment and R2, who gave evidence to this effect was found ([152]) to be a “thoroughly unreliable, incredible and dishonest witness”. It was found ([150]) that the Respondents refused to tell MSD's liquidator who its own supplier of the £924,000 of goods was to make it more difficult for the liquidator to investigate and interrogate the Respondents' explanation for the credit notes. At [151], the court noted that the Respondents had failed to produce documents such as VAT returns and SAGE records for both MSD and Dale that could have corroborated the explanation advanced for the Credit Note, were it true.
Therefore, the Court rejected the Respondents' explanation for the Credit Note. It also made findings as to the Credit Note's true purpose after considering Dale's accounts, for among other years, those ending 31 March 2011 and 31 March 2012. Both sets of accounts were unaudited.
Dale's accounts to 31 March 2011 could not reflect any impact attributable to the Credit Note because the Credit Note was not issued until November 2011. The 2011 accounts showed the following:
i) Current assets of £1,425,938 (consisting primarily of stock of £1,352,512 and cash at bank of £52,162).
ii) Creditors due within one year of £414,445 (and so net current assets of £1,011,493).
iii) Creditors due after more than one year of £1,011,035 (and so net assets of £458).
Dale's accounts for the year ended 31 March 2012, also unaudited, covered the period in which the Credit Note was issued and MSD was put into liquidation. Those accounts showed the following:
i) Current assets of £1,328,991 (consisting primarily of stock of £1,238,195 and debtors of £65,093)
ii) Creditors due within one year of £1,310,467 (and so net current assets of £18,524)
iii) Creditors due after more than one year of £16,437 (and so overall net assets of £2,495).
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Ingram (As Liquidator Of MSD Cash & Carry Limited) V Singh & Anor [2021] EWHC 639 (Ch)
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