JD Classics Ltd ((in Administration)) v Derek Hood
| Jurisdiction | England & Wales |
| Judge | Mr Justice Bryan |
| Judgment Date | 26 October 2021 |
| Neutral Citation | [2021] EWHC 3189 (Comm) |
| Docket Number | Case No: CL-2018-0000815 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 3189 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
THE HON. Mr Justice Bryan
Case No: CL-2018-0000815
Mr Adam Al-Attar and Jamal Mustafa appeared on behalf of the Claimants
The First Defendant appeared as a litigant in person
The Second and Third Defendants did not attend and were not represented.
Hearing Date 26 October 2021
Approved Judgment
A. Introduction
There are two applications for disclosure before the court; one by the claimant, JD Classics Limited (In Administration) (“ JDCL”), against the first defendant, Derek Hood (“ DH”), who appears as a litigant in person (the “ JDCL disclosure application”), and another part heard disclosure application by DH against JDCL (the “ DH application”), (together, the “ applications”). This judgment deals with the DH application.
There is also an application by JDCL for an “unless order”, in circumstances where DH has not filed and exchanged witness statements of fact in compliance with the consent order of Bryan J dated 14 June 2021 (the “ Bryan Order”) (the “ unless order application”, which together with the JDCL disclosure applications, I will refer to as the “ JDCL applications”). The JDCL applications will be heard tomorrow and I will give a separate judgment in relation to them.
The JDCL applications have come on together, along with the part heard DH application, pursuant to the direction of HHJ Pelling QC, (sitting as a High Court Judge) by way of order dated 24 September 2021 (the “ Pelling order”), following the first hearing of the DH application (the “ first disclosure hearing”), the balance of which was stood over to this hearing, along with the JDCL disclosure application. An approved transcript of HHJ Pelling QC's judgment at the first disclosure hearing is before me (the “ Pelling judgment”).
The Pelling judgment itself identified the applicable principles to be applied in relation to paragraphs 17 and 18 of Practice Direction 51U (the “ Disclosure Pilot”), which I will repeat below in section C for ease of reference, and applied those principles to such of DH's requests it was possible to deal with within the two and a half hour time slot of that hearing. The current hearings are set down for up to two days, to ensure that all matters are resolved. In circumstances where there are numerous requests, and time is of the essence, I will address each application in turn during the course of the hearing, so that the parties know where they stand in relation to each aspect of disclosure before the end of the hearing and when considering JDCL's application for an unless order and DH's order for an extension of time.
The urgency of the matter is dictated by the fact a four-week trial of these proceedings is listed for January 2022, with a pre-trial review on 16 December 2021. Unless the outstanding disclosure issues are resolved at this hearing, there will be a potential risk to the trial date, in circumstances where DH has declined to file his evidence, in circumstances where he asserts that JDCL's disclosure is outstanding. It was in such circumstances that HHJ Pelling QC ordered that the DH and JDCL disclosure applications be heard by the end of October 2021, along with any application by JDCL for an unless order in respect of DH's failure to comply with the Bryan Order.
JDCL's position is that DH's assertion that its disclosure is outstanding and required for him to file and exchange his witness statement of fact is totally without merit. In this regard, and as appears from the Pelling judgment on the first disclosure hearing, HHJ Pelling QC rejected DH's assertion that JDCL's disclosure had been inadequate. I will have to revisit such assertion in the context of the outstanding disclosure applications of DH.
JDCL's position is that it has complied with its disclosure obligations and that it is DH's disclosure that is outstanding and his witness statements of fact that have been unjustifiably withheld. The risk that arises is one of an unfair trial or a postponed trial if incomplete disclosure is given or if there is delay in the service of factual and expert evidence.
B. Background
The background to the action and the matters arising for determination is conveniently set out in the case memorandum, and also summarised in JDCL's skeletons for the present hearing.
JDCL was, at all material times, engaged in the business of purchasing, restoring, racing and selling classic and prestige cars and racing vehicles. It was a substantial business and its principal revenue and profit was derived from a small number of customers dealing in very high value classic cars, in particular, Jaguars, and later also, Ferraris.
DH was the founder of JDCL and was its chief executive officer and director until his dismissal in June 2018. Sarah Hood (“ SH”) is DH's wife and in or about July 2016, DH and SH held the entire issued share capital in JD Classics Holdings Limited, JDCL's parent company (the “ parent”).
Pursuant to a sale and purchase agreement dated 12 August 2016, Daytona Bidco Limited (“ Bidco”), acquired a hundred per cent of the issued share capital of the parent, using funds provided by Charme III, an Italian closed end fund, acting by its delegated investment manager, Charme Capital Partners Limited (the “ investor”) (the “ acquisition”) for substantial initial (£32,329,749) and deferred consideration (£5,774,999). JDCL entered an administration proceeding under schedule B1 of the Insolvency Act 1986 on 10 September 2018, following DH's dismissal as CEO in June 2018. On 10 September 2018, Richard Beard, Mark Firmin and Richard Fleming were duly appointed as joint administrators of the company.
Following JDCL's entry into administration, the alleged events that gave rise to the claims of JDCL came to light. In summary, and as particularised in the re-amended particulars of claim (“ RAPOC”):
(1) H is alleged to have engineered fictitious transactions (principally cashless part exchange transactions) to inflate the revenue and profit figures for JDCL prior to the acquisition. These figures were processed into the audited accounts, whose completion was required for the acquisition to take place. Although a company has no interest in its shares, the consequences of the alleged fraudulent creation of the fictitious transactions were that: (i) JDCL undertook liabilities and associated financing costs for the leveraged acquisition (and thereby suffered loss); (ii) JDCL continued to trade for longer than would otherwise have been the case (and therefore suffered further loss); and (iii) DH made a gain as a result of his alleged breaches of fiduciary duty, of which an account is claimed.
(2) DH is alleged to have been dishonestly assisted in his breaches of fiduciary duty by the third defendant, Richard Goddard, (“ RG”), who it is alleged made false debtor confirmations to JDCL's auditor, PricewaterhouseCoopers (“ PwC”). Further allegations of dishonest assistance/restitutionary liability are claimed against RG in respect of monies alleged to have been siphoned from JDCL.
(3) DH is also alleged to have executed transactions in fraud of his creditors, which were either a sham or transactions voidable pursuant to section 423 of the Insolvency Act. This allegation relates to two trust deeds in respect of 38 properties in DH's name, of which DH gifted the benefit to his wife, SH, dated 12 November 2018 and 14 January 2019. The deeds were executed at or about the same time as an IVA was proposed by DH. The progress of the IVA was halted by the Insolvency and Companies Court as the proposal was not serious or viable. It purported to release the alleged fraud claims against DH and it proposed to settle all other claims by a recontribution by SH to DH of the value of certain of the properties transferred. It was said that the transfers of the properties to SH under the trust deeds was in consideration of the forbearance of divorce proceedings. Although DH and SH have since divorced, the connection between the trust deeds and the IVA is such that it is alleged that the deeds were merely a means to transfer DH's assets beyond the reach of his creditors and to recontribute to any of those properties required to pay DH's non-litigation creditors under the IVA.
(4) DH's alleged breaches of duty are said to have caused JDCL to suffer loss, including additional liabilities to repay principal and interest as a result of a refinancing of JDCL's preacquisition borrowing facilities, which is said would not have been incurred but for the acquisition.
In short summary, DH's position is that:
(1) the sums claimed are not recoverable by JDCL from DH because they were paid to him, as a shareholder, by Bidco and JDCL is not a victim of the wrongs alleged, because it was not the buyer, but an asset of the company sold (parent).
(2) DH denies that he had control over JDCL's accounts in a way which would have allowed him to carry out the breaches of fiduciary duty which JDCL alleges.
(3) He denies the alleged breaches of fiduciary duty and he denies that JDCL's financial information was false or misleading. He states that the investor and Bidco were made fully aware of the business practices of JDCL prior to the acquisition, and even if JDCL makes out its allegations of fraudulent conduct, which are denied, he contends that the acquisition would have been agreed and executed in any event. He states that JDCL subsequently failed because of the investor's mismanagement.
For her part, SH denies that she received any of the funds from the acquisition, as a volunteer and/or as DH's...
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JD Classics Ltd ((in Administration)) v Derek Hood
...set out the background to this matter in my judgment in relation to DH' s disclosure application which I delivered yesterday ( [2021] EWHC 3189 (Comm)) and to which reference should be 2 Turning to the JDCL disclosure application, the agreed approach adopted before me was for each of the p......