Manolete Partners Plc v Ronojay Nag
| Jurisdiction | England & Wales |
| Judge | Mr David Halpern |
| Judgment Date | 28 January 2022 |
| Neutral Citation | [2022] EWHC 153 (Ch) |
| Docket Number | Case No: BL-2018-002566 |
| Year | 2022 |
| Court | Chancery Division |
[2022] EWHC 153 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch)
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr David Halpern QC SITTING AS A DEPUTY HIGH COURT JUDGE
Case No: BL-2018-002566
Mr Joseph Curl QC (instructed by Ashfords LLP) for the Claimant
Mr Simon Harding instructed directly by the Defendants
Hearing dates: 18–21 January 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr David Halpern QC SITTING AS A DEPUTY HIGH COURT JUDGE
Mr David Halpern QC:
The First Defendant (“ Mr Nag”) was a director of Quore Ltd (“ Quore”), a company which was in serious financial difficulty by the end of 2012. The business of Quore was sold in 2013, but no part of the proceeds of sale, which exceeded £1.3m, was applied for the benefit of Quore's creditors. Quore was compulsorily wound up in 2015 and the benefit of all claims against Mr and Mrs Nag were assigned by the liquidator to the Claimant on 7 August 2017. The Claimant sues Mr Nag for misfeasance as well as for debts owing to Quore. Mr Nag has a number of defences, but his overarching point is that the transaction has been misinterpreted by the Claimant.
Mr Nag's wife is sued as a constructive trustee for dishonest assistance and knowing receipt. Mrs Nag's defence is that she trusted her husband and signed whatever documents he asked her to sign.
The facts
Quore was in the telecommunications business. Mr Nag became a director in 2004 and was the sole director from 2008 until he resigned on 10 May 2014 and was replaced by Mr James Wadley. Mr Nag said in his oral evidence that he appointed Mr Wadley and paid him £10,000 out of his own funds. Mr Nag held 90% of the ordinary shares in Quore, save for one period of time when the shares were held by Q Group and another period when they were held by Capital Bridge (two companies referred to below, both of which were controlled by him). In 2013 Quore changed its name to 1008 Ltd.
On 10 May 2010 Quore entered into an agreement with Vodafone Ltd (“ Vodafone”) which allowed it to market and promote Vodafone services and SIM cards in return for commission. Quore had a number of customers who were small businesses which had mobile phone contracts with Vodafone. Vodafone would make Quore a one-off payment when any customer first entered into a contract with Vodafone and would also pay commission to Vodafone on a regular basis in respect of each customer. Mr Nag referred in his evidence to Quore's main asset as being “numbers”. I understood this to be a shorthand reference to Quore's right to receive commission from Vodafone in respect of the mobile phone number(s) of each customer. The one-off payment could be as high as £145 for every new “number”. The amount of the ongoing commission depended on the terms of the dealership. Mr Nag said in evidence that the level of commission would rise if the number of customers increased above a certain level; he also said that this arrangement was dependent upon those customers being treated by Vodafone as customers of Quore.
In 2011 Mr Nag embarked on a strategy of “buy and build”, i.e. buying other businesses whose customer base had contracts with other mobile phone companies, such as O2, and procuring those customers to switch to Vodafone (which he referred to as “churning”). The reason for buying other businesses was to acquire the “numbers”, i.e. the customer base and the resulting potential to earn both one-off payments and ongoing commission from Vodafone. Any new customer base which Quore acquired by buying another business would have a separate dealership number with Vodafone, which might be on different terms from Quore's pre-existing dealership. However, the increased commission per customer would not be payable if the customers were customers of any company other than Quore. Hence it was important that the new dealership was seen by Vodafone as belonging to Quore.
At this point I need to refer to four other companies with which Mr and/or Mrs Nag were associated:
i) QL London Ltd (“ Q London”), subsequently renamed Lila 8 Ltd, was incorporated in 2005. Mr and Mrs Nag were both directors from 2005 and 2006 respectively until 10 May 2014, when they resigned and were replaced by Mr Wadley. They were also both 50% shareholders, save for one period in 2010 when the shares were held by Q Group.
ii) Quore Technology Ltd (“ QTL”) was incorporated in 2011. Mr Nag was director and Mrs Nag was secretary at all times until 28 March 2013. Initially Mr Nag was the sole shareholder, but the shares were then transferred to Q Group. On 25 January 2012 Q Group transferred the 100 issued shares to Mr and Mrs Nag equally.
iii) Quore Group Ltd (“ Q Group”) was incorporated in 2005: Mr Nag was the director and Mrs Nag the secretary at all times until 1 May 2014. Mr Nag held 901 shares and Mrs Nag held 1 share. As stated above, Q Group was used as the holding company for the other Quore companies at various times.
iv) Capital Bridge International Ltd (“ Capital Bridge”) is or was a company registered in the BVI. Mr Nag's evidence is that he was the sole shareholder and director.
The acquisition of ITC
The policy of buy and build was implemented by buying two businesses. The first to be bought was In Touch Cellular Ltd (“ ITC”), a company owned by Dave and Sally Briggs. Heads of terms dated 14 March 2011 provided for the sale by ITC of its business to Quore. On 20 July 2011 Mr Briggs sent an email to Vodafone, copied to Mr Nag, in which he confirmed that the ITC customer base would be transferred to Quore on 25 July 2011.
However, the sale of ITC's business did not in fact take place in the manner set out in the heads of terms. Instead, on 12 August 2011 there was a share sale agreement by which Mr and Mrs Briggs sold their shares in ITC to QTL for an initial consideration of £288,000 plus further consideration payable in certain events. Quore was a party to this agreement as guarantor, but only in respect of one small part of QTL's obligations.
On the limited documents available, it appears that the purchase money was provided by Quore. QTL's accounts for the year ended 31 December 2011 were prepared by Mr Nag's then accountants, Pritchard Fellows & Co, and were signed by Mr Nag as director. The balance sheet shows QTL's sole asset (apart from the share capital of £100) as being its investment in a subsidiary (which can only be ITC), valued at £288,984, and it shows QTL's sole liability as being a debt in the same amount. Quore's balance sheet as at the same date is consistent with this, in that debtors had increased by nearly £700,000 over the previous 12 months. In cross-examination Mr Nag accepted that the purchase money had been provided by Quore.
Following the purchase, ITC became a wholly owned subsidiary of QTL and Mr Nag became the director of ITC. However, the dealership was put into Quore's name and all commission was paid by Vodafone into Quore's bank account.
On 27 April 2012 Mr Nag, as director of ITC, passed a resolution putting ITC into creditors' voluntary liquidation, with a deficit of some £295,000. In cross-examination Mr Nag accepted that he had extracted ITC's valuable asset (its “ numbers”) whilst leaving ITC with its liabilities, but he sought to justify this by saying that it was for Mr and Mrs Briggs as the sellers to pay off ITC's debts. There was no corroborative evidence to support that contention.
Mr Nag's conduct in relation to ITC is not the basis for the claim in these proceedings, but it is a relevant part of the history and is a telling illustration of his approach to his duties as a director. In short:
i) There was no proper justification for amending the purchase at the last minute, so as to substitute QTL as the purchaser, given that Quore was providing the money and that Vodafone was being told that Quore was the purchaser; and
ii) There was no justification for extracting ITC's principal asset and leaving it with its liabilities.
The acquisition of Bridgwater
The second way in which Mr Nag implemented his policy of buy and build was by buying the business of Bridgwater Communications (South West) Ltd (“ Bridgwater”), which was owned by the Leahy family. The transaction took the form of a share purchase agreement dated 9 February 2012, by which the Leahys sold the entire share capital of Bridgwater to Capital Bridge (which, as I have said, is or was a BVI company wholly owned by Mr Nag). The purchase price was £700,000 payable in instalments. The two final instalments, totalling £300,000, were dependent upon sufficient “ numbers” being transferred; there was also provision for adjustment to the price in the event of net assets being more or less than stated in the agreement. The seller gave warranties in relation to the customer base, and there was a provision for expert determination of any dispute in relation to the amount of net assets. Quore was a party to the agreement as guarantor of Capital Bridge's obligations.
Bridgwater had a dealership with O2, but Mr Nag's purpose in making the acquisition was to transfer the customer base to Vodafone in order to obtain a one-off payment for each customer plus enhanced commission through Vodafone being led to believe that Quore (not Capital Bridge) had increased its customer base.
A...
To continue reading
Request your trial
-
Henderson & Jones Ltd v David Jason Ross
...following advice is not a substitute for the exercise of the duty rather than a part of its discharge. In Manolete Partners Plc v Nag [2022] EWHC 153 (Ch), Mr David Halpern QC (sitting as a deputy High Court judge) agreed with this (at 62[ii]), albeit also noting in the context of the (dif......
-
Saxon Woods Investments Ltd (a company incorporated under the laws of the Bahamas) v Francesco Costa
...all. For example, a director should not need a solicitor to tell him whether his actions are bona fide ( Manolete Partners Plc v Nag [2022] EWHC 153 (Ch), at [62(ii)] per David Halpern 213 Mr Costa relies in his defence on the proposition that the Company was advised at all material times ......