Mcfaddens Solicitors v Chandrasekaran and Others
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden |
| Judgment Date | 10 October 2013 |
| Neutral Citation | [2013] EWCA Civ 1315 |
| Docket Number | A2/2013/1194&1194(A) |
| Court | Court of Appeal (Civil Division) |
| Date | 10 October 2013 |
[2013] EWCA Civ 1315
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Lady Justice Arden
A2/2013/1194&1194(A)
Mr H Jackson (instructed by McFaddens LLP) appeared on behalf of the Appellant
THE RESPONDENT DID NOT APPEAR AND WAS NOT REPRESENTED
This is a renewed application for permission to appeal against the refusal of His Honour Judge Seymour QC to make a charging order in respect of shares held by the respondents as trustees of a discretionary trust pursuant to a deed of settlement of December 2008. The judge also discharged certain interim charging orders over the shares which had already been made and he ordered that the claimant do pay the applicant's costs of the application notices on the indemnity basis summarily assessed in the sum of £85,000. Permission to appeal was refused. The order is at page 15 of the bundle.
This case has a long and complicated history but the essential issues for this application fall within a relatively narrow compass and it is not my intention to go into the substantial detail which has been put in the skeleton arguments about the history because the issue which this court has to decide, or would have to decide, falls within a narrow compass and I must focus upon that.
In essence the appellant, for whom Mr Hugh Jackson appears, is a substantial judgment creditor of Mr Chandrasekaran, who is the defendant in these proceedings. There is a trust of which the applicants, Epona Trustees Limited, Pione Nominees Limited and Bireme Investments Limited are the trustees. The trust property consists in some valuable shares in a company which Mr Chandrasekaran set up and the judgment creditor says that the trust was a sham so that the judgment creditor is entitled to a charging order on the shares held by the trustees on the footing that those shares belong beneficially to Mr Chandrasekaran.
Mr Jackson accepts that, as I held in a case called Hitch v Stone [2001] EWCA Civ 63, the test in relation to a sham is whether the parties subjectively had an intention of the kind described in the early authority of Snook v London and West Riding Investments Limited [1967] 2 QB 786, namely an intention to enter into a transaction which had the appearance of creating rights and obligations different from the actual rights and obligations which they intended to create. I also held that the court could look at external evidence, including the party's explanations and the circumstantial evidence and their subsequent conduct.
Mr Jackson particularly relies in this case on subsequent conduct by the trustees. They have made some 60 loans totalling some £1.3 million, or thereabouts, and the precise figure is not important because, whatever it is, it is very substantial. Those loans have been made to Mr Chandrasekaran. Those are the only distributions which the trustees have ever made and Mr Chandrasekaran is in financial difficulties. They were, I can assume for the purposes of this application, imprudent loans, as, on the assumptions which I am making, Mr Chandrasekaran is unlikely to be able to repay those amounts. In addition, the terms do not appear to have been negotiated at arm's length. However, Mr Jackson does not contend that the trustees had no power to make loans under the settlement and indeed could not do so. What Mr Jackson submits is that the loans were also shams and that the evidence that the trustees were prepared to enter into the sham loan transactions supports the inference that the deed of settlement was itself a sham, and so the loan transactions, he submits, undermine the trustees credibility.
Since the hearing before the judge, the judgment creditor has obtained information about a large number of loans which were not in evidence before the judge. These really only change the position as I have described it in terms of scale. This evidence does not change the principle. The principle is that the trustees have disposed of virtually all the cash in their hands to Mr Chandrasekaran and no-one else and that they have done so, in the main, by these loan transactions. However, there remains a substantial corpus in the trust, namely the shares which have not yet been sold. Some shares have been sold but it is not suggested that all of them have been sold or that the remainder are of insignificant value. The value of the original shareholding was estimated at some £150 million. That may have been an overestimate but, whatever the correct value is, it was substantial. Some shares have been sold in tranches, it would appear, to finance Mr Chandrasekaran's living expenses and activities.
The difficulty with the judgment creditor's case is, as I see it, that the making of the loans or cash distributions, if that is what they be, to Mr Chandrasekaran is only equivocal evidence that the actual deed of settlement was a sham on the evidence that is so far available. It is possible that cash distributions were made as loans so that Mr Chandrasekaran could claim some tax advantage. However, there remains a substantial corpus of assets in the trust and it seems to me likely that Mr Chandrasekaran's intention throughout has been to remove assets from the reach of his creditors, in which event that would be inconsistent with a sham transaction in relation to the trust since, if the trust holds assets as his nominee, they will come back into his estate should he be made bankrupt. Thus the making of the trust would be consistent with a desire to distance himself from the assets and, for that purpose, he would want to vest them properly in a third party, namely the trust.
At the application before the judge, what the appellant was seeking to do was to obtain directions from the judge for the further conduct of the matter. The judgment creditor...
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