Mustafa Erdem Baldudak v Mark Matteo
| Jurisdiction | England & Wales |
| Judge | Mr Andrew Sutcliffe |
| Judgment Date | 28 December 2023 |
| Neutral Citation | [2024] EWHC 167 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No. PT-2022-NCL-000010 |
[2024] EWHC 167 (Ch)
Mr Andrew Sutcliffe KC, sitting as a Judge of the High Court
Claim No. PT-2022-NCL-000010
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN NEWCASTLE
PROPERTY, TRUSTS AND PROBATE LIST
Mr Seth Kitson (instructed by Sintons LLP) for the Claimant
Mr Michael Pryor (instructed by Clarke Mairs Law Ltd) for the Defendant
Hearing dates: 5–8 December 2023
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 is handed down may be treated as authentic.
Mr Andrew Sutcliffe KC:
Contents
| Introduction | 3 |
| Background facts | 4 |
| The previous proceedings | 6 |
| These proceedings | 9 |
| The Claimant's disclosure | 11 |
| The witnesses | 12 |
| The evidence relied on by the Claimant | 13 |
| The evidence relied on by the Defendant | 15 |
| Findings on the evidence | 16 |
| The issues | 19 |
| The Quistclose Trust Issue | 20 |
| The Novation Issue | 22 |
| The Agreement Issue | 23 |
| The Election Issue | 25 |
| The Estoppel Issue | 26 |
| The Defendant's Counterclaim | 31 |
| Conclusion | 31 |
Introduction
The Claimant, Mr Baldudak, and the Defendant, Mr Matteo, are former business partners in a 50/50 joint venture. This is the second set of proceedings resulting from the acrimonious breakdown of their relationship.
The issue in these proceedings is who is the beneficial owner of a freehold commercial property known as Gregson Building, Tyne View Terrace, Howdon, North Shields, NE28 6SG, title TY306564 (the “ Property”). The Property is the trading premises of a company named Heating Trade Supplies Group Ltd (“ HTS”). HTS was previously jointly owned by the parties, but is now solely owned by the Claimant following the outcome of the previous proceedings between the parties.
It is not disputed that the immediate source of the purchase cost was a bank account in the name of a company called PCB Centres Limited (“ PCB”). Since its purchase in November 2016, the Property has been held in joint names of the Claimant and the Defendant. Neither the Claimant nor the Defendant contends that PCB (now dissolved) was at any time the beneficial owner of the Property.
The Claimant's case is that he and the Defendant hold the Property on a resulting trust for him alone because he alone contributed the entire purchase cost of the Property and it is not disputed that he did not intend to make a gift of the Property to the Defendant. The Claimant further contends that in the previous proceedings between the parties the Defendant accepted that the Claimant contributed the purchase price so he cannot now deny that fact.
The Defendant's case is that he and the Claimant are joint beneficial owners of the Property. He says this was PCB's intention at the time of the purchase, was agreed by the Claimant and is consistent with the contemporaneous communications and actions of the parties and the terms of their overall business venture at the time. He seeks a declaration that they own the Property in equal shares, an order for sale and orders to limit the effect on his interest of the possible enforcement of the mortgage over the Property currently securing a debt owed by HTS (now 100% owned by the Claimant). He also seeks an account for occupation rent from the Claimant due to his exclusion from the Property and its continued occupation by HTS.
The Claimant accepts that the Defendant is entitled to an indemnity in respect of any personal claim that may be made against him by the mortgagee under the mortgage although he says that indemnity is unnecessary because it was expressly ordered by the court in the previous proceedings. However, he denies the Defendant's claim for occupation rent and resists any order for sale of the Property.
Background facts
I set out in this and the next section facts which are not (or ought not to be) contentious and can be taken as my findings on those matters.
Both the Claimant and the Defendant originate from Turkey. The Defendant (born in 1973) is a heating engineer who has lived in England since 1998 and was the sole director and shareholder of HTS which he incorporated on 30 June 2015 under its original name National Boiler Parts Limited before the name of the company was changed to HTS on 13 February 2017. For convenience I shall refer to this company as HTS both before and after its name was changed.
HTS's business was the supply of boiler parts. The Claimant (born in 1988) met the Defendant in around 2015 at the time he was finishing his business studies course in Sunderland. The Claimant wanted to do business in the UK and to obtain a UK visa. The two men agreed to go into business together and to expand and build upon the Defendant's existing business.
On 8 January 2016 the Claimant became a 50% shareholder in HTS and he was appointed a director of HTS on 1 November 2016. The two of them drew up a business plan dated June 2016 (the “ Business Plan”), the principal purpose of which appears to have been to assist the Claimant in obtaining a visa to enter and work in the UK. The Business Plan refers to the parties' plans for HTS and PCB. PCB had been incorporated by the Defendant on 8 March 2016 with the Defendant as its sole shareholder and director. However, it is apparent from the Business Plan that it was intended the Claimant would be a 50% shareholder in PCB in the same way that he was a 50% shareholder in HTS. PCB was incorporated with the aim of selling printed circuit boards and, in order to help achieve that aim, acquiring two other companies, OEM Spares Ltd (“ OEM”) and MKK Services Ltd (“ MKK”),
On 27 May 2016 the Claimant paid £750,000 into PCB's bank account. The precise purpose for which this payment was made is one of the issues I have to decide. The Claimant contends that the monies were advanced for a specific purpose (namely, the acquisition of OEM) and that such purpose failed with the result that PCB held those monies on trust for the Claimant. The Defendant denies that the monies paid into PCB's account were held with the specific purpose of buying OEM and he points to the fact that substantial sums were paid out of the sum of £750,000 sitting in PCB's account for the benefit of HTS both before and after the purchase of the Property in November 2016.
By 10 August 2016 it seems that the Claimant and the Defendant had decided not to acquire OEM and instead to acquire the Property as it was on that date that a firm of solicitors called Brar & Co acknowledged the Defendant's instructions to act for both the Claimant and the Defendant in connection with the purchase of the Property.
There then followed a hiatus caused in part by Brar & Co's need to satisfy themselves as to the source of the purchase monies for the purposes of the money laundering regulations (as is apparent from emails exchanged between Mr Brar and the Defendant on 28 October 2016). On 1 November 2016 the sum of £464,283.80 was paid out of PCB's bank account to Brar & Co for the purpose of acquiring the Property. This sum was to fund the purchase price of £450,000 and the transactional costs of £14,283.80. Contracts were exchanged on 16 November 2016. The Property was transferred by the vendors into the joint names of the Claimant and the Defendant on 22 November 2016 and registration was completed by 30 November 2016.
As already mentioned, the remainder of the £750,000 that the Claimant had paid into PCB's bank account, amounting to £285,716.20, was paid out by means of a series of payments in order to settle business expenses of HTS. Some of these payments were made before the purchase of the Property and others afterwards. There is no dispute that HTS owed PCB £285,716.20 as a result of those payments. The Defendant describes that debt as the “ Intercompany Loan”.
At around the time that the parties took the decision not to proceed with the purchase of OEM and MKK and instead to purchase the Property, the Claimant and the Defendant made the decision to apply to strike off PCB. On 5 January 2017 the Defendant lodged a form DS01 at Companies House applying for PCB to be struck off. Having been incorporated some 10 months earlier, it appears PCB had never traded.
Sometime between 5 January and 10 February 2017 the Defendant spoke to Thomas Duffy (“ Mr Duffy”), a chartered accountant who, through his company Glen C Rodger Ltd, was HTS's accountant. They spoke about PCB and HTS. Mr Duffy had previously been involved in reviewing and preparing financial forecasts figures for inclusion in the Business Plan (as his company's invoice to HTS dated 29 July 2016 indicates). Mr Duffy was also already aware of the parties' intention to purchase the Property because on 20 September 2016 the Defendant had sent him two emails explaining that the Claimant's visa application had been completed the previous day and that changes were required to the Business Plan because OEM was no longer to be acquired and instead they proposed to purchase the Property.
After speaking to the Defendant, on about 10 February 2017, Mr Duffy drew up some draft accounts (the “ PCB working papers”). What conclusions can be derived from the PCB working papers is a matter which was contested at trial. The Defendant and Mr Duffy gave differing evidence about their discussions. The findings I make about this evidence are critical to the outcome of this case.
PCB was dissolved on 11 April 2017. Mr Duffy prepared HTS's abbreviated accounts for the period ended 30 June 2016 (“ HTS's 2016 accounts”) which were filed on 22 March 2017. He also prepared HTS's abbreviated accounts for the period ended 30 June 2017 (“ HTS's 2017 accounts”) which were filed on 20 September 2017. Both sets of accounts were prepared on...
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