Mustafa Hassanali Abdulali v URL Local Express Ltd
| Jurisdiction | England & Wales |
| Judge | David Cooke |
| Judgment Date | 09 March 2020 |
| Neutral Citation | [2020] EWHC 547 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 6136 of 2015 |
In the Matter of MKG Convenience Ltd
[2020] EWHC 547 (Ch)
HHJ David Cooke
Case No: 6136 of 2015
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
Insolvency and Companies List (ChD)
Birmingham Civil Justice Centre
Bull Street, Birmingham B4 6DS
Ian Tucker (instructed by Vicarage Court Solicitors Ltd) for the Applicants
Marc Brown (instructed by Wilkes) for the Respondents
Hearing dates: 19 November 2019, 20 February 2020
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.
HHJ David Cooke
MKG Convenience Ltd (“MKG”) is a company that used to run a number of small local convenience stores. It was wound up by order of the court on 7 May 2015 on the petition of creditors in respect of a costs award following litigation to enforce a covenant against sale of alcohol at one of the stores in Strathdene Rd, Selly Oak in Birmingham. The first and second applicants were subsequently appointed liquidators. On their appointment they were unable to find any assets belonging to MKG or even, initially, to identify all the stores from which it had traded. They have been told that no such assets remained, any trading operation and associated assets having been transferred away in February 2015 or before. The liquidators have recovered little or nothing by way of the company's records from its named directors or any other source.
The liquidators allege that the third respondent Mr Komaleswaran was a de facto or shadow director of MKG and has orchestrated the transfer away of the company's funds and other assets without justification, in connection with which substantial unjustified payments have been made to Mr Komaleswaran himself and to the first two respondents, which are companies owned and controlled by him. They allege that some at least of the trading operations were transferred to URL, which is a company owned and controlled by Mr Komaleswaran and that URL carried them on thereafter without payment for stock or goodwill. By their application dated 26 September 2018 they seek recovery of the payments challenged, which total over £660,000, and orders that the respondents are liable to account for (or pay compensation for the loss of) the value of stock goodwill fixtures and fittings at 8 shops.
The respondents were represented at the hearing in November 2019 by the fourth firm that has acted for them since the liquidators' enquiries began. Their position as to the allegations made has varied during that period, but is currently that:
i) Mr Komaleswaran was never a de facto or shadow director of MKG. He was registered at Companies House as a director for a short period in 2013, by mistake.
ii) URL has never traded at any of the stores. It was formed only to purchase stock and resell it to MKG, and any payments to it were properly made in respect of such sales of stock, or to reimburse costs of refurbishment at its stores or other liabilities of MKG that URL had paid on its behalf. URL is in fact a net creditor of MKG.
iii) The second respondent (“KKS”) is the freehold owner of some of the shop premises. Payments to it were for rent at these premises or to reimburse sums KKS had paid on behalf of MKG to other landlords. KKS is also a net creditor of MKG.
iv) A third party unconnected with Mr Komaleswaran, Sandhu News Ltd (“Sandhu News”), took over the operation of MKG's shop at Egghill Lane, Northfield in February 2014. Sandhu News took over the running of all MKG's other shops in February 2015; consequently there were no stock or assets of MKG remaining at the date of liquidation.
The liquidators are sceptical of these explanations. They are doubtful of the genuineness of the transfers to Sandhu News and of that company's asserted independence from Mr Komaleswaran. They suspect that MKG did in fact carry on trade at some or all of the shops after the dates claimed by the defendants, and that some or all of those businesses have been transferred to URL rather than Sandhu News. They doubt the genuineness of the justification for the payments made to the respondents, as well as their claims to be net creditors. Given the effective absence of any of MKG's own records, full disclosure of documents by the respondents is, they say, essential to gain a proper understanding of what has happened and whether the respondents' contentions are true.
However, the liquidators say, the respondents have over a long period failed to comply with their disclosure obligations, and have done so deliberately. The application now before me is dated 27 August 2019 (bundle p 247) by which the applicants seek declarations that the respondents have failed to comply with an unless order for disclosure made by consent on 10 June 2019 (p 245) and that accordingly the sanctions provided for by that order have taken effect, ie that the respondents' evidence is “struck out”, that they are debarred from defending the proceedings and that the applicants are entitled to judgment in the terms of their original application.
The respondents filed their own application, dated 23 September 2019 (p 729). The application form states that it seeks relief from sanction for delay in filing a costs budget, making no mention of disclosure. It was accompanied however by a lengthy witness statement from Mr Komaleswaran setting out submissions as to why, if the court concluded there had been a breach of the disclosure obligations in the unless order, relief from sanction should be given. It has been treated as an application for that relief, and I have heard nothing about the respondents' cost budget.
Procedural history and disclosure given
I begin with the procedural history in relation to disclosure, and the steps taken by the respondents in or towards compliance in that respect.
The respondents were initially represented by a firm of solicitors referred to as BSG. After receipt of the letter before action however they changed to their second firm, CRS, who on 6 July 2018 (p 334) wrote providing some VAT summaries and stating that they were instructed that their clients held some 40 to 50 lever arch files of third-party supplier invoices, which they were willing to provide copies on payment of copying costs. About a month later, the respondents instructed their third solicitors, Aspect, who were acting at the time the substantive application was issued in October 2018. An order was made by consent adjourning the first hearing of the application and giving directions for filing of evidence by the respondents in response by 15 March 2019, without any specific provision for disclosure.
Mr Komaleswaran filed a witness statement in response to the application (p 71), some 10 days after that date setting out his explanation that URL had been formed to purchase stock for resale to MKG at its various shops, and attaching schedules from URL's VAT returns which he said set out what URL had purchased and subsequently resold to MKG.
The applicants considered that disclosure of further documents was necessary for them to respond to this evidence, and made an application for an order for extended disclosure pursuant to the recent disclosure pilot scheme. The respondents consented to an order, which was approved on 29 April 2019 (p 231) which provided:
i) by para 2 that the respondents would by 13 May 2019 deliver to the applicants' solicitors “the purchase invoices of [URL] from 18 February 2011 to 7 May 2016”. Those invoices were to be left with the applicants' solicitors for 14 days, presumably for inspection and copying as required.
ii) By para 3 that the respondents would provide Extended Disclosure in accordance with Model C of the pilot scheme, by reference to the classes of documents set out in an attached Disclosure Review Document (the DRD), by 21 May 2019. The DRD (p 233) set out a list of 10 issues for disclosure derived from Mr Komaleswaran's witness statement, and a list of the categories of documents of which disclosure was requested in respect of each of those issues.
13 lever arch files of invoices and receipts were delivered pursuant to that order on 15 May 2019. The applicants did not accept this satisfied the order, pointing out (p 346) that CRS had previously indicated there were 40–50 files of such invoices, and that nothing had been provided under the Extended Disclosure provisions. By the due date for that disclosure (21 May) nothing further had been received. Aspect sent an email at 3:54 pm on that day saying that they had “yet to hear back from the clients in respect of the extended disclosure, we are seeking urgent instructions”. Nothing further was heard from them, and the Applicants made their application for an unless order two weeks later on 3 June 2019.
No disclosure was made, but the respondents consented to the terms of the unless order sought, which was made on 10 June 2019. The material terms were as follows:
“Unless the Respondents do comply with paragraphs 2 and 3 of the Consent Order dated 26 April 2019… by 4 pm on 24 June 2019:
(a) their evidence be struck out;
(b) they be debarred from defending the proceedings; and
(c) judgment be entered in favour of the Applicants.”
On the last date for compliance, 7 further lever arch files of documents were delivered in purported compliance with the disclosure order, accompanied by disclosure certificates in respect of each of the respondents, a list of the documents contained in the files and a schedule headed “Documents no longer in the Respondents...
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