Northampton Borough Council v Anthony Michael Cardoza and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 15 March 2017 |
| Neutral Citation | [2017] EWHC 504 (Ch) |
| Docket Number | Case No: C30BM120 |
| Court | Chancery Division |
| Date | 15 March 2017 |
[2017] EWHC 504 (Ch)
Mr Justice Newey
Case No: C30BM120
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Rolls Building, Royal Courts of Justice
7 Rolls Buildings, Fetter Lane
London, EC4A 1NL
Mr James Morgan QC (instructed by Osborne Clarke LLP) for the Claimant
Mr Mohammed Zaman QC (instructed by RadcliffesLeBrasseur) for the First Defendant
Miss Emma Edhem (instructed by Mishcon de Reya LLP) for the Second and Third Defendants
Hearing dates: 7 & 8 February 2017
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.
The first and second defendants, Mr Anthony Cardoza and Mr David Cardoza (to whom, without disrespect, I shall refer as "Anthony" and "David"), are former directors of Northampton Town Football Club Limited ("the Club"). These proceedings are brought by the claimant, Northampton Borough Council ("the Council"), as assignee of the Club. The application with which I am concerned now is for summary judgment. The Council contends that, as to £180,000 of the sums it claims, Anthony and David have no real prospect of successfully defending.
Basic facts
Anthony and David are father and son. Mrs Christina Cardoza, the third defendant, is married to David.
The Cardozas first became involved with the Club in December 2002, when Anthony bought a majority of its shares. Anthony and David both became directors, and David was the Club's chairman. According to David, he entered into a service agreement with the Club on 16 April 2004 under which he was entitled to an annual salary of £250,000.
The Club's accounts to 30 June 2002 had shown net liabilities of £2,490,094. The accounts for the next year, to 30 June 2003, put the net liabilities at £3,262,689, following a loss of £950,510. In subsequent years, too, there were losses, with the result that by 30 June 2008 the net liabilities figure had risen to £7,771,674. Five years later, on 30 June 2013, after the Club had swung between profits and losses in the intervening years, it was recorded as having net liabilities of £7,470,745.
The Club's accounts for the year to 30 June 2014, which were approved by the board on 30 March 2015, showed a loss for the period of £853,407. As a result, the figure for net liabilities had increased to £8,220,153. The "tangible fixed assets" included £2,384,004 for "Assets under construction".
A note to the Club's 2014 accounts stated as follows:
"The financial statements have been prepared on a going concern basis. They indicate that £5.2million has been loaned to the company by the Chairman at the balance sheet date, in total £6.9million has been loaned to the company by its directors.
Due to the continuing support of the Chairman and the other directors who are owed money by the company together with the company's bankers, the directors believe that it is appropriate to prepare the financial statements on the going concern basis, which assumes that the company will continue in operational existence for at least 12 months following the date that these financial statements have been signed.
If the Chairman and other creditors of the company were to withdraw their support, the company would be unable to continue in operational existence for the foreseeable future, adjustments would have to be made to reduce the balance sheet values of assets to their recoverable amounts, and to provide for further liabilities that might arise, and to reclassify fixed assets and long-term liabilities as current assets and liabilities."
Something along these lines had also been contained in each previous year's accounts back to those for 2002–2003.
As is apparent from the note quoted in the previous paragraph, the Club received funding from the Cardozas and companies associated with them. I was taken to a schedule giving figures for the Cardozas' loan accounts. This indicates that they were owed some £1.3 million by the end of 2002–2003 and that the total had climbed to more than £6,858,816 by 30 June 2008. It fluctuated up and down slightly in the next years, and was £6,894,643 on 30 June 2014.
The Club leased its stadium from the Council, which also owned some adjoining land ("the Adjoining Land"). In 2013, the Cardozas agreed to cooperate with a Mr Howard Grossman and a group of companies associated with him called the "County Group" in a project to improve the stadium and develop the Adjoining Land. The Club appointed 1 st Land Limited ("1 st Land"), a company linked with Mr Grossman, as the main contractor for the work at the stadium, and 1 st Land in turn appointed Buckingham Group Contracting Limited ("Buckingham") as a sub-contractor. A company called County Developments (Northampton) Limited ("CDNL") was set up to pursue the development of the Adjoining Land. The shares in CDNL were held by Anthony and David (as to about 50% between them) and by Mr Grossman and someone associated with him (as to the balance).
On 13 September 2013, the Council entered into a conditional contract for the sale of the Adjoining Land to CDNL. Shortly afterwards, the Council agreed to lend the Club up to £7.5 million by a facility agreement dated 18 September 2013 for work on the stadium. In the following year, by facility agreements dated 14 April 2014 and 23 July 2014, the Council agreed to make a further loan of £1.5 million for the stadium work and to lend up to £4.5 million for the development of hotel accommodation. Between September 2013 and July 2014, the Council made advances totalling £10.25 million pursuant to the facility agreements.
In September 2014, however, Buckingham gave notice of its intention to suspend performance on the basis that it was owed some £1.4 million. It subsequently issued an application for administrators to be appointed in respect of 1 st Land, and administrators were in the event appointed on 2 January 2015.
By then, in November 2014, the Club had issued proceedings in the Commercial Court against, among others, Mr Grossman and 1 st Land in relation to the development project. The Club alleged that money provided by it had been used for purposes unconnected with the development plans.
The dispute was resolved by a deed of settlement dated 13 January 2015 to which, among others, the Club, the Cardozas, Mr Grossman and CDNL were parties. The settlement involved a parting of the ways between the Cardozas and Mr Grossman and enabled the former to take control of CDNL.
Between January and August of 2015, the Club paid sums totalling £180,000 to David. The £180,000 is made up of payments of £20,000 on 16 January, £35,000 on 2 March, £3,000 on 16 March, £30,000 on 20 April, £40,000 on 26 May, £32,000 on 7 August and £20,000 on 14 August. According to David, the practice was for him to be paid salary by reducing the amount owing to him on his loan account. Each payment thus served both to discharge in part the Club's indebtedness on the loan account and to represent salary. The effect of this arrangement, David has said, is that he was "effectively foregoing [his] salary, and instead being repaid the monies which [he was] owed by the Club in respect of [his] directors' loan account i.e payments which [he had] previously made to the Club simply being repaid as opposed to receiving further sums by way of salary".
The Club also received money from David and a company associated with him. David himself made a payment to the Club of £35,000 on 27 February 2015, and Artefact Property Investments Limited, of which David appears to have been a director and shareholder, paid the Club £35,000 on 3 February and £140,000 on 27 February. Further, Anthony made £25,000 payments to the Club on 3 February and 6 July 2015, and according to David sums of £75,000 (on 7 July 2015) and £265,000 (on 11 August 2015) were paid to the Club at his direction or that of his father by, respectively, Peldon Hall Farms Limited and CDNL.
In October 2015, a winding-up order was made against CDNL. The petition had been presented on 2 June 2015.
On 1 October 2015, HM Revenue and Customs presented a winding-up petition against the Club. On 11 November, the Council applied for an administration order to be made in respect of the Club. The application was eventually withdrawn by consent on 11 December 2015 following the transactions mentioned in the next paragraphs.
On 25 November 2015, the Cardozas sold their shares in the Club to a company called Northampton Town Ventures Limited for just £1 pursuant to a share purchase agreement of that date ("the SPA") to which the Club was also a party. The Cardozas also agreed to give up all but £195,000 (referred to as the "Cardozas Retained Claim") of the money they were owed by the Club. In this connection, the SPA provided as follows (in clause 9.1):
"Save for the Cardozas Retained Claim and save for the Potential Guarantee Claims,
9.1.1 the Sellers hereby waive in full and release any claim they or any person Connected to them may have against the Company and any obligation owed to the Sellers or any person Connected to them by the Company as at the date hereof and confirm that as at the date of this agreement following the waiver and release referred to above in this clause 9.1.1:-
9.1.1.1 neither they nor any person Connected with any of them has any claim against the Company on any account whatsoever;
9.1.1.2 there are no agreements or arrangements under which the Company has any actual, contingent or prospective obligation to or in respect of any of the Sellers or any person Connected with any of them."
On 10 December 2015, the...
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