Northampton Borough Council v Anthony Michael Cardoza
| Jurisdiction | England & Wales |
| Judge | Simon Barker QC |
| Judgment Date | 24 January 2019 |
| Neutral Citation | [2019] EWHC 26 (Ch) |
| Docket Number | C30BM120 |
| Court | Chancery Division |
| Date | 24 January 2019 |
[2019] EWHC 26 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
BUSINESS LIST (ChD)
Birmingham Civil Justice Centre
The Priory Courts
33 Bull Street
Birmingham
B4 6DS
C30BM120
Representation
James Morgan QC instructed by Osborne Clarke LLP for the Claimant
Mohammed Zaman QC instructed by RadcliffesLeBrasseur for the First Defendant
Emma Edhem instructed by RadcliffesLeBrasseur for the Second and Third Defendants
Hearing dates: 2–6 and 9–13 July 2018, 24 January 2019
I direct that pursuant to CPR 39APD6 paragraph 6.1 no tape recording shall be made of this judgment and that copies of this version shall stand as authentic and be treated as the official transcript
HHJ
Introduction
The claim
By a deed of assignment (‘the Assignment’) made on 10.12.15 between Northampton Town Football Club Limited (‘NTFC’), as assignor, and Northampton Borough Council (‘NBC’), as assignee, NTFC assigned to NBC all of its rights, title, interest, and benefit in and to specified debts and claims. The specified debts were said to be owed by 1 st Land Limited (‘1 st Land’), by then a company in administration, County (Oundle) Limited (‘Oundle’), and County Developments (Northampton) Limited (‘CDNL’), by then a company in liquidation. The specified claims were all and any claim, counterclaim or cause of action, howsoever arising, which NTFC then had or may have had against Mr Anthony Cardoza (‘D1’), Mr David Cardoza (‘D2’) and others, including 1st Land, CDNL and Oundle. In this action NBC, as assignee and by reference to the assigned claims, alleges that ( 1) D1 and D2 (collectively ‘Ds’) received or benefitted from payments in breach of their statutory duties as directors of NTFC, and ( 2) D2's transfer by way of gift of his interest in his family home (‘Cheriton’) to his wife, Mrs Christina Cardoza (‘D3’), on 3.7.15 (‘the Transfer’) was a transaction at an undervalue for the purpose of putting an asset of his beyond the reach of present or future creditors.
The relief sought by NBC against Ds includes (1) an inquiry as to the dealings by D1 with £2.05million received from Oundle and 1 st Land over the period 23.9.13 to 2.6.14 and what (if anything) remains of that sum, (2) an account of what is due from Ds in respect of breaches of their fiduciary duties and payment thereof, (3) a declaration that they hold such sums as may be found to be due on trust for NBC, (4) damages or equitable compensation in excess of £1milion, (5) restitution of amounts due as monies had and received, and (6) other relief including interest.
The relief sought against D2 and D3 includes (1) a declaration that the Transfer constituted a transaction defrauding creditors under s.423 of the Insolvency Act 1986 (respectively ‘s.423’ and ‘ IA 1986’), (2) orders to restore the position to what it would have been but for the Transfer including a re-vesting order and a charging order over D2's interest as security for D2's liabilities to NBC, and (3) other relief including interest.
In essence Ds' answer to the money claims made and relief sought against them is that they were, or honestly and reasonably believed that they were, entitled to, or entitled to treat, all monies they received and payments for their benefit as repayments of their respective director's loans to NTFC, and, further, that NTFC suffered no loss as a result of their actions. The essence of D2's and D3's answer to the challenge to the Transfer based on s.423 is that the Transfer was the fulfilment of a long standing arrangement between D2 and D3 and was made at a time when there was no reason to believe any claim would be made against them.
NTFC
To the world at large, NTFC is first and foremost a football club, ‘The Cobblers’. It was founded as a club in 1897 and incorporated as NTFC in 1922. NTFC men's first team plays in the Football Association's professional leagues. At all material times, the men's first team has played in the fourth tier of professional football, that is League Two. NTFC's home ground and stadium stands on an 11 acre site and is known as ‘Sixfields’. At the material times the site included a car park and an athletics track and area (‘the Athletics Area’).
In so far as this litigation concerns NTFC, it is not about football or NTFC as a football club as such. It is about NTFC as a business, the investment opportunity it presented, and the use made of part of sums totalling £10.25million drawn down by NTFC under three loan facility agreements (individually ‘the Loan’, two or more collectively ‘the Loans’) which NBC entered into to fund the development of the stadium and facilities at Sixfields and the development of an adjacent 30 acre brownfield site in an area identified by NBC as an enterprise zone ripe for regeneration (‘the Adjoining Land’). The development of Sixfields was to upgrade the stadium facilities, to add corporate entertainment boxes and facilities, and to build a hotel. The development of the Adjoining Land was to include a conference centre, a shopping mall or village, and housing. One element of the development proposal was that a proportion of the development profits would accrue to the benefit of NTFC and place it on a secure financial footing.
Ds acquired a 65% shareholding in and, thereby, control of NTFC in December 2002. D2 became a director on 14.2.03 and D1 was appointed a director on 12.5.03. At all times when Ds were directors of NTFC until mid-2015 there were three other directors of NTFC. Two were non-executive directors and one was a representative of the supporter shareholders whose shares were held through a trust. During 2015 Ds further increased their shareholding, which by then was some 68%, to more than 75%. Consequently, the supporters' trust shareholding reduced or was diluted from approximately 5% to 3.5%. In June 2015 Ds decided to abolish the supporter shareholder representative directorship. Ds resigned as directors and sold their controlling shareholding on 25.11.15.
Both before and throughout Ds' control of NTFC its financial position was precarious. At its financial year end date of 30.6.02, that is shortly before Ds acquired control of NTFC, NTFC had net liabilities of £2.5million and accumulated losses of almost £4million, having made a loss for the year to 30.6.02 of some £875K. For all but three 1 of the thirteen years that NTFC was under Ds' control, NTFC was loss making. Its net liabilities increased from £2.5million at 30.6.02 to £8.8million at 30.6.15 and accumulated losses increased from almost £4million to £12.2million over the same period.
I shall return to Ds' departure from NTFC and NTFC's finances in more detail.
The Claimant NBC
At all material times NBC owned the freehold of Sixfields and of the Adjoining Land. Prior to Ds' acquisition of control of NTFC Sixfields was let to NTFC under a short lease. Until 2004 NBC contributed significantly, that is in the order of £400K annually, to the maintenance and overhead costs of operating Sixfields. One reason for this support was that NBC regarded NTFC as important to the local community. As freeholder NBC was able to require any development project to improve the amenities available to the local community.
In 2004 NBC granted a 150 year lease of Sixfields to NTFC at a premium of £1 and a peppercorn rent. Under the lease NTFC took over responsibility for the maintenance and overhead costs relating to Sixfields. NTFC was then under Ds' control. D1 maintained that this arrangement was driven by oral assurances from the then mayor of Northampton and two councillors that NBC would support NTFC's proposal for development of Sixfields and the Adjoining Land. There is no cross-claim by D1, thus whether or not that was so does not arise as an issue in this case. That said, it was asserted by Ds, and not gainsaid by NBC, that throughout the decade during which
they controlled NTFC several NBC councillors encouraged Ds to believe that NBC supported the proposals for the development of Sixfields and the Adjoining LandIt would not be unfair to characterise NBC's approach to the development of Sixfields and the Adjoining Land as burdened by bureaucracy. To an extent this may be explained by the need to act with care and caution in deciding how best to apply publicly owned assets and resources and spend public funds. However, it appears to have taken a decade to reach the position of agreeing a conditional contract for the development of Sixfields and the Adjoining Land. There is evidence to suggest that after control of the council shifted to the Conservatives in 2012 the negotiations gathered pace. It also appears that it was not until June 2013 that Ds agreed subject to contract heads of terms (‘the Heads of Terms’) with development co-venturers for carrying out the development project. It is not obvious, at least not to me, that slow progress with the former necessarily caused the delay to the latter.
On 13.9.13 NBC made a conditional agreement for the sale of the Adjoining Land with NTFC and CDNL. CDNL was a special purpose joint venture development company set up and co-owned by Ds and business partners in the development venture including Mr Howard Grossman (‘HG’). HG was the leading light of the County Group group of companies. In his written evidence, Mr Francis Fernandes (‘FF’), NBC's chief legal officer and Borough Secretary, summarised the conditions as: (1) CDNL obtaining satisfactory planning permission (which required a s.106 agreement to be in place); (2) NBC and NTFC being satisfied that CDNL had both the finances and the capacity to deliver the development; (3) NBC being satisfied that alternative arrangements were in place for the relocation of...
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