Sanjiv Varma v Paul Atkinson & Glyn Mummery (as Joint Liquidators of Grosvenor Property Developers Ltd ((in Liquidation)))
| Jurisdiction | England & Wales |
| Judge | Lord Justice Stuart-Smith,Lord Justice Lewison,Lady Justice Rose |
| Judgment Date | 27 November 2020 |
| Neutral Citation | [2020] EWCA Civ 1602 |
| Date | 27 November 2020 |
| Docket Number | Case No: A2/2020/1221 |
| Court | Court of Appeal (Civil Division) |
[2020] EWCA Civ 1602
Lord Justice Lewison
Lady Justice Rose
and
Lord Justice Stuart-Smith
Case No: A2/2020/1221
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
HHJ JOHNS QC (Sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
William McCormick QC (instructed by Preiskel & Co) for the Appellant
Rory Brown and Andrew Shipley (instructed by Gunnercooke LLP) for the Respondents
Hearing date: 10 November 2020
Approved Judgment
The Appellant, Mr Varma, appeals against the order made on 13 July 2020 by HHJ Johns QC sitting as a judge of the High Court following his judgment handed down on that day ( [2020] EWHC 1868 (Ch)). In that judgment, Judge Johns held that he was satisfied to the criminal standard of proof that Mr Varma had committed eight contempts of court by breaching court orders and by making false statements in affidavits and a witness statement made in these proceedings. The underlying proceedings are brought by the Respondents who are the joint liquidators of a company called Grosvenor Property Developers Ltd (‘Grosvenor’). The court orders were designed to identify, locate and recover for the benefit of Grosvenor's creditors about £6 million of Grosvenor's money which the Respondents claimed had been misappropriated such that the money or its traceable proceeds was now in the defendants' hands.
HHJ Johns' judgment dealt with issues relating to Mr Varma's liability and adjourned the issue of sentence to a later date. Permission to appeal on four grounds was granted by Floyd LJ on 24 August 2020. Floyd LJ stayed the further hearing on sentence and expedited the hearing of this appeal. A few days before the hearing of the appeal, Mr Varma replaced his legal team and Mr McCormick QC, who had not appeared below, was instructed to represent him on the appeal. Mr McCormick demonstrated an impressive grasp of the complexities of the case and a more realistic assessment of the merits of the different aspects of the case than his predecessors. We are grateful to him and to Mr Brown, who has acted for the Respondents from the start of the proceedings, for their cooperative approach which narrowed the issues before us and enabled them to focus their submissions on the most important points.
The background to the claim and the proceedings so far
Grosvenor was incorporated on 16 December 2016 for the purpose of acquiring the Grosvenor Hotel in Bristol. The hotel was derelict at the time and investors were sought to fund the redevelopment of the premises into studio flats to be used for student accommodation. The only step that appears to have been taken to further that purpose was collecting in about £7.6 million from investors. The hotel was never purchased and nothing was done towards redevelopment — it appears that the whole enterprise was a fraud. The Respondents estimate that at most about £540,000 was spent on what might be regarded as legitimate company expenditure, the rest was misappropriated. A winding up petition was presented against Grosvenor on 26 July 2018 and it was placed in compulsory liquidation by order made on 14 November 2018.
The Respondents were appointed to be the joint liquidators on 6 December 2018. They interviewed Mr Varma initially in February 2019 but when he failed to cooperate further they issued an application on 27 March 2019 seeking an order that he attend for private examination and for relief under section 234 of the Insolvency Act 1986. An order in that application was made by ICC Judge Jones on 2 April 2019 requiring the delivery up by Mr Varma of all documents belonging to Grosvenor or evidencing his dealings with the company or its property.
The Respondents' application was later expanded to included four further defendants so that the proceedings were ultimately pursued against (1) Mr Varma who was alleged to be a de facto director of Grosvenor at all material times and the ultimate owner and controller of the company and its assets, (2) Mr Arjun Khadka who was the sole statutory director of Grosvenor from 9 June 2018 until the company went into liquidation, (3) Grosvenor Consultants FZE (‘GCFZE’) a company registered in the United Arab Emirates of which Mr Varma was the sole director, owner and shareholder, (4) Mr Siddhant Varma, Mr Varma's son, alleged to be a recipient of Grosvenor money or its traceable proceeds, and (5) Mr Jonathan England, the sole shareholder, de jure director and company secretary of Grosvenor from its incorporation until his resignation on 9 June 2018.
On 1 May 2019 a worldwide freezing order was made without notice by Birss J against Mr Varma, Mr Khadka and GCFZE preventing them from removing from the jurisdiction assets to the value of £3,250,000 (‘the Birss order’). Siddhant Varma was a respondent named in the Birss order but was not subject to the freezing injunction. Paragraphs 9 and 10 of the Birss Order provided that Mr Varma, Mr Khadka, GCFZE and Siddhant Varma must within 48 hours disclose their assets exceeding £2,000 in value to the Respondents' solicitors and confirm that information by affidavit within seven working days.
Among the assets that were specifically named in the Birss order as subject to the freezing injunction were diamonds and jewellery that, the order stated, Mr Varma and Mr Khadka claimed that Grosvenor had purchased from GCFZE or alternatively the proceeds of sale if they had been sold. The Birss order provided that Mr Khadka must deliver up to the Respondents' solicitors by 4 pm on 6 May 2019 those diamonds and jewellery that he and Mr Varma asserted that he was at that time holding for Grosvenor.
Those diamonds and jewellery (‘the Jewellery’) became an important part of the case pursued by the Respondents not only against Mr Varma and Mr Khadka but also against Siddhant Varma. In brief, it was Mr Varma's case that a substantial proportion of the money which the Respondents alleged had been misappropriated had in fact been paid by Grosvenor to Mr Varma's company, GCFZE, when Grosvenor bought from GCFZE a large amount of jewellery belonging to Mr Varma's mother. That Jewellery had been gifted by her to Mr Varma and then by him to GCFZE. This was the justification, he said, for a series of payments made by Grosvenor to GCFZE during the second half of 2017, amounting in total to £3,122,841.
Mr Varma's evidence about the sale of the Jewellery, which he claimed was worth more than Grosvenor had paid for it, was initially supported by two of the documents that he delivered up in response to the order of 2 April 2019 made by ICC Judge Jones. The first document was an invoice dated 27 June 2017 for the sale of the Jewellery from GCFZE to Grosvenor for £4.95 million. The second document was dated 11 June 2018 between Grosvenor and GCFZE and entitled “Settlement, Receipt, Release and Discharge”. This included recitals stating that Grosvenor had asserted claims against GCFZE, that the parties wished to settle the claims, and that Grosvenor accepted receipt of assets listed in a schedule in settlement of its claims against GCFZE. The assets listed in the schedule were the Jewellery referred to in the earlier invoice. Mr Varma's case appeared to be that Grosvenor had bought the Jewellery from GCFZE in June 2017 paying the £4.95 million price in part by the transfers of the £3,122,841 shortly thereafter and in part by releasing a year later unspecified claims it had against GCFZE. As to why Grosvenor had bought the Jewellery from GCFZE, Mr Varma's explanation has varied over time.
The Respondents have all along regarded this story and the two documents with scepticism but have maintained the position that either the documents are a sham and the transfer of the money from Grosvenor to GCFZE was a straightforward transfer of company money for no consideration or, if the documents are genuine and evidence a transaction which actually took place, Mr Varma and Mr Khadka must still deliver up either the Jewellery or its proceeds of sale because they are undoubtedly now Grosvenor's assets and should be put towards satisfying Grosvenor's creditors in the liquidation. They have also maintained, as they are entitled to do, that even if the Jewellery did exist and was bought by Grosvenor, that amounted to a misuse of the company's money. Such a purchase was outside the purpose for which Grosvenor was set up and there appears to be no good reason why money provided by investors intending to acquire an interest in flats to be let out as student accommodation should be spent on buying Mr Varma's mother's jewels.
The Jewellery is also relevant to the claim brought against Siddhant Varma as I explain further below. The Respondents have never contended that Siddhant was involved in the fraudulent operation of the Grosvenor business or that he owed any fiduciary duties to the company. Their claim against him was for knowing receipt and other claims directed at Grosvenor's property, in particular a Bentley car and £2 million transferred to him by his father out of the £3,122,841 paid to GCFZE by Grosvenor.
It remains a mystery what has happened to the Jewellery which, according to Mr Varma's version of events, has been owned by Grosvenor since June 2017. It is not clear whether it is said that it is still being held by Mr Khadka on behalf of Grosvenor or whether it has been sold. In any event neither the Jewellery nor any money has, as I understand it, yet been paid over to the Respondents despite their tenacious pursuit of these proceedings.
On 15 May 2019 at the return date for the interim injunction, Falk J...
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