Satyam Enterprises Ltd v John Vincent Burton
| Jurisdiction | England & Wales |
| Judge | Lord Justice Nugee,Lord Justice Arnold,Lord Justice Lewison |
| Judgment Date | 08 March 2021 |
| Neutral Citation | [2021] EWCA Civ 287 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2020/0051 |
| Date | 08 March 2021 |
[2021] EWCA Civ 287
Lord Justice Lewison
Lord Justice Arnold
and
Lord Justice Nugee
Case No: A3/2020/0051
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Mr James Pickering sitting as a Deputy Judge of the High Court
[2019] EWHC 2584 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Robert-Jan Temmink QC and Gabriel Buttimore (instructed by Teacher Stern LLP) for the Appellant
Peter Shaw QC and Philip Brown (instructed by Richards Solicitors) for the Respondent
Hearing date: 3 February 2021
Approved Judgment
Introduction
This is an appeal by the Claimant from the Order dated 11 December 2019 of Mr James Pickering, sitting as a Deputy Judge of the High Court ( “the Judge”), in which he dismissed the Claimant's claims for the reasons given in a judgment at [2019] EWHC 2584 (Ch) ( “the Judgment” or “Jmt”), handed down on 7 October 2019 following trial of the action.
The Claimant is now called Satyam Enterprises Ltd but was formerly called JVB Five Properties Ltd and I will refer to it, as the Judge did, as “JVB5”. The 1 st Defendant, Mr John Burton, was at the material time JVB5's sole director and shareholder. JVB5's claims against him were based on the fact that he had caused JVB5 to transfer a number of properties to the 2 nd Defendant, JVB Seven Properties Ltd ( “JVB7”), another company of which he was sole director and shareholder. In this action JVB5 alleged that that was at an undervalue and in breach of his duties as director and claimed damages from him. It also brought a separate claim against JVB7 for what was alleged to be non-payment of the purchase price.
The Judge dismissed both claims. JVB5 has not sought to appeal the dismissal of its claim against JVB7. It has however appealed the dismissal of its claim against Mr Burton, which it does with permission granted by Males LJ given on 23 June 2020. The Judge dismissed the claim against Mr Burton primarily on the ground that the properties were, both before and after the transfer, held on trust for a Mr Vidya Sharma ( “Mr V Sharma”) and all that had been transferred by JVB5 to JVB7 was a bare legal title which had caused JVB5 no loss. The main ground on which JVB5 appeals is that the finding that the properties were held on trust for Mr V Sharma was the Judge's own idea which had formed no part of either party's case.
There is no dispute that that is so. In those circumstances I have come to the conclusion that the Judgment cannot stand, and the appeal must be allowed, and the matter remitted to the High Court for further hearing. This is deeply unfortunate, and very unsatisfactory for the parties, but I do not think any other course is open to us in the circumstances.
The issues for trial
Apart from certain basic facts, almost everything else was disputed. Documents were alleged to have been forged and fabricated, and witnesses to have given false evidence, and the Judge indeed found much of the oral evidence (on both sides) unreliable. In those circumstances there were few secure footholds for him as he picked his way through the allegations. Such a case poses particular difficulties for a trial judge, and requires careful findings of fact, firmly set in the context of what each party alleges, and which of the allegations have either been admitted or proved to the requisite standard. Regrettably, as will appear, this is not what happened here.
It is helpful to start with those basic facts which were not in issue:
(1) At the end of May 2012 Mr V Sharma attended an auction and successfully bid for four freehold investment properties in Croydon ( “the Croydon Properties”) at a total price of £1,096,000.
(2) When the time came for completion, however, the purchase was not completed in the name of Mr V Sharma, but in the name of JVB5, the Croydon Properties being transferred to JVB5 on 13 July 2012. JVB5, as its name suggests, was one of Mr Burton's companies and he was then, and until February or March 2013 remained, its sole director and shareholder.
(3) The total cost of the purchase, including costs and expenses of £41,000, was £1,137,000. £763,000 of this was borrowed from two lenders, Finance and Credit Corporation Ltd ( “Fincorp”) and Rann Investments Ltd ( “Rann”), secured by charges against each property.
(4) On 12 (or possibly 16 1) October 2012 JVB5, acting by Mr Burton, executed a TR1 form transferring the Croydon Properties to JVB7, another of his companies of which he was again the sole director and shareholder ( “the Transfer”). The price shown in the TR1 was £2,230,000. No money in fact changed hands however, nor were the charges in favour of Fincorp and Rann then discharged, so the properties were transferred subject to those charges.
(5) During 2013 JVB7, acting by Mr Burton, sold and transferred all the Croydon Properties, save for a studio flat in one of the properties, to two purchasers, one in February 2013 and the other in November 2013, the total price shown on the TR1s being £1,865,000. The studio flat was transferred for nil consideration to a Mr Amey Aulakh.
(6) The liabilities to Fincorp and Rann were discharged by JVB7 out of the proceeds of sale.
These facts were all pleaded by JVB5 in the Amended Particulars of Claim and admitted in Mr Burton's Amended Defence.
It is next helpful to set out the parties' respective pleaded cases. On the basis of the facts set out above JVB5's claim against Mr Burton was pleaded quite simply. It alleged various breaches of his duties as director of JVB5. For present purposes it is sufficient to refer to one alleged breach which was that by the Transfer Mr Burton had transferred the Croydon Properties out of JVB5 at a gross undervalue, their true value being said to be not less than £1,661,600, thereby causing JVB5 loss. The loss was pleaded as the true value of the Croydon Properties, but with credit to be given for the value at the date of the transfer of the loans which were subsequently discharged.
Paragraph 10 of the Amended Particulars of Claim pleaded, by way of anticipation of a possible ratification defence, as follows:
“It is averred that the breaches of duty set out above constituted an unlawful return of capital to shareholders at a time when [JVB5] had no distributable reserves and was accordingly ultra vires and incapable of ratification by Mr Burton.”
The relief claimed against Mr Burton was damages (calculated at the true value of the Croydon Properties less credit for the value of the loans) and interest.
The remainder of the Amended Particulars of Claim pleaded a claim against JVB7 for alleged non-payment of the agreed purchase price of £2,230,000, less any credit to be given to JVB7 for subsequently discharging JVB5's secured creditors. As already referred to, there has been no appeal by JVB5 against the Judge's dismissal of that claim, and we are not directly concerned with it. We are only concerned with the claim against Mr Burton.
Next, Mr Burton's defence to the claim, as pleaded in his Amended Defence. Although the pleading does not quite follow this structure, it is convenient to set out separately what it said about the original purchase in JVB5's name, the Transfer from JVB5 to JVB7, and subsequent matters.
So far as the original purchase is concerned, it pleaded as follows:
(1) The completion of the purchase in the name of JVB5 was arranged by Mr V Sharma and Mr Burton together (paragraph 3B). At the time Mr Burton held the entire issued shareholding of JVB5 on express trust for Mr V Sharma, and the purchase by JVB5 was undertaken by JVB5 in accordance with his instructions (paragraph 6). The reference to an express trust was to a Trust Deed ostensibly dated 20 June 2012 ( “the June 2012 Trust Deed”), which was one of the documents whose authenticity was challenged by JVB5.
(2) In addition to the £763,000 borrowed from Fincorp and Rann, the total purchase cost of £1,137,000 was financed with £365,000 borrowed from a Mr Saoud Almana and £9,000 from Mr Burton himself (paragraph 5).
So far as the Transfer on 12 (or 16) October 2012 from JVB5 to JVB7 is concerned, the Amended Defence pleaded as follows:
(1) On 12 October 2012 JVB5 agreed to sell the Croydon Properties to JVB7 for a stated purchase price of £2,230,000 less an allowance of £1,134,000 making £1,096,000 (paragraph 7(a)). This contract ( “the Contract”) was signed by Mr Burton on 12 October 2012 on behalf of both JVB5 and JVB7 (paragraph 7A(c)(a)).
(3) The consideration was paid by JVB7 agreeing to take over JVB5's liability to discharge its borrowing in the sum of £1,096,000, and interest accruing thereon, from Fincorp, Rann and Mr Almana, and to repay further sums paid by third parties on the purchase of the Croydon Properties or incurred, including the sum promised to Mr Aulakh and to a Mr Toni Singh for introducing Mr Almana (paragraph 7(b)). This agreement (referred to as “the Consideration Agreement”), the Contract and the Transfer formed part of a single agreement (paragraph 7A(c)(c)).
(4) It was accepted that the Croydon Properties were transferred to JVB7 subject to the existing charges in favour of Fincorp and Rann (paragraph 7(c)), and that the consideration stated in the TR1 was £2,230,000 (paragraph 7(e)).
JVB5 had pleaded that the purpose of the Transfer was to enable Mr Burton and JVB7 dishonestly to represent to a subsequent lender and/or purchaser that the Croydon Properties had been purchased at a substantially higher price that had in fact been the case. In support reliance was placed on an e-mail dated 30 October 2012 from Mr Burton to a Mr David Wilson of...
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