Shah v Patel & Ors

The appeal is by the second respondent, Mr Shailesh Karia, from a judgment of Morgan J of 25^th April 2008 [2008] EWHC 1360 (Ch). The Judge held that Mr Karia was in contempt of court for failing to comply with an order of Chief Registrar Baister of 25^th January 2007. Mr Karia was committed to prison for a year as well as being condemned in costs. Mrs Karia was also, to a much lesser extent, held in contempt and some costs orders were made against her. She does not appeal.

The full details of the facts can be found in Morgan J’s judgment. I will just summarise them here. The respondent, Mr Shah, is the liquidator of a company called Devonshire Property Project Ltd. Mr Karia was its shadow director, controlling it through its sole formal director, a Mr Patel.

Following the liquidation of the company Mr Karia completed a questionnaire about certain withdrawals of sums from the company and what happened to those withdrawals. He answered that questionnaire and he was also interviewed about this subject. He concocted a wholly false story in which he suggested that a wholly innocent man, a Mr Maitland, had had the money and in effect purloined it.

On 25^th January 2007 there was a public examination of Mr Karia before Chief Registrar Baister. Mr Karia maintained his story about Mr Maitland. On that day Chief Registrar Baister made the order I have mentioned. Paragraph 3 of the order reads as follows:

The Second Respondent shall, within 21 days of provision of the Company’s bank statements to the Second Respondent’s solicitors, file and serve an affidavit setting out to the best of his knowledge and belief:

(i)

Mr Maitland’s full name and address.

(ii)

Details of all joint and personal bank or building society accounts which are or have been held in his name from 1 October 2002 to the present, including the name of the bank or building society and the account name, sort code and account number.

(iii)

The names and addresses of all creditors of the company from 1 October 2002 to the present, including any creditor who has been paid.

(iv)

The names and addresses of all investors in the company from 1 October 2002 to the present, including any investors who have had their money returned.

(v)

Full details of all properties in which the Company invested.

(vi)

A detailed explanation of all monies paid into and withdrawn from Company accounts.

(vii)

The name and address of the courier company referred to in his affidavit.

The most important of these provisions is item (vi) – what money came in and what happened to it?

There are two slightly odd things about the order. Firstly it unusually talks about “the provision” rather than “service” of the bank statements and secondly, the requirement that the bank statements be provided to Mr Karia’s solicitors. The oddity here is that is that at the time Mr Karia was not represented by solicitors. Mr Barry Isaacs, Counsel for Mr Karia before us, (who did not appear below) told us that Mr Karia was represented by Counsel on a direct access basis. Moreover, at an earlier point, on 3^rd November 2006, solicitors on behalf of Mr Karia had written to the liquidator’s solicitors saying that they were not in a position to act for Mr Karia and that all communications should be addressed to him directly.

What the liquidator’s solicitors then did was to send the company’s bank statements to Mr Karia in person. This they did by a letter of 2nd February 2007. It ends with the words “you are to provide us with an affidavit within twenty one days of receipt of this letter”. On 6^th February the order of the Registrar was also served on Mr Karia by post.

On 23^rd February the liquidator’s solicitors sent Mr Karia a letter reminding him of his obligation to provide an affidavit by Monday 26^th February and warning him that failure to comply with this obligation could result in committal.

Mr Duncan Wilkes, a trainee solicitor in the firm of solicitors employed by the liquidator, deposed as to what happened next:

8.

On Monday 26^th February, I received a telephone call from the Second Respondent saying that he had only received the letter and bank statements on Friday 9 February 2007, and so he should have until Friday 2 March 2007 in which to file his evidence. I agreed to allow him until 2 March.

9.

Late on Friday 26 February [I interpolate that this is an obvious error for Friday 2^nd March] 2007, I received a telephone call from someone claiming to be the Second Respondent’s solicitor. He asked for a time extension until the middle of the following week as he could only meet the Second Respondent first thing on Monday 5 March 2007. I again agreed to this request.

Nothing was heard thereafter and the present proceedings for contempt were issued on 3^rd April 2007.

On 25^th April 2007 a firm of solicitors acting for Mr Karia telephoned the liquidator’s solicitors to say they were acting for Mr Karia and on the same day wrote:

We refer our telephone call of today’s date and confirm that we acting for Mr Karia only in respect of the preparation of the Affidavit and related matters.

We enclose the draft Affidavit. He has fully answered as best he can all the points raised in the court order dated 25^th January 2007.

On behalf of our client we apologise for dead late (sic) delivery.

The letter went on to suggest that the contempt proceedings be withdrawn and to say, as transpired, that a sworn copy of the affidavit would be delivered to the liquidator’s solicitors’, offices.

The affidavit itself starts as follows:

I make this Affidavit in response to the court order dated 25^th January 2007. apologise [this an obvious “I” missing] to the court and the Applicant for the late delivery of this Affidavit. The reason is as I do not have any documents concerning the company’s affairs I have only been able to work from the Bank Statements and my memory. I have had to do a considerable amount of research to try and ascertain the information that has been requested of me.

The information which followed was thin indeed. The Maitland story was, however, persisted in.

Not surprisingly the liquidator was not impressed with the affidavit. So the contempt proceedings came to the hearing before Morgan J. Shortly before the hearing the application notice was amended specifically to allege that the Maitland story was false. It was served less than a week before the hearing and slightly out of time. I understand that witness statements from Mr Maitland and a Miss Carol Bentley (the details of her evidence are in the judgment at [35]), were also served late. Nonetheless, Mr Isaacs told us, all the material showing that the liquidator was going to challenge the Maitland story was provided three days before the hearing. Under the rules that was late.

At the hearing, the then counsel for Mr Karia took a host of technical points about service and the incorrect positioning of the penal notice. He also cross-examined Mr Maitland, merely putting to him that his story was false. Mr Karia elected not to give evidence.

The Judge rejected all the technical points which were taken, disbelieved the truth of Mr Karia’s affidavit in a number of respects and found most of the contempts proved.

The Notice of Appeal attacked all the technical points advanced before the Judge. But before us Mr Isaacs (rightly I think) abandoned all these. He sought to advance an entirely fresh point. This was that it had never been proved – to the requisite standard, namely beyond a reasonable doubt – that the company’s bank statements had been provided to Mr Karia’s solicitors. It followed that it had not been proved that the three week period for complying with the order had started to run. Hence Mr Karia was not guilty of contempt.

Mr Isaacs pointed out that the language of relevant rule, RSC Ord. 45 r.5(1), reads as follows:

Where – (a) a person required by a judgment or order to do an act within a time specified in the judgment or order refuses or neglects to do it within that time …[then the order may be enforced]

He also took us to Temporal v Temporal [1990] 2 FLR 98 where an order required a party “to make available for collection“ certain chattels “on reasonable notice”. No time was specified in the order. The party did not comply. This court discharged her committal on the ground that the order did not specify a time for committal. Dillon LJ said: at p. 101:

It is plain that in each case the power to commit only arises where there has been a refusal or neglect to do something within the time fixed by an order of the court.

And Russell LJ said at p.103:

In my judgment, this appellant deliberately flouted the spirit of the order of the court. However the rule [the corresponding county court rule to RSC Ord. 45) must receive a strict and narrow construction involving (as it does, at least potentially) the liberty of the subject).

Mr Isaacs submitted that was the position here. He accepted that his client had deliberately flouted the spirit of the order. But in the absence of proof of provision of the bank statements to his client’s solicitors at least three weeks before the committal proceedings commenced on 3^rd April, time had not begun to run: there was no jurisdiction to make the order. It was no answer to say “but he had no solicitors so it was served on him personally:” the order required provision of the statements to his solicitors and if he had not the proper course would have been to apply for variation of the order so as to provide for provision direct to him.

I was impressed with this argument. Indeed it appears to me to be in principle right and, if it had been a pure question of law, I would have allowed it to be taken for the first time on appeal. But I do not think it is entirely a pure question of law. And in any event it was outflanked by Miss Margaret McGowan-Smyth (counsel for the liquidator) on the facts.

Miss McGowan-Smyth pointed out the matters I have recited above. Taken together they give rise in my mind to an overwhelming inference that Mr Karia both had solicitors and that he had supplied the statements to them more than three weeks before the application was made. I summarise:

Mr Isaacs forcefully pointed out that it was necessary to show beyond a reasonable doubt that the documents had been provided to the solicitors. He accepted that facts (a) and (b) give rise to a reasonable inference that Mr Karia would have provided the documents to his solicitors at the meeting arranged for 5^th March. That, he submitted, was not enough to prove the provision beyond a reasonable doubt.

I reject that. To my mind the only reasonable inference from the combination of the facts is that Mr Karia provided the documents to his solicitors. That is what a man of business would surely have done in the circumstances. He had personally asked for an extension of time because of late receipt of the documents. He had engaged solicitors and arranged a meeting with them. The meeting would have been pointless without them. No man of business would have gone to the meeting without them because he would know that the solicitors would want them

As to the fact that there was no positive evidence of non-provision, Mr Isaacs submitted that there was no obligation on Mr Karia to take the point: it was up to the liquidator to prove provision. This is true, but given that knowledge of whether there had been provision or not lay with Mr Karia and his solicitors and the fact that non-provision could easily have been proved if it had been the case, it is surely legitimate to draw an inference from the absence of any positive evidence to that effect.

Mr Isaacs also pointed out that the solicitors were not on the record. As I have said that makes no difference because the order did not require that.

He also suggested that the evidence of Mr Wilkes was too vague. I do not accept this. It stood unchallenged. If it did need challenging the time to do that was at trial. It is not open on appeal to take point. If it had been taken below the evidence may well have been supplemented, for instance by production of a file note. I would not allow this aspect of the point to be taken now. In any event, as I have said, the evidence stood unchallenged.

Finally Mr Isaacs, in reply, raised a new point. He suggested that it was never proved that the documents which were supplied were indeed all the relevant bank statements. I reject that. The documents were served on Mr Karia. He never said anything like “but these are not the documents” or “but they are not all here”. He said he needed more time to deal with them. To my mind it is obvious that he had the right documents and all of them.

Accordingly I would reject the appeal on “conviction”.

I turn to the appeal on sentence. This was said to be “manifestly excessive”. Mr Isaacs advanced this by reference to a number of other cases of contempt where lesser sentences had been imposed or, where larger sentences had been imposed. His skeleton argument mentions no less then seventeen, but in oral argument he particularly took us to Crystalmews Ltd v Metterick [2006] EWHC 3087 (Ch), Lexi Holdings v Luqman [2007] EWHC 1508 (Ch).

I do not get any assistance from these cases. None were anything other than fact specific; none sought to lay down anything like sentencing guidelines. And above all none had the combination of facts we have here, namely:

Now it is true, as Mr Isaacs submitted, that a sentence should be proportionate and should not be any longer than is necessary in the circumstances. With that I agree and bear it well in mind in considering whether the sentence was manifestly excessive.

Mr Isaacs also sought to pray in aid the procedural irregularities dealt with by the Judge. I do not see that they are relevant to sentence. The only point particularly emphasised was the late provision of the evidence exploding the Maitland story. Mr Isaacs suggested that if this had been provided earlier Mr Karia’s advisors would have had a better chance of advising him – by implication to admit his contempt and withdraw the false accusations against Mr Maitland. There is nothing in this. He had three days to consider his position. That was plenty.

So in the end I ask myself: is one year manifestly excessive in the circumstances of this case? The answer is clearly not. Far from being outside the range of sentence which might reasonably be imposed, I think it was manifestly reasonable.

I hope Mr Karia will now seek to purge his contempt by complying with the order. He must face up to the fact that if he continues to refuse to say what happened to the money the current prison sentence may not be the end of the road.

I agree.

I also agree.