Balevents Ltd v Sartori

On 3 October 2012 this court was due to start a two-day hearing of an appeal by Balevents Limited (the claimant) against an order made on 29 September 2011 in the Chancery Division, Birmingham District Registry, by Kitchin J (as he then was) dismissing its claim for, inter alia: (i) a declaration as to its entitlement to certain land on the south-east side of Broad Street, Birmingham, of which Mr Allan Sartori (defendant and respondent) is the registered proprietor; and (ii) an appropriate alteration or rectification of the registered title to the land. Balevents was represented by Mr John Randall QC (who did not appear below) and Mr Anthony Verduyn (who did), instructed by Irwin Mitchell LLP, who had taken the case over from Challinors Solicitors, who represented Balevents below. Mr Sartori was represented by Mr Stephen Jourdan QC (who also did not appear below) and Mr William Hansen (who did), instructed by Howell & Co.

In the event, Mr Randall did not open the appeal. The first day of the hearing was instead filled by argument on two opposed applications that Balevents had issued on 1 June and 24 September 2012 for permission to adduce new evidence on the appeal. At the beginning of day two, the court announced, for reasons to be given in writing, that it would make an order admitting: (i) the new evidence the subject of the first application; (ii) part of the new evidence the subject of the second application.

Mr Randall’s position upon the making of that order was that the court had no real choice but to abandon the hearing of the substantive issues raised by the appeal and the cross appeal, allow the appeal, set aside Kitchin J’s order and remit the case for a re-trial. That was because: (i) Kitchin J’s decision was driven by his findings of fact; (ii) the new evidence would have been material to the fact-finding exercise; (iii) insofar as the judge’s findings were under challenge by, inter alia, reference to the new evidence, this court could not make fresh findings; and (iv) fairness to Mr Sartori entitled him to an opportunity at a new trial to respond to the new evidence.

Mr Jourdan’s position was that two discrete issues in the appeal and cross-appeal were unaffected by the new evidence; and that if they were resolved adversely to Balevents, the appeal must be dismissed. The court indicated at an early stage its view, in agreement with Mr Randall, that the second issue was affected by the new evidence and that it would not entertain substantive argument on it. As for the first issue, the court heard argument over the rest of the morning as to whether or not it was unaffected by the new evidence. Again, Mr Randall’s submission was that the findings in relation to that issue were affected by it and he outlined a proposed amendment to Balevents’ grounds of appeal showing why. Following the short adjournment, Mr Jourdan accepted, in light of the proposed amendment, that he could not maintain his stance in relation to the first issue.

The outcome was that the court made the order summarised in paragraph 2 above, one which also permitted Balevents to amend its grounds of appeal, allowed the appeal, remitted the case for a re-trial (with an indication that there were no restrictions on the issues on such re-trial), and dealt with other matters, including costs, which I need not detail.

This judgment explains my reasons for the court’s order on the two applications. As there is to be a re-trial, it is undesirable to say more about the facts than is necessary, but I must say sufficient to illustrate the relevance of the new evidence. In what follows, I intend to do no more than summarise the judge’s findings or indicate the parties’ respective cases. Nothing that follows reflects findings of fact that will be binding upon the parties at the re-trial.

The dispute is as to the title to a strip of land (‘the Land’) in front of the Rocket Club in Birmingham, a lap dancing establishment operated by Balevents from premises at Units 3 to 5, Ground Floor, Quayside Tower, 258 Broad Street. The Land extends between the frontage of the Units and the pavement of the highway. The paper title to the Land appears by 1966 to have been held by a predecessor of Birmingham City Council. Mr Sartori’s case was, however, that in consequence of acts of claimed adverse possession of the Land by his father and then himself, the Council’s title was by mid-1991 extinguished and he had acquired title to it. The acts of possession relied upon were based upon the operation of a take-away food business on part of the Land, run from a movable trailer serviced from the nearby Rep Café Bar.

The judge rejected Mr Sartori’s case that he had acquired title to the Land by 1991, on the grounds that neither he nor his father ever had ‘effective control of the Land’, nor had they any intention ‘truly to occupy and use the Land as their own.’ The correctness of that conclusion was the subject of the first issue referred to in paragraph 4 above: Mr Sartori’s case being that, given his primary findings of fact in relation to the period down to 1991, the judge was wrong not to find that he had established title. Mr Randall’s position was that whilst the new evidence did not go directly to the pre-mid-1991 period, it at least raised questions as to the reliability of Mr Sartori’s case relating to it, which might result in a different assessment being made at the re-trial.

In 1991 Mr Sartori and his business associate, Mr Sherwin, began to run Ronnie Scott’s nightclub (‘Ronnie Scott’s’) from the Units. They did so through their company, Jazz Enterprises Limited (‘JEL’), of which they were directors. JEL occupied the Units under a lease dated 27 February 1992 granted by P&O Holdings Limited for a 25-year term from 24 June 1991. Ronnie Scott’s opened in the autumn of 1991. The judge found that the trailer and takeaway business continued to be located on the Land, with the Rep Café Bar continuing to service it. The judge found that the Land was enclosed in 1991 by placing boarding and planters around it and that it became known as Ronnie Scott’s Terrace and Bar. One end continued to be occupied by the trailer, the remainder by Ronnie Scott’s.

There was an issue at the trial as to who at this stage was occupying the Land. The judge found that the terrace and bar would have been seen as an integral part of Ronnie Scott’s; and that JEL took possession of that part of the Land forming the terrace and bar with Mr Sartori’s consent and on the basis that Mr Sartori owned the Land. The judge also found that in about 1994 Mr Sartori allowed Mr Timms to take possession of that part of the Land upon which the trailer stood, initially rent free but then for a rent of £50 a week. Mr Timms opened a new catering unit there, described in the proceedings as a burrito bar. The judge found that Mr Timms paid his rent to Mr Sartori, who paid it to JEL, and he accepted Mr Sartori’s case that he paid the money to JEL as a loan. That finding was strongly based on the evidence of Mr Sherwin, albeit that under cross-examination, as the judge said in paragraph 47, ‘he provided a rather confused explanation of how this was dealt with from an accounting perspective …’.

Ronnie Scott’s prospered, as did Mr Timms’s bar, the rent for which rose to £300 a week. Ronnie Scott’s fortunes then, however, declined and JEL fell into financial difficulty. On 10 August 2001, it entered into an insolvency regime under which its assets, including the Ronnie Scott’s club operation, were transferred to Broomco (2540) Limited. The Broomco shares were owned by Mr Kelly, Mrs Sartori and Mrs Sherwin. Mr Sartori was a director from 17 July to 13 August 2001, following which he entered into an individual voluntary arrangement (‘IVA’) with his creditors. His wife remained a director. The judge said, in paragraph 50 that:

There was an inquiry at the trial as to what Mr Sartori said about the Land and the Timms rents in his statement of affairs for the purposes of his IVA. The answer was that he disclosed neither the Land as his asset nor the rent as his income. The judge said the explanation for that was either that Mr Sartori had been untruthful in his evidence to him about these matters or else untruthful in the disclosures he made for the purposes of his IVA. The judge found the latter to be the correct explanation, saying:

Broomco was by 2003 also in financial difficulty. Mr Laurence Reddy, a businessman, invested about £360,000 into it in order to clear most of its debts and bought all the shares. Mr Sartori considered that Ronnie Scott’s had no viable future and that a lap-dancing club might prove more popular. Mr Reddy agreed to fund the new business provided that Mr Sherwin and Mr Kelly were not involved. There was a dispute at the trial about the discussions with Mr Reddy, but Mr Sartori’s case, which the judge accepted, was that the Land and the associated income, now about £1,000 a week, belonged to him but that he was prepared to pay the income into the business in order to stabilise it on the basis that it would be paid back to him in due course. On about 18 May 2003, Broomco assigned the 1991 lease to Balevents and the Rocket Club opened for business. Broomco went into liquidation on 23 September 2003. The sole director of Balevents was Mr Reddy’s brother, William, who was also the holder of its two issued shares. He lived in Spain and played no part in the running of Rocket Club. Mr Sartori was employed as the general manager, was responsible for its day to day running and earned between £35,000 and £45,000 a year. The judge found that Mr Reddy, who described himself as a consultant to the business, made all the key financial and corporate decisions. Within a short time, he had recovered from the business all he had invested in it, together with money he had earlier lent JEL.

In September 2006, Mr Sartori’s IVA came to an end. His evidence was that he wanted to get back some of the rent he had paid to the club. In 2007 and 2008, he was paid respectively £52,000 (being £100,000 after the deduction of tax at the curious rate of 48%) and £10,000 gross. Balevents claimed these were bonus payments whereas Mr Sartori’s case was that they were a partial refund of the rent from Mr Timms that he had paid to the club, although that did not fit easily with the fact that the first payment was a net payment after tax. The judge preferred Mr Sartori’s account, saying:

The judge explained how Mr Sartori later became registered at HM Land Registry as the proprietor of the Land. It is his right to have been so registered that Balevents challenged, and of course its challenge failed.

The new evidence the subject of this application is documentary evidence forming part of Broomco’s 2003 accounting records. It goes to whether the rent that Mr Timms was paying for the Land belonged beneficially to Mr Sartori, which he then lent successively to JEL and to Broomco; or whether, as was Balevents’ case, the rent belonged beneficially, and successively, to JEL and to Broomco. The new evidence is said to support the conclusion that during the Broomco era, the rent belonged to Broomco; and it is said to cast doubt upon the evidence from Mr Sartori and Mr Sherwin that, when Broomco arrived upon the scene, the business continued to be run, as the judge found in paragraph 50, ‘just as before’ (that is, as JEL’s business was run). Balevents’ case is that the true position, said to be supported by the new material, is that Mr Timms was a licensor of his site successively from JEL and Broomco, not from Mr Sartori. If that is correct, it explains Mr Sartori’s silence in his IVA documentation about his having an interest in the Land and supports Balevents’ case (rejected by the judge) that the payments it made to Mr Sartori in 2007 and 2008 were not repayments of any loan.

The new documentation comprises: (i) the income and expenditure account from Broomco’s management accounts for 48 weeks from September 2002 to July 2003, and for July 2003, showing that Mr Timms’s rent was treated as part of Broomco’s trading income, not as a loan from Mr Sartori (the figures are £40,848 and £3,404 respectively); and a trial balance for the period to July 2003 (also including the figure of £40,848), showing only one item relating to Mr Sartori, namely £1,685.63 for ‘Consultancy’; (ii) an estimated statement of affairs as at 31 July 2003, showing only Balevents as a loan account creditor (for £243,000), and not including Mr Sartori as a creditor; and a list of creditors at 21 July 2003 totalling £90,202.38, also not including Mr Sartori; and (iii) a statement of affairs as at 23 September 2003 showing (a) only Balevents as a loan account creditor (for £243,075), the creditors not including Mr Sartori, (b) a total estimated deficiency of £570,605, and (c) a list of creditors, not including Mr Sartori, with debts totalling £83,101.82. Documents (a) to (c) were part of a report for a creditors’ meeting called to consider a creditors’ voluntary liquidation.

The emergence of the new material is explained in witness statements from Mr Reddy, who appears to be Balevents’ directing mind and will, and Mr Geoffrey Griffin, a retired chartered accountant, who produced and proved the documents. Mr Griffin explains that they came into his possession in 2003 because he was involved in the preparation of Broomco’s statement of affairs immediately before its liquidation in 2003. By reference to paragraph 17 above, the category (i) documents were prepared by Mr John Lewin, Broomco’s in-house management accountant, with whom Mr Griffin has had no contact since 2004 and of whose whereabouts he is unaware; the category (ii) documents were prepared by Mr Griffin, for which he drew on information provided to him by Mr Lewin; and the category (iii) documents were prepared by Griffin & King, who Mr Griffin says were the liquidators of Broomco (meaning, presumably, that one or more of the partners were). Griffin & King was Mr Griffin’s former firm, which he left in 1998.

An unhelpful feature of Mr Griffin’s evidence is its omission to explain how, having left Griffin & King in 1998, he was involved in Broomco’s affairs in 2003, when it was Griffin & King who were involved in the liquidation; and why, notwithstanding that last fact, the documents he exhibits remained in his possession. Whilst it would have helped if he had explained that, there is, however, no reason to doubt that the documents are genuine Broomco documents.

The first question raised by the trio of considerations identified in Ladd v. Marshall [1954] 1 WLR 1489 is whether Balevents could, with reasonable diligence, have obtained this documentation for use at the trial. As to that, Mr Reddy, who gave evidence at the trial and was closely involved with Ronnie Scott’s during the Broomco period, had searched his own records and found no accounting material relating to Broomco (which never filed any accounts, any more than JEL had done). Mr Griffin has apparently acted as a consultant to Mr Reddy for several years, but Mr Reddy said he had made no inquiry of him as to whether he had any accounting records of Broomco; and that was because he had forgotten that Mr Griffin had been involved in drawing up the statement of affairs in 2003 and had no reason to believe he had any such documents. For a like reason, he did not ask Challinors (Balevents’ then solicitors) to direct their inquiries for evidence towards Mr Griffin. The evidence of Mr Reddy and Mr Griffin explains how it was not until earlier this year that Mr Reddy discovered that Mr Griffin was in possession of this documentation. I need not summarise that explanation. There is no basis for regarding it as other than true.

Would the exercise of reasonable diligence on Balevents’ part prior to trial have unearthed the Griffin material? It is said by Mr Jourdan that Balevents could and should have made inquiries of Griffin & King, but there is no evidence of what such an inquiry would have yielded. Irwin Mitchell LLP, Balevents’ present solicitors, were instructed in February 2012; and Mr Mark Elder, the partner with conduct of the case, explains in his witness statement that ‘Naturally, we re-appraised the case papers, but it certainly never occurred to us that such accountancy records of Broomco would survive from its liquidation in 2003.’ The emergence of the documentation was not the result of any initiative from Irwin Mitchell LLP.

Mr Randall also pointed out that it was anyway only at a late stage in the litigation that it became clear what Mr Sartori was asserting with regard to the Timms rent. Balevents’ case, in paragraph 3 of the Particulars of Claim, was that ‘… The mobile food unit paid a licence fee to JEL and its successors in respect of the use and occupation of part of the Land until March 2010.’ Mr Sartori’s original Defence, served on 16 July 2010, asserted in paragraph 7 that until March 2002 Mr Timms paid the rent to Mr Sartori in cash, after which it was arranged that ‘Mr Timms would not pay [Mr Sartori] any further for this rent but [it] would be paid directly into the account of the Rocket Club Ltd with the agreement of the Defendant.’ Later in that paragraph, Mr Sartori asserted:

On 17 February 2011 Mr Sartori served an amended Defence, paragraph 5(4) of which answered the allegation quoted from paragraph 3 of the Particulars of Claim. It read:

The first time the case was made that the payments of rent to Broomco were by way of a loan from Mr Sartori was in the witness statement of Mr Sherwin made on 27 June 2011, just five clear working days before the trial started on 5 July 2011. Mr Sherwin said:

That was not in line with Mr Sartori’s pleaded case, although it appears it became his case at the trial. The judge recorded in paragraph 8 that Mr Sartori was claiming the rent paid to JEL was by way of loan from him; in paragraph 47 the judge found that it was so paid; in paragraph 50, he found, in reliance on the evidence of Mr Sartori and Mr Sherwin, that during the Broomco era the business was run ‘just as before’, including as to the payment of rent into the business; and, in paragraph 63, he found that the payments made to Mr Sartori in 2007 and 2008 were regarded by Mr Sartori as partial reimbursement of rent that had always belonged to him.

It can be said that, once Mr Sherwin had produced his witness statement, its paragraph 4 ought to have focussed the thoughts of Balevents and its advisers on whether it might be possible to track down accounting records of JEL and/or Broomco to see whether they supported or undermined the loan assertion. No-one has suggested that any JEL records were or are available. It is, however, also not suggested that any thought was given to exploring whether any Broomco records were available from any quarter. But, as Mr Randall pointed out, the Sherwin evidence was produced on the eve of the trial, when Balevents and its lawyers would probably have been faced with many pre-trial considerations of various sorts, and he said that it cannot now, with the wisdom of hindsight, fairly be held against them that they did not focus on the possibility that they might be able to track down some Broomco documents to deal with Mr Sherwin’s last minute assertion. It does not appear to have occurred to anyone in the Balevents team that any such documents were or might be available. Mr Sherwin was of course cross-examined on the point. The judge said that:

In all the circumstances, I consider that it cannot fairly be said that Balevents should have addressed its mind to the possibility of the unearthing of the Griffin accounting material for use at the trial, or anyway could with reasonable diligence have so unearthed it. I consider, therefore, that the first Ladd v. Marshall condition is satisfied. As to the second condition, whether the accounting information would have had an important influence on the result of the case, I consider it would. The receipt of rent is an important indication of possession and the Broomco documents tend to show, contrary to Mr Sartori’s case and Mr Sherwin’s evidence, that the recipient of the rent during the Broomco era was Broomco, which was apparently receiving it in its own right, not as a borrower from Mr Sartori; and the judge’s finding was that the arrangements in the Broomco era were the same as in the JEL era. The new evidence also puts in question whether the 2007 and 2008 payments to Mr Sartori were repayments of rent or bonuses. As to the third Ladd v. Marshall condition, apparent credibility, I have no doubt that this is satisfied.

For these reasons, I considered that, in its discretion, the court ought to admit the accounting information as fresh evidence.

This application seeks the admission of a variety of material. I deal first with the fresh evidence in the witness statement of Mr Timms made on 12 September 2012 and its exhibits. Mr Timms’s potential to give relevant evidence at the trial was of course something of which both parties were aware. Both sides approached him for help. In particular, Mr Reddy approached him between April 2010 and January 2011, when Mr Timms and his family departed to Australia, from which they did not return until September 2011.

Mr Timms explains how during the winter of 1993/94 he was evaluating the market potential of establishing a street trading kiosk on the Land, and he exhibits several photographs he took of the site in February 1994, being exhibit CJT3. I am satisfied, for reasons explained to us, that the photographs can be dated to February 1994. Their significance is that they show the Land apparently clear of any sales kiosk, tables or chairs, which tends to support Balevents’ case at the trial (recorded in paragraph 9 of Kitchin J’s judgment) that after about mid-1991 there was no catering trailer in place on the Land until Mr Timms began to trade there. The judge, however, rejected that case (paragraph 41).

Mr Timms says that he started to trade from the Land from about October 1995. His exhibit CJT5 comprises a clip of copy letters resulting from Mr Sartori’s approach to him in the summer of 1995 suggesting that he might move his mobile kiosk to the Land (it was at that stage on a site further along Broad Street). The first letter is one of 8 August 1995, headed ‘ronnie scott’s club’, with JEL’s name, registration number and VAT number at the bottom. It is signed by Mr Sartori, addressed to the Head of Street Trading (of Birmingham City Council) and confirms that ‘we’ would be pleased to work with Mr Timms. It records Mr Sartori’s belief that ‘by re-locating his deli unit onto my terrace it will enhance both our businesses and the image of Broad Street’. The next letter is dated 9 October 1995 and is from Birmingham City Council to Mr Timms, and explains that the Council is still considering the request for permission for him to re-locate to the Land. The next, and most significant, letter is dated 8 November 1995, again on ‘ronnie scott’s club’ notepaper and signed by Mr Sartori. It is addressed to Mr Dawson, City Centre Manager, Development of Planning and Architecture, and refers to a recent telephone conversation. It is also about Mr Timms’s proposed move and opens with Mr Sartori’s statement that:

Mr Timms also exhibited, as CJT6, cheque stubs for 1998 showing rent payments to ‘Ronnie Scott’s’ and bank statements recording the related debits; and, in CJT7, copies of emails he sent Mr Reddy on 4 July 2011, immediately before the trial, which included the information (which he said he had also given Mr Sartori) that he had receipts from Ronnie Scott’s for his rent, and he includes two copy such receipts for 1999 and 2000. Mr Timms also emailed copies of those receipts to Balevents on 6 July 2011 for use at the trial, although for some reason not wholly clear to me, a decision was made not to use them, or even to put them to Mr Sartori in cross-examination.

This court admitted as new evidence Mr Timms’s witness statement insofar as it exhibited the documents in CJT3 and CJT5. Although Mr Reddy had sought to obtain Mr Timms’s full co-operation as a witness at the trial, and had received some help from him (in particular, in relation to the receipts), he had declined to give his full co-operation. Mr Timms explains, in paragraphs 21 onwards in his witness statement, how Mr Reddy had sought his assistance on numerous occasions between April 2010 and January 2011 (when Mr Timms departed for Australia), but that he was not keen to become involved. He felt he was ‘caught in the middle, between Balevents Limited and Mr Sartori’. He goes on to explain how and why, following his return from Australia in September 2011, he eventually decided (following his instruction of The Wilkes Partnership, solicitors, on 14 July 2012) to do what he could to assist Balevents in respect of the proceedings and that resulted in the production to Balevents piecemeal over the following weeks of various of the documents that were eventually exhibited to his witness statement of September 2012.

In these circumstances, I consider that Balevents could not with reasonable diligence have obtained the photographs and documents in exhibits CJT3 and CJT5 respectively for use at the trial; as to the latter, the evidence is also that Challinors had tried prior to the trial to obtain any relevant documents from Birmingham City Council, but were eventually told that there were none. I consider, for reasons given, that the material in both exhibits would probably have had an important influence on the result of the case; and that there is no reason to regard the photographs and copy letters as being other than what they purport to be.

On the other hand, the court declined to admit as fresh evidence exhibit CJT6, being the copy cheque stubs and the related copy bank statements (which are new evidence) and exhibit CJT7 (which includes the receipts for rent, which are not new evidence, since Balevents had them at the trial). These documents collectively go towards making the same point, namely that Mr Timms’s rent was paid to Ronnie Scott’s, not to Mr Sartori. Since, however, Balevents declined at the trial to make what use it might have done of the receipts, I consider that, in its discretion, the court ought not to admit the cheque stubs as new evidence either. The court also declined in its discretion to admit as new evidence paragraphs 2 to 18 of Mr Timms’s witness statement save insofar as they produced exhibits CJT3 and CJT5.

The court further admitted by way of new evidence exhibits SM1 and SM2 to the witness statement of Mr Steven Murphy made on 30 July 2012; and exhibits MJE2 and MJE4 to the witness statement of Mr Elder of Irwin Mitchell LLP made on 18 September 2012. Mr Murphy is the Regional Images Editor at BPM Media (Midlands). This evidence is of a photograph of Ronnie Scott’s from the electronic archives of BPM Media that Mr Murphy’s evidence proves to have been taken on 24 October 1991; and of Birmingham Post articles on 28 and 29 October 1991 relating to the opening of Ronnie Scott’s, which implicitly explain why the photograph was taken. The photograph shows the Land apparently free of any equipment used for a takeaway food business, and its relevance to the issues is of the like kind as the 1994 photographs produced by Mr Timms. There is no reason not to regard this evidence as proving what it purports to show. Although I regard the 1991 photograph as, by itself, unlikely to have an important influence on the result of the case, if it is regarded as of a piece with the 1994 photographs, I regard it and them as collectively likely to be so influential. As to whether the 1991 photograph could, with reasonable diligence, have been unearthed for use at the trial, its genesis is explained in the evidence. It was provided to Mr Reddy in March 2012 by Mr Roland Leon, whom Mr Timms describes in his evidence as a lifelong friend. Enquiries of Mr Leon by Mr Wellburn of Irwin Mitchell yielded the information that the photograph had been provided to him by Mr Murphy, as Mr Murphy confirms in his evidence, where he also explains that Mr Leon is a media contact of his. I conclude that the photograph could not with reasonable diligence have been obtained for use at the trial. I also consider it fair to admit the newspaper articles, since Mr Jourdan’s submission as to the 1991 photograph was that one possible explanation for the absence of any sign on it of a takeaway business on the Land was because the site had been deliberately tidied up for the grand opening of Ronnie Scott’s; and the articles enabled him to make that point.

These are my reasons for allowing the adducing on the appeal of those items of new evidence that I have described.

I agree.

I also agree.