Carey Street Investments Limited (in liquidation) & Anor v Grant Timothy Brown & Anor

The Judge identified the issues which needed to be determined in relation to the transfer of New Court as follows in paragraph 91 of the Judgment:

“91.1

Did Mr Brown have available to him an up to date, independent valuation of New Court when he approved the sale by CSI to NCP at a price of £65m?

91.2

If not, did he nonetheless consider that the transfer price of £65m reflected the market value of the property?

91.3

Even if he did, did he have a firmly grounded suspicion that the market value was higher than this but deliberately refrain from obtaining an up to date, independent valuation so that his suspicions were not confirmed?”

So far as the first of these questions is concerned, the minutes of the meeting on 18 July 2005 at which CSI’s board approved the transfer of New Court to NCP stated that CSI “had received valuation advice from [DTZ]” and that “such advice was tabled”. The defendants suggested that the advice was to be found in a draft letter dated 20 June 2005, but the Judge “had no hesitation” in concluding that that letter was not available to CSI’s board on 18 July and that it was “more likely than not” that the DTZ advice tabled at the meeting was the valuation DTZ had prepared in May 2002: see paragraph 98 of the Judgment.

Turning to the second question, the Judge explained that:

It had been the consistent advice of Olswang, from whom Equity Trust obtained legal advice, that New Court “should be transferred at market value both for insolvency and banking reasons and also on the basis that any tax liability would be calculated based on the market value of the property, irrespective of the price used” (paragraph 106). On 11 July 2005, Olswang “reiterated the need for an independent valuation” and “noted that the capital gains tax base cost of New Court was approximately £64.5m and so corporation tax would be payable on any gain if the market value of the property on transfer was in excess of this figure” (paragraph 113).

Mr Brown’s team at Equity Trust was aware of “the potential tax liability on any gains to the extent that the transfer price exceeded CSI’s base cost of approximately £64.5m”, of “the likelihood that HMRC would challenge a ‘low’ valuation and that independent evidence would be needed to support any valuation not only for tax purposes but also from the point of view of solvency and their lenders” and that “the use of a £65m valuation could adversely impact the Project Ocean refinancing” (paragraphs 118 and 119 of the Judgment). The Judge commented in paragraph 120 that it was “apparent therefore that there was a tension between setting a value for the transfer of New Court to NCP which would minimise any liability to tax on capital gains and ensuring that the Project Ocean refinancing was successful”.

Arriving at his conclusions, the Judge said:

“123.

In my view, the only reasonable conclusion to be drawn from these facts is that, whilst Mr Brown was aware that a higher valuation was possible and that a lower valuation was preferrable from a tax perspective, based on guidance provided by Buckingham, a transfer price of £65m was a justifiable market value. In these circumstances it cannot be said that Mr Brown acted in a way which he knew was contrary to the interests of CSI, nor can he be said to have been reckless as to whether his actions were contrary to the interests of CSI as he clearly turned his mind to the question as to what the appropriate transfer price should be.

124.

In cross examination, Mr Brown accepted that Buckingham were not valuation experts. However, as he pointed out, they were nonetheless property specialists. In these circumstances, it does not in my view follow (as the claimants have suggested) that Mr Brown could not have honestly believed that the transfer price was an appropriate market value for the purposes of the transaction.

125.

[Counsel for the claimants] draws attention to the 2004 accounts for CSI which Mr Brown signed in September 2005, approximately six weeks after the transfer of New Court. As I have mentioned, those accounts contained a note to the effect that the directors believed the value of New Court to be in excess of £65m.

126.

However, in my view, little can be read into this. Mr Brown clearly could not recall his thinking and the circumstances in which those accounts were signed. As noted above, Mr Sihra was asked to comment on the value used in the accounts and, it is to be inferred, approved the proposed wording. Given that the concern in relation to the accounts clearly related to the Project Ocean borrowing, the statement in the accounts is perhaps not surprising given Mr Sihra’s apparent use of a range of values. It does not therefore follow from this that Mr Brown must have thought that, in July 2005, when the transfer took place, a figure of £65m was below the market value of New Court.

127.

The documentary evidence makes it clear that it was anticipated that, following the hive up of New Court to NCP and the subsequent refinancing (Project Ocean) which took place shortly afterwards, CSI would be put into solvent liquidation. Taking this into account and looking at the interests of the members of CSI as a whole, this reinforces my conclusion that Mr Brown did not believe that his actions were contrary to the interests of CSI ….”

With regard to the third of the issues listed in paragraph 28 above, the Judge recorded in paragraph 129 of the Judgment that “Mr Brown was aware of the possibility that New Court could be valued at a price in excess of £65m” and that his “suspicion was firmly grounded on specific facts known to him”. However, the Judge “reject[ed] the suggestion that Mr Brown deliberately refrained from arranging for CSI to obtain an independent valuation for fear that this might confirm his suspicions” (paragraph 130). The Judge considered that “the documentary evidence makes it clear that it was always intended that a valuation should be obtained to support the £65m value” (paragraph 130). “The reality”, the Judge said in paragraph 131 of the Judgment, “is that Mr Brown considered that a value of £65m was justified based on his team’s discussions with Buckingham and that the question of obtaining independent, supporting evidence was left until later”.

In paragraph 136 of the Judgment, the Judge said that he viewed it as “inconceivable that … Mr Brown would put his career and his reputation on the line for the client by dishonestly assisting CSI to evade tax”. He continued in paragraph 137 that “an examination of Mr Brown’s motivations supports my conclusion that Mr Brown did not act in a way which he knew was contrary to the interests of CSI” before saying in paragraph 138:

“I should say that I have no doubt that Mr Brown was in breach of his fiduciary duties as a director of CSI. He should have made sure that CSI obtained an up to date, independent valuation, as he had been advised to do. However, any breach of these duties was not fraudulent for the purposes of s 21 Limitation Act 1980 and, as the claimants accept, he can therefore have no liability in respect of a claim which was made so long after the events in question.”

Having heard expert evidence as to the value of New Court and Ludgate House, the Judge found in paragraph 340 of the Judgment that the value of New Court as at 19 July 2005 was £65,179,584.

The Judge noted in paragraph 206 of the Judgment that the claimants said that “Ludgate House was transferred at a significant undervalue and that Mr Brown either knew this to be the case or that he had blind eye knowledge”. As the Judge went on to explain, the claimants relied on Mr Brown’s “acceptance that he needed an up to date valuation” and submitted that “no such valuation (or at least no independent valuation) was obtained”. In the circumstances, the Judge identified the issues with which he needed to deal as follows in paragraph 207:

“207.1

Did Mr Brown have an up to date, independent valuation of Ludgate House when he approved the sale by BRP to LPH at a price £78m?

207.2

If not, did he nonetheless consider that the transfer price of £78m reflected the market value of the property?

207.3

Even if he did, did he have a firmly grounded suspicion that the market value was higher than this and deliberately refrain from obtaining an up to date, independent valuation so that his suspicion was not confirmed?”

The Judge answered the first of these questions in the negative. He said in paragraph 215 of the Judgment that “the only possible conclusion is that no independent valuation of Ludgate House was obtained for the purposes of the transfer from BRP to LPH”.

Moving on to the second question, the Judge referred to documents which stated or implied over the period between July 2005 and April 2006 that Ludgate House was worth £80 million, £77.85 million, £77.775 million, £106 million and £75.775 million (in chronological order). In paragraph 230 of the Judgment, the Judge mentioned advice which SJ Berwin gave in relation to Ludgate House and Sampson House in a letter of 18 July 2006 at the request of Mr Pollard’s team in these terms:

“Since the UK Companies do not have distributable reserves my understanding is that the property needs to be transferred up to the Jersey Company at market value; however a price above £148m will not be protected by the SPA and this should be considered in determining the relevant market value.

In relation to Ludgate, the property can be transferred up for a value of up to £78m in circumstances where tax up to that level should be protected by the SPA. The original loan (including unpaid interest) was £76,985,535. Again, to the extent that the property is transferred up for more than this there will need to be an outstanding loan of money owed by the Jersey Company to the UK Company ….”

In paragraphs 231 to 233 of the Judgment, the Judge made reference to correspondence in which:

The Judge concluded in paragraph 234 of the Judgment that it was “more likely than not that Buckingham gave advice on the value which should be used for the purposes of the transaction” and, in paragraph 242, that it was “more likely that Mr Sihra did indeed advise that £78m was an appropriate market value to use for the purposes of the sale to LPH”. In the preceding paragraphs, the Judge had observed that “the question of tax on capital gains was firmly in everyone’s minds at the time the discussions relating to the proposed transfer of Ludgate House to LPH took place” and that “the need to set the price for the transfer of Ludgate House by reference to market value was also firmly in people’s minds”.

Having expressed the view in paragraph 246 of the Judgment that Mr Pollard “was clearly somebody who expected things to be done properly”, the Judge said in paragraph 248 that “it would be very surprising if Mr Pollard was willing to recommend to Mr Brown and Ms Leonard a sale of Ludgate House at a price of £78m if he did not think that this was justified as being the market value”. The Judge continued:

“249.

Turning to Mr Brown, he was not directly involved in the preparatory work relating to the proposed transfer of Ludgate House to LPH. However, he received the briefing from Mr Pollard which confirmed that valuation advice had been received from Buckingham and that the transfers of Ludgate House and Sampson House should take place at a combined value of £226m. He would of course have understood this to be £78m for Ludgate House at £148m for Sampson House, as confirmed in the board minutes. Mr Pollard’s comment was ‘I see no reason not to proceed’.

250.

It is accepted on both sides that Mr Brown would have discussed the position with Mr Pollard who would no doubt have informed him of his discussions with Mr Sihra and SJ Berwin. I accept that the question of tax on capital gains is likely to have formed part of that discussion but, in line with the findings I have made, Mr Sihra’s advice that £78m was an appropriate figure for the market value would also have been relayed.

251.

In the light of this briefing, it cannot be inferred that Mr Brown knew that the market value of Ludgate House was in excess of £78m despite his knowledge that the total purchase cost had been £78.5m and his general understanding that prices had been increasing over the previous year. Although, as I have said, Mr Brown accepted in cross-examination that Buckingham were not valuers, he certainly took the view that they were significantly more qualified than he was to express an opinion on values.

252.

There is no evidence that, in August 2006, Mr Brown had in mind the Colliers valuation of March 2006 which valued Ludgate House at just under £76m. However, he was clearly aware of the existence of the valuation and in the absence of any clear recollection of events on the part of Mr Brown, this is in my view a relevant factor to take into account in determining whether it is right to infer that Mr Brown knew that the transfer price was less than the market value of Ludgate House. I do not however place any great weight on this point as the other evidence in my judgment provides sufficient grounds for inferring that Mr Brown did believe the transfer price of £78m to reflect the market value of Ludgate House.”

With regard to the third of the questions he had identified in paragraph 207 of the Judgment, the Judge said in paragraph 254 of the Judgment:

“As was the case in relation to New Court, I accept that Mr Brown would no doubt have had a suspicion (based on his knowledge of the total price paid for BRP/Ludgate House, the Colliers valuation of £80m produced for Project Ocean and his understanding that property prices had increased since then) that the transfer price was less than the market value of Ludgate House. However, there is simply no evidence that Mr Brown consciously refrained from getting an up to date, independent valuation for fear that it might confirm his suspicion. On the contrary, he was told that valuation advice had been obtained from Buckingham and he relied on that advice.”

The Judge concluded as follows in paragraph 257 of the Judgment:

“My conclusion therefore is that, in approving the transfer of Ludgate House at a price of £78m, Mr Brown did not act in a way which was knowingly or recklessly contrary to the interest of BRP. It may be that he should have asked more questions than he did but that is a different matter. Any breach of duty was not fraudulent for the purposes of s 21 Limitation Act 1980 and he therefore has no liability in respect of this element of the claim.”

The Judge found in paragraph 352 of the Judgment that the value of Ludgate House as at 1 August 2006 was £87,665,000.

The claimants contend that the Judge’s findings were not open to him. In the light, it is said, of admissions made in the pleadings and evidence, the sole issue which the Judge had to decide in relation to the propriety of the transfers of New Court and Ludgate House was whether Mr Brown had obtained independent valuations confirming their market value. With the rejection of Mr Brown’s evidence to that effect, the Judge should have concluded that Mr Brown had been dishonest.

As for the pleadings, the defendants introduced their response to the claim in paragraphs 1-17 of the defence before going on to respond to specific paragraphs of the particulars of claim. In paragraph 14 of the defence, the defendants pleaded that Mr Brown was “not liable as alleged or at all” and then stated that he “was aware of the need to obtain an updated valuation” of each property and did so. Later in the defence, the defendants referred back to paragraph 14 more than once and again asserted that contemporaneous valuations had been obtained. In answer to paragraph 16(1) of the particulars of claim, in which it had been alleged that Mr Brown had authorised the transfer of each property “at a price which was substantially less than the market value of the property in an effort to minimise the tax that the property holding company paid on the capital gain”, the defendants pleaded in paragraph 27 of the defence:

“As regards Mr Brown, subparagraph (1) is denied:

(1)

Mr Brown authorised the relevant transfers because, having exercised independent judgment, he considered it in good faith to be in the interests of the property holding company for him to do so;

(2)

Further or alternatively, Mr Brown believed the consideration payable … for New Court and Ludgate House to reflect the value of those properties. Paragraph 14 above is repeated.”

The defendants also, in paragraph 28(1) of the defence, said in unqualified terms that Mr Brown “believed that the properties were being transferred at their market value”, and in paragraph 29(5) they confirmed Mr Brown’s belief in the truth of representations to HMRC that “the purchase price paid … was believed to be equal to the market value of the property acquired” and that “the transfer at that price had been in the interests of the transferor company”.

In a witness statement dated 24 November 2022, Mr Brown stated that he “would not have transferred New Court or signed minutes that referred to a valuation being tabled if there had not been a valuation” (paragraph 58), that he “would not have approved the transfer of Ludgate House … without a valuation of a similar nature to the valuation for New Court” (paragraph 87) and that he “would definitely have needed to see it before approving the hive up” (paragraph 88). Mr Brown also, however, explained that he had “very limited memory of the specific events relevant to these proceedings” and did “not remember having seen at the time any of the documents [he had] been provided with since these proceedings were commenced” (paragraph 6).

In preparation for the trial, the parties sought to agree a list of issues. The defendants’ draft included issues as to whether Mr Brown “honestly believed the consideration payable” for each property “to reflect the property’s market value” and whether the defendants were, “as the Claimants contend, limited to asserting that Mr Brown … held such belief by reason of” relevant valuations. The claimants objected to the defendants’ draft and no agreement on a list of issues was ever reached. The claimants can, however, have been left in no doubt that the defendants maintained that Mr Brown could have derived an honest belief that the transfer prices reflected market value otherwise than by reason of the valuations referred to.

Mr Norbury returned to the subject when opening on the first day of the trial, voicing “objection to the way in which it seems the claimants are trying to limit how the defendants can argue our case”. The Judge was not asked to rule on the point at that stage, and he did not do so.

Mr Brown’s oral evidence reflected in this respect his witness statement. He confirmed that valuations had been needed and obtained. As already mentioned, the Judge did not accept that evidence. However, he “did not form the impression that [Mr Brown’s] evidence was dishonest” (paragraph 78 of the Judgment): his conclusion was that, “whilst Mr Brown’s evidence was unreliable, it was not dishonest” (paragraph 82). The Judge observed that, “[n]ot surprisingly, given the events in question took place over 15 years ago, there was much that he could not remember” (paragraph 73).

In paragraph 63 of the Judgment, the Judge noted that it was being contended that “it is not open to Mr Brown to maintain that he was honest if the Court were to find that he did not have an up to date valuation before him given that he has not, in his pleadings or his evidence, put forward any other explanation for his honesty”. The Judge rejected the submission. He said:

“64.

… Read as a whole, it is quite clear from the pleadings that the key question in issue is whether Mr Brown acted honestly. Although I accept the CPR (Rule 16.5) requires a defendant, in their defence, not only to deny an allegation but also to put forward their own version of events where appropriate, the failure to do so cannot relieve the claimant from having to prove their case. As Mr Norbury pointed out, if Mr Brown had simply denied dishonesty (and had not referred to any up to date valuation) it would still be up to the claimant to prove, based on the available evidence and on the balance of probabilities, that Mr Brown had been dishonest.

65.

Although a finding that Mr Brown did not have an up to date valuation available to him would be a significant factor to take into account, it cannot in my view be conclusive as to whether or not Mr Brown acted dishonestly which must be judged in the light of all of the relevant circumstances.”

When refusing permission to appeal on 13 June 2013, the Judge said in relation to this topic:

“this was a point which was canvassed as part of the opening submissions. It was therefore open to the claimants to tailor their cross-examination of Mr Brown accordingly and to deal with any necessary issues in their closing submissions (and indeed they did so).”

In my view, the Judge was justified in approaching matters in the way he did. More specifically, I do not think the fact that the Judge found that Mr Brown did not have up-to-date independent valuations of New Court and Ludgate House available to him when approving their transfers required him to conclude that Mr Brown was dishonest. It is true that the defendants pleaded in their defence that updated valuations were obtained, but the defence also included assertions in more general terms that Mr Brown considered the transfers to be in the interests of the claimants and that the properties were being transferred at their market value. That it was the defendants’ position that Mr Brown could be found to have been honest without updated valuations having been obtained was, moreover, made clear by the debate about the list of issues and what was said by Mr Norbury in opening. The claimants had, therefore, had ample notice of the defendants’ stance by the time they came to cross-examine Mr Brown, who was the only witness of fact. As the Judge said, the claimants were able both “to tailor their cross-examination of Mr Brown accordingly” and “to deal with any necessary issues in their closing submissions”.

It was the claimants’ case that Mr Brown was dishonest unless he believed that New Court and Ludgate House were being transferred at their market value. For Mr Brown to have been honest, the claimants maintained, Mr Brown had to have considered each price to be equal to the market value of the property and not merely to a figure within the range of values that could reasonably be placed on it. In particular, it was the claimants’ position that Mr Brown would have been dishonest if for tax reasons the properties had been transferred for less than what he personally saw as their market value.

The defendants did not dispute this analysis. It was therefore incumbent on the Judge to determine whether the transfer prices accorded with Mr Brown’s perception of the properties’ market value. The defendants contend that, on the Judge’s findings, that was the case. The claimants, however, disagree. They submit that the Judge decided no more than that the figures adopted were within the range of possible valuations and that it is implicit in the Judgment that they were influenced by tax considerations.

Mr Christopher Parker KC, who appeared for the claimants with Mr Edward Meuli, relied in support of this submission on various passages in the Judgment. He pointed out, for example, that the Judge spoke of £65 million being “a justifiable” and “an appropriate” market value for New Court and of the figure being “justified”. Similarly, the Judge referred to Mr Sihra advising that £78 million was “an appropriate” market value for Ludgate House and of the need to set the price of that property “by reference to” market value. If, Mr Parker submitted, the Judge had concluded that Mr Brown had believed each transfer price to be equal to the market value of the property, and not just to “a justifiable” or “an appropriate” figure, it would have been easy enough for him to say so in terms. The position is rather, Mr Parker argued, that the Judge found that Mr Brown had thought the figures to be within, if at the lower end of, the range of possible values.

On the other hand, a transfer price could, of course, have been deemed “justifiable”, “appropriate” and “justified” because it accorded with what Mr Brown believed the market value to be, and a figure thought to represent the market value could be described as set “by reference to market value”. There are, moreover, other indications that the Judge was focusing on what Mr Brown saw as the market values of the properties. Thus, the Judge said that it did not follow from the note in CSI’s 2004 accounts that Mr Brown must have thought that £65 million was below “the market value” of New Court (emphasis added). In a similar vein, the Judge observed that it would have been surprising if Mr Pollard had been willing to recommend a sale of Ludgate House for £78 million if he did not think that this was “justified as being the market value” (emphasis added). Likewise, the Judge said that it could not be inferred that Mr Brown knew that “the market value” of Ludgate House was in excess of £78 million and referred to whether it was right to infer that Mr Brown knew that the transfer price was less than “the market value” of Ludgate House (emphasis added in each case). The Judge further spoke of there being sufficient grounds for inferring that Mr Brown believed £78 million to reflect “the market value” of Ludgate House and of Mr Brown having had a suspicion that the transfer price was less than “the market value” of Ludgate House (emphasis added in each case). It is significant, too, that the Judge identified the issues which he needed to determine as including whether Mr Brown considered that each transfer price reflected “the market value” of the property (emphasis added). To echo what Popplewell LJ said in DPP Law Ltd v Greenberg, the Judge can be expected to have answered those questions unless the contrary is clear from the language of the Judgment, which it is not.

The Judgment could, with respect, have been expressed rather more clearly. Even so, it is, I think, apparent from it that the Judge found that the prices at which New Court and Ludgate House were transferred to NCP and LPH equated to what Mr Brown believed the market values of the properties to be. The Judge is therefore to be taken to have made findings of fact to that effect.

As mentioned earlier, there are only limited circumstances in which an appellate Court should interfere with a finding of fact made by a trial judge. Supposing, however, that the Judge found (as I consider him to have done) that Mr Brown believed the transfer prices to equate to market value, Mr Parker argued that his findings are susceptible to challenge. Mr Parker referred to the Judge having arrived at perverse conclusions, ignored evidence and wrongly assumed that it was “inconceivable” that Mr Brown would have acted dishonestly.

With regard to the last of these points, the Judge commented in paragraph 136 of the Judgment that, in his view, it was “inconceivable” that Mr Brown would dishonestly assist CSI to evade tax. The use of the word “inconceivable” was, as it seems to me, unfortunate. Looking at the Judgment as a whole, however, it can be seen that the Judge was not proceeding on the basis that there was no possibility of Mr Brown having been dishonest. The Judge himself explained in paragraph 137 that he regarded “an examination of Mr Brown’s motivations” as supporting his conclusion that Mr Brown did not act in a way which he knew was contrary to the interests of CSI. That it was permissible for the Judge to take into account as one factor the inherent likelihood of Mr Brown having acted dishonestly is apparent from a passage from Armitage v Nurse, in which Millett LJ said at 263 that “a charge of fraud against independent professional trustees is, in the absence of some financial or other incentive, inherently implausible”.

So far as Ludgate House is concerned, Mr Parker stressed that the transfer prices for both that and Sampson House exactly matched the upper limits in the tax indemnity given by the seller of the Bankside Estate (as to which, see paragraph 9 above). That regard was had to the indemnity was, Mr Parker argued, confirmed by the contemporary correspondence and the fact that there is no other obvious source for the £148 million price at which Sampson House was transferred. Among the other matters to which Mr Parker made reference was Mr Brown’s knowledge that property prices were rising during this period.

By the time, however, that Ludgate House was transferred to LPH, Mr Pollard’s team had taken over responsibility for the administration of the companies in the Ironzar structure and the relationship with Buckingham. Consistently with that, Mr Brown was not included in the correspondence mentioned in paragraph 40 above or the conference call which appears to have taken place on 28 July 2006. As the Judge noted in paragraph 249 of the Judgment, Mr Brown was not directly involved in the preparatory work relating to the proposed transfer of Ludgate House. The position was rather that he was told by Mr Pollard, someone who “expected things to be done properly”, that Mr Sihra, who was a property specialist, had advised that figures of £78 million and £148 million were appropriate for the transfer of Ludgate House and Sampson House. I do not see that the coincidence with the tax indemnity figures, an absence of explanation for the £148 million or Mr Brown’s “understanding that property prices had increased” made it perverse for the Judge to conclude that Mr Brown believed the market value of Ludgate House to be £78 million. Nor, in my view, is there any other basis for impugning the Judge’s finding. A different judge might or might not have made the same finding, but that is not what matters. Equally, there is, in my view, no basis on which we would be entitled to interfere with the Judge’s rejection of the contention that Mr Brown “consciously refrained from getting an up to date, independent valuation for fear that it might confirm his suspicion”. The Judge was, as it seems to me, entitled to take the view that, “[o]n the contrary, [Mr Brown] was told that valuation advice had been obtained from Buckingham and he relied on that advice”.

Turning to New Court, Mr Parker’s best points appeared to me to arise from the minutes of the meeting of CSI’s board on 18 July 2005. As already mentioned, these recorded that CSI “had received valuation advice from [DTZ]”, that “such advice was tabled” and that the advice was “to the effect that … the market value of the Property is £65 million”. The Judge, however, concluded that a draft DTZ letter dated 30 June 2005 did not come into existence until later in the year and, hence, that what was tabled at the meeting was DTZ’s May 2002 report.

Mr Parker argued that there can be no honest explanation for this minute. While Mr Sihra may have advised that £65 million was “an appropriate value to use for the purposes of the transaction”, the minutes purported to justify the price not by reference to any such advice but on the basis that there was an up-to-date valuation from DTZ supporting £65 million. In fact, there was not. The minutes thus reflected a recognition that there needed to be such a valuation and, there being no such valuation, showed that Mr Brown was willing to confirm the accuracy of untruthful minutes.

Against that, eight days after the board meeting Buckingham was asked for details of who had valued New Court at £65 million and replied that it was its understanding that DTZ had valued the property and that confirmation of the value of £65 million was being chased: see paragraph 30(ix) above. That exchange is consistent with CSI’s board having understood at the time of the 18 July 2005 meeting that New Court had been professionally valued at £65 million not only in the May 2002 report but recently, albeit that written confirmation of that was not yet available. Even on that basis, the minutes would be inaccurate, but they would not of themselves show that the Judge was wrong to find that Mr Brown believed the market value of New Court to be £65 million, the more so when by the time the minutes were being prepared it was understood that it was DTZ that had vouched for the £65 million value.

In all the circumstances, it seems to me that there is no sufficient basis for us to interfere with the finding that Mr Brown believed the market value of New Court to be the £65 million for which it was transferred. Nor, in my view, are we entitled to go behind the Judge’s rejection of the suggestion that Mr Brown deliberately refrained from arranging for CSI to obtain an independent valuation for fear that this might confirm that New Court was worth more than £65 million. Once again, a different judge might possibly have arrived at conclusions different from those of the Judge, but that is not to the point.

I would dismiss the appeal so far as it relates to the transfer of New Court to NCP and that of Ludgate House to LPH.

As mentioned in paragraph 10 above, CSI declared a dividend of £5,521,846.35 on 3 August 2005. The Judge explained in paragraph 140 of the Judgment that the intention was that no cash should be left in CSI and that that company should in due course be put into liquidation. With that in mind, it was proposed that:

Olswang prepared the documents required to implement the plan. These included a cashflow statement from which the precise amount of the dividend was calculated. Olswang advised that, to ensure that CSI remained solvent, Equity Trust should enter into a share subscription agreement under which it undertook to subscribe for shares in CSI for an amount equal to any United Kingdom corporation tax liabilities of CSI.

The Judge found that Mr Brown had had available to him when the dividend was declared “interim accounts” within the meaning of section 270 of the Companies Act 2005 but that there “seem[ed] little doubt that … the interim accounts … were defective” because they failed to make any provision for corporation tax in respect of the sale of New Court to NCP even though some £150,000 would have been due even on the basis of the £65 million transfer price. The Judge concluded, however, that Mr Brown did not appreciate that the interim accounts were deficient, commenting in paragraph 168 of the Judgment that Mr Brown “was clear in his evidence that, given the existence of the share subscription agreement, the position was, in his mind, neutral”.

The Judge went on to address what the position would have been if Mr Brown had known that New Court was being transferred to NCP at an undervalue. The Judge said:

“171.

I should also note that the claimants make the point that, if Mr Brown knew that the transfer of New Court to NCP was at an undervalue, there would be an additional corporation tax liability on the increased gain. This is of course correct, but the comments made above apply in exactly the same way. Mr Brown would still not have appreciated that the omission of any provision for the tax from the balance sheet was a problem given his expectation that the liability would be met through the mechanism of the share subscription agreement.

172.

Even if I am wrong and Mr Brown knew that the interim accounts available to him at the board meeting on 3 August 2005 were defective, I do not in any event consider that he acted dishonestly for the purposes of s 21 Limitation Act 1980. It was clearly everybody’s understanding and expectation that CSI would end up in a position where it could be put into solvent liquidation. This was the entire purpose of the share subscription agreement which had been put in place on the advice of Olswang.”

The claimants challenge the Judge’s conclusions in respect of the dividend on the footing that Mr Brown withheld from his advisers his knowledge (actual or “blind eye”) that the market value of New Court was greater than £65 million. That being so, it is argued, the deficiency in the accounts was not innocent but rather arose from an attempted fraud on HMRC.

However, the claimants accept that this ground of appeal depends on a finding that Mr Brown had at least “blind eye” knowledge that the transfer of New Court to NCP was at an undervalue. Since I have concluded that findings by the Judge to the contrary should stand, this ground of appeal must fail.

On 23 June 2004, Mr Sihra sent Equity Trust a document in which, under the heading “Points needing clarification”, he said:

“1.

The loan from [NCP to CSI] is effectively a low-ranking junior loan and should accrue interest at 12% p.a. The fact that the loan agreement says it is interest-free should be assumed to be an error which should be rectified retrospectively by both parties.

2.

We should accrue management charges from [NCP] to [CSI] of £150,000 p.a. for provision of investment and financial advice relating to the property, the tenant, future prospects and development opportunities (and also for the provision of directors and officers for the company, admin servicers, etc.)”

On 2 November 2004, CSI and NCP entered into a property management agreement under which NCP was appointed to manage New Court with effect from 27 May 2002. The fee was stated to be £150,000 for the period to 31 December 2002 and thereafter as agreed from time to time. CSI’s board, with Mr Brown in the chair, had resolved to approve the agreement at a meeting on 26 October 2004.

On 11 November 2004, CSI and NCP agreed that NCP’s lending to CSI should “bear interest from the date of the original Agreement on 27 May 2002, at the rate of 12% per annum until the loans are repaid in full”. CSI’s board, with Mr Brown in the chair, had resolved to approve the change at a meeting on the same day.

CSI subsequently paid NCP £993,000 in respect of interest and, according to the particulars of claim, £541,967 in respect of management fees.

The claimants alleged that, in agreeing to the payment of the management charges and interest, Mr Brown acted in dishonest breach of duty. They pointed out, among other things, that Buckingham had previously undertaken to Equity Trust, by an agreement made in December 2003, that it would provide management functions in relation to New Court (and for a fee of £130,000 for the first year) and that the loan from NCP to CSI had been understood to be interest-free.

So far as interest is concerned, the Judge found in paragraph 200 of the Judgment that, “whilst Mr Brown could and should have investigated the position and … he was … no doubt in breach of his duties as a director in failing to do so, he was not in fact aware of the original arrangements and simply relied on Mr Sihra’s advice that the original documentation of the loan as being interest free was an error”. The Judge had “little doubt that, given the timing of the proposals made by Mr Sihra, Mr Brown would have been well aware that the main purpose of charging interest on the loan retrospectively was to reduce the taxable profits of CSI”, but the Judge considered that “it does not follow from this that Mr Brown considered that charging of interest was unjustified or that he was reckless as to whether it could be justified”: paragraph 202. The Judge concluded in paragraph 205:

“Mr Brown may have been in breach of his duties as a director but did not act knowingly or recklessly contrary to the interests of CSI and any breach was not therefore fraudulent for the purposes of s 21 Limitation Act 1980.”

The Judge took a similar view in relation to the management charges. While he accepted that Mr Brown “is likely to have been aware that Mr Sihra’s purpose in raising the issue of a management fee was to reduce the taxable profits of CSI” (paragraph 182 of the Judgment) and that there was evidence of a failure by Mr Brown to take proper care, the Judge considered it “more likely than not that Mr Brown believed that the management fees were justifiable costs payable by CSI for the services which had been provided by Buckingham” (paragraph 185) and that there was “no evidence that Mr Brown knew or suspected that the amount of the fee was not justified in relation to the services which had been provided” (paragraph 191). The Judge saw it as “implicit that Mr Brown considered the fee to be appropriate” even if “little (if any) independent thought was given by Mr Brown to the amount of the fees”, Mr Brown and the team at Equity Trust having “relied on the advice from Mr Sihra and acted accordingly”: paragraphs 191 and 192. Overall, “whilst Mr Brown may well have been in breach of his duties, he did not knowingly or recklessly act contrary to the interests of CSI and so any breach was not fraudulent for the purposes of s 21 Limitation Act 1980”: see paragraph 193.

Mr Parker argued that no judge could reasonably have failed to find that Mr Brown acted dishonestly in relation to the management charges and interest. Mr Brown was aware that Mr Sihra, on whom he was relying, was seeking to reduce CSI’s taxable profits. In following Mr Sihra’s advice, therefore, Mr Brown was not acting in CSI’s interests and was dishonest.

However, the Judge made findings to the effect that Mr Brown in fact considered both the interest and the management charges to be justified, the documentation showing the loan from NCP as interest-free to have been “an error” and the amount of the management fees to be appropriate. The Judge further found that Mr Brown did not “knowingly or recklessly” act “contrary to the interests of CSI” in relation to either the interest or the management charges.

I do not think we are entitled to interfere with these findings. Doubtless, it would have been open to the Judge to arrive at different conclusions. However, on the totality of the evidence and having had the benefit of seeing him in the witness box, the Judge concluded that Mr Brown had not knowingly or recklessly acted contrary to CSI’s interests. The Judge did not consider that being aware of Mr Sihra’s wish to reduce CSI’s profits necessarily meant that Mr Brown, who had only very recently assumed responsibility for the Ironzar structures, acted dishonestly in relying on Mr Sihra, and that view does not seem to me to be one that we can say that no reasonable judge could have reached. It was surely logically possible for Mr Brown to perceive Mr Sihra as both desiring to reduce CSI’s profits and believing the interest and management charges he was suggesting to be “justified” and “appropriate”. I agree with Mr Norbury that it was open to the Judge to attribute Mr Brown’s behaviour to lack of care rather than dishonesty.

When Ludgate House was transferred to LPH, £766,000 of the transfer price was left outstanding as an unsecured loan to LPH. The claimants alleged that, in making a decision to this effect, Mr Brown committed a breach of duty. The Judge, however, decided otherwise, explaining in paragraph 262 of the Judgment:

“I accept Mr Norbury’s submission that this part of the claim can therefore only succeed if it is shown that Mr Brown knew that the transfer was at an undervalue and that there would therefore be a tax liability. As I have found that this was not the case, there can be no fraudulent breach of duty.”

The claimants take issue with this decision as part of the present appeal, but Mr Parker accepted that the challenge depends on Mr Brown having had at least “blind eye” knowledge that the transfer to LPH was for less than the property’s market value. If, as seems to me to be the case, the Judge’s finding that Mr Brown lacked knowledge that the transfer of Ludgate House was at an undervalue cannot be impugned, this ground of appeal must fail.

Other grounds of appeal involve challenges to the Judge’s conclusions as to the value of New Court and Ludgate House and whether Equity Trust was vicariously liable for any wrongdoing on the part of Mr Brown or was itself a de facto or shadow director of CSI or BRP. The conclusions I have arrived at thus far make it unnecessary for me to address these matters.

I would dismiss the appeal.