Royal Courts of Justice
Strand. London. WC2A 2LL
Before:
MISS CATHERINE NEWMAN QC
Between:
DILIP KANERIA | Petitioner |
- and - | |
(1) PRAKASH KESHAVLAL KANERIA (2) RANJAN PRAKASH KANERIA (3) KIRANCHANDRA KESHAVLAL KANERIA (4) CHAMPA KIRANCHANDRA KANERIA (5) KESERBEN KESHAVLAL PATEL (6) GUIDEZONE LIMITED | Respondents |
Mr Nicholas Bacon QC (instructed by AR Legal Solicitors) for the Petitioner
Mr Lance Ashworth QC (instructed by Charles Fussell & Co LLP) for the lst-4th and 6th Respondents,
Mr Oliver Jones (of Just Costs Limited) for the 5th Respondent
Hearing dates: 3rd May 2016
JUDGMENT
Miss Catherine Newman QC :
The Applications before me are brought in an unfair prejudice petition under Section 994 of the Companies Act 2006. The relevant history which has led up to these Applications is as follows.
A preliminary issue was ordered to be heard arising from an allegation made by the Petitioner that he was entitled to further shares. It took a 21-day trial to dispose of it. Mr Martin Mann QC sitting as a Deputy Judge of this Division heard it and resolved it against the Petitioner. The Petitioner then accepted a buyout offer, which was already on the table, for his existing shares.
A costs hearing then took place in late July 2015. It took two days and was heard by the same Judge who had conducted the trial. Having heard from the Petitioner and the Respondents he gave a reasoned Supplemental Judgment ordering the Petitioner to pay the costs of the Petition on the standard basis, to be the subject of detailed assessment if not agreed, and granting Interim Costs Orders to the Respondents: £600,000 to the 1st to 4th, £75,942.50 to the 6th and £269,255.55 to the 5th, all to be paid by 20th August 2015. I understand that the sums due to the 6th Respondent have been discharged in full and part payments have been made to the 1st to 4th Respondents and the 5th Respondent, about which I shall have more to say below, leaving £666,478.03 outstanding comprising £464,814.98 due to the 1st to 4th Respondents and £201,663.05 due to the 5th Respondent.
As far as I can tell, at the date of the Interim Costs Orders, 31st July 2015, there was no agreement between the parties for a minimum value of the Petitioner’s shares.
The Petitioner made an application for permission to appeal the Interim Costs Orders, and for a stay of execution of them. The Group Respondents opposed that application and submitted a statement to the Court of Appeal dated 3rd September 2015 in which they argued, amongst other matters, that an appeal would never be heard because by the time it came on the Petitioner believed (a belief which the statement neither criticises nor contradicts) the process of valuation and completion of the purchase would have been achieved, as the timetable for that process was 3-6 months.
In November 2015 both limbs of this application were refused on paper by Lord Justice Kitchen. Amongst the reasons given by Kitchen LJ was this: “As regards the Petitioner’s impecuniosity, the deputy judge took into account the fact that the appellant ...could apply for a stay of execution in the usual way at any time should he need to do so The Petitioner applied for an oral hearing. I have been informed by the parties that the hearing is due to take place in December 2016.
By Application Notice dated 10th December 2015, the 1st-4th and 6th Respondents (“the Group Respondents”) asked the Court to make an order that unless the Petitioner paid, within one month, the outstanding sums due under the Interim Costs Order he should be debarred from participating in the costs assessment procedure. The 5th Respondent made a like application by Notice dated 22nd December 2015.
The Application of the Group Respondents was supported by the second witness statement of Elizabeth Stoppelmoor (Ms Stoppelmoor) dated 10th December 2015. Ms Stopplemoor is a Graduate Member of the Chartered Institute of Legal Executives employed by Charles Fussell & Co LLP, the solicitors for the Group Respondents. It sets out the litigation history. The 5th Respondent’s Application was supported by a witness statement dated 22nd December 2015 made by her son, Hasu Kaneria, who holds a power of attorney in relation to her financial affairs.
On 18th April 2016 the Petitioner issued an Application for a stay of execution of the Interim Costs Orders pending the valuation and buy out of the Petitioner’s shares in the 6th Respondent on the grounds that there were said to be “special circumstances which render it inexpedient to enforce the judgment at this time and the Claimant is unable to pay the judgment at this time ”.
The Petitioner’s Application, and his contentions in relation to the Respondents’ Applications, were supported by a witness statement made by the Petitioner dated 18th April 2016 in which he asserts that his shares in the 6th Respondent are worth “millions of pounds" [paragraph 7], sets out his assets and explains that he does not have the means to pay the Interim Costs Orders. Having been effectively challenged by Ms Stopplemoor’s evidence to do so, he deposed that he has attempted to raise money from lenders on the back of the prospects of the buy out but says that he has been unable to raise money without real estate security, which he does not have. The Respondents assert that the efforts which he has made are inadequate, and that a loan could have been raised. After the hearing, efforts to reach an agreement with the proposed lender, RBS, continued to be discussed between the parties.
There has also been an exchange of different views about the Petitioner’s ability to earn a good income. In my view, however, it is wholly unlikely that he could have earned enough to make more than small inroads into his costs debt, and I say no more about his earning capacity, which would be a dispute of fact almost impossible to decide fairly simply on written evidence and submissions.
The 1st Respondent made a witness statement dated 28th April 2016. Insofar as that witness statement adds to the relevant history, I refer to it at paragraph 14 below.
This position is that the only way in which the Petitioner can afford to pay is through the sale of his shares. It is now clear, though previously it was only likely, that there is no doubt but that the proceeds of sale will be more than adequate to meet his obligations. My jurisdiction to make an order varying the Interim Costs Orders arises if the change in circumstances since the Interim Costs Orders were made by Mr Mann QC on 31st July 2015 is material.
The Interim Costs Orders contained provisions, the detail of which had been a matter of consent, for valuation which included a requirement that the valuation of the 6th Respondent should take place "as soon as practicable The Petitioner now says that the lst-4th Respondents have deliberately failed to comply with this provision and have instead dragged out the process, which should take no more than 8 weeks in total according to Deloitte (who were chosen) and KPMG (who were not). He asserts that they have failed to attempt to agree a sensible price for his shares, thus avoiding a valuation; have refused to make any counter-offer of their own and were unhelpful in discussions about the appointment of a valuer so that it took until 18th December 2015 to agree on both the valuer and the process of valuation, namely that both sides should appoint their own hotel asset valuers (a Central London freehold hotel being an important asset of the 6th Respondent) who could then meet to narrow any issues between them. However by 23rd December the 1st -4th Respondents changed their minds about the process, insisting on Deloitte (the valuer) being given liberty to choose a valuer of the hotel asset, leaving it to the parties to choose whether they wanted the land valued separately. This led to more negotiations which were not resolved until 29th February 2016. The final method was the appointment of separate hotel asset valuers who are then to meet to narrow issues. The Petitioner makes further complaints about the conduct of the 1st-4th Respondents in regard to the valuation, he criticises Hasu Kaneria’s evidence as inaccurate and misleading and prays in aid the Respondents’ refusal to accept security in the form of a charge over his shares. The 1st Respondent’s witness statement of 28th April 2016 denies these contentions but only in the broadest of terms. In particular, he does not address the detail of the changes of mind on the part of the Respondents which occurred in December 2015 and in my view must surely have created some of the delay between Christmas and February 2016. On the other hand, as for the last point made by the Petitioner which I have referred to above, the failure to accept the offer of security over the shares themselves, I am not minded to give it much weight: such an offer adds nothing to what the Respondents already have in the form of the ability to withhold any outstanding sums from the payment for the shares.
Another point raised by the Petitioner is that the 1st Respondent tried to have improper contact with the valuer. This accusation is denied and, having to deal with this matter without cross examination, I am in no position to make any finding one way or another about such a serious allegation. Nothing came of any such attempt, so it is not significant to what I have to decide.
The 1st Respondent has asserted in his April witness statement that the “process” should take four months. He leaves unclear whether this means the process of valuation alone or the process of valuation and purchase. Whatever process he did contemplate should now be complete. As far as I know it is not complete. It appears that by 28th July, when an update letter was sent to me and the Respondent’s solicitors by the Petitioner’s solicitors, that the valuation alone was going to take a “few” more weeks. The Petitioner had sought a valuation of £6.6 million and the Respondents a valuation of £4.4 million. I have been sent a clip of correspondence updating me about the valuation process from which it appears that:
The Petitioner and the Group Respondents have continued to discuss the possibility of assisting the Petitioner to raise a loan but the security situation was neither simple nor likely to be quickly resolved according to the Petitioner;
Since 18th May the Group Respondents appear to have acknowledged that the Petitioner’s shares are likely to be valued at at least £4.4 million since that is the figure they themselves put forward;
The management accounts of the 6th Respondent for the 3 months to 31st March 2016 showed over £7.3 million cash available;
The Petitioner put forward a suggestion, the details of which needed a little fine tuning from a company law aspect, but which was essentially that the 6th Respondent should pay £4.4 million forthwith as the first instalment of the payment for his shares, out of which he would be able to meet the outstanding costs liability;
On 13th July the Group Respondents rejected a similar earlier offer because it “provides no benefit to our clients whatsoever” and “it would not be in the Company’s interests to make a payment to your client until the share valuation has been finalised”;
The reason given for that was that the 6th Respondent’s cash reserves were held on fixed term deposits which it would be disadvantageous to break. In response, the Petitioner’s solicitors pointed out, by letter dated 26th July, that the management accounts showed that only £4.3 million of the cash was so held, and £2.9 million was shown as “cash at bank and in hand". The Petitioner offered to accept a lower first tranche so that the fixed deposits would not have to be broken. As far as I know, this sensible compromise offer has not been taken up.
In summary therefore, the situation before me is:
The Petitioner is in default of compliance with the Interim Costs Order;
The Petitioner says he has not got funds to pay but no steps have been taken to bankrupt him or issue execution on the debt;
The Petitioner argues that the Group Respondents are delaying the valuation and buy-out process. This is denied;
The Group Respondents and the Petitioner both appear to be of the view that the likely outcome will be that the shares will be bought in by the 6th Respondent for a sum in excess of £4.4 million;
The 6th Respondent has ample free cash to make a very substantial payment on account;
The Petitioner could use that sum to pay the outstanding costs far in excess of the amount due from the Petitioner to the lst-4th and 5th Respondents but his proposals that this should be done out of the Company’s free cash at bank and in hand have been rejected out of hand;
Under the 31st July ruling by Mr Mann QC the Petitioner was due to be paid £404,138,95 plus interest by the 6th Respondent. Tax was said to be due and was withheld on that sum leaving £278,720.02 due to be paid by the 6th Respondent to the Petitioner. The Respondents kept that sum and it was set off by them in components of their own fashioning, which included payments on account of the costs due to the 1st-4th and 5th Respondents. Doubtless this course of action involved some transactions or adjustments between the 6th Respondent and the lst-4th and 5th Respondents to satisfy the requirements of proper dealing between the company and the individuals; but it seemed to present no problems at the time, certainly I have been told of none;
This is a dispute between family members who have fallen out with one another. The Group Respondents’ own skeleton describes them as being “at war".
The modem court will not be used to be a weapon of senseless war.
The unpaid Respondents ask me to make an order debarring the Petitioner from participating in the detailed assessment of the costs of the Petition. For jurisdiction they cite Days Healthcare UK Limited v Phsiang Machinery Manufacturing Co Limited [2006] 5 Costs LR 788.
The effect of such an order could be to increase the liability of the Petitioner to them beyond that which a costs judge who had the benefit of submissions from a paying party might order. They seek this order notwithstanding the fact that there is no detailed assessment on foot, nor can there be, because the Petition has, by consent, been stayed save for the purpose of implementing the settlement in which the Petitioner’s shares are to be bought out.
The unpaid Respondents also argue that there has been no change of circumstances since the Interim Costs Order was made. I do not accept that submission. In July 2015 all parties asserted that the valuation would be over before 6 months were up. Over a year has gone by since the Interim Costs Order was made and the valuation and buy out process has not yet concluded. Whoever is at fault, that has undoubtedly been more to the disadvantage of the Petitioner and more to the advantage of the Respondents. The Respondents are exploiting that advantage by refusing to make any payment on account to the Petitioner which could wipe out his debt to them.
Moreover, what is clear beyond doubt to me, but could not have been more than a likelihood to the deputy Judge who made the Interim Costs Order, there is going to be a set off which will have a net result in favour of the Petitioner. This set off is strikingly similar in character to the one which has already taken place as described at paragraph 17g above yet the Respondents are refusing to implement it by consent.
The Group Respondents submitted that in order to find a material change of circumstances it was necessary for the Petitioner to be relying on different grounds from those previously relied upon. I do not accept that submission. If the underlying facts change or develop the ground itself may be described in the same way, but there can nevertheless be a material change of circumstance. It is the circumstances which matter, not the description of the grounds.
I accept that the Petitioner’s evidence of his inability to obtain a loan is not strong. The individual Respondents would be justified in feeling frustrated at the fact that they were not paid the Interim Costs some time ago given the Order which they succeeded in obtaining. They could have attempted to bankrupt him but have chosen not to do so. But in my judgment they have now gone too far in seeking their pound of flesh. I am driven, albeit reluctantly, to the conclusion, that the Respondents have lost sight of the sensible way forward, which is to face up to the fact that they are the net debtor here, not the net creditor, and implement the set off which they know is coming and say is coming soon. It is not the court’s job to assist one party in putting needless economic pressure on the other, which is what I judge is going on here. It is relevant to my decision that the valuation should proceed with all practicable speed and that no party should have any reason to delay it.
I therefore decline to make the order sought by the Respondents.
Given that I have found that there has been a material change of circumstances since the Interim Costs Order was made, namely (1) the unexpected (by the Judge at least) and protracted delay in concluding the valuation and (2) the clarity with which it can now been seen that in the short term there is a set off which will result in a net sum being due to the Petitioner, I find that I do have jurisdiction to order a stay of his obligation to pay the sums remaining due under the interim Costs Order until the valuation and buy out has been agreed and is ready to be completed, whereupon there will be a set off of obligations which will have to be managed lawfully. I am told that there is no set off which can be applied relating to the 5th Respondent. If that be truly so, she can be paid from the sums which have to be paid to the Petitioner. That I have such jurisdiction in these circumstances was not a matter of dispute at the hearing, see Thevarajah v Riordan [2016] 1 WLR 76 citing the well known case of Chanel Limited v FW Woolworth & Co Limited [1981] 1 WLR 485 I have also been guided by the overriding objective.
I will therefore make an order for a stay as requested by the Petitioner.