Queensgate Place Limited v Solid Star Limited & Ors (No 3) (Consequential Matters)

This judgment deals with consequential issues following the determination by me of a petition brought by Queensgate Place Ltd (“QPL”) under section 994 of the Companies Act 2006 in relation to the affairs of a company, Solid Star Ltd (“SSL”). This petition has been the subject of a number of previous judgments:

Various consequential issues arose on the handing down of the Remedies Judgment. With the consent of all the parties, I agreed to deal with these on the basis of written submissions, and this judgment sets out my conclusions on these issues. In accordance with my directions, I have received written submissions as follows:

I do not repeat the matters set out in those previous judgments and this judgment should be read as one with the Liability Judgment and the Remedies Judgment.

In the Remedies Judgment I determined to adopt a counter-factual approach to identify what QPL would have received on a members’ winding up of SSL had there been no unfair prejudice. I considered two separate counter-factual scenarios; one to determine the remedy as against the Second and Third Respondents, and the other to determine the remedy as against the Fourth Respondent. Having calculated these figures as best as I could on the information that was available to me, I identified that in these circumstances SSL would have had a liability to corporation tax which would have reduced the amount otherwise available to SSL’s members. At paragraph 67 of the Remedies Judgment I stated the following:

“A final point that I need to consider is the impact of Corporation Tax on the counter-factual scenarios that I have analysed above. This was not the subject of any argument by the parties, and I have not therefore included it in my analysis. However, it does appear to me likely that in the scenarios postulated above a charge to Corporation Tax would have arisen as a result of the sale of the properties on the open market and that accordingly an allowance should be made for this additional tax liability in calculating QPL's loss (and thus the purchase price for the shares). I will give the parties an opportunity to make submissions on the extent (if any) to which the figures I have set out above should be amended to reflect this additional liability.”

There is agreement by all parties in their respective written submissions that, in the counter-factual scenarios that I posit within the Remedies Judgment, corporation tax would have been payable by SSL, and that the applicable rate at the relevant time was 19%. The parties propose that I should deal with it as follows:

For the petitioner, Mr Moeran KC, acknowledges that corporation tax would have been payable on SSL’s profits from a sale of the from a sale of the properties, but notes (in my view quite correctly) that any deduction allowable in this respect this should not affect the values that I have ascribed to the shareholder loans in my counterfactual calculations; the allowance for corporation tax affects only the balance remaining for distribution among SSL’s members after repayment of those loans. Mr Moeran observes that the difficulty in calculating the appropriate deduction is nobody knows what the profits of SSL would have been because of the lack of proper accounts from which to identify them. His primary position therefore is that no deduction for potential corporation tax should be made. Should I be unwilling to accept this primary position, he proposes that assumptions against the respondents should be made and suggests assuming a 20% chargeable gain on the hypothetical sale prices. This would lead to the following deductions:

Prakash invites me to adopt different figures. He has, for the purpose of this judgment, disclosed tax computations, apparently submitted to HMRC by SSL. These show that for the year 2014/15 the gain chargeable to corporation tax was 44% of the net proceeds of property sold in that year. In 2015/16 the relevant figure was 48%. He proposes that a similar percentage should be used to calculate the gains that would have been realised on a sale of the properties to PX1 in 2019 and 2020. Adopting a figure of 44% for the chargeable gain, gives the following:

For Minesh, Ms Bayliss and Mr Kane do not put forward any figures on the basis that he does not have access to any material to enable him to calculate the correct figure.

As Mr Moeran and Ms Bayliss and Mr Kane all acknowledge, the court is sadly lacking in material which would enable it to take an informed view on this matter. Although Prakash has filed copies of SSL’s Tax Computations for 2014/15 and 2015/16 in support of his argument, I am unable to compare these against SSL’s filed accounts as the accounts for 2014/2015 are missing from the bundle and the accounts for 2015/2016 do not show the amount of tax paid by the company.

I do not think it would be just to wholly disallow a deduction for corporation tax when calculating the amounts that the respondents should pay to the petitioner for its shares in SSL. However, I am not satisfied that I should treat the figures now provided by Prakash as reliable indications of the chargeable gain on the properties. In his evidence in the Liability Trial Prakash acknowledged that he had not kept proper records and that because payments were met by various members of his web of companies, the figures to be found in SSL’s accounts did not necessarily reflect the true balance of inter-company loans (see Liability Judgment at [51] and [54]). Nonetheless I propose to be more generous than Mr Moeran has suggested and will adopt a figure of 30% for the chargeable gains on the properties. This gives a tax deduction as follows:

This means that the balance that would have been available for distribution to the members in the counterfactual scenarios that I set out in the Remedies Judgment fall to be reduced by the above amounts. This in turn means that the amount that would have been received by QPL falls by 50% of the notional tax liability. Thus:

Minesh’s contribution amounts to 45.8% of the total (£3,059,743 / £6,682,278). Thus the figures at paragraph 64 of the Liability Judgment fall to be adjusted as follows. The total purchase price for QPL’s shares in SSL is to be £6,682,278 together with a further sum equivalent to simple interest at a rate of 1% above the applicable Bank of England base rate from 29 October 2020 to the date of my order. Against that QPL must give credit for any sums it receives from the liquidation of SSL. Liability for the purchase will be as follows:

In the light of the above an amendment is also required to the figures set out at paragraph 65 of the Remedies Judgment. Upon QPL’s shares in SSL being transferred into the names of Prakash, Viking and Minesh, those shares are to be held as to 45.8% for Minesh and 54.2% for Viking and Prakash.

Before I address the question of liability for costs, I must first deal with an issue relating to QPL’s costs budget. That budget was approved at the CCMC on 12 October 2021 and included incurred costs of £95,308 and estimated costs of £731,771. The Liability Judgment was handed down on 20 September 2023. On 23 May 2024, three weeks before the Remedies Hearing, the petitioners’ solicitors filed a revised costs budget seeking to increase the budget for their trial phase by £161,964 to cover the Remedies Hearing. A note accompanying the revised budget indicated that the original budget was based upon a trial on liability alone and the costs were approved on that basis. Having reviewed the assumptions that underlay the petitioners’ budget as approved on 12 October 2021, it merely assumes a single 8 day trial, although the CCMC ordered a split trial. A total of £87,025 was permitted for that phase of the case.

For the Petitioner, Mr Moeran invites me to approve the update to the budget. For Minesh, Ms Bayliss and Mr Kane accept that there has been a significant development in the litigation, namely, the Remedies Hearing. However, they make the point that the petitioner has failed to file its updated budget promptly as required by CPR 3.15A.

I agree with Ms Bayliss and Mr Kane that the filing of the petitioner’s updated budget is extremely late and, despite it not being agreed, no application was made prior to the Remedies Hearing for a Costs Management Hearing to deal with the updated budget. The scope of the Remedies Hearing was apparent to all the parties no later than 10 November 2023 when I gave directions for that hearing. No explanation has been provided by the petitioner as to why it took a further six months for an updated budget to be filed. I note also that the updated budget includes £84,514 for the solicitors’ costs for a three day hearing and £77,450 for counsel – a total of £161,964 as against the £87,025 permitted for that phase in the original budget. That the petitioner wished to update its budget was mentioned by Mr Moeran at the start of the Remedies Hearing but matters moved on and the point was not dealt with.

I have had regard to the decision of Akenhead J in National Museums and Galleries on Merseyside Board of Trustees v AEW Architects and Designers Ltd [2013] EWHC 3025 (TCC) mentioned at 3.15A.2 in the 2024 White Book. In that case, the judge considered dicta from Coulson J in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd which described an application to amend an approved budget after judgment as being a “contradiction in terms”. In the Merseyside case Akenhead J held that it would not be appropriate as trial judge to revise a budget at such a late stage. Nonetheless he took the view that on the facts of that case it was appropriate for there to be an upward revision of the budget, and stated at [40].

“It is most appropriate however to leave the detail of this issue to the costs judge but, doubtless, he or she can take into account what I have said”.

I propose to take the same approach here. I agree that there is here good reason for the court on assessment to depart from the petitioner’s approved budget to take into account the need for a second trial to deal with the remedies issue, the scope of which would not have been clear at the CCMC. However, I do not consider that it is now appropriate for me, after that trial has concluded, to approve amendments to the budget and I propose to leave the detail on this issue to the costs judge to resolve.

As the successful party the petitioner says that the general rule (CPR 44.2(2)(a)) should apply and it seeks its costs from the respondents. The substance of the order sought by Mr Moeran is as follows:

The respondents raise various points in response. Prakash makes the following arguments:

The points made on behalf of Minesh are less wide-ranging. He does not seek to make arguments about specific costs that have been reserved from previous hearings (eg the security for costs application). However, Ms Bayliss and Mr Kane make the following points:

I have taken all of these submissions into account and have reached the following conclusions:

As to the basis of assessment, QPL seeks an assessment against Minesh on the standard basis and I agree that this is the appropriate basis in relation to him.

In relation to Prakash, I will award costs on the indemnity basis up to the date of the Liability Judgment. I agree with Mr Moeran that Prakash’s conduct within these proceedings in (a) failing to disclose the sales of the six properties to PX1 and (b) failing to disclose either the Lazuli Claim or the fact that judgment in those proceedings had been awarded against SSL are factors sufficiently out of the norm to justify an award of costs against him on the indemnity basis, up to and including the date of the Liability Judgment.

As to liability between Prakash and Viking on the one hand and Minesh on the other.

CPR 44.2(8) provides that where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is a good reason not to do so. None of the respondents have sought to persuade me that there is a good reason here not to order a payment on account and I do not consider that any such reason exists.

In setting the amount of the payment on account, I take into account the following:

In the circumstances I will make an order requiring the respondents to pay the sum of £500,000 on account of the petitioner’s costs. This liability is joint and several in accordance with paragraph [25] above.

Following the handing down of the Liability Judgment on 20 September 2023 I continued the various interim freezing orders that had been made in this matter. My order provided that these would continue until further order.

Mr Moeran has raised the question of whether a further order continuing these freezing orders is required following the Remedies Judgment. I do not think that one is necessary, but out of an abundance of caution I will make renewed orders further extending the existing freezing orders.

This course of action is not opposed by Minesh. Prakash has queried whether the order is required in relation to him, given that his assets have vested in his trustee in bankruptcy. I am satisfied, again out of an abundance of caution that the freezing orders should remain in place. If Prakash’s trustee wishes to apply for them to be varied or discharged, he has, of course, permission to do so.

In his written submissions Prakash makes various points about the extent to which my Remedies Judgment may have a bearing on the sums that Viking may claim in SSL’s liquidation. I do not need to deal with these, save to observe, that my conclusions as to the amounts that should have been available to SSL’s members on a members’ winding up were based on the counter-factual assumption that the unfair prejudice had not actually occurred.

I would therefore ask that the parties agree a final order giving effect to the matters set out in this judgment and the Remedies Judgment and submit it to me for approval.