DPM Property Services Ltd & Ors v Kiani & Ors

This is an application for an interim payment by the second claimant, Mr Cooper, against the third defendant ("Woodlands").

Mr and Mrs Cooper, the second and third claimants, and Mr and Mrs Kiani, the first and second defendants, used to be friends. They have now fallen out. In and from late 2003 (or early 2004) they entered into a joint venture, or a series of joint ventures, to develop residential properties. The net profit on the developments was to be shared between them equally. That much is common ground.

The general scheme was that properties would be purchased by the joint venture and then renovated by the first claimant ("DPM"), a company controlled by Mr Cooper and of which he is probably the beneficial owner. The two principal issues over which the parties are in dispute are, first, whether DPM was to carry out the work at cost, or whether it was agreed that it could include a mark-up (not always the same) for overheads and profit. Second, the Kianis allege that DPM has grossly inflated the cost of the work. There are other issues relating to the amounts that the parties have lent or invested in the joint ventures and on what terms.

Three of the properties were bought through the medium of a special purpose vehicle, Woodlands. The Coopers and the Kianis did not invest in or lend money to Woodlands equally. Mr Cooper has put in about £200,000 more than the Kianis. There is a dispute about whether they were obliged to put in equal amounts. The properties developed by Woodlands have now been sold and so Woodlands has assets totalling about £680,000, representing the net proceeds of the developments.

Mr Cooper wants to recoup, by way of an interim payment, part of his investment in Woodlands, in particular £180,000 which he says was a bridging loan. This is opposed.

A complicating factor, and an unusual feature of litigation such as this, is that Mrs Kiani has brought separate proceedings against Mr Cooper and DPM and, for procedural reasons, naming Woodlands as a defendant also, by way of a derivative claim on behalf of the company.

What prompted this was Mr Cooper's conduct in serving statutory demands on his own behalf, in respect of amounts claimed to be due to him, and on behalf of DPM, in respect of amounts claimed to be due to it, against Woodlands. The registered office of Woodlands was also the office of DPM, and so Mr Cooper, having served the demands on Woodlands on behalf of himself and DPM, then, in his capacity as a director of Woodlands, purported to accept service of the demands on behalf Woodlands. In his capacity as a director of Woodlands, but without reference to Mrs Kiani, he decided not to dispute the claims. He asserted that it was not part of his duty as a director of Woodlands to defend a legitimate unanswerable claim.

However, in a judgment of 4 February 2010, Proudman J disagreed. She noted that Mr Cooper had produced no evidence (beyond his own assertion) of any agreement to pay an overhead charge of 15% or that any of the relevant invoices for the work had been paid by DPM. Mrs Kiani also had other claims relating to Mr Cooper’s conduct as a director of Woodlands. Proudman J granted Mrs Kiani's application to continue the action in the name of the company until further order (the precise details of the order do not matter for present purposes). Proudman J also made an order that Mrs Kiani should be indemnified by Woodlands against the costs that she had incurred to date in pursuing the derivative claim. She made various orders for costs against Mr Cooper and DPM in favour of Mrs Kiani. Those parts of the derivative claim relating to the statutory demands have now been disposed of by way of undertakings. The claims relating to Mr Cooper’s conduct as a director of Woodlands remain on foot.

The question of whether or not Mrs Kiani should be entitled to be indemnified by Woodlands in respect of her future costs of pursuing the derivative claim was, by an order made on 21 February 2011, left over to be determined by the court at the trial of the principal claims relating to the joint ventures. The derivative action has now been transferred to this court and is being case managed along with the principal claims, and all the actions will be tried together.

There is also an issue arising out of the involvement of a company, also controlled by Mr Cooper, called Cranham Facilities Limited ("CFL"). This company received payments from Woodlands and it is alleged that Mr Cooper failed to disclose his interest in CFL to his fellow directors in accordance with paragraph 12(a) of the Articles of Association and, in addition, that he was also in breach of various duties owed to Woodlands under sections 174 - 177 of the Companies Act 2006. For present purposes it is not necessary to say very much more about this claim other than that it exists and cannot be described as frivolous. Indeed, liability may well be strict with the consequence that Mr Cooper can only be relieved of some or all of that liability in certain limited circumstances.

I have been told that Mrs Kiani's costs, the subject of the orders in her favour that I have already mentioned, amount to some £82,000, although they have not yet been assessed. She is entitled to an indemnity from Woodlands in respect of these costs. Further, it is submitted by Mr Nigel Dougherty, who appeared for the Kianis, that Mrs Kiani is very likely to obtain an order in her favour in respect of her future costs of the derivative claim. That will include an order that she is entitled to be indemnified by Woodlands against those costs. Mr Dougherty reminded me that even if any costs that she or Woodlands are entitled to recover from Mr Cooper or DPM are only to be assessed on the standard basis, her claim to be indemnified by the company would be on an indemnity basis. In other words, even if she recovers all her costs on the standard basis from Mr Cooper or DPM, she could well be entitled to the balance of her costs from the company on an indemnity basis.

CPR 25.7(1) provides that the court "may only make an order for an interim payment where any of the following conditions are satisfied". By subparagraph (c) one of those conditions is that:

“if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment whether or not that defendant is the only defendant or one of a number of defendants to the claim;"

Paragraph (4) of the rule provides that the court must not order an interim payment of more than a reasonable proportion of the likely amount of the final judgment, and paragraph (5) requires the court to take into account any relevant set-off or counterclaim.

Two points should be noted about this rule. First, the power to order an interim payment is discretionary. Second, the court is concerned with the amount of the likely judgment that the applicant will obtain, not with how much he is likely to recover in terms of actual money.

A question that arises is whether or not the existing obligation, and possible future obligation, of Woodlands to indemnify Mrs Kiani against her costs of pursuing the derivative action are to be regarded as a relevant set-off or counterclaim within the meaning of CPR 25.7(5). Mr Peter Griffiths, who has appeared for Mr Cooper, submits not. He submits, first, that the rule specifically excludes costs and, second, that the company's obligation to indemnify Mrs Kiani is not a set-off or counterclaim as against Mr Cooper. Mr Dougherty submits that if Woodlands was ordered to indemnify Mrs Kiani against her costs of pursuing the derivative claim, it would be entitled to recover those sums from Mr Cooper. That would constitute a counterclaim.

Although I am inclined to prefer the submissions of Mr Dougherty, I do not have to reach a conclusion on the point because I consider that in the exercise of my overall discretion I should not order an interim payment if the effect of the order would be to, or might, prejudice Mrs Kiani's position and thereby frustrate the relief that she is seeking by way of the derivative claim.

For the purposes of this application the financial position of Woodlands has been assumed to be as set out in Mrs Kiani’s witness statement dated 22 February 2012. The relevant figures are set out in row (1) of the table below. The figures taken by Mrs Kiani have been calculated on the basis that the claims against Woodlands fail. That is therefore the premise on which Mr Cooper's application must be taken to be based. Accordingly, since on this scenario Mrs Kiani will have succeeded in defeating the claims made by DPM against Woodlands, there is at least a strong possibility that Mrs Kiani will be entitled to an order that she is to be indemnified by Woodlands in respect of those costs.

Row (2) of the table represents the Defendants’ figures, again taken from Mrs Kiani’s witness statement, but this time with the deduction contended for by Mr Dougherty of £131,000 in respect of the claim against Mr Cooper for breach of his fiduciary duty as a director in dealing with another company under his control. This figure represents the difference between the £381,000 that is said to have been paid to CFL on behalf of DPM and the sum of £249,624 that Mrs Kiani asserts should be repaid to Woodlands by Mr Cooper (and which, for the purposes of this application, is assumed to be the appropriate figure).

Even on Mrs Kiani's figures (as adjusted by me), therefore, Mr Cooper is likely to obtain judgment against Woodlands for a sum in the region of £190,000. As I have already explained, these figures are put forward on a best case basis from Mrs Kiani's point of view. £190,000 is clearly a substantial amount of money within the meaning of CPR 25.7.

In addition to the balance of £171,000 odd shown in row (2) of the table, the Defendants’ former solicitors are holding about £9,000 on behalf of Woodlands, giving the company total assets on the second basis of about £180,000.

From this balance I consider that £80,000, in respect of costs orders already made in Mrs Kiani’s favour (quantified, but not yet assessed, in the sum of about £82,000) should be subtracted, leaving £100,000 as the surplus assets of Woodlands once the investors have been repaid the sums put in and Woodlands has satisfied its obligation to indemnify Mrs Kiani against her costs up to February 2011.

It is very difficult to estimate the amount of the costs that Mrs Kiani may have incurred since February 2011 and will incur on behalf of the company hereafter, but doing the best I can I consider that £200,000 is probably an appropriate provision. In arriving at this figure I rely on my general experience of costs in this type of litigation and I bear in mind that the claims against Woodlands are only a part of the overall dispute: it is likely that the outcome of the claim by DPM against Woodlands will depend to a significant degree on the findings made in relation to the earlier joint venture or joint ventures. Once the court has reached conclusions on the matters in issue in relation to the earlier joint venture or joint ventures, it is likely - although not inevitable - that it will reach similar conclusions in relation to the Woodlands joint venture. As I observed in the course of argument, this is one of those unfortunate disputes in which one side, at least, must be lying. I fear that there is probably limited room for genuine misunderstanding or any middle ground.

If Mr Cooper was to be given an interim payment of £90,000, this would leave approximately £100,000 in Woodlands representing the balance of his investment - which would therefore be available to satisfy any future liability of Woodlands to Mrs Kiani for costs under the potential indemnity. This, when added to the surplus assets of £100,000 that I have already identified, would leave £200,000 available to satisfy the company's potential liability under the indemnity to Mrs Kiani.

I therefore accede to Mr Cooper's application for an interim payment, but only to the extent of £90,000. Unless I am persuaded to allow a longer period, I direct that that sum should be paid within 21 days to Mr Cooper's solicitors.

If the parties cannot agree on the form of relief or any questions of costs, I will hear counsel. Alternatively, if the parties wish, I am prepared to deal with any disputed issues relating to costs on the basis of written submissions. Any such submissions are not to exceed three pages of A4 (excluding title), in 12 point font and with spacing of not less than 1.5.