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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Top Brands Ltd & Anor v Sharma (As Former Liquidator of Mama Milla Ltd)  EWHC 1454 (Ch) (08 May 2014)
Cite as:  EWHC 1454 (Ch)
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BIRMINGHAM DISTRICT REGISTRY
The Priory Courts 33,
B e f o r e :
sitting as a Judge of the High Court
IN THE MATTER OF THE INSOLVENCY ACT 1986
AND IN THE MATTER OF MAMA MILLA LIMITED (IN CREDITORS VOLUNTARY LIQUIDATION)
| (1) TOP BRANDS LIMITED
(2) LEMIONE SERVICES LIMITED
|- and -
|GAGEN DULARI SHARMA
(as former Liquidator of Mama Milla Limited)
Mr James Morgan instructed by KW Law LLP for the Applicants
Mr Patrick Lawrence QC and Mr William Hansen instructed by ZAK Solicitors for the Respondent
Hearing dates 7 and 15 April, and 8 May 2014
Crown Copyright ©
Background to these proceedings
The applications issued on 28.3.14
Issues raised by R's application to adjourn the trial
(1) Does R, being a former liquidator and no longer an office holder, have sufficient standing to bring an action to set aside the Consent Order? ("The Competent Party Issue")
(2) Is R estopped from challenging the Consent Order on the ground that her consent was obtained by fraud? ("The Estoppel Issue")
(3) Would an action by R against As based on such a challenge be an abuse of the court's process? ("The Abuse of Process Issue")
(4) Should the court refuse to further adjourn the trial and refuse to give directions for the concurrent trial of R's challenge to the consent order for procedural reasons? ("The Procedural Issue").
R's fraud claim
"22 Taking all of the above facts, matters and inconsistencies into account, I made a decision based on my knowledge and experience of dealing with insolvency matters to reject the proofs. [As] were not listed as creditors in the statement of affairs supplied to me by [Mr Tariq]. There was no evidence of any trading activity between [MML] and [As] in [MML]'s books and records, save for the payments to [LSL]. There was no evidence at all that [As] were creditors. There was no evidence of any orders placed for good (sic) or of deliveries made to [MML], and no information as to when and how the alleged orders had been placed had been given to me. As I have stated above the first time I was told about or saw the emails Mr Heer has exhibited to his witness statement was when his evidence was sent to me. The alleged trading activity all took place after [MML] had ceased to trade. There was no evidence of any stock delivered to [MML]. The invoices supplied to me appeared to have been altered at some point as the address had changed. The figures supplied by [As] have varied from time to time. To the extent that any goods had been delivered to SERT-MST, there was no evidence that they were goods belonging to [MML]. Indeed the director had told me that moneys paid to [MML] by SERT-MST were to be returned to it as [MML] had ceased to trade".
(1) the purchases from As are high value transactions and honest commercial entities trading at arm's length would be expected to record such arrangements in written contracts, however there are no contracts or documents evidencing usual contractual terms and conditions for trading;
(2) it is improbable that As would have permitted MML, a company with no apparent funds or access to funding, to have dealt with goods worth in excess of £500,000 in the absence of arrangements to secure payment;
(3) there is no evidence available to explain how and when and on what terms the on-sales to SERT-MST were negotiated and concluded;
(4) there is no evidence in MML's books and records of purchases from As or on-sales to SERT-MST;
(5) the net price at which MML purportedly sold to SERT-MST is lower than the price at which As invoiced MML, thus MML's only scope for making a profit was VAT fraud; and,
(6) monies received by MML from SERT-MST were paid out to a variety of companies, some of which were in liquidation or had already been dissolved and one of which (Quetta Developments Ltd ("Quetta")) is owned and controlled by Dildar Singh who also owns and controls As.
The Competent Party Issue
"In their Lordships' opinion two different kinds of case must be distinguished when considering the question of a party's standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction".
liquidator to authenticate the list by way of receipt and to return it to the former liquidator; thus, a former liquidator is to have a record of accepted creditors which is important, not least because a former liquidator may remain vulnerable to complaint or suit under s.212.
(1) The court may expunge a proof or reduce the amount claimed —
(a) on the liquidator's application, where he thinks that the proof has been improperly admitted, or ought to be reduced; or
(b) on the application of a creditor, if the liquidator declines to interfere in the matter.
(2) Where application is made to the court under this Rule, the court shall fix a venue for the application to be heard, notice of which shall be sent by the applicant—
(a) in the case of an application by the liquidator, to the creditor who made the proof, and
(b) in the case of an application by a creditor, to the liquidator and to the creditor who made the proof (if not himself).
The Estoppel Issue
"26 It is well established that any judgment, whether resulting from a judge's decision or by consent of the parties is capable of being set aside if one party can show that it was obtained by fraud. However, it is common ground that that principle will not apply in a case in which the first action was itself either based on an allegation of fraud of the defendant or was defended on the basis of the fraud of the claimant if, in the second action, the claimant seeks to rely on the self-same fraud. That issue of fraud will have been determined or compromised. It seems to me that it will often be more difficult to ascertain exactly what issues are subject to an estoppel where the first action has been compromised than where it has been decided by a judge. The judgment will or should make the position clear; the same will not always be true in respect of a settlement. In my view, there should only be an estoppel if it is clear that the issue now raised has been decided or compromised in the first action.
27 I do not think that an estoppel will arise merely because there was an allegation of fraud in the first action. I think that, before an estoppel can arise, there must be congruence between the allegation of fraud which was determined or compromised in the first action and the allegation of fraud made in the second action. In other words, the two allegations must be essentially the same. I do not accept Mr Sims' submission that merely putting Mr Hayward's good faith in issue was sufficient to create an estoppel in respect of any subsequent allegations of bad faith or fraud. To create an estoppel there must be a specifically identifiable allegation of fraud and an attempt to repeat that very allegation.
28 I consider that these two requirements (of clarity as to what was in fact compromised and as to congruity between the first and second allegations) are necessary before there can be an estoppel because an estoppel creates a hard and fast rule that the allegation cannot be made again. If there is an estoppel there is no possibility of allowing the action to proceed on the basis that it is fair and just and because the importance of the purity of justice outweighs the need for finality in litigation. Because the estoppel creates a strict rule, it seems to me right that its application should be strictly confined. This does not mean that the gates will be open to litigants to bring actions which allege almost the same thing as has been alleged before. That can be prevented by the application of the flexible principles set out in Johnson v Gore Wood'.
The Abuse of Process Issue
"It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits- based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before".
The Procedural Issue
Note 1 A reference to the emails produced for the first time as exhibits to As’s evidence in the first action. [Back] Note 2 Son of Dildar Singh, the owner of As and the manager of As. [Back] Note 3 Invoices faxed to R by As on 15.11.11 in support of their claim to be creditors note MML’s address as 78 York Road, London whereas invoices bearing the same invoice numbers and details as to goods and price accompanying As’ proofs of debt sent by As’ solicitors under cover of letters dated 24.1.12 note MML’s address as 257 Hagley Road, Birmingham. [Back] Note 4 A reference to TBL abandoning a claim that an invoice for goods supplied at a price of £24,000 was unpaid. [Back] Note 5 MML was said to be the intermediary in a sale for direct delivery to a third party, SERT-MST. [Back] Note 6 Set out above at paragraph 19 [Back] Note 7 Cited as an unreported Westlaw case note dated 5.3.14 [Back]
Note 1 A reference to the emails produced for the first time as exhibits to As’s evidence in the first action. [Back]
Note 2 Son of Dildar Singh, the owner of As and the manager of As. [Back]
Note 3 Invoices faxed to R by As on 15.11.11 in support of their claim to be creditors note MML’s address as 78 York Road, London whereas invoices bearing the same invoice numbers and details as to goods and price accompanying As’ proofs of debt sent by As’ solicitors under cover of letters dated 24.1.12 note MML’s address as 257 Hagley Road, Birmingham. [Back]
Note 4 A reference to TBL abandoning a claim that an invoice for goods supplied at a price of £24,000 was unpaid. [Back]
Note 5 MML was said to be the intermediary in a sale for direct delivery to a third party, SERT-MST. [Back]
Note 6 Set out above at paragraph 19 [Back]
Note 7 Cited as an unreported Westlaw case note dated 5.3.14 [Back]