B e f o r e :
MR JUSTICE NEWEY
|| EUROMEX VENTURES LIMITED
PARMINDER SINGH BHABRA
||- and -
||BNP PARIBAS REAL ESTATE ADVISORY AND PROPERTY MANAGEMENT UK LIMITED
Mr David Halpern QC (instructed by Seth Lovis & Co) for the Claimants
Miss Joanna Smith QC and Mr James McCreath (instructed by Squire Sanders (UK) LLP) for Mr O'Connell
Miss Rebecca Stubbs QC (instructed by Spring Law) for Mr MacDonald
Hearing dates: 11, 12, 15, 16, 18, 19, 22, 23 & 26 July 2013
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Newey :
- In 2004, Mr Finbarr O'Connell and Mr Douglas MacDonald became administrators and then liquidators of HDS Studios Limited ("HDS"), which was based at television studios in Hayes, Middlesex ("the Studio"). This case involves allegations that Mr O'Connell and Mr MacDonald dealt with assets in the Studio in such a way as to convert them. The assets in question mainly, but not entirely, comprise television and studio equipment. The total value of the items that are said to have been converted is put at about £14 million in the Particulars of Claim.
- The principal claimant is Mr Parminder ("Pom") Bhabra ("Mr Bhabra"). Assets at issue are also said to have been owned by Mr Hardial Bhabra ("Mr Bhabra Senior"), Mr Bhabra's father; by Mr Bhabra's brother Daljit; by Mr Manrajan Assi, a longstanding friend of the Bhabra family; by Hardial Digital Studio Limited ("Digital"), which is owned by the Bhabra family; and, in particular, by Euromex Ventures Limited ("Euromex"), another company owned by the Bhabra family. Euromex, Mr Bhabra Senior, Mr Daljit Bhabra and Mr Assi are all named as claimants, but they have assigned (or purported to assign) their claims to Mr Bhabra.
- There are also counterclaims. In the first place, Mr O'Connell and Mr MacDonald maintain that Mr Bhabra and his brother are contractually liable to contribute to the costs of the administration of HDS. Secondly, Mr O'Connell and Mr MacDonald claim to be entitled to recover from Digital the amount it received under a contract with the BBC.
- At this stage, I am concerned only with liability. On 12 March 2012, Deputy Master Matthews ordered a split trial, with all issues as to valuation deferred.
- When the trial began, there were four further defendants: BNP Paribas Real Estate Advisory and Property Management UK Limited (formerly Atis Real Weatheralls Limited) ("Atis"), Mr Richard Philpott, Mr Stewart Davies and Mr Melvyn Laughton. However, these claims were quickly disposed of by agreement.
- The Bhabra family has been involved with television broadcasting and production for many years. 20 years or so ago, the family's activities were concentrated at the Studio. From 1996, the freehold of the Studio was owned by Fliptex Limited ("Fliptex"), one of the family's companies. In 1999, the Studio was leased to another family company, Hardial Limited ("Hardial"), which at the time was the main operating company.
- Fliptex was a subsidiary of HDS, a further family company whose role until 2002 was to be the parent of companies holding land associated with the family's business. It thus had as subsidiaries not only Fliptex but Quinella Limited ("Quinella") and Hardial Productions Limited ("Productions"). All these companies were incorporated in the early 1990s, as was Hardial.
- In 1996, European Asian Satellite Television Limited ("EAST") was formed with a view to pursuing a plan to set up a television channel ("Channel East") broadcasting to Britons of Asian descent. EAST was initially a wholly-owned subsidiary of Hardial, but a company called Edney Enterprises Limited ("Edney") acquired a 20% interest in 2000. A shareholders' agreement provided for Hardial to pay Edney £1.5 million plus interest if EAST became insolvent, and Hardial's obligations were guaranteed by Fliptex, with security over the Studio.
- In the event, EAST went into creditors' voluntary liquidation on 25 September 2001. Mr O'Connell, who was then a partner in KPMG, was appointed as a liquidator together with another KPMG partner.
- Between September 2001 and March 2002, Hardial granted a number of chattel mortgages to other family companies. On 2 September, Hardial mortgaged equipment to HDS by way of security for its liabilities to that company ("the HDS Mortgage"). Comparable mortgages ("the Quinella Mortgages") were entered into in favour of Quinella, as security for Hardial's liabilities to that company, on 2 September, 15 November and 22 March. All the mortgages were duly registered at Companies House.
- On 8 February 2002, EAST, by its liquidators, entered into an agreement ("the EAST Sale Agreement") for the sale of "such right title and interest as [it] may have" in certain assets to Euromex for £100,000. Euromex had been incorporated at the end of the previous year with a view to continuing Channel East.
- In July 2002, Edney obtained judgment against Fliptex for £1,545,965 plus costs and Hardial ceased trading. Shortly afterwards, Edney appointed Law of Property Act receivers over the Studio. At much the same time, Hardial assigned to HDS its contracts with BSkyB, its major client.
- In September 2003, the Bhabras obtained £5.4 million bridging finance from a consortium known as Sterling. The loan was secured by, among other things, a debenture, a charge over the Studio and a guarantee from HDS.
- The money from Sterling meant that Edney could be paid in full, and the receivers appointed over the Studio were discharged. Hardial assigned its lease of the Studio to HDS, but a new lease of the premises was immediately granted to HDS in its own name.
- During this period, HDS granted two chattel mortgages, dated respectively 18 September and 28 November 2003, to Mr Bhabra Senior. The mortgages were not, however, registered at Companies House, and no reliance is placed on them in the present proceedings.
- Fliptex failed to make the first interest payment due to Sterling, as a result of which Sterling called in its loan and also demanded payment from HDS under its guarantee. On 24 November 2003, Ms Lisa Hogg and Mr David Elliott of Wilson Field were appointed as administrators of Fliptex.
- On 13 January 2004, Mr Bhabra and his brother applied for an administration order to be made in relation to HDS, and such an order was made on 29 January. It had originally been proposed that both administrators should come from KPMG, but that proposal met with opposition from Sterling. Mr O'Connell was therefore appointed together with Mr MacDonald, who practises through The MacDonald Partnership.
- Following the making of the administration order, Mr O'Connell and Mr MacDonald entered into a memorandum of understanding. Among other things, this authorised Mr O'Connell to exercise a variety of powers on his own.
- Soon afterwards, on 2 February 2004, Hardial went into creditors' voluntary liquidation. Mr O'Connell and another KPMG partner, Mr Philpott, were appointed as the liquidators.
- On 29 April 2004, HDS stopped trading. From this point, Mr Bhabra (and others) no longer had unrestricted access to the Studio.
- On 2 June 2004, Mr O'Connell and Mr MacDonald presented a petition for HDS to be wound up. Mr Bhabra and his brother made repeated applications for adjournments with a view to re-financing, but on 9 September a winding-up order was made. Mr O'Connell and Mr MacDonald were appointed as the liquidators.
- On 26 June 2004, Mr O'Connell had caused HDS and Hardial to enter into an agreement ("the 2004 Sale Agreement") for the sale to Atis of "whatever right, title or interest (if any)" HDS and Hardial might have in specified assets. The purpose of this (unusual) agreement was to protect the assets from Sterling. The assets remained in the Studio, and Atis was to remit to Mr O'Connell's solicitors whatever it received from re-selling the property, less a deduction in respect of Atis' time, disbursements and VAT.
- On 23 November 2004, HDS's lease of the Studio was surrendered. By 29 November, Sterling had become mortgagees in possession.
- On 22 December 2004, there was a creditors' meeting in respect of HDS at which it was determined that Mr MacDonald should play a greater role in HDS's liquidation. Mr O'Connell largely stepped back from matters at this stage.
- During 2005, there was dispute as to whether certain items at the Studio were fixtures and, hence, within the scope of the charge in favour of Sterling. Early in 2005, Digital entered a unilateral notice on the Studio's registered title. That led Sterling to bring proceedings against Digital, Mr Bhabra and his brother, in the course of which Digital alleged that various items were "readily removable structures, designed as such, erected within the shell of the existing warehouses on the Property but designed to be, fully detachable therefrom". Sterling applied to have this aspect of the litigation determined summarily in their favour, and they were largely successful: as regards all items bar one, Chief Master Winegarten concluded in a judgment dated 19 July 2005 that Digital did "not have a realistic prospect of succeeding on the issues relating to the question whether the items are chattels". The one exception was some electric cabling, in respect of which the Chief Master noted that it had "been conceded for this purpose as being arguably a chattel".
- On 29 September 2005, Atis re-sold, to Dingle Star Limited ("Dingle Star"), assets that had been transferred to it pursuant to the 2004 Sale Agreement. Mr O'Connell and Mr MacDonald were among the signatories to the agreement. The price payable under the agreement ("the 2005 Sale Agreement") was £240,000, but this covered some assets owned by Hardial as well as those attributed to HDS. The net proceeds were paid to the liquidators of HDS and Hardial.
- On 14 October 2005, Sterling sold the Studio to Elbrook (Cash & Carry) Limited.
- One of the two claims before me was issued as long ago as 6 October 2005. The other claim was issued on 22 June 2010. On 12 March 2012, Deputy Master Matthews directed that the claims be consolidated.
- The claims are in large part based on three contested documents: an agreement to assign allegedly entered into on 10 July 2002 ("the 2002 Disputed Assignment"), an invoice bearing the same date ("the Disputed Invoice") and an agreement to assign said to date from 17 July 2003 ("the 2003 Disputed Assignment"). The 2002 Disputed Assignment provides for the benefit of the Quinella Mortgages, and Hardial's indebtedness to Quinella, to be assigned to Euromex for £5,300. The Disputed Invoice was purportedly issued by HDS and addressed to Euromex in respect of the sale of "Broadcast Equipment, Furniture, Stationary Office Equipment used in the EAST project, as seen and per schedule", for £3,000 plus VAT. The 2003 Disputed Assignment provides for the benefit of the HDS Mortgage, and Hardial's indebtedness to HDS, to be assigned to Mr Bhabra Senior for sums totalling £138,000. Mr O'Connell and Mr MacDonald dispute the authenticity of all three documents.
- In 2011-2012, Digital, Euromex, Mr Bhabra Senior, Mr Daljit Bhabra and Mr Assi all assigned their claims to Mr Bhabra.
The parties' cases on the claim
- Mr Bhabra's case is that Mr O'Connell and Mr MacDonald are responsible for the conversion of numerous items that were located in the Studio on 28 April 2004 and which belonged either to Mr Bhabra himself or to persons who have assigned their claims to him. The pleaded acts of conversion include:
i) Locking the claimants out of the Studio on 28 April 2004;
ii) Refusing to allow the claimants access to the Studio or to remove the assets;
iii) Selling the assets pursuant to the 2004 Sale Agreement;
iv) Surrendering the lease of the Studio to the administrators of Fliptex; and
v) Selling the assets pursuant to the 2005 Sale Agreement.
- Mr O'Connell and Mr MacDonald advance a range of defences. They include these:
i) The items that are said to have been converted belonged to HDS and/or Hardial, not the claimants;
ii) Mr Bhabra is estopped from asserting title to any of the equipment in the Studio;
iii) Mr O'Connell and Mr MacDonald did not in any event act in such a way as to commit conversion;
iv) Mr O'Connell and Mr MacDonald are protected by section 234 of the Insolvency Act 1986;
v) The claim is barred by the ex turpi causa principle;
vi) The claim is champertous.
The law relating to conversion
- Conversion is "an act of deliberate dealing with a chattel in a manner inconsistent with another's right whereby that other is deprived of the use and possession of it" (Clerk & Lindsell on Torts, 20th. ed., at paragraph 17-07, and Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5)  UKHL 19,  2 AC 883, at paragraph 425). Conversion can occur by, among other things, selling the property in question or wrongfully denying access to it. A sale can give rise to conversion even if ineffective to pass title to the buyer (Clerk & Lindsell, at paragraph 17-21). On the other hand, "a mere bargain and sale without delivery is not [a conversion], even if the non-owner purports thereby to transfer title to the would-be buyer" (Clerk & Lindsell, paragraph 17-21). As regards denial of access, Clerk & Lindsell says this (at paragraph 17-22):
"The ordinary way of showing a conversion by unlawful retention of property is to prove that the defendant, having it in his possession, refused to surrender it on demand. Indeed, such a demand is generally a precondition of the right of action for detention: the mere unpermitted possession of another's chattel is not as such a conversion of it."
- Lord Nicholls explained the ingredients of conversion in these terms in Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5)  UKHL 19,  2 AC 883 (at paragraph 39):
"Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. First, the defendant's conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion."
- Lord Nicholls continued in paragraph 42:
"[M]ere unauthorised retention of another's goods is not conversion of them. Mere possession of another's goods without title is not necessarily inconsistent with the rights of the owner. To constitute conversion detention must be adverse to the owner, excluding him from the goods. It must be accompanied by an intention to keep the goods. Whether the existence of this intention can properly be inferred depends on the circumstances of the case. A demand and refusal to deliver up the goods are the usual way of proving an intention to keep goods adverse to the owner, but this is not the only way."
- The principal witness to give evidence in support of the claim was Mr Bhabra himself. I am afraid I found him a thoroughly unsatisfactory witness. In a range of respects, his evidence was inconsistent with the documents or otherwise unconvincing. At points, it was inconsistent with evidence that Mr Bhabra had himself given previously, either earlier in cross-examination or in a witness statement. I conclude below that several of the documents on which Mr Bhabra relies were fabrications. I cannot regard Mr Bhabra as a reliable or honest witness.
- Mr Assi also gave evidence. I did not find his evidence convincing in every respect, but I am prepared to accept that he was not knowingly untruthful.
- Mr O'Connell and Mr MacDonald each gave evidence. Mr O'Connell called as a witness Mr Edward Miller, a retired chartered surveyor who was employed by Atis between 1991 and 2008. Mr MacDonald called Ms Lisa Jenkins, an insolvency case manager at The MacDonald Partnership. All four individuals (Mr O'Connell, Mr MacDonald, Mr Miller and Ms Jenkins) seem to me to have given evidence in accordance with their recollections. It has, of course, to be recognised that their recollections will have dimmed over the years. The point can be illustrated with evidence given by Ms Jenkins. Asked what she could remember of a 2004 meeting without reference to the note she made at the time, she frankly said, "not a lot at all".
- The evidence of several witnesses was not challenged. That was the case with two of the claimants' witnesses: Mr Jeremy Hall, who was a regular visitor to the Studio, and Mr Dharmeshi Doshi, who was a director of a company approached for re-financing in 2004. Save in a minor respect, the witness statement of Mr Andrew Jackson, a valuer formerly employed by Atis, was also accepted without cross-examination.
- Hearsay notices were served on the first day of the trial in respect of witness statements from Mr Bhabra Senior and Mr Daljit Bhabra. Mr Bhabra Senior and Mr Daljit Bhabra each expressed agreement with parts of Mr Bhabra's evidence; their own witness statements were not particularly detailed. At all events, I do not think I ought to attach any substantial weight to them.
The Sale Agreement allegations
- The alleged acts of conversion can conveniently be divided into those arising from the 2004 and 2005 Sale Agreements and those relating to access and the surrender of the lease of the Studio. I shall take the Sale Agreement allegations first.
- One of the key issues concerns ownership of the assets comprised in the 2004 and 2005 Sale Agreements. Certain of these assets were said to be, or to have been, owned by Hardial; there is no longer any dispute between the parties as to these. The other items were attributed to HDS, but Mr Bhabra claims that many of them did not in fact belong to that company.
- For the most part, the assets in respect of which complaint is made are alleged to have been acquired by either Euromex or Mr Bhabra Senior pursuant to one or other of the Disputed Assignments. Euromex is said to have become the owner of certain further items as a result of the sale evidenced by the Disputed Invoice or the February 2002 sale of EAST assets. A small number of items are said to have been personal possessions of Mr Bhabra, his father or brother.
The claim based on the Disputed Invoice
- It is convenient to consider first the claim based on the Disputed Invoice. As mentioned above, this bears the date 10 July 2002 and purports to record the sale by HDS to Euromex of "Broadcast Equipment, Furniture, Stationary Office Equipment used in the EAST project, as seen and per schedule".
- There are compelling reasons for rejecting the authenticity of this document. Prominent among them is the fact that HDS did not itself buy some of the relevant goods until the following year. When it was put to Mr Bhabra in cross-examination that this gave the lie to the authenticity of the Disputed Invoice, he agreed that it appeared to. There are other oddities too. First, the items purportedly sold included items that Euromex had already purchased from EAST in February 2002, only five months before the supposed date of the Disputed Invoice. Mr Bhabra described this as an error. A second point relates to the fact that the invoice was from HDS. Mr Bhabra sought to explain this in the following way in one of his witness statements:
rather than HDS
owned this Equipment at the time, it was subject to the chattel mortgage in favour of HDS
and sold with the consent of Hardial
as mortgagor, so it was thought that HDS
should issue the invoice and receive the payment".
As, however, Mr Bhabra accepted in cross-examination, this explanation cannot account for the inclusion in the schedule to the document of items that were not subject to the chattel mortgage in favour of HDS. Thirdly, there was no mention of the Disputed Invoice until August 2005, when it was sent to The MacDonald Partnership under cover of a letter from Mr Bhabra's then solicitors. The schedule to the invoice had been sent to Mr O'Connell the previous November, but without the invoice itself or any reference to it.
- In the circumstances, I do not consider the Disputed Invoice to be genuine. In my view, it was not created on the date it bears but several years later, after HDS had gone into liquidation.
The claims based on the Disputed Assignments
- Turning to the items in respect of which the Disputed Assignments are relied on, Mr Bhabra's case in a nutshell is that the assets in question belonged to Hardial until they were mortgaged to HDS or Quinella under the chattel mortgages mentioned in paragraph 10 above and that the benefit of those chattel mortgages was then assigned to Euromex or Mr Bhabra Senior pursuant to the 2002 and 2003 Disputed Assignments. As regards the items mortgaged to HDS, Mr Bhabra put matters as follows when giving oral evidence:
bought the assets, they were mortgaged to HDS
, so in my mind eventually HDS
would have owned them had my father not provided the money under the assignment."
- That the relevant assets belonged to Hardial before the chattel mortgages in favour of HDS and Quinella were entered into is borne out by its accounts. Hardial's filed accounts for the year ended 31 May 2001 record that the company had tangible fixed assets with a net book value of £1,433,782; HDS, in contrast, is not shown as having any such assets in its accounts for the year ended 28 February 2001.
- HDS's 2003 accounts paint a different picture. They portray HDS as having "Plant and machinery etc" with a net book value of £2,045,065. The change reflects journal entries. Sheets signed by Mr Bhabra by way of authorisation record the transfer of assets from Hardial to HDS as at 28 February 2003. It seems that consideration had been given to HDS laying claim to the assets under the chattel mortgage in its favour, but this was rejected for tax reasons. An email of 7 July 2003 from a partner in the companies' accountants noted that HDS "will not be able to claim Capital Allowances if they call in the charge". Instead, Mr Bhabra instructed the accountants to make journal entries showing HDS acquiring the assets and the inter-company accounts being adjusted in consequence. Mr Bhabra also signed the directors' report within HDS's 2003 accounts which stated:
"During the year the company acquired the business and assets together with related hire purchase liabilities of Hardial Limited."
- On the face of it, all the equipment previously owned by Hardial was transferred to HDS, the indebtedness Hardial had previously had to Quinella was assumed by HDS, and Hardial's substantial indebtedness to HDS was discharged. Mr Bhabra, however, disputes that the equipment ever belonged to HDS. Among other things, he has said that it was included in HDS's balance sheet to reflect the value of the chattel mortgage it held, because HDS had the use of the equipment and "[i]n order to generate the most interest among funders to offer sufficient refinancing through HDS Studios". None of these explanations is compelling.
- Like the 2003 filed accounts, HDS's management accounts for the period ending 30 September 2003 show the company as having substantial plant, machinery and equipment and as owed no money by Hardial. During cross-examination, Mr Bhabra suggested that the management accounts might depict the position as it would have been once there had been a refinancing. However, there is absolutely no indication of that in the management accounts.
- A similar issue arises in relation to correspondence between Mr Bhabra and Habib Bank in August 2003. In the course of this, Mr Bhabra told Habib Bank that "[t]he trade and fixed assets [of Hardial] to include broadcasting equipment, furniture and fittings and motor vehicle fleet were taken over by HDS" and that movements on HDS's accounts were "as a result of the trade and fixed assets being transferred to HDS
, the corresponding entries having passed through the intercompany accounts". In cross-examination, Mr Bhabra said of this:
"what I have said there is what I would like to eventually see."
However, he clearly intended Habib Bank to understand that the assets had already been transferred.
- It is also significant that the assets used in the business were included in a document headed "HDS Studios Ltd Fixed Asset Register". Of this, Mr Bhabra said in a witness statement:
"This was a list only of broadcasting equipment that I maintained over a long period of time simply to try to keep track of the broadcasting equipment that was kept at the Studio. It was not an asset register of HDS
prepared at any given time. My secretary typed the list and gave it the title of fixed asset register for HDS Studios."
The likelihood is, however, that the document was produced after HDS's accountants had raised the need for a fixed asset register in about March 2003. In any case, Mr Bhabra described the "Fixed Asset Register" as "our Broadcast equipment list" when writing to potential funders, and it can be inferred that Mr Bhabra supplied Mr Joannou of Dingle Star with a copy of the document to allow him to prepare a desktop valuation of HDS's assets. I also accept Mr Miller's evidence that Mr Bhabra provided him with a copy of the "Fixed Asset Register" to help him with his valuation of HDS's assets (as to which, see paragraph 58 below). Contrary to suggestions made by Mr Bhabra, there is no question of Mr Miller having obtained the document as a result of Mr O'Connell or a member of his staff finding it under Mr Bhabra's desk after he had been excluded from the Studio at the end of April 2004.
- In November and December 2003, HDS sold a few items of equipment to third parties. In cross-examination, Mr Bhabra said:
my father's authorisation to sell, so I saw no problem with why HDS
shouldn't be issuing the invoice."
I do not, however, find this explanation convincing. The natural explanation for HDS issuing the invoices is that the equipment formerly owned by Hardial had been transferred to it.
- At much the same time, HDS granted Mr Bhabra Senior chattel mortgages over equipment. This indicates both that the equipment was owned by HDS and that Mr Bhabra Senior did not already have security over it.
- It is noteworthy, too, that HDS insured equipment at the Studio. In fact, the Bhabras' then solicitors stated in a letter of 28 June 2004 to the administrators' solicitors:
"The equipment is an asset of [HDS] and therefore would have to be insured in any event."
- On 8 January 2004, Mr Bhabra had sent Mr James Eldridge of KPMG a "copy of the Balance Sheet as at 31st December 2003". The balance sheet showed HDS to have tangible assets of £2,064,927. Asked about this document in cross-examination, Mr Bhabra said:
"it is a management account, which is an internal document of once we'd refinanced, what the position would be."
However, there is no indication in the document that it portrays anything other than the actual position as at 31 December 2003.
- On 8 January 2004, and again on 6 February, Mr Miller of Atis visited the Studio. Mr Miller explained in evidence that on 8 January Mr Bhabra walked him round so that he could take a "high level" look at HDS's assets and report back to Mr O'Connell. Mr Miller said that he gained "the very clear impression" that the equipment in the various rooms he was being shown was the property of HDS. Mr Miller said that, when he returned on 6 February, he was told by Mr Bhabra that certain rooms were of no interest because they did not contain any assets belonging to HDS, implying that the areas to which he did have access contained assets of HDS. Mr Bhabra disputed Mr Miller's account and claimed that he specifically recalled "telling Mr Miller that the equipment he was listing was not HDS Studios' equipment but it was owned by various companies and individuals associated with the business including [Mr Bhabra Senior]". I have no hesitation, however, in preferring Mr Miller's evidence to Mr Bhabra's.
- In January 2004, Mr Bhabra swore two affidavits in support of HDS's application for an administration order. The earlier of the affidavits exhibited a statement of affairs showing the company to have tangible assets with a book value of £2,064,927. The later affidavit exhibited a report in which Mr O'Connell referred to administration maximising the value of "the Company's chattel assets" and to which he appended a balance sheet referring to HDS having tangible assets with a book value of £2,064,927.
- On the day the administration order was made, Mr Bhabra and Ms Gurdish Samra, HDS's accounts operation manager, were asked to supply copies of "all the debentures relating to Hardial, including the ones granted to Natwest dated 7 March 1997 and Quinella Limited dated 22 March 2002". In her reply, Ms Samra said that the "debentures" had "all been satisfied". This suggests that the chattel mortgages Hardial had granted to HDS and Quinella were all understood to have been satisfied.
- In February 2004, Mr Bhabra swore a statement of affairs in which he stated that HDS had "fixed assets" of £2,064.927. In May, Mr Bhabra's then solicitors enquired as to the sum Mr O'Connell would accept "for the purchase of HDS's assets". In his reply, Mr O'Connell referred to the company having "unencumbered fixtures, fittings, television and computer equipment and motor vehicles" that Mr Bhabra had valued at £1 million on a going concern basis. That prompted Mr Bhabra to respond that the £1 million figure had "been fluctuating wildly downwards since the appointment of the administrators". He did not dispute that HDS owned the relevant assets.
- Mr O'Connell gave evidence to the effect that he had been told by Mr Bhabra that the studio equipment belonged to HDS. He said in a witness statement:
"I recall that I discussed HDS's assets with Pom Bhabra in some detail. Pom Bhabra informed me that the assets shown in the accounts were the cameras and other studio equipment located in the [Studio], and that they were the property of HDS. I also recall that he informed me that the assets were not charged or otherwise encumbered."
This evidence is corroborated by a contemporary file note, and I accept it.
- When he was resisting the petition for HDS to be wound up, Mr Bhabra referred in a witness statement to the need to obtain a "valuation of [HDS's] equipment so that State Securities can provide finance against it". A subsequent witness statement similarly spoke of "equipment owned by [HDS]" having to be valued so that finance could be provided against it. In evidence in the present proceedings, Mr Bhabra said:
"Although I used the word 'owned', I was really referring to assets that would be owned by HDS Studios."
I do not, however, find that a plausible explanation.
- There were other occasions during HDS's administration when Mr Bhabra could have been expected to dispute that the company owned assets (if that was the case) but did not do so. A notable example is the creditors' meeting held on 19 April 2004. The minutes of that meeting record that Mr O'Connell stated that "if the refinancing was unsuccessful then he would intend to seek a joint marketing of HDS's chattel assets with a sale by the Fliptex administrator of the building". It can be seen from the minutes that Mr O'Connell also "advised that the fixed assets on the directors' statement of affairs include the chattels". Mr Bhabra was present, but he did not suggest that Mr O'Connell was mistaken.
- The matters mentioned in paragraphs 48-64 above provide very strong evidence that the assets once owned by Hardial had become the property of HDS and that the HDS Mortgage was spent. They also suggest that the Quinella Mortgages were defunct.
- It is Mr Bhabra's case that the benefit of the Quinella Mortgages was assigned to Euromex on 10 July 2002 pursuant to the 2002 Disputed Assignment and that the benefit of the HDS Mortgage was assigned to his father on 17 July 2003 pursuant to the 2003 Disputed Assignment. In my judgment, however, neither of the Disputed Assignments is genuine. Both are likely to have been created after HDS had gone into liquidation.
- My reasons for arriving at these conclusions include these:
i) The Disputed Assignments were not mentioned to anyone at KPMG or The MacDonald Partnership until August 2005, when they were sent by Mr Bhabra's then solicitors with, among other things, the Disputed Invoice, which I have already found to have been fabricated;
ii) The Disputed Assignments were not provided to the Bhabra companies' accountants until even later. The letter under cover of which they were sent is stamped as having been received on 7 December 2005;
iii) Neither document has been found among the papers of either HDS or Hardial;
iv) On 14 August 2002, only about a month after the 2002 Disputed Assignment is said to have been executed, Mr Bhabra attended a meeting with KPMG at which there was reference to the HDS and Quinella Mortgages. There was no reference to the 2002 Disputed Assignment;
v) Had the 2002 Disputed Assignment been genuine, it could have been expected to be reflected in Euromex's 2002 accounts. It was not. The first Euromex accounts to have regard to the 2002 Disputed Assignment are those for the year ended 31 December 2005;
vi) On 25 March 2003, Mr Bhabra sought advice from Stephenson Harwood on matters relating to the HDS and Quinella Mortgages. There was no reference to the 2002 Disputed Assignment;
vii) In July 2003, Mr Bhabra took professional advice on the inter-company debts. A note referred to the provision of a document "to deal with the assets of Hardial Limited being offset by balance owing to HDS Studios Limited but not calling the chattels mortgage". There was no mention of the HDS Mortgage having been assigned to Mr Bhabra Senior;
viii) Mr Bhabra did not identify Euromex as a creditor when he swore a statement of affairs for Hardial on 2 February 2004;
ix) It was Quinella, and not Euromex, that proved in HDS's liquidation. The proof of debt was signed by Mr Bhabra.
- In all the circumstances, I find that:
i) By time HDS went into administration, it had become the owner of the assets that had formerly belonged to Hardial, and the Quinella and HDS Mortgages were spent;
ii) In any case, the benefit of the HDS and Quinella Mortgages was not assigned to Mr Bhabra Senior or Euromex. The 2002 and 2003 Disputed Assignments are fabrications.
The claim based on the sale of EAST assets
- The schedules to the 2004 and 2005 Sale Agreements each included:
"10 section, 6 tier, 3 bay travelling document storage system
2 steel 4 tier shelf units".
- It is Mr Bhabra's case that these items had been sold to Euromex as part of the February 2002 sale of EAST assets. As, however, Mr Bhabra accepted in cross-examination, no such items are to be found in the list of furniture and fixtures being sold to Euromex. The claim in respect of these items must, accordingly, fail.
The personal claims
- Mr Bhabra claims that a small number of the items sold belonged to him, his father or his brother personally. Mr Bhabra is said to have been the owner of a personal computer, drilling equipment, sanders and location units. His father is alleged to have owned pictures, tables, chairs, stools, sofas, a desk, a television, plants, fridges, a freezer, a cooker, a cash register and saws, as well as a canteen counter servery and refrigerated display. Items such as a "Jean Poriot 8ft steel guillotine" and "Kartcher jet steam commercial jet wash chemicals x 6" are contended to have been personal property of Mr Daljit Bhabra.
- The relevant items are included in schedules to the Particulars of Claim. Mr Bhabra said that these schedules were based on lists that he, his father and his brother had compiled in May 2004. He explained the position as follows in a witness statement:
"After the studio users were locked out and denied access to the Studio to remove the Equipment belonging to us, I sat down with my father and my brother sometime in May 2004 to make lists of items that each of us owned that were kept in the Studio in case it became necessary to show this in the future. These items were all bought by us or were built on site during the many years of the business."
i) There is no contemporary evidence confirming that any of the items comprised in the Sale Agreements were the personal property of Mr Bhabra, his father or his brother. No invoices, bank statements or credit card bills have been produced to substantiate Mr Bhabra's claims. Mr Bhabra said in cross-examination that such documents "were removed by Mr O'Connell", but I do not accept that;
ii) Nor has any detailed explanation been given of how the items claimed are said to have become the personal property of Mr Bhabra, his father or his brother. I have not, for example, been told when, why and how Mr Daljit Bhabra is alleged to have acquired a "Jean Poriot 8ft steel guillotine" on a personal basis;
iii) I have not been persuaded that the lists of personal belongings were drawn up in May 2004, as Mr Bhabra alleges. Mr Bhabra has himself given evidence that he, his father and his brother were not concerned about such assets at the time. Were that the case, why would they have prepared the lists? In any event, KPMG and The MacDonald Partnership were not given or even told of the lists until August 2005. It seems to me that, had the Bhabras gone to the trouble of drawing up the lists in May 2004, they would have been likely to make use of them well before August 2005;
iv) Mr Bhabra is not a reliable witness.
- In my view, Mr Bhabra has not proved that any of the items comprised in the 2004 and 2005 Sale Agreements belonged to him, his father or his brother.
Overall conclusion on ownership
- I do not consider Mr Bhabra to have established that he or anyone from whom he has taken an assignment owned any of the assets sold under the 2004 and 2005 Sale Agreements.
- Another defence advanced in answer to the claims based on the Sale Agreements is estoppel. Mr O'Connell and Mr MacDonald say, in short, that Mr Bhabra represented to them that HDS owned all the equipment in the Studio; that they relied on those representations; and that Mr Bhabra is therefore estopped from saying otherwise.
- It follows from what I have said above that I consider Mr Bhabra to have represented that the equipment comprised in the 2004 and 2005 Sale Agreements belonged to HDS. He did so by sending KPMG a balance sheet that showed HDS to have tangible assets of £2,064,927 (paragraph 57 above); by swearing affidavits in support of the application for an administration order that proceeded on the basis that HDS had tangible assets with a book value of £2,064,927 (paragraph 59 above); by providing KPMG and Mr Miller with copies of the "Fixed Asset Register" (paragraph 53 above); by otherwise giving Mr Miller the impression that the equipment in the rooms he was shown was the property of HDS (paragraph 58 above); by swearing a statement of affairs that put HDS's "fixed assets" at £2,064,927 (paragraph 61 above); and by telling Mr O'Connell that the studio equipment belonged to HDS (paragraph 62 above).
- It is apparent too, as it seems to me, that there was reliance on Mr Bhabra's representations. Mr O'Connell explained in a witness statement that, as a result of what he had been told and given, it was "clear to [him]
that, with the exception of the small amount of assets subject to hire purchase agreements
, the cameras and studio equipment in the [Studio] belonged to HDS". When giving oral evidence, he confirmed that he had relied on the information he had been given. I understood Mr David Halpern QC, who appeared for the claimants, to accept during closing submissions that it was difficult to dispute reliance, and I in any event find reliance to have been established.
- It follows, I think, that Mr Bhabra is estopped from denying that the assets comprised in the 2004 and 2005 Sale Agreements belonged to HDS.
Section 234 of the Insolvency Act 1986
- Section 234 of the Insolvency Act 1986 operates to confer protection on administrators, liquidators and other office-holders. So far as relevant, it states:
"(3) Where the office-holder
(a) seizes or disposes of any property which is not property of the company, and
(b) at the time of seizure or disposal believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,
the next subsection has effect.
(4) In that case the office-holder
(a) is not liable to any person in respect of any loss or damage resulting from the seizure or disposal except in so far as that loss or damage is caused by the office-holder's own negligence, and
(b) has a lien on the property, or the proceeds of its sale, for such expenses as were incurred in connection with the seizure or disposal."
- It is Mr O'Connell's and Mr MacDonald's case that, when the 2004 and 2005 Sale Agreements were entered into, they reasonably believed the assets comprised in them to belong (or to have belonged) to HDS and, therefore, that they were entitled to dispose of them. Mr Halpern argued that Mr O'Connell and Mr MacDonald have not proved that they acted reasonably, but I disagree. It seems to me that, having regard to the various matters mentioned earlier in this judgment, Mr O'Connell and Mr MacDonald were amply justified in believing that the equipment sold pursuant to the 2004 and 2005 Sale Agreements was HDS's, and that they acted reasonably.
- I consider, accordingly, that section 234 of the 1986 Act protects Mr O'Connell and Mr MacDonald from any claim based on the 2004 and 2005 Sale Agreements.
Overall conclusion on the Sale Agreement allegations
- For the various reasons summarised above, the claimants have not established that they have any claim against Mr O'Connell or Mr MacDonald in respect of the 2004 Sale Agreement or that of 2005.
The access/surrender allegations
- I turn to consider the allegations based on access and the surrender of the lease of the Studio to Fliptex's administrators.
- The conclusions I have arrived at above are sufficient to dispose of much of the case in respect of the access/surrender allegations. They mean, in particular, that the claimants cannot succeed insofar as their claim relates to assets that were sold under the 2004 and 2005 Sale Agreements; as I have said, Mr Bhabra has not established that he or anyone from whom he has taken an assignment owned any of those assets, and he is in any event estopped from denying that they were owned by HDS. There remain to be considered other items which are said to have belonged to Mr Bhabra, Mr Bhabra Senior, Mr Daljit Bhabra or Mr Assi personally, a small number of further items that Euromex is alleged to have acquired as part of the sale of EAST assets in 2002 and some items of which Digital is stated to have been the owner.
Personal claims by the Bhabras
- One item that Mr Bhabra Senior is alleged to have owned is a "Gold laminated Religious Altar ([Palki])". There can be little doubt that an altar was in the Studio when its lease was surrendered in 2004 because a DVD taken the following year shows one. Moreover, such an item is more likely to have been a personal possession than corporate property. I accept, therefore, that Mr Bhabra Senior owned an altar that was in the Studio.
- In contrast, I do not consider it to have been established as regards any of the other items that are alleged to have been owned by Mr Bhabra, his father or his brother that they were both (a) the property of one of the Bhabras and (b) in the Studio. I explained earlier why Mr Bhabra has not proved that the items comprised in the 2004 and 2005 Sale Agreements belonged to him, his father or his brother. Very much the same points apply in relation to the other items that Mr Bhabra claims were his personal property or that of his father or brother. There is also scant evidence to confirm that most of the items in question were in the Studio.
- I should perhaps refer specifically to two Mercedes vehicles and a fork lift truck that Mr Bhabra Senior is alleged to have owned. Although Mr Bhabra Senior was the registered keeper of the vehicles, Mr Bhabra accepted in cross-examination that they both belonged to Hardial as at 2 September 2001, when one of the Quinella Mortgages was granted, and he was unable to provide a satisfactory explanation of how title was said to have passed from Hardial to Mr Bhabra Senior. It is notable, too, that the vehicles are claimed in the Particulars of Claim by Euromex as well as Mr Bhabra Senior.
- As regards the fork lift truck, this again was said to be owned both by Mr Bhabra Senior and by Euromex. Further, there was no evident reason for Mr Bhabra Senior to have a fork lift truck of his own, and there is documentary evidence indicating that the amounts Mr Bhabra Senior is said to have paid for the truck were in fact loans to HDS.
- Mr Assi is stated in the Particulars of Claim to have owned a personal computer, a drawing plotter, building reference books, a chest, some software and disks, a radio and "Various statinley and drawing kit". All told, the items are said to have been worth £11,625.
- Mr Assi explained matters as follows in his witness statement:
"During the period from 2001 to 29th April 2004, I had a small office on the ground floor at the Studio where I carried out my architectural practice. Obviously, over the years, I had accumulated records of building designs and second fixing catalogues, stationary etc.
In addition to the above office contents there was my main computer and backup computer, Hp inkjet printers and a full A0 colour plan plotter, draughtsman's drawing board, sets and apparatus with a host of other kit".
- On balance, I accept that the items identified as Mr Assi's in the Particulars of Claim were indeed owned by him and left in the Studio.
- According to Mr Bhabra, Mr O'Connell and Mr MacDonald converted some items that (a) belonged to Euromex and (b) were not included in the 2004 and 2005 Sale Agreements. Euromex is said to have acquired all the relevant items pursuant to the February 2002 sale of EAST assets. The items included, among other things, a large quantity of programme tapes.
- The EAST Sale Agreement provided for the sale to Euromex of "such right title and interest as [EAST] may have in the Transferred Assets". The expression "Transferred Assets" was defined to include "the Acquired Programmes" and "the In-House Programmes". "Acquired Programmes" were themselves stated to be:
""Television or other programmes made by or belonging to third parties which [EAST] would (by virtue of any licence or other agreement) have been entitled to transmit or otherwise use in connection with the Business at the Transfer date but for such licence or agreement now having expired."
"In-House Programmes" comprised:
"Television or other programmes made by [EAST] for intended transmission in connection with the Business."
- Miss Joanna Smith QC (who appeared with Mr James McCreath for Mr O'Connell) and Miss Rebecca Stubbs QC (who appeared for Mr MacDonald) stressed that EAST only sold "such right title and interest" as it had in the "Transferred Assets", and they argued that it in fact had no right, title or interest in either the tapes at issue or any of the other items that are alleged to have become the property of Euromex. The matters on which Miss Smith and Miss Stubbs relied in this context included these:
i) In a letter to Mr O'Connell of 4 October 2001, Mr Bhabra stated, "we and Grant Thornton have always considered there to be no plant and machinery in Channel East, in view of the overall set up";
ii) Mr Bhabra told Mr O'Connell in a letter of 10 October 2001 that EAST had "no technical assets";
iii) On 24 October 2001, Mr Bhabra said in a letter to Mr O'Connell:
"With reference to the equipment, our letter of the 10th October 2001, confirms that Channel East has no assets
. With regards to the television programmes, and as advised to Finbarr O'Connell, the in house programmes remain the property of Hardial Limited and or HDS Studios Ltd., in view of costs relating to studio, services etc not paid for by Channel East";
iv) The minutes of a meeting of EAST's liquidation committee on 1 February 2002 record as follows:
"Mr Ghandi [representing Edney] also confirmed that the agreement under which Hardial Limited retained ownership of the in-house programmes had not been disclosed to Edney Enterprises Limited and that it had been agreed at the board meetings of the Company that these programmes should be shown in the Company's accounts as an asset. However, Mr Chande [of Grant Thornton] believed that this had only been proposed in respect of programmes where they could be shown to be saleable. Mr Bhabra advised that as the programmes all displayed the Channel East logo which remained his own property it would not be possible to sell them. Mr Bhabra also confirmed that the programmes had only been licensed by the participants to be shown on Channel East and any third party that purchased the in-house programmes would also have to obtain the permission of the participants in the programmes and that this would involve making a payment.
[Mr O'Connell] advised that contracts between the Company and the suppliers of the acquired programmes had been reviewed and in all cases reviewed they had expired with no renewal clause. [Mr O'Connell] confirmed that these programmes held no value for the liquidation.
Ms Singh noted that when she had worked at Channel East there had been significant technical equipment on site. Mr Bhabra noted that this equipment belonged to Hardial Limited and it had never been the intention that the Company would own any assets but would utilise assets owned by Hardial Limited under the facilities and services agreements";
v) Mr Bhabra accepted in cross-examination that his position at the time the EAST Sale Agreement was entered into was that the equipment listed in the "Itemised Fixed Asset List" annexed to the agreement belonged to Hardial rather than EAST.
- It is fair to say that the evidence is not all one way. In particular, the statement of affairs that Mr Bhabra swore in relation to EAST on 25 September 2001 referred to the company having assets with a book value of £836,470, including "Programme Acquisition" with a book value of £539,494.
- Even so, I am not satisfied that Euromex acquired title to any of the items that are said to have been transferred to it as part of the EAST sale. The burden lies on Mr Bhabra to establish Euromex's ownership, and I do not consider him to have discharged it.
- Digital is said to have been the owner of a small number of items. The principal claim is in respect of an item described as follows in a schedule to the Particulars of Claim:
"Lighting [points] and grids (Master Winegarten judgement[)] (item J)".
A value of £528,000 is attributed to this item alone.
- However, I have not been persuaded that Digital owned any of the items that are said to have been converted. My reasons include these:
i) Although Digital's accounts to 28 February 1994 reported tangible assets of £782,463, its accounts for the following year referred to its disposal of all such assets. Thereafter, Digital's accounts showed it to have no tangible assets;
ii) The picture given by the accounts is confirmed by notes of a meeting between the Bhabras and the Inland Revenue on 22 May 2000. The notes record that the Inland Revenue were told that Digital had gone into receivership in 1992 and that the receivership:
"was concluded on 2 December 1994 with the assets being disposed of to [HDS]";
iii) Mr Bhabra suggested that Digital had acquired relevant assets under an agreement of 16 March 1994, but he told Mr Stephen Davies QC in a letter dated 10 June 2008 that the equipment comprised in that agreement appeared to have "ended up with [Hardial]".
Overall conclusion on ownership
- I accept that (a) Mr Bhabra Senior owned an altar that was in the Studio and (b) the items attributed to Mr Assi in the Particulars of Claim belonged to him and were also in the Studio. The claimants have not established title to any of the other items that are alleged to have been converted.
- As mentioned above (paragraph 31), Mr Bhabra's pleaded case is that assets within the Studio were converted not only as a result of the 2004 and 2005 Sale Agreements, but through the claimants being locked out of the Studio and then refused permission to remove their goods and also because of the surrender of the lease of the Studio to the administrators of Fliptex. In the course of submissions, Mr Halpern accepted that the surrender of the premises did not of itself amount to conversion. He put his case on the basis that his clients had not been given a reasonable opportunity to remove their property by the time the lease was surrendered.
- In one of his witness statements, Mr Bhabra said that from 29 April 2004:
"Members of staff were allowed to enter and remove their personal items but the studio users were not. We were not allowed on the premises without the consent of Mr O'Connell. Security was instructed not to allow us to remove any substantial items from the property other than post or small personal effects. To remove anything from the Studio, even small items, security required a form to be filled out and approval to be given. The claim that we were given access to the Studio is simply wrong".
- The reality, however, is that the claimants did not ask to remove personal possessions from the Studio. When HDS ceased trading, KPMG issued a notice the final paragraph of which read:
"Any director, staff member or third party whose personal property remains on the premises should contact Nick Timpson
and should be prepared to submit details in writing to the administrators of the property that they believe remains on the premises
This notice was emailed to Mr Bhabra and Mr Daljit Bhabra's wife on 29 April 2004, and it was also sent, whether or not in a redacted form, to Mr Bhabra Senior. Mr Assi accepted that he had probably received a copy, too.
- Notwithstanding this notice, Mr Assi did not contact Mr Timpson or anyone else from the administrators' firms about possessions in the Studio. When asked about this in cross-examination, he explained that he had approached "Hardial themselves". There is no evidence, however, that any concerns expressed to the Bhabras were relayed to Mr O'Connell, Mr MacDonald or their firms before the second half of 2005. In a letter to The MacDonald Partnership of 18 August 2005, Irwin Mitchell asserted claims on behalf of, among others, Mr Assi. By then, however, the lease of the Studio had already been surrendered.
- Turning to the Bhabras, Mr Bhabra said in cross-examination that he had understood from security people at the Studio that he was not allowed to remove anything and that he "would have thought something would have gone back to Mr O'Connell". However, there is no record of any of the claimants demanding to be allowed to remove any of the items at issue in these proceedings, and Mr Bhabra did not really maintain that they had. More specifically, Mr Bhabra accepted that neither he nor his father nor his brother had asked for access to the Studio to remove any of the items on the lists of possessions that they are supposed to have prepared in May 2004.
- Between September and November of 2004, the Bhabras and companies associated with them alleged that a wide variety of goods within the Studio did not belong to HDS. For example, Mr Bhabra Senior and Mr Daljit Bhabra each sent Mr O'Connell a letter asserting that a "vast amount of furniture throughout the complex" must not be part of any sale. Even at that stage, however, no request was made to be allowed to remove anything from the Studio. Thus, Mr Bhabra Senior and Mr Daljit Bhabra merely reserved the right to remove property from the Studio should attempts to refinance fail to reach fruition. Letters sent on behalf of Euromex and Digital each stated:
"In view that negotiation are proceeding for the finance of the complex, should they be successful then we see no reason to remove any of the above in view of our relationship with HDS
. However should this not be the case we then reserve the right to move our equipment and fitting from site".
- Asked in cross-examination about why he and his family had not asked for access to recover goods, Mr Bhabra said that he and his family "felt things were safe there because the site was locked up and nothing was moving". He also said:
"I wasn't greatly concerned about the items because I felt they were reasonably secure in the premises because nothing was moving and we had our court action in regards to the challenge of the liquidation, so I felt no reason to start removing anything because nothing was happening on site anyway."
- Mr Bhabra gave a somewhat different explanation in relation to some shelves and desks claimed by Euromex. On 16 November 2004, Euromex sent Mr O'Connell a letter in which it asked him to ensure that items on certain lists were "not
moved, sold or damaged". Replying on behalf of Mr O'Connell and Mr MacDonald on 22 November, Hammonds said that Euromex could remove "the 17 spinning shelves, the 71 desks and the 5 desks with right hand ext gery". None of this furniture was, however, removed from the Studio. In cross-examination, Mr Bhabra explained Euromex's failure to collect the items on the basis that:
"we had already made claims for all the items under the contract, so it would be pointless going in there just to pick up the shelves."
- For his part, Mr O'Connell said during his oral evidence:
"if Pom Bhabra or any member of the family had contacted me to remove anything of a personal nature, I would have allowed them straight away. If one of the companies had asked to remove a file or chattel which they could prove was theirs, they could have removed it straight away."
With regard to the tapes in respect of which complaint is made, Mr O'Connell said:
"If Pom Bhabra had phoned me at any stage and said, 'Can I remove the Channel East tapes?', I would have opened up the doors for [him] myself."
- In the circumstances, I do not think the way in which Mr O'Connell and Mr MacDonald dealt with access to the goods that are alleged to have belonged to the claimants can have constituted conversion. As noted above, "[t]he ordinary way of showing a conversion by unlawful retention of property is to prove that the defendant, having it in his possession, refused to surrender it on demand". In the present case, no such refusal has been established. Nor can Mr O'Connell and Mr MacDonald otherwise be said to have detained the goods in a manner adverse to their owners. In fact, the Bhabras seem to have been content at the time for the items they claimed to remain in the Studio.
Overall conclusion on the access/surrender allegations
- For the reasons given above, the access/surrender allegations fail.
- In the light of my conclusions above, I do not need to consider the other defences raised by Mr O'Connell and Mr MacDonald.
- As mentioned earlier, the counterclaim has two elements. I shall take them in turn.
- It is Mr O'Connell's and Mr MacDonald's case that Mr Bhabra and his brother (who were the directors of HDS) undertook that they would, if necessary, meet the costs of HDS's administration.
- Mr O'Connell explained the position in these terms in one of his witness statements:
"For my part, I indicated [to Mr Bhabra] that the only way I could see that an administration of HDS would be appropriate would be if it could 'wash its face' through its trading in administration (i.e. the Administration would not cause the company's position to further deteriorate)
However, if HDS could not make a surplus in trading during the Administration, then in the absence of certainty that the Bhabras would manage to re-finance the Sterling debt, the Administration trading losses would prejudice HDS's creditors. I stressed to Pom Bhabra that this would be wrong. I further made it clear that, in those circumstances, either the Bhabras must themselves provide any necessary funding to allow HDS to trade in surplus, in addition to the extra Joint Administrators' costs and expenses necessitated by following this strategy (as opposed to the lesser costs in a liquidation), or, in the absence of such funding being provided, the Administrators must cease to trade, liquidate the company and hand the leases back to Fliptex which in turn would enable Sterling to sell the Property.
Pom Bhabra indicated that he understood this and was confident that HDS would be able to trade at a surplus. He, together with Daljit Bhabra, his fellow director and shareholder of HDS, agreed to fund any trading shortfall in the Administration."
- The claim finds support in the contemporary documents. In the first place, Mr Bhabra stated as follows in one of his affidavits in support of the administration application:
"As stated in Mr O'Connell's report at page 83, pending a settlement with BSkyB the directors of [HDS] have agreed to provide the proposed joint administrators with any additional cash funding requirements they may have in the early stages of the administration."
The report to which there is reference in this passage itself stated:
"The cash flow demonstrates that the administration may require additional funding in the early stages pending the recovery of the above sums. The directors have agreed to provide any necessary funding for the administration until the above assets have been realised."
- Secondly, a letter dated 19 January 2004 and addressed to Mr O'Connell and the other proposed administrator of HDS stated:
"We undertake to provide you forthwith with such further funding as you may require during the proposed administration of [HDS]."
The copy of this document in the bundles bears only Mr Bhabra's signature, and he accepted in cross-examination that he had no actual memory of having seen a version signed by Mr Daljit Bhabra as well. However, he said that he remembered "the conversation with both of them where they agreed it" and that he "could not have embarked on the administration without the security of those guarantees".
- Thirdly, there is an exchange of emails in April 2004. On 15 April Mr Eldridge of KPMG sent Mr Bhabra an email in which he said:
"Additionally, please note that Finbarr [O'Connell] has specified that the sum of £108,329, being the outstanding funding for the trading administration to 30 April 2004, must be received into the administration bank account by close of business on 23 April 2004. This funding requirement is not negotiable."
Mr Bhabra responded as follows in an email to Mr O'Connell:
"James [Eldridge] has forwarded his estimate of the administration cost. Removing the trading cost, it leaves a worst case scenario of £263,656.00, which is going to prove difficult if we are to work within the refinance being processed. We envisaged [your] costs would not exceed £150k. Working on [your] initial estimate of £30 to £50k per month at the extreme. There has to be a compromise to ensure completion on the 26th April 2004."
It is to be noted that Mr Bhabra did not deny responsibility for administration costs.
- For his part, Mr Bhabra accepted that he (and I think also his brother) had agreed to pay trading costs. He disputed, however, agreeing to meet administration costs. He also explained that he had expected that costs would be met from the recovery of money in Court and owed by BSkyB.
- Mr Halpern's position was that the primary issue is one of fact.
- On balance, I consider Mr Bhabra and his brother to be liable for the administration costs. It may well be that the Bhabras did not expect those costs to be as high as they in the event were and hoped that they would be met in whole or in part from money in Court or payments by BSkyB. However, the obligation that Mr Bhabra and his brother undertook was, in my view, an unqualified one.
- In March 2004, Digital entered into a contract to provide the BBC with facilities at the Studio. The BBC seems to have gone into occupation of offices at the Studio on 15 March, and it paid Digital about £130,000. Mr O'Connell and Mr MacDonald claim that Digital is liable to it for that amount. The claim is made for the benefit of HDS.
- Mr Bhabra maintained that Mr O'Connell had agreed to Digital entering into the contract, but his evidence to that effect is contradicted not only by Mr O'Connell's evidence, but by contemporary documentation.
- Mr Halpern summarised his position on this aspect of the case as follows in his closing submissions:
"Once again, the primary issue is one of fact. If the Court accepts [Mr Bhabra's] evidence, [Mr O'Connell] agreed that [Digital] could keep the money. If the Court rejects [Mr Bhabra's] evidence, there is nothing further to be said. It is common ground that the sum is £130,000."
- I do not accept Mr Bhabra's evidence and do not believe that Mr O'Connell agreed to Digital keeping any of the BBC money. I shall therefore enter judgment against Digital for £130,000.
- I can summarise my conclusions as follows:
i) The claim against Mr O'Connell and Mr MacDonald fails;
ii) Mr Bhabra and Mr Daljit Bhabra are liable for costs of HDS's administration. The amount will need to be assessed;
iii) Digital must pay £130,000 in respect of the money it received from the BBC.