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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 >> Hellard & Anor v Graiseley Investments Ltd & Ors  EWHC 2664 (Ch) (12 October 2018)
Cite as:  EWHC 2664 (Ch)
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF GUARDIAN CARE HOMES (WEST) LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
7 The Rolls Building
B e f o r e :
| (1) KEVIN JOHN HELLARD
(2) AMANDA WADE
- and –
|(1) GRAISELEY INVESTMENTS LIMITED
(2) GARY MITCHELL HARTLAND
(3) KAREN ANN HARTLAND
Stephen Davies QC and Jeremy Bamford (instructed by Lewis Onions Solicitors Limited) for the Respondents
Hearing dates: 11, 12, 13,14 and 15 June 2018
Crown Copyright ©
ICC Judge Barber
(1) First witness statement of Mr Kevin Hellard dated 22 April 2016;
(2) First, second, third and fourth witness statements of Mr Gary Hartland dated 12 January 2018, 11 April 2018, 20 April 2018 and 21 May 2018 respectively,
(3) First and second witness statements of Mr Peter Plant dated 10 January 2018 and 20 April 2018 respectively; and
(4) First witness statement of Mrs Karen Hartland dated 12 January 2018.
I have also considered further documents set out in the bundles agreed for use at the hearing, to which reference will be made where appropriate.
The case as pleaded
'10. By an entry on the Company's journals (No 2045) the effective date of which was 31 August 2009 and which was processed on 12 October 2009 under the narrative "Tfr of fixtures and fittings from West to GI", all the fixtures, fittings, furniture, equipment etc., required to operate the Care Homes owned by the Company as at that time were transferred to GIL. The value shown on the ledger in respect of this transaction was £3,551,756.46, which (so far as the Applicant has been able to establish) was the net book value of the relevant assets held at that time.
11. So far as the Applicant has been able to establish:
(1) No written contract was entered into between the Company and GIL.
(2) No board meeting was convened or board resolution passed in respect of the transfer on the part of the Company.
(3) The effect of the journal entry did not alter the recorded net asset position of the Company. In particular, no entry reflective of a loss arising on a sale of assets at less than the value which the assets were carried in the Company's accounts was booked....
14. .... in or about October/November 2009 a restructuring, effected informally, was undertaken by which:
(1) the Company transferred the fixtures, fittings, etc., required to operate the Care Homes to GIL....
(3) GIL assumed an obligation to pay the Company for the assets transferred to it the sum of £3,551,756.46 referred to above. That inference is to be drawn because:
(i) The transfer was between companies in the same group as part of a restructuring effected without formality. It was in the nature of a sale of the assets by one group company to another group company, in the context of a transfer of the operations to the Successor Companies,
(ii) There was no basis upon which the Company could properly have made a gift of its assets to GIL (and GIL was not a shareholder in the company, and so the company could not have had a distribution to GIL)
(iii) No loss was booked in the Companies records as a result of the transfer. Had the transfer been at any consideration less than the figure of £3,551,756.46 referred to above, the resulting loss would have had to have been booked (in particular because of the obligation to maintain accounting records arising under Section 386 of the Companies Act 2006).
(iv) The combined effect of the restructuring was to leave the Company with no assets but substantial liabilities (in particular, to HMRC). Had GIL not come under an obligation to pay the Company for the assets transferred to it the sum of £3,551,756.46, the
Company would have been rendered immediately insolvent by the transaction.
15. On or about 22 February 2010, the transfer of assets from the Company to GIL referred to above was "reversed". The "reversal" was effected by Journal No 2261 given an effective date of 31 October 2009 (which was the last day of GIL's accounting period). The value shown in the Journal in respect of the transaction was £3,551,756.46.
16. The effect of that transaction was (i) to transfer title to the fixtures, fittings, etc., as they stood at that date from GIL to the Company; and (ii) to release GIL from the obligation to pay the Company the sum of £3,551,756.46 referred to above....
20. The transaction referred to in paragraph 16 above amounted to a transaction at an undervalue...'
(1) for West to transfer the Fixtures and Fittings to West's holding company, pending the intended restructuring of the Group at 'Propco' level with a view to facilitating a refinancing of Group debt with separate hankers and a loosening of the hold of Barclays over the Group; and
(2) thereafter, once the new Propcos and their respective property portfolios had been agreed and put in place, to move the Fixtures and Fittings relevant to each property portfolio from the holding company to the new Propcos.
Documents as best evidence
"67. As C identifies at paragraph 43 of its Written Closing, it is now widely accepted that memories are fallible, people can convince themselves of the veracity of false recollections of events and retain confidence in their false recollection, and a judge's ability to evaluate honesty and reliability merely from a witness's demeanour is also fallible, and therefore where possible a court should rely on documentary evidence and any other objectively provable facts: see for example the comments of Lord Pearce in Onassis v Vergottis  2 Lloyds Rep (HL) at 432 column 2, Robert Goff LJ in The Ocean Frost  1 Lloyds Rep 1 (CA) at 57, and Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd  EWHC 3560 (Comm) at paras 15-22.
68. In such circumstances, as Robert Goff LJ stated in the Ocean Frost (at page 57):
"Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth."
69. Where there is a lack of contemporaneous documentation it is necessary to have regard to the inherent plausibility or implausibility of witnesses' accounts. As Moore-Bick LJ stated in Jafari-Fini v Skillglass Ltd  EWCA Civ 261 at  and :
'76 Whenever an allegation of fraud or similar misconduct is made it is particularly important to consider the whole of the evidence before reaching a final conclusion, to test the oral evidence by reference to any contemporaneous documents and to consider the inherent probabilities. Having said that, however, it must be recognised that since the final conclusion must be capable of accommodating any facts which are admitted or which are established by evidence which is not capable of being seriously challenged, such facts provide a useful starting point for the assessment of the more controversial part of the evidence…
80. It is necessary to bear in mind, however, that this is not one of those cases in which the accounts given by the witnesses can be tested by reference to a body of contemporaneous documents. As a result the judge was forced to rely heavily on his assessment of the witnesses and the inherent plausibility or implausibility of their accounts. In these circumstances considerable weight must be given to the fact that the judge had the great advantage of seeing most of the principal actors give evidence. We have not had that advantage and in my judgement are not well-placed to differ from his assessment of the truthfulness and reliability of Mr Rowland or any of the other witnesses, particularly in relation to matters that are not reflected in any of the documents..."
Alleged Inconsistencies in the Respondents' case
(1) what matters on that issue is not what the true tax analysis migiht have been at the material time, but rather, what Mr Hartland believed it to be; on the evidence which I have heard and read, I am satisfied that, rightly or wrongly, Mr Hartland believed at the material time that a transfer of the Fixtures and Fittings by West to its holding company 'via a dividend' was the safest fiscal option, regardless of whether, as a matter of book-entry timing, the transfer of the Fixtures and Fittings was entered into the books first, with the declaration of a dividend entered second, or vice versa. In short, he did not see the mere entry onto the books of a transfer of the Fixtures and Fittings at net book value pending declaration of a dividend as the equivalent of a 'sale' for tax purposes. He may be right or wrong on that (I heard no detailed submissions on the point), but I am satisfied that was his belief; and
(2) in any event, as previously stated, a comparison of the fiscal impact, perceived or actual, of a transfer of the Fixtures and Fittings (a) by West to GIL and (b) by West to UK, is only one of numerous factors to be considered when determining, on the evidence as a whole, whether there was a transaction on or about 12 October 2009 by which West sold the Fixtures and Fittings to GIL and whether there was a transaction on or about 22 February 2010 by which that 'sale' was reversed and GIL was released from its obligation to pay the purchase price.
(1) nothing was owed by GIL to West from 8 January 2010 to 22 February 2010;
(2) journal 2261 did not, as pleaded, reverse (or even evidence a reversal of) an obligation by GIL to pay West £5.2m;
(3) given the order in which journals 2261 and 2262 were created on 22 February 2010, the effect of journal 2261 was to create an obligation on the part of West to pay GIL £5.2m. This obligation was only extinguished later that day by journal 2262.
ICC Judge Barber
12 October 2018