Case No: 973 of 2007
Neutral Citation Number: [2016] EWHC 1536 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY

IN THE MATTER OF EATISHAM AHMED (A Debtor)
AND IN THE MATTER OF THE INSOLVENCY ACT

Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL

Date:29/06/2016

Before :
MRS JUSTICE PROUDMAN

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Between :
	(1) DAVID INGRAM
(2) MICHAELA HALL
(the joint trustees of the debtor)	Claimants and Applicants	
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	(1) EATISHAM AHMED
(2) KASHIF AHMED
(3) BUSHRA AHMED
(4) TESNEEM AHMED
(5) TABASUM AHMED
	Defendants and Respondents	

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Francis Collaco Moraes (instructed by MAX Legal Limited) for the Applicants
Giles Maynard-Connor (replacing Glen Davis QC) (instructed by Pannone Corporate LLP, Solicitors) for the 2nd-5th Respondents
The 1st Respondent did not appear and was not represented

Hearing dates: 9, 10, 11, 12, 13 March 2015, 14 January 2016, 18 March 2016, 

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Judgment
Mrs Justice Proudman : 

Background
1.	This application started life as an application dated 28 May 2013 by the first respondent’s trustees in bankruptcy for an order under s. 284 of the Insolvency Act 1986, although the application notice also asked for the relief now sought.  
2.	The basis for the s. 284 order was that the transfer by the first respondent of his minority holding of shares (“the Shares”) in various companies (trading in Manchester and London in the design, sourcing and distribution of branded and non-branded fashion clothing, Hornby Street Limited (“Hornby”), Wembley Menswear Company Limited (“Wembley”) and Continental Shelf 128 Limited (“Continental”)), to the second respondent, and (in respect of shares in Hornby and Wembley) through him to the third to the fifth respondents, was void, being made between presentation of a petition by Monecor (London) Limited (“Monecor”) to make the first respondent bankrupt on 23 January 2007 and the bankruptcy order made on 21 April 2009: see s. 284(3). The debt was assigned to Monecor’s sister company Tradition (UK) Limited, but nothing turns on this. 
3.	It is now common ground that the transfer of the Shares took place on 5 or 6 June 2007.  All sorts of issues arose, such as whether there should be ratification pursuant to s. 284(1) and whether the transfers fell within the exception contained in s. 284(4)(a).  On 27 August 2013 the second to the fifth respondents issued a cross-application for validation of the transfers, on the grounds, inter alia, that the Shares were transferred to the second respondent before the commencement of the bankruptcy (i.e. in June 2007), in good faith and without notice of the petition.  
4.	A few months prior to the presentation of the petition, in about mid-September 2006, all the respondents retained Andrew Andronikou to assist the first respondent, the debtor, with his financial difficulties.  An Individual Voluntary Arrangement (“IVA”) was made by the first respondent and passed by a meeting of creditors on 29 March 2007, but that approval was revoked by Andrew Simmonds QC sitting as a Deputy Judge of this Division on 15 December 2008. His judgment dated 5 December 2008 bears careful reading.  The family and associates of the bankrupt claimed that they were owed debts of nearly £7m by the first respondent, whereas it was found that the debts amount to less than half that sum.  The second respondent gave evidence at that trial, claiming, in order to vote for the IVA, that he was owed £3,882,424, whereas the debt he was owed was £1,851,500.  
5.	By letter dated 19 May 2010, the second respondent claimed that the Shares were transferred to him in March 2007 (the time of the IVA proposals) but disclosing in this action two transfers dated 6 June 2007.  The annual returns filed at Companies House do not show such transfers.  The returns for Hornby and Wembley dated 11 October 2009 assert that the bankrupt’s shares in Hornby and Wembley were “disposed of in the period on 27/3/2007”. The 2 June 2011 return for Continental states that the 1200 shares of the bankrupt were held by the second respondent as at 2 June 2009.  However, the annual returns for Hornby to 11 October 2007 (filed 18 October 2007) and to 11 October 2008 (filed 15 October 2008) show that the bankrupt remained the registered holder of his 1,200 shares in Hornby.  The annual returns for Wembley to 11 October 2007 (filed 18 October 2007) and to 11 October 2008 (filed 15 October 2008) show that the bankrupt, again, remained the registered holder of his 1,200 shares in Wembley.  Again, the annual returns for Continental to 2 June 2007 (filed 12 June 2007), to 2 June 2008 (filed 6 June 2008) and to 2 June 2010 (filed 30 June 2010) show that the bankrupt remained the registered holder of his 1,200 shares in Continental.
6.	Further, a Guarantee dated 5 June 2007 signed by both the bankrupt and the second respondent acknowledged that the bankrupt had an interest in Hornby, Wembley and Continental.  
7.	The second respondent resisted all attempts to restore the Shares forming part of the bankruptcy estate until the eve of this trial.  The respondents have now accepted that the transfers were void and share transfer forms have been executed and delivered to the applicants’ solicitors (who have accepted them, but not, I am told accepted the Shares in principle, whatever the distinction may be) under cover of a letter from the respondents’ solicitors dated 26 February 2015.  The Shares may now be worthless (although I make no such finding) subject to the offer made for them by the second respondent. 
8.	By letter from his solicitors dated 27 February 2015 the second respondent offered to purchase the Shares for the sum of £120,000.
9.	The only issue before me is whether the applicants are entitled to relief in the form of the value of the Shares as at the date of the transfers (or indeed any other date) and, if so, the amount of such relief.
10.	The evidence, apart from the expert evidence, shows that there is a dispute as to whether the Shares had a value at all at relevant times.  There is the evidence served late (before the trial) of Mr Ingram, the first applicant, and the evidence also served late but responding I was told to Mr Ingram’s evidence, of Mr Hosking, the original trustee in bankruptcy, giving evidence for the respondents. 
11.	Mr Registrar Nicholls made an order on 9 September 2013 for exchange of witness statements by 4 pm on 31 December 2013.   Having considered Mitchell v. News Group Newspapers Limited [2013] EWCA Civ 1537 as explained in Denton v. TH White Limited [2014] EWCA Civ 906, I allowed part of Mr Ingram’s evidence to be adduced in evidence. However I did not allow the evidence of Mr Ingram setting out the steps that he said he would have taken steps to sell the Shares in accordance with his statutory duty.  Mr Davis QC said that this was Mr Ingram’s way of getting round the total absence of evidence on the issue of whether and when he would have tried to market the Shares.  Mr Ingram’s evidence was undoubtedly new and there appeared to be no good reason as to why he did not give it earlier.    It seemed to me that Mr Hosking’s evidence was serious and substantial new evidence, and again I inferred that there was no good reason why the evidence was not adduced before.  Taking all the circumstances of the case into account I therefore ruled out the evidence of Mr Hosking by not giving permission to adduce it at this late stage pursuant to CPR 32.10.

The second to fifth respondents’ case
12.	The quantum of any relief is said by Mr Moraes to depend on expert evidence, but Mr Giles Maynard-Connor (who has replaced Mr Davis QC in acting for the second to the fifth respondents) says that the application is misconceived as the applicants are not entitled, in the absence of evidence of actual loss and an actual proposed sale, to any award based on a notional value at the time of the transfers.  Thus the expert evidence is, says Mr Maynard-Connor, irrelevant. I was asked to determine as a preliminary matter whether relief was available in principle where assets the subject of a transfer rendered void under s. 284 have been restored to the estate, but as appears below I declined to do so in the circumstances.
13.	It is important that on 14 January 2014 Mrs Registrar Derrett made an order that the parties should agree the number of the Shares and the relevant dates for valuation purposes, failing which she would determine them herself.  In fact the parties themselves agreed the dates which they believed to be relevant.  The respondents now say that these dates are irrelevant, so the case is proceeding on quite a different basis from that before Registrar Derrett.
14.	Mr Davis QC submitted, and Mr Maynard-Connor submits, that the relief sought by the applicants is so misconceived as to be virtually unarguable.  The applicants would have to plead and prove both when they would have sold and also actual and not merely notional loss, and they have not done so.  Mr Moraes however pointed out that Mr Ingram could not give evidence of any actual sale because, owing to the actions of the respondents, he was never afforded an opportunity to sell. 
15.	Mr Maynard-Connor’s submission was that there is no basis for any form of unjust enrichment calculated by reference to a notional value.  Loss has to be pleaded and proved.  It would be an abuse of process for the trustees to pursue this application in order to negotiate a higher price for the Shares from the respondents.  In Sempra Metals Limited v. IRC [2008] 1 AC 561, the House of Lords made clear that restitution is another name for unjust enrichment and, although a just outcome is the objective, not only is the primary remedy "disgorgement" of benefit (see e.g. Lord Hope at 585), but the applicant has to prove both that the respondent has been enriched and that he has been unjustly enriched, neither of which is pleaded or proved in the present case.  
16.	Mr Moraes says (a) that Mr Maynard-Connor’s approach is misconceived as a matter of bankruptcy law and (b) the loss relied on is actual, not notional, loss because of the expert evidence. 
17.	In short, Mr Moraes submits that the trustees were obliged to sell the Shares and that they went down in value after the transfer.  He explained the way in which the case was pleaded by saying that the second respondent kept failing to produce transfer documents and indeed only produced the transfer of the shares in Continental just before the trial started.  He points out that the respondents’ pleading contains in many cases a bare denial of the claim, saying that if there was an alternative claim as to the proper dates of valuation it should have been pleaded and the relevant date agreed in accordance with Registrar Derrett’s Order for the purposes of the valuation.
18.	Mr Moraes referred me to various authorities, saying that they showed that restitution means restoration of value of the asset to the estate as at the date of the transfer:  for example Re Gray’s Inn Construction Co Limited, Re Leslie Engineering Company Limited, Hollicourt and others.  In particular he referred me to p. 721 of Re Gray’s Inn for this proposition. 
19.	However, Mr Maynard-Connor pointed out that Re Gray’s Inn is not a case where the court was concerned with restoring the value of an asset.  It was a case about validation in the context of money paid into and then paid out of an overdrawn account.  In such circumstances it was held that the net amount in the account should be declared invalid because the fund should be restored to the unsecured creditors as at the date of presentation of the petition.  All the cases bar one are cases about payment of money and all are about whether the creditors should be reimbursed or the transactions validated.  None is concerned with reimbursement of value of the asset but with the just means of recovering money for the creditors.  The one exception to the cases about payment of money is Re French’s Wine Bar Limited (1987) 3 BCC 173, which related to a lease.  However it is instructive, says Mr Maynard-Connor, to note that Vinelott J (at 178) spoke only in terms of retransfer and an account of profits, saying:
“…it does not follow that because a disposition of the company’s property without the leave of the court is void and not merely voidable a conveyance or transfer is ineffective to pass the legal estate in land.  The transferee takes the land as bare trustee for the company, which in the absence of [a validation order] is entitled to call for it to be retransferred to it and to call for an account of any profit derived from it.”
20.	Mr Maynard-Connor said that where an asset has been restored so that there has been merely temporary deprivation of an asset, only actual loss can be compensated for.  He reiterated his contention that no actual loss has been demonstrated.  
21.	He took me to the pleadings, ordered by Chief Registrar Baister on 8 July 2013.  Prior to service of points of claim there was only an application in Form 7.1A.  He pointed out in passing that this form was odd in that the identity of the trustees in bankruptcy changed but the claim was by the applicants rather than by the current trustees as such.  He also pointed out that the Points of Claim defined “the Trustees” as the current trustees in bankruptcy and did not include, as one would have expected, the trustees in bankruptcy for the time being, although clause 2 of the pleading makes it clear that there was a former trustee. There were other oddities in the pleading, such as the claim for a declaration that the Shares be delivered up, and the reference to “my” solicitors which appeared out of nowhere.
22.	Importantly, there was no pleading that the Shares (or any shares) were held on trust for the trustees prior to the date when the current trustees in bankruptcy were appointed, 14 April 2010, there is no pleaded case that any of the trustees (including the original trustee Mr Hosking, appointed on 22 July 2009) had made any demand for delivery up of the Shares, nor was there any pleaded case, for example about loss, in relation to the damages claimed for the full value of the Shares.  That merely emerges from the prayer.
23.	Mr Maynard-Connor said that he would understand a claim at law where loss was pleaded arising out of temporary deprivation of a trust asset, for example pleading the time when the asset would have been sold and the conduct of the respondent meaning that the applicants were only able to sell it at a particular date at a lower price.  Again, a similar claim might lie in equity or on a restitutionary basis, but, says Mr Maynard-Connor, such a claim has not been pleaded nor has any evidence been led on the question.
24.	Mr Maynard-Connor says that the monetary relief sought by the trustees is unprecedented.  There is no case which directly deals with the reimbursement of value of a returned asset.  He said that he had not been able to find, as he would expect to if the law were otherwise, a single reference in any textbook to a claim for value at the date of transfer, whether under s. 284 of the Insolvency Act 1986 or s.127 of that Act or under any of the predecessors of those sections.  Thus there is no reference in Roy Goode’s Principles of Corporate Insolvency Law (see [11-131]), in Muir Hunter on Personal Insolvency, Sealy and Millman’s Annotated Guide to the Insolvency Legislation (18th Ed) or Parry, Ayliff and Shivji’s Transaction Avoidance in Insolvencies (2nd Edition) or any other textbook, nor in any of the cases.
25.	Mr Moraes cited parts of many authorities to me (for example, Parker v. The South Eastern Railway Company [1877] 2 CP 416, Re Bell Brothers Limited [1891] 65 LT 245 at 249, In Re Smith and Fawcett Limited [1942] 1 Ch 304, Estranges v. F. Graucob Limited [1934] 2 KB 394, Re Dalton (a bankrupt) [1963] 1 Ch 336, Re Dawson [1966] 2 NSWR 211,  J Leslie Engineers Co Limited [1976] 1 WLR 292,  In Re Gray’s Inn Construction Co Limited [1980] 1 WLR 711, In Re French’s Wine Bar Limited (1987) 3 BCC 173, Eagle Trust Plc v. SBC Securities Limited [1993] 1 WLR 484, Target Holdings Limited v. Redferns and Anor [1996] AC 421,  Wisniewski v. Central Manchester Health Authority [1998] PIQR 323, Hollicourt (Contracts) Limited v. Bank of Ireland [2001] Ch 555, Rose v. AIB Group (UK) Plc [2003] EWHC 1737 (Ch); [2003] 1 WLR 2791, Youyang Pty Limited Minter Ellison Morris Fletcher [2003] HCA 15, Malkins Nominees Limited v. Societe Financiere Mirelis SA and Others [2004] EWHC 2631 (Ch), Pettit v. Novakovic [2007] BCC 462, Bateman v. Hyde [2009] EWHC 81 (Ch); [2009] BPIR 737, Sands and Treharne (Trustees in bankruptcy of Mark Ward) v. Wright [2010] BPIR 1437,  Lloyds TSB Bank Plc v. Markandan & Uddin [2012] EWCA Civ 65; [2012] PNLR 20, AIB Group (UK) Plc v. Mark Redler & Co Solicitors [2014] UKSC 58; [2014] 3 WLR 1367 and Ikbal v. Sterling Law [2013] EWHC 3291 (Ch); [2014] PNLR 9 as well as many textbooks and papers), but, says Mr Maynard-Connor, they do not take the matter any further and there is merely citation of authority for citation’s  sake.  I confess that I was confused by the speed with which and manner in which quotations from the cases were presented.
 
S.284 of the Insolvency Act 1986
26.	s. 284(1) provides:
“Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court.”
27.	The period to which s. 284 applies is, under s. 284(3), the period beginning with the day of the presentation of the petition for the bankruptcy order and ending with the vesting of the bankrupt’s estate in his trustee.  The latter is not the date of the bankruptcy order as automatic vesting under s.306 only applies on the appointment of a trustee in bankruptcy.  Until then, the estate remains vested in the bankrupt under s.287: Dadourian Group International Limited v. Simms [2008] EWHC 723 (Ch); [2008] BPIR 508.
28.	Mr Maynard-Connor drew a distinction between the provisions relating to companies as to preference and transfer at an undervalue, where the claim is a personal one against the recipient, compared to restoration of the asset under s. 284.  It is trite law that s. 284 does not specify the remedy available to the trustee in bankruptcy: see the observations of Oliver J in Re Leslie at 298 B-D, cited by Mummery LJ in Hollicourt at [22]. I should add that those cases related to insolvent companies, as to which I note HHJ Norris QC’s strictures in Pettit about the potential differences between the bankruptcy and company regimes, although those differences do not in my judgment apply to this point. 
29.	S. 284 merely avoids relevant dispositions, subject to the possibility of discretionary relief.  As Mummery LJ said in Hollicourt at [22], the right of recovery falls to be determined by the general law.
30.	Mummery LJ went on to say in [22], (echoed by Nicholas Warren QC in Rose v. AIB Group (UK) plc and another [2003] EWHC 1737 at [30]),
“It is common ground in these proceedings that the right of recovery, whether invoked against the payees or against the bank, is restitutionary.”
31.	The basis of the dispute between the parties as to whether Mr Moraes is right with his (a) submission, whether or not the applicants have to plead and prove actual and not notional loss, is as to the meaning of “restitutionary” in this context.  Mr Moraes says that it means that the bankrupt’s estate is entitled to be restored to the position it would have been in had the second respondent not retained the Shares, as if the trustees had only had them they would have realised them in accordance with their duties. Mr Maynard-Connor on the other hand says that the word restitutionary is used in the sense of restoring the property, rather than in the sense of compensatory.

Temporary or permanent deprivation?  
32.	Detinue has been abolished for chattels and goods (by the Torts (Interference With Goods) Act 1977) but conversion/trover still exists although it does not apply to choses in action such as shares:  see OGB Ltd v. Allan [2008] 1 AC 1.
33.	Mr Maynard-Connor submits that in the case of a temporary deprivation of goods, the Court of Appeal’s decision in Brandeis Goldschmidt & Co Limited v. Western Transport Limited [1981] QB 864 is authority for the proposition that a claimant is not automatically entitled to recover for any fall in value during the period of detention but must in all cases prove that he has suffered loss.  In that case, the claimant used copper to make cathodes.  It acquired a consignment of copper which was wrongfully detained by the defendant.  The claimant obtained an order for delivery up of the copper and the outstanding dispute was as to the damages recoverable as to the result of the wrongful detention. Since the price of copper had fallen, the claimant said it was entitled to the difference in value between the time of buying it and the time when it was actually delivered up. Brandon LJ (giving a judgment with which all the members of the Court of Appeal agreed) said (at 870-2),
“Looking at the matter from the point of view of principle first, I cannot see why there should be any universally applicable rule for assessing damages for wrongful detention of goods, whether it be the rule contended for by the plaintiffs or any other rule. Damages in tort are awarded by way of monetary compensation for a loss or losses which a plaintiff has actually sustained, and the measure of damages awarded on this basis may vary infinitely according to the individual circumstances of any particular case. 
It is for plaintiffs to prove what loss, if any, they have suffered by reason of a tort, and when, as here, the effect of the tort is potentially adverse interference with the course of their business operations, it is for them to establish by evidence that there was in fact such adverse interference, and that they suffered a properly quantifiable loss by reason of it.
 [and quoting Bowen LJ in Williams v. Peel River Land and Mineral Co Limited, 55 LT 689 at 692-3] I cannot think that the law would really lay down anything so ridiculous as that a man should be compensated whether he suffered damage or not…
The conclusion that I reach from a study of these authorities is that the view of the matter which I have arrived at on the basis of principle alone is not in any way shown to be erroneous, but rather to be well supported by such authorities.  I approach this case accordingly on the basis it was for the plaintiffs to prove that they had actually suffered the two items of loss which they claimed.”
34.	However, in that case it was conceded, importantly, that, if the plaintiffs had been copper merchants who had acquired the copper for the purpose of trading it on the market, then the measure of damages referred to might well be the correct one. The plaintiffs had acquired the copper as a raw material for use in their business, and it was for them to show how their business had actually been affected adversely, if at all, by the detention of the copper.  Brandon LJ continued (at 872),
“The plaintiffs had acquired the copper as a raw material for use in their business, and it was for them to show how their business had actually been affected adversely, if at all, by the detention of the copper.  They had not acquired the copper for sale on the market at a profit, but to use it as a raw material in their business. In these circumstances the detention of the copper did not deprive them of the opportunity of selling the copper on the market at the price ruling on the date when the detention first began; nor oblige them to sell it on the market at the much lower price ruling on the date the copper was delivered up.”
35.	In the present case, however, the trustee’s function was to “get in, realise and distribute” the Shares: see s.305 of the Insolvency Act 1986.  Thus the principle of Brandeis does not apply as the trustee was under a duty to sell, as indeed Mr Ingram gave evidence about.  Brandeis is a case of “a very particular question which arose in a particular type of case”: see Kuwait at [502].
36.	Mr Maynard-Connor sought to distinguish Brandeis (in particular the examples given by Bowen LJ at 870-872) on the basis that scrips (mentioned in the examples) were traded on a listed exchange.  However, the distinction does not go to the principle that the measure of compensation is the diminution in value.
37.	In BBMB Finance (Hong Kong) Limited v. EDA Holdings Limited [1990] 1 WLR 409 it was held that where property was irreversibly converted the measure of damages was the value of the property at the date of conversion.  Brandeis was distinguished on the ground that it was concerned with temporary deprivation of property only, and the Privy Council agreed that a different consideration applied when the property is irreversibly converted so that the plaintiff loses it.  Mr Maynard-Connor said that it was important that Brandeis was not disapproved of in any way in respect of cases involving a temporary deprivation only and this is a case of temporary deprivation as the Shares were (belatedly) returned to the trustee.  The distinction between the two cases is not however as simple as Mr Maynard-Connor makes out, namely the choice between temporary and permanent deprivation.
38.	Of course the trustees in bankruptcy have disavowed any claim either in tort or in unjust enrichment, putting their claim firmly on the basis of breach of trust by the second respondent in wrongfully retaining the Shares.  However it is Mr Maynard-Connor’s submission that equity follows the law.  He relies on passages in Target Holdings to show that actual loss must be proved.  In that case, Lord Browne-Wilkinson said (at 432-7),
“At common law there are two principles fundamental to the award of damages.  First, that the defendant’s wrongful act must cause the damage complained of.  Second, that the plaintiff is to be put “in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”:  Livingston v. Rawyards Coal Co. (1880) 5 App Cas 25, F39, per Lord Blackburn.  Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law.  Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong.  He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law.  But the principles underlying both systems are the same…
…a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate: see Nocton v. Lord Ashburton [1914] A.C. 932, 952, 958, per Viscount Haldane L.C.  If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed: Caffrey v. Darby (1801) 6 Ves. 488; Clough v. Bond (1838) 3 M. & C. 490. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred: see Underhill and Hayton, Law of Trusts & Trustees 14th ed. (1987), pp. 734-736; In re Dawson, decd.; Union Fidelity Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. [1966] 2 N.S.W.R. 211; Bartlett v. Barclays Bank Trust Co. Ltd. (Nos. 1 and 2) [1980] Ch. 515 . Thus the common law rules of remoteness of damage and causation do not apply. However there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz. the fact that the loss would not have occurred but for the breach: see also In re Miller's Deed Trusts (1978) 75 L.S.G. 454; Nestle v. National Westminster Bank Plc. [1993] 1 W.L.R. 1260…
But the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach…
…the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred.  The quantum is fixed at the date of judgment at which date…the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach.”
39.	Again, Lord Browne-Wilkinson said (at 439),
"Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach."
40.	At 440, Lord Browne-Wilkinson disapproved Jaffray v. Marshall [1993] 1 WLR 1285 on the basis that quantum had been assessed on an assumption that a house would have been sold on a particular date where the sale would not in fact have taken place on that date.  
41.	Thus the rule is the same (subject to the date for assessment of loss) for equitable compensation as at common law.
42.	Target has more recently been considered and upheld by the Supreme Court in AIB v. Redler.  Lord Toulson said at [64]-[67],
“…the basic purpose of any remedy will be either to put the beneficiary in the same position as if the breach had not occurred or to vest in the beneficiary any profit which the trustee may have made by reason of the breach (and which ought therefore properly to be held on behalf of the beneficiary). [It is here accepted that no dividends or other profits were declared by Hornby, Wembley or Continental.]  Placing the beneficiary in the same position as he would have been in but for the breach may involve restoring the value of something lost buy the breach or making good financial damage caused by the breach.  But a monetary award which reflected neither loss caused nor profit gained by the wrongdoer would be penal.”
43.	And Lord Reed said at [107],
“…to impose an obligation to reconstitute the trust fund, in order to enable the client to recover more than he has in fact lost, “flies in the face and is in direct conflict with then basic principles of equitable compensation.”  That is clearly correct.  As Lord Browne-Wilkinson went on to explain, an obligation to reconstitute the trust fund does not inexorably require a payment into the fund of the value of misapplied property, for example where the consequences of the breach of trust have been mitigated by subsequent events.”
44.	However, it is Mr Moraes’ case that the Shares have now decreased significantly in value.  Mr Maynard-Connor says that they never had any value.  I do not think that the second respondent can in such circumstances rely on Brandeis and hide behind his belated restoration of the Shares. This is not a case where specific restitution of the trust property is possible in real terms but in any event, as I have said, the trustees were under a duty to sell the Shares so that Brandeis is inapplicable.
45.	In Malkins Nominees Limited v. Mirelis and Ors [2004] EWHC 2631 (Ch), Laddie J had to reconcile cases on temporary and permanent deprivation at [22]-[26].  All the shares were returned (although there had been a dilution by the issue and allotment of shares resulting in reduction from 10% to 1%) but the court restored the fund with the value attributable to the full 10% shareholding, not just 9%, assessing the value by reference to the value of property that formed part of the transaction.  
46.	Secondly, Laddie J had to grapple with the question of assessment of damages.  He said at [34],
“From these authorities, and in particular Kuwait Airways [Kuwait Airways Corporation v. Iraqi Airways (Nos 4 and 5) [2002] AC 883] it seems to me that the following propositions apply to the assessment of damages…First, damages should be awarded which give the claimant just compensation for losses he has sustained.  Second, the value of the converted asset is a suitable starting point for determining what that loss is.  Third, the value of the converted asset is not necessarily a correct measure of the damages suffered since the claimant may have suffered greater or less loss than this.”
47.	I note that the value of the converted asset is a suitable starting point for determining loss.
48.	In Kuwait, Lord Nicholls drew no distinction between the principles of recovery of damages as they apply to permanent and temporary deprivation relying both on Brandeis and the permanent deprivation case of Butler v. Egg and Egg Pulp Marketing Board (1996) 114 CLR 185.  Nevertheless he said (at [67]),
"The fundamental object of an award of damages in respect of this tort, as with all wrongs, is to award compensation for loss suffered."
49.	Mr Moraes submits that the transfers were the defaults in this case so that as a matter of trust law the estate falls to be reconstituted at its value on the date of default.  None of the cases deals with an asset with a fluctuating value, such as shares, and it cannot be right, he says, that the respondents can simply decide to deliver up the Shares shortly before the hearing when their value has dropped.  
50.	He postulated the case where the respondent went to court to ask for a validation order and the court would need to know how much the Shares were worth.  If full value was given, it is likely that the court would validate.  However it cannot be different, he says where the respondent has appropriated the asset to his own use and the court is restoring the fund because the purpose of both exercises is to preserve the value of the estate for the benefit of the creditors.  It is the same coin looked at from opposite sides.  It is absurd, he postulated, to maintain that the Shares returned after 8 years are the same as were taken in 2007.

When did the trusteeship of the second respondent begin?
51.	As part of his case that an actual sale has to be proved, Mr Maynard-Connor submits that no trusteeship would or indeed could have predated the date when the original trustee in bankruptcy, Mr Hosking, was appointed, namely 22 July 2007.  He submits that the bankruptcy order defines the trust.  He says that no claim is, or could be, pleaded that the Shares were held on any trust prior to the bankruptcy order.  Indeed, says Mr Maynard-Connor, the earliest date at which the trust arose would have been the date when trustees in bankruptcy were appointed. 
52.	I disagree.  The effect of s. 284 is, subject to s. 284(4), to render void transfers of a bankrupt’s estate after presentation of the petition.  The transfer of title is not a nullity but operates (subject again to s. 284(4)) so as to pass the legal estate, making the transferee a trustee.  Accordingly, the second respondent became a trustee of the Shares (as the transfer was after presentation of the petition) immediately upon the transfer.  The trust accordingly commenced at the date of the transfer, not at the date of the bankruptcy order or any later date.
53.	In Re Gunsbourg [1920] 2 KB 426 at 438-441, Lord Sterndale said that the transaction was void from the moment of the transfer,
“Prima facie these goods, being the bankrupt's property, passed to the trustee at the moment of the transfer to A. Gunsbourg & Co, as that transfer was an act of bankruptcy committed within three months of the receiving order, and the trustee's title related back to the moment of its taking place. It was argued on the part of the appellants that though there was a relation back of the trustee's title, that title did not accrue until he had obtained an order declaring the transfer to be an act of bankruptcy, and, as I understood the argument, that notwithstanding the relation back, the trustee's title must be taken to begin at any rate against a purchaser for value from that time, and not from the act of bankruptcy.”
54.	In that case, the debtor had transferred assets fraudulently on September 20, 1917. On September 27 he committed an act of bankruptcy upon which a petition was presented on October 8, and a receiving order was made against him on October 24, followed by an adjudication on December 12 1917.  The Bankruptcy Act 1914 was different in that the relation back doctrine is no longer applied so as to fix the date of commencement of bankruptcy as at the date of commission of the act of bankruptcy on which the adjudication order was made.  However, s.284 restricts a debtor’s powers of disposal during the period after presentation of the petition until the date when the estate vests in his trustee in bankruptcy, or the official receiver, as the case may be: see s.305(1).  
55.	Thus the title of the trustee relates back to the date when the transfer took place where it is after the date of presentation of the petition. So therefore does the trusteeship of the second respondent. 
56.	Mr Moraes relies on Professor Goode’s essay The Avoidance of Transactions in Insolvency Proceedings and Restitutionary Defences (in Mapping the Law Ed Burrows and Rodger) at 299, which repeats that the statute says nothing about what is to happen if the court refuses to validate a disposition made in breach of the section:
“That is left to the common law and paves the way for a proprietary claim by the liquidator for recovery in specie of the asset disposed of in breach of the section or its proceeds or alternatively a personal claim (1) for the value of the asset where its proceeds have been dissipated or (2) where the asset was money paid as a preference, for repayment, or (3) for an account and payment of profits derived from the wrongdoing, for example, use or investment of assets which ex hypothesi never belonged to the Defendant.”
57.	 Mr Davis QC submitted, and Mr Maynard Collins now submits, that the words “where its proceeds have been dissipated” are vital, as this case is a case of temporary deprivation where the Shares have been restored so that Professor Goode’s words have no application in present circumstances.  Indeed, he points to the fact that Professor Goode goes on to say (at 311) that the “usual remedy” is an order for the recovery of the property or its proceeds, although the claim is a “pure property claim”, so that (see 304-5), 
“the defendant acquires no title…and has to give back the asset he received”.  
58.	That may be the usual remedy, but I find that it is not the only remedy.
59.	As to (3), Mr Maynard-Connor accepts that the respondents would have to account for any profits made from property wrongfully withheld, or for any damage to the property.  One of the claims in the Points of Claim (at [58.3], [63.5], [64.5], [65.5] and [66.5]) is that the respondents must account for all benefits and/or payments received in respect of the Shares and payment accordingly.  Mr Maynard-Connor accepts that this is a proper claim but says that no benefits have been pleaded and indeed as there have been no dividends no benefits have accrued.
60.	Mr Maynard-Connor relies on Re French’s Wine Bar Limited in saying that with a bare trusteeship the beneficial owner can require the property to be transferred to him and can require the trustee to account for profits.  However, any claim in equitable compensation requires the trustees to show that the estate has suffered some loss for which the transferee ought to account.  Vinelott J said (at 436 C),
“the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach.”
61.	Mr Moraes’ submits that nowhere in the cases is there any authority for the proposition that the trustees would have to show when they would have sold.  S. 305 IA 1986 puts them under a duty to sell the Shares and that has been impossible because of the stance of the second respondent who has insisted until very recently that he has the entitlement to the Shares, as he falls within the exceptions to s. 284, and that he has the right to the Shares, as he gave full value for them, so that the transfers would therefore be validated.
62.	Mr Moraes says that the facts are very strong.  He says that the second respondent resisted all attempts to restore the Shares when the bankruptcy order was made.  In those circumstances, says Mr Moraes, the estate is entitled to be restored to the position it would have been in had the second respondent not retained the Shares as if they were his own and the correct date for valuing the Shares is the date of default, that is to say, the date of transfer. 
63.	In any event Mr Moraes submits that the dates for valuation are so many that they must cover the date when the Shares would have been sold by the trustees and it is open to the court on the pleadings to so find.  He has made no application to amend his pleadings.

Preliminary issue
64.	I refused to hear a preliminary issue and in all the circumstances went ahead with the trial including hearing full evidence, including the expert evidence. I decided to do this on the basis of the following: (i) if I found for Mr Davis QC I might be wrong, (ii) it was not the fault of the witnesses that they were kept waiting, they doubtless had other things to do and they should not be further inconvenienced, (iii) the present stance of the respondents was adopted far too late. Mr Davis QC could not argue that there should be a preliminary issue about whether the evidence directed by Registrar Derrett on 14 January 2014 was wholly irrelevant. The change in stance was brought about by the last minute change in solicitors and counsel. (iv) Mr Simmonds QC at the IVA hearing said at [95] that the respondents had waited until the very last moment before formulating their claims,  
“The impression is given of parties who avoided committing themselves to a detailed account of the composition of their claims until the last possible moment.”
They seem to have done this again as only a very short time before trial did the they abandon their claim to retain the Shares, some 8 years after the transfer to the second respondent and some 6 years after the bankruptcy order and (v) I did not like the way in which this trial was being run.  I found that it was a thinly disguised strike out application (in breach of PD 3A 5.1 which provides that all applications should be made as soon as possible and before allocation if possible) which was particularly offensive because on 14 January 2014 Registrar Derrett made her order, without apparent objection, that the parties should agree relevant dates for the experts to address, and indeed I have seen the correspondence in which the respondents agreed those dates without demur.

The second respondent’s evidence  
65.	I do not accept the evidence of the second respondent.  There are four aspects of his evidence which lack credibility.  First, what he said in support of adjourning the March 2015 hearing.   He told the listing officer for the first time after the court had risen on 13 March 2015, (although he was in court all day and could have told the court through his counsel) that he was travelling to the Middle East and his business trip could not be cancelled.  He was in fact in Barcelona on Monday 16 March 2015.  He said that he must have flown to Barcelona to see his son and went straight to Dubai as he was trying to obtain a residence qualification.  But there was no reason why any such trip should have taken precedence over the trial.  I do not accept his explanation despite Mr Maynard-Connor’s submission that I should not hold it against him.
66.	Secondly, the withdrawal of his evidence in [42] of his witness statement, which he described as “an administrative error”.  I agree with Mr Moraes that while the recording of a transfer at Companies House could be the result of administrative error, an executed transfer is unlikely to be.   The evidence reflects the points of defence and led to valuation instructions being given to the experts.  I find his change of heart is merely an opportunistic attempt to exclude his sisters from any liability.  In any event if he is correct he will be liable to indemnify the third to fifth respondents.  
67.	Thirdly, the second respondent’s attempt to explain away the findings of Deputy Judge Simmonds QC.  He said that the family got muddled as they did not have written acknowledgment of the debts.  I find that there was a deliberate attempt to rig the votes at the IVA in order that the family should retain the Shares.  
68.	Fourthly, it is frankly incredible that any of the respondents were unaware of the bankruptcy petition of 23 January 2007 prior to the transfer.  I note that the second respondent never gave any direct answer to the question whether he was aware of the threat of bankruptcy.  This is to be contrasted with [6] of his witness statement where he said he knew that Monecor would seek to bankrupt the bankrupt.  Moreover it is inconceivable that, bearing in mind the closeness of the family and the fact that Mr Andronikou acted for all the respondents, the bankrupt (who knew about the petition at latest on 5 February 2007) would not have told the other respondents of the existence of the petition, and why it was so urgent for him to enter into an IVA.  The second respondent was, after all, taking on a liability to pay £1.45m.  The whole purpose of the IVA was to avoid a bankruptcy. 
69.	Mr Andronikou was the first respondent’s nominee for the purposes of the IVA.  Mr Andronikou’s firm drafted a letter of 28 March 2007 for the second respondent to sign and the reference to “along with my family members” in that letter suggests that the third to fifth respondents were aware of both the IVA proposals and the petition.    Further the second respondent received both the nominee’s reports which expressly refer to service of the petition at [15] and [9] respectively.  Again, the first witness statement dated 15 May 2007 of Mr Franco Barone (General Counsel acting for Tradition (UK) Limited) referred to the Petition in [12] and [16].  The 5 June 2007 Guarantee was executed to meet the criticism of Mr Barone in his witness statement, as the second respondent accepts in [2] of his own witness statement filed in the IVA proceedings dated 10 July 2007. Yet further, the first respondent’s own witness statement (which the second respondent confirmed that he had read) referred to the petition. Thus I find that the statement that the second respondent was unaware of the Petition until he read the judgment of Deputy Judge Simmonds QC is simply untrue.
70.	I do not therefore consider that s. 284(4) applies as I find that all the respondents, including the second respondent, had actual notice of the bankruptcy petition prior to the transfer.
71.	Further I do not think that the second to fifth respondents acted in good faith, a further requirement of s. 284(4).  All the respondents knew that the first respondent was insolvent, since they intended to fund an IVA.  They wrongly claimed that they were owed sums by the first respondent, which could not be repaid, and they retained Mr Andronikou to advise on the first respondent entering into an IVA.  Thus each family member was aware that the first respondent was insolvent and that obtaining the Shares in return for payment would result in the creditors being disadvantaged, if, as eventually happened, the IVA failed.  
72.	The second respondent held as trustee from 5 or 6 June 2007 and owed fiduciary duties including the duty to preserve the value of the asset.  The trustees would have realised the Shares soon after their appointment for the benefit of the creditors and the second respondent cannot get round this by appropriating the assets to his own use.  The court therefore has to restore the fund, preserving the value of the estate for the benefit of the creditors.  It is not enough to say, by analogy with In Re French’s Wine Bar Limited [1987] 3 BCC 173 at 178, that the beneficial owner can require the property to be transferred to him and to account for any profits.  A loss has “in fact [been] suffered by the beneficiaries” and “using hindsight and common sense, can be seen to have been caused by the breach.”
73.	I accept that the pleadings are not as good as they might have been.  I note, as I have said, that the applicants, namely Mr Ingram and Mrs Hall, but not Mr Hosking, are defined as “the Trustees”.  No application, as I have said, has been made to amend the points of claim.  However, the second to fifth respondents have abandoned their original case that the transfers were not void and that there be ratification, so that the pleadings are, not to put too fine a point on it, a mess.  The applicants cannot be criticised too vehemently for their pleadings bearing in mind that the second to the fifth respondents have changed their case significantly at the last minute. 
74.	I observe that despite instructing his expert to value the Shares on a market value basis, the second respondent, supported by Mr Hosking, disavows his own expert and claims that the Shares had no value at all times.
75.	Loss has been caused by the breach. On any basis (again “using hindsight and common sense”), I do not accept Mr Maynard-Connor’s challenge that the amount of actual loss has to be pleaded. 

Conclusion as to principle
76.	Mr Maynard-Connor says that we do not get to the experts’ evidence.  Doubtless the change of solicitors and counsel has meant that an application for a preliminary issue was made and the respondents completely changed their case.  The experts (both of them) ascribed a value to the Shares and I cannot and do not find that they must have ignored all the evidence from the second respondent and others to the effect that they had no value at any time.  In order to ascribe value to them it is a fair assumption that they must have taken into account market forces.I therefore hold that the Shares are to be valued at the date of the transfers, deducting the value, if any, at the date of return.   

The expert evidence 
77.	That takes me to the experts’ evidence.  It is common ground that,
•	When conducting a valuation hindsight must not be used.  The only information that may be used is that which would have been available at the relevant time,
•	Earning based valuations should be used,
•	The same multiples should be used for Hornby and Wembley, given the similarities of the businesses. 
78.	Mr Maynard-Connor made the following submissions.  First, that an assessment is required of an actual sale by the trustees in bankruptcy after appointment, not a family sale between the bankrupt and the second, or second to fifth, respondents.  Thus, he submits, market value is appropriate, taking into account the appropriate discount of 67.5%.  I have already dealt with this.
79.	I note that Mr Maynard-Connor seeks to rely on the evidence of Mr Hosking in the IVA challenge proceedings.  I do not believe that he can, as his evidence was not that of an expert but merely an insolvency practitioner acting as a supervisor whose joint appointee was seeking to defend the IVA, which was revoked.  In any event, his views have not been tested in these proceedings.  Both experts took the view that the Shares had a substantial value.
80.	There is some evidence, apart from the expert evidence, that the Hornby shares had a substantial value. 
•	Mr Moraes says that the second respondent knew when he signed the Guarantee that the first respondent had no interest in the St John’s Wood property (“the Property”) or the shares in Legendary Investments Plc (“Legendary”), which, so the first respondent said, were worthless and therefore when the second respondent agreed to pay £1.45m for the Property, Legendary and the Hornby shares he was in possession of the full facts.  There is a question whether he did know that the first respondent had no interest in the Property or Legendary and that the first respondent thought the Legendary shares worthless from the minutes of the IVA meeting dated 26 March 2007, since the second respondent was not present at that meeting. Mr Ingram said that it was some time after the bankruptcy order was made on 21 April 2009 that the first respondent was excluded from the trust that held the shares in Legendary and the second respondent said that it was only “a lot later on” that he discovered that the first respondent did not have an interest in either Legendary or the Property.  However Mr Andronikou was present at the meeting and the Guarantee was drafted on Mr Andronikou’s instructions.  It expressly included the Property and Legendary as part of the Scheduled Assets which the second respondent was to acquire.  Mr Maynard-Connor said that “given the professional obligations which they [Mr Andronikou and Mr Hosking] owed as Joint Supervisors, they would not have signed the Guarantee had it been confirmed that the first respondent had no interest” in them.  However, that is not what the Minutes (at [12], [37] and [70]) of the IVA meeting said.  Mr Andronikou was present at the meeting, drafted a letter dated 28 March 2007 under which the second respondent was to receive the shares in Legendary, the Property and the 24% holding in Hornby and was retained by the second respondent to represent his interests.  I therefore find it inconceivable that the second respondent would not have known the contents of the meeting.  He was still prepared to pay £1.45m (24% of the net asset valuation of Hornby) into the IVA for the first respondent’s interest in Hornby and release an alleged debt owed to him by the first respondent of £3.8m.  Mr Maynard-Connor submits that the only reasons why the second respondent paid the money was to support the first respondent in the IVA and because the second respondent believed that he was acquiring the shares in Legendary and in Deauville Properties Limited, the company that held the shares in the Property.  However the second respondent is an astute businessman who I find would not be prepared to pay such a large sum of money merely to assist the first respondent. Further I find that the second respondent did know what had been said at the meeting about Legendary and the Property.  The second respondent inflated the alleged debt which he said was owed to him and created a debt said to be owed to Hornby in an attempt to award himself the Shares.
•	The second respondent held onto the Shares for many years despite the applicants’ application, and maintained his right to do so.
•	The second to the fifth respondents applied for a validation order.
•	Hornby reduced the debt it owed the bank by £10m by 2005, it paid income to its directors and (on the second respondent’s evidence) it lent £2.5m to the first respondent.
81.	I note that none of Mr Andronikou, Mr Tariq or Ms Vernon (the financial controller prior to 2007) was called to give evidence although they might have been expected to do so as they could have explained matters.    
82.	As at 5/6 June 2007 Mr Philip Cowan (the applicants’ expert, Moore Stephens’ Head of Corporate Finance) valued the Shares on a fair valuation basis at £2.216m, and Miss Sally Longworth (the second to fifth respondents’ expert, managing director of Longworth Forensic Accounting Limited) on a market valuation basis at £567,000.
83.	The difference in valuation is largely due to different instructions whereby Mr Cowan valued the Shares at a fair valuation and Miss Longworth at a market valuation.  Mr Cowan’s instructions were to ascertain a fair value as described in the International Valuation Standards Framework:
“the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties”, that is to say, the transactions between the debtor and the rest of the family.
84.	Miss Longworth’s instructions were to ascertain the market value as set out in the International Valuation Standards Framework:
“the estimated amount which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
85.	It seems to me that the correct basis of valuation is ascertaining what an insider would have paid because that is the benefit that the second respondent (and through him the third to fifth respondents) obtained.
86.	Mr Cowan used ratios of Enterprise Value (“EV”) to earnings before interest and tax (the EBIT) and earnings before interest, tax, depreciation and amortisation (“EBITDA”), calculating the equity value as the EV less net debt or plus surplus cash and other assets.  Miss Longworth calculated an equity value using a ratio price to after tax earnings, i.e. a price/earnings ratio. She then adjusted for any non-trading assets and liabilities.
87.	[76] of Mr Cowan’s Report summarises the principle as to minority discounts as follows:
“Returning to the actual transfers as between Mr E Ahmed and the balance of the Ahmed family and the need to produce a valuation estimate that reflects the respective interest of the parties, in my view the fair value will lie somewhere between the minority discounted valuation for an independent third party and the relevant proportion of the value of a 100% shareholding.  On the one hand the buyer will consider Mr E Ahmed’s next best option and on the other the Ahmed family will be keen not to have a third party in the shareholding.  In my view the fair value of the shares in the Companies are therefore reasonably estimated as lying half way between the two valuations noted above.”
88.	Mr Cowan regarded the key point as the fact that the first respondent transferred 1,200 shares in each company and the counterparties to the transactions were in each case another member of the Ahmed family.  He said at [78],
“Given my remarks above concerning the nature of the Ahmed family as being effectively one shareholder, the counterparty to the transaction should be viewed, in my opinion, as one shareholder for valuation purposes.”
 “…if the information is there then you will look at it.  I think the, the insider will have more ready access to that information and if it’s there it will be taken into account.”
89.	Moreover I note that the experts agreed in their Joint Statement dated 31 October 2014 that,
“…as a family operated and 100% owned, private company, the ownership was effectively that of a quasi-partnership i.e. the family would act as a block.”
90.	Mr Cowan’s calculations were based on the audited accounts of the companies, saying that they were,
“the only…independently verified piece of data in amongst the data …as a valuer you are always looking at the quality of data and what is reliable relative to other pieces of data… So a judgment has been made…as to where one can place weight on particular types of data, and the, the audited accounts, independently verified, are a constant piece of data that runs through the period…and…represent quality pieces of data…”
91.	Miss Longworth however disavowed the accounts, saying in oral evidence,
“…the auditors are doing it from a different perspective…because they’re doing a valuation of, on sort of a historical costs basis, so they’re not looking at the market value of assets, and they’re looking to see whether it complies with accounting standards, whereas as a valuer you’re looking at, would someone pay this amount for this asset or for this business.  So they’re quite different-…
…that’s why we do due diligence and we don’t rely on audited accounts…”
She also said in her Report, echoed in the Joint Statement, that,
“…care must be taken not to simply assume the asset values stated in the accounts.”
92.	However, the directors’ and auditors’ testing of whether the companies were a going concern is based on a forward looking view over the long term in compliance with their obligations.  This testing is not available to either expert.  
93.	Mr Cowan’s review demonstrated that there was nothing to suggest that the auditors or directors of the companies were wrong when they signed the accounts. Indeed the second respondent’s evidence did not suggest that the audited accounts signed by him were signed otherwise than in accordance with his obligations.  He said, as must be the case, that he had full knowledge of the affairs of the companies.
94.	Miss Longworth in her adjustments to the accounts wholly excluded the 30 June 2005 Hornby accounts from her calculations, on the basis of the loss of a contract with Slazenger.  However this contract did not terminate until December 2007.  Thus the “hindsight” rule was breached.  If the 2005 audited accounts had been included, on the basis of Miss Longworth’s methodology her valuation would be increased by £200,000.  Mr Cowan on the other hand examined the branded products, recognising that as some declined, others came to the fore.
95.	In making her adjustments, Miss Longworth has said that a buyer would obtain more information on the value of assets such as properties.  However, where none exists at the time I find it is more reasonable to use the audited accounts.  Miss Longworth instead uses a 2013 property valuation.
96.	Both experts were aware of the provisions in the Articles of Association of the companies concerning the director’s discretion to register shareholders and both took these provisions into account when valuing the shareholdings.  Mr Cowan explained that this type of article is commonplace and was taken into account in applying a substantial discount to a minority holding (agreed between the experts at 67.5%).  Miss Longworth did not suggest that the Articles would affect the value of the Shares.  Indeed, the second respondent said that he would act in the best interests of the companies (fairly accepting his fiduciary duty and s. 771 of the Companies Act 2006) and if an investor was prepared to invest in them he would not object to registration. 
97.	Then there is the question of the Ernst and Young (“E&Y”) Report dated 31 October 2006, prepared on behalf of Barclays Bank Plc as a Business Review of the companies.
98.	Mr Maynard-Connor said that Miss Longworth was right to rely on the E&Y Report, which questioned the financial position of the companies at a time shortly before the transfer from the first respondent to the second respondent.  He draws attention to the following in particular,

(1) The E&Y Report suggests that the value of Continental’s largest asset (its goodwill) was not realisable as it arose from acquired businesses that were “now dormant or have failed”.
(2) The E&Y Report questions Hornby’s ability to realise its largest asset, the intercompany debt owed by Continental.
(3)  The E&Y Report records the companies’ breach in July 2006 of its banking covenants with Barclays, which led to them having to refinance with Habib Bank on the condition that the second respondent provided an unlimited personal guarantee.
(4)  Mr Cowan accepted that the E&Y Report was the only evidence as to what was actually going on as of 31 October 2006. 

99.	However, I agree with Mr Moraes that only limited reliance can be placed on the E&Y Report, for the following reasons,
(1) The E&Y Report was in draft only.  
(2)  The companies had reached “a mutual agreement to pursue a refinancing with an alternative lender” (i.e. at the date of the E&Y Report, not (pace Miss Longworth) following the E&Y Report) which resulted in a restriction on E&Y’s work.
(3) The companies’ employees had failed to provide necessary financial information, particularly because of the “unavailability of key finance personnel and for reasons of confidentiality”. As a result, E&Y had to rely on explanations for queries (particularly in relation to Wembley and Continental) on information provided by individuals (not identified) who were not directly employed by the relevant company.   
(4)  The expressions “management inform us” (or similar) and “we understand” are frequently used.  In particular, E&Y say this,
‘At 30 June 2005 management have informed us that the auditors have agreed a write off of £3.3million against the related party debtor of £7.3 million owed by [Continental] to [Heartlands Initiatives Limited]. We understand this adjustment was based on an assessment of [Continental]’s ability to repay the debt owed to [Hornby]… To date statutory accounts as to 30 June 2005 have not been signed off by the auditors.’ 
(5)  The balance sheets provided differed from the accounts for the same periods previously presented to Barclays Bank “because several year end adjustments had been reflected within them”.  Moreover, “there a number of areas where we have outstanding queries including obtaining and reconciling a schedule of adjustments between both versions of the 28 July 2006 balance sheets.”
(6)  While the scope of E&Y’s work encompassed a review of the companies’ balance sheets as at 31 August 2006, the latest available balance sheets were 28 July 2006 (Hornby and Wembley) and 30 June 2006 for Continental.
(7)  A large part of the information provided was at inconsistent dates which limited the reliance which could be placed on the E&Y Report.
(8) Detailed financial forecasts were not provided.
100.	Doubtless Mr Maynard-Connor would say that it was in the interests of the directors of the companies to ensure that the E&Y Report provided as favourable a picture of the companies as possible, so that it can be relied upon to show the deficiencies of the companies.  However, the lack of information provided to E&Y merely goes to show that the E&Y Report cannot be relied upon at all to prove anything.  I bear in mind the passage in Mr Simmonds QC’s judgment (at [95]) saying that the second to fifth respondents’ attitude is symptomatic generally of their approach to this case.
101.	Mr Cowan valued the companies as a going concern, based on evidence provided by the audited accounts, whereas Miss Longworth looked at the companies on a break up basis.  Miss Longworth said,
“…the going concern basis is probably slightly different…the company needs to be able to show it’s a going concern for 12 months after the date that the audit, the, the audit’s report’s signed I think.    Now, the going concern would be involving a discussion with the directors, and if the directors say that they are going to support the company for the next 12 months and you know that they’ve got the cash and capital to be able to do so…and they will give a letter of representation to the auditors to say that, then the auditors will be happy to sign off on a going concern basis, I would have thought.”
Mr Moraes asked Miss Longworth if she knew whether that had actually happened in this case but she replied that she had no idea what happened.
102.	A purchaser of a minority shareholding would be concerned whether they were buying that minority holding in a going concern or assets on a break up basis.  It is evident that Hornby was a going concern demonstrated by the facts, (1) that it reduced its debt to the bank by £10m by 2005, (2) it paid income to its directors and (3) it lent £2.5m to the first respondent, according to the second respondent.  Moreover, one would expect, Mr Cowan said, to see a qualification in the audited accounts to deal with the issue of the directors’ support.
103.	Miss Longworth also accepted that the Private Company Price Index (“PCPI”), published by BDO, from which she derived her multiples, was jettisoned by BDO in 2013 in favour of Enterprise Value (“EV”) multiples, which was, according to BDO, a “less subjective” measure of profitability, on the basis that they are based on all disposals taking place in the relevant quarter, rather than being sector specific, so that the PCPI multiples would not match the business sector of Hornby, Wembley or Continental.  Miss Longworth accepted that she no longer uses PCPI but EV for her other valuations. Her explanation for using PCPI in this case was that at the relevant dates the PCPI was a recognised basis for valuation and an accepted methodology. The EV/EBITDA ratio only became the accepted method in 2013.  
104.	However I find that the current valuations should be made according to the most recent methods and that this is no breach of the hindsight principle.  The court seeks to determine the true value of the Shares not what a valuer would have said on 5 June 2007 was the value of the Shares.
105.	Miss Longworth valued the earnings attributable to equity holders only by reference to equity multiples derived from PCPI and not earnings attributable to both equity and debt holders.  However the effect of a small percentage variation in profit before interest and tax in an indebted company is significant compared with a company that has low indebtedness.
106.	Miss Longworth relied on monthly management accounts, reflecting the audited accounts, despite the fact that she chased for them and apparently did not receive them.  She said in oral evidence that they “could have been prepared” on the valuation dates, despite the fact that audited accounts were not available until after the year end.  No monthly management accounts were disclosed and the consultant for the companies, Mr Tariq, on whom she relied in saying that there had been such monthly accounts, did not append a statement of truth to his assertions.  However, Miss Longworth said that she was informed that management accounts prepared by the companies broadly reflected the audited accounts. Mr Cowan said that there was no evidence that management accounts were prepared other than to complete the year-end audit.  I find, as has apparently been confirmed by the applicants’ solicitors by letter dated 18 February 2016, that management information was provided to both experts at the end of each accounting year, reflecting the year-end figures in the audited accounts. 
107.	On the sixth day of the trial the respondents sought to adduce various documents in evidence.  Mr Cowan said that, although he had seen them (with one exception) he had not seen the annotations on those documents.  In any event the documents do not assist me as they were not put to the experts (it is clear from her Report that Miss Longworth did not rely on them) and there is no evidence of when they were produced.
108.	I do not accept that Miss Longworth’s evidence should be preferred on the basis that her experience of lower value companies is greater than that of Mr Cowan.  Mr Cowan explained that, while he has indeed been involved with high value companies, about half of his time over 25 years has been spent on advising small businesses of all types.  Mr Maynard-Connor described this evidence as “protestations to the contrary”, but I see no reason not to accept it and I do accept it.
109.	It was suggested in cross-examination of Mr Cowan that he had used inappropriate comparables.  However he (a) said that he considered them to be reasonably representative as compared with Hornby and Wembley, including branded clothing companies and (b) adjusted his multiples according to the EV Valuation Guidelines 2012, discounting them by 50% to take account of these very differences, namely that the companies he used were larger companies (with higher EBITDA to sales margins) and moreover quoted companies: see [89]-[94] of his Report.  Miss Longworth said that Mr Cowan should have used Marks & Spencer Plc, Sports Direct Plc and Next Plc in his sample.  However if they had been included they would only have affected the valuations for 2007 and even then there would only have been a 4% variation on the Hornby valuation.
110.	I accordingly prefer the evidence of Mr Cowan for the applicants, for the following reasons,
•	 I find that the appropriate basis of valuation is a fair value rather than a market value since the transactions were between identified family members who had inside knowledge of the companies and a stake in retaining the shareholding within the family.
•	The companies’ accounts were audited and the directors signed them without any caveats.  The audited accounts must therefore be taken to provide a true assessment of the assets and liabilities of the companies.
•	Despite the audit and the signed declarations, Miss Longworth values the assets on a break-up basis rather than a going concern basis, which is inappropriate in the circumstances.
111.	I therefore value the Shares at a total of £2.216m on 5/6 June 2009.  Mr Moraes accepts that he has to give credit for their value as at the date of return, 27 February 2015, and he also seems to accept that the Shares may have some value as at that date (see the transcript at Day 7, pages 111-2) although he has hedged his bets by saying (in paragraph 73 of his written closing submissions dated 19 February 2016)  that,
“Of course if the evidence of KA is accepted that the shares now have no value, then there is no need for a further expert valuation of the shares.”
112.	However, I think there is such a need.  It would not be right to reject the second respondent’s evidence that the Shares never had any value but say that they have no value now.  I would not normally let Mr Moraes have a second bite at the valuation cherry, but bearing in mind Registrar Derrett’s order and the about-turn of the respondents as to valuation I think it is right that I should do so in this instance.  The value concerned is fair value.

Liability of the third to fifth respondents
113.	It is the second respondent’s case that when he transferred “some of my shares” to his”, and “all of whom work in the business, unlike Eatisham”) “is incorrect”.  On the sisters (he did not transfer any shares in Continental) they received them as his nominees.  I note that they joined in the application to validate the transfer and in the defence, and they all act by Mr Maynard-Connor.  The second respondent has said that the whole of [42] of his witness statement (“I believed that I was entitled to transfer some of my shares to my sisters and that is what happened balance of probabilities I do not accept his new evidence.  Thus it seems to me that the third to the fifth respondents (who have chosen not to give any evidence) are equally liable with the second respondent.
114.	Mr Maynard-Connor says that Mr Moraes has admitted that the shares in Wembley and Hornby were held merely as nominees, relying on Mr Moraes’ submission on Day 1 when he refers to Registrar Derrett’s Order, explaining the valuation dates,
“…of course Your Ladyship is not now concerned with the subdivision, because the evidence of the Second Respondent, I think it’s accepted, is that insofar as there were any other transfers they were simply to his nominees.”
115.	Mr Moraes was in my view simply referring to the second respondent’s evidence.  However, Mr Maynard-Connor’s submission is that Mr Moraes did not cross-examine the second respondent on the issue of whether the shares in Hornby and Wembley were held by the third to the fifth respondents as nominees for the second respondent and there is therefore no evidence to the contrary, or indeed that these respondents had any involvement in the transfers of shares, before the court.  The third to fifth respondents did however join in the application for validation and they were part of the IVA vote-rigging scheme. 
116.	Mr Maynard-Connor also says that those shares in Hornby and Wembley that were transferred to them during 2008-2009 were all re-transferred to the second respondent by no later than 30 June 2010 which was more than three years before the trustees issued their application on 8 July 2013.  However, it is not understood what the relevance of these dates are, since (although it is accepted that the first respondent transferred the Shares to the second respondent and not his sisters) the disposition to the sisters still falls foul of s. 284 of the Insolvency Act 1986, and they still were parties to the applications for validation of the transfers.
117.	It is my view that the third to the fifth respondents are jointly liable with the second respondent.

         Compound interest    
118.	A court can award compound interest where an applicant seeks restitution of money, whether in exercise of the court’s common law restitutionary jurisdiction or its discretionary equitable jurisdiction: see Sempra Metals Limited v. IRC [2007] UKHL 34; [2008] 1 AC 561, [33]-[34], [46]-[50], [176], and [184]-[188], and [239].
119.	However, the money award reversing unjust enrichment has to take into account the value of the use of money over the time when it was retained by the respondents.  This is prima facie the reasonable cost to the applicants of borrowing the sum over the period unless the respondents can show they have gained no benefit themselves.  Lords Scott and Mance said that only if the money had been proved to have actually earned interest in the hands of the respondents would the applicants be entitled to recover.  In that case it was held that the Commissioners of Inland Revenue had derived some benefit from premature payment of tax.  However they were in a different position from ordinary borrowers in that they could borrow money at more favourable rates.  Accordingly the applicants’ claim for restitution was measured by an award of compound interest calculated at a conventional rate but by reference to the rates of interest applicable to borrowing by the government in the market.
120.	In the present case there was no evidence about any benefits obtained by the respondents and indeed it seems that they did not receive any.  I therefore agree with Mr Maynard-Connor that only simple interest can be considered.  I will hear the parties as to the appropriate rates and period.