The Shifting Burden: Green v Raja 2015 EWHC 3931 (CH)

The interesting feature of this case is the position considered in relation to payments challenged from a company that later went into liquidation. The Court said that the burden shifted back to the liquidator in the circumstances, due to the passage of time and loss of books and records.
The judgment is as follows:
1.London Development and Investment Limited was incorporated on 22nd October 2003 and wound up by the court on a petition of a creditor claiming just over £3,000 on 2nd June 2008. The applicant was appointed as liquidator with effect from August of that year.
2.The respondent, Waqas Raja, was a director of the company at all material times. Mr Mohammad Raja, who is his father, also appears to have acted as a director for a period, but is not a respondent to this application. From his oral evidence I conclude that in reality he was the main figure behind the company and not the respondent, his son, who it seems was a student for at least some of the material times. He also suffers from a heart condition, and from his evidence seemed considerably vaguer than his father about a lot of the detail of what was going on in the company.
3.By application dated 30th March 2015, so some seven years after the date of liquidation and his appointment, the applicant issued an application seeking to recover £365,000 odd in respect of various sums paid out by the company. They are set out in tabular form in paragraph 9 of his first witness statement (behind tab 3, pages 10 to 11 of the trial bundle). The basis is, in a nutshell, that there is no or no adequate explanation for those payments, such that they were not for the benefit of the company.
4.I have heard oral evidence from the applicant, the respondent and
Mr Mohammad Raja about which I ought to say something. By and large, save for some respects to which I shall come, I think, in fact, everyone was doing his best to tell the truth. There are plainly matters about which Mr Mohammad Raja was quite wrong. He made much of the interview he attended having been videoed by the applicant, but he is plainly wrong about that. I accept the applicant’s evidence that the interview was not videoed but taped, though, I have got to say in the end nothing much hangs on that either way. The allegation that the applicant was in some way responsible for the loss or destruction of the company’s books and records is an allegation that should never have been made and was certainly not made out at trial as Mr Raja accepted in the end, albeit only after a bit of a struggle. But those minor matters do not detract from the fact that in my view both the Rajas were fundamentally doing their best to be witnesses of truth, grappling with issues that are now very much in the past.
5.In his closing submissions, Mr Gale made a criticism that I think was directed primarily at Mr Mohammad Raja, which is that he seems to be able to remember a great deal of detail about the East Ferry Road project, as I shall call it, whilst not remembering a great deal about the payments in issue. That is a fair observation, but I would have to say that I do not find it entirely surprising. The East Ferry Road project was clearly a matter of considerable importance and went wrong in a number of serious respects to which I will come in a moment, so I find it less surprising than Mr Gale that the detail of that should stick, whereas the detail of individual payments has not.
6.With those remarks about the witnesses, I turn then to the substance of what we are dealing with.
7.Mr Gale remarks (see paragraph 6 of his skeleton argument) that the respondent, who has adduced no documentary evidence in opposition to the application, simply presents what he describes as an outline explanation. He refers to the comments also set out in tabular form by Waqas Raja in paragraph 8 of his witness statement (see pages 28 and 29 of the bundle). I am not sure that that is as remarkable as Mr Gale would have it or, indeed, as the applicant asserts. It is the respondent’s case, and here I adopt the words from paragraph 7 of Mr Gale’s skeleton argument, that a complete answer to the application would be found in the company’s books and records, allegedly, as he puts it, delivered up to the Official Receiver:
“The information provided contained all details of each and every transaction with all the relevant documentation, including any contracts, fee agreements and documents invoking seek such transactions”
(see paragraph 4 of the witness statement behind tab 5 at page 27).
8.In his second witness statement the applicant makes the point that he received no documents from the Official Receiver. In paragraph 5, page 16, he deals with the matter in this way:
“After being appointed as liquidator I wrote to the Official Receiver to request the entirety of the company’s books and records which had purportedly been delivered up to it [him, I think it should be]. The Official Receiver responded stating that according to its [his, I suppose] records he had not received any books and records in relation to the company and therefore did not have any in his possession.”
He produces the relevant correspondence.
9.The Official Receiver was plainly wrong. As I pointed out at the beginning of trial, the court file contains a report from the Official Receiver, dated 28th July 2008, from which two things are clear: first, that the Official Receiver had contact with the respondent (see note A on the first page and paragraphs 8 and 9 on the second page); and, secondly, that the Official Receiver had somehow acquired abbreviated accounts of the company (see paragraph 10 on page 2). So the Official Receiver is plainly wrong in asserting baldly that no documents or books and records were ever received.
10.The applicant obtained an order against the company’s accountant, Jamil Raja,
(who is no relation of the Rajas with whom I am concerned in this action), as a result of which he made a witness statement on 19th January 2010. It is plain from the documents he exhibited to that witness statement that at some stage his firm had books and records of the company. He says, in paragraph 6, page 48:
“To enable us to prepare the accounts, the client provided us with the accounting records of the company.”
He goes on to describe what those were.
11.He also says, at paragraph 8:
“All the accounting records given to us to prepare the accounts were returned to the client.”
12.Further, at paragraphs, 12, 13, 15 and 16 he says the following:
“Around July 2008, approximately 18 months after we had done work for them, we received a letter from the Official Receiver notifying us that the company had gone into compulsory liquidation. They requested a set of accounts and asked us if we had any records of the company which they could arrange to pick up.
Around the same time, the director came to our offices to see me. He advised me that the company had gone into compulsory liquidation and that he had received a questionnaire from the Official Receiver about the conduct of the company.
As particular aspects related to the company accounts he came to us to help him fill in the relevant section. He also advised me that he had an appointment to see the Official Receiver. We helped him to fill in the questionnaire and gave him a set of accounts free of charge, as per request of Official Receiver, for onward transmission in order to comply with the Official Receiver’s request.
[And then, crucially, at paragraph 16] We told him to give these accounts, plus all other company records he had for the company, to the Official Receiver on the date of his appointment with the Official Receiver. Accounts given to the Official Receiver are attached.”
13.The question of the books and records was explored at some length in cross- examination and Mr Raja was firm about having handed them over to the Official Receiver. He also produced, or at least one of the Rajas did, in court and Mr Gale very properly did not object to this, an e-mail from the Official Receiver confirming that documents were generally destroyed after five years. Taking into account the fact that Mr Raja attended on the Official Receiver that there is a record of the Official Receiver having had the abbreviated accounts and there is an indication that the accountants provided the records to Mr Raja with a view to them being passed to the Official Receiver, I conclude that I should accept the respondent’s evidence as true and that, on the balance of probability, the books and records of the company were indeed provided to the Official Receiver in Southend. It is important to record, however, that the applicant is in no way to blame for their loss. I equally accept his evidence that he never had them. I conclude, for what it is worth, that the most likely explanation is that the Official Receiver lost them. I find as a fact that they were handed to the Official Receiver as contended by the respondent. So the absence of books and records cannot be held against the respondent. In the absence of those books and records, save for one matter to which I will come in due course, I have no basis for believing other than what the respondent asserts, namely, that they contained information sufficient to explain the company’s transactions in issue in this application.
14.I turn next to what was actually going on in the company at the material times because that, too, was explored at length in the course of cross-examination and I think it was only in the course of that cross-examination that I, and, perhaps, Mr Gale as well, fully understood for the first time how this company operated. After a rather frustrating period of grappling with the issue I produced a note of my understanding of what went on which both Mr Gale and, I
think, Mr Mohammad Raja confirmed correctly recorded what his evidence amounted to. That note reads as follows:
“The Rajas were concerned in at least two companies, London
Development and Investment Limited and M25 Limited, both special purpose vehicles involved in property development.
The companies had little or no capital. Any capital required was arranged by Mr Mohammad Raja borrowing from friends on behalf of the companies which entered into loan agreements with lenders, backed by personal guarantees given by Mr Mohammad Raja. Money was raised in this way to enable M25 Limited to purchase a property known as 4 East Ferry Road. M25 Limited exchanged contracts to purchase East Ferry Road from a Mrs X. The borrowings from
Mr Mohammad Raja’s friends did not get routed through a company but went direct to a firm of solicitors, Soods. M25 Limited had paid a deposit of £150,000. However, Mrs X was persuaded to sell to someone else (I think it was called Angel Development). She did not repay the deposit. The reason was that an agent, Magnus Devy, had discovered the development potential of the site. He had gone to
Mrs X and persuaded her to do a different deal for the benefit of Angel Development. Magnus Devy offered to assist in the recovery of the deposit (£150,000) by introducing the Rajas and/or their companies to Angel but he wanted £50,000 upfront as a commission for doing so.
Somewhere along the line M25 ’relinquished’ its interest in 4 East Ferry Road in favour of London Development and Investment Limited, so it was that company that paid the £50,000 to Mr Devy, as a result of which it was paid just over £200,000 by Angel. That money was returned to the original lenders.”
15.My view, for what it is worth, is that the deal that originally enured for the benefit of M25 was taken over at some stage by London Development Investment Limited such that it acquired the benefit of the contract but also took on the obligations to repay the original funders. Understandably, the respondent and his father have been unable to formulate that in legal terms, but I am satisfied that the effect is the foregoing as I have summarised it, whatever legal construction (assignment or novation, perhaps) might be applied to it, and that is why it is London Development and Investment Limited which paid the commission to Mr Devy and that is equally why Angel Development paid the £200,000 to that company rather than M25 Limited. It is also why this company made at least some of the payments complained of, namely, those attributable to loans, investments and possibly, or undoubtedly in some cases, some of the fees or commissions.
16.In paragraph 8 of his witness statement the respondent sets out the same table as the applicant with an added column containing an explanation. In the absence of books and records it seems to me that those explanations to which I now turn are, by and large, adequate. In relation to two cash payments in 2005 it is accepted that Mr Raja is unable to recall them. I find that wholly unsurprising. I should say it also goes to the truthfulness of the evidence because if Mr Raja were trying to mislead the court he could have come up with some cobbled together explanation of some sort or another and he has not done so. He has been frank. He does not know. As I say, I find that unsurprising. It does not mean that the payments were not made for the benefit of the company.
17.There is then a reference to the return of a loan to a company called (I think it is wrongly called) Intestate Consultants Limited. There is a return of a loan to Mr Mohammad Raja. There is the commission fee to Mr Devy. There are then payments to Soods. I am going to stop there. The loan returned to Investate Consultants Limited is entirely consistent with the way in which I have described the company as having done business, save, of course, that the lender appears to have been a company rather than an individual. I find it wholly credible that Mr Mohammad Raja would have put up £35,000 of his own money. I have already dealt with the Magnus Devy commission fee. As to Soods, in his closing submissions, and it may be in the evidence as well,
Mr Gale made the point that there is really no evidence of the £27,500 being paid to Soods, but the liquidator has acquired the firm’s file. I presume from the fact of the acquisition of the file that it is a company file. I assume from that that a firm of solicitors called Soods did work for this company. It is in those circumstances entirely proper to infer that they were paid fees.
18.Weaker is the next item, a commission of £17,500 paid to somebody simply called Macuda. Mr Gale rightly points out that that is not very satisfactory information: he has got no initial, no address and so on, but the fact is that I, for the reasons have given, accept the Rajas’ evidence about it. Similarly, the return of the investment to an S Bangalwala. There is next a loan to Mr Dev (but I think that is Mr Devy). I accept it is odd, but there is no suggestion that this company was unable to make loans. I have no reason to believe other than that it was for the purpose of the company’s business. The sum paid to
F Choudhry is said to be the return of an investment. A fee or commission is then said to have been paid to a Mrs Joseph, and fees and commissions are said to have been paid to a Mr Selevnovs. Finally, there is another return of investment to an S Bangalwala. For the foregoing reasons, I decline to disbelieve the Rajas that those payments were made other than in the normal course of the company’s business.
19.A great deal has been made by Mr Gale for obvious and proper reasons about
(a) the absence of documentary evidence and (b) the adequacy of the explanations and the effect of those matters on the burden of proof, and I accept entirely the proposition that where a fiduciary makes payments and cannot adequately account for them the burden generally shifts onto the fiduciary to account for them. But not always. The difficulties in this case are (a) the enormous passage of time and (b) the loss of the books and records; and that all puts the respondent in a difficult position. It seems to me in those circumstances that the burden shifts back to the applicant who must demonstrate the inadequacy or untruthfulness of such explanations as are available. In this regard, I refer to the judgment of Mrs Lesley Anderson QC in the well-knowncase Re Idessa (UK) Limited [2011] EWHC 804 (Ch) where she referred in paragraph 28 of her judgment to the ability of directors to prove their case, or fiduciaries to prove their case, by other means, i.e. not necessarily documentary means. It seems to me that in this case, Mr Raja having prima facie satisfied the initial burden by giving such explanations as he can in the circumstances, shifts the burden back to the applicant.
20.There is another matter to which I should allude though, because this case is not, in fact, wholly devoid of documents. The accountant’s witness statement exhibits a number of documents, and whilst they do not necessarily coincide with the sums in question they at least provides some evidence of a relationship between this company and some of the individuals identified in connection with the payments complained of. Thus, for example, Investate Consultants Limited appears in the 2005 accounts, the document at tab 7, page 86, in the trial balance at page 103 and in a document headed “Nominal activity” at 7/109. There is a reference to Mr Raja (I think Mr Mohammad Raja) making loans, see again the trial balance and the nominal ledger at 103 and 118. Commissions are referred to at 119. There is a reference to a third party loan and deposit on property at page 122. So there are some indications in independent documentary evidence to back up again the Rajas’ account of the manner in which the company did business. Furthermore, the company must have functioned on the basis of loans, on the balance of probabilities. It’s paid up share capital was only £2 according to the Official Receiver or at most £1,000 in accordance with the company’s accounts.
21.Mr Gale made justifiable criticism of the respondent for not having produced a hard drive which he admitted had been in his possession and he criticised the lack of corroborating evidence from some of the investors or lenders. Those are fair points, but nonetheless it seems to me that that does not detract from the truthfulness, as I have found, of the respondent’s evidence, nor does it mean that his explanations as they stand lack credibility. I simply have to deal with the case as I find it and that is what I do. It might have been better if the hard drive had been produced. I do not know; I have not seen it. As I say, I deal with the matter on the evidence as I find it.
22.I should, before I conclude, deal with one respect in which I do not find the respondent’s evidence credible and that is in relation to four payments of £1,300 said to relate to monthly rental. In the course of the oral evidence, one of the Mister Rajas, and I cannot remember now who but it matters not, referred to the company’s documents as being retained in a filing cabinet at home. There is absolutely no evidence of this company having maintained any premises whatsoever. It is inconceivable, and here I am with Mr Gale, that a director of the company, or at least his father, would not remember if the company had premises or the basis on which it suddenly in 2006 started paying a monthly rent of £1,300. I gave the respondent a last chance to deal with the point in his closing submissions and he simply said he could not recollect anything about the rent. So whilst I accept the respondent’s evidence as to the other matters, I reject it in relation to the rental payments, but in summary, having regard to my findings about the books and records, the passage of time so that it is unsurprising that transactions now cannot be explained and, finally, the adequacy of the respondent’s explanations in the light of the background I have described in the foregoing matters, I conclude that, save in respect of the rental payments, the applicant has not made out his case. I shall dismiss the application but I will, give judgment in favour of the applicant in respect of the rental payments.
 
Disclaimer:

The aforesaid is not legal advice and is not to be relied upon as such. No liability is accepted by the writer for any reliance placed on the same. 
If you have a specific query then you should seek independent legal advice on the same.

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