England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR NICHOLAS STRAUSS QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		20th November 2012

Lord Justice Kitchin:

1. This is a renewed application by the appellant, Ms McLean, for permission to appeal against the judgment of Mr Nicholas Strauss QC sitting as a deputy judge of the High Court dated 18 January 2012 and his consequential order made on the same day on a petition brought by Ms McLean under s.459 of the Companies Act 1985, now ss.994-996 of the Companies Act 2006, alleging that the affairs of the third respondent, the company, were being conducted in a manner which was unfairly prejudicial to her interests.
2. Permission to appeal was refused by Lewison LJ on paper on 26 March 2012. He directed that any renewed application should be made on notice to the respondents, who should file their own skeleton argument. Notice of this renewed application was duly given to the respondents and Mr Thomas Roe has appeared on their behalf, as he did before the judge. We also have before us applications by Ms McLean to adduce further evidence and to rely upon replacement grounds of appeal.
3. The background to these applications may be summarised as follows. Ms McLean owns 25% of the issued shares in the company on behalf of Mr Scotland. In this judgment I will refer to these shares as Mr Scotland's shares. The remaining issued shares in the company are owned as to 50% by the first respondent, Mr Mangat, and as to 25% by the second respondent, Mr Walia. Before the judge Ms McLean was represented by counsel, but on these applications Mr Scotland has appeared, with our permission, on her behalf. He has told us, and we have accepted, that the proceedings have been conducted for him and on his behalf throughout, that he has provided all relevant instructions to those appearing for Ms McLean and he has been responsible for all costs and expenses incurred in relation to the proceedings. I should also say that Mr Roe has not objected to this court taking the course requested by Mr Scotland and to his appearing on behalf of Ms McLean at this hearing.
4. Although the petition alleged various forms of prejudicial conduct, it was agreed by the time of the hearing that Mr Mangat and Mr Walia should buy Mr Scotland's shares for 25% of the value of the company as at 31 August 2005. Accordingly, the only live issue for the deputy judge to decide was the value of the company at that date.
5. The business of the company was the operation of a cab service to and from airports and it derived its income primarily from a rental paid by its drivers in return for the allocation of jobs by a central controller, the drivers keeping for themselves the fares paid by the customers. It also derived a certain amount of income from account sales, with a proportion of the sums received being paid out to the drivers as a cost of the sale. Finally, between November 2003 and August 2005 Mr Mangat owned two cars for which he employed drivers and to whom company jobs were allocated. Mr Mangat kept the income. The drivers were paid no salaries, and in or about August 2005 Mr Mangat decided he was not making enough out of the arrangement and sold the cars.
6. The heart of the disagreement between the parties was as to the size of the company's business. Mr Mangat and Mr Walia contended the accounts of the company were accurate in recording an income for the years ending 30 August 2004 and 30 August 2005 of about £215,000 and £250,000 respectively. This, they said, comprised rental income from the equivalent of about 40 full-time drivers paying about £110 a week excluding VAT less a small amount in respect of reimbursement to drivers for "no-show" jobs which had been booked but which did not materialise.
7. Mr Scotland, on the other hand, contended that the income of the company was in truth much higher. He maintained that the company had about 70 full time drivers generating an income of about £400,000 per annum, income from account sales, income from credit card sales and that to all of this had to be added the income derived from the two "company" cars run by Mr Mangat.
8. A valuation expert, Mr Silk, was appointed pursuant to an order made by Chief Registrar Baister on 14 August 2009 and he provided a valuation on two alternative bases: (a) on the basis of the company's accounts and (b) on the basis of the estimated turnover of the company contended for by Mr Scotland, namely: (i) 70 drivers paying £135 per week, including VAT, for 52 weeks each year; (ii) income generated from account sales and credit card payments, to be ascertained from documents disclosed; and (iii) the assumed income generated from the two company cars with an assumed turnover generated from those cars of £60,000 each per year. This latter aspect reflected the prejudicial conduct still alleged by Mr Scotland consisting of the wrongful concealment and diversion of the company's income.
9. As the judge explained at [11], Mr Silk valued the company on the basis of its accounts at £130,000, making Mr Scotland's shares worth £32,500. He valued the company on the basis contended for by Mr Scotland at between £250,000 and £335,000, making Mr Scotland's shares worth between £62,500 and £83,750.
10. In assessing these rival contentions, the judge began by considering the company's main source of income, namely the rent paid by its drivers. As I have said, Mr Scotland contended there were 70 drivers paying £135 a week including VAT. Mr Mangat and Mr Walia maintained that there were about 50 drivers, half full-time and half part-time, making the equivalent of approximately 37 full time drivers. The judge recognised that the books of the company did not provide a clear answer and accordingly he turned to the number of jobs done by the company. It appeared from the records that the company was doing just over 200 jobs per day and this accorded with the evidence of a Mr Raja, who worked as a controller for the company for several long periods of time. The judge also had regard to the consistent evidence about the number of jobs which a driver working full-time would be likely to undertake and, founding himself upon the evidence of two drivers, Mr Mander and Mr Arora, concluded at [16] that the average number of jobs done by a full-time driver was in the region of 35 per week, being five each day, meaning that all of the company's work would have been done by 40 full-time drivers, or a mixture of full-time and part-time drivers equivalent to 40 full-time drivers, resulting in an income of about £230,000.
11. The judge noted at [18] the evidence relied upon by Mr Scotland to support his case that the company received income from 70 drivers but rejected that evidence for the reasons that he gave. In summary, he did not find the evidence of Mr Oliphant persuasive because he had nothing to do with the company at the relevant time. As for the evidence of Ms Maria Noel, who was employed as an administrative assistant and whose tasks included maintaining a list of drivers, the judge did not think that much reliance could be placed upon it because the list did not distinguish between full-time and part-time drivers and probably did not take account of drivers who were away. Finally, as for a letter from the Public Carriage Office dated 16 October 2004 showing that 96 vehicles were registered as private hire vehicles, the judge considered this did not take account of part-time drivers, drivers on holiday or drivers who were no longer driving for the company and moreover, as the judge observed at [19], a suggestion that the company had 70 full-time drivers was inconsistent with the evidence as to the job numbers.
12. For all these reasons, the judge accepted the case advanced by Mr Mangat and Mr Walia that the company's income from drivers was approximately the equivalent of 40 x £110 per week excluding VAT, amounting to about £230,000 per annum, less an allowance for no-show reimbursements.
13. The judge then considered the income generated from account and credit card payments and observed at [20] that both accountants' reports stated that about 10% of the company's income came from account sales. That evidence was, he said, not challenged and therefore resulted in additional income of about £20,000 to £25,000. As for credit card sales, the judge found at [21] that there was no evidence as to whether, when a customer paid by credit card, the payment formed part of the company's turnover, but the judge considered that logically it would not as the driver would be entitled to the whole of the payment. He therefore found that they were not part of the company's turnover.
14. The judge therefore arrived at the final position and explained at [22] that the company's turnover came out at about £240,000 per annum. This was so close to the average turnover, according to the accounts, of about £230,000 that it did not justify a finding that Mr Mangat and Mr Walia had wrongfully diverted the company's income.
15. That left the income from the two company cars. The judge observed that there was no dispute as to the facts, namely that the cars were owned by Mr Mangat, that he employed the drivers but that company jobs were allocated to them and Mr Mangat kept the income. This happened for nearly two years between November 2003 and August 2005. The judge rejected the submission advanced by Mr Mangat and Mr Walia that this did not cause prejudice to Mr Scotland and concluded that it did result in an understatement of the company's turnover by about £11,500 per annum and that the value of Mr Scotland's shares should therefore be increased by £1,600. Therefore Mr Scotland's shares should be bought for £34,100 plus interest.
16. Mr Scotland originally advanced five grounds of appeal. By letter dated 12 November 2012 Mr Scotland indicated that he intended to make an application at the oral hearing for permission to amend the grounds of appeal and for that purpose supplied what he described as replacement grounds of appeal, a replacement skeleton and a supplementary bundle of supporting documents. No justification has been provided by Ms McLean or Mr Scotland for the delay in making this application and submitting these materials save that Mr Scotland is now forced to appear on his own behalf and on behalf of Ms McLean.
17. It appears to me that Mr Scotland's amended grounds 1 and 5 are in substance a collocation of the original five grounds and accordingly I propose to deal with the original grounds in that context and so also with the application made by Mr Scotland to adduce further evidence in relation to them, which, as I have said, is also before us.

Amended ground 1

18. Mr Scotland contends that the judge fell into error in finding that the income of the company from its client account work was £20,000 to £25,000 per annum. Indeed at one point during the course of his oral submissions Mr Scotland contended that the turnover of the company derived from jobs done on account amounted to £1 million per annum, from which the company must, he submitted, have derived an income far in excess of the £20,000 to £25,000 per annum found by the judge.
19. In my judgment the problem with this contention is, first, that in his report of 31 March 2010 Mr Silk determined, on the basis of his analysis of the information provided by the company, that the income generated from credit cards and invoiced account customers for the year to 31 August 2004 was £98,107 and for the year to 31 August 2005 it was £112,988. This, I should say, is the gross income including VAT and plainly a large proportion was paid over to the drivers, as Mr Scotland accepts. Moreover Pinders, a firm of valuers appointed by Mr Walia and Mr Mangat reported that about 10% of the company's income was derived from account customers and this was a figure which, as the judge recorded at [20] of his judgment, was not in dispute at the hearing before him. It therefore inevitably followed that, once the judge had assessed the income from drivers at about £230,000 less an allowance for no-show reimbursements, the additional income from account sales came to about £20,000 to £25,000. I believe the judge therefore had ample material upon which to reach his conclusion and an appeal against it has no real prospect of success.
20. Mr Scotland also contends that the judge erred in concluding that the evidence he had adduced as to driver numbers did not provide a reliable guide and that there were on average 40 full-time drivers working for the company. Moreover he submits that the judge accepted evidence from Mr Mangat as to driver numbers when it is clear from the tenor of his judgment that he was not prepared to accept other aspects of Mr Mangat's written or oral evidence. Mr Scotland submits, and has emphasised during the course of his oral submissions to us this morning, that Mr Mangat's evidence as to driver numbers was equally suspect and self-serving.
21. Mr Scotland develops these contentions in relation to the inadequacy of Mr Mangat's evidence in the replacement grounds of appeal. He says that the judge should have accepted his evidence that there were on average 70 drivers, each paying £135 per week including VAT. He also submits that the report prepared for the company by Pinders has no validity because it relates to the wrong period of time.
22. I do not believe that these points have any substance or have a real prospect of success on appeal. The judge had the benefit of hearing Mr Mangat give his evidence, and I believe he was perfectly entitled to form the view that he preferred his oral evidence to his written evidence and to make a finding that it was inherently likely that there were some part-time drivers. Moreover, the judge arrived at the conclusion that the company engaged a mixture of full-time and part-time drivers equivalent to 40 full-time drivers on the basis of, first, his analysis of the job numbers, to which I shall come, and, second, the evidence that he heard about the number of jobs which a driver who was working full-time would be likely to be given. Here the evidence of Mr Mander, Mr Arora and Mr Mangat was all consistent, that a full-time driver would undertake around five jobs per day amounting to 35 jobs per week. It was on this basis that the judge arrived at his figure of 40 full-time drivers carrying out 200 jobs per day and 75,000 jobs each year. There being been no dispute that a full-time driver was £135 per week including VAT or about £110 week excluding VAT, the judge arrived at his conclusion that the income of the company from this source amounted to about £230,000 per annum less some allowance for no-show reimbursements. The judge was also, it seems to me, entitled to take into account that it was inherently unlikely that there could have been 70 drivers paying a full rental because each driver would then have been paying a full rent of £135 per week in return for about three jobs each day. I am satisfied that these were all findings which the judge was entitled to make on the evidence before him and that there is no real prospect of an appeal against them succeeding.
23. Mr Scotland argues that the judge had no proper basis for concluding that the company was undertaking around 75,000 jobs per annum. He submits that the evidence relied upon by the judge in reaching his conclusion that the company carried out around 200 jobs per day is set out in the answers to a Part 18 request but no evidence was ever provided by any of the respondents to substantiate this figure.
24. I am satisfied, however, that the judge did have sufficient material to use the figure of 75,000 jobs per annum as a "starting point", as he put it at [14]. The figures were derived from the company computer, which, as Mr Roe submits, subject only to a query about the possible effect of a computer malfunction, was not controversial. Hence Mr Scotland himself said in his statement of 8 June 2006:

"On the evidence so far provided, there is little dispute about the number of jobs done by the business since 2002 … The job numbers indicate that there have been approximately 75,000 entries per year, although this does not take account of what may have been deleted as part of the computer crash over this period … From my knowledge of the business I would say that it would be difficult, but not impossible, to conceal jobs and thus revenue … if they appear on the computer record"

25. The judge also had the benefit of the evidence of Mr Raja, a controller for the company, who estimated that the company undertook 200 to 220 jobs per day on average. He, I would add, was a witness called by Mr Scotland. Moreover, as Mr Roe has submitted, an attendance note was made on 23 May 2006 by Mr Welsh, then Ms McLean's solicitor, which shows that he was told by Mr John Aherne of ROCS, the company which maintained the computer system, in substance, that, so far as he was aware, the records were accurate for the past three to four years trading. In all these circumstances I am satisfied that the judge had a proper basis for approaching this issue in the way that he did.
26. Mr Scotland also challenges the judge's finding that 40 drivers would have been sufficient to complete 200 jobs per day. Here Mr Scotland wishes to adduce further evidence comprising a spreadsheet he has prepared, which he says demonstrates as a matter of fact that 40 drivers could not cover 200 jobs per day.
27. The insuperable difficulty facing Mr Scotland in this regard is that the judge had independent evidence before him from Mr Mander and Mr Arora that a full-time driver would be likely to undertake between four and six jobs a day. This was entirely consistent with the evidence given by Mr Mangat. It cannot therefore be said that the judge did not have a proper basis upon which to reach his conclusion, nor has any adequate reason been advanced for Mr Scotland's failure to adduce at trial the additional evidence on which he now seeks to rely.
28. Mr Scotland also seeks to rely upon four further witness statements. The first is a witness statement of Mr Steve Watson, who says that drivers never received a no-show reimbursement on cash jobs. The second is a witness statement of Mr Olusegun Adunlami, who says that he too has never been reimbursed in respect of a no-show and that he has always had to pay the rental of £135 regardless of whether he earned below or above £700 or £800. The third is a statement of Mr John Koleosho, who says that, so far as he was aware, the business of the company employed between 70 and 80 drivers all paying £130 per week. He continues that up to 40% of his jobs were charged on account. The fourth is a witness statement of Mr Kolapo Arenu, who says much the same as Mr Koleosho. Mr Scotland has not satisfied me that this evidence could not have been obtained with reasonable diligence for use at the trial and, further, I have no doubt that had it been adduced it would have been challenged by way of cross-examination. There is in my judgment no proper basis for seeking to adduce it now at this late stage and I would refuse Mr Scotland's application in relation to it.

Amended ground 2

29. This ground concerns the company cars. The judge proceeded on the basis that the turnover of the company was understated by about £11,500 per annum: that is to say, two vehicles at £110 per week excluding VAT. This was the rental being paid in respect of other vehicles and it seems to me it was a perfectly reasonable approach for the judge to take. I do not believe there is a real prospect of successfully challenging that approach on appeal.

Amended ground 3

30. This seems to me to be a different way of putting the first and second amended grounds of appeal. As I understand it, Mr Scotland contends that it should have been for the valuer to determine the value of the company and the extent to which that value was diminished as a result of Mr Mangat's conduct. This ground of appeal has no real prospect of success for like reasons to those I have given in relation to the amended first and second grounds. The judge addressed the allegation that the income from the two company cars was diverted and made a finding in respect of that allegation in favour of Mr Scotland. He then proceeded to determine the extent of the prejudice Mr Scotland had suffered as, in my judgment, he was bound to do.
31. As for Mr Scotland's attempt to adduce new evidence from drivers as to how much income they needed to earn before being liable to pay the full rental, this is evidence which, as I have said, could and should have been adduced at the trial if Mr Scotland wished to rely upon it. In any event, as I have also said, the judge proceeded on the basis of his assessment of the job numbers.

Amended ground 4

32. This ground concerns the assertion by Mr Mangat in his oral evidence that the drivers were reimbursed for no-shows and that this reduced the company's turnover each year by £27,000. It is clear, however, from [17], [20] and [22] of the judgment that the judge did not accept that the company's turnover was, in practice, reduced to the extent of £27,000 per annum each year as Mr Mangat claimed. Rather, the judge decided, as I believe he was entitled to, that there may well have been occasions when drivers were reimbursed, for example if no-shows occurred often or if they had a low number of jobs in the period in question. He therefore made a much more limited allowance for no-show reimbursements and in my judgment an appeal against this finding has no real prospect of success.

Amended ground 5

33. This is in substance an attack on the way in which the judge dealt with the evidence of Ms Marie Noel and the letter from the Public Carriage Office dated 16 October 2004. Ms Noel was an administrative assistant whose tasks included maintaining a list of drivers. She produced a list of 77 names dated September 2002 and said that the list of names numbered between 60 and 95 at different times. The judge did not think that much reliance could be placed upon this evidence because it did not distinguish between full-time and part-time drivers, and probably did not take account of drivers who were away. The evidence from the Public Carriage Office consisted of a letter dated 16 October 2004 showing that 96 vehicles were registered as private hire vehicles, but again, as I have mentioned, the judge considered this did not take account of part-time drivers, drivers on holiday or drivers who were no longer driving for the company.
34. This ground of appeal is developed by Mr Scotland in his amended grounds as follows. He contends that the list produced by Ms Noel only contained active drivers, as did the record obtained from the Public Carriage Office.
35. It is also convenient to mention at this point another aspect of Mr Scotland's application to adduce further evidence. He seeks to rely upon correspondence with the Public Carriage Office which, he contends, makes it clear that its records would only include the names of those actually working on the particular day in question. I am wholly unpersuaded that the evidence from the Public Carriage Office could not have been obtained by Mr Scotland with reasonable diligence for use at the trial. Moreover, I accept the submission developed by Mr Roe on behalf of the respondents in his skeleton argument that, had the proposition for which Mr Scotland now contends been made at the trial, the respondents might have wished to test it by making their own inquiries as to the office's methodology in compiling their records. Moreover, even assuming in favour of Mr Scotland that the record does not include drivers no longer driving for the company or who were away on, for example, holiday, it does not seem to me properly to address the point made by the judge about part-time drivers which was supported by the evidence of Mr Mangat. Similarly, as the judge held at [18], the evidence of Ms Noel did not distinguish between full-time and part-time drivers.
36. For all these reasons, I would decline to admit the new evidence from the Public Carriage Office and I am also driven to the conclusion that an appeal on this ground has no real prospect of success.

Amended ground 6

37. Mr Scotland seeks permission to challenge the judge's finding that payments by credit card formed no part of the company's turnover. In that regard Mr Scotland has taken us in the course of his oral submissions today to a sample credit card booking and contended that the customer was plainly charged a premium which was not passed onto the driver but retained by the company. In my judgment the problem with this challenge is that there was no direct evidence on the question one way or the other, as I understood Mr Scotland to accept in the course of his oral submissions to us. The judge therefore proceeded to decide on the basis of the other general evidence that he had heard, as I believe he was entitled to, that the driver would be entitled to the payment. In any event, I am satisfied that the figure for additional income of £20,000 to £25,000 at which the judge arrived in paragraph 20 of his judgment was a reasonable estimate of the net income derived by the company from the gross income from account and credit card sales referred to by Mr Silk in his analysis dated 31 March 2010 to which I have referred. It follows that an appeal against this finding has no real prospect of success either.

Amended ground 7

38. Mr Scotland seeks to contend that Mr Mangat had the advantage of using his own interpreter rather than one appointed by the court or agreed between the parties and this advantage was unfair. In my judgment this proposed ground of appeal is without substance. The interpreter, as Mr Roe has submitted in his skeleton argument, was a disinterested professional interpreter and made the conventional affirmation before he began to interpret Mr Mangat's evidence. Moreover, the judge decided as a case management matter at the outset of that evidence that he should endeavour to listen to and answer each question in English and only if he had difficulty in understanding a question should he ask for it to be interpreted.
39. In conclusion, I believe that the judge was entitled to reach the conclusions which he did on the basis of the evidence before him and that Mr Scotland has no real prospect of persuading the Court of Appeal, on a full appeal, that the judge fell into error on any of the grounds upon which he originally relied or upon any of the grounds set forth in his proposed amended grounds of appeal. Mr Scotland has also failed to persuade me that it is appropriate to give him permission to adduce fresh evidence on the appeal. For all these reasons, I would refuse Mr Scotland permission to appeal on his original or proposed amended grounds and refuse his application to adduce fresh evidence.

Lady Justice Black:

40. I would not grant permission to Mr Scotland to adduce new evidence either and I agree for all the reasons that Kitchin LJ has given that permission to appeal should not be granted.

Order: Applications refused