England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM High Court Chancery Division
Deputy Master Clark
HC09CO3994

		Royal Courts of Justice Strand, London, WC2A 2LL
		16th October 2014

Lord Justice McCombe:

(A) Introduction

1. This is an appeal by the Appellants, Exsus Travel Limited ("ET") and others, from the order of Deputy Master Clark ("the Master") of 24 September 2013 made on the taking of accounts between the parties, directed by the order of Master Bowles of 22 July 2010. By her order the Master ordered that the Appellant pay to the Respondents, Mr James Turner and Exsus Finance Limited ("EF") £2,975.76, being the balance overall that she found to be due from the Appellants to the Respondents on the taking of the accounts, together with costs and an interim payment, on account of those costs, of £215,000.
2. The appeal was brought originally, on five grounds, with permission granted on grounds 1, 2 and 4 by Lewison LJ on 31 October 2013, and on grounds 3 and (to a limited extent) on ground 5 by Kitchin LJ on 1 May 2014. The grant of permission on ground 1 was given expressly without prejudice to any argument that the order, upon which that ground was based, had been made at the beginning of the trial on 12 June 2012 (and not on 24 September 2013, the date of the final order) and therefore required an extension of time for the application for permission to appeal. Any such application for an extension was adjourned, by Kitchin LJ's order, to the hearing of the appeal. Kitchin LJ's order limited the permission to appeal on ground 5 to certain specific points made in the Appellants' skeleton arguments before him. That skeleton argument has been replaced by an updated document. Therefore, I have been unable to see precisely what the limitation was. However, it has not been contended by the Respondents that any of the arguments before us ranged beyond the scope of the permission granted.
3. For reasons which are no longer necessary to explore or explain in any detail, at the opening of the appeal, Mr Alexander QC (with whom Mr Robins appeared) for the Appellants acknowledged that he was unable to pursue ground 1 before us. That ground raised an argument that the Appellants were entitled to surcharge the Respondents on their account or accounts in a sum of £1.3 million. It was submitted that the Master had erred "by placing an arbitrary and unprincipled limit on the scope of the account". As that ground of appeal has been abandoned, I say little more about it, save that the matter will have to be borne in mind on questions of costs.
4. The appeal was, therefore, advanced on the four remaining grounds, to the details of which I will return: first, however, the background facts.

(B) Background Facts

5. These are largely non-contentious and can be taken from paragraphs 1 to 52 of the Master's judgment of 10 June 2013 of which I will set out only the briefest summary.
6. At the material times the Appellants were a group of associated companies of which the principal owner was Mr Giles Rooney ("Mr Rooney"). The First and Second Appellants carried on business as tour operators. The others were engaged in property investment and/or development. The First Respondent, Mr James Turner ("Mr Turner") was employed as the finance director of the Appellant group from 31 July 1997 to 13 June 2008. His status as a "de jure" director of the various companies has not been made entirely clear to us. Our understanding as to his position in the individual companies is that he was at times formally a director of one or more of them, but nothing either before the Master or on the appeal turned or turns on that. The Second Respondent, Exsus Finance Limited ("EF") was a company through which Mr Turner provided services to the Appellant; it was wholly owned by him. It was the vehicle through which Mr Turner provided some of his services and it received payments in those respects from the Group.
7. It can readily be appreciated that in the course of the eleven years with which the Master was concerned a very substantial number of individual payments and repayments were made between the parties. The accounts were directed to cover the period 1 January 1999 to 31 August 2008 – a period of over 9 years. On this appeal, we have heard very little of the nature of the business of the Appellant companies and the day to day conduct of it. As appears from the Master's judgment, she heard significantly more evidence on this, from which paragraphs 6 to 52 of her judgment were derived.
8. Mr Rooney and Mr Turner began the process of severing their working relationship in late 2007 and there are documents from that period to which I shall have to refer. However, as already stated, Mr Turner continued to work in the Appellants' organisation until well into 2008. Following Mr Turner's departure, Mr Habib Rehman ("Mr Rehman") became the group's financial director.
9. In the period up to 22 October 2009, when these proceedings were issued, the Appellants formed the view that "the Respondents had taken or misapplied substantial sums of the Appellants' money and that they had failed to keep proper records" (paragraph 2(4) of the Appellants' skeleton argument in this court). As a result, the Appellants issued proceedings. (The date 6 years prior to the issue of the Claim Form, 21 October 2003, has to be borne in mind in view of limitation points which arise for consideration on the appeal.)

(C) Procedural Outline

10. Following the order of Master Bowles, directing the taking of the accounts, on 14 September 2010, the Respondents lodged a composite account of their dealings with the Appellants. The court's order had, however, directed separate accounts from Mr Turner and EF. Thus, on 1 February 2011, separate accounts were lodged by each. Under the court's subsequent directions, the Appellants served their response on 15 April 2011 to which the Respondents in turn replied on 19 July 2011.
11. The Appellants first response to the accounts included the item that was to become the surcharge of £1.3 million and a claim against the Respondents in respect of use of an American Express credit card no.31002 ("the Amex Card") of £405,993.36. According to the amounts itemised in paragraphs 61 of the Master's judgment entitled "Amount originally claimed in C's Response of (sic) 1/2/11" the original claim (on my calculations) totalled £1,761,987, but with inclusion of the Amex Card claim £2,167,981 or thereabouts.
12. On 23 September 2011 the Appellants served Amended Particulars of Claim. Again, from the summary given in paragraph 61 of the judgment, the new pleading added/reduced the claims by a net additional sum of £59,155.96, but this new pleading removed the claim in respect of the Amex Card. The rough net result was a claim of £1,821,143 (again on my calculations).
13. Draft Re-Amended Particulars of Claim were served on 15 January 2012, with a further draft being served on 1 May 2012. The Master gave permission to amend in terms of this final draft at the beginning of the trial. According to paragraph 64 of the Master's judgment, the revised claim (which added back a new sum of £183,561.30^[1] for the Amex Card) amounted to £1,948,281. Strangely, when the appeal was opened neither side could tell us, or direct us to any document which stated, what the rival balance figures were as at the start of the trial before the Master.
14. The Master's final order sensibly treated the question for the court as being to ascertain the correct balance between the Appellants' camp on the one hand and the Respondents' camp on the other, lumping together the Appellants and the two Respondents for this purpose. For purposes of the issues now before us, it may be necessary to "unravel" this composite approach to a degree, but no one suggested before us that the sensible approach to the account taken below was erroneous.

(C) The Grounds of Appeal

15. My normal approach to preparing a judgment at this stage is to summarise the judgment on appeal and the result of the trial at first instance. In this case, however, the Master was dealing with a large number of unrelated issues of accounting, as to some of which the issues argued and her conclusions are no longer material. It is, therefore, more convenient to turn now to the grounds of appeal.
16. As mentioned, there are four surviving grounds of appeal. The first two grounds are general, but serve to "inform" more specific criticisms of individual conclusions drawn by the Master.
17. First, it is said that the Master, in some cases, wrongly reversed the legal burden of proof that lay upon the Respondents' as accounting parties (ground 2). Secondly, it is said that the Master was wrong to criticise the Appellants' disclosure, i.e. to take the view that the Appellants had failed to give adequate disclosure (ground 3). The third argument is that the Master made findings of fact that were contrary to the evidence (ground 4). The principal focus here is in respect of a loan of £100,000 to Mr Turner and the questions (a) whether the loan was interest free and/or (b) whether it was specifically repaid, or treated by the parties as repaid, in 2005. There are, however, other similar criticisms to some of which I will have to return. The fourth point is that the Master is said not to have dealt with certain issues forming part of the account (ground 5). Under this head, the argument is that the Master failed to address submissions put to her in argument during and after the trial.
18. Mr Alexander's approach in presenting his appeal was to focus upon certain specific areas of criticism of the Master's conclusions, where he said that those conclusions could be faulted largely upon the documents alone, and to invite us to deal with the other matters by reference to the general criticisms which he said infected the Master's approach and rendered her conclusions flawed.
19. Before embarking upon the specific arguments now raised, it is as well to recall that the appeal is limited to a review of the Master's decision: CPR 52.11(1); it is not a rehearing of the case. It is important to recall this because our attention has been directed to a relatively small number of specific areas of the account, whereas the Master had to deal with two accounts running to over 2000 items. She also heard evidence from Mr Rooney, Mr Turner and other factual witnesses. As already mentioned, the judge heard several days of oral evidence, putting the dry accounting material into context. She formed views as to the witnesses' credibility and reliability. We have only been taken to certain snapshots of the oral evidence to which the parties chose to take us. Those views of the Master are, however, of some importance on the appeal.
20. The following passage from the judgment of May LJ in EI Du Pont Nemours & Co v ST Du Pont [2003] EWCA Civ 1368 at [94] usefully summarises the court's approach to a "review" of a lower court's decision. Speaking of the concept of a review, May LJ said:

"It is closely akin to, although not conceptually identical with, the scope of an appeal to the Court of Appeal under the former Rules of the Supreme Court. The review will engage the merits of the appeal. It will accord appropriate respect to the decision of the lower court. Appropriate respect will be tempered by the nature of the lower court and its decision making process. There will also be a spectrum of appropriate respect depending on the nature of the decision of the lower court which is challenged. At one end of the spectrum will be decisions of primary fact reached after an evaluation of oral evidence where credibility is in issue and purely discretionary decisions. Further along the spectrum will be multi-factorial decisions often dependent on inferences and an analysis of documentary material."

(D) Principles of Law

21. The proper principles of law to be applied to the taking of an account were not in dispute before the Master and were not in dispute before us. My citation of the principles can, therefore, be very limited. Mr Alexander took us to certain extracts from Snell's Equity (32^nd Edn), at paragraph 20-012, p.593 and following.
22. As is well known, the liability to account arises from a variety of relationships, varying from strict trusteeships to an agency where the agent controls property belonging to a principal. "The taking of an account is the means by which a beneficiary requires trustee to justify his stewardship of trust property" (Ultraframe (UK) Ltd. v Fielding [2006] FSR 17 at [1513], cited in Snell Op. et Loc. Cit.). The following passage from the text book is of particular relevance to this case:

"(3) TAKING THE ACCOUNT. The accounting party first submits his verified accounts and supporting documents, and the beneficiary may then raise any specific objections he may have. Objections to an account presented to the court as complete are either by way of surcharge or falsification. The beneficiary surcharges the account when he contends that the accounting party should have charged himself on the incoming side of the account with more than he had admitted. The beneficiary falsifies the account when he challenges an item of discharge entered into the outgoings side of the account.

(4) BURDEN OF PROOF. The beneficiary carries the burden of proving surcharges and the accounting party carries the burden of proving his discharge. The accounting party must therefore be prepared to document each item, and presumptions may be made against him if he has not kept proper records or has destroyed them…"

23. It is upon these principles, and in particular upon the rules relating to burden of proof, that an important part of the Appellants' argument was based.
24. Mr Ohrenstein, for the Respondents, submitted that notwithstanding these general principles (which he accepted as applicable in this case) an account must not be used as an instrument of oppression or "blackmail" of the accounting party, the word "blackmail" being taken from the judgment of Cozens-Hardy J (as he then was) in Campbell v Gillespie [1899] 1 Ch 225, 229. In that case, in July 1898, shortly before the issue of the writ in August 1898, the defendant trustee had sent some of the trust papers for destruction. Cozens-Hardy J said this:

"This destruction renders it almost impossible for the defendant to render full accounts under an ordinary decree. I have anxiously considered what, in my discretion, ought to be done under these circumstances, and I have come to the conclusion that it is not right that I should make a full administration decree, notwithstanding the fact that I am unable to acquit the defendant of some misconduct. I believe the trust accounts were honestly, properly, and accurately kept, and that Mr Forster's certified accounts correctly represent what the books themselves would have shewn. I see no reason to doubt that the numerous cheques drawn in favour of the defendant or his firm represent cash properly expended for the purposes of the trust."

25. The Master correctly directed herself by reference to the passage from Snell to which I have referred (see paragraph 67 of the judgment). She also correctly observed that the accounts were not ordered on the basis of any finding of misapplication of the Appellants' funds. They were "general" accounts and not accounts on the footing of "wilful default": see paragraph 69 of the judgment. The question now is whether, having so directed herself, the Master failed to apply those principles in assessing the evidence and reaching her conclusions.

(E) The Arguments and my conclusions upon them

26. Mr Alexander approached the appeal (both in writing and orally) by addressing grounds 4 and 5 first and together, followed by grounds 2 and 3.
27. In respect of grounds 4 and 5, there were three particular areas, in which Mr Alexander submitted, the Master's conclusions were against the weight of the evidence and/or failed to take account of his submissions. These were (1) the loan of £100,000 to Mr Turner; (2) the position with regard to the Respondents' fees and salary (which he called "Fees and Salary Recharge") and (3) failure to give credit at the end of the account process for a sum of £2,397.50 which he said was an obvious and glaring omission, raised late in the day, but which could not sensibly be disputed by the Respondents.
28. Under grounds 2 and 3, Mr Alexander grouped together what he said were nine examples in which the Master's conclusions had been erroneously derailed by her reversal of the onus of proof or by a mistaken approach to the disclosure problems that had arisen in the case. The nine examples are set out in paragraph 46 of the Appellants' skeleton argument. They were the following:

"(1) Amex Card 31002, (2) a payment to Lime Management, (3) expenditure by Mr Turner on group credit cards, (4) petty cash, (5) payments for trips to Raffles Resort and Barbados, (6) payments to Digital River, (7) payments to Cherie Henriksen, (8) payments to Albergo Pregalato and (9) payments to Software Warehouse and others."

29. For my part, I find it convenient to reverse Mr Alexander's order of argument and to consider these grounds 2 and 3 first. This is, first, because, in the end, I consider that the Appellants' criticisms of the Master on the burden of proof point are misplaced. Secondly, I do not accept that this court is able to or should interfere with the Master's conclusions as to the inadequacy of the Appellants' disclosure and its impact on the issues in the case, but I do not consider it necessary to consider the disclosure issue other than globally after addressing the specific heads of claim. These points can be sufficiently explained by dealing with the Appellants' claims in respect of the Amex Card, the other credit cards, payments to Cherie Henriksen and one other item picked at random by me from the Appellants' nine listed items. From the conclusions upon these heads of argument, in my judgment, the other five categories follow.

Grounds 2 and 3

Amex Card

30. It will be recalled that in the initial response to EF's account, the Appellants challenged payments made on the Amex Card in excess of £405,000. By the time of trial the challenge had been confined to £65,090.14. It had reduced again to £60,806.32 by the time of the new schedule annexed to the Appellants' skeleton argument for the appeal, i.e. to some 14% only of the amount initially disputed.
31. The underlying facts behind the setting up of this card account are set out in paragraphs 346-7 of the Master's judgment as follows:

"346. In September 2005 Mr Turner applied on behalf of Exsus Finance for two American Express cards, one in the name of Exsus Finance (its number ending in 31003-see above) and one in the name of Exsus Travel (its number ending in 31002).

347. There is a dispute between the parties as to the reason why the application initially made by Mr Turner on behalf of Exsus Travel did not result in its obtaining a card. However, it is clear that the Amex card 31002 was used by Exsus Travel staff to pay for its business costs (e.g. the cost of suppliers such as hotels) and paid for by a direct debit on Exsus Travel's bank account. Ms McWilliams' evidence was that if the claimant's other cards could not be used (because the credit limit was sufficient for the transaction) the Amex card 31002 would be used. Details of the card were on the claimant's system, so it was available to be used by anybody, if authorisation was provided, by a signature from Mr Turner. She accepted that it was frequently the case that the Exsus Travel cards didn't "have enough money to pay the suppliers", so that she needed to go to the Amex card 31002; and that the card was used to pay other expenses of Exsus Travel.

348. On 30 August 2006 Exsus Travel obtained its own American Express card and the Amex card 31002 and significant use of the card stopped in October 2006."

It is to be noted that the skeleton arguments on both sides in this court state that the relevant card was in EF's name: see Appellants' document at paragraph 47 and Respondents' document at paragraph 95. Mr Turner's evidence which the Master seems to have accepted was that the card was in ET's name "supported by EF's credit rating" (paragraphs 760-763, 6/5/CA-1671). In making his oral submissions on the point to us, Mr Ohrenstein told us that the card did indeed bear ET's name on its face but the bills went to EF, with a direct debit arrangement for payment by ET of those amounts to Amex: see Day 3 p. 9; Mr Alexander seemed to be saying the same: Day 2 p.62. Although we have not seen a copy of the face of the card in the voluminous documents before us, I think it must be right that the card was in the name of Exsus Travel, but vis-à-vis Amex, it was Exsus Finance that bore the ultimate responsibility and so received the bills. It was EF, as I understand it, that produced the card statements in the course of these proceedings.

32. The Appellants' consistent response to the Respondents' account has been and remains that it is for Mr Turner to satisfy the court by documentary materials that the expenditure on each and every single item of payment to Amex, down to the last £0.01p, was for the legitimate purposes of the Appellants' business. The Respondents' answer was that the payments were indeed made for ET's purposes, identifying the payees by reference to the credit card statements, and (where available) by reference to the Appellants' own records over which, of course, Mr Turner no longer had control. The Master acquitted Mr Turner of wrongful destruction of documents.
33. As the Master records (at paragraph 350) the credit card statements were provided to the Appellants on 11 August 2011, about two months after the Appellants' objection was received. It will be recalled that the Appellants' initial reaction to this was simply to delete entirely the objection to the card payments from the Amended Particulars of Claim produced in September 2011 - only to re-instate it (in varying amounts) in the two new draft pleadings served in 2012. Leave to make amendments to the Particulars of Claim in their final form, was granted at the start of the trial.
34. For the purposes of argument before us, the billings on the card were grouped into two payee groups: travel suppliers and non-travel suppliers. As regards travel suppliers the card statements revealed a very substantial number of payments and, for a very large number of these, further investigations in the course of the proceedings showed that the payments were made in respect of supplies to specific ET travel clients. Thus, the initial claim of £405,000 had been reduced by over 80% by the time of the trial, after earlier smaller reductions in the two draft amended pleadings served earlier in the year. The Appellants, however, have maintained the stance that unless each and every individual payment can be linked by documents to a specific ET client then Mr Turner has failed to discharge the burden of proof upon him and he remains liable to reimburse the relevant sum to them.
35. Mr Alexander sought to demonstrate his point by reference to one travel supplier called "Hacienda Temazon". He took us through a series of schedules and accounting figures to show to us that it was not possible to tally every payment on this card to a specific outgoing in ET's record or to a "folder" relating to a specific ET travel client. The summary of that exercise was in paragraph 204(3) of the Appellants' written closing submissions to the Master in these terms (11B/4/4744):

"(3) The Defendants have provided a report showing all the payments made to the Hacienda Temazon from the Exsus Travel booking system to infer that this must have been a legitimate business expense. However, the evidence provided by the Defendants actually undermines their claim, because the payment date is inconsistent with the travel dates for every confirmed booking with this supplier. The payment was made on 27 October 2005 and the first booking requiring a payment to the hotel was folder 17787. The booking for that folder was not confirmed until 21 November 2005 and so no payment would have been made on that folder prior to that date. If this payment had related to an Exsus client, then the respective folder would show up on the report run by the Defendants but no such folder shows up. Accordingly, this payment does not correspond to any folder in the Dolphin system or any Exsus client."

The Appellants supplemented this argument with reference to a document (a computer screenshot) said to illustrate the confirmation of the folder on 21 November 2005 (Loc. Cit. 4822 and 4828).

36. Mr Alexander argued that this was just one example showing that the Respondents had failed to justify these credit card payments as linked to a specific purpose of ET. He submitted that the Master had simply failed to follow through this exercise conducted for her in the submissions and had failed to answer those submissions in her judgment.
37. The Master's conclusions were as follows:

"Use of Amex card 31002 for travel suppliers

256. Mr Rooney accepted that most of the payments were for travel industry suppliers. He was evasive when asked whether they were suppliers to the claimants, but did not deny that they were, and admitted to recognising one of the names as a hotel used by the claimants. Similarly, Mr Rehman recognised that the payment were to suppliers of the claimants. I find that the travel suppliers to whom the payments were made were the claimants' suppliers.

357. In relation to the items claimed, the claimants rely on the fact that they have been unable to link the payments made to entries in the Dolphin system. However, this of itself does not show that the payments were not made for the claimants' benefit. Firstly, even in the course of written submissions, the claimants conceded that 3 further payments identified by the defendants were correctly recorded on the Dolphin system. Secondly, the Dolphin system was operated by all the members of Exsus Travel's staff and the fact that a particular payment cannot be linked to a particular folder is not determinative of whether the payment was made for the proper purposes of the claimants' business. Thirdly, although the defendants had a copy of Dolphin as used by Exsus Travel, the claimants did not disclose and the defendants did not have the Dolphin data base for Exsus Travel NY – so that the possibility that a payment may be recorded on that system cannot be ruled out. Finally, it is likely that the invoices from the travel suppliers would have identified the name of the client concerned and would have been conclusive in establishing whether or not the payment was made for a client of the claimants. The claimants have failed to give disclosure of those invoices, and in their absence, I accept Mr Turner's evidence that these payments were made for the benefit of the claimants."

38. In relation to the non-travel supplies met by the Amex card which were a minority of the items, a similar theme goes through the Appellants' complaints, namely that the Respondents had failed to pin down the fact that the payments were made for specific and identifiable purposes of ET's business.
39. Mr Alexander sought to demonstrate this by way of example by means of the largest "non-travel" item, a purchase of £7,150 for computer items from Dell Computers on 23 September 2005 and paid for on the card on 27 October 2005. Mr Turner's explanation for this was a purchase of such items for ET's offices in Fenchurch Street in London and he said that this was the description to be found in the Appellants' electronic "Quickbooks" records. The Appellants' counter to this was that there was no such record on Quickbooks, triumphantly displaying the screenshot of the entry simply referring to "Dell Computers Software Expense", without reference to the premises. Thus, it was argued the purchase could not be linked to the Fenchurch Street premises and the burden was not discharged. Further, it was argued that the purchase could not be tied to any entry in ET's fixed asset register or in the accounts for fixed assets, which the auditors would have had a tendency to scrutinise for accuracy.
40. In the course of Mr Alexander's submissions in reply, Jackson LJ asked him whether the Appellants used Dell computers. Answer came there none. (Day 3 p. 133, line 8 and following.)
41. The Master dealt with this item very shortly at paragraph 358(2) and held them to be proper business expenses of the Appellants. She dealt with it along with a number of other specific items of non-travel expenditure in respect of which there were entries in the Appellants' records. These included a number of very small payments to Fedex totalling some £360 and a payment of £64 for flowers on the occasion of the birth of Mr Turner's child (the latter being conceded in closing submissions by the Appellants).
42. In my judgment, the Appellants criticisms of the Respondents' accounting in this area and of the Master's findings are again entirely misplaced and unrealistic. The Appellants seem to have wholly misunderstood the extent of the burden of proof in these cases. There is indeed a legal burden on an accounting party to justify what has happened to sums received and to justify payments made as being for the benefit of the beneficiary, in accordance with the principles set out above. How that burden is discharged will vary from case to case.
43. In the case of this head of complaint by the Appellants, like all the others, at the outset they were said to have been disputed as part of the Appellants' realisation after the departure of Mr Turner that "the Respondents had taken or misapplied substantial sums of the Appellants' money and had failed to keep proper records". As a result the Appellants launched the grossly exaggerated claim to over £400,000. Then they abandoned it entirely in September 2011, only to re-instate it, in gradually dwindling amounts, in 2012. Bit by bit they were forced to concede that all but a tiny minority of payments had been for the legitimate purposes of their business.
44. In fact, of course, the money in question had never been received by the Respondents at all. The debts had been incurred on a card in ET's name and the payments were made by direct debit by Amex on ET's account, although EF retained ultimate liability if ET failed to pay. It was clear on the evidence that the card had been acquired for ET's purposes and expenses were incurred on it by ET's staff, albeit usually with Mr Turner's authorisation. There was no suggestion that the travel expenses in issue were incurred for personal purposes of Mr Turner. It was not he or his family or friends that were being transported or accommodated by the relevant suppliers; that was not, and could not be, suggested. ET ran a travel business; not surprisingly, it paid travel suppliers. It had offices and, not surprisingly, it incurred computer expenses, expenses to Fedex and even a payment for some flowers on the occasion of the birth of a director's child. Over £360,000 of this claim had to be conceded by the Appellants in the course of the proceedings. Mr Turner gave his explanation. The judge described Mr Rooney's evidence on the subject as evasive. The Master accepted Mr Turner's evidence. She was entitled to do so and thus he had, by the evidence as a whole, discharged the legal burden of proof. The Master did not, in my judgment, reverse the burden of proof at all.
45. As payment upon payment on this card had to be accepted as bona fide expense on behalf of ET, it ought to have been obvious, to any sensible person as opposed to the merely unreasonably suspicious or vindictive, that the explanation offered by Mr Turner should be accepted. It would be amazing if every one of these payments could have been traced by Mr Turner, through documents and computer records no longer under his control, to its ultimate purpose. The obligation to produce documents in support of an account, cannot, in my judgment, go that far.
46. Early in the hearing, I asked Mr Alexander whether an accounting party was obliged to account for every single item in the account by way of a document. He rightly accepted that this was not so, but argued that the obvious way of substantiating an account is with documents: see Day 1 pp.28-29.
47. In my judgment, in the light of all these features, and not least because of the highly exaggerated nature of the claim initially made and abandoned in dribs and drabs by the Appellants, the Master was fully justified in holding that Mr Turner had justified the entirety of the payments on the Amex Card. There came a time when it must have been obvious that this card had been used to meet the proper expenses of ET, even if not every paper and electronic trail could be pursued to an entirely satisfactory conclusion, not surprisingly two years and more after Mr Turner's departure from the Appellants' organisation.
48. The Master was quite entitled to conclude, in the light of what had been conclusively shown in relation to the vast majority of payments on this account, that she should accept Mr Turner's explanation for the remainder of them. He had discharged the burden of proof as to 80% + of the payments entirely by documents or other records and was entitled, in my judgment, as the Master found, to be believed as to the remainder.
49. In dealing with the Amex Card issue, I have not put weight upon the point made by the Master by reference to the failings in the Appellants' disclosure. It has not been necessary to do so. However, I consider that the Master was entirely justified in so doing for reasons to which I will return, after dealing with the three specific matters and one additional item (mentioned in paragraph 27 above) to which Mr Alexander drew our direct attention on grounds 2 and 3. In short, however, it is in reality an impossibility for an ex-employee or officer of a company with a complex modern business to reconstruct at arm's length the paper/computer trail of thousands of payments in the manner to which these Appellants perceive that they are entitled. The vouching process can only go so far, without the active assistance of the ex-employer in tracing material papers. As Mr Turner consistently said, and the Master held, many of the answers to the Appellants' queries probably lay in the supplier invoices, none of which were disclosed.
50. I have also left out of account in considering this aspect of the cases a disputed concession on the subject said to have been made by the Appellants, arising out of something said by Mr Alexander in addressing Master Bowles at a case management conference in March 2012. In the circumstances, it is not necessary to resolve this dispute. In my judgment, the Master was entirely justified in reaching the conclusion that she did with regard to the Amex Card without recourse to this matter.

Other credit cards

51. The claims formulated against the Respondents, according to the Master's judgment, were grouped under two heads: (a) meals and entertaining and (b) other payments. In paragraph 342 of the judgment the Master said that the claim under the first of these heads was originally for £26,631.79; by the time of the judgment this had apparently reduced to £11,986.42. Under the second head, the Master said in paragraph 335 of the judgment that the original claim was for £25,401.70 of which £15,836.09 remained in dispute.
52. On the appeal this part of the case is covered in a single paragraph (paragraph 54) of the Appellants' skeleton argument and in one schedule to it (schedule 8). It appears that before the Master there were two such schedules which she called schedules 7 and 8. Mr Turner in his witness statement gave extensive evidence on this subject in paragraphs 636 to 705 by reference to different schedules again. Mr Turner's evidence in relation to the two categories of payment and with regard to these cards generally can be seen from paragraphs 640 to 642 and 687 to 688 of his statement. Those passages were as follows:

"640. When Mr Rooney and I got the Exsus Travel Barclaycards in September 1999, Mr Rooney agreed that the primary use for the cards was for business expenditure, however, Mr Rooney agreed that in certain situations we would use the cards for personal expenditure and make a note to the accounts department to attribute those personal amounts to the Directors current account.

641. Mr Rooney certainly made use of that facility with many personal transactions showing in the accounts of the Group. However it was not habitual for me to use Group credit cards for personal use though there were a [sic] some occasions which were noted to the accounts department.

642. The usual use of the both business credit cards was to pay for hotels, other suppliers and when Mr Rooney and I were entertaining for business we used them to pay those expenses.

…….

687. Mr Rooney agreed expressly that we should both use company credit cards to pay for entertainment expenses, and in fact he was at the very same events most of the time. The Exsus Travel Ltd business was constantly involved in brochure launches, press lunches, meetings with other travel industry contacts. This was encouraged and primarily driven by Mr Rooney to develop the high profile of the business. Mr Rooney would quite often ask to get the company post first and would pick out bank statements, credit card statements etc. for further review and discussion with me. Therefore Mr Rooney would review and approve these credit card statements and knew of the expenditure being incurred with them. As well as being at the event themselves.

688. At regular meetings to review the performance of the business, annual audits and the finance and strategy meeting both Mr Rooney and I would analyse and review the various balances on expenses for the periods concerned. Mr Rooney would often ask for more detail on some items and after I had presented the research would approve the analysis or accounts."

Mr Turner also gave detailed explanations of certain of the individual items and referred to such documents as had been disclosed by the Appellants.

53. The Master records that Mr Turner was not cross-examined on the details of the expenditure on non-meals/entertainment items. With regard to the payments for meals and entertaining, the Master found that individual items were too numerous to consider individually, but she considered thirteen of them in paragraph 345. She said this in paragraph 343 and 344 of the judgment:

"343. Mr Turner's case was that Mr Rooney expressly agreed that they should both use company credit cards for entertainment expenses, and that Mr Rooney attended the events in question on most occasions. He said that Exsus Travel was constantly involved in brochure launches and meetings with other travel industry contacts. This is shown by two emails:

On 23 September 2005 Mr Rooney wrote

"Team leaders can take team out to lunch on expenses every month and would love it if everyone did."

And on 13 June 2006 he wrote

"In addition every person had 150 each for travel agent drinks/lunch etc…."

I find that Mr Rooney actively supported and encouraged expenditure on meals and entertainment to boost morale within Exsus Travel, to foster good relations with its travel agent clients and with the press. The bill for these occasion would be paid by a credit card, and if Mr Turner was present the card used by him.

344. Mr Rooney accepted that Mr Turner was authorised to charge the claimants for meals at which business matters were discussed "to a small extent", without giving any indication of what, if any, criteria applied to limit this expenditure."

54. In his oral submissions, Mr Alexander gave two figures for the amount of the claim as it presently stood, namely £13,959.76 (Day 2 p.104, line 18) and £11,986.42 (Loc. Cit. p.106, line 21), the latter being the same as the amount stated by the Master to be the sum of claims in respect of meals/entertaining alone. The schedule to the skeleton argument on the appeal (schedule 8) puts the revised amount of the claim at £17,351.73.
55. I have studied the transcript of Mr Alexander's oral submissions on this aspect of the case: Day 2 pp. 104 to 107 and I have found it difficult to relate these to the skeleton argument schedule (schedule 8) which is said to cover this part of the case.
56. In the skeleton argument the criticism of the Master's conclusion in this respect is stated in this way:

"54. In para 335 of the Main Judgment, the Deputy Master said this in relation to expenditure by Mr Turner on group credit cards: " The Claimants' case is that there is no evidence to support these being legitimate business expenses". Then in para 338 she said: "The Claimants' position is that unless Mr Turner can explain this expenditure it should not be treated as having been incurred for the claimants' benefit….The claimants point to an absence of any documentation in support of the expenditure". This was the correct approach as a matter of law. However in para 339, the Deputy Master rejected the Appellants' submissions saying "this criticism has to be considered in the light of the fact that the claimants have not disclosed any invoices relating to expenditure….In the light of the inadequacies in the claimants' disclosure I cannot conclude that they are not now in the claimants' possession". It is submitted that this approach was wrong: if the Respondents could not justify the expenditure, they had not discharged the burden of proof. The Deputy Master's approach undermined the order for the taking of the account and prevents it from serving any useful purposes as a remedy. The items covered under this head are set out in Schedule 8 (which includes additional concessions by the Appellants in respect of dome items from the position as it was before the Deputy Master)."

57. In my judgment, this submission suffers from the same unreality as that made in respect of the Amex Card. The Master, in my view, did not undermine the order for the taking of the account. What she did was to assess the explanations given, to see how the cards were used on a day to day basis and to consider the available documents and the evidence directed to where the missing ones might be.
58. She was entitled to take the view that, while the legal burden of proof lay on the Respondents, that burden had been discharged on this evidence as a whole, even without every single paper voucher being placed upon her table as might have been done if a similar account was being taken in the far less complex world of the 19^th century. She was also entitled to have regard to the fact that in his evidence, Mr Turner referred on a number of occasions to the absence of documentary evidence produced by the Appellants.
59. It is not a reversal of the burden of proof for an accounting party, a former employee, to say that the records underlying the payments should still be with the ex-employer and that they have not been disclosed. An ex-employee or ex-company officer does not take with him the company's records; he is not entitled to do so. He is entitled, in my view, when called upon to account to say that the vouchers in support will be with the company. The evidential burden must then shift to the other party either to deny the assertion, with cogent reasons, or to produce the papers. The Master clearly thought, as she in turn was entitled to do, that her understanding of this business after hearing the witnesses, was that the Appellants should have been able to meet this evidential burden but had failed to do so.
60. I would add that the unrealistic approach of the Appellants to the disclosure of accounting materials in a case between ex-employer and ex-employee or between a company and a former director is recorded and rejected by the Master in paragraph 108 of her judgment as follows:

"F Defendants' disclosure

108. The claimants have also criticised the defendants' disclosure. Indeed, they allege that the defendants' fiduciary position obliged them and continues to oblige them (as part of their duty to account) to provide full books and records in respect of the claimants' finances. This seems to me to be misconceived. Any books and records in respect of expenditure by the claimants would belong to and would be expected to be in the claimants' possession, not the defendants. The defendants' duty cannot extend to producing those documents."

I respectfully agree.

Payments to Cherie Henriksen

61. The third of the nine items identified in paragraph 46 of the Appellants' skeleton argument as bearing upon grounds 2 and 3 of the appeal concerns two payments of £625 and £1,870 paid by EF to Ms Henriksen, dealt with by the Master at paragraph 285 of her judgment. The Master said this:

"285. The salary costs recharge claim by Exsus Finance for the months of November 2003 and January 2004, include the sums of £625 and £1,870 in addition to the monthly salary, said to represent a bonus payable to Cherie Henriksen (Schedule 2, items 398 and 425). The relevant bank statements show that these sums were paid to Ms Henriksen. In their Response the claimants denied that Ms Henriksen was entitled to these bonuses. Mr Turner's evidence did not deal specifically with these two payments, but only stated that the figure of £196,049.63 was all the costs paid on the claimants' behalf in respect of employees. Neither Mr Rooney nor Mr Rehman gave evidence on this issue, and Mr Turner was not cross examined on it. On the balance of the evidence I find that these payments were made for the proper purposes of the claimants."

62. In my view, the Appellants are wrong to say that there was no evidence on the issue. As Mr Ohrenstein pointed out, the relevant items were verified as including bonus payments to Ms Henriksen in the account itself, which was verified by a statement of truth. Mr Turner gave evidence as to the salary arrangements generally for Ms Henriksen in his witness statement. He was not cross-examined on this. It was clear from the bank statements that these modest sums had gone to Ms Henriksen; they had not been "pocketed" by Mr Turner. In my judgment, in these circumstances, the Master was entitled to say that she accepted the assertion in the account itself, as verified, that the payments were for the proper purposes of the Appellants' business.
63. It is an interesting reflection of what I have perceived throughout this appeal to be a "shoot from the hip" approach of these Appellants to the explanations given by or in the accounts, to consider a submission made on their behalf in reply by Mr Alexander. He asserted initially (no doubt upon instructions) that the total bonus payments made to Ms Henriksen amounted to some 75% of her annual salary, which (at that stage of the argument) was said to be £4,008 (gross): see Day 3 pp. 134-5. Very shortly thereafter (p.145), however, Mr Alexander had to tell us that he had "just been told" that Ms Henriksen's salary was in fact £24,000 per year, not £4,000 per year. On a smaller scale, this was yet another exaggerated assertion by the Appellants, not as striking as the claim to £405,000 in relation to the Amex Card, but striking nonetheless in demonstrating an unrealistic attitude on the part of the Appellants towards even the most trivial amounts.
64. Mr Alexander, in oral submissions, did not address in detail any other of the nine items listed in paragraph 46 of his skeleton. Perhaps it is just as well, because none of them have any more merit than the ones dealt with above. However, it is perhaps worth extracting one more. This relates to "Petty Cash". The total sums at stake were £89,541.95 and were dealt with by the Master in paragraphs 359 to 382 of her judgment. The criticism made by the Appellants appears in their skeleton argument at paragraph 55 in these terms:

"55. In para 380 of the Main Judgment, the Deputy Master dealt with the sum of £89,541.95 which the Respondents had spent as "petty cash". She recorded the Appellants' submission that "Mr Turner must account for all sums spent as petty cash and insofar as he is unable to show that the sums were spent for the proper purposes of the claimant repay them". This was the correct approach as a matter of law. However the Deputy Master held that the Appellants submission was "plainly unsustainable", her reasoning apparently being because the evidence before the court contained no "detail in the recording of petty cash expenditure". She seems to have held that the absence of evidence made it unrealistic to require the Respondents to provide any evidence. It is submitted that this approach was wrong."

65. In my judgment, this complaint is conclusively answered in paragraphs 108 to 111 of the Respondents' skeleton argument in these terms:

"Petty Cash

108. This is addressed in paragraphs 706 to 735 of Mr Turner's witness statement [CA 6/5/1661] and in paragraphs 359 to 382 of the judgment. The petty cash issue does not turn on the burden of proof because it does not relate to money which the Defendants received or spent. The Claimants are instead contending that Mr Turner should have to pay the Claimants an amount equal to all the petty cash expended by the Claimants' staff. They wrongly say: "Mr Turner must account for all sums spent as petty cash and insofar as he is unable to show that the sums were spent for the proper purposes of the claimant repay them". This is plainly wrong.

109. Mr Turner was a director of the Claimants but it is not in dispute that he did not personally hold the petty cash or deal with the day to day petty cash records. Contrary to the Claimant's case, if, for example, Mr Rooney or other staff used the petty cash there is no reason why Mr Turner should now be required to explain what Mr Rooney or that member of staff did with the money or (in default of an explanation) have to pay the money to the Claimants.

110. It is even more absurd that his petty cash claim was (and still is) being pursued in the light of the unchallenged evidence of Karron Williams (who was called to give evidence by the Claimants) which the Deputy Master accepted that:

(1) the Claimants had detailed petty cash records in the form of petty cash slips to which receipts would be stapled and on which she would make a note.

(2) the records were initially stored in Hammersmith and then at Mr Rooney's farm (but not disclosed).

(3) Details form [sic] the slips were then entered on the Quickbooks accounting software.

(4) The system worked well and balanced at the end of each month with no discrepancies.

(5) If Mr Turner took cash, he would leave a receipt, and if he did not replace the physical cash, the amount would be recorded in his directors' current account.

111. The Claimants have totally failed to show that there was any shortfall in the petty cash, still else that Mr Turner had the benefit of such shortfall or was otherwise responsible for it."

66. There is no need to say more.
67. I would reject, therefore, ground 2 of the grounds of appeal. I turn to ground 3.

Disclosure

68. I have dealt largely with the issues raised on ground 2 of the appeal without recourse to the debate about the adequacy or otherwise of the Appellants' disclosure. It has not been necessary to do so for the reasons already given. However, ground 3 raises as a separate ground of appeal that the Master's findings in relation to disclosure were wrong. She dealt with this subject in a lengthy passage in her judgment in paragraphs 82 to 107. The important conclusions that she drew were in paragraphs 101 to 103 in these terms:

"101. In summary the position seems to me to be as follows:

(1) A substantial number of relevant emails ("the undisclosed emails") in the defendants' possession which were or have been also in the claimants' possession have not been disclosed;

(2) The defendant is not in possession of all the emails on the claimants' system in 2008, only those in his inbox and sent box; whereas all of the emails from the Goldmine system now in the defendants' possession would also have been on the Goldmine system in 2008;

(3) The defendants have therefore established a prima facie case that the claimants' disclosure of emails in inadequate;

(4) I have no satisfactory evidence as to the search carried out by the claimants of the Goldmine data base; even if I had evidence confirming what is now said in the claimants' written submissions, in my judgment the approach to electronic disclosure taken by the claimants (manual review of thousands of emails) gives rise to a serious risk that relevant documents will wrongly (by which I mean mistakenly) excluded.

(5) I have no evidence as to whether or not the undisclosed emails are now on the claimants' Goldmine database; or as to, if they are, why they were not disclosed; or if they are not, why they are not; in particular, I have no explanation of the claimants' policy or practice as to the deletion of emails;

(6) In these circumstances, I conclude that there are likely to be or have been relevant emails on the claimants' goldmine database which have not been disclosed.

Attachments

102. Many of the emails in evidence attach or refer to documents. Virtually none of these have been disclosed. I accept Mr Abbot's evidence that these attachments would be on the Goldmine system and that Mr Turner would not have been able to obtain copies of attachments when accessing the Goldmine system remotely. I have no evidence as to why the claimants have not disclosed these documents, and I conclude that that disclosure has not been adequate in relation to these.

Supplier invoices

103. No supplier invoices have been disclosed by the claimants. There was undisputed evidence that financial documentation was stored in a storage facility and in about July 2007 transferred to a barn at Mr Rooney's home, Whanau Farm, in Oxfordshire. In addition, Mr Turner said that invoices were scanned and stored electronically. The absence of any invoices at all in the evidence means there is no factual foundation for the claimants' allegation that large numbers of these were destroyed by Mr Turner. The relevance of supplier invoices is discussed in relation to the Amex card 31002 which was in use from 29 September 2005 to 22 November 2006. These invoices are also directly relevant to the claims in Schedule 7 and 8 and should have been disclosed."

It is submitted on the appeal that the Master was in error in two respects: first, it is said that she drew incorrect factual inferences, and secondly, that she adopted a wrong approach to disclosure generally.

69. I do not accept those submissions. It is not necessary to dwell at length upon the submissions we heard as to the procedural history relating to disclosure to which we were taken by counsel during the hearing.
70. It suffices, first, I think, to refer to one relatively small matter of disclosure where it is clear beyond debate that the Appellants' disclosure was inadequate, and secondly, to summarise the position in relation to two particular categories of documents of significance (e-mails and supplier invoices) which it is clear to me were not fully disclosed by the Appellants as required by the rules and the court's disclosure orders.
71. As to the first matter, I would mention the Respondents' request for disclosure of minutes of Finance and Strategy Meetings. The response from the Appellants' solicitors was,

"We are instructed that no formal Finance and Strategy meetings were held, although a few informal meetings took place. No minutes of these meetings were taken by the companies and none can be produced."

However, the Respondents themselves produced some of these and an e-mail from Mr Rooney to Mr Turner of 11 November 2005 referring expressly to "our minutes file". The instructions given to the solicitors was obviously false.

72. I turn to the e-mails and supplier invoices.
73. Not surprisingly in a case of this sort disclosure was made in various stages. Initial lists were exchanged in May 2010 and the initial accounts were, as I have said, served in September 2010/February 2011; responses were served in April 2011. The Appellants' solicitors made a request by letter for certain specific disclosure, including the minutes to which I have just referred. Supplementary disclosure was ordered and the Respondents served a supplementary list in February 2012, including 349 e-mails. The Appellants said that supplementary lists (although ordered in June 2011) were then premature in light of the pending re-amendment of the Particulars of Claim. The Respondents issued an application for specific disclosure of (essentially) the materials requested in the previous June. Included in the request was one for supplier invoices and e-mails passing between Mr Rooney and Mr Turner prior to June 2002. To be fair to the Appellants, apparently no specific request was made in respect of e-mails after that date. However, it is clear that the Appellants were conscious of the need to supplement their disclosure of e-mails quite generally. This appears from the response of their solicitor (Mr Booker) in his witness statement of 28 February 2012 in response to the disclosure application. In paragraphs 20 and 21 of that statement one finds the following:

"20. I am personally currently engaged in re-interrogating the Claimants' Goldmine data base for additional emails that ought to be disclosed given the broader nature of the issues in the case. The data base covers a period from 2002 until 2008 (7 years) and involves a careful consideration of many thousand emails of which of course only a fraction are of relevance. To date I have spent approximately two full weeks in total on this task and I have covered 5 of the 7 years. I anticipate that the interrogation exercise will require a further full week of my time. It will then be necessary to go through the documents extracted once more to double check for relevance and list the same. On any view I would expect, even with other commitments, that the Claimants would be able to give disclosure of these documents by the date of the scheduled Case Management Conference.

21. The Claimants have discovered a number of additional documents of various descriptions (other than financial records) which require to be disclosed. It is anticipated that a list of those documents can be prepared within the time frame set out above in relation to email traffic."

74. When the application came on before Master Bowles on 30 March 2012, with regard to invoices, there was the disputed concession by the Appellants in which the Appellants' counsel said that disclosure of supplier invoices was not necessary in respect of hotel invoices because all claims in respect of hotels were accepted. The Appellants say that they were only intending to refer to nine hotel payments which were the subject of the existing un-amended pleading, whereas the Respondents say that they understood this concession to cover those to be included in the draft Re-Amended Particulars of Claim which had already been served some time previously and which had reinserted the claims in respect of the Amex Card which included a large number of hotel payments. (The Respondents' understanding was not surprising in view of paragraph 40 of the witness statement made in opposition to the application: see paragraph 74 below). The Appellants acknowledged at that hearing that they were conducting "an ongoing review of disclosure" and the solicitors' statement said as much. The Master indicated that he wished to see "more disclosure rather than less disclosure carried out", so as to avoid value judgments (presumably as to relevance) having to be taken: see 12A/1/5109 The Respondents' application for specific disclosure was adjourned on that basis.
75. With regard to supplier invoices, Mr Booker said this (in paragraphs 38 to 41) of the witness statement to which I have referred:

"38. In the letter of 20 June 2011 the Defendants sought disclosure of the First Claimant's supplier invoices paid file for 2005 and 2006 and the Claimants responded requesting the Defendants to identify the issue or issues of fact or law in the proceedings to which they were said to be relevant. The Claimants stated they would then consider the position further. As already made clear, this issue was not pursued by the Defendants until the current application when they suddenly seek an "unless" order. Indeed, the application for an "unless" order is much wider as schedule 1 to the Application notice refers to the First and Second Claimants supplier invoices paid for the period of the account. It therefore now extends not just to the First Claimant but to the Second Claimant as well; moreover, it is not limited to 2005 and 2006 but extends to the whole of the period from 1998 to 2008. It is difficult to see on what basis an application for an "unless" order can be justified in relation to a specific disclosure application which has never even been raided in correspondence.

39. Further, there is no attempt whatsoever to identify the issue of issues of fact or law to which it is said these documents are relevant and Mr Wilson's witness statement does no more than state that "The supplier invoices relate in the main to hotel invoices, some of which were paid by the Defendants". This does not take the matter further, since, if Mr Wilson's statement is correct, the Defendants must be capable of identifying such payments by the Defendants from their own records and therefore identifying the supplier invoices it is claimed are relevant to these proceedings. The present broad ranging application is, it is submitted, unreasonable and disproportionate.

40. The Defendants' Amended Defence and Counterclaim and "Revised Account" does raise for the very first time a number of instances where it is said that items due to hotels or resorts were paid by the First Defendant on behalf of the First Claimant (Amended Defence and Counterclaim paragraphs 37 (c) to (k), "Revised Account" items 1112-1126, 1129, 1130, 1132 and 1133). I note that Mr Wilson makes no reference to these items in his witness statement, no doubt because to do so would undermine the defendants' current broad ranging application. A cursory glance at Schedule 1 to the draft Re-Amended Particulars of Claim would make it clear to the Defendants that the Claimants are prepared to accept each of these items (despite the lack of an explanation as to why the First Defendant used a personal credit card for these payments). Disclosure of supplier invoices in relation to these items is therefore not required as there is no live issue in the proceedings in relation to them.

41. I note that none of the items identified by the Defendants in paragraphs 37 (c) to (k) of the Amended Defence and Counterclaim are concerned with payments made by the Second Defendant or on behalf of the Second Claimant. "

It seems to me, however, that whatever the extent of the concession that counsel thought he was making before Master Bowles on 30 March 2012, given the reinstatement of the Amex Card claim, the supplier invoices relating to those suppliers disclosed by the credit card statements were obviously relevant. The limited concession that counsel thought he was making showed clearly the relevance of such documents to any other payments of the same type. Further, Mr Rooney conceded that obvious point in his own evidence (12A/4/5206) in this way,

"…I guess that if it gets to the bottom of the £405,000 claim there needs to be supplier invoices, then yes, there's a connection between those two issues."

Moreover, Mr Turner in his written evidence had stated, at several places, what he saw to be the relevance of supplier invoices.

76. The Appellants' later disclosure of 16 April 2012 disclosed a number of further documents, but (as it seems) no further e-mails. According to the disclosure statement made by Mr Booker, a search for electronic documents had not been carried out at that stage because, "a search for electronic documents has been carried out previously and relevant documents disclosed" (13/11/45).
77. The Master's conclusions about disclosure of e-mails by the Appellants, both pre- and post 2002 were as follows (paragraphs 92-94):

"Emails – pre 2002

92. No emails predating 2002 were disclosed, and only a few from 2002 itself. I heard evidence form Kevin Abbott, who was the claimants IT manager from October 2002 to June 2008. Before 2003, the claimants used software called ACT, a business contact manager on which emails were stored under contact names. Its function included storing, retrieving, finding and organising emails. It was backed up using back up tapes on a regular cycle. These tapes were kept in Exsus Travel's offices and in the fire safe. In 2003, ACT was replaced by software called Goldmine, which performed similar functions; and it was backed up in a similar way to the ACT system. All the data and emails on the ACT system were migrated to Goldmine. From about 2005 until 2006 or 2007 attachments to emails were archived

93. Mr Rehman's evidence was that Mr Rooney had been asked about back up tapes but had been unable to find them. In the absence of any other evidence, the most likely inference would be that the tapes had been lost or disposed of as being of no use. However, in the light of the other inadequacies in the claimants' disclosure, I consider that the most likely explanation is that a proper search for back up tapes has not been carried out.

Emails – 2002 onwards

94. Mr Turner's evidence was that around the time he was leaving the claimants, he arranged to access to the Goldmine system remotely from his home, and was able to obtain copies of his inbox and sent box, but without email attachments. He disclosed 350 emails, of which 184 emails were said to be of particular relevance. Of these a substantial number (129 according to the defendants, 115 according to the claimants) were not disclosed by the claimants. I have indicated non-disclosed emails with an asterisk ("*") in the course of this judgment. I consider that a significant number of these emails are highly relevant to the issues in this claim."

78. The Master also summarised what she had been told by counsel for the Appellants as to searches made for e-mails. At paragraphs 97 and 100, she said this:

"97. In the course of the hearing I was given conflicting accounts by the claimants' counsel as to how and by whom searches for emails had been carried out. Initially, he told me that Mr Rehman had searched the Goldmine date base, but in evidence Mr Rehman said he had not done so. The claimants' counsel also told me that Mr Booker had carried out a manual search. He told me that there was no evidence of the search carried out by Mr Booker, but that the claimants would put in a witness statement setting out what he had done. No witness statement was put before me. At a later stage of the hearing the claimants' counsel corrected what he had said earlier, and said that Mr Booker had carried out an electronic search of emails. The claimants' written submission included an account of what Mr Booker was said to have done: he is said to have gone through all the emails not by reference to search criteria, but by physically reading each email in turn. This is not of course evidence and I do not consider that I can properly take account of it.

……

100. Finally, I mention that the claimants' counsel indicated that the claimants would check whether the emails disclosed by the defendants but not by the claimants were on the claimants' system. No evidence was sought to be adduced by the claimants as to the results of any such check."

79. I have already set out the Master's findings with regard to supplier invoices. It will have been noted that the Appellants also went so far as to allege that a large number of these had been destroyed by Mr Turner, for which no evidential foundation could be found.
80. In the circumstances, it seems to me that the Master was fully entitled to draw the factual inferences that she did from the evidence before her and to conclude that the Appellant's disclosure had indeed been inadequate.
81. There was no need for Mr Booker's evidence to be challenged or for the Respondents to pursue their specific disclosure application that had been adjourned in March 2012. Their evidence made clear the areas in which the Appellants' disclosure was being criticised by virtue of the comments made by Mr Turner in his witness statement of 14 May 2012, about a month after the service of the Appellants' supplemental list. As always, the parties remained under a continuing disclosure obligation.
82. I also reject the criticism made by the Appellants, in the second head of this ground of appeal, that the Master adopted an erroneous approach to the parties' disclosure obligations. Here it is said that the Master adopted an outdated stance to disclosure in endorsing what Master Bowles had said the approach should be in his remark at the hearing of 30 March 2012. It is submitted that such an approach was contrary to that endorsed by this court in Nichia Corp. v Argos Ltd. [2007] EWCA Civ 741 at paragraphs 46 to 47, viz.,

"[46] What is now required is that, following only a 'reasonable search' (CPR r 31.7(1), the disclosing party should, before making disclosure, consider each document to see whether it adversely affects his own or another party's case or supports another party's case. It is wrong just to disclose a mass of background documents which do not really take the case one way or another. And there is a real vice in doing so: it compels the mass reading by the lawyers on the other side, and is followed usually by the importation of the documents into the whole case thereafter – hence trial bundles which are never looked at."

83. For my part, however, I accept Mr Ohrenstein's submission that the documents in question here were not merely "…background documents which do not really take the case one way or another". On the contrary, the Master found that the documents were of significant importance to the resolution of the issues before her. She was clearly entitled to take that view.
84. For these reasons, I would reject ground 3 of the appeal. I turn now to grounds 4 and 5.

Grounds 4 and 5

85. I propose to take the arguments advanced under these grounds in the order stated by the Appellants in their skeleton argument (paragraph 14), the same order in which they were argued orally before us.

The £100,000 loan

86. On 8 May 2000 the Third Appellant, Coronation Limited ("Coronation") paid a sum of £100,000 to Mr Turner. It is not, and had never been disputed, that this payment was by way of a loan to Mr Turner to enable him to purchase his parents' house at Ilkley in Yorkshire and thereby to relieve them of a financial difficulty which they had at that time. It was common ground that some documentation was executed at the time the payment was made. The Appellants contended that this was simply loan documentation whereas Mr Turner said it was a document setting up an "employee benefit trust" by Coronation with Mr Turner as the beneficiary. Neither the original document or any copy of it has been traced, although it was apparently prepared by a well-known firm of solicitors.
87. There are two issues arising here, both of which concern interest: first, there is the question whether interest was payable on the loan at all, and secondly, if so, was the loan treated by the parties as repaid by Mr Turner in May 2005, so that any interest that was payable stopped running at that date.
88. I think that it appeared to all members of the court, at the start of Mr Alexander's opening submissions at the hearing of the appeal, that the Appellants were contending that Mr Turner still owed the capital sum of £100,000 and that this was an additional sum that should be charged to Mr Turner in the final account. However, we pointed Mr Alexander to item 102 on page 3 of Mr Turner's account in the proceedings (3/1/622) which showed clearly that Mr Turner had debited himself with the £100,000 paid to him in May 2002. It is implicit, therefore, that it has been taken into account against him and on the other side of the account he is credited with sums to which he is otherwise entitled. As the proceedings show, there is significant dispute as to what sums should go to Mr Turner's credit, but one way or another the £100,000 will have been taken into account at the end of the day. There is, therefore, no separate capital claim to the return of the £100,000.
89. After fairly lengthy exchanges between Mr Alexander and members of the court, this was accepted by him as recorded on the transcript for Day 2 at p.6. Further, this seems consistent with paragraph (2) 2 of the prayer for relief in the Re-Amended Particulars of Claim, although that pleading does maintain that the loan has not been repaid (paragraph 41): see 2/12/583 and 616.
90. The Master decided that (a) there was no interest payable on the loan, but that, (b) if she was wrong on that, the loan had indeed been treated as repaid in May 2005.
91. There is no doubt that the evidence on these topics on both sides was inconsistent and confusing. Mr Rooney dealt with the topic in paragraphs 76 to 98 of his first statement. Mr Turner dealt with it in paragraphs 302 to 336 of his.
92. Both protagonists were agreed that some form of documentation was drawn up when the loan was made. It was prepared by a firm of solicitors, but no copy has been found. Mr Rooney (in paragraph 83 of his statement) voiced the suspicion that Mr Turner had removed or destroyed from the file in the office. The Master rejected that.
93. Mr Turner's case was that the loan was made to him through a new trust, set up for the purpose, called the "Coronation Group Employee Benefit Trust". Mr Rooney's case was that the loan was made simply by Coronation under standard form loan documentation, with a specified rate of interest of 7.655% per annum being the same rate paid by Winterdome Limited (of which Coronation was the parent) on borrowings from Nationwide Building Society.
94. In the original versions of their case the Appellants maintained that "the loan was structured so as to be from Coronation and was paid into a "Trust Account" for the benefit of Mr Turner". As stated by the Appellant's solicitor in a witness statement of 16 June 2011,

"It is common ground that [Coronation] paid £100,000 to [Mr Turner] by way of a loan…The loan was made by [Coronation] but through the Coronation Employee Benefit Trust; the funds were transferred to the Trust and lent on to Mr [Turner]".

95. In later versions of the pleadings from September 2011 onwards, it was denied that such a trust existed (see e.g. the final Re-Amended Particulars of Claim paragraph 41). The Master rejected this denial for a number of cogent reasons. The loan money was paid by Coronation into a bank account in the name of the trust and the mandate was signed by Mr Rooney. (The Master rejected Mr Rooney's assertion that he must have signed a blank mandate form to which the trust's name had been added subsequently.)
96. The trust and the loan to it appear in Coronation's annual financial statements from 2000 to 2006. It was mentioned in correspondence from Baker Tilly in September 2001 (9/4/3061) and again in November 2007 (9/10/3310). There were also a number of e-mails from Mr Rooney himself referring to the Trust, without any suggestion that it did not exist. The trust also appears in a Deed of Charge of 3 December 2007 signed by Mr Rooney. As the Master said (paragraph 187 of the judgment) the evidence of the existence of the trust was overwhelming.
97. The Master found that the existence of the trust had consequences for the question of whether the loan was interest bearing. Whether their view as to the tax situation was accurate or not, both parties seemed to consider that the trust structure had fiscal advantages. Mr Rooney wrote to Mr Turner as late as July 2008 (9/11/3407) saying,

"…there is a document (James it was you who wanted a trust document as you didn't want to get charged 40% tax – you must remember this – you ran around with advisors a lot getting the right advice/document…".

98. The Master also referred to the Financial Statements of Coronation which referred to the loan made by it to the trust (not, of course, the loan made onwards from the trust to Mr Turner). In 2001 that statement refers expressly to that loan at least being interest free, suggesting, the Respondents wished to infer, that the loan to Mr Turner was also interest free. However, from 2002 onwards the statements refer to an increasingly large sum being outstanding, growing in the period to 30 November to £130,337. The accounting records show a repayment of the loan by 31 December 2006 when the balance owed by the trust was said to be nil. The Master noted that if the interest appearing in the statements reflected interest payable by Mr Turner, then it was only at 6% and not the 7.655% contended for by the Appellants. There is no specific reference in any of the accounting documents, the Master records, showing interest payable by Mr Turner (paragraph 192 of the judgment). Moreover, in the initial pleading, the Appellants were contending for interest at varying percentages over varying periods.
99. The subject of the loan came up again in November 2007 in a series of e-mails exchanged between Mr Rooney and Mr Turner on the 7^th of that month, between 11.24 a.m. and 7.12 p.m. (9/10/3291-3303). Both parties at this stage seem to have been very vague as to the understanding of their loan arrangements. Mr Rooney asked how the loan was to be repaid. Mr Turner hinted at selling the house. At 12.11 p.m., Mr Rooney asked Mr Turner,

"…Interest is accruing yes?..."

To which the response was not direct, but

"OK – I'll sort it out."

Then at 3.07 p.m., in response to an e-mail from a Mr Martin at Speechly Bircham, who were advising the Appellants on the arrangements for the separation of the Rooney/Turner interests, Mr Tuner wrote:

"…There is a loan that Coronation made to me of £100,000 in 2000 with interest accruing at £6k per annum – I am unable to pay this immediately and so Giles has agreed to hold on until I get the cash from either Linville/Exsus or a property I own in Yorkshire (the reason for the loan in the first place) – could this be handled by way of a letter between Coronation and myself?"

100. There follow a few messages about security. In ensuing months, there were further exchanges of e-mails concerning the £100,000 loan. It is helpfully summarised in Schedule 1 to the Appellants' skeleton argument and I have reviewed that again following the hearing.
101. The Appellants rely heavily on the e-mail at 3.07 p.m. as a clear acknowledgment by Mr Turner that interest was payable on the loan. In cross-examination, Mr Turner's explanation was that the position as to the amount outstanding on the loan was unclear to him at that time and that the interest referred to was the notional interest that had accrued on the loan made from Coronation to the trust. He pointed out that no interest was referred to in the document of charge drawn up a little later. (12B/13/5689). That assertion was indeed correct. The document makes no mention of interest: 10A/8/3577.
102. The Master referred to Mr Turner's evidence that from 2003 onwards he/EF made interest free loans to the Appellants and his case that it would have been absurd for him to do this if he was liable to pay interest himself on the loan made to him and when on the Appellants own case the Appellants were indebted to him from October 2003 to October 2007.
103. In conclusion, the Master said that she was troubled by Mr Turner's e-mail of 7 November 2007 which was "on any basis elliptical". However, she said that, taking into account all the evidence which she had seen and heard on this subject she concluded that no interest was agreed on the £100,000 loan.
104. It seems to me that the question for us is whether the Master was entitled to reach that conclusion on the evidence before her. I consider that she was so entitled. As I said at the beginning of this section of the judgment, the documentary evidence was not consistent in all respects with the case of either party. This was an area of the case in which the burden of proof fell upon the Appellants to demonstrate on the balance of probability that interest was payable on the loan. The documentation had been lost and the Appellants set up a wholly false case, which they must have known to be false, as to the trust structure that underlay the loan and there were no documents at all from the period from 2000 to November 2007 indicating that the loan was interest bearing. At that latter date, Mr Rooney had to ask whether interest was accruing and received no direct answer, but was copied into Mr Turner's e-mail at 3.07 p.m. on the 7^th. When it came to drawing up the formal document on the subject, dated as executed on 3 December 2007, there is no reference to interest at all either in the definition of "Secured Liabilities" or in the covenant to pay or in defining the event of default (where the capital sum alone is expressly referred to).
105. The Master heard the parties give evidence about this and about the context of their relationships at the material times. She was clearly swayed by the evidence she heard about the interest free advances made by Mr Turner/EF and the contrasting position that the Appellants were seeking to advance about a loan to him. She heard them cross-examined upon the documents unfavourable to each, including the exchanges on 7 November 2007. It is material also to bear in mind the Master's findings as to the relative credibility of the main witnesses, when we are considering her assessment of the evidence on what each was saying were the contents of documentation that was not available.
106. In these circumstances, I do not consider that we would be justified in disturbing her conclusions on this issue of fact.
107. In the light of this conclusion, as all are now agreed, it is not necessary to examine the question of whether or not the loan was notionally or actually repaid in 2005. Nor, in the context of this already lengthy judgment, do I consider it desirable to review the Master's decision on that subject.

Fees and Salary Recharge

108. Under this heading, the Appellants make three complaints. Assuming that I have read the Appellants' schedule 2 to the skeleton argument correctly (of which I am not confident), I set out immediately following the sums at stake.
109. The first complaint is that invoices issued by the Respondents did not always cover all the sums for which credit was claimed in the accounts in respect of the same payments. Absent a complete invoice, therefore, say the Appellants, sums for which allowance was claimed against the total sums received for the period prior to 21 October 2003 are time barred (£31,005.42). Secondly, it is argued that improper allowances for VAT have been made (£15,130.73). Thirdly, it is said there were certain errors of calculation (£8,971.67).
110. These figures total, by my calculation, £55,107.82, rather than the £55,599.13 which appears in total line (477) of schedule 2. At present advised, it seems to me that the latest version of the schedule does not take account of a reduction of the perceived calculation errors from £9,462.98 (which appears in the previous version of the schedule) to £8,971.67 in the latest version. However, I appreciate that I may be misreading the schedule. Nonetheless, any such misreading does not affect the principle.

(a) Time Bar

111. The Appellants' complaint here is divided into two parts.
112. The first relates to a series of five invoices rendered by EF to the Appellants: Items 28, 32, 37, 49 and 53 in EF's account for the court. The Appellants say that the invoice rendered in each case was for £3,525, whereas the credit claimed in the account is for £4,700. The difference is £1175 per item, or £5,875 in all. As the period covered by the alleged entitlement is before October 2003 then the balance figure in each case is said to be statute barred.
113. The second complaint relates to 11 items for which EF claimed credit for sums due to the Revenue in respect of staff salaries sought to be recharged to the Appellants: items 162, 178, 179, 229, 289, 322, 339, 347, 348, 356 and 388 – totalling £25,130.42. However, it is submitted, not all these sums were the subject of invoices at the time, and (in so far as they were due in respect of periods outside the limitation period) they are, therefore, statute barred.
114. The Master's findings in respect of these two classes of credits claimed are to be found in paragraphs 13, 14 and 15 of her 1^st Supplemental Judgment, by reference to lines of a "defendants' revised spreadsheet received [by her] on 12 June 2013" in these terms:

"13. The claimants have also identified items where in each case, credit is claimed for £4,700 but only £3,525 was paid: 28, 32, 37, 49 and 53. The balance claimed totals £5,875, which the claimants say is time-barred. These items were the subject of invoices and were entered into Coronation's accounts; and I find that they were part of a running account, so that the claim for them is not time-barred.

Payroll recharge – line 41

14. The claimants have identified the following items in respect of payments made by Exsus Finance to the Inland Revenue which were rechargeable to Coronation, but were not paid at the time:162,178,179,229,289,322,339,347,348,356,388. These total £25,130.42

15. In the main judgment I found that the amounts paid and recharged to the claimants were the amounts advised by Baker Tilly. These payroll recharges were invoiced and entered into Coronation's books. They therefore formed part of the running account between Exsus Finance and Coronation, and for this reason the claim for credit in respect of them is not time-barred."

Those findings were made following a more extensive reference to the nature of "running accounts" for limitation purposes, to be found in paragraphs 5 to 9 of that judgment which include a reference to Re Footman Bower & Co. Ltd. [1961] Ch 443, a case not cited to the Master by either side but considered by her in preparing her judgment.

115. Dealing with the first of these two categories of credit claimed, in respect of which a limitation point arose (consultancy fees), the Master found some not to be part of the running account and therefore time-barred. The five presently in issue, however, she found were part of a running account
116. With regard to the first category, Mr Alexander took us to the invoices concerned to show us the discrepancy alleged. He submitted that the balances were not entered into the account at the time and were, therefore, contrary to the findings below, time-barred.
117. As for the second category, Mr Alexander again took us to examples of the items concerned and sought to demonstrate that the whole of the item for which credit was claimed was not covered by the invoice attributed to it in EF's account. Accordingly, the argument is that the items are statute barred as accruing due outside the limitation period.
118. In this regard he showed us the first item in the list 162 of £9,708.44, which according to EF's account was covered by Invoice 1042. However, Mr Alexander pointed out items 157 (£5,640) and 161 (£2,169.90) in the account are also said to be comprised in the same invoice. The total, said in the account to be covered by invoice 1042, is, therefore, £17,518.34. Looking at the invoice itself (10A/12/3657) that is only for a sum of £7,906.08. Thus, the invoice did not cover the whole of the credit amounts said to be attributable to it and the excess, being time-barred, is irrecoverable.
119. Mr Alexander gave us another similar example arising out of items 204, 209 and 229 in the EF account said to be covered by invoice 1051. Those items were for £5,640, £1,958.61 and £3,687.34 – total £11,285.95. On the other hand, invoice 1051 (10A/12/3665) is for £7,906.08. So, therefore, say the Appellants the balance is not covered, not invoiced and is statute barred.
120. With regard to the first category of allegedly time-barred claims, Mr Ohrenstein said that the Appellants' stance was based on an erroneous attempt to look at a "snapshot" of the accounting position between the parties. He said the invoices in this category were rendered not necessarily to reflect the entire liability for the previous month, but would be sometimes more and sometimes less than one month's consultancy fees. He referred (in his skeleton argument, paragraph 159) to a passage in Mr Turner's evidence where there was an exchange between him and the Master dealing with elements of catch-up on previous under-charging or overcharging. As an example of this, Mr Ohrenstein referred us to invoices 1030, 1031 and 1032 for a composite payment of £20,046.24 which is item 113 in EF's court account (3/2/652).
121. So far as the Revenue liabilities sought to be recharged to the Appellants in EF's account, i.e. the second category of credit amounting to £25,130.42, the Respondents' argument again referred us to invoice 1030 which reflected initial over-invoicing covered by a later catch up payment. Mr Ohrenstein also demonstrated here certain overpayments made by the Appellants on invoices 1046 and 1047, intended to go towards PAYE and NIC to be paid at a later date: see the submissions: Day 3 pp.124-127.
122. Proceeding to Day 2 pp. 128-130 of the Transcript of our hearing, Mr Ohrenstein summarised his submission by saying that what truly mattered in the taking of the account was not the invoicing, but the payments actually shown to have been received by EF and whether those payments could be justified against payments made on the Appellants' behalf. Having taken the court to an exchange of e-mails in March 2004 between Ms Henriksen and Mr Turner as to the calculation of the monthly standing order between Exsus Finance and Coronation (which made the regular monthly payments), Mr Ohrenstein said this (including his response to an intervention of Gloster LJ):

"MR OHRENSTEIN……….it shows why the invoicing is much less relevant than the reality of what was actually spent on employees by way of their net salary and their PAYE and NI and that is why the account looks at actual expenditure and focuses on the actual expenditure, although when there are invoices it tries to give a description so one can keep a rough sort of track but it is not a precise: "This invoice covers exactly this amount and covers 17 per cent of the salary and 22 per cent of the National Insurance" or anything like that. There was never that sort of breakdown. That was not the way things were conducted. The invoices were to keep track of effectively payments and that was in the evidence. Invoices were for payments rather than anything else.

LADY JUSTICE GLOSTER: Your justification for the change of these amounts is based on what was actually paid to what Exsus Finance at that point paid in relation to…

MR OHRENSTEIN: That is exactly how the account has been done. It shows the entitlement which falls against sums actually paid out by the defendants, save for Mr Turner's own income where it is not a question of a payment out. That was an express finding about salary, his personal consultancy, but everything else is all reimbursement and every payment was linked to the bank statements: say, "Look, on this bank statement here we have this payment. This went out of the account, out of the bank account" and then it creates an item in the account that Mr Turner provided for court purposes. So he was not concerned about really the invoicing. That was not the process. The invoicing was not something that was really explored; it would have been very difficult to get very far. That was not the way any of the parties were approaching it. So when the Deputy Master found (and this is in her supplemental judgment) that sums had been invoiced and charged she was entitled to do that because she had fully on board the point that we were dealing with global invoicing and global charges and we are not dealing with having to say, "Look, here is one particular invoice that specifically is in exactly the same amount of money as that particular month's entitlement". It was not as far as I recall, and no doubt somebody will tell me if I am misleading the court, put to Mr Turner that overall that there had been a lack of invoicing; it was more a question of you have received money – he had received money he was not entitled to. I do not think it was suggested he was under-invoicing. That is the salary recharge item £25,000."

123. In his submissions in reply, Mr Alexander argued that the "global accounting" and "catch-up invoicing" points, which I have endeavoured to summarise above, had not been made before the Master. Further, the accounts lodged had attributed particular entitlements to invoices and the Respondents should not be entitled to go back upon that approach. By reference to Schedule 2 to the skeleton argument (in its latest form) (1/3/67.29), Mr Alexander pointed out that entitlement was claimed by EF to a total of £724,846.04 against invoices totalling £668,976.98. Thus, it was argued, there must inevitably have been under-invoicing overall: see Day 3 pp.87-92. As seen from Mr Alexander's answer to Gloster LJ's question (at p. 92, lines 20-24), the point was that if one did not strictly allocate payments to particular invoices there were not enough invoices to cover what "they" (i.e. the Respondents) were claiming.
124. The flaw in that submission seems to me to be this. The object of this account was to find out what sums EF and Mr Turner had received and to see whether they were entitled overall to have received those sums when set against their entitlements vis-à-vis the Appellants. If the Respondents had been overpaid the money was to be repaid. That is all that the accounting exercise sought to achieve. The Respondents' counterclaim made it clear that they claimed nothing from the Appellants, but if the Appellants pursued a claim then they (the Respondents) would be entitled to further credits as against the Appellants of £145,347.01 (paragraphs 140-1 of the Amended Defence and Counterclaim 2/6/459).
125. On the Master's final conclusions (see the schedule to the 1^st Supplementary Judgment 1/8/256-7). EF (to which all these supposed time-barred claims relate) had received a total sum of £1,200,728.44. It had made payments of £360,730.51 to the Claimants, leaving a net £839,998.13 received. It was entitled to credits of £816,815 and, therefore. "owed" £23,183.04 to the Claimants.^[2] It seems to me, therefore, that what the Appellants seek to do is not to defend themselves against claims made by EF against them but are trying to claw back money already paid by them to EF. The claims to credits in the account were not new claims as such to which the Limitation Acts would apply. In so far as alleged credits were found to be unjustified, they gave the Appellants grounds to reclaim money previously paid by them.
126. In short, the Appellants are saying EF received too much from them because when the justifications for these items are examined, as at October 2009 when the claim was issued, they were statute barred. The Appellants want money back from EF in respect of these items; EF is not claiming them afresh. None of the credits mentioned in the disputed items (see paragraphs 112-113 above) related credits said to be due to Mr Turner in the final account.
127. Mr Alexander submitted that this argument had been decided against the Respondents in paragraphs 424-6 of the Master's judgment and that there was no Respondent's Notice seeking to revive it. Accordingly, he argued the point was not now open to the Respondents: see Mr Alexander's submission in reply on Day 3 pp.95-96. At lines 22-3 on p. 95 I am recorded as saying that I would think about this submission again. I have done so and I reject it. In my judgment, the Master did not decide the point against the Respondents (and she states expressly that she heard no oral submissions on limitation or laches from either group of parties). It seems to me that she was saying that in so far as the Respondents needed to make a claim for reimbursement in respect of a sum paid outside the limitation period, then it would be statute barred. However, for the reasons which I have sought to express immediately above, the Respondents were not making such claims; they were resisting claims for repayment of sums already paid.
128. Further, for my part, I would accept Mr Ohrenstein's submission that there was a global accounting between the parties with invoices rendered from time to time against liabilities incurred and sometimes including over-invoicing and at other times under-invoicing. The invoicing may not have caught up with the payments by the time "the music stopped", but all that that would show would be that the Respondents were potentially overpaid against invoices rendered. It did not show that they had been overpaid against overall entitlement. That position does not seem to me to enable the Appellants to claim the difference.
129. Accordingly, I would reject these time-bar objections.

(b) VAT

130. The next point raised is that the Master is said to have given improper credit to the Respondents for sums of VAT which they claimed the Appellants were liable to pay when they were not. The sum at stake is put by the Appellants at £15,130.73. The objections are threefold. First, it is said that where EF was recharging the Appellants in respect of the costs of staff, in so far as the base sum included an amount for PAYE and NIC, then no VAT was payable because there is no tax payable on a tax. Secondly, there are said to have been improper claims to VAT in relation to consultancy fees and salary recharge in two respects: (i) where no invoices were raised at all in respect of the amounts claimed; and (ii) where an invoice appeared in EF's records (but not in ET's) and the invoice did not make any claim to VAT: see the Appellant's skeleton argument, paragraph 34 for the item numbers.
131. The Master's conclusions on salary recharges by EF on ET appear in paragraphs 277 to 284 of her main judgment. The question of VAT is scarcely touched upon. In paragraph 284, the Master said this:

"284. The amount which Exsus Finance is entitled by way of salary recharging is therefore the amount actually paid by it plus VAT."

132. On the first of the Appellants' points, we were given very little "schooling" by counsel upon the applicable law relating to VAT on such salary recharges. Indeed, Mr Alexander did not raise this first "VAT point" in his oral submissions at all. However, in principle, I would have imagined that if a firm hires out a staff member to another and charges a fee which includes a sum by way of recovery of the salary and deductions paid then if the first firm is registered for VAT it would have to charge VAT on the total amount of the fee, howsoever calculated. While I would not wish to be taken to be resolving any contentious VAT point in the context of this one item in a lengthy account taking process, it seems to me that support for this is to be derived from the extract from an HMRC Guidance Note cited by Mr Ohrenstein in his skeleton argument at paragraph 175 which is in these terms:

"2.3 Value: If you make a taxable supply of staff you must charge VAT on the full amount of the consideration for the supply. 'Consideration' is what you are given in exchange for the supply. It can be any form of payment in money or in kind, including anything which is itself a supply. As well as any fee this includes any staff costs you recover from the recipient of your supply such as: salary, National Insurance, and pension contributions, VAT is due on the full consideration."

133. Accordingly, I would hold (so far as the point was still live before us at all) that, in so far as the Respondents (so far as registered for VAT purposes) hired out staff to the Appellants, they would be entitled and obliged to charge VAT on the entire sum charged to the appellant, even if some of the base sum so charged in fact included an element of recovery in respect of PAYE and NIC. Presumably, this would apply only to EF, however, as I understand that it was registered for VAT, but Mr Turner was not.
134. Mr Ohrenstein's response to the detailed submissions by Mr Alexander on the invoices, by reference to the schedules to his skeleton argument and to certain of the relevant copy invoices, was twofold. First, the issue of invoicing did not form part of the list of issues before the Master and had not been raised at all at the hearing until the Appellants' final written submissions of 24 July 2012 (paragraph 233). Secondly, he submitted that if EF had failed to invoice the relevant Appellant for VAT, an invoice could be supplied. For good measure, Mr Ohrenstein pointed out to us, without contradiction, that the schedule to the Appellants' skeleton argument (schedule 5), used by Mr Alexander to demonstrate his point, was a document that was not before the Master: (Day 3 p.140, line 16).
135. Mr Alexander's riposte on the second point was that it was too late for any invoice to be supplied by EF to meet any earlier deficiency because, under HMRC rules it would now be too late to correct previous returns to which the invoices would relate.
136. The procedural position on this aspect of the case is unfortunate. It is right, it seems to me, that this question of detailed invoicing for VAT purposes, played no real part in the hearing before the Master at all. I can detect no oral evidence or argument upon it at trial (having followed through the index references to VAT in the trial transcripts). The point was indeed raised in the Appellants' closing submissions to the Master in paragraph 223, in these terms:

"223. The claims made by the Defendants include amounts claimed in respect of VAT. Irrespective of any argument as to whether the reimbursement of sums paid by way of PAYE and NI does give rise to a potential charge to VAT, the Defendants did not invoice the Claimants at the time of the payments and so no liability for VAT arises. Further, given the passage of time it would no longer be open to the Claimants to recover any VAT charged in relation to such payments."

137. Prior to trial in schedule 2 to the Re-Amended Particulars of Claim the Appellants did make objection to some items in EF's account on the basis that the VAT which EF was claiming to re-charge was not in the invoice to which reference was made. Mr Alexander took us to some of those to which he referred in paragraph 34 of his skeleton argument in this court. I have checked some but not all of the others there mentioned. Not all of those checked bear out Mr Alexander's contention, but, no matter, some do.
138. The list of issues of the matters to be resolved by the Master at the trial (13/6/47 et seq.) makes no express reference to this issue, although Mr Alexander submitted to us that it was subsumed and comprised in issue "salary recharge" (Loc. Cit. p. 49).
139. Mr Turner, in his main witness statement, had dealt with the subject of EF's salary recharges in paragraphs 553-580 of his main witness statement. There he makes references to variations in respect of monthly amounts invoiced "plus VAT" (see e.g. paragraphs 560, 562 and 575). He makes no reference to the individual complaints about invoicing raised in the schedule to the Re-Amended Particulars of Claim. As already mentioned he does not appear to have been cross-examined about this.
140. After written submissions, in July 2012, the parties came back before the Master for further oral argument on 12 September 2012. Again, I have checked the index of the Transcript of that day's argument for references to VAT and, when looked up, none seem to be raising the sort of detailed points on invoicing now raised on the Appellants' behalf on the appeal. Looking at the Appellants' written submissions of 3 and 9 June 2012 (11B/11/4943 et seq. and 5005 et seq.), prepared after circulation of the Master's draft judgment, I cannot detect any reference to the detailed invoicing points now advanced. Nor is there any suggestion that the Master's judgment needed to supply further reasons for her very short comment in paragraph 284. The three references to VAT, thrown up by the index to the transcript for the hearing before the Master on 10 June 2012, when judgment was handed down reveal no more.
141. Where does this take us?
142. For present purposes, the fact remains that we do not have any findings of the Master on this sort of detailed point upon which Mr Alexander addressed oral argument to us and in the course of which he made some headway in demonstrating apparent deficiencies in the VAT invoicing. This is not surprising, given the scant attention paid to the point at the trial. It is scarcely possible now, I think, to resolve in this court such a point of detailed accounting which was given no real airing at all at the trial.
143. It seems to me to be a classic case for the application of the principles emerging from English v Emery Reimbold & Strick Ltd. [2002] EWCA Civ 605. In my judgment, the Appellants should have addressed the Master upon the absence of any findings, in her judgment about the invoicing points made to her in the brief paragraph of the written closing submissions. We were not told why the matter was not taken up at that stage. It may be that it was simply an oversight. I consider that at this late stage it would be impossible to remit this matter back to the Master for further determination.
144. Accordingly, I would reject this head of ground 5 of the Grounds of Appeal.

(c) Errors of Calculation

145. The next point arising is the Appellants' argument that,

"The Deputy Master failed to address the Appellants' submissions in relation to calculation errors which had been made regarding salary recharge and PAYE/NIC. These errors totalled more than £9,000. Details of the errors (extracted from Schedule 2) are set out in Schedule 6 hereto." (See paragraph 36 of the skeleton argument for the appeal.)

The original appeal schedule ended with a figure of £9,462.98, which was revised to £8,971.67 by the time of our hearing: 1/3/67.40).

146. The Appellants' point here, as it emerged in oral submissions (if not from the skeleton argument), was that they had compiled their schedule 6 by reference to Baker Tilly's P11 deduction cards for the four employees concerned and could now demonstrate that the sums for which the Respondents' claimed credit exceeded in some cases the sums indicated by the cards for the relevant period (Day 2 p.39 et seq.).
147. In his skeleton argument (paragraph 182) Mr Ohrenstein characterised the Appellants' submission as being that Baker Tilly's calculations had been wrong and he proceeded to argue that there was no evidence of such errors at trial. He pointed us to the Master's conclusions at paragraphs 179 and 282 of the judgment. In oral submissions, Mr Ohrenstein said that the points made by Mr Alexander, by reference to examples from the deductions cards, were not advanced in the Appellants' closing submissions to the Master.
148. It seems to me that Mr Ohrenstein was wrong to say that no such point had been advanced by the Appellants before the Master (Day 2 pp. 139-140 and 142). As Mr Alexander pointed out the issue was in fact addressed in paragraphs 207 to 211 of, and an appendix called Appendix 6 to, the written closing submissions (11A/2/4479-4480), although we were not told specifically whether the records referred to at paragraph 208 of those submissions were the same as those to which Mr Alexander directed us by way of example in his oral submissions to us. Further, it seems from paragraph 209 of that document that the sum then being claimed in that Appendix 6 at the close of trial was £17,879.05. Thus, that Appendix must have been rather different from schedule 6 to the Appellants' skeleton argument.^[3] Indeed, Appendix 7 addressing PAYE and NI claims (11A/2/4549-4550) showed a sum of £35,000 + due to the Respondents.
149. Mr Ohrenstein did refer us to a passage in Mr Turner's evidence in cross-examination, touching upon these points in outline but not in the same detail as now advanced by the Appellants. It appears in the trial transcripts for Day 12, in our bundles at 12B/14/5787-8, internal trial numbering 160-164. In this passage, Mr Alexander was examining with Mr Turner such link as there was between the payments for PAYE/NI made and the invoicing by EF. Mr Turner was trying to say that what he had been concentrating on in providing the accounts for the court was the physical payments of cash and the payments to the employees concerned. His point was that the invoicing did not always match, month by month, the payments made. At internal pages 161-3, there was the following exchange between the witness, the Master and Mr Alexander:

"……I am not saying that these entries is the exact amount on the invoice, all I am trying to do is help the claimants understand. Invoice 1042 was my consultancy fee, plus John Littlebury's, and it was invoiced monthly, but for the accounts, because I know that the claimants wound not stand if they didn't see actual physical payments going out, I used the actual physical payments through the bank account to generate: this is what I've paid to John Littlebury, this is what I have paid to the Inland Revenue, so they could tick it off to a payment, not just a piece of paper that says "invoice" on it.

DEPUTY MASTER CLARK: Your account focuses on items of expenditure by you which you say you are entitled to claim from the claimants?

A That's correct, yes.

DEPUTY MASTER CLARK: But does not necessarily directly match invoices rendered?

A. No. In total, it would do eventually, but I wanted to demonstrate – I thought I had to show these are more to do with monies, that you can actually see: here is a bank statement, here is exactly what happened.

DEPUTY MASTER CLARK: the invoices are really a way of keeping track of the sums that were paid to you; is that correct?

A. Correct. Or what was due to me, yes, and then you can see there is payment for those invoices coming in. In practice, that's what happened.

DEPUTY MASTER CLARK: Sorry, Mr Alexander, I am trying to get it clear myself.

MR ALEXANDER: I find this PAYE and NI stuff incredibly difficult to follow."

A little later Mr Turner gave this answer:

"A. I do not believe there are any overpayments. These are the payments that have been made to the Inland Revenue as deductions for PAYE, those are in the bank statements, those are what I have used to create the account."

There then followed this between both counsel and the Master:

"Q. You did not believe there are any overpayments; if there turn out to be any overpayments, would you agree with me you should not be able to get back from us more than you have actually paid?

MR OHRENSTEIN: If it's being suggested, and I am not sure it's been suggested anywhere in evidence that there has been an overpayment of National Insurance, could the overpayments specifically be identified and put to the witness and we can look at?

DEPUTY MASTER CLARK: I think that's fair. I do not recall seeing that point in the evidence.

MR ALEXANDER: I am instructed they are everywhere in the schedules. I can go through what I have been given on this PAYE and NI. It's ten pages long.

DEPUTY MASTER CLARK: Is this anywhere in the evidence or in your skeleton argument?

MR ALEXANDER: On PAYE and NI?

DEPUTY MASTER CLARK: the point that there are overpayments?

MR ALEXANDER: I am told the detail is in the schedules.

DEPUTY MASTER CLARK: Which schedules?

MR ALEXANDER: Let's go to 2H. (Pause) Whilst they are digging out the right reference for me, shall we press on with another one and I will come back to PAYE and NI.

DEPUTY MASTER CLARK: Yes."

It seems that after that the point was not touched upon in the evidence again.

150. The Master dealt with the subject of salary recharges, as part of the claims to credit by EF (paragraphs 268 et seq.) in paragraphs 277 to 288. It is clear from the totality of those passages that the Master regarded the PAYE/NIC issue to be covered by her findings in relation to salary recharges as a whole. She said expressly at paragraph 288 this:

"PAYE and NI payments made to HMRC in respect of employees of Exsus Finance who worked for the claimants

288. This issue is dealt with in relation to salary recharges in paragraphs 277 to 284 above."

151. At paragraph 272, she had already made the important finding as follows:

"…Exsus Finance had no business of its own, and its recharges for the costs of staff were exactly the sums paid to those staff (and to the Revenue for income tax and national insurance due in respect of those staff.)" (Emphasis added).

152. This is precisely in accord with the answer given by Mr Turner, recorded in the transcript for Day 12 at p. 163, lines 19-23 (12B/14/5788), already quoted above, as to which Mr Alexander had said (at p. 164, lines 22-23), "…I will come back to PAYE and NI…", but never did.
153. As already noted, the written closing submissions addressed this issue by reference to Appendix 6 which was the "Salary Recharge" appendix, and not to Appendix 7 "PAYE and NI Claims…" showing a sum due to the Respondents. It is perhaps not surprising, therefore, that the Master did not address the two issues separately – all seemed on the documents to be one and the same. On checking the index to the transcript for 10 June 2013 (when the main judgment was handed down) for references to PAYE/NI, I cannot see any argument directed to the point now made as to a perceived failure to deal with the earlier submissions.
154. Having regard to the way the evidence on this matter seems to have gone at trial and in view of the Master's clear view that recharges for PAYE/NI reflected payments made, I do not see how any viable challenge arises on appeal by the attempted re-opening of the payroll records. I accept Mr Alexander's point that the Master had agreed that not every point turning principally on documents had to be put to witnesses. However, in my judgment, reflecting upon the materials to which I have just referred, there was no material failure by the Master to deal with the submissions addressed to her. She clearly had the point in mind but believed that she had covered it sufficiently in the section of her judgment which she identified. In my judgment, she had indeed done so.

(d) Lack of Credit

155. This concerns a sum of £2,975.76 said to have been omitted from the Respondents' accounts as a receipt but which, it is said, was clearly received by them when one examines the bank statements. We were directed to the relevant entries.
156. It seems that this item was wholly overlooked until it was raised by the Appellants in a letter to the court, copied to the Respondents, on 2 July 2013, after circulation of the Master's first supplementary judgment. The Appellants objected to the re-opening of this matter at that late stage (by their letter of 4 July 2013). Among other matters, it was submitted that it would be wrong to allow this item in the Appellants' favour, when similar items had been disallowed, potentially in the Respondents' favour, because they had been omitted from the list of issues. The Appellants' retort was that this item was a clear omission, whereas the others alluded to by the Respondents were contentious. When the matter arose before the Master at a further hearing on 9 September 2013, her view was shortly expressed in exchanges with counsel as follows:

"My view on that, obviously I will listen to anything you have to say, but my view on that is it is too late to open any factual matters and that is, to a degree, reinforced by the fact that I would not allow Mr Ohrenstain to reopen factual matters. You can address me on that if you like." (12B17/5935)

157. Mr Alexander then submitted that this was merely a manifest error about which there could be no doubt. Mr Ohrenstein is then recorded as saying that it was not a manifest error. The Master did not alter her view.
158. In my judgment, it would be wrong now for this court to interfere with the Master's exercise of discretion. She was entitled to take a view, in the context of the account process as a whole, that it would be unfair to permit either side to reopen battle on omitted items, even if one party could say his claim had more obvious merits than that of the other. This was a case management decision affecting a small item in a voluminous accounting exercise; it is impossible, in my view, to say that the Master erred in the exercise of her discretion.

(e) Credibility

159. As part of grounds 4 and 5, the Appellants attack the failure of the Master to address their submissions as to the credibility of Mr Turner as a witness. In paragraph 41 of the skeleton argument for the appeal Mr Alexander and Mr Robins identify seven individual areas of the case which it is said reflect adversely upon Mr Turner's credibility and which the Appellants complain were not dealt with adequately by the Master in her judgment.
160. In paragraphs 194 to 208 of his skeleton argument before us Mr Ohrenstein contests the aspersions cast upon Mr Turner in these respects in some detail. For my part, I find those detailed arguments persuasive.
161. In my judgment, it is not necessary to deal with each and every one of these items of dispute between the parties to form a view upon the Appellants' criticisms of the Master's credibility findings. It suffices to say that the Master did devote sufficient attention to the respective credibility of the witnesses on the two sides of the case: see paragraphs 110 to 145. It is clear that, where it mattered to the issues in the case, the Master largely considered Mr Turner's evidence the more credible. In her most significant findings relating to Mr Turner's credibility (in paragraph 145), she reflected carefully upon those areas of his evidence which had given her cause for concern and noted that in one particular area of the case (the £50,000 bonus) she had not accepted his version of the facts. However, she had no doubt in the end as to the relative merit of the parties' evidence and she summarised why she found Mr Turner "a generally truthful witness".
162. I do not consider that it is incumbent upon a judge to trawl extensively through every point made as to the credibility of witnesses. It suffices for the judge to say why he/she prefers one witness to another. It seems to me that the Master did that sufficiently here. Where the witness evidence was material to an individual issue on the account, the Master dealt with it. There can be no doubt that the Master found (and was entitled to find) that there was a significant deficit in credibility on the Appellants' side when compared with the Respondents.

(F) Production of the Judgment

163. Finally, I would wish to add a few comments upon certain criticisms made in the written argument for the Appellants with regard to the time that elapsed between the trial and the delivery of the main judgment. In paragraph 4 of the Appellants' skeleton argument here, there is the following comment:

"The process suffered from unreasonable delay. The Main Judgment was handed down nearly a year after the trial of the account. The first draft of the Main Judgment was provided to the parties more than 6 months after the final written submissions."

164. I do not accept this criticism and to be fair to Mr Alexander, during the hearing, when adverse comments came from all members of the court against his argument on this point, he did not pursue it with any vigour.
165. In the appeal papers (13/14/154) we have a note from the Master of the relevant timings, which do not appear to be disputed. The trial began on 11 June 2012. The oral hearing ended on 26 June 2012. Written closing submissions were presented on 17 and 24 July 2012, with further written responses from each side being lodged up to 12 September 2012, before a hearing of oral submissions from counsel on the last mentioned date. More written submission followed up to 15 October 2012. There were apparently 52 bundles of documents and transcripts of 11 days of evidence. It is to me not surprising at all that the draft judgment was not provided to the parties until 15 April 2013.
166. I do not accept that the judgment reveals any material failure to recollect evidence or any "inappropriate broad brush approach".

(G) Conclusion

167. For these reasons, I would dismiss this appeal.

Lady Justice Gloster:

168. I agree.

Lord Justice Jackson:

169. I also agree.

Note 1   The Respondents’ skeleton argument for the appeal puts this figure at £105,085.29 – paragraph 96.    [Back]

Note 2   Those figures took into account £28,435 for other amounts found by the Master to be “time-barred”.    [Back]

Note 3   C.f. The “Appendices 6 and 7” appearing after a copy of these closing submissions, apparently reflecting the relevant appendices, in the appeal bundles at 11A/2/4546 et seq. These are entitled “Salary Recharge in Schedule” and “PAYE and NI Claims in Schedule 2” and show a sum of £16,804.03 due to the claimants on Appendix 6 and £35,498.86 due to the defendants on Appendix 7.    [Back]