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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Kohli v Lit & Ors [2012] EWHC 1337 (Ch) (08 March 2012)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/1337.html
Cite as: [2012] EWHC 1337 (Ch)
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CHANCERY DIVISION
Strand, London WC2A 2LL |
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B e f o r e :
(Sitting as a Judge of the High Court)
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| IN THE MATTER OF SUNRISE RADIO LIMITED |
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GEETA KOHLI |
Claimant |
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| - and - | ||
| DR AVTAR LIT | ||
| RAVINDER KUMAR JAIN | ||
| SURINDERPAL SINGH LIT | ||
| SUNRISE RADIO LTD | Defendants |
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165 Fleet Street, 8th Floor, London, EC4A 2DY
Tel No: 020 7422 6131 Fax No: 020 7422 6134
Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com
(Official Shorthand Writers to the Court)
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Crown Copyright ©
- This judgment relates to issues arising out of the judgment I gave in December 2011 on the valuation of Miss Kohli's shareholding. At the conclusion of that hearing, I invited counsel to draw to my attention any arithmetical errors, as I was conscious that I may have made some, and one was identified (in fact by me) more or less immediately, namely that I had added in a figure which should have been subtracted. That needs to be corrected, and has now been corrected, in schedular form, by Mr Hanke. However, that prompted further written comments from Mr Griffiths in relation to two matters. Firstly, I had held that the value to be put on Sunrise, as a whole, should be upon the footing that, upon a hypothetical sale of Sunrise, all of the Allied Irish Bank debt would have to be repaid. I included in the calculation previously made the amount of that debt. What I did not include, as Mr Griffiths drew to my attention, was a redemption fee of £250,000. It follows logically from my earlier judgment that that should have been deducted. I deduct it now.
- In addition, Mr Griffiths pointed out that I had made no ruling in relation to the fact that Miss Kohli's shares, or the majority of them, were partly paid. They were only three-quarters paid up. That, it became common ground, was a sum that should be deducted in the ultimate calculation. There was a difference of approximately £500 between the parties as to what was the appropriate deduction. I think Mr Griffiths is more likely to be right than Mr Hanke on that point. Mr Hanke took a proportion corresponding to the 14.78 percent notional proportion of Miss Kohli's shares that I attributed to those shares and applied it to the unpaid shares as a whole. However, as Mr Griffiths rightly contended, what one has to do is actually identify which shares are fully paid up and which shares are not and apply the maths to that identifiable figure. Sadly, no one has identified precisely what that figure is. As, however, there is only £500 between the parties and valuation is not an exact science, so that there will be, as my earlier judgment indicated, a rounding at the end of the day, I shall, because it is easier to do it this way, take the figure as being £9,000, mindful of the fact that it probably needs to be rounded up a bit by £300 or £400 when I come to do the ultimate figure. That adjustment, therefore, will be a deduction from the ultimate purchase price.
- A more substantial point arose when I read the skeleton argument for the hearing before me and Mr Griffiths' application for permission to appeal. He pointed out that what I had done is deduct only from the valuation of Sunrise the amount of the Allied Irish Bank debt and not, as Ms Hindson (his expert) had done when valuing Sunrise as a whole, including all its subsidiaries, the net liabilities of either the group or of the particular companies which I took into account when making the valuation. He contended that that was absurd. When I read that submission on the skeleton argument I was initially attracted by it and, therefore, invited further argument as to whether I should make a deduction for all of the net liabilities within the companies that were being valued. It seemed to me then, though I did not have the papers before me, that Mr Griffiths' submission might logically follow from the approach I had adopted. However, Mr Hanke has pointed out that the experts were agreed that a price-earnings multiple was appropriate, which had no necessary reference to net liabilities. The only reason that a net liability was brought in by Ms Hindson was because of the interdependency of all the companies and the existence of guarantees across the board. That feature disappeared once I approached the issue on the basis that all the bank indebtedness would in fact be paid off on completion. That, Mr Hanke correctly pointed out, was the only reason for bringing in that indebtedness at all and, that being so, on the evidence before me, the only debt which had to be repaid on a hypothetical sale of Sunrise was the bank debt. Mr Griffiths pointed in further argument to what appeared to be other inter-company indebtedness, but there was in fact no evidence at the hearing before me as to the nature of that inter-company indebtedness and whether it would have to be repaid on completion. That was a point which could have been made additionally by Ms Hindson, but was not, and, more importantly, could have been made by any of the Sunrise witnesses, no one in fact, for good reason or bad, being available to give evidence at the quantum hearing.
- One of the problems that has bedevilled this case, and in particular the quantum hearing, is the lateness at which the evidence was prepared, despite the substantial lapse of time between the liability hearing and the quantum hearing. However, what was clearly in issue, as is evident from the joint statement of the experts, is whether or not the subsidiaries could be discarded if they were not profitable. It was clearly Mr Thompson's view, with which Ms Hindson disagreed, that they could. It was for the Sunrise parties (as I shall call the respondents) to consider what the consequences were if Mr Thompson's view should prevail, and it was for them to put evidence before the court to show that some further deduction over and above the Allied Irish Bank indebtedness would be appropriate. They had, after all, put in detailed evidence of the Allied Irish Bank indebtedness and of the partiulcar terms upon which it was made. They did not put in any evidence about the terms upon which other indebtedness was incurred. In those circumstances, it was appropriate to make a distinction between the Allied Irish Bank indebtedness and other indebtedness, and it does not therefore seem to me that I should re-visit my earlier ruling on that ground. This is not a case, in my judgment, where it is appropriate to have any regard to net indebtedness as I am adopting a multiple of earnings basis for valuation. It was only because of the special features that presented themselves to Ms Hindson that she brought in all the net indebtedness, those features having now disappeared. Once the Allied Irish Bank indebtedness is treated as paid off, there is no longer any basis for bringing net indebtedness in at all. It is common to see, as indeed one sees from Ms Hindson's individual valuations of Sunrise and Concorde, valuations on a price-earnings multiple without regard to net assets. Sometimes the net assets or liabilities may have a significant impact, but there is nothing in the evidence to suggest that they should have a significant impact in this case. Mr Griffiths says that the result of the omission of other indebtedness is absurd, because if (he says hypothetically) a million pounds' worth of the bank indebtedness had been paid off a week before the valuation date, with, let us suppose, third party money or intercompany indebtedness, then the valuation would be higher, even though the net indebtedness would be no different. It is always possible when one is dealing with a price-earnings multiple to make points of that sort. However, I would expect, in those circumstances, that the indebtedness which would hypothetically be created in relation to the third party instead of the bank would, in the event of an immediate sale, also be repayable, and so it is not likely in practice that the example that Mr Griffiths gives would be significant. In all events, those are different facts from the facts that I am dealing with. Had those been the facts, I would have had to consider those facts and the significance of the newly substituted indebtedness in the context of the particular circumstances in which it was incurred. That would have required proper evidence, just as Mr Griffiths' point required evidence in this case.
- There is one other adjustment which it became evident to me during the course of the hearing should be made to the valuation. The result of the adjustment is that Kismat Radio, instead of having a valuation of half a million, drops out of the picture and has a valuation of nil.
- Rather than running the risk of further arithmetical error, I shall, at the conclusion of this hearing, consider with counsel the schedule which is annexed to Mr Hanke's skeleton argument to calculate the appropriate figure, deducting the approximate sum of £9,000 and taking out the Kismat Radio valuation. We shall not leave until I have, following counsel's further help, determined the appropriate figure.
- The next question that I have to decide is the completion date. In my judgment, the completion date will be 21 days from today's date, which corresponds to the time for appealing. I have already indicated that I will (if it is needed) extend the time for appealing my previous ruling to 21 days from today. If an appeal is made within that period, and if an application for a stay of the orders I am now making is made, then I will order a stay until such time as the application to the Court of Appeal for a stay is determined. I will not, however, grant the stay myself, because, for reasons which I will come to, I am not granting permission to appeal. It will be for the Court of Appeal to decide that and to decide any question of a long-term stay. However, at the moment it appears to me that, if an appeal can be launched, Miss Kohli is unlikely to be in a position to guarantee repayment in the event of the appeal being allowed. So a stay may well be appropriate, but it will be for the Court of Appeal to ultimately determine that.
- The reason I say that completion should be 21 days from today is that Dr Lit, who is primarily liable under the order I made, has been aware of the risk of an adverse ruling since, at the latest, when I gave judgment in November 2009. He has proceeded on the basis that the shares at that date were worth very little, but he was, of course, aware that that was not, and would not, be Miss Kohli's case. In those circumstances, he only has himself to blame for not having contingency plans in place in case there should be an adverse ruling against him. There is evidence that he will find it difficult to raise the money, but it will not be impossible, and I do not think, in all the circumstances, that that is a good reason for keeping Miss Kohli out of her money any longer. Many judgments are made which people cannot meet, but that is not a reason for not making the judgment. Moreover, there are steps that will be available to Miss Kohli by way of enforcement, whether against Dr Lit or indeed against the other individual respondents, who are also liable to Miss Kohli. She ought to have the opportunity open to her to take those steps, if so minded. Accordingly, I order that completion will be in 21 days.
- Interest will run from the date of completion at the judgment rate. So I am effectively ordering payment in 21 days. I can see no reason why the rate should be any different from that applicable to any other judgment.
- Mr Griffiths, during the course of the hearing on 1 March, in a skeleton argument which he then argued fully and fairly on 2 March, made an application for Ms Hindson, his expert, to be recalled, because it was said she had not had the opportunity to comment upon the schedule put forward by Mr Hanke and upon which I based my earlier valuation. I declined that application. Mr Griffiths said that I had been guilty of a procedural error in inviting Mr Hanke to put forward an alternative valuation, without inviting him to do so. However, Mr Griffiths did not need an invitation, had he wished to do that, and his wish before me on 2 March was not to put forward an alternative valuation. His wish was to call further evidence to deal with the case as it was put in Mr Hanke's schedule. Mr Hanke pointed out that his schedule was based solely on the evidence before the court, the starting point being the separation of the subsidiaries, an issue clearly set out in the joint statement of the experts. All the figures in his schedule came from the evidence, and the essential methodology of a price-earnings multiple was the methodology of both experts. It did not seem to me that there was any procedural error, because Mr Griffiths had the opportunity and did in fact comment upon the schedule. He objected at the time, and said that it was new evidence not based upon any evidence at the hearing. He argued that there was no evidence to support the approach adopted by Mr Hanke. I did not accept that as an accurate statement of the position. I considered that Mr Hanke's schedule upon which I based my earlier ruling was indeed founded upon the evidence that I heard. That was the impression that I had then and, having heard further argument on the matter again, that remains the position. Mr Griffiths, unlike Mr Hanke, is now seeking to put in new evidence. In my judgment, it is too late for him to do so. I can see no justification for re-opening the evidential part of the hearing.
- I shall now deal with costs. I shall state my conclusions on costs and then give my reasons.
- I am going to order the individual respondents to pay two thirds of the petitioner's costs down to the judgment on 13 November 2009 on liability, and thereafter Miss Kohli is to have all her costs. I would expect the tax judge to look carefully in assessing those costs at the quantum of Miss Kohli's expert's costs in the light of the limited assistance which he gave me on the second round of the hearing, i.e. on the quantum hearing. I do not accept the criticisms of a general kind that Mr Griffiths made of him concerning the first round of the hearing, though there undoubtedly were comments in his first report which seemed to lead nowhere and which can be taken up with the tax judge. I am not making any deduction specifically in relation to Mr Thompson, but it will be open to the respondents to take any points they wish to take as to the reasonableness and appropriateness of parts of Mr Thompson's evidence. As I said in my judgment in December, so far as quantum is concerned I found it of little help. I did not find him to be of no help, however. I did find him far less impressive in general terms than Ms Hindson.
- The reason I am only awarding the petitioner two-thirds of the costs down to the judgment of 13 November is that, although she clearly, in my judgment, won, because she had an award made in her favour which has resulted in a substantial monetary judgment in return for her shares, there were many issues where time was taken up and costs needlessly incurred on points which should not have featured. In particular, although she eventually won in relation to the 2005 share issue, she did not win on the basis originally pleaded, namely that she had no notice of the share issue. On my findings, she must have lied about that. That is clearly a matter which should be reflected in some way in the costs order. She also, whilst winning on a number of other issues, lost on issues which took up time, for example as to whether or not various drawings were or were not authorised. In that respect, I found that there were unauthorised drawings of £150,000. In no sense has she recovered that sum, however, because that £150,000 has had no impact on the valuation which has now taken place. She lost on everything else where she was claiming unauthorised drawings. Against that, there was late disclosure of the later minutes authorising the payment of consultancy fees.
- Mr Griffiths complains that there was an ever-changing petition which underwent several amendments. This is not, regrettably, that unusual in unfair prejudice petitions when a minority shareholder, who is or has become an outsider, starts with limited knowledge and builds upon the petition from later acquired knowledge. I do not think that the history of amendments has any significant impact on the ultimate costs order. The costs of the amendments have been dealt with. In particular, Mr Griffiths sought all his costs, effectively, down to April 2008, when a trial was originally due to take place. When that trial was vacated, and permission to amend and to adduce expert evidence was given, Mr Griffiths was saying that the case down to that point was doomed to fail, praying in aid observations made by Peter Smith J at the time as to non-suiting. However, if a special order was to be sought in relation to the costs down to that date, the appropriate order would have been to reserve costs, whereas the costs of the application were in the case.
- I take into account also, though not to a great extent, the history of offers. It is noteworthy that Miss Kohli at an early stage offered to sell her shares at a valuation by an independent accountant. That, ordinarily, is a course which respondents tend to seek rather than applicants, because petitioners often fear, on many occasions with justification, that they run the risk of the management of the company feeding selective information to the valuer, which they have no opportunity to control, or even correct. Miss Kohli was prepared to run that risk. It seems to me, therefore, that, although I do not criticise the respondents for not accepting that offer, I can take into account the fact that Miss Kohli was prepared to settle at an early stage on reasonable terms in her favour, and limiting the deduction of her costs to one-third, which is my broad estimate of the extent to which the trial was prolonged by unnecessary issues.
- Permission to appeal is sought by Mr Griffiths which, as I have already indicated, I declined to give. It seems to me that what I did was to make an assessment based upon the evidence in line with the essential methodology of the experts. Mr Griffiths made a number of specific points, whilst also making clear that I should not necessarily regard them as exhaustive. He said there was no evidence for the alternative way in which the case was put by Mr Hanke. I have already dealt with that. I do not accept that that is so. He also said that I was departing from the methodology of the experts by taking interest out of account. That also is not so. I found as a fact that Sunrise did not need the overdraft facility that it was in fact enjoying. The only reason it needed it was because of the historical indebtedness that had been incurred and which needed to be serviced. That historical indebtedness was treated as repaid on completion and thus future interest was irrelevant in ascertaining the maintainable earnings.
- Criticism was also made of my treatment of Club Concorde. It is said that that was in sharp contrast and contradicted by my approach to consultancy fees as regards Sunrise Radio Limited itself. I refused to alter the consultancy fees in relation to Sunrise Radio Limited upon the footing that there was no evidence as to what an appropriate consultancy fee was, and that, therefore, I was left with the consultancy fees in fact paid. When it came to Club Concorde, however, I reduced the consultancy fees in fact now paid of £180,000 to £60,000. However, that was based upon my finding that the degree of supervision previously given by Dr Lit was, in November 2009, no longer necessary. I should add that the evidence now is that Club Concorde is not doing so well. But that is today and not as of November 2009. Having reached that conclusion, I might logically have taken the whole of the £180,000 out, and certainly my reasoning points in that direction. However, Mr Hanke, in the course of his submissions, no doubt not wishing to venture into the area of "babies and bathwater", prudently left in £60,000. As that was conceded by Mr Hanke, I was not going to further than he was inviting me to go. I do consider, however, that that is an ample allowance, indeed generous, for any overriding management responsibilities not covered in the accounts which demonstrated, as I noted in my previous judgment, that Club Concorde was fully managed.
- It was also, though in a different context, in line with the approach of Ms Hindson when she speculated that directors of Sunrise might earn a modest sum of that level of magnitude. I did not accept that that was correct factually as regards Sunrise, but it cannot be said that the approach of Mr Hanke was wholly unsupported in principle by the evidence.
- Given that, at the end of the day, I have undertaken, as judges so often have to do, an assessment which is always difficult, but nevertheless a primary function of a first instance judge, it does not seem to me that it is appropriate to grant permission to appeal.
- I am also asked to order interest on costs, and I shall order that Miss Kohli shall have interest on her costs from the date of payment of any such costs up to the amount eventually assessed. She is obviously not getting interest on 100 percent of her costs; she is getting interest on two-thirds of them. But she is to have interest on the costs first paid, up to two-thirds of the total costs, and, once that two-thirds has been paid by her, there will be no interest on the remaining subsequently incurred costs. It seems to me also that she should have interest at the judgment rate on those costs.
- I will now hear counsel on any consequential issues. Firstly, let us try and nail the price. Secondly, there is an application for payment on account of costs. My provisional view is that, as I am only ordering two-thirds, that two-thirds is approximately £400,000, and that I should therefore award a payment on account of £200,000, including VAT. That order for costs will, of course, be stayed in the same way as the main order, i.e. for 21 days, and thereafter for such time as it takes until the Court of Appeal has determined any application for a stay.
Thursday, 8 March 2012
HIS HONOUR JUDGE PURLE QC: