England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand. London. WC2A 2LL
		29th May 2012

1. This is a claim by the liquidator of Anglo German Breweries Limited ("AGB") for the transfer to AGB of a disused bingo hall in Buxton Road, Walthamstow, London E17 ("the bingo hall"). The bingo hall was bought in December 1996 with money provided by the late Mr. Tufail Ahmad ("TA"), and was transferred to the 1^st defendant, Chelsea Corporation Inc ("Chelsea"), a company incorporated under the laws of Delaware.
2. At the time of the purchase, TA was awaiting trial for his participation in an alcohol diversion fraud, involving alcoholic drinks consigned to bonded warehouses being diverted for consumption in the UK, thereby evading payment of excise duty and VAT. He was convicted of this offence in 1997, sentenced to 6 years in prison and fined £2 million.
3. On his release from prison, TA, acting as a de facto director of AGB, participated in a similar fraud. On 8^th May 2002, the 7^th defendant ("HMRC") raised an assessment against AGB for excise duty and VAT in the amount of £3,089,855 and then presented a winding-up petition, on which an order was duly made.
4. In the course of the liquidation, the liquidator brought proceedings against, amongst others, TA and Chelsea, contending that the bingo hall was held by Chelsea on trust for TA.
5. By the terms of a settlement agreement dated 1^st September 2005, TA, and also his daughters, the 5^th and 6^th defendants ("Humerah" and "Sumerah"), agreed to transfer to the liquidator any interest which they had in Chelsea or in the bingo hall.
6. The difficulty which has arisen is that the transfer of the bingo hall was not completed by the time of TA's death, after the present proceedings were commenced, and the settlement agreement was not executed on behalf of Chelsea, because there was no one competent to sign on its behalf. Chelsea had, by the time of the issue of these proceedings, been dissolved under the law of Delaware for non-payment of taxes, although under that law this does not prevent it from continuing to hold property. It appears that, by the time of the hearing, it had been restored. Although duly served with the proceedings, it did not enter a defence and was not represented at the hearing.
7. Therefore, these proceedings have been brought to establish that Chelsea's ownership of the bingo hall is a sham, that the true owner was TA, and that the liquidator is accordingly entitled to it by the terms of the settlement agreement which TA executed. TA's daughters were appointed to represent TA's estate, by an order of Henderson J. made on 11^th June 2011.
8. The position was complicated by the fact that the 3^rd defendant ("Mr. Khan") claimed to be entitled to an interest in the bingo hall, as a result of the dealings between himself and TA at the time of its purchase. However, this claim has been settled as between Mr. Khan and the liquidator. I need not refer to it further, save to say that there is not, and never has been, any suggestion that Mr. Khan was involved in any illegality.
9. The liquidator's case, supported by HMRC, is that:-

1. Chelsea was set up by TA to conceal his assets and prevent their likely seizure.

2. Chelsea had no genuine corporate existence, but operated (if at all) as TA's nominee.

3. TA behaved as if the bingo hall belonged to him.

10. Therefore, they contend, the liquidator is entitled to pierce the corporate veil and require a transfer of the bingo hall to AGB.
11. In support of their case, the liquidator and HMRC rely on the statutory declaration of Mr. Khan, made on 6^th March 2003 in support of the caution registered against the title in December 2000, in which he described his agreement with TA in late 1996 relating to the purchase of the bingo hall, which, on Mr. Khan's case was on the basis that they would each have a 50% beneficial interest.
12. At paragraph 23, Mr. Khan states

"When I asked [TA] for the agreement to be put in writing, he told me that he was not willing to do so because he had a case pending against him by Customs & Excise. He said that although he had been charged, he was not guilty. He also assured me that if anything were to happen to him, like going to prison or dying, my share would be paid ..."

13. At paragraph 25, he states that TA "did not disclose everything about his affairs to his professional advisers".
14. He then explains at paragraph 26 that TA had instructed him that the bingo hall should be purchased in the name of an offshore company, and that he had been so advised by his financial adviser, Mr. Yunus, who had said that this was the most appropriate way to proceed "having regard to [TA's] present circumstances". He had suggested the use of Chelsea, which had already been set up for a transaction which had not materialised.
15. He then states that paragraph 35: -

"Following completion Mr. Ahmad told me if he could get Customs & Excise off his back we should transfer the property from Chelsea Corporation to an English company ... I agreed and [TA] asked his internal accountant/bookkeeper ... Mr. Bharat, to arrange the formation and/or purchase of Dominion Entertainment Limited which would be the eventual joint venture vehicle."

16. The liquidator and HMRC also rely on two witness statements made by Mr. Yunus in the previous proceedings. He is a chartered accountant who acted for TA and his companies between 1993 and 2002, and helped him establish a number of companies in various offshore jurisdictions, including Chelsea. Mr. Yunus states that he was unhappy about a number of the acts and omissions required of him by TA and his daughters, and that he is making his statement in order to set the record straight.
17. He goes on to say, in the first statement, that TA preferred to conduct his affairs through offshore companies, including Chelsea, normally operated by the use of nominee and/or shadow directors or officers "in order to hide the true position of his affairs" and that:-

"... Based upon my dealings and experience with TA, I am convinced that he attempted to manage his affairs with a view to avoiding disclosure of his assets ... I am equally convinced that, whilst TA had interests in a number of corporate entities including those not directly connected to any excise diversion scheme, but the businesses operated by TA [and his daughters] were ... financed - either originally or subsequently, and in whole or in large part - by the direct and/or indirect proceeds of crime."

18. Mr. Yunus also stated that the companies beneficially owned or controlled by TA were operated by his daughters in conjunction with himself while he was in prison, and he gave as an example of the fact that he was a signatory on the bank account of Chelsea.
19. In his second statement, Mr. Yunus stated that he managed Chelsea at TA's request, and that Chelsea gave him a power of attorney over its affairs, also at TA's request. He said that he always acted on the instructions of TA, attending a number of meetings and signing various documents. He confirmed Mr. Khan's evidence that it was the intention to transfer the property to Dominion Entertainments Limited.
20. I was also referred to an affidavit sworn by Sumerah Ahmad in August 2003, in which she stated that she and her sister were the beneficial owners of Chelsea, but this is contradicted by Mr. Yunus' evidence. Both sisters are joined in the proceedings as representatives of their father's estate, but they have not sought to maintain that Chelsea has any beneficial interest in the bingo hall. In these proceedings, Humerah's evidence, confirmed by her sister, is that:-

"In all the instances when TA spoke to [Mr. Khan] in my presence regarding [the property] TA was referred to as the owner and ultimate beneficiary. He paid for the property purchase; bore all the expenses, liabilities and costs of renovation to the property. He also paid for and instructed the builders directly having his own update meetings with developers ..."

21. Mr. Yunus' evidence is supported by some routine correspondence in 2001-2 with TA's agents who were operating his various companies. These show that he and his daughters were operating seven companies, including Chelsea, through nominee directors, and were responsible for various fees. In one letter, dated 8^th June 2002, TA wrote to the Anglo Overseas Group regarding "Offshore Concerns", confirming that Humerah had full authority to deal with six of the companies, including Chelsea. In another letter, undated but probably sent in October 2002, Humerah wrote to Anglo Overseas regarding the termination of the company services for all these companies, referring to them as "companies that I control". However, neither of TA's daughters has in these proceedings claimed any beneficial interest in Chelsea or in the bingo hall.
22. It is of course well established that the fact that an individual owns and controls a company does not suffice to justify piercing the corporate veil. As Munby J. put it in Ben Hashem v. Shayif [2008] EWHC 2380 (Fam) at paragraph 159, this is "the very essence of the principle in Salomon v. Salomon & Co Limited [1897] AC 22". Nor is it justifiable for the court to pierce the corporate veil merely because this might be necessary in the interests of justice: see per Sir Andrew Morritt V-C in Trustor AB v. Smallbone (No.2) [2001] 1 WLR 1177 at paragraph 21. What is required, as the Vice Chancellor said at paragraph 23, is that the company has been used "as a device or facade to conceal the true facts thereby avoiding or concealing any liability of [the] individual(s)". Thus the essential elements, as Mr. Margolin on behalf of HMRC submits, are both control of the company and its improper use as a device or facade to facilitate or conceal wrongdoing.
23. In my judgment, these conditions are satisfied in the present case. Chelsea was clearly owned and controlled by TA who, together with one of his daughters, pulled the corporate strings. This by itself is insufficient, but the purpose of transferring the bingo hall to Chelsea was used to conceal TA's ownership (subject to whatever claim Mr. Khan had) of the property until TA's liabilities arising out of his fraudulent activities were resolved, which they never were. This was an improper use of corporate ownership and engages the principle summarised earlier.
24. Accordingly, I hold that TA was the true owner of the property, and will grant the appropriate declaration and other relief. It is not necessary, therefore, to consider the liquidator's alternative claim under section 423 of the Insolvency Act.