Exsus Travel Ltd & Ors v Turner & Anor [2014] EWCA Civ 1331

“(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.”

“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.”

“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.”

“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.”

“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”

“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”

“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.”

“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.”

“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”

“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”

“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.”

“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.”

“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”

“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.”

“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.”

“…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?”

“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.”

“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”

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

“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.”

“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.”

“……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. 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.”

“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.”

“PAYEand 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.”

“…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).

“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.”