Gharavi-Nakhjavani v Pelagias [2014] EWCA Civ 1699

[2014] EWCA Civ 1699Case No A3/2014/1023
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MASTER TEVERSON)
Venue Royal Courts of JusticeDate Wednesday, 10 December 2014
Between
SEYED EMAD GHARAVI-NAKHJAVANIClaimant/AppellantSTASINOS THEOPHILOU PELAGIASDefendant/Respondent
Strand
London, WC2A 2LL
B E F O R E:
LORD JUSTICE VOS
and
LORD JUSTICE BURNETT
(DAR Transcript ofWordwave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400 Fax No: 020 7831 8838Official Shorthand Writers to the Court)MR S CRAMSIE (instructed by Irwin Mitchell LLP) appeared for AppellantThe Respondent appeared on his own behalfJ U D G M E N T
[2]In the briefest of outline, Master Teverson took an income and expenditure account in respect of the property from 1998 to 31 March 2013 and concluded that the defendant, Mr Stasinos Pelagias ("Mr Pelagias" or "the defendant") owed the claimant, Mr Sayed Emad Gharavi-Nakhjavani ("Mr Nakhjavani" or "the claimant") the sum of £4,907. At the same time, the Master determined 16 claims made by Mr Nakhjavani against Mr Pelagias numbered STP1 to STP16 and determined that Mr Nakhjavani owed Mr Pelagias £12,428.41 inclusive of interest.[3]Mr Nakhjavani maintains that the procedural orders that gave rise to the hearing before Master Teverson did not entitle him to determine the 16 numbered claims because they did not relate to the account that had been ordered in respect of the property. The judge refused permission to appeal, but permission was granted by Gloster LJ on 23 May 2014 on paper. Essential background[4]These proceedings were issued as long ago as 25 March 2003. The claim form sought:
"... an account of partnership assets and a declaration for a trust of partnership assets."
Undated particulars of claim sought, amongst other things, "all necessary enquiries and accounts be taken and made for the business ..." of ABL Sales Lettings and Travel ("ABL Estates") for periods from 1 December 1999 and an order for payment of sums found due from the defendant.[5]A defence was filed on 30 April 2003, but there was no counterclaim.

Master Bowman's directions continued by providing, at paragraph 5, that:

[6]On 22 July 2003 Master Bowman ordered that certain specific issues should be tried. Thereafter, the action seems to have followed a tortuous course that is not entirely relevant to what we have to decide. But on 1 June 2004 Master Bowman made a further directions order that has been the subject of oral argument by Mr Sinclair Cramsie, counsel for Mr Nakhjavani before us. At paragraph 3 of that order, Master Bowman directed that:
"The defendant do provide by 30 June 2004 a typed account of the income and expenditure of the former business of [ABL Estates] from 1 May 1998 to the date when accounts taken indicating, with supporting documentation, the receipt of rental income and the source of expenditure in respect of each flat and office."
Master Bowman's directions continued by providing, at paragraph 5, that: 6. "The Claimant do provide objections to the accounts at paragraphs 1-3 above by 30 July 2004” 7. and at paragraph 6: 8. “that the account be taken before Master Bowman on a date to be fixed, not before 1 October 2004, with a time estimate to be agreed”.[7]It should be noted that the order at paragraph 3 of Master Bowman's directions on 1 June 2004 is a traditional Chancery order, requiring the accounting party to provide the account required. The order at paragraph 5 of that order is also a traditional Chancery order, requiring the non-accounting party to surcharge and falsify the accounts; in other words, provide whatever objections he wishes to the account that has been provided. In the event, the directions order was not wholly carried into effect because the account that had been directed at paragraph 6 was not taken at that time.[8]Matters progressed through appeals to this court, as I understand it, until 22 March 2012 when the defendant filed a witness statement exhibiting a large bundle of documents that related in part to a proposed mediation or arbitration of the accounting claims, but also to what later became the STP claims to which I shall shortly refer. It is clear from the exhibits to that witness statement that some of the STP claims were in precisely the same amounts as were later ordered by the Master.[9]On 18 July 2012, some four months after the witness statement was filed, Master Teverson ordered that the defendant's account be taken:
"... as contained in and exhibited to his witness statement dated 22 March 2012."
He further ordered that evidence be filed by both sides in relation to that account, and that there be a further directions hearing on 7 September 2012.[10]On 7 September 2012 Master Teverson indeed heard a further case management conference. The directions that he ordered on that occasion were expressed at the top of the order that he made to be:
"... pursuant to the order herein dated 18 July 2012." "(a). An account of income and expenditure in relation to all rooms of [the property] from 1998 to the date of the trial to include the issue of occupational rent; (b) An account of the income and expenditure of [ABL Estates] to 17 January 2000 exclusive of the items in (a) above; and (c) If there is a loss revealed by (a) and (b) above whether the Claimant and the Defendant are liable to contribute to that loss in the proportion in which they were entitled to share profits or whether such loss is to be attributed to any wilful default or misconduct by either party and falls to be borne by them alone or in different portions to the profit shares."
Master Teverson also ordered in that order of 7 September 2012 standard disclosure by 8 October 2012 and any supplemental witness statements to be filed and served by 19 November 2012. He listed a further CMC for 20 November 2012.[11]On 20 November 2012 Master Teverson made orders concerning the claimant's entitlement to inspect the defendant's books and records with his expert, a Mr Choughly. The Master required the parties to try to agree a schedule or schedules of income and expenditure in relation to both the property and ABL Estates. In default, he ordered that issues were to be agreed. He adjourned the matter for a pre-trial review on 27 February 2013 and listed a trial for the period between 18 and 20 March 2013. On that occasion, as we shall see was repeated on a later occasion, he ordered that "the trial of the accounts take place" on those dates. Finally, the Master said that supplemental witness statements had to be filed by 1 March 2013.[12]On 23 April 2013 the matter came back before Master Teverson for the pre-trial review that he had directed to be heard. On that occasion, the parties unusually, as it appears, reached some agreement. The order read:
"BY CONSENT it is ordered: (1) that paragraph 1(b) of the Order of Master Teverson made on 7 September 2012 be revoked; ... (6) that the trial of the accounts shall take place on 3, 4 and 8 July 2012 with a time estimate of three days but such trial shall not include paragraph 1(c) of the Order of Master Teverson made on 7 September 2012 ..."
The Master also gave directions, as one might have expected, for the events that were to take place between the directions hearing or pre-trial review and the July trial.[13]Master Teverson ultimately heard the trial over a period of four days with a gap between the third and fourth day on 3, 4 and 8 July 2013, and then a date in September 2013. He delivered his judgment on 31 January 2014. Initially his own note of the judgment was the best that the parties had to record its contents, but recently we have been provided with an official approved transcript. It is to that official approved transcript that I shall refer in this judgment.[14]It is important so that the Master's reasoning can be properly understood to recite some passages from that judgment as follows:
"8. The parties came to Court with entirely different agendas. The claimant sought to demonstrate that there had been significant under declarations of rental income by the defendant. The defendant sought to satisfy the Court that the claimant was indebted to him in a total sum of £245,731.15 and claimed interest of £168,878.04, making a claim for £414,609.19, including interest, by reference to his statements itemised as STP1 to STP16 inclusive. 9. I proceeded to hear evidence of both the income and expenditure account relating to 44 to 46 Seymour Place and to the items included in the defendant's statements. On behalf of the claimant Mr Cramsie made clear that the claimant's position was that because paragraph 1(b) of the order made on the 7 September 2012 had been revoked it was not open to the defendant to include within the scope of the trial matters relating to ABL Estates Letting and Travel. ... 66. It by no means follows from this that there will be any ultimate residue on final dissolution to be distributed to the claimant or to the defendant. Treating the relationship as one of partnership the accounts between the claimant and the defendant which fall to be settled after a dissolution pursuant to section 44 of the Partnership Act 1890. Each partner will prior to any dissolution of any ultimate residue be entitled rateably to what has accrued from the firm to him in respect of capital. The defendant and his family have had to introduce significant amounts of additional capital in order, in particular, to discharge the rent to the Portman Estate, consequent upon the rent review. If the assets of the partnership, namely any value in the lease, or the right to renew the lease, are insufficient to repay the claimant and the defendant their capital, the balances of capital will fall to be treated as losses to be met in the same shares as profits. It may very well be that the commercial reality of this enterprise is that there is a significant capital deficit which ought to be made up in accordance with the profit and loss shares. 67. In the absence of any agreement there will have to be a settling of the respective capital accounts. This may not be possible until after the full extent of the liabilities under the lease are known and established. The parties should however both understand first, that they have a continuing duty to each other to act in good faith; and second, that both having committed to this commercial venture, they must accept the financial consequences in proportion to what the Court has held are their respective capital and profit and loss shares. 68. The defendant has, as I mentioned, put before the Court a list of what he regards as claimant's debts. These claims have formed part of the defendant's case as long ago as December 2004 in relation to accounts ordered by Master Bowman on the 1 June 2004. As put before me they were to be found as a statement of supporting material exhibited to the defendant's witness statement, dated 10 June 2013. 69. In relation to items STP1, The Mews House, STP7, rents/deposits, STP8, rents collected relating to 9 Maryland Road, STP9, rents and deposits relating to 142 Hatherly Court, and STP10, the Honda car, and in relation to STP11, 3 Ralph Court, these items to a not relate to 44-46 Seymour Place and with the exception of The Mews House fall within the activities carried on within ABL Estates. These items give rise to a preliminary point. 70. On the 23 April 2013 it was agreed between the parties at a time when both were represented by solicitors that the order for the account of the income and expenditure of ABL Estates Letting and Travel to the 17 January 2000 should be revoked. I was told it was accepted that the taking of such an account would be impossible because of lack of records. That no doubt related to the taking of a complete partnership account for ABL Estates Letting and Travel. 71. The defendant's position is that he has informed the claimant many times in the past with proof about these alleged debts. The documents before me contain copies of historic statements relating to these items prepared by the defendant, and submitted to the claimant, which match and show how the amounts that have been claimed have been calculated. 72. In those circumstances I formed the clear view that it would be unfair on the defendant to disallow him to pursue those claims before me. I made it clear to Mr Cramsie that he should cross-examine on those items, which he did. The claimant was also cross-examined on them by the defendant. 73. I have taken into account that they were not dealt with in the witness statement by the claimant prior to the hearing before me. There was however time, had the claimant so wished, for the adjourned hearing, to make a witness statement dealing with those items. 74. I have taken into account the claimant's oral evidence. It is the case that the claimant has had many years before then to set out his response on these items in writing."
[15]The judge then went on to deal with the defendant's claims that had been numbered STP1 to STP16 and gave judgment in the defendant's favour, as I have said, on claims STP1, 7, 8, 9 and 11, which I shall call together "the successful STP claims".[16]Those claims had been detailed most recently in Mr Pelagias's statement dated 10 June 2013 shortly before the hearing. The documentation that was said to support the STP claims was contained in the exhibit to that statement. But this was not the first time that the claims had been intimated because they were largely, if not wholly, also intimated in the statement that I have already mentioned, namely Mr Pelagias' statement dated 22 March 2012. The numbering in that earlier statement is not quite the same as in the later statement and some of the figures were changed slightly, but the substance of the intimated claims is broadly similar.[17]Against that background, Mr Nakhjavani raises essentially two grounds of appeal against the Master's decision. First he says that the defendant's claims upon which the Master gave judgment were not matters that the court was entitled to determine at the trial under the procedural orders dated 7 September 2012 and 23 April 2013. The defendant's claims, he says, mainly related to properties managed as part of the ABL Estates partnership, in respect of which the order for an account had been revoked by consent so that it was an abuse of process for the defendant to pursue those claims and/or he was estopped from doing so.[18]The second ground of appeal is that the claimant contends that he had not had a fair opportunity to adduce documentary evidence in response to those claims, although he had provided responses to them contrary to what the Master found. Ground 1: was the Master entitled to determine the STP claims?[19]The claimant's argument is that it was common ground that the STP claims related to the business of ABL Estates or, in the case of STP1, to another business apart from that relating to the property. It is said that the order for an account of the income and expenditure of ABL Estates had been revoked by consent. Since there was no variation to those orders and any such application would have been strenuously resisted by the claimant, the Master did not have jurisdiction to resolve the STP claims at all. In any event, as I have said, the claims that related to ABL Estates, those numbered STP7, 8, 9 and 11, could not be fairly judged in isolation but had to be seen as part of the entire account which was never taken and had been agreed to be revoked.[20]In my judgment, the Master was entitled to proceed as he did. The orders of 7 September 2012 and 23 April 2013 do not stand on their own as the claimant submits. Instead, they have to be seen in the context of the Master's active case management of what was a very difficult and contentious case as between these parties.[21]The first thing that happened in the relevant sequence of events was that in 2004, as Mr Cramsie submitted, when Master Bowman gave directions for the taking of an account in relation to both the property and also the business of ABL Estates. He did that in an entirely orthodox manner, making entirely normal Chancery orders. But unfortunately, for whatever reason, the accounts were not provided by the defendant and even if they were in part provided, they were not surcharged and falsified, and the account was never taken by the court, as one would have expected to have occurred.[22]Thereafter, the Master ordered on 18 July 2012, after much water had flowed under the bridge, again that the defendant's account should be taken as contained in and exhibited to his witness statement dated 22 March 2012. That witness statement included multiple references to the STP claims and that order was never revoked. Instead, the Master made an order for further accounts on 7 September 2012 in relation to(a) the income and expenditure from the property, and(b) the income and expenditure from ABL Estates. He also ordered that the shares of each of the claimant and the defendant be determined. But the order for the account made on 18 July 2012 was not revoked and it still stood.[23]Mr Cramsie has submitted that the order in paragraph 1(b) of 7 September 2012 order subsumed or overtook the order made on 18 July 2012. As it seems to me, however, even if that were the position as at 7 September 2012, it cannot have been the position as at 23 April 2013 when paragraph 1(b) was revoked. But I do not think that it was the position even on 7 September 2012. I say that because, as it seems to me, Master Teverson was fully aware that he had ordered an account of the matters raised by the defendant's witness statement on 22 March 2012 and, insofar as they related to other matters, as they undoubtedly did, including STP1, which related to another property called The Mews, there can have been no possibility of the order of 7 September 2012 subsuming or overtaking or replacing the order of 18 July 2012.[24]Matters then proceeded so that on 23 April 2013 the parties agreed to revoke paragraph 1(b), so that there was no longer any subsisting order for the trial of an account of the income and expenditure of ABL Estates. But that did not mean that the order of 23 April 2013 overtook or revoked the order for the account contained in Master Teverson's order of 18 July 2012 in relation to the matters mentioned in the defendant's witness statement of 22 March 2012. In between times, the Master made orders on 20 November 2012 aimed at securing some agreement before he heard the PTR on 23 April 2013. For some reason, at that hearing the parties then agreed to revoke the order for an account in respect of the incomes and liabilities of ABL Estates. In my judgment, the order on that occasion was quite general. It said that:
"... the trial of the accounts shall take place on 3, 4 and 8 July 2012."
The accounts in question at that stage, after the revocation of paragraph 1(d) of the order of 7 September, were the accounts ordered to take place on 18 July 2012, namely those contained in the witness statement of the defendant of 22 March 2012 and the accounts ordered to take place on 7 September 2012 at paragraph 1(a) of the order relating to the property. The accounts ordered in relation to the witness statement, of course, included the STP claims.[25]In these circumstances, it seems to me that the claimant cannot succeed in arguing that there was no jurisdiction under the procedural orders for the Master to deal with the STP claims.[26]This is not, however, the end of the matter because the claimant then argues that it was unjust to order that the claimant should make payments in respect of some claims relating to ABL Estates (that is, STP7, 8 and 9 and 11) without dealing with the entire account between the parties. It seems to me that that was what the parties had agreed when they revoked the order for the account in respect of the ABL Estates' income and liabilities generally. There was no injustice here. The claimant had been aware for years, as the Master said, that these claims were being made but that he had not answered them or explained what set-offs he might have. The Master heard evidence on the subject over 4 days, as the claimant was well aware. The claimant's counsel cross-examined on the matter, as the Master had directed him to do. The claimant did not even avail himself of the opportunity to file some evidence in between the delayed hearing dates of the trial.[27]In my judgment, the claimant has only himself to blame if he now regrets having agreed to the abrogation of the complete account of the affairs of ABL Estates and if he regrets not having put forward his entire case in relation to the STP claims. This is a case in which finality was long overdue. The matter has been litigated up hill and down dale between these parties in a manner that has been far too prolonged. Ground 2: was the Master entitled in any event to deal with the STP claims when the claimant had had an inadequate opportunity to adduce evidence?[28]I have already alluded to the answer to this ground of appeal. The claimant had been well aware of what was going on and failed to adduce evidence in violation of the repeated directions of the Master, to which I have already referred. He could have applied for an adjournment of the hearing when he realised that the Master was determined to try the matters raised by the defendant's witness statement but he did not. He cannot now complain that the hearing was unfair. It was, as I say, long overdue and the case cried out for final disposal.[29]For the reasons that I have given, I would dismiss this appeal. LORD JUSTICE BURNETT: I agree.