Vickers v Jackson [2010] EWHC 2213 (Ch)

No. 9BM30216[2010] EWHC 2213 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BIRMINGHAM DISTRICT REGISTRY
The Priory Courts
33, Bull Street,
Venue Birmingham B4 6DSDate 6 th August 2010
Before
HIS HONOUR JUDGE PURLE QC(sitting as a High Court Judge)
Between
MARTIN VICKERSClaimantMICHAEL LAWRENCE JACKSONDefendant
(Transcribed from the Official Tape Recording by Cater Walsh Transcription Ltd.,1 st Floor, Paddington House, New Road, Kidderminster. DY10 1AL. Tel: 01562 60921. Fax: 01562 743235. Official Court Reporters and Tape Transcribers.)info@caterwalsh.co.uk
Myriam Stacey (instructed by Higgs & Sons) appeared for ClaimantJohn Stenhouse (instructed under the Bar’s Public Access Scheme) appeared for Defendant
J U D G M E N TJ U D G M E N T

JUDGE PURLE:

[1]This is a claim brought by Mr. Martin Charles Vickers against the defendant, Mr. Michael Lawrence Jackson, and there is also a counterclaim. By the claim the claimant, whom I shall call Mr. Vickers, asserts that a charge which was entered into between himself and the defendant, whom I shall call Mr. Jackson, in February 1997, was not a genuine document, that it secures no indebtedness, and should be declared void or set aside as a sham in the sense in which that word was used in Snook v London and West Riding Investments Ltd[1967] 2 QB 786,. He also asks that any entry at HM Land Charges Registry in respect of the charge be vacated. That is a summary, not a complete recitation of the prayer for relief.[2]Mr. Vickers denies those claims, and asks for possession and payment of the sums due under the charge. For the reasons which I am about to give, the claimant succeeds in this claim. I find that the charge was a sham, never intended by either party to have legal effect, and that Mr. Vickers is entitled to be relieved from its consequences. For the same reasons the counterclaim is dismissed.[3]Mr. Vickers in February 1996 was in acute financial difficulties. The details do not matter. He was cold-called at that time by a Mr. Gardener of Jackson & Associates, which was a business owned by Mr. Jackson. Mr Vickers agreed that Jackson & Associates would negotiate reduction of his debts at an agreed remuneration of 20% of any savings on an agreed list of creditors which was subsequently produced. The terms are recorded in a letter dated 29th February 1996. Mr. Vickers, formerly a farmer, now a vineyard operator which, by some people’s standards is still farming, was operating a business called Halfpenny Green Vineyards in Bobbington, Staffordshire. Mr. Jackson is an entrepreneurial individual and also came to give advice in relation to the business, assuming duties over and above the mere reduction of indebtedness.[4]A company, Halfpenny Green Vineyards Limited, went into liquidation in about May 1996 following advice from Jackson & Associates, and there is a receipt in the papers which shows that Mr. Jackson received of Halfpenny Green Vineyards Limited the sum of £5,500, as to £1,500 in cash and a £4,000 cheque drawn on the account of a Miss Abbiss, who subsequently became Mr. Vickers’ wife, but then was his girlfriend. There is a separate invoice produced some months later to Miss Abbiss which records a sale of various office furniture and the like, together with valuation and advice fees. How monies could be received of Halfpenny Green Vineyards when the invoice related to advice given to Miss Abbiss is a little puzzling but was not explored in evidence. It is, however, demonstrative of one of the features of this case, namely that invoices are raised without necessarily that much thought being given as to who is or was liable, if anyone, in respect of those invoices.[5]A company called Goform Limited came to be incorporated which, with associated companies, was to run and did run the vineyard business, though the vineyard itself was owned by Mr Vickers. Before that, there was another company called Runbir Limited which briefly took over from Halfpenny Farm Vineyards Limited, but by the end of 1996 Runbir Limited had effectively ceased to trade. I have seen a draft document which though unsigned in the copy available to me appears accurately to reflect what in fact occurred. That is a document dated 20th December 1996 addressed to Jackson & Associates and which provided for the signature of the directors of Runbir Limited, who were Mr. Vickers, his son Clive Vickers, and a Mr. Ham. That letter recorded:
“We acknowledge that all trading is now carried out by Goform Limited which has exclusive rights to vineyard activities. That company will not be taking over any of the liabilities of Runbir Limited.”
[6]By this time Mr. Jackson had become a shareholder of Goform Limited. Goform Limited was, with associated companies, as I have said, to take responsibility for developing the vineyard business which had potential and at times very high sales, and which Mr. Vickers thought, shed of his own indebtedness and other indebtedness relating to the business, could be made very successful. Mr. Jackson took the same view and also undertook attempts, which appear to have been unsuccessful in the event, for a variety of reasons, to refinance the vineyard business and find outside investors.[7]He referred to that subsequently in a letter dated 10th July 1997 when he wrote to Mr. Vickers at a time when relationships were becoming strained and when Mr. Jackson said that it was his intention to withdraw his support. He recorded in that letter that in September 1996 Mr. Vickers and he agreed that they would form a new arrangement whereby in return for his efforts, that is to say Mr. Jackson’s efforts to restructure the funding, both the land and buildings -- those were the land and buildings to be operated by Goform Limited and its associates -- he would take a percentage, 20%, in the new company which would ultimately own the assets, the value being equal to the amount owned, which he put at £430,000. What that suggests, therefore, is that his extended activities were in return for a shareholding in the new company, which became Goform Limited.[8]Goform Limited was incorporated on 16th September 1996. The shareholders became Miss Abbiss who was acting in effect as nominee for Mr. Vickers, or at least as a close associate whom he trusted, and Benjamin Jackson, Mr. Jackson’s son, who was also acting as Mr. Jackson’s nominee for reasons which I need not go into. A shareholders agreement was entered into in December 1996. Other agreements were entered into between Goform Limited or one of its associates and the various participants, such as Mr. Vickers himself and his son, providing for payments by way of consultancy payments to those individuals. No such agreement was entered into with Mr. Jackson himself. The inference that one draws at that stage is that Mr. Jackson was to be interested as shareholder and that is how his reward would ultimately come to fruition. This did not need to be put in writing as shares were issued to his son which secured his position as shareholder.[9]In fact Goform Limited did not own any assets other than the benefit of an option agreement to purchase land held by Mr. Vickers from which the vineyard business was carried on. It is said on behalf of Mr. Jackson that he cannot be taken to have agreed to do anything thereafter solely in return for his shareholding as he was getting a percentage of nothing, because Goform Limited owned nothing. However, it had a valuable option and if the option was not exercised that is looking at the matter with hindsight. The expectation at the time appears to have been that the option would be exercised. The failure to exercise the option may give rise conceivably to some other complaint but does not alter the agreement that was reached at the time. Mr. Jackson in his evidence sought to persuade me that at the same time as he agreed the percentage shareholding arrangement he also agreed that he would be remunerated for his efforts on behalf of Goform Limited and its associates. His pleading asserted an agreement at this time to pay a specific hourly rate. He also claims that Mr. Vickers accepted personal liability. I reject that evidence, which was disputed by Mr Vickers. It was not referred to in any of the contemporaneous correspondence, and even in the letter of July 1997 to which I have referred it received no mention. In my judgment, at that stage, Mr. Jackson was still operating under his 20% reduced debt arrangement, and (as to his other activities) in return for a shareholding which he thought had real potential value.[10]As it happens, it appears that to make the business fully viable, it was desirable to remove Mr. Vickers’ mother who had kennels on or adjoining the vineyard premises which were thought to be a disincentive to outside investors. The understanding was that she also would enter into an option agreement which eventually she did, though not until nearly a year later than originally anticipated. In the meantime Mr. Jackson got frustrated. However, as at the date of the shareholders’ agreement, the arrangement was as I have said it to be.[11]As I have said, Runbir Limited, which had had some involvement in the business ceased active trading by no later than December 1996, and come the new year, 2007, Mr. Jackson continued to be busily involved, not just in negotiating Mr. Vickers’ debt situation, but also (as an entrepreneurial investor might do) with the details of the Goform business, which I shall use as an expression to refer in short to the activities of Goform Limited and all its subsidiary and associated companies.[12]Subsequently, a document dated 3rd February 2007 headed “Memorandum of Charge” was entered into between Mr. Vickers and Mr. Jackson. By that document Mr. Vickers purportedly charged his interest in the vineyard land to Mr. Jackson to secure the payment of indebtedness for his services. The document (after correction of obvious typing mistakes) provided as follows :
“WHEREAS: 1(i) Mr. Jackson has provided professional services, as invoiced, outlined in the agreement between the parties to Mr. Vickers and continues to provide such services at the request of Mr. Vickers…”
Pausing there, the only written agreement between the parties was that which was recorded in the initial letter in writing of 29th February 2006, written by Mr. Gardener, which referred only to the success fee. Carrying on:
“1(ii) At the date hereof the accepted value of the services is £48,078.00”
I shall come back to where that figure came from, but it is enough to say at the moment that it was not 20% of any debt savings. It related to all the activities of Mr. Jackson, calculated at an hourly rate since August 2006, that is to say since the Goform idea came into being. “1(iii) Mr. Jackson has agreed to provide further services which Mr. Vickers wishes to put to a maximum limit to these services of £50,000. Mr. Jackson agrees to this limit, notwithstanding the period of work provided that Mr. Vickers acknowledges that the existing work is covered by such security. 1(iv) Mr. Vickers acknowledges that in consideration of Mr. Jackson agreeing to this arrangement and not proceeding by Court Action or otherwise for the outstanding fees, he will duly discharge the same in accordance with the terms of this agreement. (2) Mr. Vickers is the freehold owner of the property [which was defined elsewhere in the document] which is subject to a legal charge in favour of National Westminster Bank PLC. (3) In consideration of the above Mr. Vickers hereby charges his interest in the property to the extent of (a) the existing sum of £48,078.00 and (b) the further sum of £50,000 which shall both be enforceable either as Mr. Jackson may think fit and this agreement shall be construed accordingly and it is acknowledged that a failure to recover one should not affect the validity of the other together with the interest specified in paragraph 5. (4) The period of the loan shall be for six months from the date hereof and thereafter shall be redeemed upon Mr. Jackson giving 28 days notice in writing demanding repayment of the loan and interest. (5) Each of the two amounts mentioned in paragraph 3 shall individually carry interest at current National Westminster Bank PLC base rate. (6) The parties hereto agree and apply to the Land Registry and the Land Charges Registry to caution against dealings with the property.”[13]The Memorandum of Charge was then signed as a deed by both Mr. Vickers and Mr. Jackson in the presence of witnesses. There is no doubt that on the face of that document it purported to create a charge to secure sums totalling up to £98,078 and interest. There is no doubt also that it purported to record that the value of the services which Mr. Jackson had provided pursuant to an agreement with Mr. Vickers down to that date was £48,078. It did not in terms say that Mr. Vickers was liable to pay the value of those services but that was implicit. In fact, as I have recorded, I find that the only agreement providing for any payment that the parties had entered into by that date was an agreement for Mr. Vickers to pay a percentage of his debt savings. I have also found (and confirm) that Mr. Jackson’s involvement in Goform Limited and any other companies was a speculative investment based upon his assessment of the business potential of the vineyard, which he was to participate in via the shareholding in his son’s name.[14]So where, therefore, did the assumptions in this document come from? According to Mr. Vickers, he was advised by Mr. Jackson (who he trusted as a debt adviser) at a meeting he had with him in January 2007 that it was desirable to create a charge so as to ring-fence the vineyard property which the charge related to from other creditors. This, of course, if correct, was to the advantage of Mr. Jackson as well because he was a beneficial shareholder in the company which was expected to acquire the vineyard property and was in fact operating it.[15]Mr. Vickers says he was assured by Mr. Jackson at this time that the charge would never be called upon and that the indebtedness that it purported to record would never be called in, both parties acknowledging that there was no such indebtedness. Mr. Jackson denies this. I should say, therefore, something about the witnesses.[16]Mr. Vickers was, in the main, a calm and manifestly truthful witness who did not claim to be able to remember everything that had happened in the past but who nonetheless was quite firm that this was a document that was never intended to be acted upon. He was supported in this by his son and by a Mr. Potts who was a former associate of Mr. Jackson. Each of these other two witnesses struck me as witnesses of truth who were doing their best to give accurate evidence. In reaching this view of the witnesses, I have had regard to the fact that, in the case of each of Mr. Vickers and Mr. Potts, they were both giving evidence of their own involvement in a transaction undertaken to deceive Mr. Vickers’ creditors. This obviously gives rise to credibility problems against each of them. Each of them to a significant extent hid behind Mr. Jackson, to whom the strategy was attributed. Nevertheless, the general purport of their evidence was clear and I did not think they were lying. Moreover, in Mr. Potts’ case, he had no motive to do so.[17]Mr Potts was at a meeting in January at which the proposed invoices were mentioned. He prepared the invoices in conjunction with Mr. Jackson, with whom he worked on a daily basis. He also obtained Mr. Vickers’ signature to the Memorandum of Charge. As to the nature of the underlying transaction, Mr. Potts confirmed that this was a sham and was intended simply to ring-fence the property for the benefit of Mr. Vickers against his creditors. He also confirmed his understanding that there was in fact no indebtedness of Mr. Vickers to Mr. Jackson.[18]So far as Mr. Vickers’ son is concerned, he confirmed another piece of Mr. Vickers’ evidence, which was that at a subsequent meeting held in November 2007 at which a number of people were present, Mr. Jackson acknowledged that the charge was a sham. Mr. Potts in his oral evidence was unable to recall that comment, though he did recall other comments made at the meeting. Nevertheless, both Mr. Vickers and his son did recall that comment, and in the case of Mr. Vickers, this was followed up by two letters referring to it expressly. One was a circular letter to all shareholders, and the other was a handwritten letter in December 2007 to Mr. Jackson. Mr. Jackson did not reply to the first, nor as far as I can see did anyone else, but he did reply to the second, and I shall consider his reply in due course.[19]So far as Mr. Jackson is concerned, as these events go back over very many years, his recollection was understandably frail, and I do not hold that against him. However, he put in a detailed witness statement based largely upon a reconstruction of what he now thought must have happened. I find that his detailed recollections, with the aid of the documents that he consulted, were unreliable. He appeared at times to be evasive and both excitable and (at times) over-defensive, claiming at one point to be fighting for his life. I can well understand how someone accused of entering into a sham transaction for the apparent purpose of defrauding creditors may well become excited or defensive, and that is not automatically to be equated with an acceptance of the position. However, in this case I have reached the conclusion that these characteristics on Mr. Jackson’s part were attributable to his awareness that this was indeed a sham transaction which he was now seeking to take advantage of unfairly.[20]As I have mentioned, a pivotal part of his case is that he had agreed that he would be paid for the work he was doing over and above the debt reduction from August 2006, but this was nowhere referred to in the correspondence. Moreover, the work he was doing was being done for one or other of the companies. Just as the consultancy arrangements that Mr. Vickers and his son entered into were not with Mr. Vickers but with the relevant company, so too, even assuming that Mr. Jackson was entitled to payment for the work he was doing over and above the beneficial shareholding he received, one would expect any payment to be due from the company for which he was acting and not from Mr. Vickers personally. However, I find that no such agreement was ever reached.[21]How then did the charge come about? The only sensible explanation I have heard is that put forward by Mr. Vickers, namely that it was intended to ring-fence these particular assets from his creditors who would see that there was this further apparent charge (in addition to the Bank’s charge) and would be discouraged from proceeding further against that land.[22]What about the figures that are referred to in the charge? It is said on Mr. Jackson’s side that these were agreed at a meeting on 17th January 2007. There is a contemporaneous note of that meeting made by Mr. Potts, who was also present. It is very exiguous, but it acknowledges “Draft Jackson charges agreed to be invoiced asap. Runbir and MCV to receive same”.[23]Mr. Vickers did not remember any draft Jackson charges actually being produced at that particular meeting. He did however remember that there was such a meeting, but very little about it. I think the probability is that the amounts were raised. They had, in the main, been calculated at that date. There is a note in Mr. Potts’ handwriting showing the calculations. It also has on it the annotation “Meeting 17.1.97 Friday”, and bears a 15th January signature in the bottom left hand corner. However, the document cannot have been complete then because it also contains entries after 15th January. It seems to me likely, however, from the contents of the contemporaneous notes that charges were at least mentioned and agreed to be invoiced. The note is perhaps ambiguous as to whether what was to be invoiced were the draft charges, which were merely mentioned without being produced and examined, or whether draft charges were actually produced which were then to be invoiced. I do not think it matters very much because I doubt whether any great length of time was spent in discussing the actual amounts of the invoices. The principle was sold to Mr. Vickers upon the basis that invoices would be produced solely to support the charge and that neither the charge nor the apparent indebtedness would ever be enforced. This was understandable because he had no such indebtedness nor, I find, did any of the companies in which he was interested. Nor did Mr Jackson have any reason for believing, or in fact believe, that any sums were due.[24]The evidence of Mr. Potts, confirmed by Mr. Jackson, was that the charges were calculated by Mr. Jackson going through his diary from August 1996 onwards and stating or estimating the hours spent by reference to that diary. The diary is not in the court bundles. Mr. Potts then applied an hourly rate of £62.50, which I understood from his evidence he had worked out as an appropriate hourly rate based on what Mr. Jackson was charging others and the amount of hours he had spent in that connection. That was not done until January 2007, and there had been no pervious mention of an hourly rate. The fact that it was not done until January 2007 suggests very strongly to me that the original intention never was that there should be such charges, which is confirmed by the other evidence I have mentioned. This suggestion gains additional support from the fact that there were no real time records. The diary entries, as described to me, were a poor substitute. It is however not surprising that there was nothing more if there was no agreement in the first place for an hourly rate to be charged, which there was not. Moreover, the note, referring as it does to both Runbir Limited and Mr. Vickers, suggests that it was a matter of indifference who the invoices were eventually accepted by. In the events which happened, a letter dated 20th January 1997 was prepared and sent, it is said, to Mr. Vickers, which included draft invoices. Mr. Vickers says he did not receive these. He certainly does not remember receiving them. I think if he had received the letter and invoices, the likelihood is that he would have remembered them, as this would have been a significant turn of events. What he says happened is that invoices were produced for him at a meeting to sign for the purpose of the proposed charge. His recollection is that he was asked by Mr. Jackson to sign the invoices within a few days of execution of the charge.[25]The letter itself (of 20th January 1997) enclosed (if sent) draft invoices both for Runbir Limited and for Mr. Vickers. Mr Vickers was asked to decide in what direction they should go. It was probably prepared by Mr. Potts. The last paragraph reads:
“I have invoiced both you and Runbir Limited with the same amounts and will be pleased to know how you propose allocating them in due course so that my records can be amended accordingly.”
On the footing that Mr. Vickers had agreed, as Mr. Jackson said he had, to pay these charges himself, quite how Runbir Limited came into it is not clear. Runbir Limited had, of course, ceased business by now, though I dare say it was involved at some stage between August 1996 and this date. The fact that the invoices when originally produced were regarded as allocable at the whim of Mr. Vickers itself raises a question mark over their reality. Mr. Vickers, as I said, could not remember receiving this letter. I do not think it matters whether he received it or not because he did subsequently initial some invoices. He did not initial invoices in sums totalling the full amount recorded in the charge as due, but he did initial at least three invoices. In each case they were invoices in the name of Runbir Limited. He did not initial any invoices in his own name. Quite why he initialled them for Runbir Limited is not clear; he says he merely initialled what he was asked to initial by Mr. Jackson, which I think was probably the case.[26]Mr. Jackson could not explain how Runbir Limited came into it. He said it was a mistake. In my judgment this confusion is a reflection of the unreality of the situation. I do not consider that Mr. Vickers was ever assuming personal liability or for that matter that he was accepting liability on behalf of Runbir Limited. There was no such liability on either of their parts for the invoiced sums, or on anyone else’s part. Mr Vickers was one only of three directors of Runbir Limited, and Mr. Jackson cannot have imagined, as his own evidence effectively confirmed, that Runbir Limited would have accepted these liabilities. The cynical inference that one might draw is that Runbir Limited was a convenient repository for the invoices because Runbir Limited had ceased trading, had no assets, and was about to go, if it had not already gone, into liquidation. However that may be, there was, I find, no genuine indebtedness. This was part of a ruse to ring-fence the assets from the creditors, though somewhat ham-fisted, as an acknowledgement of liability on the part of Runbir Limited achieved nothing. I do however find that the invoices were prepared and initialled, albeit in the name of Runbir Limited, in order to create apparent indebtedness at Mr. Jackson’s request to support the Memorandum of Charge.[27]If it is necessary to make a finding on whether the letter of 20th January was sent, I find that probably it was not. The reason I say that is not just because Mr. Vickers cannot remember receiving it, but because subsequently in correspondence when the parties were at odds with each other on the status of the purported charge, Mr. Vickers asked more than once for copies of the invoices as signed by him so that he could see what he might have let himself in for. Thus, on 24th August 2004 Mr. Vickers wrote and said “I need to see copies of your original invoices which you claim make up the charge on my land. Can you please let me have these as soon as is possible and then I will be in touch again.” For some odd reason that was not responded to, and on 13th October 2004 there was a further letter in which Mr. Vickers said “I therefore need copies of these”, that is to say the invoices, “before considering any starting point”.[28]The amounts claimed in this action are set out in the defence and counterclaim. They are firstly the sum of £48,078 which is the arithmetical result of various of the invoices, after correcting a typographical error in paragraph 23 of the defence and counterclaim which reads £7,676 but which should read £7,656; and there is also a claim for uninvoiced services which varied somewhat during the course of the hearing but they are said to be February, £8,312; March, £6,750; April, £7,312; May, £4,637; and June, £7,025.[29]I will assume for present purposes that all those claims were advanced in good faith but it will be seen straight away that the additional sum over £48,078 came to significantly less than £50,000. The additional sums, though, were (as was accepted before me) not invoiced and during the course of the hearing certain of those claims were dropped because Mr. Jackson acknowledged in evidence that as from 1st April 1997 all services were carried on by a limited company, Jackson Potts and Company Limited, and not by Jackson Associates. The charge, of course, was given to Mr. Jackson who was the proprietor of Jackson Associates, and not a limited company, therefore it is accepted that any services after 1st April, which would knock out the May and June amounts, would have to come out.[30]The fact that no invoices ever were raised for the later months is a pointer towards the conclusion that there was (leaving apart the debt reduction exercise) no intention to provide chargeable services to Mr Vickers. The letter of 20th January 1997 (whether sent or not) mentioned monthly invoices, but this simply did not happen. It is well established that in considering the question of sham, the court is not limited to looking at events prior to the agreement. This is not a process of construction but a factual investigation into the question of reality. Had Mr. Jackson been intending to invoice further for future services as recorded in the charge, I would have expected him to have done so at the time. As it happens, various invoices were put into place to support the alleged charge at the time of its creation, but nothing more.[31]It is said by Mr. Stenhouse on Mr. Jackson’s behalf that the charge must be real and not a sham because otherwise why bother to go through the rigmarole of working out an hourly rate and finding out what the hours were? There are two answers to that. First, the time records, such as they were, consisted of no more than Mr. Jackson’s diary entries, which I have not seen, but which is not a time recording system which suggests there was ever an intention to charge in the first place. Secondly, it was necessary to have some verisimilitude as to the amount of the invoices in case they ever came under challenge by a creditor or creditors, and Mr. Jackson would therefore be able to say that the invoices did relate to work that he had done. It is also said by Mr. Stenhouse on Mr. Jackson’s behalf that if the intention was really to put assets beyond the reach of creditors, then why limit it to this piece of property? The answer to that, I think, was given by Miss Stacey on behalf of Mr. Vickers, which is that this was the vineyard land in which Mr. Jackson thought he was investing through the shareholding in Goform Limited. I do not consider either of Mr. Stenhouse’s points to be decisive.[32]What is more, subsequent correspondence also, in my judgment, supports the finding of sham. In his letter of 2nd June 1997 Mr. Jackson wrote to Mr. Vickers and his son where he set out their personal positions, saying who was a consultant, to what company, and what remuneration they were getting. He then said on the second page that it was not physically possible for him to be on site each day because the cost to the operating companies would be too high, and although he was in daily touch by telephone with various companies’ personnel, the benefit of both of their inputs would speak for itself as his eyes and ears. It is noteworthy that what he was talking about there was the cost to the operating companies were he on site each day. It seems at odds with that that he should now turn round and assert that he had a right as against Mr. Vickers personally in respect of the activities which he was carrying out for the operating companies. It is quite clear from the evidence that Mr. Jackson gave me that his complaint is that he was sucked in more and more into the operational side of the business, which was of course something he was doing for the companies, and that it was unfair that he should not be paid for that. This, in my judgment, has an element of hindsight about it. The reason he was sucked in was because he had the beneficial shareholding the value of which he wished to protect and promote. If he wished to be paid as well, it was for him to reach an agreement with the relevant person for whom he was acting.[33]What seems inherently improbable is that Mr. Vickers would have agreed to pay Mr. Jackson personally for work which was being done for a company in which Mr. Jackson had an interest. Further, in the letter dated 10th July 1997 to which I have already referred, Mr. Jackson, as I have mentioned, said that the new arrangement was that he should have a shareholding in return for his efforts to restructure the funding. No other form of reward was asserted. Later on in the same letter he said “I have put myself and my business, Ray Potts and Lynn” -- that is a lady who acted as company secretary -- “at your company’s disposal for which we have all worked an inordinate amount of time in order to support this venture and still have not been paid for our efforts”. He did not there assert any right to be paid by Mr. Vickers personally, or for that matter anyone else, nor did he say “Of course, I am entitled next month to demand payment under the terms of the charge that we entered into.” What he went on to say on the next page was “In short, whilst I have been prepared to go along with all the hopes and aspirations, clearly the situation cannot continue”. That suggests that he was simply, as there stated, going along with all the hopes and aspirations, not expecting payment as he went along. Moreover, had Mr Jackson regarded the charge as governing the position, he should not have been threatening to withdraw as the charge (if genuine) committed him to carry out the work he had been doing, and required him to wait 6 months before he could demand (when he would have to wait another 28 days) payment of a substantial, albeit capped, fee.[34]There was then, as I have said earlier, a meeting which took place in November 1997 which was followed by an open letter to Goform Limited’s shareholders in which Mr. Vickers set out his complaints. Two of the shareholders were Messrs. Backer and Tomlinson, both solicitors, who Mr. Jackson said were his friends or acquaintances. One of them is in New Zealand and could not be called. The other was said by Mr. Jackson to be unwilling to give evidence. I am bound to say that I am surprised that Mr. Backer, the individual in question, was not called, and I would have expected Mr. Jackson, as a friend or acquaintance of his, to call him. A hearsay statement from Mr. Tomlinson could also have been put in. It seems to me that if Mr. Jackson wished to challenge the events of this meeting and in particular the crucial allegation that he acknowledged that the charge was a sham, then it was incumbent upon him to call or obtain the evidence of such witnesses as could have disputed it. It seems to me that that is an additional matter that I can take into account, though even without it I would be persuaded in this case that the charge was a sham as it secured no genuine indebtedness of Mr. Vickers, or indeed anyone else. Both parties knew this, and intended to create the appearance of a charge merely as a form of protection from Mr Vickers’ creditors.[35]In the letter to shareholders, in paragraph 1, Mr. Vickers said:
“Certain invoices were raised earlier in the year against Mr. Vickers by Mr. Jackson. These bore no relation to any agreement between the two parties since no relation to any agreement exists, only a verbal agreement that MJ’s time will be in return for shares in Goform Limited. It was admitted at the meeting on 13th November 1997 that the invoices were a sham to tie in with the charge on the property which was put in place to protect the property from an attack at a time when MV was vulnerable. At the time of making the charge MJ stressed that the charge would never be called on and that the invoices would never be claimed.”
That, therefore, is a contemporaneous assertion which one would have expected Mr. Jackson to reply to immediately. In fact he did not, although he did reply to a later letter raising the same point eventually. I find that the paragraph I have just quoted accurately recorded what in fact happened in this case.[36]The rest of the letter largely concerned sums which Mr. Jackson allegedly diverted to himself. Mr. Jackson accepted in evidence before me that he did receive substantial sums in this way and gave, to my mind, no intelligible explanation for why those sums were apparently retained by him. The anticipation on the Vickers’ side was that the sums would with their concurrence pass through Jackson Associates’ account but would then be distributed in accordance with the needs of the Goform business. These expectations were dashed because the sums were applied, at least in substantial part, by Mr. Jackson in paying himself. It is something he claimed he was entitled to, though not under the charge. This was apparently for his work for one or more of the operating companies. Additionally, there had been at this stage the sale of another piece of land to a neighbour, which Mr. Jackson had been instrumental in helping to arrange.[37]On 18th December 1997 Mr. Vickers wrote another letter headed “Without prejudice” but which nonetheless has been received in evidence without objection. Mr. Vickers told me that at this stage he had not taken legal advice. That is significant for this reason, because in this letter Mr. Vickers called upon Mr. Jackson to cancel forthwith his charges over his land, adding the words “…which you admitted in front of all present at the Goform shareholders’ meeting on 13th November was a ‘sham’, along with your ‘sham’ invoices”. He had, as will be recalled, made the same point in his earlier letter to the Goform shareholders, which included Mr. Jackson.[38]I was surprised initially to see the word “sham” being used in layman’s letters and wondered whether Mr. Vickers had got that idea from a lawyer. However, I accept Mr. Vickers’ evidence that he had not taken legal advice by then, and of course “sham” is a common enough English word. Mr. Jackson told me he would not have used the word or even understood it because he did not know what it meant. He knew what a scam was, but not what a sham was. As I have said, “sham” is an ordinary English word and I cannot accept that evidence. I find that Mr. Jackson did acknowledge that the transactions were shams.[39]Mr Jackson replied on 29th January 1998, referring expressly to the letter of 18th December but not to the shareholders’ letter. He set out what he said was the true background. This is an important letter because it was the first occasion upon which Mr. Jackson answered what appeared to be very serious allegations that were made about him. One would therefore expect him to have approached it with great care. In fact, he openly acknowledged in the witness box that he was over-egging the pudding. It seems to me that this was deliberate and an inexcusable response from someone who had been (at least formerly) a trusted financial adviser. He said, near the beginning of the letter, that in most cases he would deal on a no-win, no-fee basis, yet in the witness box he said that was an exaggeration because he really did not have many, indeed if any, other clients at the time. Moreover, there was then a long explanation as to how he was initially to have a majority stake, and it was on that basis, he said, that he was prepared to devote a substantial amount of his time in dealing with the financial and marketing aspects of the company. There was no suggestion there that it was ever agreed that he would receive remuneration, whether on an hourly rate or on some other basis instead.[40]He then went on to say that he agreed that he would not expect anything except “my running expenses to be paid with the professional fees due to me being deferred”. He did not, however, explain what those professional fees were. I should mention that later on in the same letter he sought to justify the monies that he had taken out through Jackson Associates as meeting running expenses, an assertion which he could hardly begin to justify in the witness box. What he was doing was taking remuneration for his services, yet why he should dress it all up as expenses is simply baffling, except on the basis that he knew that he had no entitlement to remuneration as such. It seems to me I have to approach every statement in this letter with great caution.[41]He then said “I do not understand your reference to sham invoices and sham charge. I was acting in a professional capacity and have always wanted to be paid, and that is why invoices have been delivered and that is why at the beginning of this project I took a charge over your property to protect those very invoices. Your suggestion that I was not going to be paid is inconsistent with the facts.” In my judgment that was not an accurate record of the history. The beginning of the project took one back to August, if one is talking about when Mr. Jackson proposed to come on board as an investor, a date I take from his own evidence. That is when the idea of Goform Limited emerged, but the charge was not entered into until February. It was in a sense close to the beginning because the shareholders’ agreement had been entered into in December, and Runbir Limited seems to have been on the scene doing I am not sure exactly what until about the same time. However, it was at best a very exaggerated statement and I do not accept that the invoices and charge came into being in circumstances different to those relayed to me by Mr. Vickers.[42]As I have said, it is common ground before me that it is permissible to look at the subsequent facts to consider the sham issue. It is noteworthy that in this case on 1st April 2009 Mr. Jackson in response to a letter which he had received from Mr. Vickers’ solicitors sought to justify himself in the following terms:
“By February 1997 I was conscious that there were invoices totalling £48,078 outstanding to me for work done.”
In fact it is manifestly clear that there were no outstanding invoices in the sense in which that term is usually used, namely invoices that have been prepared and delivered contemporaneously with or shortly following the undertaking of work. This was not some consciousness that suddenly dawned upon Mr. Jackson in February. Invoices were brought into being for the very purpose of supporting the charge and had not been outstanding because they did not exist (as their dates confirm) until the same time as the charge was prepared. They were brought into being as part of one and the same transaction.[43]He went on to say “These were not fake invoices and were reflective of the extent of work that was carried out on behalf of your client”, that is Mr. Vickers, “by us”, and he went on to say in the next paragraph, “Having spent such a significant period of time being involved in your client’s situation, I advised him that although I was conscious that he had no immediate cashflow to be able to pay my invoices, I was not prepared to carry on doing any further work for him unless my position was secured by way of a legal charge”.[44]Had that been the case I can see that it might have been proper to find that what Mr. Jackson was saying was this:
“Well, I’ve done all this work. I’m not prepared to work any further unless you give me a charge. You personally, Mr. Vickers, must give me a charge covering not only the work I’ve done to date but all future work, and as Runbir Limited, the person who has accepted the invoices, is manifestly not in a position to pay, I require personal liability from you”
. That, of course, was not Mr. Jackson’s evidence exactly in the witness box before me. Runbir Limited he could not explain, and whilst he did espouse the theory that he was running out of patience because he had been working for so long for no payment, I consider that what he was really doing there was taking his attitude later on in July 2007 and transposing it back to February. I do not consider that the charge and associated invoices were ever intended by him to be genuine, or enforceable, and in any event that is how he explained it to Mr. Vickers and persuaded him to sign the charge and accept (so far as he did) the invoices. He cannot now be heard to say otherwise.[45]In May 1999 a solicitor, Mr. Ian Halstead, came on the scene for Mr. Jackson, and on 7th June 1999 gave appropriate notice, as it was called, under the charge of 28 days demanding repayment of the two sums of £48,078 and £50,000 respectively. As I have said, on any view £50,000 was not due. There were no invoices for £50,000. Even in the defence and counterclaim, as now amended, the sums are said to be sums which could be invoiced, even though they have not been, and do not add up to anything like £50,000. This demand must have been made on Mr. Jackson’s instructions, and the fact that he felt able, relying upon the charge, to claim £50,000 demonstrates to me that he is the sort of person who will seek repayment of monies even though he knows that they are not due. I should also say that I have no real or reliable evidence of the work done later on. I am mindful also of the fact that Mr. Jackson has received substantial sums, including sums after the charge, from one or more of the companies, or the property sale to which I have referred, which he took for himself. It never occurred to him at the time, or subsequently, to give credit against the sums due under the charge, which suggests to me that he never regarded the charge as governing the relationship between the parties.[46]Likewise, on 20th July 1999 Mr. Vickers was written to by solicitors for Mr. Jackson pointing out that the sums previously demanded had still not been paid. The sums previously demanded were the sums of £48,078 and £50,000. The matter then went quiet, but on 17th June 2004, many years later, Mr. Jackson wrote to Mr. Vickers himself about the charge and referred back to the earlier demands, and in particular the 7th June demand of Ian Halstead. That, of course, demanded £50,000 in full as well as the £48,000-odd. Mr Jackson said:
“In view of the ever-increasing property value and the fact that interest continues to accrue, it is not of undue concern to me as to how long you choose to hide your head in the sand about the monies due to me. Ultimately I will obtain recovery of all monies due to myself together with interest.”
He then went on to offer to accept £45,000 in full and final settlement, but at no stage did he correct the mis-statement in Ian Halstead’s earlier letter.[47]That was answered by Mr. Vickers on 26th July saying “You and I know that your charge was never to be called on”, and he repeated what he had said before. He then asked for, in subsequent correspondence, the invoices which formed the basis of the claim and did not get them. Mr Jackson took no steps thereafter to enforce the charge, despite Mr Vickers’ clear challenge to its validity, until this claim was brought, and then only by way of counterclaim, though Mr Jackson attributed that to lack of resources. He has however pursued his counterclaim, acting for much of the time in person, but engaging Counsel under public access rules for the trial. I do feel that had Mr. Jackson had any real faith in the genuineness of the charge and underlying invoices, he would have pursued his claim much earlier.[48]I am mindful that sham is a difficult plea to make out, as was reinforced by the observations of Neuberger J (as he then was) in National Westminster Bank v Jones [2001] 1BLC 98. At paragraph 68 he said, after a full review of the authorities and relevant principles:
“Both principle and the authorities indicate that the court is slow to find that an agreement is a sham and that before the court could reach such a conclusion it must be satisfied that the purported agreement is no more than the piece of paper which the parties have signed with no intention of it having any effect, save that of deceiving a third party and/or the court into believing that the purported agreement is genuine. Taking all the evidence together I think that the bank has plainly fallen short of discharging the onus which it undoubtedly has of establishing that either of the agreements was a sham.”
[49]I have adopted a similar approach and I have had regard to the very detailed analysis of the sham doctrine given by Neuberger J. in that case starting at paragraph 36. In my judgment, and recognising that there is a heavy onus on the claimant, the claimant has satisfied that onus in all the circumstances of the case that I have related.[50]Mr. Stenhouse for Mr. Jackson takes another point. He says that as the purpose of the transaction was on Mr. Vickers’ case to deceive creditors, he is barred by illegality from running the sham argument. The court will not lend its aid to an illegal transaction. That does not affect his counterclaim, he says, because his client does not claim that the charge and invoices were shams. On the contrary, he says they were genuine. I have, however, found that the transactions were shams.[51]Mr. Vickers is, of course, the legal owner of the land in question, which remains unregistered. He was before the charge the beneficial owner also, and remains so. That legal and beneficial ownership is in no sense tainted by illegality. He is entitled to assert it against Mr. Jackson. Moreover, because the charge is a sham transaction entered into with no intention to create legal relations of any kind, it is void: compare Hitch v Stone[2001] STC 214at paragraph 87.The charge and invoices accordingly have no effect whatsoever.[52]What Mr. Vickers is doing is asserting his rights as owner, which is (as I have said) not tainted by illegality. What Mr. Jackson has to do is to demonstrate that something is due under the purported charge. He has not demonstrated that because the charge is a sham, as are the underlying invoices. Even if I accept, as I am invited to do, the charge at face value, it is not to be assumed all these years later that even if anything was due it still remains due. Once one embarks upon the enquiry as to what is due then that necessarily takes us into the genuineness of the original invoices which are mere pieces of paper not intended to have any legal effect. What is more, to the extent that any of them have been acknowledged, they have been acknowledged in the name of Runbir Limited and not in the name of Mr. Vickers. The acknowledgement in the charge suggesting something different is ineffective, because that, as with the rest of the document, is a sham, not intended by either of the parties to have legal effect.[53]It seems to me, therefore, that all Mr. Vickers is doing is relying upon his ownership and his right to have the land charges and other entries protecting the purported charge removed, because there is nothing due, and never was. A charge can only come into or remain in being if there is some genuine indebtedness, actual, prospective or contingent, which it secures. That is inherent in the concept of a charge, which is a security for an obligation. If there is no obligation, there is no charge. Here, there never was an obligation which the charge was intended to secure. Therefore, there is no charge. The parties never intended there to be a charge.[54]Moreover, if Mr. Stenhouse is correct, then refusing Mr. Vickers the relief he seeks has the effect of enabling Mr. Jackson to enforce a sham charge. He seeks direct enforcement of the charge by his counterclaim. It is therefore Mr. Jackson who is asking the law to lend its aid by granting possession and thereby recognise a fictional indebtedness that the court knows does not exist. Mr. Stenhouse, founding himself upon cases such as Tinsley v Milligan [1994] 1 AC 340,says he can enforce the charge because he does not have to rely – and does not rely -- on the sham nature of the transaction. That does not avail him as there has to be an obligation which the charge secures. As I have found that the charge itself, and the underlying indebtedness it purports to secure, were all sham transactions, the charge secures nothing and cannot stand.[55]Moreover, Mr. Jackson, by relying on documents which the court has found to be shams, faces a potential illegality defence as well. The purpose for which the purported charge was given and underlying invoices prepared was to deceive Mr. Vickers’ creditors; and the policy of the law in not enforcing illegal transactions would (one would have thought) be infringed by giving Mr. Jackson relief, thereby perpetuating the fraud against Mr. Vickers’ present creditors. Compare in this connection Alexander v Rayson [1936] 1 K.B. 169 and the cases cited therein.[56]However, in my judgment the sham argument is a complete answer to the counterclaim and it is not strictly necessary for me to decide whether the counterclaim is barred by illegality as well. I do however decide that no question of illegality arises so as to bar Mr. Vickers’ right to relief. Indeed, denying him relief would have the effect of perpetuating the fraud against his present creditors in much the same way as granting possession would. For the charge would remain in place and (on Mr. Stenhouse’s argument) the only way it could be got rid of, and the land charge and other entries discharged, would be by forcing Mr. Vickers to pay the fictitious indebtedness, which would rank ahead of all other claims. I will, therefore, grant relief to Mr. Vickers which I will invite Mr. Stenhouse, unless there is an agreed form of order, to agree with Miss Stacey, who is not here today, but it can be done in the ordinary way. I will now hear any other arguments arising out of my judgment.[57]I should add by way of postscript that at the same time as receiving this transcript in draft for approval, I was asked to approve two competing versions of the Order. Mr. Stenhouse resisted any Order vacating the registration of a land charge and of a caution against first registration, and any other similar entries. It follows from the terms of my judgment that the claimant is entitled to these orders. The matter was not debated before me because, as the previous paragraph indicates, I left it to Counsel to agree the Order. I am sorry that Mr. Stenhouse felt unable to agree the obvious, the more so as he unsuccessfully sought a stay in that respect. I have therefore approved the Order largely in the form submitted on behalf of Mr. Vickers, though I have deleted the paragraph setting the charge aside, as it is sufficient to declare it to be void and of no effect. That being so, there is, strictly speaking, nothing to set aside.[58]MRS. APPLEGARTH: Thank you. I think the only thing we would invite you to do is to make an order that the claimant’s costs be paid by the defendant.

JUDGE PURLE: Do you resist that?

[60]MR. STENHOUSE: In principle, no, I can’t resist it.

JUDGE PURLE:

[61]Then I will make it… It will obviously be subject to detailed assessment if not agreed. Anything else today? Thank you very much.[62](Mr. Stenhouse asked for permission to appeal and gave reasons)

JUDGE PURLE:

[63]I am going to refuse permission to appeal. It seems to me that this is largely a fact-finding exercise. I may be wrong on the question of illegality and how I approached sham, but it seemed to me that I was acting in accordance with well recognised principles, and so I think it is for Mr. Stenhouse, if his client wishes to take the matter further, to persuade the Court of Appeal that they should give permission. For my part, I do not consider that the appeal has a reasonable prospect of success or that there is any other compelling reason for an appeal.[64]MR. STENHOUSE: One further matter: the discharge of the charge at this stage would mean that if my client does appeal and he were given leave to appeal, and if that appeal were successful, then on that basis….

JUDGE PURLE: You want a stay of that bit, do you?

[66]MR. STENHOUSE: I do, because the effects….

JUDGE PURLE:

[67]I refuse that as well. You will have to ask the Court of Appeal. It would seem inconsistent with refusing permission to appeal. You can, if you apply for permission to appeal, ask for a stay at the same time, and it seems to me that that should all be dealt with by the Court of Appeal, otherwise I might be seen to be contradicting myself. If something was about to happen tomorrow then of course I would consider giving you a stay for long enough to get to the Court of Appeal.[68]MR. STENHOUSE: That is effectively what I am asking for, because the effect of your judgment will be that Mr. Vickers will apply immediately, possibly today, almost certainly tomorrow, to the Land Registry for the immediate discharge of the charge.

JUDGE PURLE:

[69]Well, what about that? Will you take instructions? I do think it shouldn’t be removed if Mr. Stenhouse is going to seek permission to appeal, though I don’t want to do anything to encourage him. How easy is it to get rid of? I mean, you’re talking about (inaudible) appealing anyway. No, I’m not going to order a stay. That will have to be for the Court of Appeal to do that. It will be a while before the order gets drawn up and they will want to see it. I’m going away for two weeks so it’s unlikely to be drawn up for the next two weeks. If you can get it in a form where I can look at it as soon as I get back I will approve it straight away. Thank you very much, everybody.

Cited in 1 later judgment