Singh v Singh & Ors [2016] EWHC 1432 (Ch)

Case No A30BM434[2016] EWHC 1432 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BIRMINGHAM DISTRICT REGISTRY, Birmingham Civil Justice Centre, Bull Street, Birmingham B4 6DSDate 17/06/2016
Before
HHJ DAVID COOKE
Between
Balvinder SinghClaimantSalinder Singh (1)DefendantSukhjind Kaur (2)DefendantGlass Express Midlands Ltd (3)DefendantGEM Blinds Ltd (4)Defendant
Avtar Khangure QC (instructed by Aspect Law Ltd) for ClaimantJames Quirke (instructed by Ferdinand Kelly Solicitors) for DefendantsHearing Hearing dates: 4-8 April 2016
JudgmentHHJ David Cooke:Introduction and issues
[1]The claimant seeks declarations: i) That he is the beneficial owner of 50% of the shares in Glass Express Midlands Ltd ("Glass"). Glass has two issued shares, one of which is registered in the name of the first defendant and the other in the name of the second defendant, his wife, and ii) That he is the beneficial owner of 45% of the shares in GEM Blinds Ltd ("GEM"). GEM has 100 issued shares, of which 90 are registered in the name of the first defendant and the remainder in the name of Runxi Chen. The claimant seeks his declaration in relation to the former only; he does not seek to disturb Runxi Chen's holding. There are also claims for consequential relief.[2]By way of outline of the facts and the cases of the parties, Glass was incorporated in 2008. It manufactures and supplies window products, principally sealed double glazing units. On incorporation the claimant, who is known to all concerned as "Pete" and the first defendant, who is known as "Bill", were named as directors and subscribers of one share each. The claimant's case is that he was persuaded by Pete that he should resign as a director because he had previously been involved in a similar business called Tri-Warm which had failed. He was told that it would be difficult to obtain credit and that suppliers who had lost money with Tri-Warm would be reluctant to deal with Glass if he was seen to be a director. On the claimant's case, he was to remain a shareholder and would be a de facto director, in charge of production, while the first defendant would deal with administration.[3]GEM was established in 2010. It manufactures and imports window blinds from China, which are incorporated internally into the double glazed units manufactured by Glass. Initially all 100 shares were issued to the first defendant, but later 10 shares were transferred to Runxi Chen, who was the original contact in China. The claimant's case is that he and the first defendant jointly agreed to establish GEM which was to be owned by them equally. They had both agreed to give a 10% holding to Runxi Chen, so he claims half of the remainder.[4]The defendants' pleaded case is that although it had been initially agreed to establish Glass as a jointly owned company, it was also agreed before incorporation in a so called "Pre-Glass Agreement" that if the claimant was unable to invest in providing working capital for Glass and/or in provision of security for its borrowing and trading he would resign as director and transfer his share to the first defendant. The claimant had accepted that he could not provide such investment and accordingly voluntarily agreed to resign and transfer his share. A transfer form was signed on 18 February 2008, but not registered until 15 May 2009, the first defendant says as a result of delay by his accountant. Thereafter the claimant had been no more than an employee of Glass and GEM. He had no substantial role in the establishment of GEM, and never had any entitlement to any part of its share capital. The claimant says he has no recollection of signing such a transfer form and did not agree to transfer his share.[5]The claimant relies on recordings he made of three meetings he had with the first defendant in February, June and July 2014, in which he says he asked to have "his" shares in Glass and GEM transferred to him. The first defendant, he says, reveals the true nature of their relationship in these recordings and acknowledges that the claimant is entitled to an equal shareholding with him in each company, but prevaricates and makes excuses as to why the claimant's shares cannot be immediately transferred to him, principally on the basis that the companies owe the first defendant large amounts of money for what he has invested in them and he cannot transfer the shares until this is paid and the personal security he has given for their obligations is discharged. The first defendant gave in evidence his explanation for these conversations, saying in summary that they had been misinterpreted and referred only to the possibility that he might use his discretion as an employer to reward the claimant by giving him some shares in the future.[6]The claimant also relies, to a lesser extent, on a very large quantity of WhatsApp messages revealed shortly before trial as a result of a disclosure order made by HHJ Purle QC, which were exchanged over a long period of time between the first defendant and the claimant's then wife. These messages, he says, show a candid picture of the true business relationship between the claimant and the first defendant and the background to some of the events canvassed in the evidence. In the event, although I have not ignored these messages, it is not in my judgment necessary for me to refer to them in order to decide the issues before me.[7]From about the middle of 2014 the relationship between the claimant and the first defendant deteriorated. Eventually following a physical confrontation between them at the factory on 18 August 2014 the claimant was dismissed the following day. Since shortly after that date he has been working at a competitor company called Triplewarm, he says as an employee of his brother (known as "Tony" and who has since changed his name to Tony Milan) who owns that company.

The witness evidence

[8]I heard from a number of witnesses on each side. The essence of the claimant's claim is as to matters he says were agreed in private between himself and the first defendant, the truth of which would only be known to the two of them and, perhaps, to anyone they had subsequently told about their arrangements. This is not an uncommon situation, and the court is frequently required to decide between the conflicting accounts given long after the fact of private and undocumented arrangements by reference to such documents and contemporary evidence as exists and to the actual behaviour of the parties, which may allow inferences to be drawn about their private agreements and so which of the accounts now presented is more reliable. The decision is ultimately as between the credibility of the oral evidence of the competing parties.[9]The witnesses called apart from the claimant and the first defendant were all, in essence, in the position that they had no direct knowledge of what the claimant and the first defendant had agreed. They spoke of subsequent episodes in which they had taken part or of things they had observed, but these matters were at best only peripherally relevant as to the central issues in the case. The evidence of witnesses such as employees of their impressions as to whether the claimant had or had not acted or been treated as an owner of the business was contradictory and potentially influenced by their loyalty to one or other party.[10]In some cases, it is necessary nonetheless to consider such evidence and what inferences may be drawn from it. Equally, evidence of the roles actually played by the parties themselves may be relied on; was the claimant's actual involvement in the companies consistent with ownership status?[11]In this case however I have the direct evidence of the recordings made by the claimant. It is true to say that these must be approached with some caution, as there is always a risk that where one party knows a conversation is being recorded but the other does not the content may be manipulated with a view to drawing the party who is unaware into some statement that can be taken out of context. But there can be great value in what is said in such circumstances, where the parties plainly know the truth of the matters they are discussing and are talking (at least on one side) freely about them.[12]So it is in this case. The claim turns on the relative credibility of the claimant and the first defendant as witnesses. Such documentation as there is tends to favour the defendant, but that cannot be conclusive where the nature of the documents is said to be to assist in presentation of a false picture to the outside world and not to reflect the arrangements privately agreed. Even on the basis of those documents however, there are serious doubts about the plausibility of the defendants' version of events. As will be seen, the transcripts of the recorded conversations in my view take the matter beyond doubt and show that the account given by the claimant, on the essential matters, is to be preferred. I do not say that I accept everything the claimant told me; in many respects I do not believe that he has given a full and complete picture. But on the central aspects of the case as to his intended ownership of a share in the business, it is in my view clear that he has told the truth and the first defendant's attempts to explain away what he said were wholly implausible.[13]For these reasons I will not refer in any detail to the evidence of the various supporting witnesses, nor to the allegations on each side of conduct and what led to the involvement of Tony Milan in the business, or his subsequent dismissal, or the final confrontation between the claimant and defendant. None of those matters require resolution of the evidential conflicts in order to determine the issues in the case. Nor did any of the evidence about them cast any doubt on the conclusions I have reached based on the transcripts and the other matters that I will refer to.

Shareholdings in Glass

[14]I turn then to the relevant facts in more detail. Prior to 2008 the claimant was a shareholder and director of Tri-warm Sealed Units Ltd ("Tri-Warm"). He held 30% of the shares, the remainder being held by his brother Tony and Tony's wife. That company manufactured sealed glazing units and it was there that the claimant acquired his knowledge of the industry. The first defendant had a company called Euromax Ltd which supplied aluminium to Tri-Warm. According to the first defendant, he lent £130,000 personally to Tony when Tri-Warm was in financial difficulty, having been persuaded by the claimant that Tony would repay him from an anticipated VAT refund. Tony repaid only £50,000 and the first defendant pursued him to bankruptcy on his failure to pay the balance. Tri-Warm itself went into liquidation on 21 April 2008 on the petition of another trade creditor.[15]In the meantime the claimant and the first defendant had conceived the idea of establishing a new glass company. They are agreed that the initial concept was that they would be equal owners. The first defendant instructed his accountant Mr. Ragavan to incorporate a company. He in turn instructed a firm of incorporation agents who incorporated Glass on 7 January 2008 and sent the incorporation papers by post to Mr. Ragavan's office. Those papers (bundle p 469) include a pro forma board minute recording the subscription of one share each by the claimant and the first defendant and their appointment as the first directors. That document was signed by the first defendant and dated 7 January, but it was clear from Mr. Ragavan's evidence that there was in fact no such meeting that day and the minute (which was not even put in the post to Mr. Ragavan's office until at earliest 7 January) must have been signed at some time thereafter. It was no doubt treated as a formality.[16]The first defendant signed a form 288b recording the claimant's resignation as a director, which was dated 18 February 2008 and filed at Companies House the next day (264). The date of resignation is stated to have been 7 January, but this was evidently backdated. The claimant says he agreed this at a meeting at Mr. Ragavan's office around the time the company was incorporated in January 2008, having as stated above been persuaded that it would look better to lenders and suppliers if he were not shown as a director. His case that he did not in fact resign on 7 January and was intended to continue as a de facto director is supported by the bank documents, which show (1005ff) completion of account opening forms dated 11 January 2008 (apparently when both attended at the bank) signed by both claimant and the first defendant in which they are both named as directors and the bank is authorised to accept the signature of either for any transaction. In the same form the claimant and the first defendant declared that they were the joint beneficial owners of the company. The claimant's authority was not withdrawn even after his recorded resignation on 18 February.[17]According to the first defendant, there was a further board meeting on 18 February at which the claimant agreed to transfer his share to him, having accepted that he could not afford to invest equally in Glass or provide security for its obligations. He produced a purported minute of such a meeting, dated 18 February and signed by him as chairman (and not signed by the claimant), which states (474):
“Balvinder Singh following his resignation as director of Glass Express Midlands Ltd confirmed that he wanted to transfer his one ordinary share of £1 to Salinder Singh for £1 with immediate effect. Salinder Singh agreed to buy Balvinder Singh's share, hence having 100% ownership of the company.”
Salinder Singh agreed to buy Balvinder Singh's share, hence having 100% ownership of the company.”[18]The first defendant and Mr. Ragavan gave evidence that the £1 was handed over there and then. However it appears no transfer form was signed on that occasion. The first defendant relies on a transfer form, apparently signed by the claimant (476) and dated 15 May 2009. Mr. Ragavan's evidence was that he had been contacted by the first defendant in 2009 and asked to obtain a transfer. The claimant at his request went to his office and signed the form. Mr. Ragavan completed the remainder of the form (with details of the company name and date, for instance) and then entered it in the register. The claimant according to him knew what he was signing and that it was to implement what he had agreed in February 2008.[19]The claimant accepts he attended at Mr. Ragavan's office on one occasion, but only to discuss the incorporation of the company. There was no discussion of a share transfer then, and he did not go back to that office thereafter, on 15 May 2009 or any other date. He has no recollection of signing a share transfer form, but accepts the signature "looks like mine". He often, he said, signed documents presented to him by the first defendant, accepting without question any request to do so.[20]I find that the signature on the form is that of the claimant. That is not conclusive as to where or when or in what circumstances he signed it, since it is not possible to tell from the document itself whether all the other writing on it by Mr. Ragavan was present when it was signed, and if not, when it was added.[21]I do not accept the first defendant's evidence of the reason why a transfer was signed. First, it is odd that if a transfer was agreed on 18 February 2008 at Mr. Ragavan's office a transfer form was not signed there and then. Mr. Ragavan said in cross examination that he did not have such a form available at his office, but I find that hard to believe. If there was no hard copy in the office, it would have been easy to download one. If for some reason that could not be done, it might be expected to be referred to in the minutes, and promptly chased up.[22]Second, the supposed reason, ie that the claimant admitted on 18 February he could not invest equally with the first defendant in the new company, does not hold water. Nothing had changed since 11 January when the two men declared to the bank that they were joint beneficial owners. 10 days later on 28 February 2008 the claimant paid £25,000 in to the company account, which was more than the first defendant had up to then provided, at least by direct payment to the company, since the only such payment from him was of £10,000 made on 11 January. Debbie Foulkes, the office manager, gave evidence and accepted she had credited these two amounts to separate directors' loan accounts, as can be seen from the Sage accounting records (1392). There are no names on these accounts, but Mr. Khangure put to her the obvious implication that one was intended to be the claimant's loan account and the other the first defendant's. Ms Foulkes said she had set up two accounts because the funds came from different sources but said, in my view unconvincingly, that it was "not necessarily" the case that the fund were initially treated as loans by the two men.[23]The £25,000 and £10,000 were transferred by journal entries dated 31 March 2009 to a third director's loan account, again unnamed but this time clearly that of the first defendant. In that account the £25,000 is (later) labelled "Bal Bedi fund". Bal Bedi is the claimant (Balvinder Singh Bedi). The same records show that at that date, ie the end of the first trading year, the balance on that account was £49,334, so that of the total amount recorded as lent to the company, almost exactly half was provided by the claimant.[24]The first defendant now maintains that the claimant's £25,000 was not a loan to or investment in the company by the claimant, but a personal loan to him which he has since partly repaid. Mr. Khangure showed in cross examination that much of the amounts said to have been repaid came from the company and not the first defendant himself, and include amounts that appear to have been reimbursement of expenses, or part of the claimant's remuneration. The journal transfers were done by Mr. Ragavan when preparing the year end accounts, on the sole instruction of the first defendant, but the first defendant said he had no idea why Mr. Ragavan would have described the £25,000 as the Bal Bedi fund. The conclusion I reach, taking account of the evidence as a whole, is that the first defendant gave instructions for this re-characterisation of the claimant's loans in order to seek to write the claimant out of the company's books and present himself not only as the sole shareholder and director but as having made all the working capital investment in it.[25]If further funds than the £25,000 had been required, the claimant had access to them. In August 2008 he put up £37,500 by way of joint investment with the first defendant and others in purchase of a pub. In relation to that transaction, though it is not directly relevant, I note that the first defendant was supposed to invest a similar amount but there is no documentary evidence that he did so. When asked about it he said that his contribution had been provided by way of credit arising from undocumented trading in China with the vendor.[26]The fact that the reason for the transfer is recorded in the minutes is not in my view of any significant weight. The only such minutes in the books are the pro forma minutes on incorporation, which are evidently untrue in that no such meeting was held, and those relating to the claimant's resignation and share transfer, which I consider are likely to have been prepared by Mr. Ragavan at the first defendant's direction to suit his purpose. There are no later minutes of any other decision, so the first defendant plainly cannot have regarded it as necessary always to record decisions he took as sole director. There is for instance no minute approving the transfer of one share from the first defendant to his wife and according to Mr. Ragavan there was not even a share transfer form signed. Mr. Ragavan was clearly therefore prepared to complete the statutory books to show the result the first defendant wanted, and not punctilious about advising him as to the procedural steps required to achieve it.[27]The likely explanation for the share transfer form, in my judgment, is that it was signed at some point by the claimant at the request of the first defendant, either inadvertently or after he had been given some pretext for it and told that it did not affect his continuing entitlement to half the company. It may have been signed on 18 February 2008 or at some later date, possibly on 15 May 2009 as Mr. Ragavan described. It may have been in blank when signed, or may already have been completed. I suspect the claimant may not have been entirely candid about his knowledge of having signed such a form; the recorded conversations show no surprise on his part that he is not the registered holder of any shares. He said that he had discovered this and remonstrated with the first defendant about it on earlier unrecorded occasions, but if so I would have expected that discovery and his resentment of it to have been reflected in the later conversations. Whatever the circumstances however, it is in my judgment plain from the recorded conversations that neither party regarded the signing or registration of such a transfer as having deprived the claimant of his ownership of half the shares in Glass.

The first defendant's contributions to funding Glass

[28]It was the first defendant's evidence that he had made enormous financial contributions to the establishment and operation of Glass. In his witness statement he said "I approximately initially invested around £150,000 both personally with my wife from our joint HSBC account and via Euromax…".[29]It is not in doubt that funds were required, to establish the business and acquire stock and machinery for instance. The first defendant said in cross examination he had provided such funds in cash and by paying personally for stocks. In addition he said that stocks had been purchased by his company Euromax and that these purchases should be regarded as his personal contributions. Further he said he had given personal security and security over his assets for the company's debts.[30]In principle, whether or not such contributions were made does not necessarily affect the ownership of shares in the company, but only what, if anything, the company owes to the first defendant. A disparity in contributions might of course lend weight to the first defendant's explanation why the claimant transferred his share, so it is relevant to consider whether the evidence supports what the first defendant says to assess the credibility of that explanation. If the claimant's case is accepted, it will no doubt be necessary to determine at some stage what the company's liability to the first defendant is.[31]The first defendant said he had paid cash from his own funds to purchase stocks for Glass. In particular he said that at the time the company was incorporated he had already personally purchased and paid for two container loads of glass from China that were waiting on the dockside to be used in the new business. Such purchases, he said, were not shown in the company's accounts, for which he put the blame on Mr. Ragavan.[32]There is no documentary evidence whatever of any such purchases. If any direct payments were made on the company's behalf, there is no reason why they would not have been recorded in the company's books and credited to the first defendant's director's loan account. Mr. Ragavan prepared the accounts, but from information provided to him by the first defendant or Ms Foulkes on his behalf, and there would be no reason to suppress or omit any such purchases if they had been made. This is not to say that the accounts were entirely complete and accurate; it was accepted by Ms Foulkes and others for instance that a considerable number of sales for cash were not recorded in the books. This no doubt provided the source of the substantial distributions of cash that I am satisfied were made between the claimant and the first defendant. It is a familiar mechanism for understating profits and cheating the Revenue. But while that purpose may be an explanation for failing to declare income, it is no reason to omit tax and VAT deductible costs.[33]It is evident that many supplies were sourced through Euromax. But these, so far as the records show, were sold from Euromax to Glass, invoiced and paid for. The trade account between the two companies shows that over the period of trading there were times when a debit balance built up, representing money owed by Glass to Euromax, of up to about £100,000. It was Ms Foulkes' evidence that Euromax was only paid as and when funds were available, so there can be no doubt that this represented an important source of credit to Glass. But in the end all the supplies were paid for, and Euromax received a margin over its cost, so that ultimately it made no net contribution of funds to Glass that might be argued to be an indirect investment by the first defendant. Even if the first defendant could properly claim that any such contribution by Euromax should be credited to him, therefore, the evidence does not establish that such a contribution was made.[34]The availability of credit to Glass was itself valuable, of course, even if the credit was ultimately repaid. One may therefore consider the extent to which the first defendant was personally responsible for providing such credit, for example by providing his own funds to Euromax in order that it could supply Glass, so that he would be indirectly providing credit to Glass itself.[35]The first defendant said he had no documents at all relating to Euromax that could be disclosed. As a result of Judge Purle's order however, a file from Khanna & Co. the accountants dealing with Euromax was disclosed shortly before the trial. It includes draft and final accounts and various notes made by Khanna & Co. Among these is a set of manuscript notes headed "Euromax Ltd Queries y/2 31-01-2008. Meeting with SS [the first defendant] 16-12-08". One such note reads:
“ Glass Express Ltd - S Singh 50% SH - Balwinder Singh 50% Just set up. Upvc mfg. Then toughened glass work.”
Just set up. Upvc mfg. Then toughened glass work.”[36]The enquiry is plainly made for the purpose of considering disclosure of related party transactions. Asked about it, the first defendant said first that "perhaps" he had been asked how the company had been set up and he had just been describing the position at the relevant year end, ie on 31 January 2008. The first defendant did not enhance his credibility when he then said "I remember clearly how I was asked, I said he [the claimant] was a shareholder but he isn't any more". I have no doubt that if it had been the case that the first defendant had acquired 100% ownership since the year end he would have said so when asked whether Glass was a related company. But equally, the accountants would have made a note of that change, and not just the year end position. This note in my judgment is a strong indication that Khanna & Co were not told of any change of ownership, and that the reason was that there had not been one.[37]The Euromax accounts disclosed show that the first sales to Glass took place before 31 January 2008, amounting to £7675 (784). This must make it unlikely that the first defendant had, as he said, purchased the initial supplies of glass himself; it is hard to see how in its first 3 weeks of trading Glass would have required more than the two container loads the first defendant said he had paid for (at a cost he said of £25-30,000).[38]From then on, as the first defendant accepted, Glass was effectively Euromax's only customer. Euromax from then on made small profits, where it had previously been loss making. The first defendant drew a salary of £6,000 from it. The 2009 accounts show that its trade was financed by creditors (639). Included in the year end balance for "other creditors" was £78,657 due to the first defendant, up from £54,206 the previous year. I have not seen a ledger statement for the director's loan account, but taking it at its highest it may therefore show that he introduced funds of about £18,000 (£24,000 less the salary credited) in the year. It is possible that there were movements within the year such that at some point the balance was higher, but was reduced by the year end. No net funds were apparently introduced in the 2010 year; the director's loan account balance rose to £83,934 (565) but the first defendant was again credited with salary of £6,000. The position was similar in the 2011 year; the loan account balance rose to £89,933, the increase corresponding almost exactly with the salary credited to the first defendant (506). Euromax ceased trading in July 2010. The first defendant said that once Glass was on its own feet there was no need to keep Euromax in existence. Its affairs were evidently wound down but it was not put into insolvency. Accounts for the year ended January 2012 were prepared, which show that by that date the director's loan account had been reduced to £70,850, so apparently the first defendant had been repaid about £19,000.[39]By 31 January 2012 therefore, it would appear that Glass had paid for all the stock supplied by Euromax, and the first defendant had been repaid as much as he might show he had contributed by way of funding to Euromax in order to enable it to provide credit to Glass. To the extent therefore that he might say he had provided indirect funding for Glass's trade by these means, it had all been recovered by that date.[40]The first defendant continued to maintain that "as far as I am concerned" he had provided very large amounts of funding. He appeared to regard all the credit provided by Euromax as investment personally by him, notwithstanding that(a) he did not provide it, other than indirectly, most of it being financed by Euromax's trade and other creditors and(b) it had been repaid. He continued to maintain there were other undocumented payments, but there is no supporting evidence for them at all. The formula "as far as I am concerned" was one he resorted to frequently for unsupported assertions.[41]There is no evidence therefore that the first defendant ever provided investment of £150,000 in Glass as he had claimed. Even if this is taken to include temporary funding, since repaid, there is no evidence of any such funding direct to Glass, and insofar as he provided it indirectly to fund Euromax, the most that can be identified from the documents is of the order of £18,000. I conclude that the figure was invented by him to bolster his claim that the claimant had bowed out of ownership because he could not afford to invest equally.[42]So far as security for Glass's obligations is concerned, the first defendant said he had provided personal guarantees to suppliers of machinery for HP obligations. There were indeed substantial such obligations undertaken; the 2009 accounts show liabilities to finance lease and HP creditors of £358,790. I assume that many or all of such creditors may have insisted on personal guarantees from the first defendant as the registered director of the company. There is however no evidence that any such guarantees had been asked for by 18 February 2008 when the claimant is said to have agreed to give up his share. Nor is there any evidence to support the suggestion that the finance companies would have been reluctant to deal with Glass if the claimant had been a director. They might well have demanded guarantees from both directors, but there would be no reason why the claimant could not have given one. His unchallenged evidence was that he was never asked to do so. His guarantee may have been thought to be worth little, but if lenders were willing to provide finance backed by the first defendant's guarantee, an additional guarantee from the claimant would have been at worst neutral, not a reason to refuse credit.[43]The first defendant relies also on security given to the company's bank. Mr. Khangure showed in cross examination however that there was no such security over any personal assets of the first defendant or his family until late in 2010. It came about then only because the first defendant and his wife arranged to buy the freehold of the company's premises in their own name (something which the claimant says had been agreed to be done through the company, though he seeks no relief in that respect in these proceedings) and caused the company to guarantee their personal borrowing of £450,000 for that purpose. The first defendant and his wife gave a personal guarantee for the company's obligations to the bank, limited to £20,000, and caused their daughter to charge a property in her name in support of that guarantee. It must be doubted whether this security would ever have been given but for the defendants' personal borrowing. It plainly was not on the horizon in February 2008 and is no reason for the claimant to have abandoned his shareholding at that date.

The Claimant as an employee of Glass

[44]The first defendant's pleaded position is that the claimant was "an employee (and no more) of the Companies, retained as general manager." According to the PAYE records, he was paid about £10,000 pa salary by Glass. The first defendant said that the claimant had been paid a similar amount by GEM. However the recorded conversations show the first defendant stating to the claimant that he is being paid £60,000, with regular weekly payments of cash being made to him. His witness statement, made after those recordings were disclosed, accepts that figure.[45]In cross examination the first defendant sought to say that this amount was the total cost to him of employing the claimant, and included fringe benefits such as life insurance paid by the company and reimbursement of travel expenses. He said he paid the claimant personally from his own pocket £100-200 pw which the claimant then spent in the pub. He had provided the claimant with a BMW X5 car, registration number GLA 55X, and he had a similar car himself, with the number GLA 22E. Both these cars he said were his personal property, the leases for them being in his name and not that of the company. All these payments were, he said, made as matters of his own discretion as the employer and because he treated the claimant as (and frequently referred to him as) his brother.[46]I do not accept that as a true explanation of the amounts paid to the claimant. The discussions shown by the transcripts are, in my judgment, only credibly explained as being attempts by the first defendant to reassure the claimant that he is being treated equally with the first defendant and that although the first defendant has control of the finances nothing is being concealed from the claimant. Cash payments are being made to both of them at the rate of £2500 per month each. From the evidence of Ms Foulkes and others I infer that the source of this is the significant quantity of undocumented cash sales. I set out below some extracts from the recording made on 26 June 2014 (1812). It is partly in English and partly in Punjabi, but the translation is agreed. The transcript refers to the participants as Pete (the claimant) Bill (the first defendant) and Tony (the claimant's brother):
“Bill: … I still tell everybody, yeah, Pete is my younger brother, yeah, we started the company together, and God forbid we will finish together … Pete: But we've had no dividends either, or nothing, have we? Bill: you get £60,000 a year, yeah? … I'll sit with you here. I'm glad you are talking to me. Last year … cash wages paid … Pete: yeah [there then follows a discussion of various expenditure the company has had to pay] Bill: … I have not borrowed, I've paid from here. That's where the money is gone, yeah, that's why no one is getting any dividends or anything, it's all done internally, the money is put back in… see this is where the money is gone. I am not spending it secretly I am spending it in front of you, right, now you know everything is in front of you, yeah, be my brother, right. I won't let you down… We make a good team. We done well together, both of us. If you want to take over the cash, take over the cash, you give me weekly, I don't mind, right, I really don't care, but we need to have faith in each other, all right, that's all I can say… Okay you need money, I will try in my life not to say no to you because I can't do that. I have never refused you and said Pete I don't have it, I can't give it, you can spit on my face. It doesn't matter where I get it from, I always give it to you ... I said to you at the end of the month it is my aim to have two and a half each on top of the wages, we do get it, right? … I have not let you short ever, yeah, now I said 5000 that's coming from [inaudible] that will be two and a half each …”
Pete: But we've had no dividends either, or nothing, have we? Pete: yeah

[there then follows a discussion of various expenditure the company has had to pay]

[47]This conversation is not on the footing of an employer talking to an employee, but one that takes place as between partners. The claimant is treated as being entitled to see the financial information of the business in order to persuade him that he is receiving an equal share of its fruits. At one point, the first defendant offers that the claimant can take over the handling and division of the cash generated by the business. This can only be in order to seek to reassure him that he is not being cheated.

What the recordings show about ownership

[48]I come now to the crux of the matter, which is what the recorded conversations reveal about the true relationship between the claimant and the first defendant, and the arrangement between them relating to ownership of the two companies. The transcribed recordings are relatively lengthy, so what follows below is extracted from them. There are other parts that could be included, which would point in the same direction. There is in my judgment no support at all in these recordings for the position that the first defendant took, which was that any reference to shares, transfer of shares or ownership of shares by the claimant referred only to the possibility that the first defendant might at some point in the future as a discretionary matter make gifts of shares to the claimant.[49]The first recorded conversation takes place on 18 February, 2014 (1799) “ Pete: … I'm really not happy, because you know Bill, I've come six years down the line, bruv, right, I have put a lot of work and effort in, like yourself… and all I want is my shares to the companies and I can't see why I can't have them. Bill: You can, you can have your shares… give me whatever I put in, half of that. Release my properties, my houses, give me your securities whatever you can, half of it… Pete: You never said that to me before Bill… why did you say it to me now for? Bill: You are not fair man. … I am only being reasonable, right, I got everything secured to this, everything that I have Pete: On Glass Express? Bill: That's right. Pete: Well then start off by giving my GEM ones then… Bill: GEM and Glass Express, both are linked. Pete: Bill, why didn't you tell me this before? ” Pete: On Glass Express? Pete: Well then start off by giving my GEM ones then… Pete: Bill, why didn't you tell me this before? ”

Pete: Well then start off by giving my GEM ones then…

[50]In this conversation, the first defendant plainly acknowledges that the claimant is entitled to shares in both companies, and to have them transferred to him, but suggests that they cannot be transferred to the claimant until (apparently) he repays half of the money that the first defendant has put into the companies (although his debtor would be the companies) and either obtains the release of security that the first defendant has given over his properties for Glass's debts, or puts up equivalent security himself. The claimant appears to be surprised, saying that no such obstacle to transfer has previously been mentioned. He establishes that the security the first defendant has provided is only in respect of Glass, and so suggests that this is no reason why his shares in GEM cannot be transferred to him. The first defendant dissembles, saying that both companies are linked, i.e. shares should not be transferred in one unless the position is sorted out for the other. The conversation ends at that point.[51]The second conversation takes place about 20 minutes later on the same day (1800). By this time, Tony is also present:
“ Pete: … I am not happy about a lot of things Bill, because, you know on a management scale, right, I need to know what's happening with finances of the company. I can't just look in your diary. It's a bigger picture, this is a big firm, we do well, you know what I mean, I'm not saying, don't think that I'm saying, you're being deceitful, right … Bill: You can't because … it's all black and white Pete: … I don't know, I never done this stuff before so I need to find out or I'll appoint somebody for myself … because if we are saying Bill's going to give that in five years' time and he puts that in a contract legally, right, then I'll two fold this firm ”

Bill: You can't because … it's all black and white

[52]The claimant begins by saying that he needs to know what is happening with the finances of the company, either by looking at the books himself or appointing somebody (presumably an accountant) to do so on his behalf. He then says that if the first defendant will enter into a legal contract with him (presumably to transfer "his" shares in five years time) he will "two fold" the company, meaning that he will be incentivised to double its size. The first defendant objected to the idea of having a legal contract:
“ Bill: … to be honest with you, right, it come to that stage, I feel that, the trust is gone, so when it comes to that, it's best to part … I'll do my best to sell my half to somebody … somebody else might walk in here Pete: Well … you can't do that without consulting me ... Whether I would work with them or not Bill: You will have the first refusal … As far as I'm concerned, I am interested in my own money … you know you have the first refusal, buy me out, I'll sell my 50%. Pete: … he could never do it, raise … half a million quid [!] Bill: half a million that's what he owes me [is owed to me] Pete: That's what he's put in there Bill: I want that besides, I want the value of the company as well … not only this one, and GEM Blinds as well Pete: … that's no good, cause GEM Blinds [Cee] could soon pull the plug on us any time [with] Boss, so that's worth shit …”
Pete: … he could never do it, raise … half a million quid [!] Bill: half a million that's what he owes me [is owed to me]

Pete: That's what he's put in there

[53]The first defendant is saying that if the claimant wants a legal contract from him, he feels that trust has gone between them and they should part company. He says he will sell his half, and he seemed to think that he will be able to find a willing buyer ("someone else might walk in here"). The claimant objects that this cannot be done without his agreement as he would have to agree to work with the new owner of the first defendant's half share, and the first defendant says that he will have first refusal. It is not quite clear what "he could never do it" refers to, but it then appears that the first defendant may have written the figure of £500,000 down on a piece of paper which he showed to the claimant. The parts in square brackets above are taken from the first defendant's version of the transcription, and indicate that the claimant showed surprise at this figure. No justification has ever been provided for that figure, nor, as referred to above, the lower figure of £150,000 put forward in these proceedings. The first defendant then says that £500,000 is what he is owed by the company, and in addition to being repaid that amount he wants to be paid (presumably half of) the value of each of the two companies. The claimant response that GEM Blinds has little value in fact, because (as was clear from the oral evidence) the two key individuals in China ("Cee" and "Boss") have effective control over its operations and by closing down its sources of supply could take all its business away at any time.[54]The first defendant suggested that in proposing to sell "his half" he was referring to the share that he held, but that his wife would retain her share. I do not believe this construction for a moment; there is no reference to his wife at any point in the discussion. Further, the reference to the claimant having "first refusal" is made because of his objection to the possibility of having to work with someone else. That, following on from the suggestion that they should part company, is only realistically explicable on the basis that the claimant is already entitled to a half share in the business and if he has first refusal to buy the defendant's half he will become the sole owner of it. The first defendant's version would have the claimant paying to go from no ownership interest in the company to owning half of it in conjunction with the first defendant's wife who, as she accepted in evidence, has played no significant role in the business operations at any point. That would not be realistic, and, since the claimant was plainly concerned about whom he might have to work with if the first defendant sold his share, if he had understood that it was being suggested that he would share the business with the first defendant's wife, he could be expected to have said something about it.[55]The two men go on to discuss what the price of buying out the first defendant's interest might be:
“ Pete: So you are looking at how much? What would you say the value of the company is? Bill: I have no idea Pete: I'll get the financials checked, the Sage, the banks, this that and the other. I want peace of mind myself … if everything is all right, I'll take advice on it and if you want to put in the contract, that's fine, we'll take the company even faster Bill: Which? Where do you want to take the company? Pete: Two fold it. Make it this year, bigger. Bill: No, I am not interested. Pete: That's fine, you may as well get it valued, get both the companies valued… Bill: … when we start talking like this… then we will never be able to get on Pete: That's fine… because I am not happy Dip [ie Tony] and I'm not going to stay… I feel undervalued… we never sit down and discuss anything anymore with the company… I was hurt that day when you threw your glasses off the table, you said in front of Debbie… that she runs the company… I am sorry, you know, I think if we are going to go forward I need my shares from both companies and we need to sit down and start going through all… Bill: Like I said, I can't see a future. I have got to recover my money and I got to sell the company… Pete: … I feel undervalued in the company, I'm going to give you my feeling, I can't go off the back of promise for the next 5,6,7 years, right, because I've got too much to lose as well. You see what I'm saying … put it in writing let me check all the financials through my own independent source and if everything's fine we'll carry on running it Bill: No, I won't carry on running it. Pete: Why would you object to me doing that? Bill: No, I'm not objecting to anything, please feel free …”
Bill: I have no idea Bill: Which? Where do you want to take the company? Pete: That's fine, you may as well get it valued, get both the companies valued… Pete: Why would you object to me doing that? Bill: No, I'm not objecting to anything, please feel free …”

Pete: Why would you object to me doing that?

[56]The claimant proposes to get his own advice on the value of the company with a view to having a binding agreement for sale of the first defendant's share to him. The first defendant again jibs at the idea of having a contract, although he immediately denies that he has done so.[57]Later, with nothing apparently agreed between them, both men suggest that the whole business could be sold:
“ Pete: That's how I feel, I don't know, get a buyer, get rid of this, get rid of GEM Blinds, get rid of them and just go your own ways because I can't do this for 6,7 years more Bill, because what you're saying your debentures and your personal guarantees, they'll never go away. They will always be there … …look, personal stuff aside, right, you need to make a decision on what you are going to do because you are the director, right, and you pull the strings here. Bill: No, no, I don't pull the strings on my own Pete, whatever we do, we do it together. I always ask you … shall we do it like this, it's never been a time that I've never asked you and done something on my own. Pete: That's it. You're going to find a buyer, let's have a look, put it on the table, I don't want nobody involved in this, it's between you and me right … Bill: What we will do is … let's get some … let's see, find a buyer, put on the market, we'll see what we get offered and let's see what the valuation is first Pete: yeah Bill: Shall we do that? Pete: Get a valuer in. Bill: Is that fair? Pete: Yeah, yeah … because to be perfectly honest, it's like you says if something is stuck in the back of your mind all the time Dip you can't work like that … and this point in my life now, I can't work like this. … Realistically, listen realistically speaking, this firm has nothing to do with me, I'm an employee of this company, that's what I am, all I am is, in the books, I am employee, Bill Bill: How can you say that? Pete: Of course you are Bill, you know the score man. You been doing this for years, come on, don't make me keep saying the same thing, it's not nice. Get a valuer in, let's get the company valued, in the meantime, you put together what you put in, right, and we'll see what's left for us. … Tony: … what you are asking for is obviously, you know, you want your share, what you been saying to Bill in a roundabout way, is to put it in writing to me so I can feel like it's not just conversation … Bill: Let me see what I can put in writing, Pete, yeah? Pete: Put it in writing, outline it … Bill: But we still sell it … I'll put it in writing … When the trust is gone, then everything breaks. We were very, very close, remember, the three of us yeah, very very close… nobody is happy, I can see that. I am not happy, you think I'm happy? No one is happy so what is the point in carrying on if you're not happy?”
Pete: yeah Bill: Shall we do that? Bill: Is that fair? Bill: How can you say that? Bill: Let me see what I can put in writing, Pete, yeah? Pete: Put it in writing, outline it …

Bill: But we still sell it … I'll put it in writing …

[58]The claimant is apparently despairing because he can see that the pretexts given for not transferring shares to him will never go away. The first defendant seemed to agree with him that the right thing to do is to get a valuation with a view to putting the business up for sale. The claimant is clearly unhappy that, on the face of it, he is nothing more than an employee, but the first defendant reassures him that he is, in effect, a partner in the business:
"How can you say that? … Whatever we do we do it together."
The claimant clearly wants to be given something in writing to protect his position, and the first defendant again reassures him that he will do so. The claimant wants the first defendant to be specific about what it is he says he is owed by the company.[59]There would be no purpose in any of this discussion if the claimant were a mere employee who would not be entitled to a say in whether the business was sold, or to benefit from the sale. The clear implication is that the first defendant recognises that the claimant's position is more than it appears to be on paper, and that he will put something in writing to acknowledge this.[60]There is then a section in which Tony tentatively seeks to negotiate a share in the business for himself, but is rebuffed by the first defendant. In doing so, the first defendant clearly acknowledges that the claimant is entitled to a half share:
“ Tony: You know something, is there any way right, cards on the table, right, is there anyway that Pete gets ... you know give him his 50%, right, put it in writing, do what you got to do, give him an option on the factories, get him on the factories, right, and then give me an option as well to put money into become, er… Bill: Get the valuation done … no, no, get the valuation done … I have my half, I need to marry my daughters off … At this moment Pete owns half the business, right, if he wants to do something, it's up to him … I'm that I think about it, let me, I don't know, legally, I have to speak to someone, who is a specialist… How can I give it to you? … The company owes me money, right, how can I give you the half? Simple as that, is there anyway I can just put it in your name or whatever? … Honestly, I would love you two to keep this and just shake hands and move on. Tony: But we don't want that Bill. ”
Tony: But we don't want that Bill. ”[61]The first defendant at first is insisting that he needs to realise the value of his half in order to be able to pay for his daughter's wedding, but later appears to be despairing himself, and suggesting that he may just give away his half share in the business to the claimant and his brother. They reassure him that that is not what they want.[62]In cross-examination, the first defendant again sought to explain away this part of the conversation as referring firstly only to his half being the half share that he owned, as distinct from that owned by his wife, and secondly to the possibility that he might at some stage give some shares to the claimant. It is quite impossible to understand the conversation in that light; it is plainly a discussion premised on the two half shares in the business being owned by the claimant and first defendant respectively.[63]The third recorded conversation takes place some weeks later on the 26 June, 2014. The claimant is frustrated that no progress is being made, and seeks to press the first defendant about it:
“ Pete: What's happening with my shares in the company then Bill? Bill: The shares will be [inaudible] give me a bit of time, let me sort out the finances … Pete: How long? … Bill: I will sort it out, right, trust me on that Pete: When? In a year or six months, or…? Bill: I want to pay your car off first … I want to give you your car in your name … that's a start … after that hand on my heart, your shares aren't going anywhere, this is your company, yeah, we started it and I will stick to that. Pete: And GEM Blinds. … Bill: We are still a good team. We work together. We gelled together and I won't see you without a penny, I promise you that, I swear on my son. Pete: But how long do anticipate ... timewise? Bill: I will try next year Pete: Next year? Bill: I myself want it to be sorted out quickly, I have put my house down the security, try and understand, yeah, I am trying to get them released. If that's all done, you know what God forbid, look at the dark side as well, you got to look at it from my side. We are two brothers talking. If anything happens today to this company, yeah, do you know I'll lose my house… My children going to end up on the road, you won't lose anything, no one will put a finger at you. I'll lose all the money, the loans, I put into it. I have taken a big gamble, the reason I have taken a big gamble because I know me and you are together. We sing together, we win together, we swim together and I will stick to that. I'm not a, listen, look at me when I'm talking to you, I am not a thief. How many years you have known me? … Pete: But that's why I was shocked, when in front of everyone you said to me that I couldn't have what was mine, right ... In front of all those people you said to me, I couldn't have what was mine, when me and you had a gentleman's agreement from day one, Bill. Bill: It was a heated discussion, lots can be said in anger … You said quite a lot to me as well, right … I still tell everybody, yeah, Pete's my younger brother, yeah, we started the company together, and God forbid, we will finish together, understand? Have a little faith, okay Pete: But we've had no dividends either, or nothing, have we? Bill: You get £60,000 a year, yeah? ”
Pete: How long? … Bill: I will sort it out, right, trust me on that Pete: When? In a year or six months, or…? Pete: But how long do anticipate ... timewise? Bill: I will try next year Pete: Next year? Pete: But we've had no dividends either, or nothing, have we? Bill: You get £60,000 a year, yeah? ”

Pete: But we've had no dividends either, or nothing, have we?

[64]There then follows the discussion, part of which I have extracted above, about the finances of the business and the cash payments being made to each of them out of it. The first defendant is reassuring the claimant that his shares are safe, and he will "sort it out", which in the context must mean sort out a way of ensuring that the claimant gets them. He offers to transfer the car, which is presently in his name, to the claimant, apparently as a token of good faith. He says he is not a thief, and the shares are not going anywhere, which must mean that he will not cheat on his agreement with the claimant, and that he will get his shares.[65]The final recorded conversation is almost a month later on 21 July, 2014 (1816). The claimant is again seeking to press the first defendant to make progress and put something in writing about transferring his shares:
“ Pete: Something I wanna get off my chest … you know with my shares for both companies, can you not put it on paper so I got something on paper? Bill: Do you not trust me? Pete: No, it's not about trust, it's my future mate, say let's say if tomorrow … what if something happens to you, God forbid, … Bill: Then I'll put it in writing. I'm, I'm can make a will … and you will be in there … I have children as well. I got to make a will … at the same time, if anything happens to me today… my wife knows that this company is yours too. Pete: So you are going to put it in your will? Bill: Yeah, I'm gonna put it in my will. I have to draw up a will… Pete: Yeah, … do you want me to draft something up through a solicitor? Bill: You can't do that … I have to make my own will Pete: No, I mean just a document Bill: No, I'll do that. ”
Bill: Do you not trust me? Pete: So you are going to put it in your will? Pete: Yeah, … do you want me to draft something up through a solicitor? Bill: You can't do that … I have to make my own will Pete: No, I mean just a document Bill: No, I'll do that. ”

Pete: No, I mean just a document

[66]The claimant plainly wants the security of having something in writing about transfer of his shares. He is met with the suggestion, for the first time, that instead of an actual transfer or even a promise of a transfer of shares, he will be left something in the first defendant's will. Not surprisingly, the claimant does not regard that as satisfactory. There would be good reasons for this, although they are not spelt out in the course of the conversation. It would imply that the shares are not his already, but belonged to the first defendant so that it is up to him whom he gives them to in his will. That would be contrary to the whole tenor of the previous conversations which are on the basis that the claimant has an existing entitlement. The will of course would be variable at any time and would not prevent the first defendant from dealing with the shares before his death, which might be a long time away.[67]The claimant puts his own suggestion of having a document prepared by a solicitor, which would not be a will. In that context, I think it is clear that what he means is something that acknowledges his existing entitlement. The first defendant seeks to sidestep that by referring back to his will.[68]Notably, the first defendant assures the claimant that "my wife knows that this company is yours too". I should say that the second defendant gave evidence in which she denied any knowledge of any interest held by the claimant and said that she had always understood that she was entitled to a half share in Glass because her money had been used to establish it. I reject her evidence; it was obvious that she had no involvement in or knowledge of the affairs of the business and could point to nothing other than what she said her husband had told her to support the contention that any of her money had been used to establish the business. She was, in my judgement, simply repeating what her husband had told her to say.

Conclusions

[69]In my judgment, the conclusion from these conversations is inescapable, and is that these two companies were established, as the claimant contends, on the basis that they would be equally owned between the claimant and the first defendant. For their own reasons, they agreed that the first defendant would be presented to the outside world as the owner, but the arrangement between them was that they would hold equal interests. That actual agreement is sufficient to establish the constructive trust for which the claimant contends.[70]Although the first defendant plainly acknowledges this arrangement in these conversations, when he is asked to put it into effect or to document it he prevaricates and invents reasons why he cannot do so. His assertion that he is owed money by the companies is unsubstantiated, and appears to have been an invention. It would not in any event be a good reason for refusing to acknowledge the claimant's interest in writing, or to transfer shares to him. The figures he quoted in those conversations and in these proceedings have no foundation beyond his own assertion, which cannot be relied on. Instead of producing the particulars he was asked to by the claimant, he does nothing, and when the matter is raised again he is evasive and eventually seeks to fob the claimant off with the suggestion that the matter will be dealt with in his will.[71]I am satisfied that the first defendant was lying when he denied the existence of the claimant's interest in these proceedings. His evasive conduct continued during these proceedings, as is shown by his suppression of documents that were plainly relevant, and adverse to his interests, until the order for disclosure made by Judge Purle shortly before the trial.[72]The claimant is entitled to the declaration he seeks in relation to ownership of shares in both companies. I will hear further submissions from counsel as to the form of order, if it cannot be agreed. One matter that may well arise is which of the two shares in Glass should be transferred to the claimant; my provisional view in that respect is that if (which is open to some doubt) the first defendant has effectively transferred one of the two shares to his wife, he must be taken to have transferred the share that was beneficially owned by him and not that which was held on trust for the claimant, and accordingly an order may be made for the transfer by him to the claimant of the share that the first defendant retains.[73]I will list a hearing at which this judgement will be formally handed down. Any matters arising that can be dealt with in 30 minutes may be considered on that occasion, if convenient to the parties. If there are no such matters, or it is not convenient to deal with them on that occasion, or longer will be required, there need be no attendance at the handing down and a later hearing will be arranged if required.

Cited in 1 later judgment